Document:

Exhibit
10.8

 

EXECUTION VERSION

 

PLEDGE AND ADMINISTRATION AGREEMENT

 

 

Dexia SA

 

Dexia Crédit Local S.A.

 

Dexia Bank Belgium SA

 

Dexia FP Holdings Inc.

 

Financial Security Assurance Inc.

 

FSA Asset Management LLC

 

FSA Portfolio Asset Limited

 

FSA Capital Markets Services LLC

 

FSA Capital Management Services LLC

 

FSA Capital Markets Services (Caymans) Ltd.

 

The Bank of New York Mellon Trust Company, National
Association

 

 

Dated as of June 30, 2009

 

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  
	
  RECITALS

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  
	
  DEFINED TERMS; RULES OF CONSTRUCTION

  
	
  Section 1.1.

  	
  Definitions

  	
   

  	
  3

  
	
  Section 1.2.

  	
  Rules of
  Construction

  	
   

  	
  3

  
	
  Section 1.3.

  	
  UCC
  Definitions

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  
	
  SECURITY INTEREST PROVISIONS; SUBORDINATION

  
	
  Section 2.1.

  	
  Grant
  of Security Interests

  	
   

  	
  4

  
	
  Section 2.2.

  	
  Rights
  of Rehypothecation

  	
   

  	
  7

  
	
  Section 2.3.

  	
  Protection of Dexia Collateral, FSAM Sovereign
  Guarantee Collateral, FSAM Collateral, GIC Issuers Collateral, Dexia FP
  Collateral, FSAM PAL Collateral and FSA PAL Collateral

  	
   

  	
  8

  
	
  Section 2.4.

  	
  Delivery
  of Assets

  	
   

  	
  9

  
	
  Section 2.5.

  	
  Release
  of Security Interest

  	
   

  	
  9

  
	
  Section 2.6.

  	
  Changes
  in Locations, Name, etc.

  	
   

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  
	
  REPRESENTATIONS AND WARRANTIES; COVENANTS

  
	
  Section 3.1.

  	
  Representations
  and Warranties

  	
   

  	
  12

  
	
  Section 3.2.

  	
  Representations
  with Respect to the GIC Business

  	
   

  	
  18

  
	
  Section 3.3.

  	
  Representations
  and Warranties With Respect to the Collateral

  	
   

  	
  20

  
	
  Section 3.4

  	
  Affirmative
  Covenants of FSAM

  	
   

  	
  26

  
	
  Section 3.5.

  	
  Negative
  Covenants of FSAM

  	
   

  	
  28

  
	
  Section 3.6.

  	
  Affirmative
  Covenants of the GIC Issuers

  	
   

  	
  30

  
	
  Section 3.7

  	
  Negative
  Covenants of the GIC Issuers

  	
   

  	
  32

  
	
  Section 3.8.

  	
  Affirmative
  Covenants of FSA PAL

  	
   

  	
  35

  
	
  Section 3.9

  	
  Negative
  Covenants of FSA PAL

  	
   

  	
  36

  
	
  Section 3.10.

  	
  Affirmative
  Covenants of Dexia FP

  	
   

  	
  37

  
	
  Section 3.11

  	
  Negative
  Covenants of Dexia FP

  	
   

  	
  38

  
	
  Section 3.12

  	
  Covenants
  of the Dexia Parties

  	
   

  	
  38

  
	
  Section 3.13.

  	
  Affirmative
  Covenants of FSA

  	
   

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  
	
  GUARANTEES

  
	
  Section 4.1.

  	
  Put
  Options

  	
   

  	
  41

  
	
  Section 4.2.

  	
  Sovereign
  Guarantees

  	
   

  	
  42

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  
	
  EVENTS OF DEFAULT; REMEDIES

  
	
  Section 5.1.

  	
  Events
  of Default

  	
   

  	
  43

  
	
  Section 5.2.

  	
  Remedies

  	
   

  	
  43

  
	
  Section 5.3.

  	
  Application
  of Funds Collected; Subordination

  	
   

  	
  49

  
	
  Section 5.4.

  	
  Control
  by the Secured Party Representative

  	
   

  	
  50

  
	
  Section 5.5.

  	
  Waiver
  of Past Defaults

  	
   

  	
  51

  
	
  Section 5.6

  	
  Replacement
  of Insurance Agreement Remedies

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  
	
  COLLATERAL AGENT

  
	
  Section 6.1.

  	
  Certain
  Duties and Rights of the Collateral Agent

  	
   

  	
  51

  

 

ii

 

	
  Section 6.2.

  	
  Compensation
  and Reimbursement

  	
   

  	
  54

  
	
  Section 6.3.

  	
  Eligibility

  	
   

  	
  54

  
	
  Section 6.4.

  	
  Resignation
  and Removal; Appointment of Successor

  	
   

  	
  55

  
	
  Section 6.5.

  	
  Merger,
  Conversion, Consolidation or Succession to Business of Collateral Agent

  	
   

  	
  55

  
	
  Section 6.6.

  	
  Put
  Settlement Arrangements

  	
   

  	
  56

  
	
  Section 6.7.

  	
  Additional
  Duties of the Collateral Agent

  	
   

  	
  56

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  
	
  ADMINISTRATION

  
	
  Section 7.1.

  	
  Administrative
  Services Agreement

  	
   

  	
  56

  
	
  Section 7.2.

  	
  Assignment
  of the Administrative Agreement

  	
   

  	
  57

  
	
  Section 7.3.

  	
  ALM
  Procedures

  	
   

  	
  57

  
	
  Section 7.4.

  	
  ALM
  Dispute Resolution

  	
   

  	
  58

  
	
  Section 7.5.

  	
  Post-Default
  Management of Assets and Liabilities

  	
   

  	
  59

  
	
  Section 7.6.

  	
  Indemnification

  	
   

  	
  62

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  
	
  HEDGE AGREEMENTS

  
	
  Section 8.1.

  	
  Balancing
  Hedging Arrangements

  	
   

  	
  62

  
	
  Section 8.2.

  	
  Collateral
  Posting Under Hedge Agreements

  	
   

  	
  63

  
	
  Section 8.3.

  	
  Certain
  Actions Under Hedge Agreements

  	
   

  	
  63

  
	
  Section 8.4.

  	
  Hedge
  Agreement Register

  	
   

  	
  64

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  
	
  GUARANTEED LIQUIDITY FACILITIES

  
	
  Section 9.1.

  	
  Draw
  Requests

  	
   

  	
  64

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  
	
  ACCOUNTS; REPORTING; INSPECTION RIGHTS

  
	
  Section 10.1.

  	
  Establishment
  of Accounts

  	
   

  	
  64

  
	
  Section 10.2.

  	
  Dexia Collateral Account; Custody Account;
  Collateral Agent Cash Account; Collateral Agent Custodial Account; FSA PAL
  Brussels Cash Account; FSA PAL Brussels Collateral Account

  	
   

  	
  66

  
	
  Section 10.3.

  	
  FSAM Cash Account; FSAM Collateral Account; FSA
  Capital Management Collateral Account; FSA Capital Markets Collateral
  Account; FSA PAL Cash Account; FSA PAL Collateral Account

  	
   

  	
  68

  
	
  Section 10.4

  	
  Reporting
  Agent

  	
   

  	
  70

  
	
  Section 10.5.

  	
  Reporting

  	
   

  	
  71

  
	
  Section 10.6.

  	
  Inspection
  Rights

  	
   

  	
  74

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  
	
  PRIORITY OF PAYMENTS; CASH MANAGEMENT

  
	
  Section 11.1.

  	
  Priority
  of Payments

  	
   

  	
  74

  
	
  Section 11.2.

  	
  Management
  of Short Term Liabilities

  	
   

  	
  78

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  
	
  DIRECTING PARTIES; VOTING RIGHTS

  
	
  Section 12.1.

  	
  Secured
  Party Representative

  	
   

  	
  80

  
	
  Section 12.2.

  	
  Voting
  Rights

  	
   

  	
  80

  
	
  Section 12.3.

  	
  Effect
  of a Senior Release Date

  	
   

  	
  81

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  
	
  MISCELLANEOUS PROVISIONS

  
	
  Section 13.1.

  	
  Binding
  on Successors, Transferees and Assigns

  	
   

  	
  81

  
	
  Section 13.2.

  	
  Amendments;
  Waivers

  	
   

  	
  81

  
	
  Section 13.3.

  	
  Notices

  	
   

  	
  81

  

 

iii

 

	
  Section 13.4.

  	
  No
  Waiver; Remedies

  	
   

  	
  82

  
	
  Section 13.5.

  	
  Captions

  	
   

  	
  82

  
	
  Section 13.6.

  	
  Severability

  	
   

  	
  82

  
	
  Section 13.7.

  	
  Entire
  Agreement, etc.

  	
   

  	
  82

  
	
  Section 13.8.

  	
  Governing
  Law

  	
   

  	
  82

  
	
  Section 13.9.

  	
  Waiver
  of Jury Trial

  	
   

  	
  82

  
	
  Section 13.10

  	
  Sovereign
  Immunity

  	
   

  	
  83

  
	
  Section 13.11.

  	
  Counterparts

  	
   

  	
  83

  
	
  Section 13.12.

  	
  Third
  Party Beneficiaries

  	
   

  	
  83

  
	
  Section 13.13.

  	
  Limited
  Recourse

  	
   

  	
  83

  
	
  Section 13.14.

  	
  Non-Petition

  	
   

  	
  84

  
	
  Section 13.15.

  	
  Stamp
  Taxes

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  
	
  APPENDIX
  I

  	
  Definitions

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE
  A 

  	
  Notice
  Contact Details

  	
   

  	
  111

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE
  B 

  	
  Disclosure
  Schedule

  	
   

  	
  117

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE
  C 

  	
  ALM
  Arbiter Candidate List

  	
   

  	
  120

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE
  D 

  	
  Portfolio
  Manager List

  	
   

  	
  121

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT
  A-1

  	
  Form of
  Securities Account Control Agreement

  	
   

  	
  122

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT
  A-2

  	
  Form of
  Account Agreement

  	
   

  	
  136

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT
  B

  	
  Form of
  Power of Attorney

  	
   

  	
  144

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  A

  	
  Put
  Portfolio Assets and Excluded Assets

  	
   

  	
  145

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  B

  	
  List
  of GIC Contracts

  	
   

  	
  146

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  C

  	
  FP
  Business-Related FSA Policies

  	
   

  	
  147

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  D

  	
  Hedge
  Agreements

  	
   

  	
  148

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  E

  	
  ALM
  Procedures

  	
   

  	
  149

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  F

  	
  Secondary
  Policies

  	
   

  	
  150

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  G

  	
  Collateral
  Agent Fee Arrangement

  	
   

  	
  152

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  H

  	
  Form of
  Payment Failure Notice

  	
   

  	
  153

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  I

  	
  Form of
  Amendment to Third Party Hedge Agreements

  	
   

  	
  154

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  J

  	
  Form of
  DCL Guarantee

  	
   

  	
  155

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  K

  	
  Dexia
  Sovereign Guarantee Reimbursement Agreement Undertakings

  	
   

  	
  160

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  L

  	
  Schedule
  of Specified Diligence Items

  	
   

  	
  165

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  M

  	
  Lien
  Search Results

  	
   

  	
  167

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  N

  	
  Private
  Placement Notes

  	
   

  	
  168

  
	
   

  	
   

  	
   

  	
   

  
	
  ANNEX
  O

  	
  Form of
  Confirmation Request

  	
   

  	
  169

  

 

iv

 

PLEDGE AND ADMINISTRATION AGREEMENT

 

THIS
PLEDGE AND ADMINISTRATION AGREEMENT (as further amended, supplemented, or
otherwise modified from time to time, this “Agreement”), dated as of
June 30, 2009, is entered into among Dexia SA, a Belgian share company (“Dexia”),
Dexia Crédit Local S.A., a French share company licensed as a bank under French
law (“DCL”), Dexia Bank Belgium SA, a Belgian bank (“DBB”), Dexia
FP Holdings Inc., a Delaware corporation (“Dexia FP”), Financial
Security Assurance Inc., a corporation organized and existing under the laws of
the State of New York (“FSA”), FSA Asset Management LLC, a Delaware
limited liability company (“FSAM”), FSA Portfolio Asset Limited, a
company incorporated under the laws of England and Wales (“FSA PAL”), FSA
Capital Markets Services LLC, a Delaware limited liability company (“FSA
Capital Markets”), FSA Capital Markets Services (Caymans) Ltd., an exempted
company incorporated under the laws of the Cayman Islands with limited
liability (“FSA Capital Markets Cayman”), FSA Capital Management
Services LLC, a Delaware limited liability company (“FSA Capital Management”),
and The Bank of New York Mellon Trust Company, National Association, a national
banking association, as collateral agent (the “Collateral Agent”). Capitalized
terms not otherwise defined herein have the meanings specified in Appendix I.

 

W  I  T  N  E  S  S
E  T  H:

 

WHEREAS,
pursuant to a Purchase Agreement, dated as of November 14, 2008 (as
amended, modified or otherwise supplemented from time to time, the “Purchase
Agreement”), among Dexia Holdings Inc. (“DHI”), DCL, and Assured
Guaranty Ltd. (“Assured”), DHI has agreed to sell and transfer to
Assured all of the Shares (as defined in the Purchase Agreement) owned by DHI
of Financial Security Assurance Holdings Ltd. (“FSAH”);

 

WHEREAS,
the parties desire to amend and restate the Amended and Restated Pledge and
Intercreditor Agreement dated as of February 23, 2009 (the “Existing
P&I Agreement”) and wish to set forth the priorities of the Secured
Parties with respect to the Lien in favor of the Collateral Agent for the
benefit of the Secured Parties in the FSAM Collateral and the circumstances
that will determine the relative priorities of the Secured Parties to direct
the Collateral Agent;

 

WHEREAS,
pursuant to the Amended and Restated Insurance and Indemnity Agreement dated as
of October 21, 2008, between FSA and FSAM (the “FSAM Insurance
Agreement”), FSAM granted FSA a security interest (the “FSA Lien”)
in all of the assets of FSAM to secure the obligations of FSAM under the FSAM
Insurance Agreement, including the reimbursement of amounts paid by FSA under
the Hedge Policies;

 

WHEREAS,
pursuant to the Insurance and Indemnity Agreement dated as of October 29,
2001, between FSA and FSA Capital Management (the “FSA Capital Management
Insurance Agreement”), FSA Capital Management granted FSA a security
interest (the “FSA Capital Management Lien”) in all of the assets of FSA
Capital Management to secure the obligations of FSA Capital Management under
the FSA Capital Management Insurance Agreement, including the reimbursement of
amounts paid by FSA under the relevant GIC Policies;

 

WHEREAS,
pursuant to the Insurance and Indemnity Agreement dated as of October 29,
2001, between FSA and FSA Capital Markets (the “FSA Capital Markets
Insurance Agreement”), FSA Capital Markets granted FSA a security interest
(the “FSA Capital Markets Lien”) in all of the assets of FSA Capital
Markets to secure the obligations of FSA Capital Markets under the FSA Capital
Markets Insurance Agreement, including the reimbursement of amounts paid by FSA
under the relevant GIC Policies;

 

1

 

WHEREAS,
pursuant to the intercompany loan agreement dated as of September 25,
2006, between FSAM and FSA PAL (as amended as of June 30, 2009, and as
further amended, modified or supplemented thereafter, the “FSA PAL Loan”),
FSA PAL granted a security interest (the “FSA PAL Lien”) over the FSA
PAL Collateral in favor of FSAM;

 

WHEREAS,
pursuant to the Existing P&I Agreement, FSAM granted a security interest
(the “First Credit Agreement Lien”) over the “collateral” as defined
therein to DBB and DCL (together, the “Lenders”) in connection with
their agreement to provide financing under the terms of a Revolving Credit
Agreement dated June 30, 2008, among FSAM, DBB and DCL (the “First
Credit Agreement”), which security interest is junior in priority to the
FSA Lien;

 

WHEREAS,
pursuant to the Existing P&I Agreement, FSAM granted a security interest
(the “Second Credit Agreement Lien”) over the “collateral” as defined
therein to DCL in connection with its agreement to provide financing under the
terms of a Second Revolving Credit Agreement dated February 20, 2009,
between FSAM and DCL (the “Second Credit Agreement”), which security
interest is junior in priority to the FSA Lien and the First Credit Agreement
Lien;

 

WHEREAS,
the First Credit Agreement and the Second Credit Agreement are being amended
and restated through the Amended and Restated Revolving Credit Agreement, dated
as of the Closing Date, among FSAM, DCL, and DBB (the “Liquidity Facility”);

 

WHEREAS,
pursuant to the Existing P&I Agreement, FSAM granted a security interest
(the “GIC Issuers’ Lien”) over the “collateral” as defined therein to
FSA Capital Markets and FSA Capital Management;

 

WHEREAS,
FSAM, FSA, FSA PAL, DCL, DBB, FSA Capital Markets and FSA Capital Management
intend to amend and restate the FSA Lien, the FSA PAL Lien, the FSA Capital
Markets Lien, the FSA Capital Management Lien, the First Credit Agreement Lien,
the Second Credit Agreement Lien, and the GIC Issuers’ Lien (the “Previous
Liens”) with the Lien in favor of the Collateral Agent for the benefit of
the Secured Parties under this Agreement;

 

WHEREAS,
DCL and FSAM have entered into the master repurchase agreement, dated as of
June 30, 2009; (the “Repurchase Facility Agreement”);

 

WHEREAS,
pursuant to the Dexia CSAs, the Dexia Guarantors have granted a security
interest over the “posted credit support” defined therein (the “Dexia CSA
Collateral”) to the Collateral Agent for the benefit of FSAM to secure the
obligations of the Dexia Guarantors under the Put Contracts (and which will be
pledged by FSAM to the Collateral Agent for the benefit of the Secured Parties
under this Agreement), and the Dexia Guarantors wish to grant a security
interest in certain other collateral in favor of the Collateral Agent for the
benefit of FSAM and Secured Parties;

 

WHEREAS,
pursuant to the FSAM Belgian Pledge Agreement, FSA PAL has granted a security
interest over the “collateral” defined therein (the “FSA PAL Belgian
Collateral”) to the Collateral Agent for the benefit of FSAM to secure the
obligations of FSA PAL under the FSA PAL Loan (and which will be pledged by
FSAM to the Collateral Agent for the benefit of the Secured Parties under this
Agreement), and FSA PAL wishes to grant a security interest in certain other
collateral in favor of the Collateral Agent for the benefit of FSAM and Secured
Parties;

 

WHEREAS,
FSA and FSA Capital Markets Cayman have entered into an Insurance and Indemnity
Agreement dated as of June 30, 2009 (the “FSA Capital Markets Cayman
Insurance Agreement”).

 

2

 

NOW
THEREFORE, for good and valuable consideration the receipt of which is hereby
acknowledged, each party hereto agrees as follows:

 

ARTICLE I

DEFINED TERMS; RULES OF CONSTRUCTION

 

Section 1.1             Definitions.

 

Capitalized
terms used herein and not defined herein will have the meanings provided in
Appendix I or Section 1.3, unless the context otherwise requires.

 

Section 1.2             Rules of Construction.

 

(a)           The terms “hereby,”
“hereof,” “hereto,” “herein,” “hereunder” and any similar terms will refer to
this Agreement as a whole and not to any particular provision of this
Agreement.

 

(b)           Unless otherwise indicated
in context, the terms “Article,” “Section,” “Annex,” “Exhibit,” “Schedule” or
“Appendix” will refer to an Article or Section of, or an Annex,
Exhibit, Schedule or Appendix to, this Agreement.

 

(c)           Words of the masculine,
feminine or neuter gender will mean and include the correlative words of other
genders, and words importing the singular number will mean and include the
plural number and vice versa.

 

(d)           The terms “include,”
“including” and similar terms will be construed as if followed by the phrase
“without limitation.”

 

(e)           All terms defined in this
Agreement or in Appendix I will have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto or in
connection herewith unless otherwise defined therein.

 

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

 

Section 1.3             UCC Definitions. When used
herein and capitalized the terms “Account,” “Adverse Claim,” “Bank,”
“Certificate of Title,” “Certificated Security,” “Chattel Paper,” “Commercial
Tort Claim,” “Commodity Account,” “Commodity Contract,” “Control,” “Deposit
Account,” “Document,” “Electronic Chattel Paper,” “Entitlement Order,”
“Equipment,” “Financial Asset,” “Goods,” “Instruction,” “Instrument,”
“Inventory,” “Investment Property,” “Letter-of-Credit Rights,” Money,” “Payment
Intangible,” “Proceeds,” “Promissory Note,” “Securities Account,” “Securities
Intermediary,” “Security,” “Security Entitlement,” “Supporting Obligation,”
“Tangible Chattel Paper” and “Uncertificated Security” have meanings specified
in Article 8 or Article 9, as applicable, of the UCC. “Letter of
Credit” has the meaning specified in Section 5-102 of the UCC.

 

3

 

ARTICLE II

SECURITY INTEREST PROVISIONS; SUBORDINATION

 

Section 2.1.            Grants of Security Interests.

 

(a)           Dexia
Guarantors’ Grants of Security Interests. Each Dexia Guarantor
hereby Grants to the Collateral Agent, for the benefit and security of FSAM
(which security interest is Granted by FSAM to the Collateral Agent for the
benefit of the Secured Parties pursuant to clause (d)), all of its right, title
and interest in, to and under the Administrative Services Agreement and the
Dexia Guarantee Reimbursement Agreement to secure the Dexia Guarantors’ joint
and several obligations under the Dexia Guarantees and this Agreement (the “Dexia
Additional Collateral” and, together with the Dexia CSA Collateral, the “Dexia
Collateral”); provided, however, that
such security interest in the Dexia Additional Collateral will not extend to
any right of such Dexia Guarantor constituting an Excluded Contract Right.

 

(b)           GIC
Issuers’ Grants of Security Interests. Subject to the priorities
and the exclusions, if any, specified in this Section 2.1, each of the GIC
Issuers hereby Grants to the Collateral Agent, for the benefit and security of
each Secured Party, all of its right, title and interest in, to and under, in
each case, whether now owned or existing, or hereafter acquired or arising, and
regardless of where located, all Accounts, Chattel Paper, Financial Assets,
General Intangibles, Instruments, Investment Property, Letter-of-Credit Rights,
Money and other Supporting Obligations, including the following:

 

(i)            the FSAM
Collateral;

 

(ii)           all rights of
such GIC Issuer under the relevant GIC Issuers Insurance Agreement, the Master
Repurchase Agreement, this Agreement, the GIC Contracts, any other Material
Agreement and any other agreement executed in connection with the foregoing to
which it is a party or third-party beneficiary (including the right to the
return of any posted collateral);

 

(iii)          with respect to
FSA Capital Markets Cayman, all of its rights in the notes issued by FSA Global
Funding Ltd. which it owns (the “FSA Capital Markets Cayman Notes”);

 

(iv)          in the case of
a GIC Issuer that is the FSAM Hedging Successor, all rights of such GIC Issuer
under any Hedge Agreements to which it is a party, including all of the
collateral posted by the Hedge Counterparty thereunder;

 

(v)           all rights of
such GIC Issuer in and to each FP Account and all amounts on deposit therein
and all investments held through such account; and

 

(vi)          all
distributions, revenues, products, substitutions, benefits, profits and
Proceeds in whatever form, of any of the foregoing (collectively, the items of
collateral listed in this clause (b), and subject to the exclusions noted below,
being the “GIC Issuers Collateral”);

 

provided, however, that such security interest
will not extend to any property or right of such GIC Issuer in the FSAM
Sovereign Guarantee Collateral or any property or right constituting Excluded
Contract Rights or Excluded GIC Issuer Collateral. Such Grants are made in
trust to secure the payment of all amounts due on all of the indebtedness,
liabilities and obligations owed from time to time by such GIC Issuer to
(x) reimburse FSA for payments under the GIC Policies related to GIC
Contracts which such GIC Issuer issued (including, obligations under the GIC
Issuers Insurance Agreements) and (y) reimburse the Dexia Guarantors under
the Dexia Guarantee Reimbursement Agreement (including all amounts which would
become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code and the operation of Sections
502(b) and 506(b) thereof or any analogous provisions of any similar
laws) in accordance with their terms (“GIC Issuer Secured Obligations”).

 

4

 

(c)           FSA PAL‘s
Grants of Security Interests. Subject to the priorities
and the exclusions, if any, specified below in this Section 2.1, FSA PAL
hereby Grants to the Collateral Agent, for the benefit and security of FSAM
(which security interest is Granted by FSAM to the Collateral Agent for the
benefit of the Secured Parties pursuant to clause (d)), all of its right, title
and interest in, to and under (i) the FSA PAL Loan (for the avoidance of
doubt, excluding all “permitted investments” (as defined in the FSA PAL Loan)
that are subject to the scope of the FSAM Belgian Pledge Agreement), this
Agreement and any other agreement executed in connection therewith,
(ii) the FSA PAL Cash Account and FSA PAL Collateral Account and all
amounts on deposit therein and all investments held through such account and
(iii) all distributions, revenues, products, substitutions, benefits,
profits and Proceeds in whatever form, of any of the foregoing (collectively,
the items listed in this clause (c), and subject to the exclusions noted below,
being the “FSA PAL Additional Collateral” and, together with the FSA PAL
Belgian Collateral, the “FSA PAL Collateral”); provided, however, that such security interest will not extend
to any property or right of FSA PAL constituting Excluded Contract Rights or
Excluded FSAM Collateral. Such Grants are made in trust to secure the payment
of all amounts due on all of the indebtedness, liabilities and obligations owed
from time to time by FSA PAL under the FSA PAL Loan.

 

(d)           FSAM
Grants of Security Interests.

 

(i)            Subject to any
exclusions specified in this Section 2.1, FSAM hereby Grants to the
Collateral Agent for the benefit and security of each GIC Issuer all of its
right, title and interest in, to and under the Sovereign Guarantee (the “FSAM
Sovereign Guarantee Collateral”). Such Grant is made in trust to secure the
payment of all amounts due on all of the indebtedness, liabilities and
obligations owed from time to time to the GIC Issuers under the Master
Repurchase Agreement whether for principal, interest, fees, costs, expenses or
otherwise (including all amounts which would become due but for the operation
of the automatic stay under Section 362(a) of the Bankruptcy Code and
the operation of Sections 502(b) and 506(b) thereof or any analogous
provisions of any similar laws) in accordance with their terms;

 

(ii)           FSAM hereby
Grants to the Collateral Agent for the benefit of FSA and the GIC Issuers all
of its right, title and interest in, to and under the certificates representing
the ordinary shares of FSA PAL, including any and all management, voting,
approval and other rights of FSAM under the Organizational Document of FSA PAL
and the law of England and Wales (the “FSAM PAL Collateral”). Such Grant
is made in trust to secure the payment of all amounts due on all of the
indebtedness, liabilities and obligations owed from time to time by FSAM to FSA
under the FSAM Insurance Agreement and to the GIC Issuers under the Master
Repurchase Agreement whether for principal, interest, fees, costs, expenses or
otherwise (including all amounts which would become due but for the operation
of the automatic stay under Section 362(a) of the Bankruptcy Code and
the operation of Sections 502(b) and 506(b) thereof or any analogous
provisions of any similar laws) in accordance with their terms; and

 

(iii)          subject to the
priorities and the exclusions, if any, specified in this Section 2.1, FSAM
hereby Grants to the Collateral Agent for the benefit and security of each
Secured Party, all of its right, title and interest in, to and under, in each
case, whether now owned or existing, or hereafter acquired or arising, and
regardless of where located, all Accounts, Chattel Paper, Financial Assets,
General Intangibles, Instruments, Investment Property, Letter-of-Credit Rights,
Money and other Supporting Obligations including the following:

 

(A)          all rights of FSAM under this Agreement, the FSAM
Insurance  Agreement, the Master Repurchase Agreement, the Administrative Services
Agreement, the FSA PAL Loan, the Guaranteed Liquidity Facilities, any other
agreement executed in connection with the foregoing and any other Material
Agreements to which it is a party or

 

5

 

a
third-party beneficiary (including all such collateral constituting Excluded
FSAM Collateral);

 

(B)           all rights of FSAM under the Put Contracts
(including the right to cause the exercise of a Put Option and to identify Put
Settlement Assets);

 

(C)           all rights of FSAM in the Dexia Collateral and the
FSA PAL Collateral (including, for the avoidance of doubt, any right, title and
benefit of the FSAM Belgian Pledge Agreement and any other security Granted in
connection therewith);

 

(D)          all rights of FSAM in and to each FP Account and all
amounts on deposit therein and all investments held through such account;

 

(E)           all rights of FSAM under the Hedge Agreements,
including all of the collateral posted by the Hedge Counterparties thereunder
and the right to receive the return of any collateral posted by FSAM (including
all such collateral constituting Excluded FSAM Collateral);

 

(F)           all rights of FSAM in relation to any Temporary
Funding Transactions; and

 

(G)           all distributions, revenues, products,
substitutions, benefits, profits and Proceeds, in whatever form, of any of the
foregoing (collectively, the items of collateral listed in this clause (d), and
subject to the exclusions noted below, being the “FSAM Collateral”);

 

provided, however, that such security interest
will not extend to any property or right of FSAM constituting the FSAM
Sovereign Guarantee Collateral, Excluded Contract Rights or Excluded FSAM
Collateral. Such Grants are made in trust to secure the payment of all amounts
due on all of the indebtedness, liabilities and obligations owed from time to
time by FSAM to any of the Secured Parties whether for principal, interest,
fees, costs, expenses or otherwise (including all amounts which would become
due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code and the operation of Sections 502(b) and
506(b) thereof or any analogous provisions of any similar laws) in
accordance with their terms (“FSAM Secured Obligations”).

 

(e)           Dexia FP
Grant of Security Interest. Dexia FP hereby Grants to
the Collateral Agent for the benefit of FSA all of its right, title and
interest in, to and under its sole membership interest in HF Services LLC under
the Delaware Limited Liability Company Act, 6 Del. C. § 18 101 et seq. (the “Delaware
Act”), and under the “limited liability company agreement” (as such term is
defined in Section 18-101(7) of the Delaware Act) of HF Services LLC,
including without limitation its “limited liability company interest” (as such
term is defined in Section 18-101(8) of the Delaware Act), Dexia FP’s
status as a member (as such term is defined in Section 18-101(11) of the
Delaware Act), the right to participate in the management of the business and
affairs of HF Services LLC, and the right to elect, appoint and remove directors
and officers from time to time (the “Dexia FP Collateral”). Such Grant
is made in trust to secure the payment of all amounts due on all of the
indebtedness, liabilities and obligations owed from time to time by FSAM and
the GIC Issuers to FSA whether for principal, interest, fees, costs, expenses
or otherwise (including all amounts which would become due but for the
operation of the automatic stay under Section 362(a) of the
Bankruptcy Code and the operation of Sections 502(b) and 506(b) thereof or any
analogous provisions of any similar laws) in accordance with their terms.

 

6

 

(f)            Each of the parties hereto
acknowledges that the Grants of FSAM Collateral, FSA PAL Collateral and GIC
Issuers Collateral hereunder amend, restate and represent a continuation of the
Previous Liens.

 

(g)           The Collateral Agent
acknowledges such Grants and agrees to act as collateral agent with respect to
the Dexia Collateral, the FSA PAL Collateral, the FSAM Sovereign Guarantee
Collateral, the FSAM Collateral, the Dexia FP Collateral, the FSAM PAL
Collateral and the GIC Issuers Collateral as provided herein.

 

(h)           Notwithstanding the security
interest in favor of the Collateral Agent, FSA (to the extent provided in the
Put Contracts, the Sovereign Guarantee or the Guaranteed Liquidity Facilities
or after a Dexia Event of Default, in each case, either directly or as
representative of the Collateral Agent) shall have the right to (A) cause
the exercise of a Put Option and identify Put Settlement Assets as provided in
Section 4.1, (B) make, or cause to be made, claims on the Sovereign
Guarantee as provided in Section 4.2, (C) request funds under the
Guaranteed Liquidity Facilities as provided in Section 9.1,
(D) consent to any amendment of the Sovereign Guarantee in accordance with
Article 8 thereof as representative of the Collateral Agent,
(E) consent, as representative of the Collateral Agent, to any amendment
of the Sovereign Guarantee Reimbursement Letter Agreement and/or to any agreement
to amend, modify, waive or otherwise cause the alteration of any of their
rights or obligations under any of the Sovereign Guarantee Reimbursement
Agreement, the Pledge Agreement (as defined in the Sovereign Guarantee
Reimbursement Agreement) and/or the Organizational Documents of FSAM where such
amendment, variation, waiver or alteration would result in any of the
requirements set forth in the Authorization Law (as defined in the Sovereign
Guarantee Reimbursement Letter Agreement) no longer being met (any such
agreement, a “Proscribed Amendment”), and (F) exercise any other
rights expressly given to FSA under the Put Contracts.

 

(i)            On or before the Closing
Date, FSAM shall provide to the Collateral Agent an irrevocable power of
attorney to make claims under the Sovereign Guarantee in the form of
Exhibit B. The Collateral Agent hereby assigns its rights under such power
of attorney to FSA as its representative to make claims under the Sovereign
Guarantee and hereby agrees to execute such irrevocable power of attorney in
such form.

 

Section 2.2.            Rights of Rehypothecation.

 

(a)           For the avoidance of doubt,
FSAM may, subject to Section 11.2, repledge and rehypothecate FSAM
Collateral (including any Dexia CSA Collateral and FSA PAL Collateral) to
secure its obligations in relation to (x) the Master Repurchase Agreement,
subject to the GIC Issuers being permitted to repledge or rehypothecate such
FSAM Collateral only in accordance with clause (b) below, (y) the
Repurchase Facility Agreement and (z) any Senior Third Party Hedge
Agreement. In the event that Excluded FSAM Collateral (including any Dexia CSA
Collateral and FSA PAL Collateral that is Excluded FSAM Collateral) is returned
to FSAM or the related GIC Issuer, FSAM or such GIC Issuer, as applicable, will
take such steps (if any) as are necessary for the release of the returned
Excluded FSAM Collateral from the Lien of such GIC Holder or Unaffiliated
Counterparty, as applicable, and cause such Excluded FSAM Collateral to be
Delivered to the relevant Intermediary free of such Lien, whereupon it will
cease to be Excluded FSAM Collateral and will be FSAM Collateral.

 

(b)           For the avoidance of doubt,
to secure their obligations in relation to the GIC Contracts and any Hedge
Agreements to which it is a party, each GIC Issuer may, subject to
Section 11.2, pledge Excluded GIC Issuers Collateral as follows:

 

(i)            in the case of
GIC Contracts, if such pledge is subject to the related GIC Holder not being
permitted to repledge or rehypothecate such Excluded GIC Issuers Collateral
(except

 

7

 

that
GIC Holders will have all the rights of a secured party to exercise remedies
with respect to such Excluded GIC Issuers Collateral following an event of
default, to the extent set forth in the related GIC Contract); and

 

(ii)           in the case of
any Hedge Agreement to which it is a party (including any Hedge  Agreements that
have been assigned, transferred or novated to such GIC Issuer as the FSAM
Hedging Successor or that have been entered into by the GIC Issuer after a
Transition Date), to secure such Hedge Agreement.

 

In
the event that Excluded GIC Issuers Collateral is returned to the related GIC
Issuer, such GIC Issuer will take such steps (if any) as are necessary for the
release of the returned Excluded GIC Issuers Collateral from the Lien of such
GIC Holder or Hedge Counterparty and cause such Excluded GIC Issuers Collateral
to be Delivered to the relevant Intermediary free of such Lien, whereupon it
will cease to be Excluded GIC Issuers Collateral or Excluded FSAM Collateral
and will be FSAM Collateral or GIC Issuers Collateral, as applicable.

 

(c)           For the avoidance of doubt,
the GIC Issuers shall not pledge, repledge, hypothecate or  rehypothecate
any of its rights, title, or interest in, to or under the FSAM Sovereign
Guarantee Collateral.

 

Section 2.3.            Protection of Dexia
Collateral, FSAM Sovereign Guarantee Collateral, FSAM  Collateral, GIC
Issuers Collateral, Dexia FP Collateral, FSAM PAL Collateral and FSA PAL
Collateral.

 

(a)           Each of FSAM, each GIC
Issuer, each Dexia Guarantor, Dexia FP and FSA PAL (each, a “Grantor”)
agrees that, from time to time, it shall promptly give, authorize, execute,
deliver, file and/or record all further instruments and documents, and take all
further action, that may be necessary or desirable, as requested by the
Collateral Agent or that is required by applicable law, in order to create,
preserve, perfect, validate and protect any Lien Granted or purported to be
Granted, amended, restated or continued hereunder or to enable the Collateral
Agent to exercise and enforce its rights and remedies hereunder with respect to
any Collateral, Dexia FP Collateral or FSAM PAL Collateral, as applicable.
Without limiting the generality of the foregoing, each Grantor will:

 

(i)            deliver and
file or cause to be filed, in the appropriate offices, appropriate UCC
financing statements describing the applicable Collateral, Dexia FP Collateral
or FSAM PAL Collateral, and naming such Grantor as debtor and the Collateral
Agent as secured party;

 

(ii)           from time to
time authorize and, if applicable, execute such other financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, in order to perfect and preserve the Liens
granted or purported to be granted hereunder; and

 

(iii)          promptly
furnish or cause to be furnished to the Collateral Agent any information which
the Collateral Agent may reasonably request concerning the applicable
Collateral, Dexia FP Collateral or FSAM PAL Collateral.

 

Each
Grantor hereby appoints the Administrator its agent and attorney-in-fact for
the purpose of any action required under this Section 2.3(a) and
hereby authorizes FSA to file financing statements or continuation statements or
amendments thereto with respect to the Collateral. Such Grantor will promptly
deliver or cause to be delivered acknowledged, file-stamped copies of each
filing made pursuant to clause (i) or (ii) as applicable, to the
Collateral Agent and FSA. FSA will promptly deliver or cause to be delivered an
acknowledged, file-stamped copy of any such filing that it has made or caused
to be made to the Collateral Agent and the related Grantor.

 

8

 

(b)           The interest of the
Collateral Agent in (i) the FSAM Sovereign Guarantee Collateral and FSAM
Collateral will be marked conspicuously on the books and records of FSAM,
(ii) the GIC Issuers Collateral will be marked conspicuously on the books
and records of the respective GIC Issuer, (iii) the Dexia Collateral will
be marked conspicuously on the books and records of the respective Dexia
Guarantor, (iv) the FSA PAL Collateral will be marked conspicuously on the
books and records of FSA PAL, (v) the Dexia FP Collateral will be marked
conspicuously on the books and records of Dexia FP and (vi) the FSAM PAL
Collateral will be marked conspicuously on the books and records of FSAM.

 

(c)           Each Grantor will endorse,
cause to be Delivered to the relevant Intermediary (or, in the case of the FSA
Capital Markets Cayman Notes, the FSAM PAL Collateral and the Private Placement
Notes, the Collateral Agent) and will pledge to the Collateral Agent hereunder
each item of the Collateral, Dexia FP Collateral or FSAM PAL Collateral, as
applicable, that is a security, and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the
Collateral Agent and the Intermediary.

 

(d)           Each Grantor shall cause, on
or prior to the Closing Date, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the security interest in the Collateral,
Dexia FP Collateral or FSAM PAL Collateral, Granted to the Collateral Agent by
it hereunder (and shall provide a copy of each such statement, with filing
numbers noted thereon, to the Collateral Agent).

 

Section 2.4.            Delivery of Assets.

 

(a)           Each time that FSAM directs
or causes the acquisition of any asset, FSAM shall, if such asset has not
already been transferred to the FSAM Collateral Account, cause such asset to be
Delivered to the FSAM Collateral Account. The security interest of the
Collateral Agent in funds or other property utilized in connection with such
acquisition will, immediately and without further action on the part of the
Collateral Agent, be released. The Collateral Agent’s Lien will continue in
such asset so acquired, including all rights of FSAM in and to any contracts
related to and proceeds of such asset.

 

(b)           Each time a Dexia Guarantor
posts Eligible Collateral under the Dexia CSAs, such Dexia Guarantor shall
cause such asset to be Delivered to the Dexia Collateral Account. The security
interest of the Collateral Agent will come into existence and continue with
respect to such asset so posted, including all rights of such Dexia Guarantor
in and to any contracts related to and proceeds of such asset. The security
interest of the Collateral Agent with respect to any Dexia Collateral being
released to the Dexia Guarantors in accordance with the applicable Dexia CSA
will, immediately and without further action on the part of the Collateral
Agent, be released from the Collateral Agent’s Lien.

 

(c)           If a Dexia Event of Default
occurs and the Secured Party Representative so directs, each time the FSAM
Successor directs or causes the acquisition of any asset, such asset will be
Delivered to the Collateral Agent Custodial Account. The security interest of
the Collateral Agent in funds or other property utilized in connection with
such acquisition will, immediately and without further action on the part of
the Collateral Agent, be released. The Collateral Agent’s Lien will
nevertheless come into existence and continue in such asset so acquired,
including all rights of the FSAM Successor in and to any contracts related to
and proceeds of such asset.

 

Section 2.5.            Release of Security Interest.

 

(a)           Prior to a Dexia Event of
Default without prior notice to the Collateral Agent, FSAM or FSA (in the case
of clause (i)), and, following a Dexia Event of Default, the Secured Party
Representative, will have the right at any time to withdraw or dispose of FSAM
Assets that are subject to the Lien of the Collateral Agent hereunder in order
to be (i) delivered as Put Settlement Assets in

 

9

 

accordance
with the Put Contracts or the Sovereign Guarantee or (ii) applied as
Excluded FSAM Collateral in accordance with the definition thereof. The
security interest in respect of any such FSAM Assets will automatically
terminate and be released upon transfer of the relevant FSAM Assets in
accordance with the terms of this Agreement without the need for further action
or consent by the Collateral Agent.

 

(b)           Prior to a Transition Date,
FSAM will have the right at any time with prior notice to the Collateral Agent
to sell, transfer, participate, subparticipate or otherwise dispose of any
(i) FSAM Asset (A) in connection with a Permitted Asset Sale
(including the exercise by a Dexia Guarantor of a Call Option), (B) pursuant
to Section 11.2(b) or (C) with the consent of FSA, or
(ii) any Dexia CSA Collateral constituting FSAM Collateral
(A) pursuant to Section 11.2(b) or (B) with the consent of
FSA. The Collateral Agent’s Lien in respect of any such FSAM Asset or Dexia CSA
Collateral will automatically terminate and be released upon transfer of such
FSAM Asset or Dexia CSA Collateral against receipt of payment therefor in
accordance with such notice without the need for further action or consent by
the Collateral Agent.

 

(c)           Each instruction by FSAM to
the relevant Account Bank or the Collateral Agent for the withdrawal of any
FSAM Assets included in the FSAM Collateral will constitute a representation
and warranty by FSAM to the Collateral Agent upon which the Collateral Agent
may rely, without inquiry, that in connection with such instruction the
relevant FSAM Collateral is being delivered as a Put Settlement Asset, applied
as Excluded FSAM Collateral or sold to in connection with a Permitted Asset
Sale (including in connection with exercise of a Call Option) or pursuant to
Section 11.2(b)(i).

 

(d)           On the FSAM Lien Release
Date (if any), the Master Repurchase Agreement will be settled and the Put
Portfolio Assets, Excluded Assets, Other Assets, Sovereign Guarantee, Dexia
Guaranteed Put Contract and Dexia Non-Guaranteed Put Contract will be released
from the Collateral Agent’s Lien on the FSAM Collateral, Dexia Collateral and
FSA PAL Collateral. The Administrator will provide a Confirmation Request with
Section III completed by email to the Collateral Agent and FSA, with
confirmation of receipt by telephone. If the Confirmation Request is
incomplete, the Collateral Agent will promptly inform the Administrator. If the
Confirmation Request is complete, the Collateral Agent shall return the
executed Confirmation Request to the Administrator with a copy to FSA by
4:00 P.M. (New York time) on the same Business Day if such Confirmation
Request is received by 10:00 A.M. (New York time) and by 4:00 P.M.
(New York time) on the following Business Day if received after 10:00 A.M.
(New York time). The Collateral Agent will promptly deliver to the Sovereign
Guarantors an executed notice substantially in the form of the notice attached
to the Confirmation Request. For the avoidance of doubt, the Collateral Agent’s
Lien on any remaining GIC Issuers Collateral will not be released on the FSAM
Lien Release Date.

 

(e)           Following a Dexia Event of
Default, FSA, as Secured Party Representative, will have the right at any time
with prior notice to the Collateral Agent and subject to Section 5.2,
Section 7.5 and Section 12.1(d) hereof, to sell, transfer,
participate, subparticipate or otherwise dispose of any FSAM Asset. The
Collateral Agent’s Lien for the benefit of the FSAM Collateral Secured Parties
in respect of any such FSAM Asset will automatically terminate and be released
upon transfer of the relevant FSAM Asset against receipt of payment therefor in
accordance with such notice without the need for further action or consent by
the Collateral Agent.

 

(f)            Following any Dexia Event of
Default, the GIC Issuers will, at the direction of FSA pursuant to
Section 5.2(a)(i), have the right at any time to terminate all or any
portion of the Master Repurchase Agreement and transfer the FSAM Assets to the
Collateral Agent Custodial Account or Collateral Agent Cash Account, as
applicable, if FSA has directed such action pursuant to Section 5.2(a)(i).
The Collateral Agent’s Lien for the benefit of the FSAM Collateral Secured
Parties in respect of such FSAM Assets will automatically terminate and be
released upon such action.

 

10

 

(g)                                 Following a Transition Date and prior to any
Dexia Event of Default, the applicable GIC Issuers or FSAM Successor will have
the right at any time with prior notice to the Collateral Agent to sell,
transfer, participate, subparticipate or otherwise dispose of any Permitted
Investments securing the GIC Issuer Repurchase Agreement (A) pursuant to
Section 11.2(b) or (B) with the consent of FSA. The Collateral
Agent’s Lien in respect of any such Permitted Investments will automatically
terminate and be released upon transfer of such Permitted Investments against
receipt of payment therefor in accordance with such notice without the need for
further action or consent by the Collateral Agent.

 

(h)                                 The Collateral Agent’s Lien on the Dexia FP
Collateral will automatically terminate and be released upon the transfer of
the membership interest in HF Services LLC (i) after a Dexia Event of
Default has occurred upon the direction of FSA with notice to Collateral Agent
or (ii) on or after the Senior Release Date or at any time that HF
Services LLC is not acting as Administrator, at the direction of Dexia FP with
notice to Collateral Agent.

 

(i)                                     The Collateral Agent’s Lien on the FSAM PAL
Collateral will automatically terminate and be released upon the transfer of
the ordinary shares of FSA PAL (i) if a Dexia Event of Default has
occurred, upon the direction of FSA with notice to Collateral Agent or
(ii) on or after the Senior Release Date, at the direction of FSAM with
notice to Collateral Agent.

 

(j)                                     The Collateral Agent’s Lien on property on
deposit in the FSA PAL Collateral Account and FSA PAL Cash Account will
automatically terminate and be released upon the transfer of such property to
the FSA PAL Brussels Collateral Account and the FSA PAL Brussels Cash Account, respectively,
and the attachment thereto of FSAM’s Lien thereon pursuant to the FSAM Belgian
Pledge Agreement.

 

Section 2.6.                                   Changes in Locations, Name, etc.

 

(a)                                  FSAM shall not (i) change the location
of its chief executive office/chief place of business unless it is to the
offices of DCL’s New York Branch, (ii) change its name (other than to
remove “FSA” from its name, with respect to which name change notice has been
given to the Collateral Agent and each Secured Party), identity, form of
organization or corporate structure (or the equivalent) or change the location
where it maintains its books and records with respect to the FSAM Sovereign
Guarantee Collateral, and FSAM Collateral or (iii) reorganize or
reincorporate under the laws of any other jurisdiction, unless, in each case,
it (w) has given the Collateral Agent and each Secured Party at least 30
days prior written notice thereof, (x) has delivered to the Collateral
Agent and each Secured Party all Uniform Commercial Code financing statements
and amendments thereto as the Collateral Agent or any Secured Party requests or
that are required by applicable law, (y) with respect to a change of
jurisdiction, has delivered an Opinion of Counsel that such change will not
adversely affect the Collateral Agent’s Lien or the interest of the Secured
Parties herein and (z) has taken all other reasonable actions deemed
necessary or desirable by the Collateral Agent or any Secured Party or that are
required by applicable law to continue the Collateral Agent’s perfected status
in the FSAM Sovereign Guarantee Collateral, FSAM PAL Collateral and FSAM
Collateral with the same or better priorities.

 

(b)                                 No GIC Issuer shall (i) change the
location of its chief executive office/chief place of business unless it is to
the offices of DCL’s New York Branch, (ii) change its name (other than to
remove “FSA” from its name, with respect to which name change notice has been
given to the Collateral Agent and each Secured Party), identity, form of
organization or corporate structure (or the equivalent) or change the location
where it maintains its books and records with respect to the GIC Issuers
Collateral related to such GIC Issuer or (iii) reorganize or reincorporate
under the laws of any other jurisdiction, unless, in each case, it (w) has
given the Collateral Agent and each Secured Party at least 30 days prior
written notice thereof, (x) has delivered to the Collateral Agent and each
Secured Party all Uniform Commercial Code financing statements and amendments
thereto as the Collateral Agent, FSA and the

 

11

 

Dexia
Parties request or that are required by applicable law (y) with respect to
a change of jurisdiction, has delivered an Opinion of Counsel that such change
will not adversely affect the Collateral Agent’s Lien or the interest of the
Secured Parties therein and (z) has taken all other reasonable actions
deemed necessary or desirable by the Collateral Agent and the Secured Parties
or that are required by applicable law to continue the Collateral Agent’s
perfected status in such GIC Issuers Collateral with the same or better
priorities.

 

(c)                                  FSA PAL shall not (i) change the
location of its chief executive office/chief place of business unless it is to
the offices of DCL’s London Branch, (ii) change its name (other than to
remove “FSA” from its name, with respect to which name change notice has been
given to the Collateral Agent and each Secured Party), identity, form of
organization or corporate structure (or the equivalent) or change the location
where it maintains its books and records with respect to the FSA PAL Collateral
or (iii) reorganize or reincorporate under the laws of any other jurisdiction,
unless, in each case, (w) has given the Collateral Agent and each Secured
Party at least 30 days prior written notice thereof, (x) has delivered to
the Collateral Agent and each Secured Party all Uniform Commercial Code
financing statements and amendments thereto as the Collateral Agent and each
Secured Party request or that are required by applicable law and (y) with
respect to a change of jurisdiction, has delivered an Opinion of Counsel that
such change will not adversely affect the Collateral Agent’s Lien or the
interest of the Secured Parties therein and (z) has taken all other reasonable
actions deemed necessary or desirable by the Collateral Agent and the Secured
Parties or that are required by applicable law to continue the Collateral
Agent’s perfected status in such FSA PAL Collateral with the same or better
priorities.

 

(d)                                 Dexia FP shall not (i) change the
location of its chief executive office/chief place of business unless it is to the offices of DCL’s
New York Branch, (ii) change its name, identity, form of organization or
corporate structure (or the equivalent) or change the location where it
maintains its books and records with respect to the Dexia FP Collateral or
(iii) reorganize or reincorporate under the laws of any other
jurisdiction, unless, in each case, it (w) has given the Collateral Agent
and each Secured Party at least 30 days prior written notice thereof,
(x) has delivered to the Collateral Agent and each Secured Party all
Uniform Commercial Code financing statements and amendments thereto as the
Collateral Agent or any Secured Party requests or that are required by
applicable law, (y) with respect to a change of jurisdiction, has
delivered an Opinion of Counsel that such change will not adversely affect the
Collateral Agent’s Lien or the interest of the Secured Parties herein and
(z) has taken all other reasonable actions deemed necessary or desirable
by the Collateral Agent or any Secured Party or that are required by applicable
law to continue the Collateral Agent’s perfected status in the Dexia FP
Collateral with the same or better priorities.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES; COVENANTS

 

Section 3.1.                                   Representations and Warranties.

 

(a)                                  Each GIC Business Entity and Dexia FP
represents and warrants as to itself as of the date hereof that, except as
disclosed in the Disclosure Schedule:

 

(i)                                     Due Organization and Qualification. Such party is duly organized and validly
existing under the laws of the jurisdiction of its organization, and is duly
qualified to do business, is in good standing and has obtained all necessary
licenses, permits, charters, registrations and approvals necessary for the
performance of its obligations under this Agreement and any other Transaction
Document to which it is a party.

 

(ii)                                  Power and Authority. Such party has all necessary power and
authority to conduct its business as currently conducted and as proposed to be
conducted, to execute, deliver

 

12

 

and
perform its obligations under this Agreement and any other Transaction Document
to which it is a party and to consummate the transactions contemplated hereby
and thereby and to perform all its obligations hereunder and thereunder and to
deliver and pledge any Collateral, Dexia FP Collateral or FSAM PAL Collateral
(as applicable) as provided herein

 

(iii)                               Due Authorization. The execution, delivery and performance of
this Agreement and any other
Transaction Document to which it is a party have been duly authorized by such
party and do not require any additional approvals or consents or other action
by or any notice to or filing with any Person, including any Governmental
Authority.

 

(iv)                              Noncontravention. Neither the execution and delivery by it of
this Agreement by such party and any other Transaction Document to which it is
a party, the consummation of the transactions contemplated hereby or thereby
nor the satisfaction of the terms and conditions of this Agreement and any
other Transaction Document to which it is a party,

 

(A)                              conflicts with or results in any breach or violation of any provision
of such party’s Organizational Documents or any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award currently in effect
having applicability to such party or any of its properties, including
regulations issued by a Governmental Authority having supervisory powers over
such party;

 

(B)                                constitutes a default by such party under or a breach of any provision
of any loan agreement, mortgage, indenture or other agreement or instrument to
which such party is a party or by which it or any of its properties is or may
be bound or affected; or

 

(C)                                results in or requires the creation of any Lien upon or in respect of
any of such party’s assets except as contemplated in the Transaction Documents.

 

(v)                                 Legal Proceedings. Other than as disclosed in the Annual
Report on Form 10-K for the year ended December 31, 2008, or the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009,
as filed by FSAH with the SEC, there is no litigation, action, proceeding, suit
or investigation by or before any Governmental Authority against or affecting
such party or any of its properties or rights or any of the Collateral, Dexia
FP Collateral or FSAM PAL Collateral it has Granted hereunder either pending
or, to such party’s knowledge after reasonable inquiry, threatened that, if determined
adversely to such party, would reasonably be likely to result in a Material
Adverse Change with respect to such party.

 

(vi)                              Valid and Binding Obligations. This Agreement and any other Transaction Document
to which it is a party, when executed and delivered by such party, will
constitute the legal, valid and binding obligation of such party, enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally.

 

(vii)                           Compliance With Law, Etc. No practice, procedure or policy currently
employed or proposed to be employed by such party in the conduct of its
business violates any law, rule, regulation, judgment, agreement, order or
decree applicable to such party or by which such party or its assets may be
bound, which violation would be reasonably likely to result in a Material
Adverse Change with respect to such party. Such party is not in breach of or in
default under any applicable law or administrative regulation of the
jurisdiction of its organization, or any Governmental Authority thereof or any
applicable judgment or decree or any note, resolution, certificate, agreement
or other instrument to which such party is a party or is otherwise subject

 

13

 

which,
if enforced, would reasonably be likely to result in a Material Adverse Change
with respect to such party.

 

(viii)                        No Investment Company Act Registration. Such party is not required to be registered
as an “investment company” under the Investment Company Act.

 

(ix)                                Taxes. Such party has filed all tax returns which are required to be filed
and timely paid all taxes (including stamp taxes), if applicable, including any
assessments received by it, to the extent that such taxes have become due, the
non-filing or non-payment of which would result in a claim against such party
in excess of $10,000,000. Any taxes, fees and other governmental charges
payable by such party in connection with its execution and delivery of and
performance under the Transaction Documents to which it is a party have been
paid or shall have been paid at or prior to the Closing Date if such taxes,
fees or other governmental charges were due on or prior to the Closing Date, to
the extent non-payment would result in a claim against such party in excess of
$10,000,000.

 

(x)                                   Solvency. Such party is solvent and will not be rendered insolvent by the
transactions contemplated by the Transaction Documents and, after giving effect
to such transactions, such party does not believe that it has incurred, and
does not intend to incur, debts beyond its ability to pay such debts as they
mature. Such party does not contemplate the commencement of insolvency,
bankruptcy, liquidation or consolidation proceedings or the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect of
such party or any substantial part of its assets. Such party has not charged or
assigned and is not charging or assigning its interest in Collateral, Dexia FP
Collateral or FSAM PAL Collateral Granted by it hereunder with any intent to
hinder, delay or defraud any of such party’s creditors.

 

(xi)                                Transaction Documents. Each of the representations and warranties
of such party contained in the Transaction Documents (other than the Insurance
Agreements) is true and correct in all material respects and such party hereby
makes each such representation and warranty to, and for the benefit of, FSA as
if the same were set forth in full herein.

 

(xii)                             Employees. No such party has or has had any employees nor has or has owned,
rented, leased or been in possession of any building or other real property.

 

(xiii)                          In the case of FSA Capital Markets and FSA
Capital Management, such party is a “qualified institutional buyer” within the
meaning of Rule 144A under the United States Securities Act of 1933, as
amended, and a “qualified purchaser” for purposes of the Investment Company
Act.

 

(b)                                 FSA represents and warrants as of the date
hereof that, except as disclosed in the Disclosure Schedule:

 

(i)                                     Due Organization and Qualification. It is duly organized and validly existing
under the laws of the jurisdiction of its organization, and is duly qualified
to do business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals necessary for the performance of
its obligations under this Agreement and any other Transaction Document to
which it is a party.

 

(ii)                                  Power and Authority. It has all necessary power and authority to
conduct its business as currently conducted and as proposed to be conducted, to
execute, deliver and perform its obligations under this Agreement and any other
Transaction Document to which it is a party and to consummate the transactions
contemplated hereby and thereby and to perform all its

 

14

 

obligations
hereunder and thereunder and to deliver and pledge any Collateral, Dexia FP
Collateral or FSAM PAL Collateral (as applicable) as provided herein.

 

(iii)                               Due Authorization. The execution, delivery and performance of
this Agreement and any other Transaction Document to which it is a party have
been duly authorized by it and do not require any additional approvals or
consents or other action by or any notice to or filing with any Person,
including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and delivery by it of
this Agreement and any other Transaction Document to which it is a party, the
consummation of the transactions contemplated hereby or thereby nor the
satisfaction of the terms and conditions of this Agreement and any other
Transaction Document to which it is a party,

 

(A)                              conflicts with or results in any breach or violation of any provision
of its Organizational Documents or any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award currently in effect having
applicability to it or any of its properties, including regulations issued by a
Governmental Authority having supervisory powers over it; or

 

(B)                                constitutes a material default by it under or a breach of any provision
of any loan agreement, mortgage, indenture or other agreement or instrument to
which it is a party or by which it or any of its properties is or may be bound
or affected.

 

(v)                                 Legal Proceedings. Other than as disclosed in the Annual
Report on Form 10-K for the year ended December 31, 2008, or the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009,
as filed by FSAH with the SEC, there is no litigation, action, proceeding, suit
or investigation by or before any Governmental Authority against or affecting
it or any of its properties or rights either pending or, to its knowledge after
reasonable inquiry, threatened that, if determined adversely to it, would
reasonably be likely to result in a Material Adverse Change with respect to it.

 

(vi)                              Valid and Binding Obligations. This Agreement and any other Transaction Document
to which it is a party, when executed and delivered by it, will constitute the
legal, valid and binding obligation of it, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights
generally.

 

(vii)                           Compliance With Law, Etc. It is not in breach of or in default under
any applicable law or administrative regulation of the jurisdiction of its
organization, or any Governmental Authority thereof or any applicable judgment
or decree or any note, resolution, certificate, agreement or other instrument
to which it is a party or is otherwise subject which, if enforced, would
reasonably be likely to result in a Material Adverse Change with respect to it.

 

(viii)                        Taxes. It has filed all tax returns which are required to be filed and
timely paid all taxes (including stamp taxes), if applicable, including any
assessments received by it, to the extent that such taxes have become due, the
non-filing or non-payment of which would result in a Material Adverse Change to
it. Any taxes, fees and other governmental charges payable by it in connection
with its execution and delivery of and performance under the Transaction
Documents to which it is a party have been paid or shall have been paid at or
prior to the Closing Date if such taxes, fees or other governmental charges
were due on or prior to the Closing Date, to the extent non-payment would
reasonably be likely to result in a Material Adverse Change.

 

15

 

(ix)                                Solvency. It does not contemplate the commencement of insolvency, bankruptcy,
liquidation or consolidation proceedings or the appointment of a receiver,
liquidator, conservator, trustee or similar official in respect of such party
or an of its assets. Such party has not charged or assigned and is not charging
or assigning its interest in Collateral, Dexia FP Collateral or FSAM PAL
Collateral applicable to it with any intent to hinder, delay or defraud any of
such party’s creditors.

 

(x)                                   Financial Participant. It is a “financial participant” as defined
in the United States Bankruptcy Code.

 

(c)                                  Each of the Dexia Guarantors represents and
warrants as of the date hereof that, except as disclosed in the Disclosure
Schedule:

 

(i)                                     Due Organization and Qualification. It is duly organized and validly existing under
the laws of the jurisdiction of its organization, and is duly qualified to do
business, is in good standing and has obtained all necessary licenses, permits,
charters, registrations and approvals necessary for the performance of its
obligations under this Agreement and any other Transaction Document to which it
is a party.

 

(ii)                                  Power and Authority. It has all necessary power and authority to
conduct its business as currently conducted and as proposed to be conducted, to
execute, deliver and perform its obligations under this Agreement and any other
Transaction Document to which it is a party and to consummate the transactions
contemplated hereby and thereby and to perform all its obligations hereunder
and thereunder and to deliver and pledge any Collateral, Dexia FP Collateral or
FSAM PAL Collateral (as applicable) as provided herein.

 

(iii)                               Due Authorization. The execution, delivery and performance of
this Agreement and any other Transaction Document to which it is a party have
been duly authorized by it and do not require any additional approvals or
consents or other action by or any notice to or filing with any Person,
including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and delivery by it of
this Agreement and any other Transaction Document to which it is a party, the
consummation of the transactions contemplated hereby or thereby nor the
satisfaction of the terms and conditions of this Agreement and any other
Transaction Document to which it is a party,

 

(A)                         conflicts with or results in any breach or violation of any provision
of its Organizational Documents or any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award currently in effect having
applicability to it or any of its properties, including regulations issued by a
Governmental Authority having supervisory powers over it; or

 

(B)                           constitutes a material default by it under or a breach of any provision
of any loan agreement, mortgage, indenture or other agreement or instrument to
which it is a party or by which it or any of its properties is or may be bound
or affected.

 

(v)                                 Legal Proceedings. Other than as disclosed in the annual
reports of the Dexia Guarantors with respect to fiscal year 2008 and any
subsequent quarterly or semi-annual financial reports (or updates thereto) of
either Dexia Guarantor prior to the date hereof, there is no litigation,
action, proceeding, suit or investigation by or before any Governmental
Authority against or affecting it or any of its properties or rights either
pending or, to its knowledge after

 

16

 

reasonable
inquiry, threatened that, if determined adversely to it, would reasonably be
likely to result in a Material Adverse Change with respect to it.

 

(vi)                              Valid and Binding Obligations. This Agreement and any other Transaction
Document to which it is a party, when executed and delivered by it, will
constitute the legal, valid and binding obligation of it, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally.

 

(vii)                           Compliance With Law, Etc. It is not in breach of or in default under
any applicable law or administrative regulation of the jurisdiction of its
organization, or any Governmental Authority thereof or any applicable judgment
or decree or any note, resolution, certificate, agreement or other instrument
to which it is a party or is otherwise subject which, if enforced, would
reasonably be likely to result in a Material Adverse Change with respect to it.

 

(viii)                        Taxes. It has filed all tax returns which are required to be filed and
timely paid all taxes (including stamp taxes), if applicable, including any
assessments received by it, to the extent that such taxes have become due, the
non-filing or non-payment of which would result in a Material Adverse Change to
it. Any taxes, fees and other governmental charges payable by it in connection
with its execution and delivery of and performance under the Transaction
Documents to which it is a party have been paid or shall have been paid at or
prior to the Closing Date if such taxes, fees or other governmental charges were
due on or prior to the Closing Date, to the extent non-payment would reasonably
be likely to result in a Material Adverse Change.

 

(ix)                                Solvency. It does not contemplate the commencement of insolvency, bankruptcy,
liquidation or consolidation proceedings or the appointment of a received,
liquidator, conservator, trustee or similar official in respect of such party
or an of its assets. Such party has not charged or assigned and is not charging
or assigning its interest in Collateral, Dexia FP Collateral or FSAM PAL
Collateral with any intent to hinder, delay or defraud any of such party’s
creditors.

 

(d)                                 The Collateral Agent represents and warrants
as of the date hereof that:

 

(i)                                     Due Organization and Qualification. It is duly organized and validly existing
as a national banking association, and is duly qualified to do business and has
obtained all necessary licenses, permits, charters, registrations and approvals
necessary for the performance of its obligations under this Agreement and any
other Transaction Document to which it is a party.

 

(ii)                                  Power and Authority. It has all necessary power and authority to
conduct its business as currently conducted and as proposed to be conducted, to
execute, deliver and perform its obligations under this Agreement and any other
Transaction Document to which it is a party and to consummate the transactions
contemplated hereby and thereby.

 

(iii)                               Due Authorization. The execution, delivery and performance of
this Agreement and any other Transaction Document to which it is a party have
been duly authorized by it and do not require any additional approvals or
consents by or any notice to or registration or filing with any Person,
including any Governmental Authority.

 

(iv)                              Noncontravention. Neither the execution and delivery by it of
this Agreement and any other Transaction Document to which it is a party, the
consummation of the transactions contemplated hereby or thereby nor the
satisfaction of the terms and conditions of this Agreement and any other
Transaction Document to which it is a party conflicts with or results in any
breach

 

17

 

or
violation of any provision of its Organizational Documents or any law, rule,
regulation, order, writ, judgment, injunction or decree currently in effect
having applicability to it or any of its properties, including regulations
issued by a Governmental Authority having supervisory powers over it.

 

(v)                                 Valid and Binding Obligations. This Agreement and any other Transaction
Document to which it is a party, when executed and delivered by it, will
constitute the legal, valid and binding obligation of it, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally and subject to equitable principles of
general application.

 

(vi)                              Eligibility. It is eligible under Section 6.3 to serve as Collateral Agent
hereunder.

 

Section 3.2.                                   Representations with Respect to the GIC
Business. The Dexia
Guarantors represent and warrant that as of the date hereof:

 

(a)                                  Termination of Master Repurchase Agreements. Each master repurchase agreement between
FSAM and Unaffiliated Counterparties, whether or not guaranteed by FSA, have been
terminated on or prior to the Closing Date and any and all amounts due and
payable to any counterparty thereunder have been fully paid on or prior to
October 31, 2008, and the related FSA Policies (if any) have been
terminated in accordance with their terms.

 

(b)                                 Termination of Securities Lending Facility. The Securities Lending Facility has been
terminated on or prior to the Closing Date and no “loans” (as defined therein)
were made thereunder and no amounts remain due and payable thereunder.

 

(c)                                  List of GIC Contracts. The list of GIC Contracts set forth in
Annex B includes all GIC Contracts outstanding as of June 26, 2009 that
produce liabilities to (x) FSA under related GIC Policies, (y) a GIC
Issuer under a GIC Contract or (z) FSAM under a master repurchase
agreement. All information set forth in the list of GIC Contracts with respect
to any GIC Contract is true, correct, accurate and complete in all material
respects as to such GIC Contract; provided that
the parties hereto acknowledge and agree that no representation or warranty is
made regarding the subcategories of data in Annex B for which no information is
provided with respect to GIC Contracts having an unpaid principal balance of
$5,000,000 or less.

 

(d)                                 List of FSA Policies. The list of FSA Policies set forth in Annex
C includes all FSA Policies outstanding as of June 26, 2009 and identifies
which of such policies constitute (i) GIC Policies related to GIC
Contracts owned by Unaffiliated Parties; (ii) GIC Policies related to GIC
Contracts owned by FSA Global Funding Limited; (iii) Hedge Policies
related to Third Party Hedge Agreements and (iv) Secondary Policies. The
list set forth in Annex C is true, correct, accurate and complete in all
material respects. All FSA Policies have been terminated on or prior to the
Closing Date except for the Retained FSA Policies and the parties hereto agree
that any FSA Policies solely benefiting FSAM or the Dexia Guarantors that are
not Retained FSA Policies have been terminated. To their knowledge, after reasonable
inquiry, no financial guarantees issued by FSA or any of its Affiliates remain
outstanding with respect to the GIC Business, the GIC Business Entities or any
Material Agreement except Retained FSA Policies.

 

(e)                                  List of Hedge Agreements. The list of Hedge Agreements set forth in
Annex D (i) includes all Hedge Agreements outstanding on June 26,
2009 that produce liabilities to FSA under related Hedge Policies or that
produce liabilities of FSAM with respect thereto, and (ii) such list is
true, correct, accurate and complete in all material respects.

 

18

 

(f)                                    FSAM Assets.

 

(i)                                     To their knowledge after reasonable inquiry,
each FSAM Asset (A) is either (1) a note, (2) stock,
(3) treasury stock; (4) a bond; (5) a debenture; (6) a
collateral trust certificate; (7) a pre-organization certificate or
subscription; (8) a transferable share; (9) a voting-trust
certificate; (10) a certificate of deposit; (11) a certificate of deposit
for security; (12) an investment contract or certificate of interest or
participation in a profit-sharing agreement or in an oil, gas, or mineral
royalty or lease, if such contract or interest is required to be the subject of
a registration statement filed with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933, or is exempt under section
3(b) of such Act from the requirement to file such a statement; (14) an
interest of a limited partner in a limited partnership; (15) an other claim or
interest commonly known as “security”; and (16) a certificate of interest or
participation in, temporary or interim certificate for, receipt for, or warrant
or right to subscribe to or purchase or sell, a security; but (B) it is
not (1) currency, a check, draft, bill of exchange, or bank letter of
credit; (2) a leverage transaction, as defined in section 761 of this
title; (3) a commodity futures contract or forward contract; (4) an
option, warrant, or right to subscribe to or purchase or sell a commodity futures
contract; (5) an option to purchase or sell a commodity; (6) a
contract or certificate of a kind specified in subclause (A)(12) that is not
required to be the subject of a registration statement filed with the
Securities and Exchange Commission and is not exempt under section 3(b) of
the Securities Act of 1933 from the requirement to file such a statement; or
(7) a debt or evidence of indebtedness for goods sold and delivered or
services rendered.

 

(ii)                                  The terms of each FSAM Asset do not prohibit
such FSAM Asset from being sold or transferred to one or more of the Dexia
Guarantors or, other than with respect to assets owned by FSA PAL, one or more
GIC Issuers and such sale or transfer would not be prohibited by any applicable
law, including federal or state securities laws.

 

(iii)                               Each FSAM Asset has a principal balance
(which in some cases accretes over time or is subject to increases or decreases
based on an increase or decrease in a designated index), accrues and pays
interest (other than zero coupon assets) and converts by its terms into cash
within a finite period of time.

 

(g)                                 The reports, memoranda and data relating to
the GIC Business listed in Annex L (collectively, the “Specified Diligence
Items”) are true, correct, accurate and complete as of the date of each
Specified Diligence Item stated therein in all material respects, subject to
the qualifications set forth on Annex L.

 

(h)                                 The entire commitment amount under the
Capital Commitment Agreement, dated November 13, 2008, between DHI, FSAH
and FSAM, as amended, modified or supplemented through the date hereof, has
been contributed.

 

(i)                                     The Dexia Guarantors have reviewed each of
the UCC financing statements referenced in the lien search results attached
hereto as Annex M and hereby represent that none of the Liens referenced
therein are against the Collateral, the Dexia FP Collateral or the FSAM PAL
Collateral, other than Previous Liens.

 

(j)                                     The guarantee provided by FSAH with respect
to the obligations of FSA PAL under the FSA PAL Clearing and Custody Agreement
has been terminated.

 

19

 

Section 3.3.                                   Representations and Warranties With Respect
to the Collateral.

 

(a)                                  Each Dexia Guarantor represents, warrants and
agrees on its own behalf with respect to the Dexia Collateral related to it as
of the Closing Date and on any date on which Dexia Collateral is Delivered to
the relevant Intermediary, and without limitation of the representations made
under the Dexia CSAs, that:

 

(i)                                     This Agreement creates a valid and continuing
security interest (as defined in the UCC) in such Dexia Collateral in favor of
the Collateral Agent, which security interest is prior to all other Liens
(except for any Permitted Liens), and is enforceable as such as against
creditors of and purchasers from such Dexia Guarantor. The security interest of
the Collateral Agent in such Dexia Collateral will, until the obligations and
indebtedness secured hereunder have been Paid in Full and termination of this
Agreement, be a perfected security interest in such Dexia Collateral, senior to
all other security interests in such Dexia Collateral.

 

(ii)                                  It owns such Dexia Collateral free and clear
of any Lien, claim or encumbrance of any Person and it has acquired its
ownership in such Dexia Collateral in good faith without notice of any Adverse
Claim, except for any Permitted Lien.

 

(iii)                               Other than any Permitted Lien, it has not
pledged, assigned, sold, granted a Lien on or security interest in, or
otherwise conveyed any of such Dexia Collateral. It has not authorized the
filing of and is not aware of any financing statements against it that include
a description of such Dexia Collateral.

 

(iv)                              None of the Instruments, Tangible Chattel
Paper or Certificated Securities that constitute or evidence such Dexia
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Collateral Agent,
or in connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of such Dexia Collateral to the transfer to the
Collateral Agent of its interest and rights in such Dexia Collateral hereunder
and it has full right to Grant a security interest in and assign and pledge all
of its right, title and interest in such Dexia Collateral to the Collateral
Agent.

 

(vi)                              It has not consented to the Intermediary’s
complying with Entitlement Orders or other instructions originated by any
Person other than the Collateral Agent in connection with any Securities
Account or any instructions of any Person other than the Collateral Agent with
respect to the disposition of funds credited to any Deposit Account. All of
such Dexia Collateral consisting of Security Entitlements and Financial Assets
has been credited to the Dexia Collateral Account. The Intermediary for the
Dexia Collateral Account has agreed to treat all “collateral” (as defined in
the related Securities Account Control Agreement) other than cash credited to
the Dexia Collateral Account as Financial Assets. The Intermediary has agreed
that the Dexia Collateral Account consists of a Securities Account to the
extent of Financial Assets credited thereto and a Deposit Account to the extent
of any cash or uninvested funds deposited therein or credited thereto. It
acknowledges that the Intermediary has agreed, pursuant to the related
Securities Account Control Agreement, to comply with all Entitlement Orders and
other instructions originated by the Collateral Agent in relation to the Dexia
Collateral Account, without its further consent and that the Dexia Collateral
Account has been opened by the Intermediary outside the State of New York.

 

(vii)                           Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organizational documents as filed with its

 

20

 

jurisdiction
of organization and on the signature page hereof, and each is an
organization of the type set forth in the introductory statement and organized
in the jurisdiction set forth in the introductory statement to this Agreement.
It has not, during the past five years, been known by or used any other
corporate or fictitious name, been a party to any merger or consolidation or
changed its organizational legal entity designation or jurisdiction of
organization.

 

(b)                                 FSAM represents, warrants and agrees as of
the Closing Date and on any date on which FSAM Collateral or Excluded FSAM
Collateral is Delivered to the relevant Intermediary that:

 

(i)                                     This Agreement creates a valid and continuing
security interest (as defined in the UCC) in the FSAM Sovereign Guarantee
Collateral and the FSAM Collateral in favor of the Collateral Agent, which
security interest is prior to all other Liens (except for any Permitted Liens),
and is enforceable as such as against creditors of and purchasers from FSAM.
The security interest of the Collateral Agent in the FSAM Collateral will,
until the obligations and indebtedness secured hereunder have been Paid in Full
and termination of this Agreement, be a perfected security interest in the FSAM
Collateral, senior to all other security interests in the FSAM Collateral,
except for a Permitted Lien.

 

(ii)                                  It owns the FSAM Collateral free and clear of
any Lien, claim or encumbrance of any Person and it has acquired its ownership
in the FSAM Collateral in good faith without notice of any Adverse Claim,
except for any Permitted Lien and any Previous Liens (which have been amended
and restated herein).

 

(iii)                               Other than any Permitted Lien and any
Previous Liens (which have been amended and restated herein) and other than as
permitted by 2.2, it has not pledged, assigned, sold, granted a Lien on or
security interest in, or otherwise conveyed any of the FSAM Collateral. It has
not authorized the filing of and is not aware of any financing statements
against it that include a description of the FSAM Collateral.

 

(iv)                              None of the Instruments, Chattel Paper or
Certificated Securities that constitute or evidence the FSAM Collateral has any
marks or notations indicating that they have been pledged, assigned or
otherwise conveyed to any Person other than the Collateral Agent, or in
connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of the FSAM Collateral to the transfer to the Collateral
Agent of its interest and rights in the FSAM Collateral hereunder and it has
full right to Grant a security interest in and assign and pledge all of its
right, title and interest in the FSAM Collateral to the Collateral Agent.

 

(vi)                              Other than pursuant to the Previous Liens
(which have been amended and restated herein), it has not consented to the
Intermediary’s complying with Entitlement Orders or other instructions
originated by any Person other than the Collateral Agent in connection with any
Securities Account or any instructions of any Person other than the Collateral
Agent with respect to the disposition of funds credited to any Deposit Account.
All of such FSAM Collateral consisting of Security Entitlements and Financial
Assets has been credited to the FSAM Collateral Account. The Intermediary for
the FSAM Collateral Account has agreed to treat all “collateral” (as defined in
the related Securities Account Control Agreement) other than cash credited to
the FSAM Collateral Account as Financial Assets. The Intermediary has agreed
that the FSAM Collateral Account consists of a Securities Account to the extent
of Financial Assets credited thereto and a Deposit Account to the extent of any
cash or uninvested funds deposited therein or credited thereto. It acknowledges
that the Intermediary has agreed, pursuant to the related Securities Account
Control Agreement, to comply with all Entitlement Orders and other

 

21

 

instructions
originated by the secured party named therein in relation to the FSAM Collateral
Account, without its further consent and that the Intermediary’s jurisdiction
with respect to the FSAM Collateral Account is the State of New York.

 

(vii)                           Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organizational documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, during the past five years, been known by or used
any other corporate or fictitious name, been a party to any merger or
consolidation or changed its organizational legal entity designation or
jurisdiction of organization.

 

(c)                                  Each GIC Issuer represents, warrants and
agrees on its own behalf with respect to the GIC Issuers Collateral as of the
Closing Date and on any date on which GIC Issuers Collateral or Excluded GIC
Issuers Collateral is Delivered to the relevant Intermediary that:

 

(i)                                     This Agreement creates a valid and continuing
security interest (as defined in the UCC) in such GIC Issuers Collateral in
favor of the Collateral Agent, which security interest is prior to all other
Liens (except for any Permitted Liens), and is enforceable as such as against
creditors of and purchasers from such GIC Issuer. The security interest of the
Collateral Agent in such GIC Issuers Collateral will, until the obligations and
indebtedness secured hereunder have been Paid in Full and termination of this
Agreement, be a perfected security interest in such GIC Issuers Collateral
senior to all other security interests in such GIC Issuers Collateral, except
for any Permitted Lien.

 

(ii)                                  It owns such GIC Issuers Collateral free and
clear of any lien, claim or encumbrance of any Person and it has acquired its
ownership in such GIC Issuers Collateral in good faith without notice of any
Adverse Claim, except for any Permitted Lien and any Previous Liens (which have
been amended and restated herein).

 

(iii)                               Other than any Permitted Lien and any
Previous Liens (which have been amended and restated herein), it has not
pledged, assigned, sold, granted a Lien on or security interest in, or
otherwise conveyed any of such GIC Issuers Collateral. It has not authorized
the filing of and is not aware of any financing statements against it that
include a description of such GIC Issuers Collateral.

 

(iv)                              None of the Instruments, Tangible Chattel
Paper or Certificated Securities that constitute or evidence such GIC Issuers
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Collateral Agent,
or in connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of such GIC Issuers Collateral to the transfer to the
Collateral Agent of its interest and rights in such GIC Issuers Collateral
hereunder and it has full right to Grant a security interest in and assign and
pledge all of its right, title and interest in such GIC Issuers Collateral to
the Collateral Agent.

 

(vi)                              Other than pursuant to the Previous Liens
(which have been amended and restated herein), it has not consented to the
Intermediary’s complying with Entitlement Orders or other instructions
originated by any Person other than the Collateral Agent in connection with any
Securities Account or any instructions of any Person other than the Collateral
Agent with respect to the disposition of funds credited to any Deposit Account.
All of such GIC Issuers Collateral consisting of Security Entitlements and
Financial Assets has been credited to the related GIC

 

22

 

Issuers
Collateral Account. The Intermediary for the related GIC Issuers Collateral
Account has agreed to treat all “collateral” (as defined in the related
Securities Account Control Agreement) other than cash credited to the related
GIC Issuers Collateral Account as Financial Assets. The Intermediary has agreed
that the related GIC Issuers Collateral Account consists of a Securities
Account to the extent of Financial Assets credited thereto and a Deposit
Account to the extent of any cash or uninvested funds deposited therein or
credited thereto. It acknowledges that the Intermediary has agreed, pursuant to
the related Securities Account Control Agreement, to comply with all
Entitlement Orders and other instructions originated by the secured party named
therein in relation to the related GIC Issuers Collateral Account, without its
further consent and that the Intermediary’s jurisdiction with respect to the
related GIC Issuers Collateral Account is the State of New York.

 

(vii)                           Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organization documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, during the past five years, been known by or used
any other corporate or fictitious name, been a party to any merger or
consolidation or changed its organizational legal entity designation or
jurisdiction of organization.

 

(d)                                 FSA PAL represents, warrants and agrees as of
the Closing Date and on any date on which FSA PAL Collateral is Delivered to
the relevant Intermediary that:

 

(i)                                     This Agreement creates a valid and continuing
security interest (as defined in the UCC) in the FSA PAL Collateral in favor of
the Collateral Agent, which security interest is prior to all other Liens
(except for any Permitted Liens), and is enforceable as such as against
creditors of and purchasers from FSA PAL. The security interest of the
Collateral Agent in the FSA PAL Collateral will, until the obligations and
indebtedness secured hereunder have been Paid in Full and termination of this
Agreement, be a perfected security interest in the FSA PAL Collateral senior to
all other security interests in the FSA PAL Collateral, except for a Permitted
Lien.

 

(ii)                                  It owns the FSA PAL Collateral free and clear
of any Lien, claim or encumbrance of any Person and it has acquired its
ownership in the FSA PAL Collateral in good faith without notice of any Adverse
Claim, except for any Permitted Lien and any Previous Liens (which have been
amended and restated herein).

 

(iii)                               Other than any Permitted Lien and any
Previous Liens (which have been amended and restated herein), it has not
pledged, assigned, sold, granted a Lien on or security interest in, or
otherwise conveyed any of the FSA PAL Collateral. It has not authorized the
filing of and is not aware of any financing statements against it that include
a description of the FSA PAL Collateral.

 

(iv)                              None of the Instruments, Tangible Chattel
Paper or Certificated Securities that constitute or evidence the FSA PAL
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Collateral Agent, or
in connection with any Permitted Lien.

 

(v)                                 It has received all consents and approvals
required by the terms of the FSA PAL Collateral to the transfer to the
Collateral Agent of its interest and rights in the FSA PAL Collateral hereunder
and it has full right to Grant a security interest in and assign and pledge all
of its right, title and interest in the FSA PAL Collateral to the Collateral
Agent.

 

23

 

(vi)                              Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organization documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, during the past five years, been known by or used
any other corporate or fictitious name, been a party to any merger or
consolidation or changed its organizational legal entity designation or
jurisdiction of organization.

 

(vii)                           Other than pursuant to the Previous Liens
(which have been amended and restated herein), it has not consented to the
Intermediary’s complying with Entitlement Orders or other instructions
originated by any Person other than the Collateral Agent in connection with any
Securities Account or any instructions of any Person other than the Collateral
Agent or FSA with respect to the disposition of funds credited to any Deposit
Account. All of such FSA PAL Collateral consisting of Security Entitlements and
Financial Assets has been credited to the FSA PAL Collateral Account. The
Intermediary for the FSA PAL Collateral Account has agreed to treat all
“collateral” (as defined in the related Securities Account Control Agreement)
other than cash credited to the FSA PAL Collateral Account as Financial Assets.
The Intermediary has agreed that the FSA PAL Collateral Account consists of a
Securities Account to the extent of Financial Assets credited thereto and a
Deposit Account to the extent of any cash or uninvested funds deposited therein
or credited thereto. It acknowledges that the Intermediary has agreed, pursuant
to the related Securities Account Control Agreement, to comply with all
Entitlement Orders and other instructions originated by the secured party named
therein in relation to the FSA PAL Collateral Account, without its further
consent and that the Intermediary’s jurisdiction with respect to the FSA PAL
Collateral Account is the State of New York.

 

(e)                                  Dexia FP represents, warrants and agrees with
respect to the Dexia FP Collateral as of the Closing Date that:

 

(i)                                     This Agreement creates a valid and continuing
security interest (as defined in the UCC) in such Dexia FP Collateral in favor
of the Collateral Agent, which security interest is prior to all other Liens.

 

(ii)                                  It has not pledged, assigned, sold, granted a
Lien on or security interest in, or otherwise conveyed the Dexia FP Collateral.
It has not authorized the filing of and is not aware of any financing
statements against it that include a description of the Dexia FP Collateral.

 

(iii)                               It has received all consents and approvals
required for the transfer of the Dexia FP Collateral to the Collateral Agent of
its interest and rights in the Dexia FP Collateral hereunder and it has full
right to Grant a security interest in and assign and pledge all of its right,
title and interest in such Dexia FP Collateral to the Collateral Agent.

 

(iv)                              Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organizational documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, since its incorporation, been known by or used any
other corporate or fictitious name, been a party to any merger or consolidation
or changed its organizational legal entity designation or jurisdiction of
organization except that it changed its name from “FSA Financial Products Inc.”
to “Dexia FP Holdings Inc.” on or before the Closing Date.

 

(v)                                 It acknowledges that the Dexia FP Collateral
(A) is not dealt in or traded on securities exchanges or in securities
markets, (B) is not investment company securities and (C)

 

24

 

the
terms of HF Services LLC’ s Organizational Documents do not expressly provide
that the Dexia FP Collateral is a security governed by Article 8 of the of
the Delaware Uniform Commercial Code. It will not: (x) amend or modify HF
Services LLC’s Organizational Documents, or permit any Person to amend or
modify the Organizational Documents of HF Services LLC, to provide that the Dexia
FP Collateral is securities governed by Article 8 of the Delaware Uniform
Commercial Code or otherwise constitutes “securities” under Article 8 of
the Delaware Uniform Commercial Code or (y) provide for the Dexia FP
Collateral to be dealt in or traded on securities exchanges or in securities
markets, in each of (A) and (B) above, without the prior written
consent of FSA.

 

(vi)                              By virtue of the execution and delivery by it
of this Agreement, upon the filing of a UCC financing statement indicating the
Dexia FP Collateral in the offices of the Secretary of State of the State of
Delaware (naming it as the debtor and the Collateral Agent as the secured party),
the Collateral Agent will have a valid and perfected first priority security
interest in the Dexia FP Collateral for the benefit of FSA under the law of any
State of the United States as security for the payment and performance of all
obligations of FSAM and the GIC Issuers to FSA.

 

(vii)                           The Dexia FP Collateral is (i) duly
authorized and validly existing and (ii) not subject to any options to
purchase or other similar rights or subject to any legal or contractual
restriction other than those arising under the Organizational Documents of HF
Services LLC, the Securities Act and this Agreement. All information set forth
herein relating to Dexia FP Collateral is accurate and complete in all material
respects.

 

(f)                                    FSAM represents, warrants and agrees with
respect to the FSAM PAL Collateral as of the Closing Date that:

 

(i)                                     This Agreement creates a valid and continuing
security interest (as defined in the UCC) in such FSAM PAL Collateral in favor
of the Collateral Agent, which security interest is prior to all other Liens.

 

(ii)                                  It has not pledged, assigned, sold, granted a
Lien on or security interest in, or otherwise conveyed the FSAM PAL Collateral.
It has not authorized the filing of and is not aware of any financing
statements against it that include a description of the FSAM PAL Collateral.

 

(iii)                               It has received all consents and approvals
required for the transfer of the FSAM PAL Collateral to the Collateral Agent of
its interest and rights in the FSAM PAL Collateral hereunder and it has full
right to Grant a security interest in and assign and pledge all of its right,
title and interest in such FSAM PAL Collateral to the Collateral Agent.

 

(iv)                              Its exact legal name is that indicated in the
introductory statement to this Agreement and is the exact name as it appears in
its organization documents as filed with its jurisdiction of organization and
on the signature page hereof, and it is an organization of the type and is
organized solely in the jurisdiction set forth in the introductory statement to
this Agreement. It has not, since its incorporation, been known by or used any
other corporate or fictitious name, been a party to any merger or consolidation
or changed its organizational legal entity designation or jurisdiction of
organization.

 

(v)                                 It acknowledges that the FSAM PAL Collateral
(A) is not dealt in or traded on securities exchanges or in securities markets,
(B) is not investment company securities and (C) the terms of FSA
PAL’s Organizational Documents do not expressly provide that the FSAM PAL

 

25

 

Collateral
is a security governed by Article 8 of the of the Delaware Uniform
Commercial Code. It will not (x) amend or modify FSA PAL Organizational
Documents, or permit any Person to amend or modify the Organizational Documents
of FSA PAL, to provide that the FSAM PAL Collateral is securities governed by
Article 8 of the Delaware Uniform Commercial Code or otherwise constitutes
“securities” under Article 8 of the Delaware Uniform Commercial Code or
(y) provide for the FSAM PAL Collateral to be dealt in or traded on
securities exchanges or in securities markets, in each of clauses (A) and
(B) above, without the prior written consent of FSA.

 

(vi)                              The FSAM PAL Collateral is (i) duly
authorized and validly existing and (ii) not subject to any options to
purchase or other similar rights or subject to any legal or contractual restriction
other than those arising under the Organizational Documents of FSA PAL, the
Securities Act and this Agreement. All information set forth herein relating to
FSAM PAL Collateral is accurate and complete in all material respects.

 

Section 3.4.                                   Affirmative Covenants of FSAM. FSAM hereby agrees that during the term of this
Agreement, except as otherwise provided in the GIC Business Documents, unless
each of (x) Dexia and (y) prior to the FSAM Lien Release Date, FSA,
shall otherwise expressly consent in writing:

 

(a)                                  FSAM shall perform each of its obligations
under the GIC Business Documents to which it is party and comply with all
material requirements of any law, rule or regulation applicable to it, its
material properties, the FSAM Sovereign Guarantee Collateral and the FSAM
Collateral.

 

(b)                                 FSAM shall comply in all material respects
with the requirements and limitations of its powers set forth in, and will
observe all procedures required by, its Organizational Documents, including
that it shall not amend certain sections of its Organizational Documents as
provided therein. FSAM shall take all appropriate action necessary to maintain
its existence and good standing under the laws of the State of Delaware.

 

(c)                                  FSAM shall keep or cause to be kept in
reasonable detail books and records of account of FSAM’s assets and business,
including books and records relating to the GIC Business Documents to which it
is party, which shall be made available to FSA as described in clause (e). Such
books and records of account shall include statements of account with respect
to transactions involving the FSAM Sovereign Guarantee Collateral and the FSAM
Collateral. The books of FSAM will be kept on an accrual basis. The fiscal year
of FSAM will end on December 31 of each year.

 

(d)                                 Compliance Certificate. If requested by FSA, FSAM shall deliver to
FSA concurrently with the delivery of any financial statements required
pursuant to Section 3.12(e), a certificate signed by FSAM stating that:

 

(i)                                a review of the performance by each GIC Business Entity, each Dexia
Guarantor and each Lender under the GIC Business Documents during such period
has been made; and

 

(ii)                             to its knowledge, following reasonable inquiry, no Dexia Event of
Default has occurred or if a Dexia Event of Default has occurred, specifying
the nature thereof.

 

(e)                                  FSAM shall, upon the request of FSA, permit
FSA or its authorized agents (x) to inspect the books and records of FSAM
as they may relate to the Master Repurchase Agreement, the FSAM Sovereign
Guarantee Collateral, the FSAM PAL Collateral, the FSAM Collateral and the
obligations of FSAM under the GIC Business Documents and the GIC Business;
(y) to discuss the affairs, finances and accounts of FSAM with the
managers or authorized agents of FSAM; and (z) to discuss the affairs,
finances and accounts of FSAM with FSAM’s independent accountants (if any), provided
that FSAM

 

26

 

shall
have the right to be present during such discussions. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably or unduly disrupt the business of FSAM. The books and records of
FSAM shall be maintained at the address of FSAM designated herein for receipt
of notices, unless FSAM shall otherwise advise the parties hereto in writing.
Following any such inspection, FSAM will reasonably cooperate with FSA to
provide any additional information that FSA may reasonably request.

 

(f)                                    FSAM shall promptly (and in any event, within
five Business Days) after receiving actual notice or becoming aware of the
occurrence of any of the following inform FSA in writing:

 

(i)                                     the submission of any claim or the initiation
of any legal process, litigation or administrative or judicial investigation
against FSAM;

 

(ii)                                  the commencement of any rule making or
commencement or written threat of any disciplinary proceedings or any
proceedings instituted by or against FSAM in any court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if
adversely determined, may result in a Material Adverse Change with respect to
FSAM;

 

(iii)                               the commencement of any proceedings by or
against FSAM under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect or
of any proceeding in which a receiver, liquidator, conservator, trustee or
similar official shall have been, or may be, appointed or requested for FSAM or
any of its assets;

 

(iv)                              the receipt of notice that (A) FSAM is
placed under regulatory supervision or (B) any license, permit, charter,
registration or approval material to the conduct of FSAM’s business is to be,
or reasonably likely to be, suspended or revoked, or (C) FSAM is to cease
and desist any practice, procedure or policy employed by FSAM in the conduct of
its business, and such regulatory supervision, suspension, revocation or
cessation would reasonably be likely to result in a Material Adverse Change
with respect to FSAM; or

 

(v)                                 the receipt of notice (A) of any claim
or order by any taxing authority that taxes are owed by FSAM or (B) that
any withholding or backup withholding taxes are to be imposed with respect to
any FSAM Collateral, in each case in an amount exceeding $10,000,000.

 

(g)                                 FSAM shall comply with the provisions of
Section 11(j) of its Organizational Document relating to “special
purpose entity” restrictions.

 

(h)                                 FSAM shall maintain all licenses, permits,
charters and registrations that are material to the conduct of its business.

 

(i)                                     FSAM shall apply available funds towards the
purchase of the FSAM Collateral, the payment of amounts due under the Secured
Obligations and towards the other sums payable by FSAM under the GIC Business
Documents to which it is party and for no other purpose.

 

(j)                                     FSAM shall, from time to time, pay or prepay
all or such portion of the Master Repurchase Agreement as required by, and in
accordance with, the terms of the Master Repurchase Agreement.

 

(k)                                  FSAM will pay all and any stamp tax and other
taxes or duties, including any interest and penalties, payable by FSAM on, or
in connection with, the Retained FSA Policies and the Master Repurchase
Agreement; or the GIC Business Documents to which it is a party, and FSAM will
also pay

 

27

 

all
franchise taxes and all other taxes of whatever nature payable in connection
with the conduct of its business, the non-payment of which would result in a
Material Adverse Change with respect to FSAM.

 

(l)                                     FSAM shall comply in all material respects
with all applicable provisions of state and federal securities laws, including
blue sky laws and the Securities Act, the Exchange Act and the Investment
Company Act and all rules and regulations promulgated thereunder for which
non-compliance would reasonably be likely to result in a Material Adverse
Change with respect to FSAM.

 

(m)                               FSAM will promptly exercise its rights to
obtain the return of Excluded FSAM Collateral in accordance with the Master
Repurchase Agreement and Third Party Hedge Agreements, as applicable.

 

(n)                                 FSAM will promptly, and in any event no later
than six (6) months prior to the expiration of any D&O Insurance for
its Independent directors, renew and prepay in advance for a minimum of three
(3) years, the premium for such D&O Insurance or will provide such
other protection or indemnity arrangements that are consistent with rating
agency policies related to bankruptcy remote entities in securitization transactions
that are rated investment grade.

 

The
foregoing affirmative covenants will supersede and replace the affirmative
covenants of FSAM set forth in the FSAM Insurance Agreement and shall be
binding on the FSAM Successor and the FSAM Hedging Successor (if any) as if
made by it.

 

Section 3.5.                                   Negative Covenants of FSAM. FSAM hereby agrees that during the term of
this Agreement, except as otherwise permitted under the GIC Business Documents,
unless each of (x) Dexia and (y) prior to the FSAM Lien Release Date,
FSA, shall otherwise expressly consent in writing:

 

(a)                                  FSAM shall not amend, supplement or otherwise
modify its Organizational Document (or permit any of the foregoing).

 

(b)                                 FSAM shall not create, incur or suffer to
exist any Indebtedness other than the FSAM Secured Obligations and any
Permitted Indebtedness.

 

(c)                                  FSAM shall not form or acquire, or cause to
be formed or acquired, any Subsidiaries, other than FSA PAL.

 

(d)                                 FSAM shall neither repurchase any of its
membership interests nor make any distributions to its members, including any
distribution of dividends, except as permitted under the Priority of Payments.

 

(e)                                  FSAM shall not (i) create, incur or
suffer to exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any Lien on the FSAM
Sovereign Guarantee Collateral, FSAM PAL Collateral or the FSAM Collateral
except for (A) Liens to which each of Dexia and FSA has consented in
writing or (B) Permitted Liens, or (ii) sign or file or authorize the
filing under the applicable law of any jurisdiction any notice or financing
statement that names FSAM as a debtor, or sign any security agreement
authorizing any secured party thereunder to file such notice or financing
statement, except in each case any such instrument solely securing the rights
and preserving the Lien of the Collateral Agent.

 

(f)                                    FSAM shall not issue any membership interests
of any kind or rights, warrants or options in respect of membership interests
of any kind or securities convertible into or exchangeable for membership
interests of any kind except for the common membership interest previously
issued to FSAH and transferred to Dexia FP.

 

28

 

(g)                                 FSAM shall not (i) take any action, or
fail to take any action, if such action or failure to take action may interfere
with the enforcement of any rights under the GIC Business Documents that are
material to the rights, benefits or obligations of the Collateral Agent or any
Secured Party (other than with the consent of the relevant Secured Party), (ii) waive
or alter any rights with respect to the FSAM Sovereign Guarantee Collateral,
FSAM PAL Collateral and the FSAM Collateral (or any agreement or instrument
relating thereto); (iii) except to the extent expressly permitted
hereunder with respect to a repledge, rehypothecation or use of the FSAM
Collateral, take any action, or fail to take any action, if such action or
failure to take action may interfere with the enforcement of any rights with
respect to the FSAM Sovereign Guarantee Collateral and the FSAM Collateral; or
(iv) fail to pay any tax, assessment, charge or fee with respect to the
FSAM Sovereign Guarantee Collateral, the FSAM PAL Collateral and the FSAM
Collateral, or fail to defend any action, if such failure to pay or defend may
adversely affect the priority or enforceability of the Collateral Agent’s Lien
on or security interest in the FSAM Sovereign Guarantee Collateral and the FSAM
Collateral or FSAM’s right, title or interest in the FSAM Sovereign Guarantee
Collateral, the FSAM PAL Collateral and the FSAM Collateral.

 

(h)                                 FSAM shall not consolidate with or merge with
or into any Person or transfer all or substantially all of its assets to any
Person or liquidate or dissolve in whole or in part.

 

(i)                                     FSAM shall not waive, modify or amend, or
consent to any waiver, modification or amendment of, any material provisions of
any of the GIC Business Documents.

 

(j)                                     FSAM shall not

 

(i)                                     sell, transfer, exchange or otherwise dispose
of any of its assets except as permitted under this Agreement, or engage in any
business or activity other than as contemplated by this Agreement and its
Organizational Document,

 

(ii)                                  institute against, or join any other Person
in instituting against, any party hereto any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under
any bankruptcy or similar law, until the Senior Release Date,

 

(iii)                               exercise the right, if any, under or consent
to any FSAM Asset to be paid other than in cash without the consent of FSA, or

 

(iv)                              on or after the Closing Date, acquire any
assets other than Permitted Investments without the written consent of FSA.

 

(k)                                  FSAM shall not take or permit to be taken any
action which would have the effect, directly or indirectly, of causing any
amount to be deducted or withheld from any payment on the FSAM Collateral to
FSAM for or on account of a tax, and will perform all its obligations under the
GIC Business Documents to prevent or cure any default by, or other condition or
event with respect to FSAM which would have the effect, directly or indirectly,
of causing any amount to be deducted or withheld from any payment on the FSAM
Collateral for or on account of a tax. FSAM shall not fail to timely pay any
tax, assessment, charge or fee imposed on it or with respect to the FSAM
Collateral, or fail to defend any action, if such failure to pay or defend
would reasonably be expected to adversely affect the priority or enforceability
of the Collateral Agent’s security interest in the FSAM Collateral created by
this Agreement or FSAM’s right, title or interest in the FSAM Collateral.

 

(l)                                     FSAM shall not take, or permit to be taken,
any action that could cause FSAM to be required to (i) register as an
“investment company” under the Investment Company Act, or (ii) register
any of its issued and outstanding securities under the Securities Act or any
United States state securities laws.

 

29

 

(m)                               FSAM shall not
deny that the Material Agreements to which it is a party constitute the legal,
valid and binding obligations of FSAM.

 

(n)                                 FSAM shall not
terminate, amend, modify or supplement any of the Material Agreements (other
than Hedge Agreements) to which it is a party without the prior written consent
of FSA, which consent will not be unreasonably withheld or delayed.

 

(o)                                 FSAM will not
enter into any new Hedge Agreements and will not write any other new business
without the consent of FSA unless the relevant Hedge Agreement or obligation is
not insured or guaranteed by FSA and is entered into by the Administrator on
behalf of FSAM, acting in the ordinary course of managing the existing GIC
Business in accordance with the Administrative Services Agreement and the ALM
Procedures. Notwithstanding the foregoing, FSAM may, without consent of FSA
(unless a Dexia Event of Default has occurred and FSA has elected to become the
Secured Party Representative), at the direction of Dexia terminate, replace or
amend existing or enter into new transactions under existing Hedge Agreements
in accordance with the ALM Procedures.

 

(p)                                 FSAM shall
neither have any employees nor own, rent, lease or be in possession of any
building or other real property.

 

(q)                                 FSAM shall not
take any action that would cause it to be treated as (i) an association (or a
publicly traded partnership) taxable as a corporation or (ii) a taxable
mortgage pool.

 

(r)                                    FSAM will not,
prior to the FSAM Lien Release Date, without the consent of FSA (i) terminate
the Put Contracts or the Sovereign Guarantee or (ii) settle any litigation,
action, proceeding, suit or investigation unless the costs of such settlement
will be borne or funded by the Dexia Guarantors or their Affiliates (other than
any of the GIC Business Entities or the Administrator).

 

(s)                                  FSAM will not
acquire or dispose of any asset if such acquisition or disposition is for the
primary purpose of recognizing gains or decreasing losses resulting from market
value changes.

 

The
foregoing negative covenants will supersede and replace the negative covenants
of FSAM set forth in the FSAM Insurance Agreement and shall be binding on the
FSAM Successor and the FSAM Hedging Successor (if any) as if made by it.

 

Section
3.6.                                   Affirmative
Covenants of GIC Issuers. Each GIC Issuer hereby agrees that during
the term of this Agreement, except as otherwise provided in the GIC Business
Documents, unless Dexia and FSA shall otherwise expressly consent in writing:

 

(a)                                  Such GIC Issuer
shall perform each of its obligations under the GIC Business Documents to which
it is a party and comply with all material requirements of any law, rule or
regulation applicable to it, its material properties and the GIC Issuers
Collateral.

 

(b)                                 Such GIC Issuer
shall comply in all material respects with the requirements and limitations of
its powers set forth in, and will observe all procedures required by, its
Organizational Documents, including that it shall not amend certain sections of
its Organizational Documents as provided therein. Such GIC Issuer shall take
all appropriate action necessary to maintain its existence and good standing
under the laws of the State of Delaware or, in case of FSA Capital Markets
Cayman, the laws of the Cayman Islands.

 

(c)                                  Such GIC Issuer
shall keep or cause to be kept in reasonable detail books and records of
account of such GIC Issuer’s assets and business, including books and records
relating to the GIC Business Documents to which it is party, which shall be
made available to FSA as described in clause (d).

 

30

 

Such
books and records of account shall include statements of account with respect
to transactions involving the GIC Issuers Collateral Granted by it. The books
of such GIC Issuer shall be kept on an accrual basis. The fiscal year of each
GIC Issuer will end on December 31 of each year.

 

(d)                                 Such GIC Issuer
shall, upon the request of FSA, permit FSA or its authorized agents (x) to
inspect the books and records of such GIC Issuer as they may relate to the
Master Repurchase Agreement (in the case of FSA Capital Markets and FSA Capital
Management), the GIC Contracts, the GIC Issuers Collateral and the obligations
of such GIC Issuer under the GIC Business Documents to which it is party and the
GIC Business; (y) to discuss the affairs, finances and accounts of such GIC
Issuer with the managers or authorized agents of such GIC Issuer; and (z) to
discuss the affairs, finances and accounts of such GIC Issuer with such GIC
Issuer’s independent accountants (if any), provided that such GIC Issuer shall
have the right to be present during such discussions. Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of such GIC Issuer. The books and records of
such GIC Issuer shall be maintained at the address of such GIC Issuer
designated herein for receipt of notices, unless such GIC Issuer shall
otherwise advise the parties hereto in writing. Following any such inspection,
such GIC Issuer will reasonably cooperate with FSA to provide any additional
information that FSA may reasonably request.

 

(e)                                  Such GIC Issuer
shall promptly (and in any event within five Business Days) after receiving
actual notice or becoming aware of the occurrence of any of the following
inform FSA in writing:

 

(i)                                     the submission
of any claim or the initiation of any legal process, litigation or
administrative or judicial investigation against such GIC Issuer;

 

(ii)                                  the
commencement of any rule making or commencement or written threat of any
disciplinary proceedings or any proceedings instituted by or against such GIC
Issuer in any court or before any governmental body or agency, or before any
arbitration board, or the promulgation of any proceeding or any proposed or
final rule which, if adversely determined, may result in a Material Adverse
Change with respect to such GIC Issuer;

 

(iii)                               the
commencement of any proceedings by or against such GIC Issuer under any
applicable bankruptcy, reorganization, liquidation, rehabilitation, insolvency
or other similar law now or hereafter in effect or of any proceeding in which a
receiver, liquidator, conservator, trustee or similar official shall have been,
or may be, appointed or requested for such GIC Issuer or any of its assets;

 

(iv)                              the receipt of
notice that (A) such GIC Issuer is placed under regulatory supervision, (B) any
license, permit, charter, registration or approval material to the conduct of
such GIC Issuer’s business is to be, or reasonably likely to be, suspended or
revoked, or (C) such GIC Issuer is to cease and desist any practice, procedure
or policy employed by such GIC Issuer in the conduct of its business and such
regulatory supervision, suspension, revocation or cessation would reasonably be
likely to result in a Material Adverse Change with respect to such GIC Issuer,
or (D) such GIC Issuer is to cease and desist any practice, procedure or policy
employed by such GIC Issuer in the conduct of its business; or

 

(v)                                 the receipt of
notice (A) of any claim or order by any taxing authority that taxes are owed by
such GIC Issuer or (B) that any withholding or backup withholding taxes are to
be imposed with respect to any GIC Issuers Collateral, in each case in an
amount exceeding $10,000,000.

 

31

 

(f)                                    In the case of
FSA Capital Markets and FSA Capital Management, it shall comply with the
provisions of Section 11(j) of its Organizational Document relating to “special
purpose entity” restrictions.

 

(g)                                 Such GIC Issuer
shall maintain all licenses, permits, charters and registrations that are
material to the conduct of its business.

 

(h)                                 Such GIC Issuer
shall apply its available funds towards the purchase of the GIC Issuers
Collateral, the payment of amounts due under the related GIC Issuer Secured
Obligations and towards the other sums payable by such GIC Issuer under the GIC
Business Documents and for no other purpose.

 

(i)                                     Such GIC Issuer
shall, from time to time, pay or prepay all or such portion of any GIC Contract
as required by, and in accordance with, the terms of such GIC Contract.

 

(j)                                     Such GIC Issuer
will pay all and any stamp tax and other taxes or duties, including any
interest and penalties, payable by such GIC Issuer on, or in connection with,
the Retained FSA Policies and the Master Repurchase Agreement; or the GIC
Business Documents to which it is a party, and such GIC Issuer will also pay
all franchise taxes and all other taxes of whatever nature payable in
connection with the conduct of its business, the non-payment of which would
result in a Material Adverse Change. with respect to such GIC Issuer

 

(k)                                  Such GIC Issuer
shall comply in all material respects with all applicable provisions of state
and federal securities laws, including blue sky laws and the Securities Act,
the Exchange Act and the Investment Company Act and all rules and regulations
promulgated thereunder (or, in the case of FSA Capital Markets Cayman, any
equivalent laws in the Cayman Islands) for which non-compliance would
reasonably be likely to result in a Material Adverse Change with respect to
such GIC Issuer.

 

(l)                                     Such GIC Issuer
will promptly exercise its rights to obtain the return of Excluded GIC Issuer
Collateral in accordance with the GIC Contracts.

 

(m)                               In the case of
FSA Capital Markets and FSA Capital Management, such GIC Issuer will promptly,
and in any event no later than six (6) months prior to the expiration of any
D&O Insurance for its Independent directors, renew and prepay in advance
for a minimum of three (3) years, the premium for such D&O Insurance or
will provide such other protection or indemnity arrangements that are
consistent with rating agency policies related to bankruptcy remote entities in
securitization transactions that are rated investment grade.

 

(n)                                 Such GIC Issuer
will promptly reimburse FSA pursuant to the Priority of Payments for all claims
paid by FSA under a financial guarantee of the obligations of any GIC Issuer or
the FSAM Hedging Successor in respect of Hedge Agreements, entered into after
the occurrence of a Dexia Event of Default.

 

The
foregoing affirmative covenants will supersede and replace the affirmative
covenants, if any, of such GIC Issuer set forth in the relevant GIC Issuers
Insurance Agreements.

 

Section
3.7.                                   Negative
Covenants of GIC Issuers. Each GIC Issuer hereby agrees that during the
term of this Agreement, except as otherwise permitted under the Material
Agreements, unless Dexia and FSA shall otherwise expressly consent in writing:

 

(a)                                  Such GIC Issuer
shall not amend, supplement or otherwise modify its Organizational Document (or
permit any of the foregoing).

 

32

 

(b)                                 Such GIC Issuer
shall not create, incur or suffer to exist any Indebtedness other than the
related GIC Issuer Secured Obligations, any Permitted Indebtedness and its
respective GIC Contracts.

 

(c)                                  Such GIC Issuer
shall not form or acquire, or cause to be formed or acquired, any Subsidiaries.

 

(d)                                 Such GIC Issuer
shall neither repurchase any of its membership interests nor make any
distributions to its members, including any distribution of dividends, except
as permitted under the Priority of Payments.

 

(e)                                  Such GIC Issuer
shall not (i) create, incur or suffer to exist, or agree to create, incur or
suffer to exist, or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) the creation, incurrence or existence
of any Lien on the GIC Issuers Collateral except for (A) Liens to which each of
Dexia and FSA has consented in writing or (B) Permitted Liens or (ii) sign or
file or authorize the filing under the applicable law of any jurisdiction any
notice or financing statement that names such GIC Issuer as a debtor, or sign
any security agreement authorizing any secured party thereunder to file such
notice or financing statement, except in each case any such instrument solely
securing the rights and preserving the Lien of the Collateral Agent.

 

(f)                                    Such GIC Issuer
shall not issue any membership interests, ordinary shares or equity interests
of any kind or rights, warrants or options in respect of membership interests,
ordinary shares or equity interests of any kind or securities convertible into
or exchangeable for membership interests of any kind except for the common
membership interest previously issued to FSAH and transferred to Dexia FP with
respect to FSA Capital Management and FSA Capital Markets.

 

(g)                                 Such GIC Issuer
shall not (i) take any action, or fail to take any action, if such action or
failure to take action may interfere with the enforcement of any rights under
the GIC Business Documents that are material to the rights, benefits or
obligations of the Collateral Agent or any Secured Party (other than with the
consent of the relevant Secured Party), (ii) waive or alter any rights with respect
to the GIC Issuers Collateral or the FSAM Sovereign Guarantee Collateral (or
any agreement or instrument relating thereto); (iii) except to the extent
expressly permitted hereunder with respect to repledge, rehypothecation or use
of the GIC Issuers Collateral, take any action, or fail to take any action, if
such action or failure to take action may interfere with the enforcement of any
rights with respect to the GIC Issuers Collateral; or (iv) fail to pay any tax,
assessment, charge or fee with respect to the GIC Issuers Collateral, or fail
to defend any action, if such failure to pay or defend may adversely affect the
priority or enforceability of the Collateral Agent’s Lien on or security
interest in the GIC Issuers Collateral or such GIC Issuer’s right, title or
interest in the GIC Issuers Collateral.

 

(h)                                 Such GIC Issuer
shall not consolidate with or merge with or into any Person or transfer all or
substantially all of its assets to any Person or liquidate or dissolve in whole
or in part.

 

(i)                                     Such GIC Issuer
shall not waive, modify or amend, or consent to any waiver, modification or
amendment of, any material provisions of any of the GIC Business Documents to
which it is party.

 

(j)                                     Such GIC Issuer
shall not

 

(i)                                     sell, transfer,
exchange or otherwise dispose of any of its assets except as permitted under
this Agreement, or engage in any business or activity other than as
contemplated by this Agreement and its Organizational Document,

 

33

 

(ii)                                  institute
against, or join any other Person in instituting against, any party hereto any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding under any bankruptcy or similar law, or

 

(iii)                               on or after the
Closing Date, acquire any assets other than Permitted Investments without the
written consent of FSA.

 

(k)                                  Such GIC Issuer
shall not take or permit to be taken any action which would have the effect,
directly or indirectly, of causing any amount to be deducted or withheld from
any payment on the GIC Issuers Collateral to such GIC Issuer for or on account
of a tax, and will perform all its obligations under the GIC Business Documents
to prevent or cure any default by, or other condition or event with respect to
such GIC Issuer which would have the effect, directly or indirectly, of causing
any amount to be deducted or withheld from any payment on the GIC Issuers
Collateral for or on account of a tax. Such GIC Issuer shall not fail to timely
pay any tax, assessment, charge or fee imposed on it or with respect to the GIC
Issuers Collateral, or fail to defend any action, if such failure to pay or
defend would reasonably be expected to adversely affect the priority or
enforceability of the Collateral Agent’s security interest in the GIC Issuers
Collateral created by this Agreement or such GIC Issuer’s right, title or
interest in the GIC Issuers Collateral.

 

(l)                                     Such GIC Issuer
shall not take, or permit to be taken, any action that could cause such GIC
Issuer to be required to (i) register as an “investment company” under the
Investment Company Act, or (ii) register any of its issued and outstanding
securities under the Securities Act or any United States state securities laws.

 

(m)                               Such GIC Issuer
shall not deny that the Material Agreements to which it is a party constitute
the legal, valid and binding obligations of such GIC Issuer.

 

(n)                                 Such GIC Issuer
shall not terminate, amend, modify or supplement any GIC Contract except in
accordance with its terms, the ALM Procedures and this Agreement or terminate,
amend, modify or supplement any Material Agreements (other than Hedge
Agreements) to which it is a party without the prior written consent of FSA,
which consent will not be unreasonably withheld or delayed.

 

(o)                                 Such GIC Issuer
(i) shall not enter into any new GIC Contracts and shall not write any other
new business and (ii) shall not enter into any Hedge Agreements without the
consent of FSA unless such Hedge Agreement is not insured or guaranteed by FSA
and is entered into by the Administrator on behalf of such GIC Issuer, acting
in the ordinary course of managing the existing GIC Business in accordance with
the Administrative Services Agreement. Notwithstanding the foregoing, such GIC
Issuer may, at the direction of FSA following a Dexia Event of Default,
terminate, replace or amend, or enter into new transactions under, existing
Hedge Agreements in accordance with the ALM Procedures.

 

(p)                                 Such GIC Issuer
shall not take any action that would cause it to be treated as (i) an association
(or a publicly traded partnership) taxable as a corporation or (ii) a taxable
mortgage pool.

 

(q)                                 Such GIC Issuer
shall not have any employees nor own, rent, lease or be in possession of any
building or other real property.

 

(r)                                    Such GIC Issuer
shall not prior to the Senior Release Date without the prior written consent of
FSA settle any litigation, action, proceeding, suit or investigation unless the
costs of such settlement will be borne or funded by the Dexia Guarantors or
their Affiliates (other than any of the GIC Business Entities or the
Administrator).

 

34

 

(s)                                  Such GIC Issuer
shall not take any action to enforce its rights as a Secured Party with respect
to the Sovereign Guarantee Collateral other than with the consent of FSA as
representative of the Collateral Agent.

 

The
foregoing negative covenants will supersede and replace the negative covenants,
if any, of such GIC Issuer set forth in the GIC Issuers Insurance Agreements.

 

Section
3.8.                                   Affirmative
Covenants of FSA PAL. FSA PAL hereby agrees that during the term of this
Agreement, except as otherwise provided in the Material Agreements, unless
Dexia and FSA shall otherwise expressly consent in writing:

 

(a)                                  It shall
maintain its corporate existence in good standing;

 

(b)                                 It shall comply
in all material respects with all applicable laws, rules, regulations and orders
of any governmental authority;

 

(c)                                  It shall
conduct its business and affairs such that, at all times, its center of main
interests for the purposes of the EU Insolvency Regulation (EC) No. 1346/2000
of May 29, 2000 (the “Insolvency Regulation”) shall be and remain in
England and Wales;

 

(d)                                 It shall
deliver to FSA, as soon as they are available and in any event within 15
Business Days after the same are delivered to appropriate regulatory
authorities, a balance sheet and a profit and loss account for each fiscal year
certified by independent public accountants of recognized standing;

 

(e)                             It shall ensure
with respect to itself that:

 

(i)                                     separate
financial statements in relation to its financial affairs are maintained;

 

(ii)                                  all corporate
formalities with respect to its affairs are observed;

 

(iii)                               separate
stationary, invoices and checks are used;

 

(iv)                              it always holds
itself out as a separate entity;

 

(v)                                 any known
misunderstandings regarding its separate identity are corrected promptly;

 

(vi)                              pay its own
liabilities out of its own funds;

 

(vii)                           not guaranty or
become obligated for debts of any other person or entity or hold out its credit
as being available to satisfy the obligations of others;

 

(viii)                        not acquire any
obligations or securities of its shareholders;

 

(ix)                                maintain
adequate capital in light of its contemplated business operations;

 

(x)                                   maintain at all
times two Independent directors;

 

(f)                                    It shall
conduct business in its own name;

 

(g)                                 It shall
strictly observe and maintain separate financial records which are and will continue
to be maintained to reflect its assets and liabilities which will be subject to
audit by independent public accountants;

 

35

 

(h)                                 It shall
properly reflect in its financial records all monetary transactions between it
and FSAM or any other Affiliate of FSAM;

 

(i)                                     It shall at all
times carry on and conduct its affairs in a proper and efficient manner;

 

(j)                                     It shall at all
times keep such books of accounts as may be necessary to comply with all
applicable laws and so as to enable its financial statements to be prepared and
allow FSAM and FSA and any person appointed by FSAM or FSA free access to the
same at all times during normal business hours and to discuss the same with its
responsible officers; and

 

(k)                                  It shall
promptly, and in any event no later than six (6) months prior to the expiration
of any D&O Insurance, for its Independent directors renew and prepay in
advance for a minimum of three (3) years, the premium for such D&O
Insurance or provide such other protection or indemnity arrangements that are
consistent with rating agency policies related to bankruptcy remote entities in
securitization transactions that are rated investment grade.

 

The
foregoing affirmative covenants will supersede and replace the affirmative
covenants of FSA PAL set forth in the FSA PAL Loan.

 

Section
3.9.                                   Negative
Covenants of FSA PAL. FSA PAL hereby agrees that during the term of this
Agreement, except as otherwise permitted under the Transaction Documents and
the FSA PAL Loan, unless Dexia and FSA shall otherwise expressly consent in
writing:

 

(a)                                  It shall not
incur or permit to subsist any indebtedness in respect of borrowed money
whatsoever or any financial obligations other than (i) the “loans” under the
FSA PAL Loan, (ii) financial obligations owed by it to BNY Mellon, as
Borrower’s clearing and custody agent, pursuant to the FSA PAL Clearing and
Custody Agreement, (iii) custody fees paid solely from interest proceeds on
custodied assets and (iv) Permitted Indebtedness.

 

(b)                                 It shall not
give any guarantee or indemnity in respect of any indebtedness or of any
obligation of any person other than under the FSA PAL Clearing and Custody
Agreement, indemnities with regard to custodial agreements and Permitted
Indebtedness;

 

(c)                                  It shall not
create or permit to subsist any mortgage, sub-mortgage, standard security,
assignment, assignation, charge, sub-charge, pledge, lien (unless arising by
operation of law), hypothecation, assignment by way of security or any other
security interest whatsoever over any of its assets, present or future,
(including any uncalled capital) other than Account Bank Liens and Permitted
Liens;

 

(d)                                 It shall not
engage in any activity whatsoever which is not incidental to or necessary in
connection with any of the activities which this Agreement provide or envisage
that it will engage in;

 

(e)                                  It shall not
have any subsidiaries or any employees or own, rent, lease or be in possession
of any buildings or equipment;

 

(f)                                    It shall not
amend, supplement or otherwise modify its Organizational Documents;

 

(g)                                 It shall not
transfer, sell, lend, part with or otherwise dispose of, or deal with, or grant
any option or present or future right to acquire any Permitted Investment or
any of its other assets or undertaking or any interest, estate, right, title or
benefit therein other than as expressly contemplated by the this Agreement and
the FSA PAL Note;

 

36

 

(h)                                 It shall not
pay any dividend or make any other distribution to its shareholders or issue any
further shares, warrants or options or securities exchangeable into shares;

 

(i)                                     It shall not
make any loan or advance to any other person or entity, or purchase or otherwise
acquire equity interests in any other entity or substantially all the assets of
any other Person;

 

(j)                                     It shall not
merge or consolidate with, or sell, assign, lease, convey, transfer or
otherwise dispose of all or substantially all of its assets to, any other
Person;

 

(k)                                  It shall not
permit any of this Agreement, the FSA PAL Loan and the Note thereto (the “FSA
PAL Note”) to become invalid or ineffective, or the priority of the
security interests created thereby to be reduced, amended, terminated,
postponed or discharged, or permit any party to any of FSA PAL’s “permitted
investments” (as defined in the FSA PAL Loan) or any other person whose obligations
form part of FSA PAL’s Permitted Investments to be released from such
obligations or dispose of all or any part of FSA PAL’s Permitted Investments;

 

(l)                                     It shall not
own assets other than those representing its share capital, the funds arising from
the issue of the FSA PAL Note, “permitted investments” (as defined in the FSA
PAL Loan) and associated and ancillary rights and interests thereto, the
benefit of this Agreement, the FSA PAL Loan and the FSA PAL Note and any other
rights or interests created or acquired thereunder, as all of the same may vary
from time to time;

 

(m)                               It shall not
permit any person other than FSAM to have any equitable or beneficial interest
in any of its assets or undertakings or any interest, estate, right, title,
benefit therein except as otherwise provided for in this Agreement, the FSA PAL
Loan and the FSA PAL Note;

 

(n)                                 It shall not
maintain an “establishment” (as that expression is used in the Insolvency Regulation)
or branch office in any jurisdiction other than England and Wales.

 

(o)                                 It shall not
permit or consent to any of the following occurring:

 

(i)                                     its books and
records being maintained with or co-mingled with those of any other person or
entity;

 

(ii)                                  its bank
accounts and the debts represented thereby being co-mingled with those of any
other person or entity;

 

(iii)                               its assets or
revenues being co-mingled with those of any other person or entity; or

 

(iv)                              its business
being conducted other than in its own name; or

 

(p)                                 It shall not
hold out its credit or assets as being available to satisfy the obligations of others.

 

The
foregoing negative covenants will supersede and replace the negative covenants
of FSA PAL set forth in the FSA PAL Loan.

 

Section
3.10.                             Affirmative
Covenants of Dexia FP. Dexia FP hereby agrees that during the term
of this Agreement, except as otherwise provided in the Transaction Documents,
unless Dexia and FSA shall otherwise expressly consent in writing:

 

37

 

(a)                                  Dexia FP shall
comply in all material respects with the requirements and limitations of its
powers set forth in, and will observe all procedures required by, its
Organizational Documents, including that it shall not amend certain sections of
its Organizational Documents as provided therein. Dexia FP shall take all
appropriate action necessary to maintain its existence and good standing under
the laws of the State of Delaware.

 

(b)                                 Dexia FP shall
comply with the provisions of Article VI of its By-Laws.

 

(c)                                  Dexia FP will
promptly, and in any event no later than six (6) months prior to the expiration
of any D&O Insurance for its Independent directors, renew and prepay in
advance for a minimum of three (3) years, the premium for such D&O
Insurance or provide such other protection or indemnity arrangements that are
consistent with rating agency policies related to bankruptcy remote entities in
securitization transactions that are rated investment grade.

 

Section
3.11.                             Negative
Covenants of Dexia FP. Dexia FP hereby agrees that during the term
of this Agreement, except as otherwise permitted under the Transaction
Documents, unless Dexia and FSA shall otherwise expressly consent in writing:

 

(a)                                  Dexia FP shall
not amend, supplement or otherwise modify its Organizational Document (or
permit any of the foregoing).

 

(b)                                 Dexia FP shall
neither repurchase any of its membership interests nor make any distributions
to its members, including any distribution of dividends, except as permitted
under the Priority of Payments.

 

(c)                                  Dexia FP shall
not issue any ordinary shares, common stock or equity interests of any kind or
rights, warrants or options in respect ordinary shares or equity interests of
any kind or securities convertible into or exchangeable for equity interests of
any kind except for the equity interests previously issued to DHI.

 

(d)                                 Dexia FP shall
not consolidate with or merge with or into any Person or transfer all or
substantially all of its assets to any Person or liquidate or dissolve in whole
or in part.

 

(e)                                  Dexia FP shall
not deny that this Agreement constitutes the legal, valid and binding
obligations of Dexia FP.

 

Section
3.12.                             Covenants of
the Dexia Parties.

 

(a)                                  Prior to a
Dexia Event of Default, to the extent FSAM or the Administrator enters into agreements
with service providers (including any Account Bank) that require future
payments by FSAM and/or the Administrator and do not contain non-petition and
limited recourse provisions (each, a “Non-Conforming Agreement”), DCL
agrees that it will issue a Required Guarantee.

 

(b)                                 To the extent
that any Dexia Guarantor receives notice from FSA or otherwise becomes aware of
an outstanding FSA Policy that is not a Retained FSA Policy, the relevant Dexia
Guarantor will give notice of such circumstance to FSA (if notice was not
received from FSA) and, if a Dexia Affiliate is the beneficiary thereunder,
will enter into, or cause such Dexia Affiliate to enter into, a customary
termination agreement with respect to such policy and will agree (or cause the
Dexia Affiliate) not to make a claim thereunder.

 

(c)                                  Each Dexia
Guarantor shall take reasonable actions deemed necessary or desirable by the
Collateral Agent or FSA or that are required by applicable law to continue the
Collateral Agent’s

 

38

 

preferred
status in the Dexia Collateral with the same or with better priorities in
relation to such Dexia Guarantor.

 

(d)                                 Each Dexia
Party hereby agrees that during the term of this Agreement, such Dexia Party shall
not terminate, amend, modify or supplement any of the Material Agreements to
which it is a party without the prior written consent of FSA, which consent
will not be unreasonably withheld or delayed.

 

(e)                                  The Dexia
Guarantors shall cause to be furnished to FSA, unless a Senior Release Date has
occurred:

 

(i)                                     Annual
Financial Statements.

 

(A)                              Until such time as the
aggregate outstanding principal balance of the GIC Contracts is less than
$5,000,000,000, within the later of 90 days after (x) the close of each fiscal
year of Dexia FP or (y) the receipt by FSAM of a request for such statements
from FSA, the audited consolidated financial statements of Dexia FP as of the
end of such fiscal year, in reasonable detail and stating in comparative form
the respective figures for the corresponding date and period in the preceding
fiscal year, prepared in accordance with generally accepted accounting
principles, as determined by Dexia, consistently applied. The financial
statement will include, in a footnote, condensed consolidating financial
information for the same period for FSAM, FSA Capital Markets and FSA Capital
Management.

 

(B)                                After the aggregate
outstanding principal balance of the GIC Contracts is less than $5,000,000,000,
FSAM shall furnish to FSA within the later of 90 days after (x) the close of
the fiscal year of Dexia FP or (y) the receipt by FSAM of a request from FSA,
the audited consolidated annual financial statements described in the preceding
sentence, in each case only if (1) such audited consolidated financial
statements are reasonably requested by FSA or Assured in connection with the
preparation of its financial statements and (2) the reasonable costs of such
audited consolidated financial statements are paid by FSA. The financial
statement will include, in a footnote, condensed consolidating financial
information for the same period for FSAM, FSA Capital Markets and FSA Capital
Management.

 

(ii)                                  Unaudited
Financial Statements.

 

(A)                              Until such time as the
aggregate outstanding principal balance of the GIC Contracts is less than
$5,000,000,000, within 60 days after the close of each of the first three
quarters of each fiscal year of Dexia FP commencing with the quarter ending
September 30, 2009, the unaudited consolidated statement of financial condition
of Dexia FP, as of the end of the first three quarters of each fiscal year of
Dexia FP, in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the preceding fiscal year,
prepared in accordance with generally accepted accounting principles, as
determined by Dexia, consistently applied (subject to normal year-end
adjustments).

 

(B)                                After the aggregate
outstanding principal balance of the GIC Contracts is less than $5,000,000,000,
FSAM shall furnish to FSA within 60 days after the close of each quarter of
each fiscal year of Dexia FP commencing with the quarter after which the
balance falls below $5,000,000,000, financial statements or internal management
reports for the portion of the fiscal year then ended for the first three
quarters, or for the fiscal year in the case of the fourth quarter, in each
case only if (1) reasonably requested by

 

39

 

FSA
or Assured in connection with the preparation of its financial statements and
(2) such financial statements have otherwise been prepared by Dexia FP.

 

(iii)                               Certificate.
Each delivery of any financial statements required pursuant to Section 3.12(e)(i)
or (ii) will be accompanied by a certificate stating that the financial reports
delivered present fairly the financial condition and results of operation of
Dexia FP as of the dates and for the periods indicated in accordance with the
generally identified accounting principles identified therein, consistently applied
(subject to interim statements to normal year-end adjustments, if applicable).

 

(iv)                              FSA
PAL and FSA Capital Markets Cayman.

 

(A)                              Annual financial reports of
FSA Pal will be delivered as required by Section 3.8(d).

 

(B)                                Within the later of 90 days
after (x) the close of each fiscal year of Dexia FP or (y) the receipt by FSAM
of a request for such statements from FSA, the balance sheet of FSA Capital
Markets Cayman as of the end of such fiscal year and the consolidated
statements of income, changes in owners’ equity and cash flows for such fiscal
year, prepared in accordance with generally accepted accounting principles, as
determined by Dexia, consistently applied, only if (1) reasonably requested by
FSA or Assured in connection with the preparation of its financial statements
and (2) such financial statements have otherwise been prepared by FSA Capital
Markets Cayman.

 

(C)                                Within the later of 60 days
after (x) after the close of each of each quarter of each fiscal year of Dexia
FP commencing with the quarter ending September 30, 2009, or (y) the receipt by
FSAM of a request from FSA, the unaudited quarterly financial statements of FSA
Capital Markets Cayman, in each case only if (1) reasonably requested by FSA or
Assured in connection with the preparation of its financial statements and (2) such
financial statements have otherwise been prepared by FSA Capital Markets Cayman

 

(f)                                    Prior to a
Transition Date, the Dexia Guarantors shall cause the portfolio of Permitted
Investments (including FSAM Assets that consist of Permitted Investments) and
Dexia CSA Collateral, considered as a whole, to be reasonably diversified as to
specific issuers and categories of investment.

 

(g)                                 If such Dexia
Guarantor shall (i) change the location of its chief executive office (for
purposes of the UCC), (ii) change its name, corporate form change the location
where it maintains its books and records with respect to the Dexia Collateral
or (iii) reorganize or reincorporate under the laws of any other jurisdiction,
it shall take all other reasonable actions deemed necessary or desirable by the
Collateral Agent or any Secured Party or that are required by applicable law to
continue the Collateral Agent’s perfected status in the Dexia Collateral with
the same or better priorities.

 

Section
3.13.                             Affirmative
Covenants of FSA. FSA hereby agrees that after a Dexia Event of
Default, FSA will use good faith, commercially reasonable efforts to (i) cause
the GIC Issuers to continue to comply with GIC collateralization requirements
and other requirements of the GIC Contracts that if not met or complied with
could result in a default under or early termination of the GIC Contract
(except where termination of the GIC Contract would meet the standards of
Section 11.2(c)) and (ii) not enter into agreements with the GIC Issuer that
would reduce or eliminate rights of subrogation that would be available to FSA
upon payment of a claim on the relevant FSA Policy or waive, reduce, or
terminate any payment obligations of the GIC Issuer or release any security
therefor, in each case where such action would be inconsistent with FSA’s
ordinary risk management policies that would apply if FSA were not

 

40

 

protected
against the risk of loss on such GIC Contract under the Dexia FP Guarantee and
FSA’s exposure under the related FSA Policy were retained for FSA’s own
account.

 

ARTICLE IV

GUARANTEES

 

Section
4.1.                                   Put Options.

 

(a)                                  Upon the
occurrence of a Put Trigger arising from an Asset Default Trigger (unless FSAM
reasonably determines that a dispute or error exists with respect to the
relevant servicer information and is actively pursuing resolution of such
dispute or error), FSAM shall within three Business Days after the
Administrator receives information from the relevant servicer demonstrating
that an Asset Default Trigger has occurred, (i) exercise a Put Option in
accordance with the Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed
Put Contract, as applicable, and (ii) shall provide notice of the occurrence of
such Put Trigger and the exercise of the related Put Option to the Collateral
Agent, FSA and the Sovereign Guarantors.

 

(b)                                 If exercise of
the Put Option described in clause (a) is not made by FSAM within five Business
Days after the occurrence of the relevant Asset Default, the Collateral Agent
shall, at the direction of the Secured Party Representative, or FSA may, as
representative for the Collateral Agent, deliver the relevant Exercise Notice
(with a copy to the Collateral Agent) in accordance with the terms of the
relevant Put Contract.

 

(c)                                  Upon the
occurrence of a Put Trigger arising from a Liquidity Default Trigger,
Collateral Default Trigger or Bankruptcy Trigger, FSAM shall immediately upon
the occurrence thereof (i) exercise the related Put Option in accordance with
the Dexia Guaranteed Put Contract and the Dexia Non- Guaranteed Put Contract,
as applicable, and (ii) shall provide notice of the occurrence of such Put
Trigger and the exercise of the related Put Option to the Collateral Agent, FSA
and the Sovereign Guarantors.

 

(d)                                 If exercise of
the Put Option described in clause (c) is not made by FSAM immediately after
the occurrence of the relevant Liquidity Default Trigger, Collateral Default
Trigger or Bankruptcy Trigger, the Collateral Agent shall, at the direction of
the Secured Party Representative, or FSA may, deliver the relevant Exercise
Notice (with a copy to the Collateral Agent) in accordance with the terms of
the relevant Put Contract.

 

(e)                                  The
Administrator will prepare and deliver the Shortfall Information and, if
required under the definition thereof, obtain written confirmation from the
Collateral Agent of non-receipt of payments in the FSAM Cash Account or the
Collateral Agent Cash Account, in each case in accordance with the Put Contract
and the Sovereign Guarantee. For the avoidance of doubt FSA (either directly or
as representative of the Collateral Agent) may prepare the Shortfall
Information and obtain written confirmation from the Collateral Agent of
non-receipt of payments in the FSAM Cash Account or the Collateral Agent Cash
Account, specify the related Put Exercise Amounts in relation to any Liquidity
Default Trigger, any Collateral Default Trigger or any Bankruptcy Trigger and
may deliver the related Shortfall Information and/or an Exercise Notice as
provided in the relevant Put Contract, without regard to which Person delivered
the related Exercise Notice. Copies of any such notices will be provided to the
Collateral Agent and, if applicable FSA, in addition to any Persons specified
in the relevant Put Contract. The Collateral Agent shall not specify the
related Put Exercise Amount with respect to any exercise of a Put Option except
upon direction from FSA.

 

(f)                                    The failure of
FSAM or FSA, as applicable, to make or exercise any claim or option shall not
impair or prevent the making of such claim or the exercising of such option at
any later date in relation to such Put Trigger, or any other Put Trigger as
provided under the relevant Put Contract.

 

41

 

(g)                                 FSA may act
directly or as the representative of the Collateral Agent to make demands and
may request and dispute valuations as provided in the Put Contracts.

 

(h)                                 In connection
with delivery of an Exercise Notice, FSAM or FSA as representative of the
Collateral Agent, will deliver a Settlement Instruction (as defined in the
applicable Put Settlement Procedures Agreement) to the Account Bank with a copy
to the Collateral Agent.

 

Section
4.2.                                   Sovereign
Guarantee.

 

(a)                                  So long as the
Dexia Guaranteed Put Contract and the Sovereign Guarantee are in effect:

 

(i)                                     In relation to
any Put Settlement Date arising from an Asset Default Trigger under the Dexia
Guaranteed Put Contract, in the event that the Dexia Guarantors (i) fail to pay
the relevant Shortfall Amounts, if applicable, on or after such date or (ii) fail
to pay the Put Settlement Amount on the Put Settlement Date, FSAM shall
promptly submit a Guarantee Call under the Sovereign Guarantee in accordance
with its terms.

 

(ii)                                  In relation to
any Put Settlement Date arising from a Liquidity Default Trigger or Collateral
Default Trigger or a Bankruptcy Trigger under the Dexia Guaranteed Put Contract
in the event that any Dexia Guarantor fails to pay the relevant Put Settlement
Amount on the related Put Settlement Date, FSAM shall promptly submit a
Guarantee Call with respect to such event under the Sovereign Guarantee in
accordance with its terms.

 

(iii)                               If any claim
described in clauses (i) or (ii) is not made by FSAM in accordance with the
Sovereign Guarantee, the Collateral Agent shall, at the detailed direction of
the Secured Party Representative, or FSA, as representative for the Collateral
Agent, may promptly submit a Guarantee Call in accordance with the terms of the
Sovereign Guarantee which shall be described in detail by the Secured Party
Representative. Copies of any such claims will be provided to the Collateral
Agent and, if applicable FSA, in addition to any Persons specified in the
Sovereign Guarantee.

 

(iv)                              The failure of
FSAM or FSA, as applicable, to make any claim shall not impair or prevent the
making of such claim at any later date in relation to such Put Trigger, or any
other Put Trigger to the extent permitted by the Put Contracts.

 

(v)                                 The Collateral
Agent will only consent to an amendment of the Sovereign Guarantee or to a
Proscribed Amendment to which FSA has directed it to consent.

 

(b)                            FSAM agrees to
promptly repay to Dexia (as provided in Section 11.1 and the definition of
Dexia Reimbursement Payments) any amounts paid by the Sovereign Guarantors
under the Sovereign Guarantee in circumstances where such amounts were not due
by Dexia as a Shortfall Amount or Put Settlement Amount under the Dexia
Guaranteed Put Contract.

 

(c)                             FSAM or FSA, as
applicable, will make a Guarantee Call by email or facsimile, with confirmation
of receipt by the Sovereign Guarantors by email or facsimile.

 

42

 

ARTICLE V

EVENTS OF DEFAULT; REMEDIES

 

Section
5.1.                                   Events of
Default.

 

A
“Dexia Event of Default” will mean the occurrence of any of the following
events:

 

(a)                                  the occurrence
of any ISDA Event of Default under either the Dexia Guaranteed Put Contract or
the Dexia Non-Guaranteed Put Contract;

 

(b)                                 the non-payment
by any Dexia Party or any Affiliate of any required payment in accordance with
the terms of any Dexia Guarantee, the Put Contracts or the Dexia GIC Indemnity
(the “Dexia Payment Obligations”) where (i) the amount of such
non-payment, taken together with any other outstanding and uncured failures to
make payments or deliveries by any Dexia Party or any Affiliate in relation to
Uncovered Dexia Payment Obligations, exceeds USD 10,000,000 (the “Default
Threshold”)  and (ii) such non-payment is not remedied by an Account
Transfer Cure within the Cure Period following delivery of a Payment Failure
Notice to the relevant addressees of such notice by FSA; provided that such amount is not a Good
Faith Contested Payment or a collateral posting requirement in relation to the
GIC Contracts; or

 

(c)                                  a Lender
Bankruptcy occurs with respect to any Lender prior to such time as the
Liquidity Facility is fully drawn or such Lenders commitment thereunder has
been terminated in accordance with its terms, or

 

(d)                                 an SPV
Bankruptcy occurs with respect to FSAM or any GIC Issuer which is not
predominately the result of action by FSA or its Affiliates or any person
acting on their behalf.

 

The
Dexia Guarantors or FSAM will notify the Collateral Agent, the Reporting Agent
and FSA within one Business Day following the occurrence of a Dexia Event of
Default described in clause (a) or (b) of the definition thereof. The Dexia
Guarantors or FSAM will notify the Collateral Agent, the Reporting Agent and
FSA within five Business Days following the occurrence of a Dexia Event of
Default described in clause (c) or (d) of the definition thereof.

 

Section
5.2.                                   Remedies.

 

(a)                                  Upon a Dexia
Event of Default (subject to Section 7.5 and the further provisions of this Section
5.2 below), FSA, in its capacity as Secured Party Representative (or, after the
Senior Release Date, the Dexia Guarantors), may take any or all of the
following actions at any time and in any order:

 

(i)                                     cause the
repurchase date to occur in respect of all or any part of the transactions
entered into under the Master Repurchase Agreement, exercise the rights of a
secured party in relation to the Collateral, and direct the Collateral Agent to
exercise all rights to vote or give directions or consents as a holder of such
collateral following enforcement of its security interest;

 

(ii)                                  terminate the
Administrative Services Agreement or replace the Administrator thereunder and
direct the management of the Administrator, including consenting to new Hedge
Agreements by the FSAM Hedging Successor Entity, a GIC Issuer or the FSAM
Successor to be entered into in accordance with the ALM Procedures;

 

(iii)                               with respect to
the Dexia Non-Guaranteed Put Contract, designate an “early termination date,”
liquidate the Dexia Collateral posted under the Dexia Non-Guaranteed Put

 

43

 

CSA,
demand payment of any related early termination payments and exercise the
rights of a secured party in relation to the Collateral posted under the Dexia
Non-Guaranteed Put CSA;

 

(iv)                              with respect to
the Dexia Guaranteed Put Contract, if the Dexia Event of Default also
constitutes an ISDA Event of Default, designate an “early termination date,”
liquidate the Dexia Collateral posted under the Dexia Guaranteed Put CSA,
demand payment of any related early termination payments and exercise the
rights of a secured party in relation to the Collateral posted under the Dexia
Guaranteed Put CSA;

 

(v)                                 maintain any
Dexia Guarantees in force, make claims in accordance with the terms of any
Dexia Guarantee, any Liquidity Facility or the Sovereign Guarantee and apply
any Collateral to unpaid liabilities of FSAM;

 

(vi)                              either (1) cause
FSAM and the GIC Issuers to enter into a transfer and novation of the Master
Repurchase Agreement such that an FSAM Successor shall succeed to the rights
and obligations of FSAM under the Master Repurchase Agreement or (2) cause the
GIC Issuers to enter into a Financed FSAM Collateral Purchase and/or a GIC
Issuer Repurchase Agreement with an FSAM Successor; and/or

 

(vii)                           cause any FSAM
Successor and/or any FSAM Hedging Successor to enter into an amendment to this
Agreement in which such FSAM Successor and/or FSAM Hedging Successor shall
Grant a security interest in its assets to the Collateral Agent in a manner
substantially similar to the Grants provided by FSAM and the GIC Issuers in
Article II.

 

Notwithstanding
the foregoing, (x) the Collateral Agent and the Secured Party Representative
shall cause all proceeds from the sale of Collateral to be deposited in the
Collateral Agent Cash Account and reinvested solely in Permitted Investments,
as instructed in writing by the Secured Party Representative, to be applied by
the Administrator to satisfy the obligations of FSAM and the GIC Issuers,
respectively, in accordance with the Priority of Payments; (y) no Person
(including the Collateral Agent or the Secured Party Representative acting on
its behalf) may make any claim under and enforce the Sovereign Guarantee after
termination of the Dexia Guaranteed Put Contract and (z) at any time that the
Subordinated Claims Payment Condition is met or would be met taking into
account the liquidation proceeds from sales of Put Portfolio Assets, Excluded
Assets and Other Assets effected to date (and all other cash and Permitted
Investments then available to the Collateral Agent), no further liquidation of
Put Portfolio Assets, Excluded Assets or Other Assets will be effected pursuant
to subsection (d) or otherwise, it being understood that settlement of any
pending sales is permitted and the Secured Party Representative may recommence
liquidation of Put Portfolio Assets or Excluded Assets in accordance with
subsection (d) at any time that the Subordinated Claims Payment Condition is
not satisfied, subject to Section 11.2.

 

(b)                                 If a Dexia
Event of Default has occurred, the Collateral Agent will, at the direction of
the Secured Party Representative, exercise all rights available at law,
including the rights and remedies available to a secured party under the
Uniform Commercial Code in effect in any applicable jurisdiction and without
limiting the generality of the foregoing, the Collateral Agent may without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law or expressly required under
this Agreement) to or upon any Grantor or any other Person (each and all of
which demands, presentments, protests, advertisements and notices are hereby
waived), collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels or as
an entirety at public or private sale or sales, at any exchange, broker’s board
or office of the Collateral Agent

 

44

 

or
elsewhere, for cash or on credit or for future delivery without assumption of
any credit risk, subject in the case of the Put Portfolio Assets, to the
Liquidation Procedures set forth below.

 

(c)                                  With respect to
a public or private disposition of the Collateral, the Secured Party
Representative may take such steps as it shall determine are necessary or
appropriate to conduct a disposition of Collateral. The Portfolio Manager will,
or if the Portfolio Manager has not yet been retained as provided in Section 7.5
(or has not yet been replaced after a resignation or removal), a third party
agent hired by the Collateral Agent at the direction of the Secured Party
Representative will, serve as liquidation agent (the “Liquidation Agent”)
to conduct such public or private disposition of the Collateral, provided that the Secured Party
Representative may elect not to retain a Liquidation Agent if it determines
such retention would impede the timing of the liquidation of the Collateral.
The Secured Party Representative and other Secured Parties shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the FSAM
Collateral so sold, free of any right or equity of redemption in FSAM, any
Dexia Guarantor, any GIC Issuer, FSA PAL or any other Person, which right or
equity is hereby waived or released so long as in the case of the Put Portfolio
Assets, such sale is in material compliance with the Liquidation Procedures
below and the purchaser is the highest bidder.

 

(d)                                 If a Portfolio
Manager has not been appointed pursuant to Section 7.5 (other than pursuant to
Section 7.5(c)) and subject to Section 11.2, the Secured Party Representative
or Liquidation Agent, as applicable, will liquidate Collateral pursuant to this
Section 5.2 in the following order: (x) first, liquidate the Excluded Assets and
Other Assets (other than Permitted Investments) with the highest Mark to Market
Value as of the date of the relevant bid list in priority to Excluded Assets
and Other Assets (other than Permitted Investments) of lower Mark to Market
Value as of such date and, then (y) liquidate the Put Portfolio Assets with the
highest Mark to Market Value as of the date of the relevant bid list in
priority to Put Portfolio Assets of lower Mark to Market Value as of such date,
subject at all times to subclause (z) under Section 5.2(a) above. In addition,
the following additional criteria will apply with respect to the Put Portfolio
Assets (the “Liquidation Procedures”):

 

(i)                                     the Secured
Party Representative or Liquidation Agent, as applicable, will use commercially
reasonable efforts to identify amounts or types of Put Portfolio Assets to be
sold separately (each a “Collateral Lot”) where such separate sales of
Collateral Lots may increase the overall liquidation proceeds of the Put
Portfolio Assets, and in any event no Collateral Lot including Put Portfolio
Assets of more than $500 million in aggregate Mark to Market Value (as most
recently determined prior to the date of sale) will be sold on a date that is
fewer than five Business Days apart (a “Disposition Period”) from another
date on which another Collateral Lot of Put Portfolio Assets is sold, unless
the aggregate liquidation proceeds from such sale would be at least equal to
95% of the aggregate Mark to Market Value (as most recently determined prior to
the date of sale) of the Put Portfolio Assets included in the relevant
Collateral Lot;

 

(ii)                                  the Secured
Party Representative or Liquidation Agent, as applicable, will give the Dexia
Guarantors reasonable advance notice of each sale of a Collateral Lot of Put
Portfolio Assets and a reasonable opportunity to identify parties who should
receive the bid package in relation to any Collateral Lot, and access to any
information that would be required for Dexia to communicate details of the bid
package to potential bidders; provided,
however, that each Dexia Guarantor hereby acknowledges and agrees
that it shall have received reasonable advance notice of any sale and a
reasonable opportunity to identify parties described herein to the extent such
Dexia Guarantor has been given three Business Days’ advance notice of any sale
(which notice period may be concurrent with a Disposition Period applicable
under clause (i)).

 

(iii)                               the Secured
Party Representative or Liquidation Agent, as applicable, will solicit a
quotation in relation to each Collateral Lot of Put Portfolio Assets from at
least four

 

45

 

Unaffiliated
Eligible Bidders and two other Unaffiliated Eligible Bidders identified by the
Dexia Guarantors with respect to any Collateral Lot so long as the Dexia
Guarantors have provided the Secured Party Representative or the Liquidation
Agent, as applicable, the names and contact details of at least two such
Unaffiliated Eligible Bidders within the three Business Day period described in
clause (ii), and the Dexia Guarantors (so long as the relevant Dexia Event of
Default was not a Dexia Bankruptcy) shall have the right to submit a bid in
relation to each Collateral Lot of Put Portfolio Assets (a “Dexia Bid”);

 

(iv)                              none of the
Secured Party Representative, the Liquidation Agent or the Dexia Parties shall
have any “last look” or similar option to match bids provided by Eligible
Bidders;

 

(v)                                 in relation to
each Collateral Lot of Put Portfolio Assets, the Secured Party Representative
or Liquidation Agent, as applicable, will not sell the relevant Collateral Lot
of Put Portfolio Assets unless either (A) at least two bids have been obtained
from Unaffiliated Eligible Bidders for the relevant Collateral Lot of Put
Portfolio Assets on the relevant date and the aggregate liquidation proceeds
from such sale would be at least equal to the relevant Liquidity Percentage
times the aggregate Mark to Market Value (as most recently determined prior to
the date of sale) of the Put Portfolio Assets included in the relevant
Collateral Lot, where “Liquidity Percentage” in relation to any
Collateral Lot and any date means (1) to the extent there are four or more bids
from Unaffiliated Eligible Bidders for such Collateral Lot, 80% and (2) to the
extent there are two or three bids from Unaffiliated Eligible Bidders for such
Collateral Lot, 90%; (B) at least one bid has been obtained from an
Unaffiliated Eligible Bidder and an attempt to obtain bids for the relevant
Collateral Lot has been made on three different Business Days each separated by
at least two Business Days; or (C) the Dexia Bid is the highest bid.

 

(vi)                              the sale must
occur at the highest cash bid price received for the relevant Collateral Lot of
any Put Portfolio Assets, including any Dexia Bid;

 

(vii)                           the Put
Portfolio Assets with the highest Mark to Market Value as of the date of the
relevant bid list will be sold first; and

 

(viii)                        for the
avoidance of doubt, the parties hereby acknowledge and agree that the
Liquidation Procedures will (A) not apply to (x) any sale, liquidation or other
disposition of Collateral other than Put Portfolio Assets or (y) any sale,
liquidation or other disposition of Put Portfolio Assets conducted at the
direction of the Portfolio Manager appointed pursuant to Section 7.5; and (B) will
not prejudice the rights of the Secured Party Representative or the
Administrator to sell or otherwise dispose of Put Portfolio Assets pursuant to
Section 11.2.

 

(e)                                  The parties
agree and acknowledge that any sale of Put Portfolio Assets in respect of which
the Liquidation Agent or the Secured Party Representative, as applicable, is in
material compliance with the Liquidation Procedures is commercially reasonable
under the applicable UCC. The parties agree and acknowledge that any sale of (i)
Put Portfolio Assets conducted at the direction of the Portfolio Manager
appointed pursuant to Section 7.5 or conducted at a time when no Portfolio
Manager has been appointed as a result of the procedures set forth in Section 7.5(c),
(ii) Collateral other than Put Portfolio Assets or (iii) Put Portfolio Assets
by the Secured Party Representative or the Liquidation Agent where the
Liquidation Procedures are not required to apply is commercially reasonable
under the applicable UCC in each case, to the extent (x) the Secured Party
Representative or Liquidation Agent, as applicable, shall have contacted (by
mail, electronic mail, facsimile or otherwise) and solicited bids from, without
duplication, at least four Unaffiliated Eligible Bidders or other Persons in
the business of purchasing or originating securities similar to the Collateral,
(y) the Secured Party Representative or Liquidation Agent has provided the
Dexia Guarantors with three Business Days’ prior notice of such sale, and (z) such
sale is made at a price at least equal to the highest of such bids, including
any Dexia Bid (the procedures in

 

46

 

described
in clauses (x) and (y), the “Minimum Liquidation Procedures”). The
Collateral Agent and each of FSAM, each Dexia Guarantor, each GIC Issuer and
FSA PAL agree to assemble the Collateral applicable to it and under its
control, at the request of the Liquidation Agent or Collateral Agent, and make
such Collateral available to the Liquidation Agent at places and times that the
Liquidation Agent shall reasonably select.

 

(f)                                    The Collateral
Agent shall not be liable to any other Secured Party for any action it takes or
omits to take in good faith, in its capacity as Collateral Agent, that it
reasonably and prudently believes to be authorized or within its rights or
powers hereunder. The parties agree that alternative liquidation procedures
that differ from those described in this paragraph may also be commercially
reasonable under the applicable UCC.

 

(g)                                 No right or
remedy herein conferred upon or reserved to the Collateral Agent or the Secured
Party Representative is intended to be exclusive of any other right or remedy,
and every right and remedy will, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, will not prevent the
concurrent or subsequent assertion or employment of any other appropriate right
or remedy.

 

(h)                                 No delay or
omission of the Collateral Agent or the Secured Party Representative to
exercise any right, power or remedy accruing upon any Dexia Event of Default
will impair any such right, power or remedy or constitute a waiver of any such
Dexia Event of Default or an acquiescence therein. Every right, power and
remedy given by this Agreement or by law to the Secured Party Representative or
Collateral Agent may be exercised from time to time, and as often as may be
deemed expedient, by the Secured Party Representative or Collateral Agent, as
the case may be.

 

(i)                                     The Collateral
Agent hereby expressly waives its rights to any amount fixed by law as
compensation for any sale; provided that
the Collateral Agent may deduct the reasonable costs, charges and expenses
incurred by it in connection with such sale (including all costs of
publication, Collateral assemblage costs, and Liquidation Agent and legal fees
and expenses, notwithstanding the provisions of Section 6.2 hereof) in
accordance with the Priority of Payments.

 

(j)                                     Without
limitation of, and in addition to, the power of attorney contemplated by
Section 2.1(i) and any other power of attorney provided to the Collateral Agent
or FSA under any other Material Agreement, each Grantor hereby irrevocably
constitutes and appoints the Collateral Agent, and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Grantor and in the name of such Grantor or in its own name, from
time to time in their discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, following a Dexia Event of Default. Without
limiting the generality of the foregoing, each Grantor hereby gives the
Collateral Agent the power and right, on behalf of such Grantor and following a
Dexia Event of Default, without notice to or assent by such Grantor to do the
following:

 

(i)                                     receive, take,
endorse, assign and deliver any checks, drafts, notes, acceptances, documents
and other negotiable and non-negotiable instruments, documents and chattel
paper taken or received by the Secured Party Representative or the Collateral
Agent in connection herewith and therewith for the payment of moneys due with
respect to any Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Secured Party Representative or the Collateral Agent for the purpose of
collecting any and all such moneys due with respect to any Collateral whenever
payable;

 

47

 

(ii)           pay or discharge taxes and
Liens levied or placed on or threatened against any Collateral; and

 

(iii)          (A) direct any party
liable for any payment under any Collateral to make payment of any and all
moneys due or to become due thereunder directly to the Collateral Agent or as
the Collateral Agent shall direct upon receipt of written instructions from the
Secured Party Representative; (B) ask or demand for, collect, receive
payment of and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any Collateral;
(C) sign and endorse any invoices, assignments, verifications, notices and
other documents in connection with any of the Collateral; (D) commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and
enforce any other right in respect of any Collateral; (E) defend any suit,
action or proceeding with respect to any Collateral; (F) settle,
compromise or adjust any suit, action or proceeding described in clause
(E) above and, in connection therewith, give such discharges or releases
as the Secured Party Representative may deem appropriate; and
(G) generally, sell, transfer, pledge or assign and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Collateral Agent were the absolute owner thereof for
all purposes, and do, at the option of the Secured Party Representative and at
FSAM’s expense, at any time, and from time to time, all acts and things that
the Secured Party Representative deems necessary to protect, preserve or
realize upon the Collateral and the Collateral Agent’s Liens thereon; and

 

(iv)          execute, in connection with
any sale of Collateral, any endorsements, assignments, stock powers or other
instruments of conveyance or transfer with respect to such Collateral; and

 

(v)           at the direction of FSA, as
Secured Party Representative, to enter into one or more GIC Issuer Repurchase
Agreements, a Financed FSAM Collateral Purchase and/or a transfer and novation
of the Master Repurchase Agreement.

 

Each
Grantor hereby ratifies all that said attorneys shall lawfully do or cause to
be done by virtue hereof. All powers, authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled
with an interest. No purchaser or transferee at such a sale shall be bound to
ascertain the Collateral Agent’s authority, to inquire into the satisfaction of
any conditions precedent or see to the application of any payment.

 

(k)           All rights of
action and rights to assert claims upon or under this Agreement may be enforced
by the Collateral Agent without the possession of any Collateral or the
production thereof in any trial or other proceeding relative thereto, and any
such suit or proceeding instituted by the Collateral Agent shall be brought in
its name as Collateral Agent and any recovery of judgment will be held as part
of the Collateral.

 

(l)            Each Grantor,
to the extent it may lawfully do so, on behalf of itself and all who may claim
through or under it, including any and all subsequent creditors, vendees,
assignees and lienors, expressly waives and releases any, every and all rights
to presentment, demand, protest or any notice (to the extent permitted by
applicable law and except as to notices to such Grantor expressly provided for
in this Agreement) of any kind in connection with this Agreement or any
Collateral or to have any marshalling of the Collateral upon any sale, whether
made under any power of sale granted hereunder or any other agreement or
instrument, or pursuant to judicial proceedings or upon any foreclosure or any
enforcement of this Agreement or any other Secured Obligation and consents and
agrees that all the Collateral may at any such sale be offered and sold as an
entirety or in lots or otherwise as the Collateral

 

48

 

Agent
may be directed by the Secured Party Representative hereunder, subject in each
case to Section 7.5 and the Liquidation Procedures.

 

(m)          Upon a Dexia
Event of Default, FSA may directly exercise all rights available to it under
applicable law to enforce its security interest in the Dexia FP Collateral by
giving written notice thereof to the Collateral Agent (with a copy to Dexia
FP), and thereafter shall have all rights with respect to such membership
interests including any and all management, voting, approval and other rights
under the Organizational Documents of HF Services LLC and Delaware law. Dexia
FP acknowledges and agrees that any such direction to deliver the membership
interest of HF Services LLC to, or at FSA’s direction, is commercially
reasonable under the applicable UCC.

 

(n)           Upon a Dexia
Event of Default, FSA may directly exercise all rights available to it under
applicable law to enforce its security interest in the FSAM PAL Collateral by
giving written notice thereof to the Collateral Agent (with a copy to FSAM),
and thereafter shall have all rights with respect to the FSA PAL ordinary
shares including any and all management, voting, approval and other rights
under the Organizational Documents of FSA PAL and the law of England and Wales.
FSAM acknowledges and agrees that any such direction to deliver the ordinary
shares of FSA PAL to, or at FSA’s direction, is commercially reasonable under
the applicable UCC.

 

(o)           All the
provisions of this Section 5.2 are intended to be subject to all
applicable mandatory provisions of law which may be controlling in the premises
and to be limited to the extent necessary so that they will not render this
Agreement invalid, unenforceable in whole or in part or not entitled to be
recorded, registered, or filed under the provisions of any applicable law. For
the avoidance of doubt, the provisions of this Section 5.2 are intended
only to grant rights to the Secured Party Representative (upon a Dexia Event of
Default) to enforce its rights over the Collateral. They are not intended to
grant any rights to the Secured Party Representative (upon a Dexia Event of
Default) that would result in a change of control over FSAM. Without limitation
of the foregoing, the Secured Party Representative will have no right to cause
FSAM to purchase new assets, incur new liabilities, enter into any new
transactions or otherwise manage the business of FSAM without the consent of
Dexia and the Sovereign Guarantors. The foregoing does not limit (i) the
rights of the Collateral Agent or FSA to make a “default termination draw” or a
“default repo termination request” as defined in and under the Guaranteed
Liquidity Facilities, (ii) the rights of the Collateral Agent and FSA to
deliver Put Exercise Notices and otherwise to enforce the obligations of the
Dexia Guarantors under the Put Contracts or the Sovereign Guarantors under the
Sovereign Guarantee or (iii) the rights of FSA to manage the assets and
liabilities of the FSAM Successor, the FSAM Hedging Successor and the GIC
Issuers following a Dexia Event of Default and to take or cause to be taken any
or all of the measures set forth in Section 7.5 or (iv) the other
express remedies of the Secured Party Representative under this Agreement.

 

Section 5.3.            Application of
Funds Collected; Subordination.

 

(a)           Any proceeds
(net of any reasonable liquidation expenses) that the Collateral Agent or
Secured Party Representative receives from the exercise of its rights and
remedies with respect to the Collateral (including from the sale thereof) will
be deposited in the Collateral Agent Cash Account and applied in accordance
with the Priority of Payments.

 

(b)           If at any time
following notice of any Dexia Event of Default any party hereto will have
received any payment or distribution (whether voluntary, involuntary, through
the exercise of any rights of set-off, or otherwise, and whether in cash,
property or securities) in excess of the payments or distributions such party
would have received through the operation of Section 5.3(a) (such
excess payments or distributions being referred to as “Excess Payments”),
then the relevant party shall promptly pay over such Excess Payments in the
form received (duly endorsed, if necessary, to the Collateral Agent)

 

49

 

to
the Collateral Agent, for deposit to the Collateral Agent Cash Account and
distribution by the Administrator in accordance with the Priority of Payments.

 

(c)           The
subordinations, agreements and priorities set forth in this Agreement will
remain in full force and effect, regardless of whether any Person in the future
seeks to rescind, amend, terminate or reform, by litigation or otherwise, its
respective agreements with FSAM.

 

(d)           Nothing herein
will impair, as between FSAM and the GIC Issuers, on the one hand, and FSA, on
the other hand, the obligations of FSAM and the GIC Issuers, which are
irrevocable, unconditional and absolute, to pay to FSA the amounts due under
the relevant Insurance Agreements.

 

Section 5.4.            Control by the
Secured Party Representative.

 

(a)           Notwithstanding
any other provision of this Agreement, each Secured Party agrees
(notwithstanding the rights it may have under applicable law) that after a
Dexia Event of Default the Secured Party Representative shall have the sole
right to cause the institution of and direct the time, method and place of conducting
any proceeding for any remedy available to the Collateral Agent and for
exercising any trust, right, remedy or power conferred on the Collateral Agent
herein; provided that:

 

(i)            such direction will not
conflict with any rule of law or this Agreement; and

 

(ii)           the Collateral Agent may
take any other action deemed proper by the Collateral Agent that is not
inconsistent with any direction by the Secured Party Representative; provided, however,
that, subject to Section 6.1, the Collateral Agent need not take any
action that it determines might involve it in liability (unless the Collateral
Agent has received satisfactory indemnity with respect to such direction).

 

(b)           The Secured
Parties each agree that, so long as any obligations to the Secured Parties (or
to the Collateral Agent, on behalf of the Secured Parties) under this Agreement
remain outstanding and a Dexia Event of Default has occurred, the Secured
Parties (other than FSA in its capacity as the Secured Party Representative):

 

(i)            will have no right to
(x) direct the Collateral Agent to exercise any right, remedy or power
with respect to the Collateral or (y) consent or object to the exercise by
the Collateral Agent of any right, remedy or power with respect to the
Collateral or to the timing or manner in which any such right is exercised or
not exercised or, to the extent it may have any such right, each Secured Party
(other than the Secured Party Representative) hereby irrevocably waives such
right;

 

(ii)           will not institute any suit
or other proceeding or assert in any suit, bankruptcy or similar insolvency or
other proceeding any claim against the Secured Party Representative or the
Collateral Agent seeking damages from or other relief by way of specific
performance, instructions or otherwise, with respect to, and none of the
Secured Party Representative, the Collateral Agent or the other Secured Parties
shall be liable for, any action taken or omitted to be taken by the Secured
Party Representative or the Collateral Agent with respect to the Collateral,
except that such provisions shall be without prejudice to any remedies
available to Dexia at law or equity for a breach of Section 5.2(c),
(d) and (e) or Section 7.5;

 

(iii)          will not commence judicial
or nonjudicial foreclosure proceedings with respect to, seek to have a trustee,
receiver, liquidator or similar official appointed for or over the Collateral,
attempt any action to take possession of the Collateral to the exclusion of the

 

50

 

Collateral
Agent, exercise any right, remedy or power with respect to, or otherwise take
any action to enforce its interest in or realize upon, the Collateral;

 

(iv)          will not contest, oppose,
object to, interfere with, hinder or delay, in any manner, whether by judicial
proceedings or otherwise, any foreclosure, sale, exchange, transfer or other
disposition of the Collateral by the Secured Party Representative, the
Collateral Agent or the Liquidation Agent, except that such provisions shall be
without prejudice to any remedies available to Dexia at law or equity for a
breach of Section 5.2(c), (d) and (e) or Section 7.5; and

 

(v)           will not seek, and hereby
waive any right, to have the Collateral marshaled upon any foreclosure or other
disposition of the Collateral.

 

(c)           So long as any
obligations to the Secured Parties (or to the Collateral Agent, on behalf of
the Secured Parties) under this Agreement remain outstanding, each Secured
Party agrees that it shall not, in or in connection with any bankruptcy or
similar insolvency proceeding, file any pleadings or motions, take any position
at any hearing or proceeding of any nature, or otherwise take any action
whatsoever, in each case in respect of the Collateral, including, with respect
to the determination of any liens or claims held by the Collateral Agent
(including the validity and enforceability thereof) or the value of any claims
of the Collateral Agent under Section 506(a) of the Bankruptcy Code
or otherwise, or file any pleadings or motions, take any position at any
hearing or proceeding of any nature, or otherwise take any action whatsoever,
in each case in respect of the Collateral, which would be inconsistent with the
provisions of this Agreement.

 

Section 5.5.            Waiver of Past
Defaults.

 

(a)           Prior to the
time a judgment or decree for payments due has been obtained by the Collateral
Agent, as provided in this Article V, FSA (or, after the Senior Release
Date, the Secured Party Representative) may waive any Dexia Event of Default
and its consequences by written notice to FSAM and the Collateral Agent. Unless
so set forth in such written notice, waiver by FSA of a Dexia Event of Default
hereunder will not constitute a waiver of any event of default under the Put
Contracts.

 

(b)           In the case of
any such waiver, FSAM, the Collateral Agent and the Secured Parties will be
restored to their former positions and rights hereunder, respectively, but no
such waiver will extend to any subsequent or other Dexia Event of Default or
impair any right consequent thereto. The Collateral Agent will promptly forward
copies of any such waiver to each Secured Party.

 

Section 5.6.            Replacement of
Insurance Agreement Remedies.

 

The
Dexia Events of Default and remedies set forth in this Article V will
supersede and replace the “events of default” and remedies (including
indemnities), if any, set forth in the Insurance Agreements.

 

ARTICLE VI

COLLATERAL AGENT

 

Section 6.1.            Certain Duties
and Rights of the Collateral Agent.

 

(a)           The Collateral
Agent hereby agrees to act as collateral agent (including as custodian and
bailee with respect to Collateral, Dexia FP Collateral or FSAM PAL Collateral
in its possession) for the Secured Parties with respect thereto, and accepts
appointment by FSAM as its agent for purposes of the FSAM Belgian Pledge
Agreement, in accordance with the terms of this Agreement and undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement, no implied or

 

51

 

fiduciary
duties, covenants or obligations will be read into this Agreement against the
Collateral Agent and the Collateral Agent shall have no duty to take any
discretionary action or exercise any discretionary powers.

 

(b)           No provision of
this Agreement will be construed to relieve the Collateral Agent from liability
for its own actions, or omissions constituting gross negligence or its own
willful misconduct, except that:

 

(i)            the Collateral Agent shall
not be liable with respect to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the Secured Party Representative
(as required or permitted hereunder) pursuant to Section 5.4; and

 

(ii)           no provision of this
Agreement will require the Collateral Agent to expend or risk its own funds or
otherwise incur any liability, financial or otherwise, in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers
contemplated hereunder, including under Article V of this Agreement, if it
will have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it unless such risk or liability relates to its ordinary services (if any).

 

(c)           After the
occurrence of a Dexia Event of Default, the Collateral Agent agrees that it
shall, subject to the provisions of this Section 6.1, comply with all
instructions of the Secured Party Representative, and shall assist the Secured
Party Representative in pursuing all available remedies under Article V as
and to the extent requested by the Secured Party Representative. Following a
Transition Date, and at the direction of FSA, the Collateral Agent will enter
into an amendment to this Agreement in which any FSAM Successor and/or any FSAM
Hedging Successor shall Grant a security interest in its assets to the
Collateral Agent in a manner substantially similar to the Grants provided by
FSAM and the GIC Issuers in Article II.

 

(d)           The Collateral
Agent may execute any of the powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys; provided that the Collateral Agent shall
not be responsible for any misconduct or negligence on the part of any agent
(other than an Affiliate) or attorney appointed with due care by it hereunder; provided, further, that such appointment
will not relieve the Collateral Agent of responsibility for performance of the
obligations hereunder.

 

(e)           Without
limiting the foregoing, and notwithstanding any provision to the contrary
elsewhere, the Collateral Agent, its affiliates and their respective officers,
directors, employees and agents:

 

(i)            shall be entitled to rely
upon, and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
delivered to the Collateral Agent under or in connection with this Agreement
and believed by it in good faith to be genuine and to have been signed or sent
by the proper Person, and shall not be bound to make any investigation into the
facts or matters stated in any notice, request, certificate, consent,
statement, instrument, document or other writing; provided, that if a Confirmation Request is delivered to the
Collateral Agent by the Administrator, the Collateral Agent shall be
responsible to receive and examine the documentation delivered therewith to
determine whether (A) such Confirmation Request is complete and
(B) that each item described in such Confirmation Request is attached
thereto and the Collateral Agent shall either notify the Administrator that
such Confirmation Request is incomplete or that one or more items are missing
or sign and return such Confirmation Request as required by this Agreement;

 

52

 

(ii)           may consult with legal counsel
as to any provisions hereof or its duties hereunder and shall not be liable for
any action taken or not taken by it in accordance with the advice of any such
counsel;

 

(iii)          shall not be deemed to have
or be charged with notice or knowledge of any fact or matter unless a written
notice thereof has been received by the Collateral Agent at the address and to
the person designated in (or as subsequently designated pursuant to) this
Agreement;

 

(iv)          with the exception of this
Agreement, is not responsible for or chargeable with knowledge of any terms or
conditions contained in any agreement referred to herein;

 

(v)           will have no duty to
ascertain or inquire as to the performance or observance by the Grantors of any
of the terms, conditions or covenants of any security agreement with the
Collateral Agent or to determine the existence, validity, enforceability or
perfection of any security interest granted to the Collateral Agent (or the
adequacy or sufficiency of the Collateral, Dexia FP Collateral or FSAM PAL
Collateral;

 

(vi)          may in any instance where
the Collateral Agent reasonably determines in good faith that it lacks or is
uncertain as to its authority to take or refrain from taking certain action, or
as to the requirements of this Agreement under any circumstance before it,
delay or refrain from taking action unless and until it has received
instructions from the appropriate party or advice from legal counsel, as the
case may be;

 

(vii)         shall not be liable for any
error of judgment in any action taken, suffered or omitted, or for any act done
or step taken, suffered or omitted, or for any mistake of fact or law, unless
such action constitutes gross negligence, bad faith or willful misconduct;

 

(viii)        will not incur any liability
by acting or not acting in reliance upon any notice, consent, certificate,
direction, statement or other instrument or writing believed by it in good
faith to be genuine and signed or sent by the proper party or parties;

 

(ix)           will not incur liability for
any notice, consent, certificate, statement, wire instruction, telecopy, or
other writing which is delayed, cancelled or changed without the actual
knowledge of the Collateral Agent or for the failure to, or any defect in, any
forwarded notice or information;

 

(x)            shall not incur any
liability for acts or omissions of any domestic or foreign depository or
book-entry system for the central handling of assets or any domestic or foreign
custodian or subcustodian; and

 

(xi)           shall not incur any
liability for any claims, losses, liabilities, damages or expenses (including
attorneys’ fees and expenses) due to forces beyond the control of Collateral
Agent, including without limitation strikes, work stoppages, acts of war or
terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of
God, and interruptions, loss or malfunctions of utilities, or, with respect to
third party providers, communications or computer (software and hardware)
services.

 

(f)            All funds
received by the Collateral Agent under or pursuant to any provision of this
Agreement (other than pursuant to Sections 5.2(i) and 6.2 hereof) shall be
held for the purposes for which they were paid or are held.

 

53

 

Section 6.2.            Compensation
and Reimbursement.

 

(a)           FSAM agrees,
subject to the Priority of Payments:

 

(i)            to pay or cause to be paid
to the Collateral Agent compensation relating to services rendered by it
hereunder as set forth in a fee arrangement with FSAM attached as Annex G; and

 

(ii)           except as otherwise expressly
provided herein, to reimburse the Collateral Agent (subject to any written
agreement between FSAM and the Collateral Agent) in a timely manner upon its
request for all reasonable expenses, disbursements and advances incurred or
made by the Collateral Agent at the direction of or with the consent of the
Secured Party Representative or otherwise as required pursuant to any provision
of this Agreement (including securities transaction charges and the reasonable
compensation and expenses and disbursements of its agents and legal counsel
employed by the Collateral Agent pursuant to this Agreement, except any such
expense, disbursement or advance as may be attributable to its gross
negligence, willful misconduct or bad faith).

 

(b)           The Dexia
Guarantors and FSAM agree, jointly and severally, subject to the Priority of
Payments, to indemnify the Collateral Agent and the Reporting Agent and their
respective officers, directors, employees and agents for, and to hold them
harmless against, any loss, claim, damage, liability or expense (including
reasonable counsel fees and expenses) incurred without gross negligence,
willful misconduct or bad faith on their part, arising out of or in connection
with the acceptance or administration of this Agreement, including the costs
and expenses of defending themselves against any such claim or liability in
connection with the exercise or performance of any of their powers or duties
hereunder. This indemnification will survive the termination of this Agreement
and, if applicable, the earlier removal or resignation of the Collateral Agent
or Reporting Agent, as applicable.

 

(c)           No claim may be
made against the Collateral Agent or any of its officers, agents, directors or
employees for any special, indirect, consequential or punitive damages
(including but not limited to lost profits) in respect of any claim for breach
of contract or any other theory of liability arising out of or relating to this
Agreement or the transactions contemplated hereby or any act, omission or event
occurring in connection therewith, even if the Collateral Agent has been
advised of such loss or damage and regardless of the form of action and parties
hereto hereby waive, release and agree not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist.

 

Section 6.3.            Eligibility.

 

There
will at all times be a Collateral Agent hereunder which will be a nationally
recognized banking corporation or association or a trust company organized and
doing business under the laws of the United States of America or of any state
thereof, having a combined capital, surplus and undivided profits of at least
$500,000,000 (or the equivalent in any other currency) Independent of FSA,
Assured and Dexia. If the Collateral Agent publishes reports of condition
annually, or more frequently, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation, association or
trust company will be deemed to be the respective amount set forth in its most
recently published report of condition. If at any time the Collateral Agent
will cease to be eligible in accordance with the provisions of this Section,
the Collateral Agent shall resign immediately in the manner and with the effect
hereinafter specified in this Article VI.

 

54

 

Section 6.4.            Resignation and
Removal; Appointment of Successor.

 

(a)           No resignation
or removal of the Collateral Agent will become effective until the acceptance
of appointment by the successor Collateral Agent. The indemnification in favor
of the Collateral Agent in Section 6.2 will survive any resignation or
removal of the Collateral Agent (to the extent of any indemnified loss,
liability or expense arising or incurred prior to, or arising as a result of
action or omissions occurring prior to, such resignation or removal).

 

(b)           The Collateral
Agent may resign at any time by giving written notice thereof to FSAM, the
Dexia Parties and FSA.

 

(c)           The Collateral
Agent may be removed at any time by FSAM with the prior written consent of FSA
and the Dexia Parties or, at any time when a Dexia Event of Default will have
occurred, by the Secured Party Representative directly, by notice delivered to
the Collateral Agent, the Dexia Parties and FSAM.

 

(d)           If at any time (i) the
Collateral Agent ceases to be eligible under Section 6.3 and fails to
resign after written request therefor by FSAM (with the prior written consent
of the Dexia Parties and FSA) or the Secured Party Representative (with the
consent of FSA or the Dexia Guarantors, as applicable); (ii) the Collateral
Agent becomes incapable of acting or will be adjudged as bankrupt or insolvent
or a receiver or liquidator of the Collateral Agent or a substantial part of
its property will be appointed or any public officer will take charge or
control of the Collateral Agent or of a substantial part of its property or
affairs for the purpose of rehabilitation, conservation or liquidation; or (iii) if
the Collateral Agent resigns, or if a vacancy occurs in the office of the
Collateral Agent for any reason, then, in any such case, (A) prior to the
occurrence of a Dexia Event of Default, FSAM may remove (if applicable) the
Collateral Agent and, in each case shall promptly appoint a successor with the
prior written consent of FSA and the Dexia Parties and (B) following the
occurrence of a Dexia Event of Default, the Secured Party Representative may
remove (if applicable) the Collateral Agent and, in each case, may promptly
appoint a successor without the consent of the Dexia Parties so long as (x) it
provides the Dexia Parties with prior notice of any proposed removal of the
Collateral Agent, (y) the Secured Party Representative does not appoint as
successor collateral agent any of the Persons identified on a list provided by
the Dexia Parties (which list will not include more than three names) no later
than the second Business Day after receipt by the Dexia Parties of such notice
and (z) such successor Collateral Agent meets the eligibility criteria set
forth in Section 6.3. If no successor has been so appointed and has accepted
appointment in the manner hereinafter provided, the Collateral Agent may, on
behalf of itself, petition any court of competent jurisdiction for the
appointment of a successor.

 

(e)           FSAM shall give
prompt notice of each resignation and each removal of the Collateral Agent and
each appointment of a successor by providing written notice of such event, to
each Secured Party. Each notice will include the name of the successor and the
address of its principal office. If FSAM fails to provide such notice within
ten days after acceptance of appointment by the successor, the successor shall
cause such notice to be given at the expense of FSAM.

 

(f)            Any successor
collateral agent shall assume the responsibilities of the Collateral Agent
under each Put Settlement Procedures Agreement.

 

Section 6.5.            Merger,
Conversion, Consolidation or Succession to Business of Collateral Agent.

 

Any
Person into which the Collateral Agent may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Collateral Agent shall be a party, or any Person
succeeding to all or substantially all of the corporate

 

55

 

business of the Collateral
Agent, shall be the successor of the Collateral Agent hereunder; provided such Person will be otherwise
eligible and qualified under this Article VI, without the execution or
filing of any document or any further act on the part of any of the parties
hereto.

 

Section 6.6.            Put Settlement
Arrangements. The Collateral Agent shall enter into one or more
agreements (each, a “Put Settlement Procedures Agreement”) under which
it will, in connection with the exercise of a Put Option or a claim under the
Sovereign Guarantee, effect (x) the transfer of FSAM Assets that are
Excluded FSAM Collateral to the Dexia Guarantors under the Put Contracts or the
Sovereign Guarantee (including, for the avoidance of doubt, any such FSAM
Assets held by Wells Fargo as custodian for a GIC Holder), (y) the
substitution of cash for such Excluded FSAM Collateral under the relevant
collateral posting account and (z) deposit of any excess over the
substitution amount from the Put Settlement Amount or payment under the
Sovereign Guarantee, as applicable, into the FSAM Cash Account as directed by
the Administrator or the Secured Party Representative.

 

Section 6.7.            Additional
Duties of the Collateral Agent.

 

(a)           Upon request of
the Administrator, provide confirmation as described in Sections 11.1(c) and
11.2 (e).

 

(b)           Upon request of
the Administrator, FSAM or FSA, the Collateral Agent will verify the balance in
the relevant FP Account and, if applicable, provide the confirmation of
non-receipt of funds described in the definition of Shortfall Information.

 

(c)           Upon request of
the Administrator, the Collateral Agent will, in accordance with a Confirmation
Request (which contains all of the information required in Section III
thereof to be completed by the Administrator), notify the Sovereign Guarantors
and FSA that “the FSAM Lien Release Date” has occurred, and accordingly the
restriction on optional termination of the Sovereign Guarantee set forth in Part 5
(p) of the schedule to the Dexia Guaranteed Put Contract shall no longer
apply.

 

ARTICLE VII

ADMINISTRATION

 

Section 7.1.            Administrative
Services Agreement.

 

(a)           Each GIC
Business Entity, in furtherance of the covenants of this Agreement and its
performance and observance of the provisions hereof, has entered into the
Administrative Services Agreement to retain the Administrator to take all
actions to be performed by such GIC Business Entity under this Agreement,
supervise and direct the administration of the Collateral and administer the
GIC Business. For the avoidance of doubt, it is understood and agreed that in
no event shall the Collateral Agent have any responsibility or liability
whatsoever to assume the operation of or to perform any aspect of the GIC
Business.

 

(b)           FSA and the
Dexia Parties acknowledge and agree that the Administrator will be engaged under
the Administrative Services Agreement on or before the Closing Date and may
resign or be replaced only upon satisfaction of all conditions set forth in the
Administrative Services Agreement. The Administrative Services Agreement may be
terminated only in accordance with its terms.

 

(c)           If the
Administrative Services Agreement is terminated, each GIC Business Entity will
enter into a services agreement with a new service provider in accordance with
the terms of the Administrative Services Agreement. The terms of the
Administrative Services Agreement made with that new service provider shall
expressly provide that, notwithstanding any other provision thereof and so long
as the Sovereign Guarantee is in effect, the new service provider (x) shall
provide Dexia with access to

 

56

 

such information as it may
require to meet the undertakings by Dexia attached as Annex K under the
Sovereign Guarantee Reimbursement Agreement, and shall provide reasonable
assistance to Dexia with a view to its complying with those undertakings
regardless of whether a Dexia Event of Default has occurred (other than with
respect to information for which Dexia is fully capable of accessing or
compiling independently notwithstanding the occurrence of a Dexia Event of
Default), and (y) upon receipt of a request by Dexia or a Sovereign Guarantor
explaining the relevant conflict, refrain from taking any action which would
prevent Dexia from complying with such undertakings.

 

Section 7.2.            Assignment of
the Administrative Services Agreement.

 

(a)           Each GIC
Business Entity, in furtherance of the covenants of this Agreement and as
security for the Secured Obligations and the performance and observance of the
provisions hereof, hereby assigns, transfers, conveys and sets over to the
Collateral Agent, for the benefit of the Secured Parties, all of its right,
title and interest in, to and under the Administrative Services Agreement,
including (i) the right to give all notices, consents and releases thereunder, (ii)
the right to give all notices of termination and to take any legal action upon
the breach of an obligation of the Administrator (or its successor thereunder),
including the commencement, conduct and consummation of proceedings at law or
in equity, (iii) the right to receive all notices, accountings, consents,
releases and statements thereunder and (iv) the right to do any and all other
things whatsoever that it is or may be entitled to do thereunder; provided, however,
that each GIC Business Entity may exercise any of its rights under the
Administrative Services Agreement without notice to or the consent of the
Collateral Agent (except as otherwise expressly required by this Agreement), so
long as a Dexia Event of Default has not occurred.

 

(b)           The assignment
made hereby is executed as collateral security, and the execution and delivery
hereof will not in any way impair or diminish the obligations of each GIC
Business Entity under the provisions of the Administrative Services Agreement,
nor will any of the obligations contained in the Administrative Services
Agreement be imposed on the Collateral Agent. Upon the release of the
Collateral from the lien of this Agreement, this assignment and all rights
herein assigned to the Collateral Agent will cease and terminate and all of the
estate, right, title and interest of the Collateral Agent in, to and under the
Administrative Services Agreement will revert to each GIC Business Entity and
no further instrument or act will be necessary to evidence such termination and
reversion.

 

(c)           Each GIC
Business Entity represents that as of the date hereof it has not executed any
other assignment of the Administrative Services Agreement.

 

(d)           Each GIC
Business Entity agrees that this assignment is irrevocable, and that it shall
not take any action which is inconsistent with this assignment or make any
other assignment inconsistent herewith. Each GIC Business Entity shall, from
time to time, execute all instruments of further assurance and all such
supplemental instruments with respect to this assignment as the Collateral
Agent may specify or as required by applicable law.

 

Section 7.3.            ALM Procedures.

 

(a)           The assets and
liabilities of the GIC Business will, at all times before and after a Dexia
Event of Default, be managed in accordance with the ALM Procedures. If the ALM
Procedures are inconsistent with any provision of this Agreement then this
Agreement (other than the ALM Procedures attached hereto) will control.

 

(b)           FSAM, FSA and
the Dexia Guarantors agree that (i) prior to the occurrence of a Dexia Event of
Default, FSAM may amend any provision of the ALM Procedures without the consent
of FSA, and (ii) following a Dexia Event of Default, FSA may amend any
provision of the ALM Procedures without consent of the Dexia Guarantors, in
each case subject to dispute resolution as described in Section

 

57

 

7.4; provided that Sections 2, 3, 4.2, 4.3,
5.1, 6, 8.2, 8.3, 9 and 10 and Appendices I, II, III and VI (such
provisions, the “Protected Provisions”) of the ALM Procedures may not be
amended at any time without the prior written consent of FSA and the Dexia
Guarantors, irrespective of whether a Dexia Event of Default has occurred; provided that the valuation procedures set
forth in Appendix IV will be deemed to be amended (and no consent shall be
required) to conform to any revisions made by the valuation agent from time to
time to the procedures that the valuation agent generally applies to accounts
maintained by it with respect to assets of the same type.

 

(c)           Following a
Dexia Event of Default, the Dexia Guarantors will have all rights to reports
and access to information to the same extent as such reports and information
would have been available to FSA prior to such Dexia Event of Default.

 

(d)           Prior to
entering into any derivative transaction in implementing a hedging strategy for
the GIC Business pursuant to the ALM Procedures following a Dexia Event of
Default, FSA agrees that it will provide the Dexia Guarantors with reasonable
advance notice and an opportunity to introduce a bid quotation from an
Unaffiliated Hedge Counterparty for the relevant transaction in order to
implement its hedging strategy in a cost effective manner; provided, however, that the Dexia Guarantors
hereby acknowledge and agree that it shall have received reasonable advance
notice of the entrance into any derivative transaction and a reasonable
opportunity to introduce a bid quotation from an Unaffiliated Hedge
Counterparty to the extent the Dexia Guarantors have been given five Business
days’ advance notice of the entrance into any such derivative transaction.

 

Section 7.4.            ALM Dispute
Resolution.

 

(a)           A dispute
resolution with an ALM Arbiter may be invoked by FSA or the Dexia Guarantors in
respect of any ALM Noncompliance or any GIC Business Costs Amount Dispute.
Prior to a Dexia Event of Default, FSA may notify the Dexia Guarantors, with a
copy to Administrator and FSAM (or, if applicable, the FSAM Successor or the
FSAM Hedging Successor), and following a Dexia Event of Default, the Dexia
Guarantors may notify FSA, with a copy to the Administrator and FSAM (or, if
applicable, the FSAM Successor or the FSAM Hedging Successor) that it believes
ALM Noncompliance or a GIC Business Costs Amount Dispute has occurred.

 

(b)           In each notice
invoking the dispute resolution process, the notifying party will provide a
description of the ALM Procedures or a calculation of the GIC Business Costs
Amount, as applicable, in reasonable detail and a copy of the ALM Procedures or
Schedule B to Dexia CSA related to the Put Contracts and will propose an
arbiter from the ALM Arbiter Candidate List. The Dexia Guarantors or FSA, as
the party receiving such notice, will have the right to object to the proposed
ALM Arbiter selection within two Business Days of notice, and upon any such
objection the notifying party will within two Business Days select an alternate
from the ALM Arbiter Candidate List and such alternate will serve as the ALM
Arbiter unless FSA and the Dexia Guarantors agree otherwise. Any arbiter
selected pursuant to this clause (b) is referred to as an “ALM Arbiter.”
Upon identification of the ALM Arbiter for any dispute, the notifying party
will promptly provide the information in the first sentence of this section to
such ALM Arbiter.

 

(c)           The ALM Arbiter
will determine disputes within five Business Days of its receipt of the
information described in subsection (b), based on the following standard: (i) in
the case of an ALM Noncompliance (Derivative), such hedging transaction was
required to have been effected or not to have been terminated in order to
comply with a standard of reasonable and prudent hedging activity in compliance
with the ALM Procedures, (ii) in the case of ALM Noncompliance (Operational),
such action did not comply with the ALM Procedures, (iii) in the case of
amendments to the ALM Procedures, such amendment is not a Dexia Policy
Amendment prior to a Dexia Event of Default or an Assured Risk Policy Amendment
after a Dexia Event of Default and either (x) such amendment is an amendment

 

58

 

directly or indirectly, of
any Protected Provision or (y) such amended ALM Procedures do not constitute a
reasonable and prudent asset and liability management policy in accordance with
prevailing market standards for portfolio management activities of the same
type with the same investment objectives, and (iv) in the case of a GIC
Business Costs Amount Dispute, that any Administrative Expenses or any increase
in the annual budget provided by the Administrator in accordance with the
Administrative Services Agreement was an Unanticipated Recurring Expense (as
defined in Schedule B to the Dexia CSAs) or that any savings of Administrative
Expense or reduction of the annual budget provided by the Administrator in
accordance with the Administrative Services Agreement was an Unanticipated
Recurring Savings (as defined in Schedule B to the Dexia CSAs).

 

(d)           The
Administrator or the notifying party will coordinate the dispute resolution
process by providing parties with any requested information to which it has
access, communicating any submission deadlines and forwarding any notices or
requests in connection with such arbitration to appropriate parties.

 

(e)           The
non-prevailing party as concluded by the ALM Arbiter will pay all costs, fees
and expenses associated with a dispute submitted for resolution. The Dexia
Guarantors and FSA hereby acknowledge and agree that the conclusions of the ALM
Arbiter with respect to a dispute will be final and binding on all parties.

 

Section 7.5.            Post-Default
Management of Assets and Liabilities.

 

(a)           If a Dexia
Event of Default occurs and FSA elects to become the Secured Party
Representative, FSA shall, as promptly as is reasonably practicable, initiate
the process of appointing an Independent portfolio manager (the “Portfolio
Manager”) that will supervise and direct the operations of the
Administrator in managing the assets and liabilities (including any asset sales
or liquidation of Collateral contemplated by Section 5.2) of the GIC
Business (and for the avoidance of doubt the Administrator will act not on
behalf of FSAM but on behalf of the GIC Issuers). Pending such appointment, FSA
will direct the Administrator in the management of the GIC Business on behalf
of the GIC Issuers in a commercially reasonable and prudent manner, subject to
the Liquidation Procedures and substantially in accordance with the Investment
Objectives and the ALM Procedures.

 

(i)            Upon giving notice pursuant
to Section 12.1 (b) of its election to become the Secured Party
Representative (the “Notice Date”), FSA shall use commercially
reasonable efforts to (x) obtain proposals from two or more firms listed on the
Portfolio Manager List (each, a “Proposal”) and (y) use reasonable
efforts to cause the proposed candidates to be reasonably available for
meetings with, and to respond to questions from, the Dexia Guarantors. Each
Proposal shall identify the candidate for portfolio manager and include a fee
proposal from the candidate for providing the services described in clause
(b)(i).

 

(ii)           “Portfolio Manager List”
means the list of portfolio managers prepared by mutual agreement of FSA and
the Dexia Guarantors attached hereto as Schedule D, as the same may be amended
from time to time by consent of FSA and the Dexia Guarantors. If FSA or either
Dexia Guarantor provides notice to the others of a conflict of interest with
any firm on the list, that firm’s name will be deemed to be removed. FSA and
the Dexia Guarantors will use commercially reasonable efforts to ensure that
the names of at least three firms appear on the Portfolio Manager List at all
times. If no names are included on the Portfolio Manager List upon a Dexia
Event of Default, FSA will provide the Dexia Guarantors a list of three
Portfolio Managers and the Dexia Guarantors may remove one portfolio manager
from such list within five Business Days.

 

59

 

(iii)          The Dexia Guarantors may
provide notice to FSA within 15 days of receipt of the Proposal that it objects
to the appointment of one of the two proposed candidates, in which case, the
other proposed candidate, or if more than two candidates are proposed, the
candidate selected by FSA, will become the Portfolio Manager.

 

(iv)          If FSA does not make at
least two Proposals within 60 days of the Notice Date, then the Dexia
Guarantors may make a Proposal to FSA, and FSA shall not unreasonably withhold
or delay its consent to such Proposal.

 

(v)           If no Portfolio Manager has
been appointed within 90 days after the Notice Date, either FSA or the Dexia
Guarantors may petition any court of competent jurisdiction for the appointment
of the Portfolio Manager from the Portfolio Manager List.

 

(b)           The Portfolio
Manager will be appointed under a management agreement (the “Portfolio
Management Agreement),” on customary market terms for such agreements with
respect to assets of this type and subject to following additional terms:

 

(i)            The Portfolio Manager shall
agree to perform its obligations under the Portfolio Management Agreement with
reasonable care and in good faith, using its best judgment in rendering its
services and a degree of skill and attention no less than that which the
Portfolio Manager exercises with respect to comparable assets that it manages
for itself, its Affiliates or others, and in a manner reasonably consistent
with practices and procedures followed by reasonable and prudent institutional
managers of assets of the nature and character of the FSAM Assets. To the
extent consistent with the foregoing, the Portfolio Manager may follow its
customary standards, policies and procedures in performing its duties under the
Portfolio Management Agreement and hereunder.

 

(ii)           In performing its duties and
functions hereunder, the Portfolio Manager shall act in a manner consistent
with the following objectives: (A) having sufficient funds available in
accordance with the Priority of Payments (1) to preserve liquidity resources
and hedge interest rate and currency risk such that FSA shall not be subject to
claims under any FSA Policy, (2) to repay the principal of the GIC Contracts in
full on or prior to their respective maturity dates and (3) to reimburse FSA
for any amounts paid on a claim under any FSA Policy and (B) to the extent
consistent with the foregoing, mitigating losses on the FSAM Assets and
preserving the residual value of the FSAM Assets as a whole for the benefit of
the Dexia Parties. The objectives described in clauses (A) and (B) are
collectively referred to as the “Investment Objectives”).

 

(iii)          The Portfolio Manager shall
agree to comply with the ALM Procedures and shall implement (or, if applicable,
assume the implementation of) the FSA Defeasance Plan that is set forth in the
ALM Procedures.

 

(iv)          In the event the Portfolio
Manager is subject to removal for cause or resigns, FSA shall have the right to
replace the Portfolio Manager by repeating the procedures set forth in clause (a)
above.

 

(v)           The Dexia Guarantors shall
be party to or be a third party beneficiary of the Portfolio Management
Agreement.

 

(c)           Notwithstanding
any other provision of this Section 7.5 (x) if the expenses component of
the GIC Business Costs Amount would be insufficient to pay the reasonably
estimated present value of the scheduled fees of the Portfolio Manager in
addition to the present value of the other expected operational expenses
included in the GIC Business Costs Amount, FSA need not accept the relevant

 

60

 

Proposal unless the Dexia
Guarantors provide additional collateral equal to the excess over the available
amount of the operational expenses component of the GIC Business Costs Amount
and (y) the Dexia Guarantors shall waive the retention of a Portfolio Manager
if such scheduled fees of the Portfolio Manager are not acceptable to the Dexia
Guarantors and, in each case, the Secured Party Representative and the
Liquidation Agent shall not be required to comply with the Liquidation
Procedures; provided that it
complies with the Minimum Liquidation Procedures.

 

(d)           FSA may elect
to terminate the Portfolio Management Agreement other than for cause or elect
not to replace a resigning Portfolio Manager if the following conditions are
satisfied:

 

(i)            at least one year has
elapsed since the effective date of the initial Portfolio Management Agreement;

 

(ii)           except for FSAM Assets with
a Mark to Market Value of up to $200,000,000, the only remaining FSAM Assets
are cash or Permitted Investments;

 

(iii)          the Dexia FP Guarantee is
terminated and FSA irrevocably releases and waives any and all rights it may
have under such Dexia FP Guarantee; and

 

(iv)          the amount (if any) by which
(I) the aggregate FSAM Asset Value of Permitted Investments and other FSAM
Assets then held as Collateral hereunder (whether held by FSAM or the GIC
Issuers or the Collateral Agent following enforcement of its security interest
hereunder, and including any Permitted Investments that were initially pledged
as Eligible Collateral under the Put Contracts (whether or not the Put Contracts
have been terminated)) exceeds (II) the Subordinated Claims Payment Threshold
has been released to the Dexia Guarantors.

 

(e)           The Portfolio
Manager will be required to agree that (i) the Portfolio Manager will in no
event fail to comply with the Minimum Liquidation Procedures and (ii) prior to
entering into any derivative transaction in implementing a hedging strategy for
the GIC Business, the Dexia Guarantors will be provided reasonable advance
notice and an opportunity to introduce a bid quotation from an Unaffiliated
Hedge Counterparty for the relevant transaction in order to implement the
relevant hedging strategy in a cost effective manner; provided, however, that each Dexia
Guarantor hereby acknowledges and agrees that it shall have received reasonable
advance notice of the entrance into any derivative transaction and a reasonable
opportunity to introduce a bid quotation from an Unaffiliated Hedge
Counterparty to the extent such Dexia Guarantor has been given five Business
Days’ advance notice of the entrance into any such derivative transaction.

 

(f)            Dexia and FSA
agree, and each Administrator or Portfolio Manager shall be required to agree,
that notwithstanding any Dexia Event of Default and for so long as the
Sovereign Guarantee is in effect, they will not direct actions in connection
with the GIC Business that would violate in any material respect the following
requirements applicable to Dexia and FSAM under the Sovereign Guarantee
Reimbursement Agreement:

 

(i)            FSAM shall neither
repurchase any of its membership interests nor make any distributions to its
members, including any distribution of dividends, or make any Restricted
Payment.

 

(ii)           None of FSAM, the FSAM
Successor, the FSAM Hedging Successor and the GIC Issuers shall issue new GIC
Contracts (but shall be permitted to refinance or enter into amendments or
modifications in relation to existing GIC Contracts (in each case without
increasing the outstanding principal amount thereof or interest rate applicable
thereto)) or engage in any business or activity other than the Wind Down
Business. Dexia will not consent to any

 

61

 

transfer
of the GIC Contracts by the GIC Holders and will cause the GIC Issuers not to
consent to any transfer of the GIC Contracts by the GIC Holders.

 

“Wind
Down Business” means the management of the Collateral and the exercise of
its rights and performance of its obligations under (i) the Master
Repurchase Agreement issued or entered into by FSAM with the GIC Issuers (to
the extent still outstanding) and any other Material Agreement, (ii) interest
rate and currency derivatives and any other hedging transactions entered into
by FSAM (prior to a Dexia Event of Default), the FSAM Hedging Successor or the
FSAM Successor to hedge exposures relating to the Collateral and the GIC
Contracts, (iii) other repurchase agreements, securities lending
agreements or other liquidity arrangements for the purpose of enabling any GIC
Issuer to satisfy its collateral posting requirements and termination and
repayment requirements under GIC Contracts, (iv) financing obtained for
the purpose of meeting such collateral posting requirements or otherwise for
the payments described in (i) through (iii), (v) any security
arrangements entered into in connection with the items described in (i) through
(iv), the Guaranteed Put Contract or the Sovereign Guarantee, (vi) taking
any other actions as are contemplated by the Material Agreements and comply
with the restrictions on the activities of FSAM and the GIC Issuers set forth
in this Agreement and (vii) amendments or modifications (provided that such amendments or
modifications contribute to or are not inconsistent with the progressive
winding down of FSAM’s activities and exposures) to, and agreements or transactions
ancillary or incidental to, the items described in (i) through (v).

 

(iii)          FSAM shall not amend or
modify the terms of the Put Portfolio Assets or the terms of the Guaranteed Put
Contract without the consent of the Sovereign Guarantors.

 

(g)           FSA and the
Dexia Guarantors shall, upon the request of the other party, reasonably
cooperate in selecting a Portfolio Manager prior to a Dexia Event of Default,
the appointment of which would be effective only upon a Dexia Event of Default
and the election of FSA to be the Secured Party Representative. Either FSA or
the Dexia Guarantors may provide a proposal from a candidate that appears on
the Portfolio Manager Candidate List for this purpose and the other agrees to
respond to such Proposal within a reasonable period of time.

 

Section 7.6.            Indemnification

 

In
consideration of the Dexia Guarantors’ entering into the Dexia FP Indemnity and
the terms of the Dexia FP Indemnity which supersede the indemnification
obligations of FSAM and the GIC Issuers under the Insurance Agreements, FSAM
and the GIC Issuers agree, jointly and severally, that in the event that a
Dexia Event of Default has occurred and the Dexia Guarantors have not made a
payment required to be made by the Dexia Guarantors to an Indemnified Party under
the Dexia FP Indemnity (other than Good Faith Contested Payments), FSAM and the
GIC Issuers will make such payment to the Indemnified Party under the terms of
the Dexia FP Indemnity as if they were Indemnifying Parties thereunder.

 

ARTICLE VIII

HEDGE AGREEMENTS

 

Section 8.1.            Balancing
Hedging Arrangements.

 

(a)           FSAM may,
without the consent of FSA (unless a Dexia Event of Default has occurred and
FSA has elected to become the Secured Party Representative) at the direction of
Dexia terminate, replace or amend existing, or enter into, new transactions
under existing Hedge Agreements in accordance with the ALM Procedures, but
shall not enter into any new Hedge Agreements unless such Hedge Agreement
(other than futures account agreements) is a Subordinated Third Party Hedge
Agreement.

 

62

 

(b)           FSAM will take action to
exercise its right to designate an early termination date as soon as
practicable under a Hedge Agreement with regard to which an “event of default”
(as defined therein) has occurred as a result of a payment failure, a failure to
post required collateral or bankruptcy, except in respect of a failure to pay
or post collateral where FSAM reasonably determines that a dispute exists and
is actively pursuing resolution of such dispute.

 

(c)           The Dexia Parties and FSA
will cooperate reasonably and the Dexia Parties will use commercially
reasonable efforts to enter into an amendment to each Third Party Hedge
Agreement in the form attached as Annex I, subject to the requirements of the
Hedging Letter Agreement. Such amendment will include the issuance of a
guarantee by DCL (the “Dexia Counterparty Guarantor”) of FSAM’s
obligations under the Hedge Agreement in the form of Annex I, with such
variations in the terms of individual amendments based on such form either (i) that
do not impair in any material respect the direct or indirect benefits to FSAM
and FSA of the amendment contemplated by such form or (ii) to which FSA has
given its consent not to be unreasonably withheld or delayed. Each such amended
Third Party Hedge Agreement is referred to as a “Subordinated Third Party
Hedge Agreement.”

 

(d)           The Lenders agree that with
respect to any Senior Third Party Hedge Agreement, one of the Lenders will
comply with the requirements of the Hedging Letter Agreement.

 

Section 8.2.            Collateral Posting Under
Hedge Agreements.

 

(a)           On any date FSAM shall
ensure that any collateral posting requirements applicable to FSAM under the
Senior Third Party Hedge Agreements which have been satisfied by posting any
required collateral under such Third Party Hedge Agreements.

 

(b)           On any date the Dexia
Guarantors shall ensure that any collateral posting requirements applicable to
FSAM under the Senior Third Party Hedge Agreements have been satisfied by
posting such collateral on behalf of FSAM in their capacity as guarantor of
FSAM under such Third Party Hedge Agreements.

 

Section 8.3.            Certain Actions Under Hedge
Agreements.

 

(a)           If a Transition Date occurs,
FSA (as representative of the Collateral Agent) or the Dexia Counterparty
Guarantor, if applicable, will exercise the rights set forth in the relevant
Subordinated Third Party Hedge Agreements and the Dexia Hedge Agreement with
DCL to (i) cause an assignment of the Subordinated Third Party Hedge Agreement
to DCL such that DCL shall be responsible for the rights and obligations of
FSAM under such Subordinated Third Party Hedge Agreement and FSAM shall be
deemed to have entered into offsetting transactions with DCL such that FSAM may
either (A) terminate one or more such transactions and/or (B) cause an
assignment and novation of such transactions to an FSAM Hedging Successor
and/or (ii) cause an assignment and novation of such Subordinated Third Party
Hedge Agreement to an FSAM Hedging Successor.

 

(b)           Following (x) a Transition
Date and actions contemplated by this Section 8.3, hedging transactions
will be effected only by an FSAM Hedging Successor, and not by FSAM, in
accordance with the ALM Procedures and (y) a Dexia Event of Default, FSA may
issue financial guarantees of the obligations of the FSAM Hedging Successor
under Hedge Agreements, provided that
such guarantees are on customary market terms and the premium is no more than
the minimum amount required by law for such guarantee to be enforceable.

 

63

 

Section 8.4.            Hedge Agreement Register.

 

FSAM
shall maintain the Hedge Agreement Register in which will be recorded all
outstanding Hedge Agreements (with each identified as an Asset Swap or a
Liability Swap as applicable) and collateral posted thereunder. The Hedge
Agreement Register will also (x) identify any Hedge Policy, (y) identify any
GIC Contract related to each Liability Swap to the extent feasible, other than
any basis swaps or other derivatives related to the portfolio and not to any
individual GIC Contract, and (z) to the extent applicable, identify the FSAM
Asset or FSAM Assets (or portions thereof) related to each Asset Swap. The
Administrator is hereby initially appointed registrar for the purpose of
maintaining the Hedge Agreement Register. If FSA notifies the Administrator
that it believes a Hedge Policy is outstanding that is not listed on the Hedge
Agreement Register, the Administrator will consult with FSA to resolve any such
dispute.

 

ARTICLE IX

GUARANTEED LIQUIDITY FACILITIES

 

Section 9.1.            Draw Requests.

 

(a)           If the Administrator
determines at or prior to 3:45 P.M. (Paris time) on any Business Day that FSAM
does not have, or expects not to have, sufficient funds to pay any Senior
Priority Payments or any other obligations to an Unaffiliated Party described
in Section 11.1 on the following Business Day, FSAM shall promptly, and in
no event later than 4:30 P.M. (Paris time) on that day (i) request a loan or
transaction under the Guaranteed Liquidity Facilities in accordance with Section 11.2
and (ii) provide notice of such Liquidity Draw Request to the Collateral Agent
and FSA. If the Administrator makes such determination after 3:45 P.M. (Paris
time), FSAM shall promptly, and in no event later than 4:30 P.M.(Paris time) on
the following Business Day make such request under the Guaranteed Liquidity
Facilities in accordance with Section 11.2 and provide a copy of such
request to the Collateral Agent and FSA.

 

(b)           In the event that FSAM has
failed to make a Liquidity Draw Request under the Guaranteed Liquidity
Facilities required to satisfy Sections 11.2(a)or 11.2(b), the Collateral Agent
will at the direction of the Secured Party Representative, or FSA, as
representative of the Collateral Agent (with a copy to the Collateral Agent),
may make a Liquidity Draw Request on behalf of FSAM in accordance with the
terms of the relevant Guaranteed Liquidity Facility on the following Business
Day.

 

(c)           On the day funds are
required to be paid under a Liquidity Draw Request, the Collateral Agent shall
verify, as of its close of business in New York on such day, whether the
requested funds have been received in the FSAM Cash Account or the Collateral
Agent Cash Account. If the Collateral Agent determines, based solely upon the
information provided to the Collateral Agent that such funds were not received,
the Collateral Agent will notify the Administrator and FSA in writing.

 

ARTICLE X

ACCOUNTS; REPORTING; INSPECTION RIGHTS

 

Section 10.1.          Establishment of Accounts.

 

(a)           Each FP Account will be
governed by (x) an agreement substantially in the form of Exhibit A-1 with
the Intermediary of each such account, (y) in the case of accounts established
by the Collateral Agent, an agreement substantially in the form of Exhibit A-2
or (z) a global custody agreement with respect to the FSA PAL Brussels Cash
Account and the FSA PAL Brussels Collateral Account (each such agreement as
amended, supplemented or otherwise modified, a “Securities Account Control
Agreement”), which will require the relevant Intermediary to segregate
and hold all assets received by it

 

64

 

in an FP Account. The
maintenance of such FP Account will be governed by the law of the jurisdiction
set forth in such Securities Account Control Agreement.

 

(b)           Prior to the Closing Date,
FSAM shall cause the Collateral Agent to establish the Custody Account, the
Collateral Agent Cash Account and the Collateral Agent Custodial Account and
after the Closing Date, the Collateral Agent may, and at the direction of the
Secured Party Representative will, establish with an Intermediary one or more
additional accounts pursuant to this Article X, each of which will be
non-interest bearing segregated account and may include any number of
sub-accounts, which may be held by sub-custodians for convenience in
administering the Collateral (including sub-accounts for different currencies
and for different assets). Each such account will be established with an
Intermediary and maintained pursuant to a Securities Account Control Agreement.

 

Promptly
following the Closing Date and in no event later than 10 Business Days
thereafter, FSA PAL shall cause the establishment of the FSA PAL Brussels Cash
Account and the FSA PAL Brussels Collateral Account, each of which will be
non-interest bearing segregated account and may include any number of
sub-accounts, which may be held by sub-custodians for convenience in
administering the Collateral (including sub-accounts for different currencies
and for different assets). Each such account will be established with an
Intermediary with respect to the FSA PAL Belgian Collateral and maintained
pursuant to a Securities Account Control Agreement. The establishment of the
FSA PAL Brussels Cash Account and the FSA PAL Brussels Collateral Account, and
the grant of a security interest in the related property as FSA PAL Belgian
Collateral pursuant to the FSAM Belgian Pledge Agreement, shall be in
substitution for the FSA PAL Cash Account and the FSA PAL Collateral Account,
and the grant of a security interest in the related property as FSA PAL
Collateral pursuant to Section 2.1(c).

 

(c)           Each Existing Account has
been established as a segregated account with an Intermediary. The FSAM Cash
Account and FSAM Collateral Account are maintained pursuant to a securities
account control agreement dated as of July 31, 2003 (the “Existing
Control Agreement”), among BNY Mellon, FSAM and FSA that among other things
evidences FSA’s “Control” with respect to the Security Entitlements in the FSAM
Cash Account and FSAM Collateral Account, respectively. FSAM and FSA shall, on
or prior to the Closing Date, enter into a Securities Account Control Agreement
with respect to the FSAM Collateral Account and the FSAM Cash Account that will
supersede the Existing Control Agreement. Each other Existing Account will be
subject to a Securities Account Control Agreement with the relevant Grantor.
Each Existing Account will be maintained by the relevant Intermediary in the
State of New York for the benefit of the Secured Parties. Existing Accounts may
include sub-accounts for different currencies and for different assets.

 

(d)           The relevant Grantor shall
cause the Intermediary (or in the case of the FSA Capital Markets Cayman Notes,
the Collateral Agent) to hold any Certificated Securities and Instruments that
are in physical form in accordance with its standard custodial procedures. Any
custodian for such Certificated Securities and Instruments will not be an
Affiliate of Dexia and must satisfy the eligibility requirements set forth in Section 6.3.
Dexia CSA Collateral will be held through one or more Intermediaries outside
the State of New York.

 

(e)           FSAM (or, following a
Transition Date, the FSAM Successor) shall take all commercially reasonable
efforts to cause the transfer of all Collections from each FP Account (other
than the Dexia Collateral Account) at least daily to the FSAM Cash Account or
the Collateral Agent Cash Account, as applicable.

 

(f)            FSAM (or, following a
Transition Date, the FSAM Successor) will manage the FSAM Assets in accordance
with the ALM Procedures, collect any proceeds of the FSAM Assets and apply
Available Funds consistent with the Priority of Payments. Any proceeds received
in connection with the

 

65

 

sale of FSAM Assets will be
applied pursuant to the Priority of Payments or invested solely in Permitted
Investments.

 

(g)           Any cash on deposit in any
Account shall be invested at the direction of the Administrator in Permitted
Investments.

 

(h)           Upon establishment of the
FSA PAL Brussels Cash Account and FSA PAL Brussels Collateral Account (the “Brussels
Account Establishment”), FSA PAL or the Administrator will (x) immediately
notify FSA (with a copy to the Collateral Agent) of the establishment of such
accounts and (y) within two Business Days of the Brussels Account Establishment
transfer all property from the FSA PAL Cash Account and FSA PAL Collateral
Account, respectively, to such accounts (the “FSA PAL Accounts Transfer”).
Upon the occurrence of a Brussels Account Failure, FSA will have the right to
deliver a notice of sole control pursuant to the Securities Account Control
Agreement related to the FSA PAL Cash Account and FSA PAL Collateral Account
and following delivery of such notice, to cause the FSA PAL Brussels Cash
Account and FSA PAL Brussels Collateral Account to be established and/or cause
the transfer of all property from the FSA PAL Cash Account and FSA PAL
Collateral Account, respectively, to such accounts. Following the transfer of
all property from each of the FSA PAL Cash Account and the FSA PAL Collateral
Account to the FSA PAL Brussels Cash Account and FSA PAL Brussels Collateral
Account, respectively, the FSA PAL Cash Account and FSA PAL Collateral Account
will be closed.

 

Section 10.2.          Dexia Collateral Account;
Custody Account; Collateral Agent Cash Account; Collateral Agent Custodial
Account; FSA PAL Brussels Cash Account; FSA PAL Brussels Collateral Account.

 

(a)           On or prior to the Closing
Date, FSAM will cause the custodian under the Dexia CSAs to establish with an
Intermediary a non-interest bearing segregated account pursuant to the Dexia
CSAs designated as the “Dexia Collateral Account” for the benefit of the
Secured Parties which may include any number of sub-accounts which may be held
by sub-custodians for convenience in administering the Dexia CSA Collateral and
which will be administered in accordance with the Dexia CSAs.

 

(i)            Deposits.
Promptly upon receipt, all Dexia CSA Collateral will be deposited in the Dexia
Collateral Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the Dexia Collateral Account will be in accordance with the
provisions of this Agreement and the relevant Dexia CSA (A) to post collateral
under a GIC Contract or a Hedge Agreement, (B) to sell or otherwise dispose of
posted collateral or to obtain financing pursuant to a Temporary Funding
Transaction, in each case, in accordance with Section 11.2 and the
relevant Dexia CSA, or (C) to pay any “return amount” or “interest amount” due
under, and as defined in, the relevant Dexia CSA.

 

(iii)          Any non-USD
denominated Dexia Collateral will be held under the relevant Dexia CSA in a
special designated pledged account held outside the United States, which will
be considered a subaccount of the Dexia Collateral Account for purposes of this
Agreement.

 

(b)           The “Custody Account”
will be maintained to hold FSA Capital Markets Cayman Notes, the FSAM PAL
Collateral and the Private Placement Notes and will be administered as follows:

 

(i)            Deposits. The
FSA Capital Markets Cayman Notes, the FSAM PAL Collateral and the Private
Placement Notes will be credited to the Custody Account.

 

66

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property credited
to the Custody Account will be in accordance with the provisions of this
Agreement to deliver the certificates representing (A) the FSA Capital Markets
Cayman Notes to the trustee or other paying agent in connection with (x) the
final payment, maturity or redemption of such FSA Capital Markets Cayman Notes
or (y) a sale or other disposition of such FSA Capital Markets Cayman Notes in
connection with the occurrence of a Dexia Event of Default, (B) as and at the
direction of the Administrator or the Secured Party Representative, the Private
Placement Notes to the trustee or other paying agent in connection with (x) the
final payment, maturity or redemption of such Private Placement Notes or (y) a
sale or other disposition of such Private Placement Notes in connection with
the occurrence of a Dexia Event of Default or a Permitted Asset Sale and (C) the
FSAM PAL Collateral to FSA at FSA’s direction following the occurrence of a
Dexia Event of Default or on or after the Senior Release Date, FSAM.

 

(c)           The “Collateral Agent
Cash Account” will be administered as follows:

 

(i)            Deposits. On a
daily basis (A) all Collections designated for deposit in the Collateral Agent
Cash Account by the Administrator or Secured Party Representative, (B) any
amounts transferred from the FSAM Cash Account or the FSA PAL Brussels Cash
Account at the direction of the Secured Party Representative and (C) any
amounts designated for deposit in such account by the Dexia Guarantors pursuant
to the Hedging Letter Agreement will be deposited in the Collateral Agent Cash
Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the Collateral Agent Cash Account will be as directed by the Secured
Party Representative in accordance with the provisions of this Agreement (A) to
make payments in accordance with the Priority of Payments, (B) to purchase
Permitted Investments in accordance with the Priority of Payments, (C) to post
collateral (by posting cash or purchasing Permitted Investments that are
qualifying assets) under a GIC Contract or Senior Third Party Hedge Agreement
in accordance with Section 11.2 or (D) with respect to amounts deposited
into such account by the Dexia Guarantors, pursuant to the Hedging Letter
Agreement, for application as designated by the Dexia Guarantors at the time of
the withdrawal or for transfer to them at their request with notice to FSA that
the terms of the Hedging Letter Agreement have been satisfied.

 

(d)           The “Collateral Agent Custodial
Account” will be administered as follows:

 

(i)            Deposits. At
the direction of the Secured Party Representative, all FSAM Assets transferred
from FSAM Collateral Account, all Dexia Collateral transferred from the Dexia
Collateral Account and thereafter any Permitted Investment not applied to
secure any secured or collateralized GIC Contracts or Senior Third Party Hedge
Agreements will be deposited in the Collateral Agent Custodial Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the Collateral Agent Custodial Account will be as directed by the
Secured Party Representative in accordance with the provisions of this
Agreement (A) to post collateral under a GIC Contract or Senior Third Party Hedge
Agreement in accordance with Section 11.2, (B) to transfer Collections to
the Collateral Agent Cash Account or (C) to Deliver a Permitted Investment in
connection with a Permitted Asset Sale.

 

(e)           “FSA PAL
Brussels Cash Account.”

 

(i)            Deposits.
Following the FSA PAL Accounts Transfer, all Collections received with respect
to the FSA PAL Collateral will be deposited in the FSA PAL Brussels Cash
Account

 

67

 

promptly
upon receipt thereof. All property transferred from the FSA PAL Cash Account
pursuant to Section 10.1(h) will be deposited in the FSA PAL Brussels Cash
Account immediately upon such transfer.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSA PAL Brussels Cash Account will be in accordance with the
provisions of this Agreement to transfer amounts due and payable under the FSA
PAL Loan to the FSAM Cash Account or transfer funds to the Collateral Agent
Cash Account.

 

(f)            “FSA PAL Brussels
Collateral Account.”

 

(i)            Deposits.
Following the FSA PAL Accounts Transfer, all sterling and other non-USD
denominated FSAM Assets that cannot be held in the FSAM Collateral Account and
that are not applied to secure any secured or collateralized GIC Contracts will
be deposited in the FSA PAL Brussels Collateral Account promptly upon receipt
thereof. All property transferred from the FSA PAL Collateral Account pursuant
to Section 10.1(h) will be deposited in the FSA PAL Brussels Collateral
Account immediately upon such transfer.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSA PAL Brussels Collateral Account will be applied in
accordance with the provisions of this Agreement (A) to post collateral under a
GIC Contract or a Senior Third Party Hedge Agreement in accordance with Section 11.2,
(B) to transfer Collections to the FSA PAL Brussels Cash Account, the FSAM Cash
Account or the Collateral Agent Cash Account, (C) to deliver Collateral in connection
with a Permitted Asset Sale or (D) to deliver as a Put Settlement Asset under
either Put Contract, as applicable.

 

Section 10.3.          FSAM Cash Account; FSAM
Collateral Account; FSA Capital Management Collateral Account; FSA Capital
Markets Collateral Account; FSA PAL Cash Account; FSA PAL Collateral Account.

 

The
Existing Accounts will be administered as follows:

 

(a)           “FSAM Cash Account.”

 

(i)            Deposits. On a
daily basis prior to a Transition Date (A) all Collections and (B) any amounts
paid from the FSA PAL Brussels Cash Account or the FSA PAL Cash Account will be
deposited in the FSAM Cash Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSAM Cash Account will be in accordance with the provisions of
this Agreement (A) to make payments in accordance with the Priority of
Payments, (B) to repay the Master Repurchase Agreement on an accelerated basis,
(C) to purchase Permitted Investments in accordance with the Priority of
Payments, or (D) to post collateral (by posting cash or purchasing qualifying
assets) under a GIC Contract or Senior Third Party Hedge Agreement in
accordance with Section 11.2; provided that
if a Dexia Event of Default occurs, upon the direction of the Secured Party
Representative, funds on deposit in the FSAM Cash Account will be transferred
to the Collateral Agent Cash Account.

 

(b)           “FSAM Collateral Account.”

 

(i)            Deposits.
Promptly upon receipt, all FSAM Assets (other than non-USD assets, which will
be deposited in a sub-account or held in the FSA PAL Account, as applicable)
not

 

68

 

applied
to secure any secured or collateralized GIC Contracts or Senior Third Party
Hedge Agreements will be deposited in the FSAM Collateral Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSAM Collateral Account will be in accordance with the
provisions of this Agreement (A) to post collateral under a GIC Contract or
Senior Third Party Hedge Agreement in accordance with Section 11.2, (B) to
transfer Collections to the FSAM Cash Account, (C) to deliver Collateral in
connection with a Permitted Asset Sale or (D) to deliver as a Put Settlement
Asset under either Put Contract, as applicable; provided that if a Dexia Event of Default occurs, upon the
direction of the Secured Party Representative, FSAM Assets will be transferred
to the Collateral Agent Custodial Account.

 

(c)           “FSA Capital Management
Collateral Account.”

 

(i)            Deposits.
Promptly upon receipt all funds including any Excluded GIC Issuers Collateral
received by or on behalf of FSA Capital Management will be deposited in the FSA
Capital Management Collateral Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSA Capital Management Collateral Account will be in accordance
with the provisions of this Agreement (A) transfers pursuant to the Master
Repurchase Agreement or (B) transfers to the FSAM Cash Account, FSAM Collateral
Account, FSA PAL Collateral Account or FSA PAL Brussels Collateral Account.

 

(d)           “FSA Capital Markets
Collateral Account.”

 

(i)            Deposits.
Promptly upon receipt all funds received by or on behalf of FSA Capital Markets
including (A) any Excluded GIC Issuers Collateral and (B) any collateral posted
under the Hedge Agreements, will be deposited in the FSA Capital Markets
Collateral Account.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSA Capital Markets Collateral Account will be in accordance
with the provisions of this Agreement will be in accordance with the provisions
of this Agreement (A) transfers pursuant to the Master Repurchase Agreement or (B)
transfers to the FSAM Cash Account, FSAM Collateral Account, FSA PAL Collateral
Account or FSA PAL Brussels Collateral Account.

 

(e)           “FSA PAL Cash Account.”

 

(i)            Deposits. Prior
to the FSA PAL Accounts Transfer, all Collections received with respect to the
FSA PAL Collateral will be deposited in the FSA PAL Cash Account promptly upon
receipt thereof.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on
deposit in the FSA PAL Cash Account will be in accordance with the provisions
of this Agreement to (A) transfer amounts due and payable under the FSA PAL
Loan to the FSAM Cash Account or transfer funds to the Collateral Agent Cash
Account or (B) transfer all property in the FSA PAL Cash Account to the FSA PAL
Brussels Cash Account pursuant to Section 10.1(h).

 

69

 

(f)            “FSA PAL Collateral
Account.”

 

(i)            Deposits. Prior
to the FSA PAL Accounts Transfer, all sterling and other non-USD denominated
FSAM Assets that cannot be held in the FSAM Collateral Account and that is not
applied to secure any secured or collateralized GIC Contracts will be deposited
in the FSA PAL Collateral Account promptly upon receipt thereof.

 

(ii)           Withdrawals.
The only permitted withdrawal from or application of funds or property on deposit
in the FSA PAL Collateral Account will applied be in accordance with the
provisions of this Agreement (A) to post collateral under a GIC Contract or a
Senior Third Party Hedge Agreement in accordance with Section 11.2, (B) to
transfer Collections to the FSA PAL Cash Account, the FSAM Cash Account or the
Collateral Agent Cash Account, (C) to deliver Collateral in connection with a
Permitted Asset Sale (D) to deliver as a Put Settlement Asset under either Put
Contract, as applicable or (E) transfer all property in the FSA PAL Collateral
Account to the FSA PAL Brussels Collateral Account pursuant to Section 10.1(h).

 

Section 10.4.          Reporting Agent.

 

(a)           The GIC Business Entities
hereby agree to maintain an agent to prepare certain reports (the “Reporting
Agent”) for FSA and hereby appoint BNY Mellon as the initial Reporting
Agent pursuant to the terms and conditions of the Reporting Service Agreement.
The Reporting Agent may be removed by the GIC Business Entities at any time. If
the Reporting Agent is unable or unwilling to act as such or is removed by the
GIC Business Entities, the GIC Business Entities will promptly appoint a
replacement Reporting Agent; provided that
five Business Days notice will be provided to FSA, and if FSA objects to the
proposed replacement, the GIC Business Entities will appoint a different
replacement Reporting Agent. The resignation or removal of the Reporting Agent
will not be effective without a successor having been duly appointed. The
Reporting Agent will be entitled to indemnification to the extent set forth in Section 6.2(b).

 

(b)           The Reporting Service
Agreement will require that, commencing no later than August 1, 2009, and
until the Senior Release Date or, if earlier, such time as the Reporting Agent
is notified by FSA that such report is no longer required, on each Business
Day, the Reporting Agent shall compile and deliver to FSA and the Administrator
(and to the Dexia Guarantors, FSAM, the FSAM Successor, the FSAM Hedging
Successor or any GIC Issuer upon its request):

 

(i)            a daily report,
with information from the Information Sources as of the close of business on
the preceding Business Day, which report will contain the principal balance and
Mark to Market Value of each FSAM Asset.

 

(ii)           a calculation
of the amount of available cash in the FP Accounts and of the overnight
Permitted Investments and an indication whether the Required Reserve is
satisfied;

 

(iii)          cash balances
as reported by the Account Banks showing the cash balances in the accounts in
the most recent Information Source (which is intended to be as of close of
business on the preceding Business Day).

 

(c)           The Reporting Service
Agreement will require that, commencing no later than August 1, 2009, and
until the Senior Release Date or, if earlier, such time as the Reporting Agent
is notified by FSA that such report is no longer required, on the first
Business Day of each calendar week, the Reporting Agent shall provide a report
to FSA and the Administrator (and to the Dexia Guarantors, FSAM, the FSAM
Successor, the FSAM Hedging Successor or any GIC Issuer upon its request)
containing the following information as of the last Business Day of the prior
calendar week.

 

70

 

(i)            the “collateral
value” (as defined in each Put Contract) and, based on the relevant Information
Source, whether such collateral value is less than the Exposure;

 

(ii)           whether the
Subordinated Claims Payment Condition is met, setting forth. and based on, the
following information for each clauses of the definition thereof:

 

(A)          with respect to
clause (a), a statement whether the Reporting Agent has received notice of a
Dexia Default or Dexia Event of Default,

 

(B)           with respect to
clause (b), if the Reporting Agent has received a notice of a Dexia Event of
Default, the calculation in reasonable detail described in clause (b) of the
definition, based on data from the relevant Information Sources, and

 

(C)           with respect to
clause (c), if the Reporting Agent has received a notice from the Administrator
that the GIC Contracts have been Paid In Full.

 

(iii)          with respect to
each FSAM Asset that is a Put Portfolio Asset (including FSAM Assets that have
been posted as collateral under a Hedge Agreement of GIC Contract), (A) the
principal balance and Mark to Market Value of each such FSAM Asset and (B) based
upon information provided by the Administrator an indication of whether it is
posted as collateral under a Hedge Agreement or GIC Contract.

 

(d)           The Reporting Agent has been
appointed Valuation Agent under the Dexia CSAs and will perform the duties
specified thereunder, subject to its receipt of the information required for
calculations required thereunder from the Information Sources.

 

(e)           “Information Sources”
means (i) the relevant Account Bank, with respect to the FSAM Assets and the
collateral posting accounts held by the Account Bank for the benefit of GIC
Holders, (ii) the custodian of the Dexia Collateral pursuant to the Dexia CSAs,
with respect to the Dexia Collateral. (iii) The Royal Bank of Scotland plc,
with respect to the FSA PAL Collateral as forwarded by the Administrator, (iv) the
custodian of each collateral posting account not held by the Account Bank for
the benefit of GIC Holders with respect to the securities and cash held in such
accounts, and (v) the Administrator, with respect to (x) the Private Placement
Notes and (y) the items described in clause (1) of the applicable definition of
“Exposure,” including the principal balance of the GIC Contracts, the GIC
Business Cost Amount and information related to the valuation of Hedge
Agreements, and with respect to the list of the overnight Permitted Investments
on any Business Day. The Administrator shall assist the Reporting Agent in
obtaining data from the Information Sources.

 

The
Administrator or FSAM will, at the request of FSA, request from either Account
Bank a copy of (i) its then current valuation procedures for valuing securities
held by it and/or (ii) its “Operational Procedures” (as defined in the
applicable Put Settlement Procedures Agreement) and if provided, forward such
procedures to FSA and to the extent that FSAM or the Administrator receives
notice of any changes in any such procedures it will forward a copy of such
notice to FSA.

 

Section 10.5.          Reporting.

 

(a)           On the first Business Day of
each calendar week and each calendar month based on the most recent data
available to it, the Administrator will provide a report to the Dexia
Guarantors, the Collateral Agent and FSA (and to FSAM, the FSAM Successor, the
FSAM Hedging Successor, or any GIC Issuer upon its request) setting forth the
following items for the next seven calendar days and calendar month, as
applicable:

 

71

 

(i)            anticipated
cash expenditures that will come due over the next seven calendar days and
calendar month, as applicable;

 

(ii)           a
reconciliation of actual cash expenditures from the previous seven calendar
days and calendar month, as applicable, to the anticipated cash expenditures
for such period; and

 

(iii)          aggregate
payments from FSAM to any single Hedge Counterparty in excess of $1 million
over the course of the next seven calendar days and calendar month, as
applicable.

 

(b)           The Administrator will provide
to the ALCO on a quarterly basis, a comparison of actual cash expenditures with
respect to each category of Administrative Expenses with the budget.

 

(c)           The Administrator will
forward within two Business Days of receipt to FSA (other than reports or notices
with respect to FSAM Assets for which FSA has obtained access to the relevant
website) and the Dexia Parties copies of any servicer and trustee reports, or
notices (in the form and format received) with respect to FSAM Assets and other
information received in relation to the Dexia Guarantees, the Dexia GIC
Indemnity, the Guaranteed Liquidity Facilities, this Agreement, the GIC
Contracts, the Administrative Services Agreement, the Sovereign Guarantee, the
Hedge Agreements, the FSA PAL Loan, the Master Repurchase Agreement, the FSAM
Assets and other Collateral. With respect to such reports, notices and other
information available to the Administrator through a website, the Administrator
will, at the request of FSA, use reasonable efforts to assist FSA in obtaining
access to such website.

 

(d)           Dexia shall provide daily
reporting of the liquidity position of FSAM to the Sovereign Guarantors and FSA
in such manner as may be agreed with the Sovereign Guarantors and FSA. Such
report will include notice of any Dexia Default that has occurred prior to the
date of such report.

 

(e)           Without limitation of the
foregoing, and in addition to any other reporting obligations of FSAM or the
Reporting Agent set forth herein, FSAM shall provide to Dexia and FSA, with a
copy to the Sovereign Guarantors:

 

(i)            within 15
Business Days of the end of each month, a risk report in the form provided to
the Sovereign Guarantors pursuant to the Sovereign Guarantee Reimbursement
Agreement.

 

(ii)           within 30 days
of the end of each month, updated lists of the FSAM Assets as of the end of
such month, showing for each FSAM Asset (organized by Put Portfolio Asset,
Excluded Asset and Other Asset) (A) its identification, (B) its Outstanding
Principal Amount, (C) its most recently determined Mark to Market Value
calculated with respect thereto in relation to the Dexia CSAs, (D) its current
book value in the accounts of FSAM, (E) its economic value, both in an expected
and stress case loss projection as determined by the Administrator based on then-current
market conditions, (F) its public rating by Moody’s, S&P and Fitch, if any
and (G) whether it is fully performing and, if not, the relevant details of any
non-performance (based on any reports available to FSAM;

 

(iii)          within 15 days
of the end of each month, projected economic and accreted balances of the GIC
liabilities, both in an expected and stress case as determined by the
Administrator based on then-current market conditions;

 

(iv)          within 90 days
of the end of each year and 45 days of the end of each half-year, a
consolidated balance sheet, profit and loss account, and cash flow statement of
FSAM;

 

72

 

(v)           not later than
30 days before the commencement of each year, FSAM’s budget for that period;

 

(vi)          within 15
Business Days of the end of each month, the estimated liquidity needs of FSAM,
both in an expected and stress case as determined by the Administrator based on
then-current market conditions;

 

(vii)         statements of
account with respect to transactions involving the Put Portfolio Assets, which
shall be furnished to Dexia, the Sovereign Guarantors and FSA within 30
Business Days from June 30 and within 60 Business Days from December 31
each year;

 

(viii)        to the extent
available and applicable, upon request of the Sovereign Guarantors or FSA, to
the requesting party, copies of all periodic payment date reports delivered to
or by the issuers of the Put Portfolio Assets, and upon the reasonable request
of the Sovereign Guarantors or FSA, to the requesting party such other data in
relation to the Put Portfolio Assets which is made available to the holders of
such Put Portfolio Asset from time to time;

 

(ix)           upon reasonable
notice, any other information reasonably requested by the Sovereign Guarantors
or FSA, to the requesting party in particular as it may relate to the GIC
Business, including the amounts of the sums owed by the Sovereign Guarantors
under the Sovereign Guarantee and any other information reasonably required or
appropriate in connection with for the performance or implementation of the
Sovereign Guarantee or otherwise related to the GIC Business.

 

(x)            on or prior to
the fifth Business Day prior to each January 31 and July 31 (a “Semi-Annual
Reporting Date”) (A) a calculation of the average aggregate Outstanding
Principal Amount of the FSAM Assets (decreased for any Principal Shortfall
Amounts) in relation to which a Put Settlement Date has not yet occurred over
the period from and including the preceding December 31 or June 30,
respectively (or in the case of the first such period, the date of issuance of
the Sovereign Guarantee) to, but excluding, the June 30 or December 31,
as applicable and plus (B) a calculation of the average aggregate outstanding
principal amount of the GIC Contracts over the period from and including the
preceding June 30 or December 31, as applicable (or in the case of
the first such period, the date of issuance of the Sovereign Guarantee) to, but
excluding the December 31 or June 30, as applicable, immediately
preceding the relevant Semi-Annual Reporting Date (or in the case of the last
such period, the last day of such period).

 

All information contemplated
by this Section 10.5(e) shall be provided to such address and notice
details as the Sovereign Guarantors and FSA provide from time to time for
purposes of this provision; provided, that
each such report may be provided by making it electronically available through
the Administrator’s “website” so long as the Administrator has provided the
designated recipient with prior written instructions (delivered by email or
facsimile to such recipient) with directions for accessing such website. So
long as the Dexia Guarantors are the Secured Party Representative, Dexia shall
be solely responsible for providing a copy to the Sovereign Guarantors of the
information contemplated by this Section 10.5(e). If the Dexia Guarantors
are not the Secured Party Representative and the Sovereign Guarantors give
notice to the Secured Party Representative that Dexia and/or FSAM have failed
to deliver one or more items of information required by this Section 10.5(e),
the Secured Party Representative shall direct the Administrator to prepare such
information (with any costs associated therewith to be included as an
Administrative Expense) and to provide such information to the Sovereign
Guarantors.

 

(f)            Promptly upon becoming aware
of a Dexia Default, the Administrator will give notice to the Reporting Agent,
the Collateral Agent, the Dexia Guarantors and FSA.

 

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Section 10.6.          Inspection Rights.

 

(a)           Each of FSAM, FSA, the
Sovereign Guarantors, the Dexia Parties, the FSAM Successor, the FSAM Hedging
Successor and Assured (collectively, each, an “Inspecting Party”) shall
have the right to inspect the books and records of the Collateral Agent related
to this Agreement and the other Material Agreements to which it is a party at
any time during normal business hours (but no more than once during any
12-month period) upon reasonable advance notice and without undue and
unreasonable disruption of its normal business activities.

 

(b)           The Inspecting Parties will
have the right (x) to inspect the books and records of the Administrator
related to the GIC Business and the Material Agreements at any time during
normal business hours upon reasonable advance notice, and (y) to consult with
the officers, employers, directors and managers of the Administrator and FSAM,
as applicable, related to the GIC Business to discuss the GIC Business, the
management and collections of the assets related thereto and any necessary
revisions to the ALM Procedures at any time during normal business hours upon
reasonable advance notice. Dexia and the Administrator shall use reasonable
best efforts to cooperate with FSA, the Sovereign Guarantors and Assured in
connection with any such consultation or inspection of books and records by
them.

 

(c)           Each Inspecting Party shall
be entitled to permit the Rating Agencies and any of its applicable regulators
to inspect such books and records and to consult with officers, employers and
managers of the Administrator. In connection with any such inspection, FSAM
will provide any additional information as such Inspecting Party may reasonably
request in connection with its inspection rights.

 

ARTICLE XI

PRIORITY OF PAYMENTS; CASH MANAGEMENT

 

Section 11.1.          Priority of Payments.

 

(a)           FSAM shall apply Available
Funds (including any proceeds of FSAM Assets that may be sold by FSAM from time
to time and any payments received by FSAM under the Dexia Guaranteed Put
Contract, the Dexia Non-Guaranteed Put Contract, the Sovereign Guarantee or any
other Collections) in accordance with the Priority of Payments. Any Available
Funds not otherwise allocated pursuant to such Priority of Payments will be
reinvested in Permitted Investments, pursuant to the ALM Procedures.

 

(b)           On each Business Day, the
Administrator will cause Available Funds to be applied as follows (the “Priority
of Payments”):

 

(i)            First, to pay the
following amounts (collectively, the “Senior Priority Payments”), it
being acknowledged and agreed that no individual Senior Priority Payment will
have priority over any other Senior Priority Payment:

 

(A)          to pay
Administrative Expenses then due; provided, that
such payments (together with any payments previously made pursuant to this
clause during the calendar year) shall not exceed the Annual Expense Cap;

 

(B)           to pay unpaid
interest in respect of FSA GIC Contracts (through payment of any unpaid price
differential under the Master Repurchase Agreement and/or GIC Issuer Repurchase
Agreement, as applicable, in relation to any prior payment date in an amount
equal to any unpaid interest payable in respect of FSA GIC Contracts on such
date), with such payments being made directly to the GIC Holder of the related
GIC Contract;

 

74

 

(C)           to pay any
current interest in respect of FSA GIC Contracts (through payment of any price
differential under the Master Repurchase Agreement and/or GIC Issuer Repurchase
Agreement, as applicable, in relation to any prior payment date in an amount
equal to any current interest payable in respect of FSA GIC Contracts on such
date), with such payments being made directly to the GIC Holder of the related
GIC Contract;

 

(D)          to pay principal
in respect of FSA GIC Contracts (through payment of repurchase price and other
amounts in respect of the Master Repurchase Agreement and/or GIC Issuer
Repurchase Agreement, as applicable, in connection with FSA GIC Contract
withdrawals or terminations then due (for the avoidance of doubt, without
regard to whether a termination has occurred automatically, at the option of
the holder of the FSA GIC Contract, or through a negotiated process pursuant to
Section 11.2(c) and in accordance with the ALM Procedures)), which for the
avoidance of doubt will include any termination costs payable by a GIC Issuer
in connection with any such GIC Contract termination, with such payments being
made directly to the GIC Holder of the related GIC Contract;

 

(E)           to pay futures
variation margin amounts due for exchange traded futures contracts;

 

(F)           to pay current
net payments (including any termination payments and collateral posting
requirements) owed to Unaffiliated Counterparties under the Senior Third Party
Hedge Agreements;

 

(G)           following a
Dexia Event of Default, to pay Hedge Counterparties periodic payments and
amounts paid in consideration of the initial value of new Hedge Agreements
and/or derivatives transactions thereunder in accordance with the ALM
Procedures, and to pay any accrued Portfolio Manager fees and expenses payable
under the Portfolio Management Agreement;

 

(H)          to pay to the
Dexia Guarantors, Dexia Reimbursement Payments;

 

(I)            to reimburse
FSA for any unreimbursed claims it has paid under any FSA Policies related to
the GIC Business and to pay any other amounts owed to FSA under the Insurance
Agreements;

 

(J)            to the extent
collateral was not posted as required under an FSA GIC Contract, unless in its
discretion, the Administrator has determined in accordance with Section 11.2(c)
that failure to do so would not result in a Net Loss, an amount required to
satisfy any such posting requirement which has not been satisfied, either by
posting cash or buying Permitted Investments eligible to be posted under such
FSA GIC Contract;

 

(K)          to the extent
FSAM is required to post collateral in relation to a Senior Third Party Hedge
Agreement and such requirement has not been satisfied, an amount equal to any
such posting requirement which has not been satisfied;

 

(L)           to repay
amounts advanced by an Account Bank under its securities, banking and clearing
arrangements with FSAM and the GIC Issuers, together with any accrued interest
due thereon (which would include any amount then due with respect to such
Account Bank’s “daylight overdraft” arrangement); and

 

75

 

(M)         to reserve an amount of
immediately available funds that, together with overnight Permitted Investments
is not less than the Required Reserve;

 

(ii)           Second, to pay any
other Administrative Expenses then due and payable;

 

(iii)          Third, prior to any
Dexia Event of Default, to reserve an amount determined by the Administrator to
be reserved in excess of the Required Reserve in consideration of possible
liquidity needs for the following two Business Days;

 

(iv)          Fourth, to the extent
not otherwise provided for above, to pay any Permitted Indebtedness to an
Unaffiliated Party;

 

(v)           Fifth, following a
Dexia Event of Default, to pay to FSA any indemnities (other than Good Faith
Contested Payments) payable by FSAM or any GIC Issuer pursuant to Section 7.6;

 

(vi)          Sixth, if the
Subordinated Claims Payment Condition is met, to pay current swap payments and
any termination payments owed under any Subordinated Third Party Hedge
Agreement,

 

(vii)         Seventh, if the
Subordinated Claims Payment Condition is met, current swap payments and any
termination payments owed under Dexia Hedge Agreements;

 

(viii)        Eighth, if the
Subordinated Claims Payment Condition is met, the lesser of (I) 50% of the
amount of remaining Available Funds and (II) the amount required to pay amounts
due, or which are capable of being optionally prepaid, (without regard to
whether any applicable notice period required in connection with any such
prepayment has been complied with), to the applicable Dexia Parties in relation
to the Guaranteed Liquidity Facilities in the following order of priority: (A) interest
and fees, and then (B) principal or repurchase price until all principal or
repurchase price has been paid in full; and then (C) any Additional Costs (as
defined in the Guaranteed Liquidity Facility) to the extent such Additional
Costs were taken into consideration on the preceding “weekly assessment point”
(as defined in the Guaranteed Liquidity Facilities);

 

(ix)           Ninth, if the
Subordinated Claims Payment Condition is met, to pay any taxes incurred in
relation to the GIC Business, including any taxes imposed on DHI or any DHI
Affiliate with respect to the GIC Business and any withholding tax, capital
charges and other similar charges;

 

(x)            Tenth, if an Early
Termination Date was designated in relation to either of the Put Contracts
following a Dexia Event of Default and the Subordinated Claims Payment
Condition is met, to pay to the Dexia Guarantors (or if the Master Repurchase
Agreement has been terminated early and the GIC Issuers have retained the
corresponding Additional Securities Collateral upon such termination, to pay to
FSAM for payment to the Dexia Guarantors), an amount equal to the Mark to
Market Value of the Additional Securities Collateral under the relevant Put
Contract (s) as of the date such Early Termination Date was designated.

 

(xi)           Eleventh, if the
Subordinated Claims Payment Condition is met, to pay the following amounts, it
being acknowledged and agreed that no such individual payment will have
priority over any other payment:

 

(A)          to the Dexia Guarantors an
amount equal to any reimbursements due and payable under the Dexia Guarantee
Reimbursement Agreement;

 

76

 

(B)           to pay required
principal and other amounts in respect of Dexia Only GIC Contracts withdrawals
or terminations then due (for the avoidance of doubt, without regard to whether
a termination has occurred automatically, at the option of the holder of the
Dexia Only GIC Contract, through a negotiated process in accordance with the
ALM Procedures, or otherwise) in relation to the Master Repurchase Agreement,
which for the avoidance of doubt will include any termination costs payable by
a GIC Issuer in connection with any such GIC termination;

 

(C)           to reimburse
the Dexia Counterparty Guarantors for any novation fees, termination payments
or similar amounts paid by them to Unaffiliated Counterparties in respect of
Third Party Hedge Agreements;

 

(D)          to the extent
not otherwise provided for above, to pay any Permitted Indebtedness to any
Affiliate of any Dexia Party; and

 

(E)           to pay any
Covered Persons Indemnification Payments;

 

(xii)          Twelfth, if the
Subordinated Claims Payment Condition is met, if the relevant date is a
quarterly payment date for the Dexia Guarantee Fee due under the Dexia
Guaranteed Put Contract, Dexia Non-Guaranteed Put Contract and the Dexia FP
Guarantee, to pay to the Dexia Guarantors any accrued and unpaid Dexia
Guarantee Fee;

 

(xiii)         Thirteenth, if the
Subordinated Claims Payment Condition is met, to pay amounts due, or which are
capable of being optionally prepaid, to the applicable Dexia Parties in
relation to the Guaranteed Liquidity Facilities and which have not been paid
under Eighth above;

 

(xiv)        Fourteenth, to be
invested in Permitted Investments (with maturities determined in accordance
with the ALM Procedures), or after the Senior Release Date, towards payment to
the equity holders of FSAM;

 

provided,
however, that no payments may be made pursuant to clauses Sixth through Thirteenth above if after giving effect to any such payment,
the Dexia Guarantors would be required to transfer a Delivery Amount (assuming
for this purpose that the “threshold” and “minimum transfer amount” as defined
in the applicable Dexia CSA is zero) under either of the Dexia Guaranteed Put
CSA or the Dexia Non-Guaranteed Put CSA (based on the then current Mark to
Market Value of any Put Portfolio Asset, Excluded Asset, Other Asset and Dexia
Collateral).

 

(c)           The Administrator will
obtain either (x) confirmation from the Collateral Agent through a Confirmation
Request (with Section I completed) or (y) consent of FSA prior to any
single payment or transfer prior to the Senior Release Date in an amount equal
to $100 million or more, or in the case of a payment to any Dexia Party, in an
amount equal to $50 million or more, in each case, other than in respect of (A)
a termination payment or collateral posting (either by posting cash or
purchasing qualifying assets) with respect to a Senior Third Party Hedge
Agreement or a GIC Contract or a withdrawal under a GIC Contract, (B) an
overnight investment that constitutes a Permitted Investment, or (C) a
repurchase or principal payment under the Guaranteed Liquidity Facilities.

 

The
Administrator will provide such Confirmation Request by email to the Collateral
Agent (with a copy to FSA), receipt of which will be confirmed by the
Administrator by telephone. The Collateral Agent shall provide notice to the
Administrator if the Confirmation Request is incomplete or will provide
confirmation by returning Section I of the Confirmation Request to the
Administrator (with a copy to FSA) by 4:00 P.M. (New York time) of the same
Business Day if such Confirmation Request has been

 

77

 

received by 10:00 A.M. (New
York time) and by 4:00 P.M. (New York time) on the following Business Day if
received after 10:00 A.M. (New York time).

 

(d)           In the event that on any
Business Day there are insufficient amounts available to fully fund all the
Senior Priority Payments, FSAM shall apply a portion or all of the Required
Reserve to pay any Senior Priority Payments due on such Business Day in
accordance with Section 11.1(a).

 

Section 11.2.          Management of Short Term
Liabilities.

 

(a)           FSAM shall take, or cause to
be taken, actions to generate cash or liquid assets with the intent that
Available Funds on each Business Day will be sufficient to fund in full all
Senior Priority Payments due on such Business Day.

 

(b)           On the first Business Day of
each calendar week, FSAM will evaluate the balance of Available Funds at the
opening of business on such day, the scheduled or expected payments to be
received over the next seven calendar days and, with respect to collateral
posting requirements, the amount of qualifying assets otherwise available to
satisfy such posting requirements and compare such required amount to the
scheduled or expected Senior Priority Payments required to be paid during the
next seven calendar days.

 

To
the extent the expected cash balance for any Business Day during the next seven
calendar days would not be sufficient to pay each days’ Senior Priority
Payments (including required collateral postings as described in Section 11.1(b)(i)(J))
during such period, FSAM will take actions,

 

(i)            in case of
requirements for cash other than for collateral postings, to generate cash for
availability on the relevant day or days in the amount of such shortage related
to payments in the following order of priority:

 

(A)          First, by making a
draw under the Guaranteed Liquidity Facilities to the extent of any remaining
availability thereunder;

 

(B)           Second, by selling
Permitted Investments that are not Put Portfolio Assets, which sales will not
require the prior consent of FSA;

 

(C)           Third, by selling
Dexia CSA Collateral or financing Dexia CSA Collateral in connection with a
Temporary Funding Transaction;

 

(D)          Fourth, by selling
Excluded Assets and/or Other Assets, with such assets being identified for sale
based on their most recently determined market price (expressed as a percentage
of par) and with FSAM using commercially reasonable efforts to sell the assets
with the highest market prices first, which sales will not require the prior
consent of FSA; and

 

(E)           Fifth, by selling
Put Portfolio Assets, with such assets being identified for sale based on their
most recently determined market price and with FSAM using commercially
reasonable efforts to sell the assets with the highest market prices first; provided that the prior consent of FSA and
Dexia (so long as no Dexia Event of Default will have occurred) will be
required with respect to the sale of any Put Portfolio Assets other than a
Permitted Asset Sale (including in connection with the exercise of a Call
Option); and

 

78

 

(ii)           in the case of
requirements for qualifying assets to satisfy a collateral posting requirement,
to generate qualifying assets on the relevant day or days in the amount of such
shortage related to payments in the following order of priority:

 

(A)          First, direct a
transfer of Eligible Collateral from the Dexia Collateral Account to the
relevant collateral posting account for the GIC Contract or Senior Third Party
Hedge Agreement if such Eligible Collateral would be eligible to meet the
relevant collateral posting requirement; and

 

(B)           Second, transfer
under the Repurchase Facility Agreement collateral owned by FSAM that is not
eligible to meet the related posting obligations in the amount of such
unsatisfied posting requirement (with the securities identified for transfer
under the Repurchase Facility Agreement being selected in accordance with the
priority described in clauses Fourth and
Fifth in clause (i) and the
identification priority described in Section 3(b)(iv) of the Repurchase
Facility Agreement);

 

(C)           Third, make a
Liquidity Draw Request under the Liquidity Facility to the extent of any
remaining availability thereunder to generate funds for cash collateral
posting;

 

(D)          Fourth, take one of
the actions specified in accordance with clauses Third through Fifth of
clause (i) above.

 

For
the avoidance of doubt, no assets may be sold pursuant to clause (i)(C) to the
extent that FSAM owns Permitted Investments that are not Put Portfolio Assets
that could be sold pursuant to clause (i)(B).

 

(c)           FSAM, with notice to FSA (or
after a Dexia Event of Default, the FSAM Successor at FSA’s direction and with
notice to the Dexia Guarantors), in its discretion, may elect in accordance
with the ALM Procedures not to post collateral to a GIC Holder if it has
determined that failing to do so may result in acceleration of the principal
due under the related GIC Contract and such acceleration would not result in a
Net Loss.

 

(d)           Prior to a Dexia Event of
Default, to the extent that an optional termination of a GIC Contract requires
a termination payment in an amount in excess of the unpaid principal balance of
such GIC Contract, plus accrued interest thereon, plus any cash payments
actually received by FSAM from the termination of any related Hedge Agreement,
the Dexia Guarantors, in their capacity as guarantors of the obligations of the
GIC Issuers under the GIC Contracts and the payment obligations of FSAM under
Third Party Hedge Agreements, will deposit an amount equal to such excess into
the FSAM Cash Account within two (2) Business Days following such termination.

 

(e)           On any date on which FSA is
not the Secured Party Representative, the Administrator will obtain either
confirmation from the Collateral Agent through a Confirmation Request (with Section II
completed) or consent of FSA prior to a sale of an FSAM Asset with a principal
balance equal to $100 million or more to which FSA has not consented. The
Administrator will provide such Confirmation Request (containing supporting
evidence) by email to the Collateral Agent (with a copy to FSA) receipt of
which will be confirmed by the Administrator by telephone. The Collateral Agent
shall provide notice to the Administrator if the Conformation Request is
incomplete or confirmation by returning Section II of the Confirmation
Request to the Administrator with a copy to FSA by 4:00 P.M. (New York time) of
the same Business Day if such Confirmation Request has been received by 10:00
A.M. (New York time) and by 4:00 P.M. (New York time) on the following Business
Day if received after 10:00 A.M. (New York time).

 

79

 

ARTICLE
XII

DIRECTING
PARTIES; VOTING RIGHTS

 

Section 12.1.          Secured Party Representative.

 

(a)           Prior to any Dexia Event of
Default, the Dexia Guarantors, in their capacity as Secured Party
Representative and on behalf of the Sovereign Guarantors, shall direct the day
to day operations of the GIC Business Entities and the Administrator and shall
direct in accordance with the ALM Procedures the management of the assets and
liabilities of the GIC Business Entities and the Administrator, including cash
management, asset and liability management and other normal day to day
operations of the GIC Issuers, FSA PAL and the Administrator.

 

(b)           If a Dexia Event of Default
has occurred, FSA may elect (with a copy to the Dexia Guarantors) to become the
Secured Party Representative, accelerate the Master Repurchase Agreement and
enforce its rights over the Collateral, Dexia FP Collateral or FSAM PAL
Collateral, assume control over the Administrator and direct the activities of
the GIC Business Entities through the Administrator and exercise any other
rights and remedies as set forth in Section 5.2, subject to Sections 5.4
and 7.5. Upon notice to the Collateral Agent of such election, the Collateral
Agent shall follow solely the instructions of FSA with respect to the exercise
of such rights.

 

(c)           Each Dexia Guarantor may
pledge or assign its rights as Secured Party Representative to the Sovereign
Guarantors.

 

(d)           Notwithstanding any other
provision thereof and so long as the Sovereign Guarantee is in effect, the
Secured Party Representative shall (x) (1) not take any action to restrict the
Administrator in any respect from providing Dexia with access to such
information as it may require to meet the undertakings by Dexia under the
sections of the Sovereign Guarantee Reimbursement Agreement attached as Annex K
and providing reasonable assistance to Dexia with a view to its complying with
those undertakings regardless of whether a Dexia Event of Default has occurred
(other than with respect to information for which Dexia is fully capable of
accessing or compiling independently notwithstanding the occurrence of a Dexia
Event of Default) and (2) in the event the Administrator fails to provide such
access or reasonable assistance, and upon request by Dexia and at Dexia’s
expense, take all reasonable steps to exercise any applicable rights of the
Secured Party Representative to cause the Administrator to provide such access
and reasonable assistance and (y) upon receipt of a request by Dexia or a
Sovereign Guarantor explaining the relevant conflict, refrain from taking any
action which would prevent Dexia from complying with such undertakings.

 

Section 12.2.          Voting Rights.

 

For
so long as the Dexia Guarantors are the Secured Party Representative and the
Sovereign Guarantee is in effect, the Dexia Guarantors agree to exercise any
Voting Rights in relation to the Put Portfolio Assets only taking into account
the interests of the Sovereign Guarantors in relation to the Sovereign
Guarantee. On and after the occurrence of a Dexia Event of Default and the
election of FSA to become the Secured Party Representative, so long as the
Sovereign Guarantee is no longer in effect or an early termination date has
been designated under the Dexia Guaranteed Put Contract, the Collateral Agent
shall follow solely the instructions of FSA with respect to the exercise of
such Voting Rights until the Senior Release Date. For so long as the Sovereign
Guarantee is in effect, FSA (if it is the Secured Party Representative) agrees
to exercise any such Voting Rights related to the Put Portfolio Assets taking
into account in good faith the interests of the Sovereign Guarantors as
guarantors under the Sovereign Guarantee in relation to such exercise.

 

80

 

Section 12.3.          Effect of a Senior Release
Date. Upon the occurrence of a Senior Release Date, all rights of FSA under
this Agreement will terminate and any rights of FSA to take any action will be
deemed to be rights of action of the Dexia Parties.

 

ARTICLE XIII

MISCELLANEOUS PROVISIONS

 

Section 13.1.          Binding on Successors,
Transferees and Assigns.

 

(a)           This Agreement and any
interest or obligation in or under this Agreement may be transferred by FSA to
any of its successors, transferees or assignees in connection with any
consolidation, amalgamation, merger, transfer of all or substantially all its
assets or liabilities, or any other type of corporate reorganization, where
such successor or assign succeeds to FSA’s obligations under the Retained FSA
Policies; provided, that the
prior written consent of Dexia will be required for any other assignment or
transfer of this Agreement or any interest or obligation in or under this
Agreement by FSA.

 

(b)           This Agreement and any
interest or obligation in or under this Agreement will be binding on any
successor, transferee or assignee of any Dexia Party in connection with any
consolidation, merger, transfer of all or substantially all its assets or
liabilities, or any other type of corporate reorganization of such Dexia Party;
provided that the prior written consent
of FSA will be required if the Remedies Nonimpairment Condition is not
satisfied.

 

(c)           Any purported transfer that
is not in compliance with this Section 13.1 will be void ab initio.

 

Section 13.2.          Amendments; Waivers. Any provision
of this Agreement may be amended or waived if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by the parties
hereto, or in the case of a waiver, by the party against whom the waiver is to
be effective. Any purported amendment or waiver that is not in compliance with
this Section 13.2 will be void ab
initio. With respect to efforts to obtain a rating from any Rating
Agency for the GIC Issuers or FSAM, the parties agree that they will use
reasonable efforts to cooperate with one another in negotiating with the Rating
Agencies any amendments to this Agreement required to obtain such ratings and
FSA agrees that it will not unreasonably withhold consent to any such
amendment. The Dexia Parties and FSA agree to reasonably cooperate to amend
this Agreement to incorporate new or revised criteria of the Rating Agencies,
which amendments are required to maintain the ratings of FSA or any of the
Dexia Parties, so long as such amendments would not result in significant
increased costs or other adverse effect on any Dexia Parties (in the case of
amendments requested by FSA) or FSA (in the case of amendments requested by any
of the Dexia Parties).

 

Section 13.3.          Notices. All notices
and other communications provided for hereunder will be in writing (including
facsimile communication) and mailed or telecopied or delivered by electronic
transmission or delivered to it at the address and in the manner set forth in
Schedule A. The Collateral Agent agrees to accept and act upon instructions or
directions pursuant to this Agreement sent by designated persons by unsecured e-mail,
facsimile transmission or other similar unsecured electronic methods; provided,
however, that there shall be delivered to the Collateral Agent an incumbency
certificate listing such designated persons, which incumbency certificate shall
be amended whenever a person is to be added or deleted from the listing. If the
Collateral Agent receives e-mail or facsimile instructions (or instructions by
a similar electronic method) and the Collateral Agent in its discretion elects
to act upon such instructions, the Collateral Agent’s understanding of such
instructions shall be deemed controlling. The Collateral Agent shall not be
liable for any losses, costs or expenses arising directly or indirectly from
the Collateral Agent’s reliance upon and compliance with such instructions
notwithstanding that such instructions conflict or are inconsistent with a
subsequent written instruction.

 

81

 

The parties hereto agree to
assume all risks arising out of the use of such electronic methods to submit
instructions and directions to the Collateral Agent, including without
limitation the risk of the Collateral Agent acting on unauthorized instructions
and the risk of interception and misuse by third parties.

 

Section 13.4.          No Waiver; Remedies. No failure
on the part of a party to exercise, and no delay in exercising, any right
hereunder will operate as a waiver thereof, nor will any single or partial exercise
of any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.

 

Section 13.5.          Captions. Section captions
used in this Agreement are for convenience of reference only, and will not
affect the construction of this Agreement.

 

Section 13.6.          Severability. Wherever possible
each provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement will be prohibited by or invalid under such law, such provision will
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

 

Section 13.7.          Entire Agreement, etc. This
Agreement constitutes the entire understanding among the parties hereto with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.

 

Section 13.8.          Governing Law. THIS AGREEMENT
(OTHER THAN ANNEX K) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES
OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK AND THE MANDATORY CHOICE OF LAW RULES CONTAINED IN THE UCC.
For the avoidance of doubt, Annex K will be governed by Belgian law. Each of
the parties hereto hereby irrevocably submits to the exclusive jurisdiction of
any U.S. federal or state court in The City of New York for the purpose of any
suit, action, proceeding or judgment arising out of or relating to this
Agreement. Each of the parties hereto hereby consents to the laying of venue in
any such suit, action or proceeding in New York County, New York, and hereby
irrevocably waives any claim that any such suit, action or proceeding brought
in such a court has been brought in an inconvenient forum and agrees not to
plead or claim the same. Notwithstanding the foregoing, nothing contained in
this Agreement shall limit or affect the rights of any party hereto to exercise
remedies under this Agreement or any of the other Transaction Documents, or to
enforce any judgment with respect thereto, in any jurisdiction or venue. Any
process in any such action shall be duly served if mailed by registered mail,
postage prepaid, with respect to (i) any of Dexia FP, FSA, FSAM, FSA Capital
Markets, FSA Capital Management and the Collateral Agent, at its respective
address designated pursuant to Section 13.3 and (ii) with respect to the
Dexia Parties, FSA PAL and FSA Capital Markets Cayman, each such party hereby
appoints HF Services LLC (the “Process Agent”), with an office on the
date hereof at 445 Park Avenue, 5th Floor, New York, New York 10022 United
States, as their agent to receive, on behalf of each such party and its
property, service of copies of the summons and complaint and any other process
which may be served in any such action or proceeding. Such service may be made
by mailing or delivering a copy of such process to Dexia, DBB, DCL, FSA PAL and
FSA Capital Markets Cayman in care of the Process Agent at the Process Agent’s
above address, and each of Dexia, DBB, DCL, FSA PAL and FSA Capital Markets
Cayman hereby authorizes and directs the Process Agent to accept such service
on its behalf. Dexia, DBB, DCL, FSA PAL and FSA Capital Markets Cayman may
appoint a replacement Process Agent with an office in the State of New York by
notice to FSA.

 

Section 13.9.          Waiver of Jury Trial. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING

 

82

 

RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION.

 

Section 13.10         Sovereign Immunity. To the
extent that Dexia, DCL, DBB, FSA PAL, FSA Capital Markets Cayman, or any of
their respective properties, assets or revenues may have or may hereafter
become entitled to, or have attributed to them, any right of immunity, on the
grounds of sovereignty or otherwise, from any legal action, suit or proceeding,
from the giving of any relief in any respect thereof, from setoff or
counterclaim, from the jurisdiction of any court, from service of process, from
attachment upon or prior to judgment, from attachment in aid of execution of
judgment, or from execution of judgment, or other legal process or proceeding
for the giving of any relief or for the enforcement of any judgment, in any
jurisdiction in which proceedings may at any time be commenced, with respect to
its obligations, liabilities or any other matter under or arising out of or in
connection with this Agreement, Dexia, DCL, DBB, FSA PAL, FSA Capital Markets
Cayman and each other party hereto hereby irrevocably and unconditionally
waive, and agree not to plead or claim, to the fullest extent permitted by
applicable law, any such immunity and consent to such relief and enforcement.

 

Section 13.11.        Counterparts. This Agreement may
be executed by the parties hereto in several counterparts, each of which will
be deemed to be an original and all of which will constitute together but one
and the same agreement.

 

Section 13.12.        Third Party Beneficiaries.

 

(a)           Nothing in this Agreement will confer
any right, remedy or claim, express or implied, upon any Person other than the
parties hereto (other than the Sovereign Guarantors and Assured which will be
third party beneficiaries of this Agreement), and all the terms, covenants,
conditions, promises and agreements contained herein will be for the sole and
exclusive benefit of the parties hereto and their successors and permitted
assigns.

 

(b)           The parties acknowledge and agree
that (i)(A) the Sovereign Guarantors are express third party beneficiaries of
Sections 7.1, 10.5, 10.6 and 12.1, and (B) Assured is an express third party
beneficiary of Section 10.6, in each case, with the right to enforce any
rights or remedies thereunder to the same extent as if they were parties to
this Agreement, and (ii) that any Dexia Party will have the right on behalf of
the Sovereign Guarantors to enforce any rights or remedies of the Sovereign
Guarantors as third party beneficiaries under this Agreement. Such right of
enforcement by the Dexia Parties in (ii) shall be without prejudice to and not
in limitation of the rights of the Sovereign Guarantors to enforce such rights
and remedies directly.

 

Section 13.13.        Limited Recourse.

 

Notwithstanding
any other provision of this Agreement, the obligations of each GIC Business
Entity secured hereby are limited recourse obligations of such GIC Business
Entity payable solely from the proceeds of the Collateral Granted hereunder by
such GIC Business Entity available under and applied in accordance with the
Priority of Payments. Upon application of such Collateral and the proceeds
thereof available to satisfy the Secured Obligations, the Secured Parties will
not be entitled to take any further steps against such GIC Business Entity to
recover any sums due and shall not constitute a claim against such GIC Business
Entity to the extent of any insufficiency. No recourse shall be had for the
payment of any amounts owing in respect of the Secured Obligations against any officer,
director, employee, stockholder, member or incorporator of the Lenders, the
Dexia Parties, the Collateral Agent, or the GIC Business Entities. This
provision shall survive the termination of this Agreement for any reason.

 

83

 

Section 13.14.        Non-Petition.

 

Each
party to this Agreement agrees that it will not, prior to the Senior Release
Date, acquiesce, petition or otherwise institute against, or join any other
person instituting against, any GIC Business Entity or any of their respective
properties any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any federal or state
bankruptcy, or similar law, including without limitation proceedings seeking to
appoint a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of any GIC Business Entity or any substantial part of
their property; provided, that this provision shall not restrict or prohibit
the Dexia Parties from joining any such proceedings which shall have already
commenced under applicable laws and not in violation of this provision. This
provision shall survive the termination of this Agreement for any reason.

 

Section 13.15.        Stamp Taxes.

 

All
stamp taxes imposed in connection with the execution of the GIC Business
Documents to be executed in relation to the Closing Date shall be split equally
between Dexia and FSA (or, in each case, an applicable Affiliate).

 

84

 

IN WITNESS WHEREOF, the
parties have caused this Pledge and Administration Agreement to be duly
executed and delivered by its officer thereunto as of the date first written
above.

 

	
  DEXIA SA

  	
   

  	
  FINANCIAL
  SECURITY ASSURANCE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEXIA CRÉDIT
  LOCAL S.A.

  	
   

  	
  FSA ASSET
  MANAGEMENT LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEXIA
  BANK BELGIUM SA

  	
   

  	
  FSA
  CAPITAL MARKETS SERVICES LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEXIA FP
  HOLDINGS INC.

  	
   

  	
  FSA
  CAPITAL MANAGEMENT SERVICES LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FSA
  CAPITAL MARKETS SERVICES (CAYMANS) LTD.

  	
   

  	
  Executed
  as a DEED by FSA PORTFOLIO ASSET LIMITED

  acting by EDSEL LANGLEY,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  a director, in the
  presence of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Address:

  
	
  THE BANK
  OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

85

 

APPENDIX I

DEFINITIONS

 

“Account Bank” means
BNY Mellon or, with respect to the Dexia Collateral Account, Wells Fargo.

 

“Account Bank Lien”
means any Lien for the benefit of the Account Bank in its capacity as
securities intermediary (as defined in the UCC) as required or permitted under
the UCC, under the GIC Business Clearing and Custody Agreements, the Debenture
dated August 21, 2006, between FSA PAL and the Account Bank or under any
Securities Account Control Agreement.

 

“Account Transfer Cure”
means the payment by any Dexia Party or any Affiliate to the FSAM Cash Account
such that on the date of (and after giving effect to) such payment, the
outstanding amount of the relevant non-payment, taken together with any other
outstanding and uncured failures to make payments or deliveries by any Dexia
Party or any Affiliate in relation to Uncovered Dexia Payment Obligations, no
longer exceeds the Default Threshold.

 

“Additional Securities
Collateral” means the Dexia CSA Collateral from time to time under the Put
Contracts which is correspondingly pledged by FSAM from time to time as
additional collateral securing the Master Repurchase Agreement.

 

“Administrative
Expenses” means amounts due or accrued with respect to (i) the
Collateral Agent and Reporting Agent (including in respect of any indemnity
obligations); (ii) the Intermediary under each Securities Account Control
Agreements (including in respect of any indemnity obligations) and the
custodian under the Dexia CSA’s; (iii) each of the Rating Agencies for
surveillance fees and other fees and expenses in connection with any rating of
FSAM and the GIC Issuers or any credit estimates, including any fee or expense
of the Rating Agencies in connection with the preparation, review and execution
of any amendment or other modification to any Material Agreements; (iv) direct
and indirect investment-related expenses incurred in connection with management
the GIC Business, including brokerage commissions, clearing and settlement
charges, custodial fees, other fees and expenses relating to acquiring,
disposing and holding investments; (v) pricing services engaged by or on
behalf of FSAM to provide valuations for the FSAM Assets; (vi) independent
accountants, agents, tax advisors and counsel of FSAM and the GIC Issuers for
fees (including retainers) and expenses; (vii) allocated portions of lease
payments, software expenses (including software providers and software
consultants), and payments for office furnishings, materials, and supplies and
other overhead expenses; (viii) costs of maintaining the GIC Business
Entities in good standing, including payments to or on behalf of any directors
and officers (including D&O insurance premiums for the Independent
directors of each GIC Business Entity) and any annual government fees and
franchise taxes; (ix) insurance and indemnification expenses (other than
Covered Persons Indemnification Payments); (x) any fees payable to or
expenses incurred by the Administrator on behalf of or for the benefit of the
GIC Business Entities that are reasonably related to the performance of its
duties under this Agreement and the Administrative Services Agreement; and (xi)
any other costs and expenses in the following categories: (A) compensation
related expenses; (B) direct expenses (e.g.,
underwriting and rating expense, reasonable travel and entertainment, premises
and equipment, professional fees, taxes, licenses and fees, and operating (e.g., telephone supplies)), and (C) indirect
expenses (e.g., corporate
research, systems, support and facilities, human resources, corporate training,
and services provided to and paid for by any GIC Business Entity under any
transition services agreement unless otherwise set forth therein); provided that any taxes that are allocated
pursuant to the FP Business Tax Sharing Agreement dated as of June 30,
2009, by and among DHI, Dexia FP, HF Services LLC, FSAM, FSA Capital Markets
and FSA Capital Management or are payable under Section 11.1(b)(ix) shall
not be considered Administrative Expenses.

 

“Administrative Services
Agreement” means the Administrative Services Agreement, dated as of the
Closing Date, among FSAM, the GIC Issuers, FSA PAL, FSA, the Dexia Guarantors
and the

 

86

 

Administrator
or a substantially similar agreement entered into with a replacement or
successor administrator in accordance with the terms thereof.

 

“Administrator” means
HF Services LLC, a Delaware limited liability company in its capacity as
administrator under the Administrative Services Agreement, unless a successor
Person shall have become the Administrator pursuant to the Administrative
Services Agreement, and thereafter “Administrator” shall mean such successor
Person, as notified to the Collateral Agent and the Intermediary.

 

“Affiliate” or “Affiliated”
means with respect to a Person, (i) any other Person who, directly or
indirectly, is in control of, controlled by, or under common control with, such
Person or (ii) any other Person who is a director, officer or employee of (a) such
Person, or (b) any such other Person described in clause (i) above.
For the purposes of this definition, control of a Person shall mean the power,
direct or indirect, (x) to vote more than 50% of the securities having
ordinary voting power for the election of directors of such Person, or (y) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise; provided that
no entity that is controlled by Maples Finance Limited shall be deemed to be an
Affiliate of FSA Capital Markets Cayman solely by virtue thereof.

 

“ALM Arbiter” has the
meaning specified in Section 7.4.

 

“ALM Arbiter Candidate
List” means the list of dealers designated by the Dexia Guarantors and FSA
as candidates for selection as ALM Arbiter, as set forth in Schedule C, as the
same may be amended from time to time by the written agreement of the Dexia
Guarantors and FSA.

 

“ALM
Noncompliance” means any ALM Noncompliance (Derivative) or ALM
Noncompliance (Operational).

 

“ALM Noncompliance
(Derivative)” means in relation to any interest rate, currency or other
derivative transaction (whether such transaction would be classified as an
Asset Swap or a Liability Swap), (i) the party invoking dispute resolution
has provided notice to the other party that it believes such transaction was
required to have been effected or not to have been terminated, as applicable,
in order to comply with a standard of reasonable and prudent hedging activity
of the GIC Business in compliance with the ALM Procedures and (ii) FSAM
(or, if applicable, the FSAM Successor or the FSAM Hedging Successor) has not
within five (5) Business Days after such notice effected such transaction
in order to implement corrective action in compliance with the ALM Procedures.

 

“ALM Noncompliance
(Operational)” means (i) the party invoking dispute resolution has provided
notice to the other party that it believes that FSAM (or, if applicable, the
FSAM Successor or the FSAM Hedging Successor) has failed to comply with the ALM
Procedures or the ALM Procedures have been amended or modified (other than, (x) in
the case of an amendment when Dexia is the Secured Party Representative, a
Dexia Policy Amendment, and (y) in the case of an amendment when FSA is
the Secured Party Representative, an Assured Risk Policy Amendment) such that
the amended ALM Procedures do not constitute a reasonable and prudent asset and
liability management policy in accordance with prevailing market standards for
portfolio management activities of the same type with the same investment
objectives, (ii) the prior written consent of the notifying party was not
obtained in respect of the relevant noncompliance, amendment or modification
and (iii) FSAM (or, if applicable, the FSAM Successor or the FSAM Hedging
Successor) has failed to remedy the relevant noncompliance or rescind the
relevant amendment or modification to the ALM Procedures within five (5) Business
Days after such notice.

 

“ALM Procedures”
means the guidelines set forth in Annex E, as the same may be amended from time
to time in accordance with Section 7.3(b).

 

87

 

“Annual Expense Cap”
means the limit on Administrative Expenses that may be paid as Senior Priority
Payments in any calendar year as determined by the Administrator, which will be
equal to the budget expenses for the current calendar year as set forth in the
budget as of the date of determination specified by the Administrator pursuant
to Section 7 of the Administrative Services Agreement.

 

“Asset Default” has
the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Asset Default Trigger”
has the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Asset Swap” means
each Hedge Agreement identified as an “Asset Swap” on the Hedge Agreement
Register.

 

“Assured” has the
meaning specified in the recitals.

 

“Assured Risk Policy
Amendment” means an amendment or modification to the ALM Procedures that
conforms such ALM Procedures to generally applicable risk management policies
within the Assured group.

 

“Available Funds”
means any amounts on deposit in the FSAM Cash Account, the Collateral Agent
Cash Account, the FSA PAL Cash Account, the FSA PAL Brussels Cash Account and
any other account that is established pursuant to Article X following a
Transition Date.

 

“Bankruptcy Trigger”
has the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“BNY Mellon” means
The Bank of New York Mellon (f/k/a The Bank of New York) or any successor
thereto.

 

“Brussels Account
Establishment” has the meaning specified in Section 10.1(h).

 

“Brussels Account Failure”
means (i) the failure of the Administrator and FSA PAL to transfer all property
from the FSA PAL Cash Account and FSA PAL Collateral Account to the FSA PAL
Brussels Cash Account and FSA PAL Brussels Cash Account, respectively, within
two Business Days of the Brussels Account Establishment or (ii) the Brussels
Account Establishment has not occurred on or before the 10th Business Day after the Closing Date.

 

“Business Day” means
any day that is not a Saturday, Sunday or a day on which commercial banking
institutions located in the City of New York, New York (and, with respect to (a) the
Collateral Agent’s duties or obligations, the city in which the principal
office of the Collateral Agent is located, which will initially be Houston,
Texas (b) the Sovereign Guarantee or any notice, obligation or action with
respect thereto, Brussels, Belgium and Paris, France and (c) with respect
to any Transaction Document other than this Agreement in which “business day”
is defined, as defined therein) are authorized or obligated by law or executive
order to be closed.

 

“Call Option” has the
meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Certificated Security”
has the meaning specified in Article 8 of the UCC.

 

“Clearing Corporation”
means any entity included within the meaning of “clearing corporation” under
the UCC.

 

88

 

“Clearing Corporation
Security” means an asset that is a Financial Asset that is registered in
the name of a Clearing Corporation or the nominee of such Clearing Corporation
and, if a Certificated Security, is in either case held in the custody of such
Clearing Corporation.

 

“Closing Date” means June 30,
2009.

 

“Collateral” means,
collectively, the FSAM Sovereign Guarantee Collateral, the FSAM Collateral, the
Dexia Collateral, the GIC Issuers Collateral and the FSA PAL Collateral.

 

“Collateral Agent”
has the meaning specified in the recitals.

 

“Collateral
Agent Cash Account” means the account maintained pursuant to Section 10.1(a)
and described in Section 10.2(c).

 

“Collateral Agent
Custodial Account” means the account maintained pursuant to Section 10.1(a)
and described in Section 10.2(d).

 

“Collateral Lot” has
the meaning specified in Section 5.2(d)(i).

 

“Collateral Posting Lien”
means, in the event that the Master Repurchase Agreement is recharacterized as
secured financings, the Lien for the benefit of FSA Capital Management and/or
FSA Capital Markets pursuant to a pledge or advance of FSAM Collateral by FSAM
for the purpose of enabling FSA Capital Management and FSA Capital Markets to
satisfy their respective collateral posting requirements under the GIC
Contracts.

 

“Collateral Value”
has the meaning defined in the Dexia Guaranteed Put CSA and the Dexia
Non-Guaranteed Put CSA, respectively.

 

“Collections” means
all income received in respect of the Collateral, including (a) all
payments received in relation to the FSAM Assets or other assets constituting
Collateral (other than the Dexia CSA Collateral) from time to time (inclusive
of daily repayment of overnight funds), (b) all payments received by FSAM
under the Dexia Guarantees or Sovereign Guarantee, (c) payments received
by FSAM, the FSAM Hedging Successor or the FSAM Successor from time to time
under the Hedge Agreements, (d) all amounts received under the FSA PAL
Loan, (e) all payments received under the Guaranteed Liquidity Facilities,
(f) all amounts received by the GIC Issuers, whether as return of excess
amounts distributed to the GIC Issuers to fulfill their respective payment or
posting obligations, and (g) any other amounts received by FSAM, the GIC
Issuers, the FSAM Hedging Successor or the FSAM Successor and not specifically
required to be deposited into an FP Account other than the FSAM Cash Account,
FSA PAL Brussels Cash Account, FSA PAL Cash Account, Collateral Agent Cash
Account and the Dexia Collateral Account.

 

“Confirmation Request”
means any request for Collateral Agent confirmation substantially in the form
of Annex O.

 

“Covered Persons
Indemnification Payments” means any indemnification payments subject to the
Covered Persons Guarantee dated as of June 30, 2009 issued by DCL and any
other similar guarantee for Persons situated similarly to the beneficiaries
thereto.

 

“CSA Collateralized
Liabilities” means on any date of determination:

 

(A)          the aggregate GIC Redemption Balance
of the FSA GIC Contracts as of such date, plus

 

(B)                                the GIC
Business Costs Amount most recently calculated on or prior to such date, plus

 

89

 

(C)           the excess if any of (I) the
aggregate sum of the FSAM Exposure to each of its Hedge Counterparties as of
such date over (II) the aggregate of the Collateral Values for the related
Hedge Agreements; plus

 

(D)          the aggregate of all the FSAM Asset
Swap Costs and all the FSAM Liability Swap Costs, in each case in relation to
Third Party Hedge Agreements other than Third Party Hedge Agreements which are
Qualifying Hedge Agreements on such date; plus

 

(E)           to the extent that (x) the
“Credit Support Amount” applicable to FSAM (or the FSAM Hedging Successor) in
relation to any Third Party Hedge Agreement that is not a Qualifying Hedge
Agreement as of such date, plus or minus any “unpaid amounts” that are
outstanding between the parties exceeds (y) the amount determined in
relation to such Third Party Hedge Agreement under (D), the aggregate of such
excess of (x) over (y) in relation to all such Third Party Hedge
Agreements; plus

 

(F)           the ALM Noncompliance Amount (if any)
(in relation to any ALM Noncompliance arising prior to the date on which a
Dexia Event of Default has occurred); plus

 

(G)           the Lien Creditor Amount (if any) in
relation to the then-current FSAM Assets.

 

Capitalized terms used in
the definition of “CSA Collateralized Liabilities” shall have the meanings
assigned in the Dexia Guaranteed Put Contract.

 

“Cure Period” means
five Business Days following receipt of a Payment Failure Notice (or, in the
case of any nonpayment resulting from an administrative or operational error or
omission or a force majeure, eight Business Days following the relevant Dexia
Party’s receipt of notice of such Payment Failure Notice, provided, however, that a Dexia Party has
provided notice to FSA no later than the third Business Day after receipt of
such Payment Failure Notice that such non-payment has occurred due to
administrative or operational error or omission or a force majeure).

 

“Custody Account”
means the account maintained pursuant to the Section 10.1(a) and described
in Section 10.2(b).

 

“D&O Insurance”
means directors and officers insurance with a financially sound and reputable
insurer.

 

“DBB” has the meaning
specified in the recitals.

 

“DCL” has the meaning
specified in the recitals.

 

“Defaulted Asset” has
the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Default Threshold”
has the meaning specified in Section 5.1.

 

“Delaware Act” has
the meaning specified in Section 2.1(e). 

 

“Deliver” or “Delivered”
means the taking of the following steps:

 

(i)            in the case of each
Certificated Security or Instrument (other than a Clearing Corporation Security),
(A) causing the delivery of such Certificated Security or Instrument to the
Intermediary registered in the name of the Intermediary or its affiliated
nominee or endorsed to

 

90

 

the
Intermediary or in blank, (B) causing the Intermediary to continuously identify
on its books and records that such Certificated Security or Instrument is
credited to the relevant Account and (C) causing the Intermediary to maintain
continuous possession of such Certificated Security or Instrument;

 

(ii)           in the case of each
Uncertificated Security (other than a Clearing Corporation Security), (A) causing
such Uncertificated Security to be continuously registered on the books of the
obligor thereof to the Intermediary and (B) causing the Intermediary to
continuously identify on its books and records that such Uncertificated
Security is credited to the relevant Account;

 

(iii)          in the case of each
Clearing Corporation Security, causing (A) the relevant Clearing Corporation to
continuously credit such Clearing Corporation Security to the securities
account of the Intermediary at such Clearing Corporation and (B) the
Intermediary to continuously identify on its books and records that such
Clearing Corporation Security is credited to the relevant Account;

 

(iv)          in the case of any
Financial Asset that is maintained in book-entry form on the records of an FRB,
causing (A) the continuous crediting of such Financial Asset to a securities
account of the Intermediary at any FRB and (B) the Intermediary to continuously
identify on its books and records that such Financial Asset is credited to the
relevant Account;

 

(v)           in the case of
Money, causing the deposit of such Money with the Intermediary and causing the
Intermediary to continuously identify on its books and records that such Money
is credited to the relevant Account;

 

(vi)          in the case of each
Financial Asset not covered by the foregoing clauses (i) through (v), causing
the transfer of such Financial Asset to the Intermediary in accordance with
applicable law and regulation and causing the Intermediary to continuously
credit such Financial Asset to the relevant Account; and

 

(vii)         in all cases, the
filing of an appropriate Financing Statement in the appropriate filing office
in accordance with the Uniform Commercial Code as in effect in any relevant
jurisdiction.

 

“Delivery Amount” has
the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Dexia” has the
meaning specified in the recitals.

 

“Dexia Additional
Collateral” has the meaning specified in Section 2.1(a).

 

“Dexia Bid” has the
meaning specified in Section 5.2(d)(iii).

 

“Dexia Collateral”
has the meaning specified in Section 2.1(a).

 

“Dexia Collateral Account”
means the account maintained pursuant to Section 10.1(a) and described in Section 10.2(a).

 

“Dexia CSA Collateral”
has the meaning specified in the recitals.

 

“Dexia CSAs” means
the Dexia Guaranteed Put CSA and the Dexia Non-Guaranteed Put CSA.

 

“Dexia Counterparty
Guarantor” has the meaning specified in Section 8.1(c).

 

91

 

“Dexia Default” means
the occurrence of an event that with the passage of time or the delivery of
notice will constitute a Dexia Event of Default.

 

“Dexia Event of Default”
has the meaning specified in Section 5.1.

 

“Dexia FP” has the
meaning specified in the recitals.

 

“Dexia FP Collateral”
has the meaning specified in Section 2.1(e).

 

“Dexia FP Guarantee”
means the Guaranty dated as of the Closing Date issued by the Dexia Guarantors
to FSA.

 

“Dexia GIC Indemnity”
means the Indemnification Agreement (GIC Business) dated as of the Closing
Date.

 

“Dexia Guarantee Fee”
means the sum of (x) the periodic guarantee premium with respect to the Dexia
Guarantees as set forth in the Dexia Guarantee Reimbursement Agreement and (y) the
periodic Put Premium Amount as defined in the Put Contracts.

 

“Dexia Guarantee
Reimbursement Agreement” means the Dexia FP Reimbursement Agreement dated
as of the Closing Date.

 

“Dexia Guaranteed Put
Contract” means the securities option contract between the Dexia Guarantors
and FSAM pursuant to a 1992 ISDA Master Agreement (Multicurrency—Cross Border),
including the schedule thereto and credit support annex thereto and the
confirmation thereto dated as of the Closing Date, and designated as the Dexia
Guaranteed Put Contract.

 

“Dexia Guaranteed Put CSA”
means the credit support annex entered into between FSAM and the Dexia
Guarantors in connection with the Dexia Guaranteed Put Contract.

 

“Dexia Guarantees”
means the Dexia Guaranteed Put Contract, the Dexia Non-Guaranteed Put Contract,
the Dexia FP Guarantee and any Required Guarantees.

 

“Dexia Guarantor”
means each of DCL and Dexia, acting in its capacity as counterparty under the
Put Contracts or guarantor under the Dexia FP Guarantee or, in the case of the
Required Guarantees, DCL.

 

“Dexia
Hedge Agreements” means the Hedge Agreements between FSAM, the FSAM Hedging
Successor or the FSAM Successor and DCL or an Affiliate thereof as the Hedge
Counterparty.

 

“Dexia Non-Guaranteed Put
Contract” means the securities option contract between the Dexia Guarantors
and FSAM pursuant to a 1992 ISDA Master Agreement (Multicurrency—Cross Border),
including the schedule thereto and credit support annex thereto and the
confirmation thereto dated as of the Closing Date, and designated as the Dexia
Non-Guaranteed Put Contract.

 

“Dexia Non-Guaranteed Put
CSA” means the credit support annex entered into between FSAM and the Dexia
Guarantors in connection with the Dexia Non-Guaranteed Put Contract.

 

“Dexia Only GIC Contract”
means each GIC Contract in relation to which (a) the related GIC Policy
has been terminated and released and which is guaranteed only by one or more of
the Dexia Guarantors, and (b) the related GIC Holder has agreed in writing
that (i) it has no recourse to the assets of the related GIC Issuer on
such GIC Contract and has agreed to pursue remedies solely against the
applicable Dexia Guarantor and (ii) it will not petition for any
insolvency proceedings in relation to the related GIC Issuer.

 

92

 

“Dexia Parties” means
the Dexia Guarantors and DBB.

 

“Dexia Payment
Obligations” has the meaning specified in Section 5.1.

 

“Dexia Policy Amendment”
means an amendment or modification to the ALM Procedures that conforms such ALM
Procedures to generally applicable risk management policies within the Dexia
group.

 

“Dexia Reimbursement
Payments” means (a) reimbursement to the Dexia Guarantors of any amounts
paid by the Sovereign Guarantors under the Sovereign Guarantee in circumstances
where such amounts were not due by Dexia as a Shortfall Amount or Put
Settlement Amount under the Dexia Guaranteed Put Contract, (b) reimbursement to
the Dexia Guarantors of any amounts paid under a Guaranteed Liquidity Facility
in excess of amounts needed to meet Senior Priority Payments then payable on
the day that such amounts were paid under the Guaranteed Liquidity Facilities
and on the day that such Dexia Senior Payment is proposed to be made, (c) the
amounts paid by the Dexia Guarantors in respect of a termination of a GIC
Contract following a Dexia Event of Default where such termination would result
in a Net Loss and (d) the amount paid by the Dexia Guarantors in excess of the
par amount (plus accrued interest) of any GIC Contract that was terminated
after a Dexia Event of Default for which termination, prior written approval of
the Dexia Guarantors was not obtained.

 

“DHI” has the meaning
specified in the recitals.

 

“Disclosure CD” means
the computer disc on which certain Annexes to this Agreement will be delivered
on the Closing Date.

 

“Disclosure Schedule”
means Schedule B.

 

“Dollars” or “$”or
“USD” means freely transferable lawful money of the United States of
America.

 

“Eligible Bidders”
means dealers or other industry participants who regularly make a market in or purchase
for investment FSAM Assets included in the relevant Collateral Lot, and in the
relevant amounts to be included for sale in such Collateral Lot.

 

“Eligible Collateral”
has the meaning specified in the applicable Dexia CSA.

 

“Excess Payments” has
the meaning specified in Section 5.3(b).

 

“Excluded Assets”
means each asset identified on Annex A.

 

“Excluded Contract Rights”
means any rights of a Grantor arising under any contract, lease, instrument,
license or other document (in each case, other than securities or other
financial assets) to the extent that and only for so long as the Grant of a
security interest therein would (x) constitute a violation or abandonment of,
or render unenforceable, a valid and enforceable restriction in respect of such
rights in favor of a third party by contract or under any law, regulation,
permit, order or decree of any Governmental Authority (for the avoidance of
doubt, the restrictions described herein shall not include negative pledges or
similar undertakings in favor of a lender or other financial counterparty), or (y)
expressly give any other party in respect of any such contract, lease,
instrument, license or other document, the right to terminate its obligations
thereunder, provided, however, that this limitation shall not
affect, limit, restrict or impair the Grant by a Grantor of a security interest
pursuant to this Agreement in any such Collateral, as applicable, to the extent
that an otherwise applicable prohibition or restriction on such Grant is
rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of
the UCC of any relevant jurisdiction or any other applicable law or principles
of equity and provided, further, that,
at such time as the condition causing the conditions in subclauses (x) and
(y) shall be remedied, whether by

 

93

 

contract, change of law or
otherwise, the contract, lease, instrument, license or other documents shall
immediately cease to be an Excluded Contract Right, and any security interest
that would otherwise be Granted herein shall attach immediately to such
contract, lease, instrument, license or other document, or to the extent
severable, to any portion thereof that does not result in any of the conditions
in (x) or (y) above.

 

“Excluded FSAM Collateral”
means any FSAM Collateral specifically Granted or posted by FSAM or the FSAM
Hedging Successor to secure its payment obligations under (x) any Senior
Third Party Hedge Agreements or (y) the Master Repurchase Agreement, to
the extent that such FSAM Collateral shall also constitute Excluded GIC Issuers
Collateral. For the avoidance of doubt, Excluded FSAM Collateral does not
include, and the security interest in favor of the Collateral Agent will extend
to, all rights of FSAM, FSAM Successor or the FSAM Hedging Successor to
repurchase or to receive the return of FSAM Collateral (or equivalent
securities or payments) under the Senior Third Party Hedge Agreements or Master
Repurchase Agreement, as the case may be.

 

“Excluded GIC Issuers
Collateral” means any GIC Issuers Collateral specifically Granted or posted
by a GIC Issuer to secure its payment obligations under any GIC Contract or,
upon the occurrence of a Transition Date, any Senior Third Party Hedge
Agreement, to the extent that the existence of the Lien of the Collateral Agent
in relation to such GIC Issuers Collateral would be deemed to contradict any
representation of title made in connection with such grant or sale; subject to
the related GIC Holder or Hedge Counterparty, as applicable, not being
permitted to repledge or rehypothecate such Excluded GIC Issuers Collateral
(except that GIC Holders and Hedge Counterparties will have all the rights of a
secured party to exercise remedies with respect to such Excluded GIC Issuers Collateral
following an event of default under and to the extent set forth in the related
GIC Contract or Hedge Agreement). For the avoidance of doubt, Excluded GIC
Issuers Collateral does not include, and the security interest in favor of the
Collateral Agent will extend to, all rights of the GIC Issuer to repurchase or
to receive the return of GIC Issuers Collateral under any GIC Contract.

 

“Existing Account”
means any of the FSAM Cash Account, the FSAM Collateral Account, the FSA PAL
Cash Account, the FSA PAL Collateral Account, the FSA Capital Management
Collateral Account and the FSA Capital Markets Collateral Account.

 

“Existing Control
Agreement” has the meaning specified in Section 10.1(c).

 

“Existing P&I
Agreement” has the meaning specified in the recitals.

 

“Exposure”
has the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Financed FSAM Collateral
Purchase” means the purchase from the GIC Issuers, as counterparties to the
Master Repurchase Agreement, of any Purchased Securities under the Master
Repurchase Agreement that have been retained by the GIC Issuers pursuant to an
exercise of creditors’ remedies in relation to such Master Repurchase Agreement
following a Dexia Event of Default, at the repurchase price determined in
accordance with the terms of the Master Repurchase Agreement.

 

“Financial Asset” has the meaning
specified in Article 8 of the UCC. 

 

“First Credit Agreement” has the
meaning specified in the recitals. 

 

“First Credit Agreement Lien” has the
meaning specified in the recitals. 

 

“Fitch” means Fitch Ratings Inc. or
any successor thereto.

 

94

 

“FP Account” means
any of the Dexia Collateral Account, the Custody Account, the Collateral Agent
Cash Account, the Collateral Agent Custodial Account, the FSA PAL Brussels Cash
Account, the FSA PAL Brussels Collateral Account, the Existing Accounts or
other account established in accordance with Section 10.1.

 

“FRB” means any
Federal Reserve Bank.

 

“FSA” has the meaning
specified in the recitals.

 

“FSA Capital Management”
has the meaning specified in the recitals.

 

“FSA Capital Management
Collateral Account” means the account maintained pursuant to Section 10.1(c)
and described in Section 10.3(c).

 

“FSA Capital Management
Insurance Agreement” has the meaning specified in the recitals.

 

“FSA Capital Management
Lien” has the meaning specified in the recitals.

 

“FSA Capital Markets”
has the meaning specified in the recitals.

 

“FSA Capital Markets
Cayman” has the meaning specified in the recitals.

 

“FSA Capital Markets
Cayman Insurance Agreement” has the meaning specified in the recitals.

 

“FSA Capital Markets
Cayman Notes” has the meaning specified in Section 2.1(b)(3).

 

“FSA Capital Markets Collateral
Account” means the account maintained pursuant to Section 10.1(c) and
described in Section 10.3(d).

 

“FSA Capital Markets
Insurance Agreement” has the meaning specified in the recitals.

 

“FSA Capital Markets Lien”
has the meaning specified in the recitals.

 

“FSA GIC Contract”
means each GIC Contract covered by a Retained FSA Policy.

 

“FSA Defeasance Plan”
has the meaning specified in the ALM Procedures.

 

“FSA Lien” has the
meaning specified in the recitals.

 

“FSA PAL” has the
meaning specified in the recitals.

 

“FSA PAL Accounts Transfer” has the
meaning specified in Section 10.1(h). 

 

“FSA PAL Additional Collateral” has
the meaning specified in Section 2.1(c). 

 

“FSA PAL Belgian Collateral” has the
meaning specified in the recitals.

 

“FSA PAL Brussels Cash
Account” means the account maintained pursuant to Section 10.1(b) and
described in Section 10.2(e).

 

“FSA PAL Brussels
Collateral Account” means the account maintained pursuant to Section 10.1(b)
and described in Section 10.2(f).

 

95

 

“FSA PAL Cash Account”
means the account maintained pursuant to Section 10.1(c) and
described in Section 10.3(e).

 

“FSA PAL Collateral
Account” means the account maintained pursuant to Section 10.1(c) and
described in Section 10.3(f).

 

“FSA PAL Clearing and
Custody Agreement” means the agreement entered into by FSA PAL with BNY
Mellon.

 

“FSA PAL Collateral”
has the meaning specified in Section 2.1(c).

 

“FSA PAL Lien” has
the meaning specified in the recitals.

 

“FSA PAL Loan” means
the intercompany loan agreement between FSAM and FSA PAL.

 

“FSA PAL Note” has
the meaning specified in Section 3.9(k).

 

“FSA Policy” means
any financial guaranty insurance policy issued by FSA with respect to the GIC
Business, excluding any Secondary Policies.

 

“FSAH” has the
meaning specified in the recitals.

 

“FSAM” has the
meaning specified in the recitals.

 

“FSAM Assets” means,
as of any date of determination, the Put Portfolio Assets, the Excluded Assets,
and the Other Assets owned by FSAM on such date.

 

“FSAM Asset
Value” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“FSAM Belgian Pledge
Agreement” means the FSAM Pledge Agreement, dated as of the Closing Date,
among FSA PAL, FSAM and the Collateral Agent.

 

“FSAM Cash Account”
means the account maintained pursuant to Section 10.1(c) and described in Section 10.3(a).

 

“FSAM Collateral” has
the meaning specified in Section 2.1(d).

 

“FSAM Collateral Account”
means the account maintained pursuant to Section 10.1(c) and described in Section 10.3(b).

 

“FSAM Collateral Secured
Parties” means FSA, the Dexia Guarantors, the Lenders and the GIC Issuers. 

 

“FSAM Hedging Successor”
has the meaning specified in the definition of FSAM Lien Release Date. 

 

“FSAM Insurance Agreement”
has the meaning specified in the recitals.

 

“FSAM Lien Release Date”
means a date on which all of the following conditions have been satisfied:

 

(a)           FSAM has redeemed or, if requested by
FSA, effected a transfer and novation of the Master Repurchase Agreement to the
FSAM Successor, such that the GIC Issuers or the relevant FSAM Successor hold
(or have pledged as Additional Securities Collateral to secure such Master
Repurchase

 

96

 

Agreement) an amount of cash
or Permitted Investments having an FSAM Asset Value equal to the CSA
Collateralized Liabilities plus 25% of the GIC Business Costs Amount
immediately prior to such date.

 

(b)           The Permitted Investments described
in clause (a) have been pledged by the GIC Issuers under this Agreement to
secure the obligations of the GIC Issuers to (x) FSA under the GIC Issuers
Insurance Agreements and (y) the Dexia Guarantors under the Dexia
Guarantee Reimbursement Agreement (subject to the rights of the GIC Issuers to
repledge or rehypothecate such Permitted Investments to secure the GIC
Contracts).

 

(c)           The Rating Agencies have confirmed
that the obligations of the GIC Issuers, after giving effect to the redemption
and/or transfer and novation of the Master Repurchase Agreement described in
clause (a) and the termination of the Guaranteed Liquidity Facilities, will be
rated at least “Aa2” by Moody’s, at least “AA” by S&P and at least “AA” by
Fitch.

 

(d)           The Rating Agencies have confirmed
that the redemption and/or transfer and novation of the Master Repurchase
Agreement and the release of the FSAM Collateral as described in clause (a) will
not cause the rating of FSA to be downgraded, qualified or withdrawn.

 

(e)           Any FSA Policies outstanding in
relation to Hedge Agreements (which, for the avoidance of doubt, shall be
identified in the Hedge Agreement Register maintained by the Administrator)
have been released by the Hedge Counterparties to such Hedge Agreements.

 

(f)            The Liability Swaps outstanding
immediately prior to such date have been assigned and/or novated by FSAM to the
FSAM Successor or another special purpose direct or indirect subsidiary of DCL
if so requested by FSA (either, an “FSAM Hedging Successor”), in
accordance with the terms of the amendment provisions described in Section 8.3,
or in the case of DCL and DBB, in accordance with the terms of their respective
Hedge Agreements, and DCL has confirmed in writing that (x) DCL’s
guarantee of the obligations of FSAM under each such Hedge Agreement and (y) DCL’s
collateral posting obligations to the relevant Hedge Counterparties on behalf
of such FSAM Hedging Successor will be transferred to such FSAM Hedging
Successor.

 

“FSAM PAL Collateral”
has the meaning specified in Section 2.1(d).

 

“FSAM Successor”
means (i) one of the GIC Issuers or (ii) another special purpose
limited liability company organized by the Secured Party Representative (and
which may be an Affiliate of the Secured Party Representative) in the same
jurisdiction and under a limited liability company agreement having provisions
and restrictions the same as those applicable to the GIC Issuers, in each case
where such entity either (x) succeeds to the rights and obligations of
FSAM under the Master Repurchase Agreement and under this Agreement in relation
to the Master Repurchase Agreement in connection with an FSAM Lien Release Date
or Dexia Event of Default or (y) if the Master Repurchase Agreement has
been terminated in whole or in part, enters into a Financed FSAM Collateral
Purchase and GIC Issuer Repurchase Agreement in relation to the relevant
Purchased Securities under the Master Repurchase Agreement that are retained by
the GIC Issuers.

 

“FSAM Secured Obligations”
has the meaning specified in Section 2.1(d)(iii).

 

“FSAM Sovereign Guarantee
Collateral” has the meaning specified in Section 2.1(d)(i).

 

“General Intangibles”
means all “general intangibles” and all “payment intangibles,” each as defined
in the UCC, and shall include all interest rate or currency protection or
hedging arrangements, all tax refunds, all licenses, permits, concessions and
authorization (in each case, regardless of whether characterized as general
intangibles under the UCC).

 

97

 

“GIC Business” means
investment, reinvestment and management of the proceeds of GIC Contracts and
the assets and liabilities of the GIC Business Entities, including by entering
into related cash and securities transactions, for the purpose of paying to GIC
Holders permitted withdrawal amounts from time to time and retaining all or a
portion of the returns earned on invested amounts, and managing the credit,
liquidity and other financial risks related to such business, and all
activities reasonably incidental thereto including, but not limited to, the
corporate, operational and administrative activities of the GIC Business
Entities, and other activities pursuant to the Material Agreements.

 

“GIC Business Costs
Amount” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“GIC Business Clearing
and Custody Agreements” means the Securities Clearing Agreement dated as of
August 8, 2001 between FSAM and BNY Mellon, the Global Clearing and
Custody Agreement dated as of October 15, 2004 between FSAM and BNY
Mellon, the Securities Clearing Agreement dated as of August 8, 2001
between FSA Capital Markets and BNY Mellon, the Securities Clearing Agreement
dated as of August 8, 2001 between FSA Capital Management and BNY Mellon,
the Global Clearing and Custody Agreement dated as of October 15, 2004
between FSA Capital Management and BNY Mellon and the FSA PAL Clearing and
Custody Agreement.

 

“GIC Business Costs
Amount Dispute” means in relation to the calculation of the GIC Business
Costs Amount pursuant to the Dexia CSAs, the party invoking dispute resolution
has provided notice to the other party that it believes any Administrative
Expenses or any increase in the annual budget provided by the Administrator in
accordance with the Administrative Services Agreement was or was not an
Unanticipated Recurring Expense (as defined in Schedule B to the Dexia CSAs) or
that any savings of Administrative Expense or reduction of the annual budget
provided by the Administrator in accordance with the Administrative Services
Agreement was or was not an Unanticipated Recurring Savings (as defined in
Schedule B to the Dexia CSAs).

 

“GIC Business Documents”
means with respect to each of FSAM and the GIC Issuers, the Material Agreements
to which it is a party.

 

“GIC Business Entity”
means each of FSAM, FSA PAL, each GIC Issuer, any FSAM Successor and any FSAM
Hedging Successor.

 

“GIC Collateral”
means, with respect to any GIC Contract, the collateral (if any) posted
thereunder by the respective GIC Issuer.

 

“GIC Contract” means
each guaranteed investment contract issued by a GIC Issuer.

 

“GIC Holder” means
the counterparty to a GIC Issuer with respect to a GIC Contract.

 

“GIC Holder Lien”
means any Lien for the benefit of a GIC Holder pursuant to a pledge by a GIC
Issuer to secure its obligations under GIC contracts.

 

“GIC Interest Hedge
Reserve” means any amounts actually received by FSAM or the FSAM Hedging
Successor, as applicable, in consideration for the termination of any Liability
Swap, to the extent that the Administrator reasonably demonstrates that an FSA
GIC Contract for which interest rate exposure was hedged by such Liability Swap
is still outstanding.

 

“GIC Issuer Repurchase
Agreement” means a repurchase agreement between (i) the GIC Issuers (or if
one of the GIC Issuers is the FSAM Successor, the GIC Issuer which is not the
FSAM Successor) and (ii) the FSAM Successor, which repurchase agreement becomes
effective where the Master Repurchase

 

98

 

Agreement
is terminated and the FSAM Successor has entered into a Financed FSAM
Collateral Purchase.

 

“GIC Issuer Secured
Obligations” has the meaning specified in Section 2.1(b).

 

“GIC Issuers” means
FSA Capital Markets, FSA Capital Management and FSA Capital Markets Cayman.

 

“GIC Issuers Collateral”
has the meaning specified in Section 2.1(b).

 

“GIC Issuers Collateral
Account” means each of the FSA Capital Management Collateral Account and
the FSA Capital Services Collateral Account.

 

“GIC Issuers Collateral
Secured Parties” means FSA, the Dexia Guarantors and, if applicable after
termination of the Master Repurchase Agreement, the Lenders.

 

“GIC Issuers Insurance
Agreements” means the FSA Capital Management Insurance Agreement, the FSA
Capital Markets Insurance Agreement and the FSA Capital Markets Caymans
Insurance Agreement.

 

“GIC Issuers Lien”
has the meaning specified in the recitals.

 

“GIC
Policies” means the FSA Policies insuring the obligations of the GIC
Issuers under the GIC Contracts.

 

“Good Faith Contested
Payment” means a payment (i) which is not an amount required to be paid
under the terms of any of the Guaranteed Liquidity Facilities, any GIC
Contract, any Hedge Agreement or any Dexia Guarantee (or a reimbursement payment
to FSA arising from FSA’s payment of such amount under any Retained FSA
Policy), (ii) for which Dexia or its affiliates are contesting their liability
in good faith by means of litigation or by cooperation in any formal or
informal dispute resolution process, and (iii) for which Dexia has paid any
uncontested amounts.

 

“Governmental Authority”
means any applicable federal, state, local or foreign court, including the
Cayman Islands, or governmental department, commission, board, bureau, agency,
authority, central bank, instrumentality or regulatory or supervisory body.

 

“Grant” means, as to
any asset or property, to mortgage, pledge, assign, charge and grant a security
interest in such asset or property. A Grant of the Dexia Collateral, the FSAM
Sovereign Guarantee Collateral, the FSAM Collateral, FSAM PAL Collateral, Dexia
FP Collateral, FSA PAL Collateral or GIC Issuers Collateral or any assigned
document, instrument or agreement will include all rights, powers and options
(but none of the obligations, except to the extent required by law), of the
Granting party thereunder or, with respect thereto, including the immediate and
continuing right to claim, collect, receive and give receipt for all moneys
payable thereunder and all income, proceeds, products, rents and profits
thereof, to give and receive notices and other communications, to make waivers
or other agreements, to exercise all rights and options, to bring proceedings
in the name of the Granting party or otherwise, and generally to do and receive
anything which the Granting party is or may be entitled to do or receive
thereunder or with respect thereto.

 

“Grantors” has the
meaning specified in Section 2.3(a).

 

“Guarantee Call” has
the meaning specified in the Sovereign Guarantee.

 

“Guaranteed Liquidity
Facilities” means the Liquidity Facility and the Repurchase Facility
Agreement, each in the form identified to the Sovereign Guarantors and FSA on
the Closing Date and any additional liquidity facilities between FSAM and
either DCL or DBB in one or more amounts entered into from time

 

99

 

to time after the Closing
Date, that are in substantially the same form as the Liquidity Facility or the
Repurchase Facility Agreement and that are entered into for the purpose of
providing liquidity to meet FSAM’s payment obligations (including obligations
to meet collateral posting requirements under the GIC Contracts) under the
Master Repurchase Agreement.

 

“Hedge Agreement Register”
means (a) on the Closing Date, Annex D and (b) following the Closing Date, the
Hedge Agreement Register maintained by FSAM in accordance with the ALM
Procedures.

 

“Hedge Agreements”
means all outstanding interest rate, currency and asset swaps, options, caps
and other derivative or hedge agreements hedging exposures relating to the FSAM
Assets and the Master Repurchase Agreement, whether existing on the Closing
Date or entered into after the Closing Date in accordance with the ALM
Procedures, including any futures account agreement and repurchase agreements
but excluding the Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed
Put Contract.

 

“Hedge Counterparty”
means, with respect to any Hedge Agreement, FSAM’s counterparty thereunder.

 

“Hedge Policies”
means the outstanding FSA Policies in relation to the Hedge Agreements.

 

“Hedging Letter Agreement”
means a letter agreement dated of even date herewith between the Dexia
Guarantors and FSA.

 

“Indebtedness” means,
with respect to any Person at any time, (a) indebtedness or liability of such
Person for borrowed money whether or not evidenced by bonds, debentures, notes
or other instruments, or for the deferred purchase price of property or
services (including trade obligations); (b) obligations of such Person as
lessee under leases which should have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases; (c) obligations
issued for or liabilities incurred on the account of such Person; (d) obligations
or liabilities of such Person arising under acceptance facilities; (e) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (f) obligations secured by
any Lien on property or assets of such Person, whether or not the obligations
have been assumed by such Person; or (g) obligations of such Person under
any interest rate or currency exchange agreement.

 

“Independent” means
as to any of Assured, FSA and any Dexia Party, any other Person (including any
successor collateral agent or, in the case of an accountant, or lawyer, a firm
of accountants or lawyers and any member thereof) who at the time of
determination (i) does not have and is not committed to acquire any material
direct or indirect financial interest in such party or in any Affiliate of such
party, and (ii) is not connected with such party as an officer, employee,
promoter, underwriter, voting trustee, partner, director or Person performing
similar functions.

 

“Information Source”
has the meaning specified in Section 10.4(e).

 

“Initial Event of Default
Period” means the period from the date any Dexia Event of Default occurs
until the 60th day after FSA elects to become the Secured
Party Representative.

 

“Insolvency Regulation” has the
meaning specified in Section 3.8(c). 

 

“Inspecting Party” has the meaning
specified in Section 10.6(a). 

 

“Instrument” has the meaning specified
in Article 9 of the UCC.

 

100

 

“Insurance
Agreements” means the FSAM Insurance Agreement, and the GIC Issuers
Insurance Agreements.

 

“Intermediary” means
any entity maintaining an FP Account pursuant to a Securities Account Control
Agreement.

 

“Investment Company Act”
means the United States Investment Company Act of 1940, as amended.

 

“Investment Objectives”
has the meaning specified in Section 7.5(b)(ii).

 

“ISDA Event of Default”
means an “event of default” as to which Dexia or DCL is the defaulting party,
for purposes of the Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed
Put Contract, respectively.

 

“Lender Bankruptcy”
means, with respect to any Lender, a “Bankruptcy” as defined in Section 5(a)(vii)
of the 1992 ISDA Master Agreement, amended by deleting the reference to “30
days” in subsection(4)(B) and replacing it with “60 days.”

 

“Lenders” means DCL
and DBB.

 

“Leveraged Tax Lease
Business” has the meaning specified in Section 6.13(d)(i)(B) of the
Purchase Agreement.

 

“Liability Swap”
means each Hedge Agreement identified as a “Liability Swap” on the Hedge
Agreement Register.

 

“Lien” means, with
respect to any property, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such property.

 

“Liquidation Agent” has the meaning
specified in Section 5.2(c). 

 

“Liquidation Procedures” has the
meaning specified in Section 5.2(d). 

 

“Liquidity and Collateral Trigger
Expiration Date” means October 31, 2011.

 

“Liquidity Default
Trigger” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“Liquidity Draw Request”
means either a request for a “loan” as defined in the Liquidity Facility or a
“repurchase transaction request” as defined in the Repurchase Facility
Agreement.

 

“Liquidity Facility”
has the meaning specified in the recitals.

 

“Liquidity Percentage”
has the meaning specified in Section 5.2(d)(v).

 

“Mark to Market Value”
with respect to each Put Portfolio Asset, Excluded Asset, Other Asset and Dexia
CSA Collateral the Indicative Market Value or other base market value of the
relevant asset (and not the FSAM Asset Value derived from application of the
relevant haircut percentage) determined by the Valuation Agent as of the most
recent Valuation Date, without giving effect to any guarantee provided by a
Dexia Guarantor, as determined in accordance with the valuation procedures set
forth in the related Dexia CSA.

 

101

 

“Master Repurchase
Agreement” means the Amended and Restated Master Repurchase Agreement dated
as of the Closing Date, amending and restating the master repurchase agreement
dated as of October 29, 2001, between FSAM and FSA Capital Management, the
master repurchase agreement dated as of October 29, 2001, between FSAM and FSA
Capital Markets, the Master Note (Series A) of FSAM, dated as of October 29,
2001, issued to FSA Capital Management and the Master Note (Series B) of FSAM,
dated October 29, 2001, issued to FSA Capital Markets.

 

“Material Adverse Change”
means, with respect to any Person and as of any date of determination, a
material adverse change in (i) the business, financial condition, results of
operations or property of such Person, (ii) with respect to FSAM, (a) the FSAM
Collateral, (b) the security interest of the Collateral Agent in the FSAM
Collateral, (c) the ability of the Collateral Agent to liquidate, or foreclose
against, the FSAM Collateral, (d) the ability of FSAM to perform its obligations
under any of the Material Agreements to which it is a party, or (e) the
practical realization by the Secured Parties of any of the benefits or security
afforded or intended to be afforded under any of the Material Agreements, in
each case as of such date, (iii) with respect to each GIC Issuer, (a) the
related GIC Issuers Collateral, (b) the security interest of the Collateral
Agent in such GIC Issuers Collateral, (c) the ability of the Collateral Agent
to liquidate, or foreclose against, such GIC Issuers Collateral, (d) the
ability of such GIC Issuer to perform its obligations under any of the Material
Agreements to which it is a party, or (e) the practical realization by the
Secured Parties of any of the benefits or security afforded or intended to be
afforded under any of the Material Agreements, in each case as of such date, or
(iv) with respect to each Dexia Guarantor, (a) the related Dexia Collateral, (b)
the security interest of the Collateral Agent in such Dexia Collateral, (c) the
ability of the Collateral Agent to liquidate, or foreclose against, such Dexia
Collateral, (d) the ability of such Dexia Guarantor to perform its obligations
under any of the Material Agreements to which it is a party, or (e) the
practical realization by the Secured Parties of any of the benefits or security
afforded or intended to be afforded under any of the Material Agreements, in
each case as of such date.

 

“Material Agreements”
means the Transaction Documents, the Hedge Agreements, the FSA PAL Loan, the
GIC Business Clearing and Custody Agreements and the Principia License.

 

“Medium-Term Note
Business” has the meaning specified in Section 6.13(d)(i)(A) of the
Purchase Agreement.

 

“Minimum Liquidation
Procedures” has the meaning specified in Section 5.2(e).

 

“Moody’s” means
Moody’s Investors Service or any successor thereto.

 

“MPAA Account” means
any account on the Euroclear System established with Euroclear Bank NV/SA in
accordance with Euroclear’s Multi Pledgor Pledged Account Terms and Conditions.

 

“Net Loss” means a
“net loss” as described in Section 8.2 of the ALM Procedures.

 

“Non-Conforming Agreement”
has the meaning specified in Section 3.12.

 

“Notice Date” has the
meaning specified in Section 7.5(a).

 

“Opinion of Counsel”
means a written opinion addressed to the requesting party, in form and
substance reasonably satisfactory to such party, of an Independent attorney at
law, who is reasonably experienced and knowledgeable in the subject matter of
the opinion in question and admitted to practice (or a law firm with one or
more partners admitted to practice) in a state of the United States or the
District of Columbia (or foreign jurisdiction, in the case of an opinion
relating to the laws of a foreign jurisdiction) the laws of which state or
other jurisdiction govern the subject matter in respect of which the opinion is
being

 

102

 

solicited (provided, that if the State of Delaware
has such jurisdiction, such attorney may be admitted to practice in any state
of the United States or the District of Columbia).

 

“Organizational Document”
means with respect to (a)  any limited
liability company, its limited liability company agreement and certificate of
formation, (b) Dexia FP, its certificate of incorporation and by-laws, (c) any
company incorporated under the laws of the Cayman Islands or England and Wales,
its Memorandum and Articles of Association, certificate of incorporation and,
if applicable, its declaration of trust and (d) each Dexia Guarantor, its
Articles of Association.

 

“Other Assets” has
the meaning specified in the Dexia Non-Guaranteed Put Contract.

 

“Outstanding Principal
Amount” has the meaning specified in the Dexia Guaranteed Put Contract or
Dexia Non-Guaranteed Put Contract, respectively.

 

“Paid In Full” means
final payment of all outstanding amounts has been made, the relevant Dexia
Party has given notice to FSA that it believes the relevant amount is Paid in
Full and requesting that FSA either confirm such circumstance or provide the
Opinion of Counsel referred to below, and one of the following additional
conditions is satisfied: (a) FSA does not provide notice within 10 days that it
intends to obtain an Opinion of Counsel addressed to the Dexia Parties in the
applicable jurisdiction that a preference, suspect or hardening period is
reasonably likely to apply to such payment, (b) FSA fails to deliver any such
Opinion of Counsel within 20 days of FSA’s notice or such Opinion of Counsel
does not conclude that a preference, suspect or hardening period is reasonably
likely to apply to such payment or (c) the lesser of (i) the relevant
preference, suspect or hardening period identified in such Opinion of Counsel
has expired or (ii) one year has elapsed, in each case from the date of the
relevant final payment.

 

“Payment Failure Notice”
means a notice of nonpayment in the form attached as Annex H.

 

“Permitted Asset Sale”
means (a) any sale pursuant to the exercise of a Call Option, (b) any sale to
an Unaffiliated Party so long as the Delivery Amount (assuming for this purpose
that the “threshold” and “minimum transfer amount” (each as defined in the
applicable Dexia CSA) is zero) under either Put Contract after giving effect to
such sale and (c) any sale pursuant to Section 11.2(b)(i); provided, however, that for so long as the
Sovereign Guarantee is outstanding, no Put Portfolio Asset may be sold in a
Permitted Asset Sale for less than its Put Settlement Amount without the
consent of FSA; provided, further, that after a Dexia Event of
Default, any sale at the direction of FSA in accordance with this Agreement
will be considered a Permitted Asset Sale. On any date on which FSA is not the
Secured Party Representative, any sale of FSAM Assets with a principal balance
in excess of $100 million will require confirmation pursuant to Section 11.2(e).

 

“Permitted Indebtedness”
means indebtedness, liability or obligation not insured or guaranteed by FSA,
(including the Master Repurchase Agreement and any GIC Issuer Repurchase
Agreement), the documentation for which contains customary limited recourse and
non- petition provisions and that is entered into in the ordinary course of
managing the existing business of FSAM and the GIC Issuers, as applicable, and
in accordance with the ALM Procedures and any Administrative Expenses.

 

“Permitted Investments”
has the meaning specified in the ALM Procedures.

 

“Permitted Lien”
means (i) any Collateral Posting Lien, (ii) any Account Bank Lien, (iii) any
GIC Holder Lien, (iv) any Lien Granted under this Agreement, (v) the Lien
created under the FSAM Belgian Pledge Agreement and (vi) any Lien created as a
result of a repledge, rehypothecation or use permitted under Section 2.2.

 

103

 

“Person” means an
individual, joint stock company, trust, unincorporated association, joint
venture, corporation, limited liability company, business or owner trust,
partnership or other organization or entity (whether governmental or private).

 

“Portfolio Management
Agreement” has the meaning specified in Section 7.5(b).

 

“Portfolio Manager”
has the meaning specified in Section 7.5(a).

 

“Portfolio Manager List”
has the meaning specified in Section 7.5(a).

 

“Potential Jurisdiction”
has the meaning specified in the definition of Remedies Nonimpairment Condition.

 

“Previous Liens” has
the meaning specified in the recitals.

 

“Principal Shortfall
Amount” has the meaning specified in the Dexia Guaranteed Put Contract and
the Dexia Non-Guaranteed Put Contract, respectively.

 

“Principia” means
Principia Analytic System.

 

“Principia License” means the license
granted by Principia Partners LLC to the Administrator pursuant to the
Principia Analytic System Master Software Site License Agreement under which
the Administrator has rights to use Principia.

 

“Priority of Payments” has the meaning
specified in Section 11.1(b).

 

“Private Placement Notes” means the
promissory notes listed on Annex N.

 

“Process Agent” has the meaning
specified in Section 13.8.

 

“Proposal” has the
meaning specified in Section 7.5(a).

 

“Proscribed Amendment” has the meaning
specified in Section 2.1(h).

 

“Protected Provisions” has the meaning
specified in Section 7.3(b).

 

“Purchase Agreement” has the meaning
specified in the recitals.

 

“Put Contract” means
the Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed Put Contract.

 

“Put Option” has the
meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Put Portfolio Asset”
means each asset identified on Annex A.

 

“Put Settlement Amount”
has the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Put Settlement Assets”
has the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Put Settlement Date”
has the meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

104

 

“Put Settlement
Procedures Agreement” has the meaning specified in Section 6.6.

 

“Put Trigger” has the
meaning specified in the Dexia Guaranteed Put Contract and the Dexia
Non-Guaranteed Put Contract, respectively.

 

“Rating Agencies”
means Moody’s, S&P and Fitch.

 

“Remedies Nonimpairment
Condition” means, in respect of any Dexia Party, either that:

 

(i)            in connection
with the relevant consolidation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (a “Corporate
Reorganization”) (A) the jurisdiction of organization of such Dexia Party
(or if a successor entity to such Dexia Party is applicable in connection with
such Corporate Reorganization (a “Successor Entity”), the jurisdiction
of such Successor Entity) is the same as the jurisdiction of such Dexia Party
immediately prior to such Corporate Reorganization and (B) in the case of DCL
or DBB if a Successor Entity is applicable, the Successor Entity is a regulated
financial institution; or

 

(ii)           in connection
with the relevant Corporate Reorganization the jurisdiction of organization of
such Dexia Party (or if a Successor Entity is applicable, the Successor
Entity), is not the same as the jurisdiction of such Dexia Party immediately
prior to such Corporate Reorganization but

 

(A)          (I)            such jurisdiction is France
or Belgium or

 

(II)         such jurisdiction is an Eligible
European Union State, Japan, Australia, New Zealand or Canada (a “Potential
Jurisdiction”), and if FSA objects to location of such Dexia Party (or if a
Successor Entity is applicable, such Successor Entity) in such Potential
Jurisdiction and requests appointment of a Legal Arbiter (as described in the
definition of Legal Arbiter) within five Business Days after receiving notice
from a Dexia Party, a Legal Arbiter concludes that the laws of the relevant
Potential Jurisdiction, in relation to the risks associated with a bankruptcy
or insolvency of such Dexia Party or the applicable Successor Entity as to (x) substantive
consolidation law with respect to any of the GIC Entities in the case of any of
the Liquidity Facilities, the Secured Derivative Agreements, the Dexia GIC
Indemnity or the Dexia FP Guarantee and (y) the enforcement of creditor’s
rights, netting, collateral and preference avoidance protection for derivative
contracts in the case of the Secured Derivative Agreements, afford FSA (whether
directly or indirectly as third party beneficiary or as secured party) at least
as favorable protection overall as do the laws in the jurisdiction of
organization of such Dexia Party immediately prior to such Corporate Reorganization;
and

 

(B)           in the case of DCL or DBB if a Successor Entity is
applicable, the Successor Entity is a regulated financial institution; or

 

(iii)          in the case of (A)
the Guaranteed Put Contract, the Non-Guaranteed Put Contract and the Liquidity
Facilities, the FSAM Lien Release Date has occurred or (B) any other agreement
or instrument, the Senior Release Date has occurred.

 

If the Remedies
Nonimpairment Condition has been previously satisfied in connection with any
Corporate Reorganization with respect to which a Successor Entity is
applicable, the reference to such Dexia Party above shall be deemed to refer to
the relevant Successor Entity.

 

Solely for purposes of the
definition of Remedies Nonimpairment Condition:

 

105

 

“Eligible
European Union State” means each of (i) Austria, Denmark, Finland, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and
the United Kingdom and (ii) any other country in the European Union that has a
rating assigned to its external indebtedness of at least “Aa2” by Moody’s and
“AA” by S&P, respectively, and for which derivatives netting and collateral
opinions rendered to ISDA are available on the ISDA website.

 

“GIC
Entities” means FSAM, the GIC Issuers, DHI, the Administrator, Dexia FP
Holdings Inc. and FSA PAL.

 

“Legal
Arbiter” means an internationally recognized law firm or practitioner with
expertise in matters of creditors’ rights and insolvency in the relevant
Potential Jurisdiction (“Eligible Expert”), which is Independent of both
FSA and Dexia. The Legal Arbiter shall be jointly appointed by FSA and Dexia;
provided, however, that (1) in the event FSA and Dexia do not agree as to such
joint appointment within eight Business Days from the FSA notice of objection
referred to in (A) (II) above, each shall nominate an Eligible Expert and the
two Eligible Experts shall themselves appoint the Legal Arbiter and (2) the
Legal Arbiter shall be required to reach its conclusion within ten Business Days
and if no such conclusion has been delivered, a replacement Legal Arbiter may
be appointed by the relevant Dexia Party acting alone. The determination of the
Legal Arbiter shall be final and binding on all parties.

 

“Secured
Derivative Agreements” means the Guaranteed Put Contract and the
Non-Guaranteed Put Contract, the Dexia Hedge Agreement between DCL and FSAM and
Third Party Hedge Amendments.

 

“Specified Diligence
Items” has the meaning specified in Section 3.2(g).

 

“Replacement Portfolio”
means the cash and Permitted Investments (a) described in clause (a) of the
definition of FSAM Lien Release Date or (b) owned by FSAM or the FSAM Successor
following implementation of the FSA Defeasance Plan.

 

“Reporting Agent” has
the meaning specified in Section 10.4(a).

 

“Reporting Service
Agreement” means the service agreement dated as of June 30, 2009 between
FSAM and the Reporting Agent.

 

“Repurchase Facility
Agreement” has the meaning specified in the recitals.

 

“Required Guarantee”
means any guarantee, substantially in the form of Annex J, issued by DCL with
respect to payment obligations of FSAM, the GIC Issuers or the Administrator
for the benefit of (a) Hedge Counterparties in connection with Subordinated
Third Party Hedge Agreements, (b) BNY Mellon with respect to the GIC Business
Clearing and Custody Agreements, and (c) service providers (including other
Account Banks) to the Administrator, FSAM, the FSAM Successor or the FSAM
Hedging Successor.

 

“Required Reserve”
means, with respect to any date of determination, the lesser of: (i) 2% of the
aggregate principal balance of all remaining GIC Contracts on such date and (ii)
$200,000,000, provided that in no
event will the Required Reserve be less than $35,000,000. In the event that
there is less than $500,000,000 of remaining available amount under the
Liquidity Facility, then (i) above will equal the sum of 2% of the aggregate
principal balance of all remaining GIC Contracts on such date and the aggregate
amount of all Senior Priority Payments individually in excess of $1,000,000
expected to become due in the next seven calendar days.

 

106

 

“Restricted Payment” has the meaning specified in
the Sovereign Guarantee Reimbursement Agreement.

 

“Retained FSA Policy” means all policies that
produce liabilities to FSA related to the GIC Business, the GIC Business
Entities or any Material Agreements, including (a) all GIC Policies related to
GIC Contracts owned by (i) Unaffiliated Parties or (ii) FSA Global Funding
Limited; (b) all Hedge Policies related to Third Party Hedge Agreements and (c)
Secondary Policies.

 

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

 

“SEC” means the U.S. Securities and Exchange
Commission.

 

“Second Credit Agreement” has the meaning specified
in the recitals.

 

“Second Credit Agreement Lien” has the meaning
specified in the recitals.

 

“Secondary Policies” means the financial guaranty
insurance policies issued by FSA and listed in Annex F.

 

“Secured Obligations” means the FSAM Secured
Obligations and the GIC Issuer Secured Obligations.

 

“Secured Party Representative” means (a) prior to
an election by FSA to become the Secured Party Representative following the
occurrence of a Dexia Event of Default, the Dexia Guarantors, each on its own
behalf and on behalf of the Sovereign Guarantors (provided that if (x) a Dexia Event of Default has occurred
and (y) the Dexia Guarantors have requested FSA waive such Dexia Event of
Default, the Dexia Guarantors will obtain the consent of FSA prior to
exercising its rights as Secured Party Representative until the 10th Business Day after such Dexia Event
of Default (or, if earlier, the date on which FSA waives or declines to waive
such Dexia Event of Default); (b) following the occurrence of a Dexia Event of
Default, FSA upon notice to the Collateral Agent and the Dexia Guarantors that
it is electing to act as Secured Party Representative; and (c) following the
Senior Release Date, the Dexia Guarantors. For the avoidance of doubt, upon the
occurrence of a Dexia Event of Default, the Dexia Guarantors may not waive a
Dexia Event of Default or (unless FSA in its sole discretion has waived such
Dexia Event of Default in writing) exercise any other rights or remedies of the
Secured Party Representative under Article V unless the Senior Release Date has
occurred, and the Sovereign Guarantors may not at any time be the Secured Party
Representative.

 

“Secured Parties” means with respect to (a) the
FSAM Sovereign Guarantee Collateral, the GIC Issuers, (b) the FSAM Collateral,
FSA, the Dexia Guarantors, the Lenders and the GIC Issuers, (c) the GIC Issuers
Collateral, FSA and the Dexia Guarantors, (d) the Dexia Collateral, FSAM, (e) the
FSA PAL Collateral, FSAM, (f) the Dexia FP Collateral, FSA and (g) the FSAM PAL
Collateral, FSA.

 

“Securities Account Control Agreement” has the
meaning specified in Section 10.1(a).

 

“Securities Lending Facility” means the Global
Master Securities Lending Agreement between DCL and FSAM dated as of November 13,
2008.

 

“Semi-Annual Reporting Date” has the meaning
specified in Section 10.5(e)(x).

 

“Senior Priority Payments” has the meaning
specified in Section 11.1(b).

 

“Senior Release Date” means the date on which all
of the GIC Contracts and Senior Third Party Hedge Agreements have been Paid In
Full or terminated and all payments due and owing to FSA have been Paid In
Full.

 

107

 

“Senior Third Party Hedge Agreement” means any
Third Party Hedge Agreement (i) entered into after a Dexia Event of Default, (ii)
that is subject to an FSA Policy, (iii) transactions under futures account agreements
or (iv) any other Third Party Hedge Agreement that is not a Subordinated Third
Party Hedge Agreement.

 

“Shortfall Amounts” has the meaning specified in
the Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed Put Contract,
respectively.

 

“Shortfall Information” has the meaning specified
in the Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed Put Contract,
respectively.

 

“Sovereign Guarantee” means the guarantee issued by
the Sovereign Guarantors under which the Sovereign Guarantors will guarantee
the performance by Dexia of its joint and several obligations under the Dexia
Guaranteed Put Contract.

 

“Sovereign Guarantee Reimbursement Agreement” means
the Reimbursement Agreement among the Sovereign Guarantors and the Dexia
Guarantors dated as of the Closing Date relating to the payment of a guarantee
fee and the reimbursement of the Sovereign Guarantors for any payments made
under the Sovereign Guarantee.

 

“Sovereign Guarantee Reimbursement Letter Agreement”
means the letter agreement, dated as of the Closing Date, between Dexia and
FSAM related to certain requirements and limitations regarding amendment,
modification, supplement or termination of certain provisions of, and attached
as an exhibit to, the Sovereign Guarantee Reimbursement Agreement.

 

“Sovereign Guarantee Unenforceability Date” has the
meaning specified in the Dexia Guaranteed Put Contract.

 

“Sovereign Guarantors” means the Belgian State and
the French State.

 

“SPV Bankruptcy” means a “Bankruptcy” as defined in
Section 5(a)(vii) of the 1992 ISDA Master Agreement, amended as follows: (w) by
deleting clause (2); (x) by deleting in clause (6) the words “seeks or” and the
words “administrator,” and “trustee, custodian”; (y) by deleting clause (7);
and (z) by deleting clause (9) (and conforming the cross-reference in clause
(8)).

 

“Subordinated Claims Payment Condition” means, as
of any date of determination and any payment, a condition satisfied if (and
after giving effect to the relevant payment would be):

 

(a)             no Dexia Default has occurred and
is continuing and no Dexia Event of Default has occurred;

 

(b)             a
Dexia Event of Default has occurred and the aggregate FSAM Asset Value of
Permitted Investments then held as Collateral hereunder (whether held by FSAM,
the FSAM Successor, the FSAM Hedging Successor or the GIC Issuers or the
Collateral Agent following enforcement of its security interest hereunder, and
including any Permitted Investments that were initially pledged as Eligible
Collateral under the Put Contracts (whether or not the Put Contracts have been
terminated)) exceeds the Subordinated Claims Payment Threshold; or

 

(c)             the
Senior Release Date has occurred;

 

provided that the
Subordinated Claims Payment Condition will not be considered to have been
satisfied if (x) the Dexia Guarantors are the Secured Party Representative and
FSAM has failed to comply with Section 11.1(c) or Section 11.2(e), until the
next Valuation Date (as defined in the Dexia CSAs) has

 

108

 

occurred following such failure to comply with Section 11.1(c)
or Section 11.2(e) and the Dexia Guarantors have satisfied the collateral
posting requirement under the Dexia CSAs with respect to that Valuation Date;
or (y) the Required Reserve is not fully funded.

 

“Subordinated Claims Payment Threshold” means, as
of any date of determination, the sum of (w) the CSA Collateralized Liabilities
plus 25% of the GIC Business Costs Amount, (x) any GIC Interest Hedge Reserve, (y)
if such date of determination is within the Initial Event of Default Period,
$500 million and (z) if on the last date of the Initial Event of Default Period
a decision of the ALM Arbiter is pending with respect to any ALM Noncompliance
(Derivative) and the ALM Arbiter subsequently renders a decision adverse to
FSA, until one month after the date of the such decision, the lesser of (i) 150%
of the proceeds of the termination of any derivative transaction required as a
result of such decision that has not been used to enter into a replacement
derivative transaction in accordance with such decision and the ALM Procedures
and (ii) $500 million.

 

“Subordinated Third Party Hedge Agreement” has the
meaning specified in Section 8.1(c).

 

“Subsidiary” of any specified Person means any
other Person directly or indirectly controlled by such specified Person. For
the purposes of this definition, “control”
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the term “controlled” has the meaning correlative to
the foregoing.

 

“Temporary Funding Transaction” means a repurchase
transaction of a term of one week or less with an Eligible Dealer as defined
under the applicable Dexia CSA, under which the Collateral Agent or FSA acting
as Secured Party Representative sells Eligible Collateral held under such Dexia
CSA and agrees to repurchase such Eligible Collateral at the end of such term,
the proceeds of which transaction are used to satisfy a scheduled or expected
Senior Priority Payment identified in accordance with the provisions Section 11.2
at or prior to the relevant Payment Failure Notice.

 

“Third Party Hedge Agreements” means the Hedge
Agreements that are not Dexia Hedge Agreements.

 

“Transaction Documents” means this Agreement, the
Guaranteed Liquidity Facilities, the Dexia Guarantees, the Sovereign Guarantee,
the Sovereign Guarantee Reimbursement Letter Agreement, the Master Repurchase
Agreement, the Insurance Agreements, the Dexia Guarantee Reimbursement
Agreement, the Administrative Services Agreement, the Dexia GIC Indemnity, each
Securities Account Control Agreement, the FSAM Belgian Pledge Agreement and the
Hedging Letter Agreement.

 

“Transition Date” means the earlier of the
occurrence of (i) a Dexia Event of Default and election by FSA to become the
Secured Party Representative, and (ii) the FSAM Lien Release Date.

 

“UCC” or “Uniform Commercial Code” means,
unless otherwise specified, the Uniform Commercial Code as in effect from time
to time in the State of New York.

 

“Unaffiliated Counterparties” means Hedge
Counterparties that are not Affiliates of any Dexia Party.

 

“Unaffiliated Eligible Bidders” means Eligible
Bidder that are not Affiliates of any Dexia Party or of FSA.

 

“Unaffiliated Parties” means Persons that are not
Affiliates of any Dexia Party.

 

“Uncertificated Security” has the meaning specified
in Article 8 of the UCC.

 

109

 

“Uncovered Dexia Payment Obligations” means a
payment failed to be made (including a payment for the value of any failed
delivery of Eligible Collateral), either (a) under the Dexia FP Guarantee or
the Dexia GIC Indemnity other than a Good Faith Contested Payment, (b) under
the Dexia Non-Guaranteed Put Contract or (c) under the Guaranteed Liquidity
Facilities or the Dexia Guaranteed Put Contract where (x) the relevant payment
amount (including a payment for the value of any failed delivery of Eligible
Collateral) cannot be claimed from the Sovereign Guarantors under the Sovereign
Guarantee, (y) the Sovereign Guarantors have failed to perform their payment
obligations in relation thereto in a timely manner pursuant to the terms of the
Sovereign Guarantee or (z) a Sovereign Guarantee Unenforceability Date has
occurred.

 

“Valuation Agent” has the meaning specified in the
Dexia Guaranteed Put Contract and the Dexia Non-Guaranteed Put Contract,
respectively.

 

“Voting Rights” means any request, demand,
instruction, authorization, direction, notice, consent, waiver or similar
action.

 

“Wells Fargo” means Wells Fargo Bank, National
Association or any successor thereto as custodian for a collateral posting
account under the Put Contracts or custodian of a GIC Holder.

 

“Wind Down Business” has the meaning specified in Section
7.5(f).

 

110

 

EXHIBIT A-1

Form of Securities Account Control Agreement

 

FORM OF SECURITIES ACCOUNT
CONTROL AGREEMENT

 

This Securities Account Control Agreement, dated as
of [                 ],
2009 (this “Agreement”) among [             ]
(the “Debtor”), The Bank of New York Mellon Trust  Company,
National Association, as collateral agent (the “Collateral Agent”), [                    ],
as intermediary (the “Intermediary”) and Financial Security Assurance Inc.
Capitalized terms used but not defined herein shall have the meaning assigned
in the Pledge and Administration Agreement dated as of June 30, 2009, as
amended, between, inter alia, the Debtor and the Collateral Agent (the “Security Agreement”). All
references herein to the “UCC” shall mean, the Uniform Commercial Code as in
effect in the State of New York.

 

Section 1.               Definitions. Whenever used in this Agreement, the following
words shall have the meanings set forth below:

 

(a)           “Account
or “Accounts” means the accounts established and maintained by Intermediary hereunder
in the name of the Debtor (as the same may be redesignated, renumbered or
otherwise modified) and pledged to the Collateral Agent (which accounts are
designated in Exhibit A hereto, setting forth the name and account number
of each Account). Each Account shall be deemed to consist of a “securities
account” (within the meaning of Section 8-501(a) of the UCC) for
purposes of the UCC with respect to any investment property or other financial
asset credited to or carried in such Account and a “deposit account” (within
the meaning of Section 9-102 of the UCC) for purposes of the UCC with
respect to any uninvested funds deposited in or credited thereto.

 

(b)           “Authorized
Person” means any person, whether or not an officer or employee of the
Collateral Agent or the Debtor, duly authorized by the Collateral Agent or the
Debtor, respectively, to give Oral Instructions and/or Written Instructions on
behalf of the Collateral Agent or the Debtor, respectively, and listed on
Schedule I hereto or designated in a Certificate of Authorized Persons which
contains a specimen signature of such person.

 

(c)           “Collateral”
means each item of property (whether investment property, financial asset,
security, instrument, cash proceeds or uninvested funds) which may serve as
collateral pledged by the Debtor pursuant to the Security Agreement and
credited or proposed to be credited to an Account.

 

(d)           “Depository”
shall mean the Treasury/Reserve Automated Debt Entry System maintained at The
Federal Reserve Bank of New York for receiving and delivering securities, The
Depository Trust Company and any other clearing corporation within the meaning
of Section 8-102 of the UCC or otherwise authorized to act as a securities
depository or clearing agency, and their respective successors and nominees.

 

(e)           “Notice
of Sole Control” has the meaning specified in Section 10.

 

(f)            “Oral
Instructions” means verbal instructions received by the Intermediary.

 

(g)           “Written
Instructions” means written communications received by the Intermediary via S.W.I.F.T.,
tested telex, letter, facsimile transmission, electronic mail or other method
or system specified by the Intermediary as available for use in connection with
this Agreement.

 

111

 

The terms “bank,” “cash proceeds,” “deposit account,”
“financial asset,” “investment property,” “proceeds,” “security,” “security
account,” “security entitlement” and “securities intermediary” shall have the
meanings set forth in Articles 8 or 9, as applicable, of the UCC.

 

Section 2.               Operation
of the Account(s). Each Account is and will be maintained by Intermediary
as a “securities account” with respect to securities and other financial assets
deposited or credited thereto and a “deposit account” with a bank with respect
to uninvested funds deposited or credited to such Account. The Intermediary
agrees, subject to the terms of this Agreement (including without limitation,
Sections 3, 4 and 9 hereof) to treat the Debtor as the party entitled to
exercise the rights that comprise any financial asset credited to an Account
and as the “customer” (as such term is defined in Section 4-104 of the
UCC) of the Intermediary with respect to the receipt and disposition of
uninvested funds deposited thereto.

 

Section 3.               “Financial
Assets” Election. The Intermediary hereby agrees that each item of Collateral
credited to any Account (excluding uninvested funds) shall be treated as a
“financial asset” within the meaning of Section 8-102(a)(9) of the
UCC.

 

Section 4.               Entitlement
Orders. If at any time the Intermediary shall receive an “entitlement order”
(within the meaning of Section 8-102(a)(8) of the UCC) or
instructions with respect to the disposition of funds originated by the
Collateral Agent and relating to any Account, the Intermediary shall comply
with such entitlement order and/or instructions without further consent by the
Debtor or any other person.

 

Section 5.               Advance
of Funds: Subordination of Lien: Waiver of Set-Off.

 

(a)           If
any advance of funds is made by the Intermediary to purchase, or to make
payment on or against delivery of any investment property to be held as
Collateral in any Account, the Intermediary shall have a continuing security
interest in and right of set-off against such investment property and the
proceeds thereof, until such time as the Intermediary is repaid the amount of
such advance.

 

(b)           The
Collateral Agent acknowledges and agrees that its security interest in the
Collateral and other items deposited to any Account is subordinate to the
Intermediary’s security interest and right of set-off in such Collateral and
other items granted pursuant to Section 5(a) hereof and the
[Securities Clearing Agreement (GSCS), dated as of August 8, 2001, and the
Global Clearing and Custody Agreement, dated as of October 15, 2004
(collectively, the “BONY Clearing Agreement”), each between the Debtor and the
Intermediary and in the Security Agreement, dated as of August 8, 2001
(the “BONY Security Agreement”), between the Debtor and the Intermediary.](1) [Securities
Clearing Agreement (GSCS), dated as of August 8, 2001 (the “BONY Clearing
Agreement”), between the Debtor and the Intermediary and in the Security
Agreement, dated as of August 8, 2001 (the “BONY Security Agreement”),
between the Debtor and the Intermediary.](2) [Global Clearing and Custody
Agreement dated as of August 21, 2006 (the “BONY Clearing Agreement”),
between the Debtor and the Intermediary and in the Debenture, dated as of August 21,
2006 (the “BONY Security Agreement”), between the Debtor and the Intermediary.](3)

 

(c)           (i) Except
as provided in Section 5(b) above, in the event that the Intermediary
has or subsequently obtains by agreement, operation of law or otherwise a
security interest in any Account or any security entitlement credited thereto,
the Intermediary hereby agrees that such security interest shall

 

(1) To be included in the
FSAM and FSA Capital Management Securities Account Control Agreements.

(2) To be included in the
FSA Capital Markets Securities Account Control Agreement.

(3) To be included in the
FSA PAL Securities Account Control Agreement.

 

112

 

be subordinate to the security interest of the Collateral
Agent; and (ii) the Collateral and other items deposited to such Account
will not be subject to deduction, set-off, banker’s lien, or any other right in
favor of any person other than the Collateral Agent, except as provided in Section 5(b) above.

 

Section 6.               Choice
of Law. Both this Agreement and each Account shall be governed by the laws
of the State of New York. Regardless of any provision in any other agreement,
for purposes of Articles 8 and 9 of the UCC, New York shall be deemed to be the
Intermediary’s “jurisdiction” and the establishment and maintenance of any
Account (as well as the financial assets credited thereto or carried therein
and any uninvested funds deposited therein or credited thereto,) shall be
governed by the laws of the State of New York.

 

Section 7.               Conflict
with other Agreements. Except for the BONY Clearing Agreement, the BONY
Security Agreement, the Security Agreement and this Agreement, there are no
other agreements entered into between the Intermediary and the Debtor with
respect to any Account. In the event of any conflict between this Agreement (or
any portion thereof) and any other agreement now existing or hereafter entered
into, the terms of this Agreement shall prevail. [For the avoidance of doubt,
the parties hereto agree that this Agreement supersedes the Existing Control
Agreement.]

 

Section 8.               Notice
of Adverse Claims. Except for the claims and interest of the Collateral Agent
and of the Debtor in each Account and any financial assets credited thereto or
carried therein, and for the claims and interest of the Intermediary in such
Account as set forth in the BONY Clearing Agreement, the BONY Security
Agreement and Section 5(a) hereof, the Intermediary does not have
actual knowledge, as of the date hereof, of any claim to, or interest in, such
Account or in any financial asset credited thereto. Upon receipt of written
notice of any lien, encumbrance or adverse claim (including any writ,
garnishment, judgment, warrant of attachment, execution or similar process)
against any Account or in any financial asset carried therein, the Intermediary
will use reasonable efforts to notify the Collateral Agent, the Debtor and FSA
thereof as promptly as reasonably practicable.

 

Section 9.               Maintenance
of Account. The Collateral Agent and the Debtor hereby authorize the
Intermediary to utilize Depositories to the extent possible in connection with
its performance hereunder. Collateral held by the Intermediary in a Depository
will be held subject to the rules, terms and conditions of such Depository.
Where Collateral is held in a Depository, the Intermediary shall identify on its
records as belonging to the Debtor and pledged to the Collateral Agent a
quantity of securities as part of a fungible bulk of securities held in the
Intermediary’s account at such Depository. Securities deposited in a Depository
will be represented in accounts which include only assets held by the
Intermediary for its customers.

 

Section 10.             Notice
of Sole Control. Subject to Intermediary’s rights pursuant to the BONY Clearing
Agreement, the BONY Security Agreement and Section 5(a) hereof, until
the Intermediary receives a Notice of Sole Control in the form of Exhibit B,
the Intermediary is authorized to act upon Oral Instructions or Written
Instructions, including entitlement orders, from either the Collateral Agent or
the Debtor. If at any time the Collateral Agent delivers to the Intermediary a
Notice of Sole Control in substantially the form set forth in Exhibit B
hereto, the Intermediary agrees that after receipt of such notice, it will
comply only with entitlement orders or instructions originated by the
Collateral Agent and will cease to comply with any entitlement orders or
instructions originated by the Debtor or any other party.

 

Section 11.             Voting
Rights; Disposition. Until such time as the Intermediary receives a Notice
of Sole Control pursuant to Section 10 hereof, the Debtor shall direct the
Intermediary with respect to the voting of and the sale, pledge, transfer or
other disposition of any Collateral credited to any Account.

 

113

 

Section 12.             Statements
and Confirmations. The Intermediary will promptly send copies of all
statements, confirmations and other correspondence concerning any Account
and/or any Collateral credited thereto simultaneously to the Debtor and to the
Collateral Agent at the respective addresses set forth in Section 23 of
this Agreement.

 

Section 13.             Definitive
Securities. The Intermediary shall take possession of Collateral credited
to any Account that is a definitive security at a secure facility at one of its
offices in New York City, shall ensure that each such definitive security is
accompanied by an endorsement or power in blank or in the name of the
Intermediary and shall identify such definitive security on its books and
records as belonging to the Debtor, subject to the security interest of the
Collateral Agent and shall credit an Account with such security.

 

Section 14.             Payment
of Proceeds. Subject to Intermediary’s rights pursuant to the BONY Clearing
Agreement, the BONY Security Agreement and Section 5(a) hereof, the
Intermediary shall credit to each Account all proceeds received by it with
respect to the Collateral held in such Account.

 

Section 15.             Representations,
Warranties and Covenants of the Intermediary. The Intermediary hereby makes
the following representations, warranties and covenants:

 

(a)           Each
Account has been established as set forth in Section 2 above and each
Account will be maintained in the manner set forth herein until termination of
this Agreement. The Intermediary shall not change the name of any Account
without the prior written consent of the Collateral Agent.

 

(b)           This
Agreement is the valid and legally binding obligation of the Intermediary.

 

(c)           Except
for the BONY Clearing Agreement, the BONY Security Agreement and this
Agreement: (i) the Intermediary has not entered into, and until the
termination of this Agreement will not enter into, any agreement with any party
not a party to this Agreement relating to any of any Account and/or any
financial assets credited thereto pursuant to which it has agreed to comply
with entitlement orders (as defined in Section 8-102(a)(8) of the
UCC) of such person, and (ii) the Intermediary has not entered into any
other agreement with the Debtor or the Collateral Agent purporting to limit or
condition the obligation of the Intermediary to comply with entitlement orders
as set forth herein.

 

Section 16.             Standard
of Care: Indemnification.

 

(a)           Except
as otherwise expressly provided herein, the Intermediary shall not be liable
for any costs, expenses, damages, liabilities or claims, including attorneys’
fees (“Losses”) incurred by or asserted against the Debtor or the Collateral
Agent, except those Losses arising out of the negligence or willful misconduct
of the Intermediary. The Intermediary shall have no liability whatsoever for
any Losses sustained or incurred by reason of any action or inaction of any
Depository, it being understood that with respect to any such Losses, the
Intermediary shall take appropriate action to recover such Losses from such
Depository, and the Intermediary’s sole responsibility and liability to the
Debtor and the Collateral Agent in respect thereof shall be limited to any
amounts so recovered from any such Depository (exclusive of reasonable costs
and expenses incurred by the Intermediary in connection with taking such
action). In no event shall the Intermediary be liable for special, indirect or
consequential damages, or lost profits or loss of business, arising in
connection with this Agreement.

 

(b)           Without
limiting the generality of the foregoing, the Intermediary shall be under no
obligation to inquire into, and shall not be liable for, any Losses incurred by
the Debtor, the Collateral Agent or any other person as a result of the receipt
or acceptance of fraudulent, forged or invalid

 

114

 

securities, or securities which otherwise are not freely
transferable or deliverable without encumbrance in any relevant market.

 

(c)           The
Debtor agrees, subject to the Priority of Payments set forth in the Security
Agreement, to indemnify the Intermediary and hold the Intermediary harmless
from and against any and all Losses sustained or incurred by or asserted
against the Intermediary by reason of or as a result of any action or inaction,
or arising out of the Intermediary’s performance hereunder, including
reasonable fees and expenses of counsel incurred by the Intermediary in a
successful defense of claims by the Debtor or the Collateral Agent; provided that the Debtor and the
Collateral Agent shall not indemnify the Intermediary for those Losses arising
out of the Intermediary’s negligence or willful misconduct. This indemnity
shall be a continuing obligation of the Debtor and its successors and assigns,
notwithstanding the termination of this Agreement.

 

(d)           The
Debtor and the Collateral Agent hereby agree that, notwithstanding references
to the Security Agreement in this Agreement, the Intermediary has no interest
in, and no duty, responsibility or obligation with respect to, the Security
Agreement under this Agreement (including without limitation, no duty,
responsibility or obligation to monitor the Debtor’s or the Collateral Agent’s
compliance with the Security Agreement or to know the terms of the Security
Agreement except for the Priority of Payments as defined therein).

 

(e)           The
Intermediary may, with respect to questions of law, obtain the advice of
counsel and shall be fully protected with respect to anything done or omitted
by it in good faith in conformity with such advice.

 

(f)            The
Intermediary shall be under no obligation to take action to collect any amount
payable on any Collateral in default, or if payment is refused after due demand
and presentment.

 

Section 17.             Fees
and Expenses. The Debtor agrees to pay to the Intermediary the fees, if
any, as may be agreed upon from time to time, in accordance with the Priority
of Payments set forth in the Security Agreement. To the extent the Debtor and
the Intermediary so agree, the Debtor shall also reimburse the Intermediary for
(i) all costs associated with transfers of Collateral to the Intermediary
and records kept in connection with this Agreement and (ii) out-of- pocket
expenses which are a normal incident of the services provided hereunder.

 

Section 18.             Effectiveness
of Instructions; Reliance: Risk Acknowledgements; Additional Terms. Subject
to the terms below, the Intermediary shall be entitled to rely upon any Written
Instructions or Oral Instructions actually received by the Intermediary and
reasonably believed by the Intermediary to be duly authorized and delivered.
The Collateral Agent and the Debtor each agrees (i) to forward to the
Intermediary Written Instructions confirming its Oral Instructions by the close
of business of the same day that such Oral Instructions are given to the
Intermediary, and (ii) the fact that such confirming Written Instructions
are not received or that contrary Written Instructions are received by the
Intermediary shall in no way affect the validity or enforceability of
transactions authorized and effected by the Intermediary pursuant to its Oral
Instructions.

 

(b)           If
the Intermediary receives Written Instructions which appear on their face to
have been transmitted via (i) computer facsimile, email, the Internet or other
insecure electronic method, or (ii) secure electronic transmission
containing applicable authorization codes, passwords and/or authentication
keys, the Collateral Agent and the Debtor each understands and agrees that the
Intermediary cannot determine the identity of the actual sender of such Written
Instructions and that the Intermediary shall conclusively presume that such
Written Instructions have been sent by an Authorized Person. The Collateral
Agent and the Debtor shall be responsible for ensuring that only its Authorized
Persons

 

115

 

transmit such Written Instructions to the Intermediary and
that all of its Authorized Persons treat applicable user and authorization
codes, passwords and/or authentication keys with extreme care.

 

(c)           The
Collateral Agent and the Debtor each acknowledges and agrees that it is fully
informed of the protections and risks associated with the various methods of
transmitting Written Instructions to the Intermediary and that there may be
more secure methods of transmitting Written Instructions than the method(s) selected
by it. The Collateral Agent and the Debtor each agrees that the security
procedures (if any) to be followed in connection with its transmission of
Written Instructions provide to it a commercially reasonable degree of
protection in light of its particular needs and circumstances.

 

(d)           [If
the Collateral Agent or the Debtor elects to transmit Written Instructions
through an on-line communication system offered by the Intermediary, its use
thereof shall be subject to the Terms and Conditions attached hereto as
Appendix I.] If the Collateral Agent or the Debtor elects (with the
Intermediary’s prior consent) to transmit Written Instructions through an
on-line communications service owned or operated by a third party, it agrees
that the Intermediary shall not be responsible or liable for the reliability or
availability of any such service.

 

Section 19.             Account
Disclosure. The Intermediary is authorized to supply any information regarding
any Account which is required by any law or governmental regulation now or
hereafter in effect.

 

Section 20.             Force
Majeure. The Intermediary shall not be responsible or liable for any claims,
losses, liabilities, damages or expenses (including attorneys’ fees and
expenses) due to forces beyond the control of the Intermediary, including
without limitation strikes, work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear or natural catastrophes or acts of God, and
interruptions, loss or malfunctions of utilities, or, with respect to third
party providers, communications or computer (software and hardware) services.

 

Section 21.             Pricing
Services. The Intermediary may, as an accommodation, provide pricing or
other information services to the Debtor and/or the Collateral Agent in
connection with this Agreement. The Intermediary may utilize any vendor
(including securities brokers and dealers) believed by it to be reliable to
provide such information. Under no circumstances shall the Intermediary be
liable for any loss, damage or expense suffered or incurred by the Debtor or
the Collateral Agent as a result of errors or omissions with respect to any
pricing or other information utilized by the Intermediary hereunder.

 

Section 22.             No
Implied Duties. The Intermediary shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement and/or the Security Agreement, and no covenant or obligation shall be
implied against the Intermediary in connection with this Agreement.

 

Section 23.             Any
notice, request or other communication required or permitted to be given under
this Agreement shall be in writing and deemed to have been properly given when
delivered in person, or when sent by telecopy or other electronic means and
electronic confirmation of error free receipt is received or two days after
being sent by certified or registered United States mail, return receipt
requested, postage prepaid, addressed to (a) the Debtor, the Collateral
Agent, or FSA: at its respective address set forth in the Security Agreement
and (b) to the Intermediary at:

 

116

 

	
  [                                             

  	
  ]

  
	
  [                                              

  	
  ]

  
	
  Attention:

  	
  [

  	
  ]

  
	
  Telephone:

  	
  [

  	
  ]

  
	
  Facsimile:

  	
  [

  	
  ]

  

 

Any party may change his address for notices in the manner
set forth above.

 

Section 24.             Termination.
This Agreement shall terminate upon (a) the Intermediary’s receipt of
Written Instructions from the Collateral Agent expressly stating that the
Collateral Agent no longer claims any security interest in any Account and the
Collateral credited thereto and the Intermediary’s subsequent transfer of any
such Collateral from each Account pursuant to the Debtor’s Written
Instructions, (b) transfer of each Account and the Collateral to the
Collateral Agent subsequent to the Intermediary’s receipt of a Notice of Sole
Control, or (c) by any party upon not less than ninety (90) days prior
written notice of termination to the other parties, provided that termination
pursuant to (c) above shall not affect or terminate the Collateral Agent’s
security interest in any Account or the Collateral. Upon termination pursuant
to (c) above, the Intermediary shall follow such reasonable Written
Instructions of the Collateral Agent concerning the transfer of any Collateral.
Except as otherwise provided herein, all obligations of the parties to each
other hereunder shall cease upon termination of this Agreement.

 

Section 25.             No
Duty of Oversight. The Intermediary is not at any time under any duty to monitor
the value of the Collateral credited to any Account or whether the Collateral
is of a type required to be held in any Account, or to supervise the investment
of, or to advise or make any recommendation for the purchase, sale, retention
or disposition of any Collateral.

 

Section 26.             Certificates
of Authorized Persons. The Collateral Agent and the Debtor agree to furnish
to the Intermediary a new Certificate of Authorized Persons in the event of any
change in the then present Authorized Persons. Until such new Certificate is
received, the Intermediary shall be fully protected in acting upon Written
Instructions of such present Authorized Persons.

 

Section 27.             Cumulative
Rights; No Waiver. Each and every right granted to the Intermediary hereunder
or under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of the Intermediary to exercise, and no delay
in exercising, any right will operate as a waiver thereof, nor will any single
or partial exercise by the Intermediary of any right preclude any other future
exercise thereof or the exercise of any other right.

 

Section 28.             Severability;
Amendments: Assignment. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected thereby. This Agreement may not be amended or modified in
any manner except by a written agreement executed by the parties hereto. Any
amendment or modification of this Agreement not in compliance with this Section 28
shall be void ab initio. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by any party without the written consent
of the other parties.

 

Section 29.             Jurisdiction.
Each of the parties hereto hereby irrevocably submits to the exclusive
jurisdiction of any U.S. federal or state court in The City of New York for the
purpose of any suit, action, proceeding or judgment arising out of or relating
to this Agreement. Each of the parties hereto hereby consents to the laying of
venue in any such suit, action or proceeding in New York County,

 

117

 

New York, and hereby irrevocably waives any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum and agrees not to plead or claim the same. Notwithstanding
the foregoing, nothing contained in this Agreement shall limit or affect the
rights of any party hereto to judgment with respect thereto, in any
jurisdiction or venue. Any process in any such action shall be duly served if
mailed by registered mail, postage prepaid, to any party hereto, at its
respective address designated pursuant to Section 23.

 

Section 30.             Waiver
of Jury Trial. EACH OF THE PARTIES HERETO HERBY IRREVOCABLY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY ACKNOWLEDGES AND AGREES THAT
IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION.

 

Section 31.             No
Third Party Beneficiaries. In performing hereunder, the Intermediary is acting
solely on behalf of the Collateral Agent and the Debtor and no contractual or
service relationship shall be deemed to be established hereby between the
Intermediary and any other person other than FSA.

 

Section 32.             Limited
Recourse. Notwithstanding any other provision of this Agreement or any
other agreement to which the Debtor and the Intermediary are parties, the
obligations of the Debtor hereunder and under the Security Agreement are
limited recourse obligations payable solely from the proceeds of the Collateral
granted under the Security Agreement available under and applied in accordance
with the Priority of Payments. Upon application of such Collateral granted
under the Security Agreement and the proceeds thereof available to satisfy the
obligations of the Debtor in accordance with the terms of the Security
Agreement, the Intermediary will not be entitled to take any further steps against
the Debtor to recover any sums due to it under any agreement and shall not
constitute a claim against the Debtor to the extent of any insufficiency. No
recourse will be had for the payment of any amounts owing in respect of any
obligation of the Debtor, to the Intermediary against any officer, director,
employee, stockholder, member or incorporator of the Debtor. This provision
shall survive the termination of this Agreement for any reason.

 

Section 33.             Non-Petition.
The Intermediary agrees that it will not, prior to the date that is six months
(or such longer preference period as may be in effect at such time) after the
date on which all amounts owing by the Debtor to the Intermediary under any
agreement (including the BONY Clearing Agreement and/or the BONY Security
Agreement) have been paid in full, acquiesce, petition or otherwise institute
against, or join any other person instituting against, the Debtor or any of its
respective properties any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any federal or state
bankruptcy, or similar law, including without limitation proceedings seeking to
appoint a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Debtor or any substantial part of their property.
This provision shall survive the termination of this Agreement for any reason.

 

Section 34.             Headings.
Section headings are included in this Agreement for convenience only and
shall have no substantive effect on its interpretation.

 

Section 35.             Counterparts.
This Agreement may be executed in any number of counterparts, all of which
shall constitute one and the same instrument, and any party hereto may execute
this Agreement by signing and delivering one or more counterparts.

 

118

 

IN WITNESS WHEREOF, we have set our hands to this
SECURITIES ACCOUNT CONTROL AGREEMENT as of the date first written above.

 

	
   

  	
  [DEBTOR]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK TRUST
  COMPANY MELLON, NATIONAL ASSOCIATION as Collateral Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [                                ],
  as Intermediary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FINANCIAL SECURITY ASSURANCE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

119

 

EXHIBIT A

 

	
  Account
  Name

  	
   

  	
  Account Number

  	
   

  
	
  [FSA Capital
  Management Collateral Account]

  	
   

  	
   

  	
   

  
	
  [FSA Capital
  Markets Collateral Account]

  	
   

  	
   

  	
   

  
	
  [FSAM Cash
  Account]

  	
   

  	
   

  	
   

  
	
  [FSAM
  Collateral Account]

  	
   

  	
   

  	
   

  
	
  [Dexia
  Collateral Account]

  	
   

  	
   

  	
   

  

 

120

 

EXHIBIT B

 

[Letterhead of the Collateral Agent]

 

[Date]

 

[                      ]

[Insert Address]

 

Re: Notice of Sole Control

 

Ladies and Gentlemen:

 

As referenced in the Securities Account Control
Agreement, dated as of [              ],
2009  among
[Debtor], us and you (a copy of which is attached) (the “Agreement”) we hereby
give you notice, subject to your rights as set forth in the Agreement, of our
sole control over the account designated as the [         ]
(account # [           ])
(the “Account”) and all financial assets credited thereto. You are hereby
instructed not to accept any direction, instructions or entitlement orders with
respect to the Account or the financial assets credited thereto from any person
other than the undersigned, unless otherwise ordered by a court of competent
jurisdiction.

 

You are instructed to deliver a copy of this notice by
facsimile transmission to [Debtor].

 

	
   

  	
  Very truly yours,

  
	
   

  
	
   

  	
  THE BANK OF NEW YORK MELLON
  TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

cc: [Debtor]

 

121

 

SCHEDULE I

 

	
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  Specimen Signature

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

122

 

[APPENDIX I]

 

[ELECTRONIC SERVICES TERMS AND
CONDITIONS]

 

[1.                                   License; Use. (a) This Appendix I shall govern Customer’s use of electronic
communications, information delivery, portfolio management and banking
services, that The Bank of New York Mellon and its affiliates (“BNYM”) may
provide to Customer, such as The Bank of New York Mellon Inform TM and The Bank of New York Mellon CA$H-Register Plus®, and any computer software, proprietary data
and documentation provided by BNYM to Customer in connection therewith
(collectively, the “Electronic
Services”). In the event of any conflict between the terms of this
Appendix I and the main body of this Agreement with respect to Customer’s use
of the Electronic Services, the terms of this Appendix I shall control.

 

(b) BNYM grants to Customer a personal, nontransferable and nonexclusive
license to use the Electronic Services to which
Customer subscribes solely for the purpose of transmitting instructions and
information (“Written Instructions”), obtaining reports, analyses and
statements and other information and data, making inquiries and otherwise
communicating with BNYM in connection with the Customer’s relationship with
BNYM. Customer shall use the Electronic Services solely for its own internal
and proper business purposes and not in the operation of a service bureau.
Except as set forth herein, no license or right of any kind is granted to
Customer with respect to the Electronic Services. Customer acknowledges that
BNYM and its suppliers retain and have title and exclusive proprietary rights
to the Electronic Services, including any trade secrets or other ideas,
concepts, know-how, methodologies, and information incorporated therein and the
exclusive rights to any copyrights, trade dress, look and feel, trademarks and
patents (including registrations and applications for registration of either),
and other legal protections available in respect thereof. Customer further
acknowledges that all or a part of the Electronic Services may be copyrighted
or trademarked (or a registration or claim made therefor) by BNYM or its
suppliers. Customer shall not take any action with respect to the Electronic
Services inconsistent with the foregoing acknowledgments, nor shall Customer
attempt to decompile, reverse engineer or modify the Electronic Services.
Customer may not copy, distribute, sell, lease or provide, directly or
indirectly, the Electronic Services or any portion thereof to any other person
or entity without BNYM’s prior written consent. Customer may not remove any
statutory copyright notice or other notice included in the Electronic Services.
Customer shall reproduce any such notice on any reproduction of any portion of
the Electronic Services and shall add any statutory copyright notice or other notice
upon BNYM’s request.

 

(c) Portions of the Electronic Services may contain, deliver or rely on
data supplied by third parties (“Third Party Data”), such as pricing data and
indicative data, and services supplied by third parties (“Third Party Services”)
such as analytic and accounting
services. Third Party Data and Third Party Services supplied hereunder are
obtained from sources that BNYM believes to be reliable but are provided
without any independent investigation by BNYM. BNYM and its suppliers do not
represent or warrant that the Third Party Data or Third Party Services are
correct, complete or current. Third Party Data and Third Party Services are
proprietary to their suppliers, are provided solely for Customer’s internal
use, and may not be reused, disseminated or redistributed in any form. Customer
shall not use any Third Party Data in any manner that would act as a substitute
for obtaining a license for the data directly from the supplier. Third Party
Data and Third Party Services should not be used in making any investment
decision. BNYM AND ITS SUPPLIERS ARE NOT RESPONSIBLE FOR ANY RESULTS OBTAINED
FROM THE USE OF OR RELIANCE UPON THIRD PARTY DATA OR THIRD PARTY SERVICES.
BNYM’s suppliers of Third Party Data and Services are intended third party
beneficiaries of this Section 1(c) and Section 5 below.

 

(d) Customer understands and agrees that any links in the Electronic
Services to Internet sites may be to sites sponsored and maintained by third
parties. BNYM make no guarantees, representations or warranties concerning the
information contained in any third party site (including without limitation
that such information is correct, current, complete or free of viruses or other
contamination), or any products or services sold through third party sites. All
such links to third party Internet sites are provided solely as a convenience
to Customer and Customer accesses and uses such sites at its own risk. A link
in the Electronic Services to a third party site does not constitute BNYM’s
endorsement, authorisation or sponsorship of such site or any products and
services available from such site.

 

2.                                       Equipment. Customer shall obtain and maintain at its own cost and expense all
equipment and services, including but not limited to communications services,
necessary for it to utilize and obtain access to the Electronic Services, and
BNYM shall not be responsible for the reliability or availability of any such
equipment or services.

 

3.                                       Proprietary Information. The Electronic Services, and any proprietary
data (including Third Party Data), processes, software, information and
documentation made available to Customer (other than which are or become part
of the public domain or are legally required to be made available to the
public) (collectively, the “Information”), are the exclusive and confidential
property of BNYM or its suppliers. However, for the avoidance of doubt, reports
generated by Customer containing information relating to its account(s) (except
for Third Party Data contained therein) are not deemed to be within the meaning
of the term “Information.” Customer shall keep the Information confidential by
using the same care and discretion that Customer uses with respect to its own
confidential property and trade secrets, but not less than reasonable care. Upon
termination of the Agreement or the licenses granted herein for any reason,
Customer shall return to BNYM any and all copies of the Information which are
in its possession or under its control (except that Customer may retain reports
containing Third Party Data, provided that such Third Party Data remains
subject to the provisions of this Appendix). The provisions of this Section 3
shall not affect the copyright status of any of the Information which may be
copyrighted and shall apply to all information whether or not copyrighted.

 

4.                                       Modifications.
BNYM reserves the right to modify the Electronic Services from time to time.
Customer agrees not to modify or attempt to modify the Electronic Services
without BNYM’s prior written consent. Customer acknowledges that any
modifications to the Electronic Services, whether by Customer or BNYM and
whether with or without BNYM’s consent, shall become the property of BNYM.

 

5.                                       NO
REPRESENTATIONS OR WARRANTIES; LIMITATION OF LIABILITY. BNYM AND ITS MANUFACTURERS
AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE
ELECTRONIC SERVICES OR ANY THIRD PARTY DATA OR THIRD PARTY SERVICES, EXPRESS OR
IMPLIED, IN FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.
CUSTOMER ACKNOWLEDGES THAT THE ELECTRONIC SERVICES, THIRD PARTY DATA AND THIRD
PARTY SERVICES ARE PROVIDED “AS IS.” TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, IN NO EVENT

 

123

 

SHALL BNYM OR ANY SUPPLIER BE LIABLE FOR ANY DAMAGES,
WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL, WHICH CUSTOMER MAY INCUR
IN CONNECTION WITH THE ELECTRONIC SERVICES, THIRD PARTY DATA OR THIRD PARTY
SERVICES, EVEN IF BNYM OR SUCH SUPPLIER KNEW OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO EVENT SHALL BNYM OR ANY SUPPLIER BE LIABLE FOR ACTS OF GOD,
MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF
COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR
CAUSE BEYOND THEIR REASONABLE CONTROL.

 

6.                                       Security; Reliance; Unauthorized Use; Funds
Transfers. BNYM will establish
security procedures to be followed in connection with the use of the Electronic
Services, and Customer agrees to comply with the security procedures. Customer
understands and agrees that the security procedures are intended to determine
whether instructions received by BNYM through the Electronic Services are
authorized but are not (unless otherwise specified in writing) intended to
detect any errors contained in such instructions. Customer will cause all
persons utilizing the Electronic Services to treat any user and authorization
codes, passwords, authentication keys and other security devices with the
highest degree of care and confidentiality. Upon termination of Customer’s use
of the Electronic Services, Customer shall return to BNYM any security devices
(e.g., token cards) provided by BNYM. BNYM is hereby irrevocably authorized to
comply with and rely upon on Written Instructions and other communications,
whether or not authorized, received by it through the Electronic Services.
Customer acknowledges that it has sole responsibility for ensuring that only
Authorized Persons use the Electronic Services and that to the fullest extent
permitted by applicable law BNYM shall not be responsible nor liable for any
unauthorized use thereof or for any losses sustained by Customer arising from
or in connection with the use of the Electronic Services or BNYM’s reliance
upon and compliance with Written Instructions and other communications received
through the Electronic Services. With respect to instructions for a transfer of
funds issued through the Electronic Services, when instructed to credit or pay
a party by both name and a unique numeric or alpha-numeric identifier (e.g. ABA
number or account number), the BNYM, its affiliates, and any other bank
participating in the funds transfer, may rely solely on the unique identifier,
even if it identifies a party different than the party named. Such reliance on
a unique identifier shall apply to beneficiaries named in such instructions as
well as any financial institution which is designated in such instructions to
act as an intermediary in a funds transfer. It is understood and agreed that
unless otherwise specifically provided herein, and to the extent permitted by
applicable law, the parties hereto shall be bound by the rules of any
funds transfer system utilized to effect a funds transfer hereunder.

 

7.                                       Acknowledgments. BNYM shall acknowledge through the Electronic Services its receipt of
each Written Instruction communicated through the Electronic Services, and in
the absence of such acknowledgment BNYM shall not be liable for any failure to
act in accordance with such Written Instruction and Customer may not claim that
such Written Instruction was received by BNYM. BNYM may in its discretion
decline to act upon any instructions or communications that are insufficient or
incomplete or are not received by BNYM in sufficient time for BNYM to act upon,
or in accordance with such instructions or communications.

 

8.                                       Viruses.
Customer agrees to use reasonable efforts to prevent the transmission through
the Electronic Services of any software or file which contains any viruses,
worms, harmful component or corrupted data and agrees not to use any device,
software, or routine to interfere or attempt to interfere with the proper
working of the Electronic Services.

 

9.                                       Encryption. Customer acknowledges and agrees that encryption may not be available
for every communication through the Electronic Services, or for all data.
Customer agrees that BNYM may deactivate any encryption features at any time,
without notice or liability to Customer, for the purpose of maintaining,
repairing or troubleshooting its systems.

 

10.                                 On-Line Inquiry and Modification of Records. In connection with Customer’s use of the
Electronic Services, BNYM may, at Customer’s request, permit Customer to enter
data directly into a BNYM database for the purpose of modifying certain
information maintained by BNYM’s systems, including, but not limited to, change
of address information. To the extent that Customer is granted such access,
Customer agrees to indemnify and hold BNYM harmless from all loss, liability,
cost, damage and expense (including attorney’s fees and expenses) to which BNYM
may be subjected or which may be incurred in connection with any claim which
may arise out of or as a result of changes to BNYM database records initiated
by Customer.

 

11.                                 Agents.
Customer may, on advance written notice to the BNYM, permit its agents and
contractors (“Agents”) to access and use the Electronic Services on Customer’s
behalf, except that the BNYM reserves the right to prohibit Customer’s use of
any particular Agent for any reason. Customer shall require its
Agent(s) to agree in writing to be bound by the terms of the Agreement,
and Customer shall be liable and responsible for any act or omission of such
Agent in the same manner, and to the same extent, as though such act or
omission were that of Customer. Each submission of a Written Instruction or
other communication by the Agent through the Electronic Services shall
constitute a representation and warranty by the Customer that the Agent
continues to be duly authorized by the Customer to so act on its behalf and the
BNYM may rely on the representations and warranties made herein in complying
with such Written Instruction or communication. Any Written Instruction or
other communication through the Electronic Services by an Agent shall be deemed
that of Customer, and Customer shall be bound thereby whether or not
authorized. Customer may, subject to the terms of this Agreement and upon
advance written notice to the Bank, provide a copy of the Electronic Service
user manuals to its Agent if the Agent requires such copies to use the
Electronic Services on Customer’s behalf. Upon cessation of any such Agent’s
services, Customer shall promptly terminate such Agent’s access to the
Electronic Services, retrieve from the Agent any copies of the manuals and destroy
them, and retrieve from the Agent any token cards or other security devices
provided by BNYM and return them to BNYM.]

 

124

 

EXHIBIT A-2

Form of Account Agreement

 

FORM OF ACCOUNT AGREEMENT

 

This Account Agreement, dated as of
[                     ]
(this “Agreement”) among FSA Asset Management (the “Grantor”), The Bank of New
York Mellon Trust Company, National Association, as collateral agent (the
“Collateral Agent”), The Bank of New York Mellon Trust Company, National
Association, as intermediary (the “Intermediary”) and Financial Security
Assurance Inc. (“FSA”)

 

The Intermediary, the Collateral Agent and the Grantor
hereby agree as follows:

 

Section 1.                                            (a) Capitalized
terms used but not defined herein shall have the meaning assigned in the Pledge
and Administration Agreement dated as of June 30, 2009, as amended,
between, inter alia, the Grantor
and the Collateral Agent (the “Security Agreement”), or if not defined therein,
as defined in the UCC. All references herein to the “UCC” shall mean, the
Uniform Commercial Code as in effect in the State of New York.

 

(b)                                 “Collateral” means each
item of property (whether investment property, financial asset, security,
instrument, cash proceeds or uninvested funds) which may serve as collateral
pledged by the Grantor pursuant to the Security Agreement and credited or
proposed to be credited to an Account.

 

(c)                                  The terms “bank,” “cash
proceeds,” “deposit account,” “financial asset,” “investment property,” “proceeds,”
“security,” “security account,” “security entitlement” and “Securities
intermediary” shall have the meanings set forth in Articles 8 or 9, as
applicable, of the UCC.

 

Section 2.                                            The Intermediary is a
bank or trust company that in the ordinary course of business maintains
securities accounts for others and in that capacity has established securities
accounts in the name of the Collateral Agent for the benefit of the Secured
Parties under the Security Agreement which accounts are designated as set forth
in Exhibit A (the “Accounts”).

 

Section 3.                                            The Intermediary
qualifies as (i) a “securities intermediary” as defined in Article 8
of the UCC and will maintain the Accounts as “securities accounts” (within the
meaning of Section 8-501(a) of the UCC), with respect to any
investment property or other financial asset credited to or carried in any
Account and (ii) a “bank” as defined in Article 8 of the UCC and will
maintain the Accounts “deposit accounts” (within the meaning of Section 9-102
of the UCC) with respect to any uninvested funds deposited in or credited
thereto.

 

Section 4.                                            The Collateral Agent and
the Intermediary agree that:

 

(a)                                  (i) the Intermediary
will treat the Collateral Agent as (x) the “entitlement holder” within the
meaning of the UCC, entitled to exercise the rights that comprise the financial
assets credited to the Accounts, and (y) its “customer” within the meaning
of the UCC, entitled to give instruction with respect to the receipt and
disposition of uninvested funds deposited thereto, (ii) the Intermediary
will act only on entitlement orders or other instructions with respect to the
Accounts originated by the Collateral Agent and no other Person, (iii) the
Intermediary will treat all property (other than cash) credited to any Account
as a “financial asset” for purposes of Article 8 of the UCC and (iv) as
of the date hereof, no officer or employee of the Intermediary responsible for
administering the Account has actual knowledge of any adverse claim with
respect to any “financial asset” or cash credited to any Account; and

 

125

 

(b)                                 the Intermediary agrees
that any security interest in or lien on, or right of set-off with respect to
any of the Account that Securities Intermediary may now or in the future may
have is hereby subordinated to the security interest of the Collateral Agent,
except to the extent of (i) any advances that Intermediary may from time
to time make to, or for the benefit of, Collateral Agent or Grantor solely for
purposes of clearing or settling purchases or sales of securities held or to be
held in the Accounts, and (ii) any fees, charges, expenses and other
amounts not described in Section 11 below owed to Intermediary and
incurred in connection with the performance of its duties hereunder for which
Intermediary shall have a prior claim to the Account.

 

Section 5.                                            Except as set forth in Section 4(b),
in the event that the Intermediary has or subsequently obtains by agreement,
operation of law or otherwise a security interest in any Account or any
security entitlement credited thereto, the Intermediary hereby agrees that (i) such
security interest shall be subordinate to the security interest of the
Collateral Agent; and (ii) the Collateral and other items deposited to
such Account will not be subject to deduction, set-off, banker’s lien, or any
other right in favor of any person other than the Collateral Agent.

 

Section 6.                                            Any Person into which the
Intermediary may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
the Intermediary shall be a party, or any Person succeeding to all or
substantially all of the corporate trust business of the Intermediary, shall be
the successor of the Intermediary hereunder; provided
such Person shall be otherwise qualified and eligible under this
Agreement, without the execution or filing of any document or any further act
on the part of any of the parties hereto.

 

Section 7.                                            Both this Agreement and
each Account shall be governed by the laws of the State of New York. Regardless
of any provision in any other agreement, for purposes of Articles 8 and 9 of
the UCC, New York shall be deemed to be the Intermediary’s “jurisdiction” and
the establishment and maintenance of any Account (as well as the financial
assets credited thereto or carried therein and any uninvested funds deposited
therein or credited thereto,) shall be governed by the laws of the State of New
York.

 

Section 8.                                            Except for the Security
Agreement and this Agreement, there are no other agreements entered into
between the Intermediary and the Grantor with respect to any Account. In the
event of any conflict between this Agreement (or any portion thereof) and any
other agreement now existing or hereafter entered into, the terms of this
Agreement shall prevail.

 

Section 9.                                            Except for the claims and
interest of the Collateral Agent and of the Grantor in each Account and any
financial assets credited thereto or carried therein, the Intermediary does not
have actual knowledge, as of the date hereof, of any claim to, or interest in,
such Account or in any financial asset credited thereto. Upon receipt of
written notice of any lien, encumbrance or adverse claim (including any writ,
garnishment, judgment, warrant of attachment, execution or similar process)
against any Account or in any financial asset carried therein, the Intermediary
will use reasonable efforts to notify the Collateral Agent, the Grantor and FSA
thereof as promptly as reasonably practicable.

 

Section 10.                                      The Intermediary will
promptly send copies of all statements confirmations and other correspondence
concerning any Account and/or any Collateral credited thereto simultaneously to
the Grantor and to the Collateral Agent at the respective addresses set forth
in Section 20 of this Agreement.

 

Section 11.                                      The Intermediary shall
take possession of Collateral credited to any Account that is a definitive
security at a secure facility at one of its offices in New York City, shall
ensure that each such definitive security is accompanied by an endorsement or
power in blank or in the name of the

 

126

 

Intermediary and shall identify such definitive security
on its books and records as belonging to the Grantor, subject to the security
interest of the Collateral Agent and shall credit an Account with such
security.

 

Section 12.                                      The Intermediary shall
credit to each Account all proceeds received by it with respect to the
Collateral held in such Account.

 

Section 13.                                      The Intermediary hereby
makes the following representations, warranties and covenants:

 

(a)                                  Each Account has been
established as set forth in this Agreement and each Account will be maintained
in the manner set forth herein until termination of this Agreement. The
Intermediary shall not change the name of any Account without the prior written
consent of the Collateral Agent.

 

(b)                                 This Agreement is the
valid and legally binding obligation of the Intermediary.

 

(c)                                  Except for this
Agreement: (i) the Intermediary has not entered into, and until the
termination of this Agreement will not enter into, any agreement with any party
not a party to this Agreement relating to any of any Account and/or any
financial assets credited thereto pursuant to which it has agreed to comply
with entitlement orders (as defined in Section 8-102(a)(8) of the
UCC) of such person, and (ii) the Intermediary has not entered into any
other agreement with the Grantor or the Collateral Agent purporting to limit or
condition the obligation of the Intermediary to comply with entitlement orders
as set forth herein.

 

Section 14.                                      The Grantor and the
Collateral Agent hereby agree that:

 

(a)                                  Except as otherwise
expressly provided herein, the Intermediary shall not be liable for any costs,
expenses, damages, liabilities or claims, including attorneys’ fees (“Losses”)
incurred by or asserted against the Grantor or the Collateral Agent, except
those Losses arising out of the gross negligence or willful misconduct of the
Intermediary. In no event shall the Intermediary be liable for special,
indirect or consequential damages, or lost profits or loss of business, arising
in connection with this Agreement.

 

(b)                                 Without limiting the
generality of the foregoing, the Intermediary shall be under no obligation to
inquire into, and shall not be liable for, any Losses incurred by the Grantor,
the Collateral Agent or any other person as a result of the receipt or
acceptance of fraudulent, forged or invalid securities, or securities which
otherwise are not freely transferable or deliverable without encumbrance in any
relevant market.

 

(c)                                  The Grantor agrees,
subject to the Priority of Payments set forth in the Security Agreement, to
indemnify the Intermediary and hold the Intermediary harmless from and against
any and all Losses sustained or incurred by or asserted against the
Intermediary by reason of or as a result of any action or inaction, or arising
out of the Intermediary’s performance hereunder, including reasonable fees and
expenses of counsel incurred by the Intermediary in a successful defense of
claims by the Grantor or the Collateral Agent; provided
that the Grantor or the Collateral Agent shall not indemnify the
Intermediary for those Losses arising out of the Intermediary’s gross
negligence or willful misconduct. This indemnity shall be a continuing
obligation of the Grantor and its successors and assigns, notwithstanding the
termination of this Agreement.

 

(d)                                 The Grantor and the
Collateral Agent hereby agree that, notwithstanding references to the Security
Agreement in this Agreement, the Intermediary has no interest in, and no duty,
responsibility or

 

127

 

obligation with respect to, the Security Agreement under
this Agreement (including without limitation, no duty, responsibility or
obligation to monitor the Grantor’s or the Collateral Agent’s compliance with
the Security Agreement or to know the terms of the Security Agreement except
for the Priority of Payments as defined therein).

 

(e)                                  The Intermediary may,
with respect to questions of law, obtain the advice of counsel and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with such advice.

 

(f)                                    The Intermediary shall be
under no obligation to take action to collect any amount payable on any
Collateral in default, or if payment is refused after due demand and
presentment.

 

Section 15.                                      The Grantor agrees to pay
to the Intermediary the fees, if any, as may be agreed upon from time to time,
in accordance with the Priority of Payments set forth in the Security
Agreement. To the extent the Grantor and the Intermediary so agree, the Debtor
shall also reimburse the Intermediary for (i) all costs associated with
transfers of Collateral to the Intermediary and records kept in connection with
this Agreement and (ii) out-of- pocket expenses which are a normal
incident of the services provided hereunder.

 

Section 16.                                      (a) The Intermediary
may, but is not required to, rely upon and comply with instructions and
directions sent by email or facsimile, (or any other reasonable means of
communication) by persons believed by the Intermediary in good faith to be
authorized to provide such instructions or direction; provided, however, that
the Intermediary may require such additional evidence, confirmation or
certification from any such party or parties as the Intermediary, in its
reasonable discretion, deems necessary or advisable before acting or refraining
from acting upon any such instruction or direction.

 

(b)                                 The Intermediary agrees
to accept and act upon instructions or directions pursuant to this Agreement
sent by unsecured email, facsimile transmission or other similar unsecured
electronic methods, provided, however, that any Person providing such
instructions or directions shall provide to the Intermediary an incumbency
certificate listing such designated persons, which incumbency certificate shall
be amended whenever a person is to be added or deleted from the listing. If
such Person elects to give the Intermediary email or facsimile instructions (or
instructions by a similar electronic method) and the Intermediary in its
discretion elects to act upon such instructions, the Intermediary’s
understanding of such instructions shall be deemed controlling. The
Intermediary shall not be liable for any losses, costs or expenses arising
directly or indirectly from the Intermediary’s reliance upon and compliance
with such instructions notwithstanding such instructions conflict or are
inconsistent with a subsequent written instruction. Each Person providing
instructions or directions to the Intermeidary hereunder agrees to assume all
risks arising out of the use of such electronic methods to submit instructions
and directions to the Intermediary, including without limitation the risk of
the Intermediary acting, in good faith, on unauthorized instructions, and the
risk of interception and misuse by third parties.

 

Section 17.                                      The Intermediary is
authorized to supply any information regarding any Account which is required by
any law or governmental regulation now or hereafter in effect.

 

Section 18.                                      The Intermediary shall
not be responsible or liable for any claims, losses, liabilities, damages or
expenses (including attorneys’ fees and expenses) due to forces beyond the
control of the Intermediary, including without limitation strikes, work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear or
natural catastrophes or acts of God, and interruptions, loss or malfunctions of
utilities, or, with respect to third party providers, communications or
computer (software and hardware) services.

 

128

 

Section 19.                                      The
Intermediary shall have no duties or responsibilities whatsoever except such
duties and responsibilities as are specifically set forth in this Agreement
and/or the Security Agreement, and no covenant or obligation shall be implied
against the Intermediary in connection with this Agreement.

 

Section 20.                                      Any
notice, request or other communication required or permitted to be given under
this Agreement shall be in writing and deemed to have been properly given when
delivered in person, or when sent by telecopy or other electronic means and
electronic confirmation of error free receipt is received or two days after
being sent by certified or registered United States mail, return receipt
requested, postage prepaid, addressed to the party at the address set forth
below:

 

the Grantor, the Collateral Agent or FSA: at
its respective address set forth in the Pledge and Administration Agreement;

 

Intermediary: at the address of the
Collateral Agent set forth in the Pledge and Administration Agreement.

 

Any party may change his
address for notices in the manner set forth above.

 

Section 21.                                      This
Agreement shall terminate (a) upon the Intermediary’s receipt of written
instructions from the Collateral Agent expressly stating that the Collateral
Agent no longer claims any security interest in any Account and the Collateral
credited thereto and the Intermediary’s subsequent transfer of any such
Collateral from each Account pursuant to the Collateral Agent’s written
instructions or (b) by any party upon not less than ninety (90) days prior
written notice of termination to the other parties, provided that termination
pursuant to (b) above shall not affect or terminate the Collateral Agent’s
security interest in any Account or the Collateral. Upon termination pursuant
to (b) above, the Intermediary shall follow such reasonable written
instruction of the Collateral Agent concerning the transfer of any Collateral.
Except as otherwise provided herein, all obligations of the parties to each
other hereunder shall cease upon termination of this Agreement.

 

Section 22.                                      The
Intermediary is not at any time under any duty to monitor the value of the
Collateral credited to any Account or whether the Collateral is of a type
required to be held in any Account, or to supervise the investment of, or to
advise or make any recommendation for the purchase, sale, retention or
disposition of any Collateral.

 

Section 23.                                      Each
and every right granted to the Intermediary hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Intermediary to exercise, and no delay in exercising, any
right will operate as a waiver thereof, nor will any single or partial exercise
by the Intermediary of any right preclude any other future exercise thereof or
the exercise of any other right

 

Section 24.                                      In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
thereby. This Agreement may not be amended or modified in any manner except by
a written agreement executed by the parties hereto. Any amendment or
modification of this Agreement not in compliance with this Section 24
shall be void ab initio. This
Agreement shall extend to and shall be binding upon the parties hereto, and
their respective successors and assigns; provided, however, that this Agreement
shall not be assignable by any party without the written consent of the other
parties.

 

129

 

Section 25.                                      Each
of the parties hereto hereby irrevocably submits to the exclusive jurisdiction
of any U.S. federal or state court in The City of New York for the purpose of
any suit, action, proceeding or judgment arising out of or relating to this
Agreement. Each of the parties hereto hereby consents to the laying of venue in
any such suit, action or proceeding in New York County, New York, and hereby
irrevocably waives any claim that any such suit, action or proceeding brought
in such a court has been brought in an inconvenient forum and agrees not to
plead or claim the same. Notwithstanding the foregoing, nothing contained in
this Agreement shall limit or affect the rights of any party hereto to judgment
with respect thereto, in any jurisdiction or venue. Any process in any such
action shall be duly served if mailed by registered mail, postage prepaid, to
any party hereto, at its respective address designated pursuant to Section 20
above.

 

Section 26.                                      EACH
OF THE PARTIES HERETO HERBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION.

 

Section 27.                                      In
performing hereunder, the Intermediary is acting solely on behalf of the
Collateral Agent and the Grantor and no contractual or service relationship
shall be deemed to be established hereby between the Intermediary and any other
person other than FSA.

 

Section 28.                                      Notwithstanding
any other provision of this Agreement or any other agreement to which the
Grantor and the Intermediary are parties, the obligations of the Grantor
hereunder and under the Security Agreement are limited recourse obligations
payable solely from the proceeds of the Collateral granted under the Security
Agreement available under and applied in accordance with the Priority of
Payments. Upon application of such Collateral granted under the Security
Agreement and the proceeds thereof available to satisfy the obligations of the
Grantor in accordance with the terms of the Security Agreement, the
Intermediary will not be entitled to take any further steps against the Grantor
to recover any sums due to it under any agreement and shall not constitute a
claim against the Grantor to the extent of any insufficiency. No recourse will
be had for the payment of any amounts owing in respect of any obligation of the
Grantor, to the Intermediary against any officer, director, employee,
stockholder, member or incorporator of the Grantor. This provision shall
survive the termination of this Agreement for any reason.

 

Section 29.                                      The
Intermediary agrees that it will not, prior to the date that is six months (or
such longer preference period as may be in effect at such time) after the date
on which all amounts owing by the Grantor to the Intermediary under any
agreement have been paid in full, acquiesce, petition or otherwise institute
against, or join any other person instituting against, the Grantor or any of its
respective properties any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings, or other proceedings under any federal or state
bankruptcy, or similar law, including without limitation proceedings seeking to
appoint a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Grantor or any substantial part of their
property. This provision shall survive the termination of this Agreement for
any reason

 

Section 30.                                      This
Agreement may be executed in any number of counterparts, all of which shall
constitute one and the same instrument, and any party hereto may execute this
Agreement by signing and delivering one or more counterparts.

 

130

 

IN WITNESS WHEREOF, we have set
our hands to this ACCOUNT AGREEMENT as of the date first written above.

 

	
   

  	
  FSA ASSET MANAGEMENT LLC, as Grantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK MELLON TRUST COMPANY,
  NATIONAL ASSOCIATION, as Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK MELLON TRUST COMPANY,
  NATIONAL ASSOCIATION, as Intermediary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FINANCIAL SECURITY ASSURANCE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

131

 

EXHIBIT A

 

	
  Account
  Name

  	
   

  	
  Account Number

  
	
  Custodial Account

  	
   

  	
  [            ]

  
	
  Collateral Agent Cash Account

  	
   

  	
  [            ]

  
	
  Collateral Agent Custody Account

  	
   

  	
  [            ]

  

 

132

 

EXHIBIT B

Form of Power of Attorney

 

Capitalized terms not otherwise defined herein have the
meanings specified in the Pledge and Administration Agreement (as amended,
modified or supplemented from time to time, the “Pledge and Administration
Agreement”), dated as of June 30, 2009, entered into among Dexia SA,
Dexia Crédit Local S.A., Dexia Bank Belgium SA, Dexia FP Holdings Inc.,
Financial Security Assurance Inc. (“FSA”), FSA Asset Management LLC (“FSAM”),
Dexia FP Holdings Inc., FSA Portfolio Asset Limited, FSA Capital Markets Services
LLC, FSA Capital Markets Services (Caymans) Ltd., FSA Capital Management
Services LLC and The Bank of New York Mellon Trust Company, National
Association, as Collateral Agent (the “Collateral Agent”).

 

This Power of Attorney is provided pursuant to Section 2.1(i) of
the Pledge and Administration Agreement.

 

FSAM hereby constitutes and appoints the Collateral Agent
as its true and lawful attorney-in-fact and agent, to make claims under the
Sovereign Guarantee in accordance with Section 4.2 of the Pledge and
Administration Agreement. The undersigned hereby grants unto said
attorneys-in-fact and agents full power and authority to make such claims, as
FSAM might or could do if personally present by one of its officers, hereby
ratifying and confirming all that said attorney-in-fact shall lawfully do or
cause to be done by virtue hereof.

 

The rights under this Power of Attorney may be delegated
and assigned by the holder hereof at any time, and the Collateral Agent hereby
delegates and assigns all its rights hereunder to FSA as its representative.

 

This Power of Attorney and its delegation and assignment
is effective as of the date hereof, is coupled with an interest, is not limited
in time and may not be revoked.

 

IN WITNESS WHEREOF, this Power of Attorney was duly
executed and delivered on this [ ]th day of [             ].

 

 

	
  FSA ASSET MANAGEMENT LLC

  	
  THE BANK OF NEW YORK MELLON TRUST
  COMPANY, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
  By:

  	
   

  
	
   

  	
  Title:

  
					

 

133

 

ANNEX E

 

ALM
GUIDELINES AND PROCEDURES

 

Table of Contents:

 

	
  1

  	
  Scope

  	
  2

  
	
  2

  	
  Strategy
  and Objectives

  	
  4

  
	
  3

  	
  ALCO

  	
  5

  
	
  4

  	
  Authorized
  Products and Permitted Investments

  	
  5

  
	
  4.1

  	
        Hedging
  Portfolio

  	
  5

  
	
   

  	
  4.1.1      Hedge
  Register

  	
  6

  
	
  4.2

  	
  Asset Portfolio

  	
  6

  
	
  4.3

  	
  GIC Portfolio

  	
  6

  
	
  5

  	
  Market
  Risk Management

  	
  6

  
	
  5.1

  	
  Interest Rate Risk

  	
  6

  
	
  5.2

  	
  Currency Risk

  	
  10

  
	
  5.3

  	
  Inflation Risk

  	
  10

  
	
  5.4

  	
  Credit Spread Risk

  	
  10

  
	
  5.5

  	
  Construction/Acquisition
  Fund Flex Risk

  	
  11

  
	
  5.6

  	
  Debt Service Reserve
  Fund Risk

  	
  12

  
	
  6

  	
  Liquidity
  Risk Management

  	
  13

  
	
  6.1

  	
  GAP Ratio; Minimum Cash
  Level

  	
  13

  
	
  6.2

  	
  Scenario Analysis

  	
  14

  
	
  6.3

  	
  Collateral Posting
  Requirements upon Downgrade

  	
  15

  
	
  7

  	
  Swap Counterparty Credit Risk Management

  	
  15

  
	
  7.1

  	
  Existing Swap
  Counterparty Exposure

  	
  15

  
	
  7.2

  	
  Potential Swap Counterparty Exposure

  	
  16

  
	
  7.3

  	
  New Swap Counterparty
  Exposure

  	
  16

  
	
  8

  	
  Terminations and Other Actions Relating to GICs

  	
  16

  
	
  8.1

  	
  Terminations Following
  Downgrade Events

  	
  16

  
	
  8.2

  	
  Negotiated Terminations
  Not Due to Downgrade Event

  	
  17

  
	
  8.3

  	
  Collateral Maintenance
  Requirements

  	
  17

  
	
  9

  	
  Post Dexia Event of Default

  	
  18

  
	
  10

  	
  Reports

  	
  18

  

 

Appendices and Exhibits

 

	
  Appendix I —

  	
  ALCO Charter

  
	
  Appendix II —

  	
  Permitted Investments

  
	
  Exhibit A
  —

  	
  Approved Bank Deposit
  Counterparties

  
	
  Appendix
  III —

  	
  Certain
  Definitions

  
	
  Appendix IV —

  	
  Cash Flow Scenario Analysis Assumptions

  
	
  Appendix V —

  	
  Process and Procedures for
  Re-projection of Cash Flows

  
	
  Appendix VI —

  	
  Post Dexia Event of Default

  
	
  Exhibit A
  —

  	
  FSA Defeasance Plan

  

 

 

1         Scope

 

This document sets forth the Asset and Liability Management (“ALM”) guidelines and procedures (“ALM Procedures”) for the guaranteed investment
contract (“GIC”) business of
FSAM, FSA PAL and the GIC Issuers. 
Capitalized terms used but not defined herein have the respective
meanings assigned to such terms in the Pledge and Administration Agreement,
dated as of July 1, 2009, among Dexia SA, Dexia Crédit Local S.A., Dexia
Bank Belgium SA, Dexia FP Holdings Inc., Financial Security Assurance Inc., FSA
Asset Management LLC, FSA Portfolio Asset Limited, FSA Capital Markets Services
LLC, FSA Capital Management Services LLC, FSA Capital Markets Services
(Caymans) Ltd. and The Bank of New York Mellon Trust Company, National
Association, as amended, modified or supplemented from time to time (the “Pledge
and Administration Agreement”).

 

The GIC Business consisted of the
issuance of GICs, on either an unsecured or secured basis, by the GIC Issuers,
and, in the case of GICs issued by FSA Capital Management and FSA Capital
Markets, the simultaneous onlending of the proceeds of such GICs, on precisely
matching terms and conditions, to FSAM, for investment, either directly or, in
the case of certain non-USD investments, through FSAM’s direct wholly-owned
subsidiary, FSA PAL (FSA PAL, together with FSAM and the GIC Issuers,
collectively, the “GIC Companies”).(1)  FSAM is also the entity through which all hedging
operations and other financial transactions (such as, for example, liquidity
borrowings) relating to the GIC Business have been conducted and will be
conducted prior to the Transition Date. 
Following the Transition Date, the hedging activity is expected to be
conducted through the FSAM Hedging Successor, and upon direction from FSA as
Secured Party Representative if a Dexia Event of Default has occurred. The
payment obligations of the GIC Issuers under their respective GICs (other than
any Dexia Only GIC Contracts), as well as FSAM’s payment obligations under its
Senior Third Party Hedge Agreements, if any, are all guaranteed by FSA.  FSA
previously was an Affiliate of the GIC Companies.  Immediately following the Closing Date, it
will be an indirect subsidiary of Assured.

 

As noted above, FSA PAL is a direct
wholly-owned subsidiary of FSAM, and each of the other GIC Companies, except
for FSA Capital Markets Cayman,(2) is a direct wholly-owned subsidiary of Dexia FP Holdings
Inc., a Delaware corporation (“Dexia FP”). 
Dexia FP, in turn, is a direct wholly-owned subsidiary of Dexia Holdings, Inc.,
a Delaware corporation (“DHI”), which, in turn, is 90%-owned by DCL, and
10%-owned by Dexia.  DCL is a direct wholly-owned
subsidiary of Dexia.

 

The GIC
Business is managed for the GIC Companies by the Administrator pursuant to an
Administrative Services Agreement. 
Initially, HF Services LLC, a bankruptcy-remote Delaware limited
liability company and direct wholly-owned subsidiary of Dexia FP (“HF Services”)
will act as administrator and manage the GIC Business pursuant to that certain
Administrative Services Agreement, dated as of July 1, 2009, by and among
the GIC Companies, Dexia, FSA and HF Services. 
The Administrative Services Agreement provides, among other things,
that, in managing the GIC Business, the Administrator will be governed by these
ALM Procedures and decisions of the ALCO (as defined below).

 

For purposes of this document, ALM is the management of the structural risks embedded in the GIC
Business.  These structural risks can
result from changes in interest rates, currency exchange rates, inflation,
credit spreads, liquidity requirements and counterparty risk.  The GIC Business is also exposed to credit
risk but, given that all such credit risk, except for the Excluded Assets and
Other Assets, representing approximately USD 4.5 Bn of 

 

(1) The proceeds of GICs
issued by the third GIC Issuer, FSA Capital Markets Cayman — only two of which,
having an aggregate outstanding principal balance of USD 25MM, remain
outstanding — were onlent to another affiliate of FSA, FSA Global, which, in
turn, purchased matching GICs from one of the other two GIC Issuers, which
then, in turn, onlent the proceeds of those GICs to FSAM as described in text
above.

(2) FSA
Capital Markets Cayman is wholly-owned by a Cayman Islands charitable trust.

 

2

 

low credit risk assets, is being shifted to Dexia and/or DCL,
backed by the French and Belgian States, the ALCO does not expect to actively
manage this risk.

 

The original goal of the GIC Business was to earn a net
interest margin (“NIM”) and therefore the GIC Companies did not intend to take any
interest rate, currency or inflation risks. 
The GIC Business is now in “run-off.” 
Therefore, the Transaction Documents contemplate that:

 

·      No new GICs
will be written.

·      No active
management of the asset portfolio will be undertaken —

·      assets
guaranteed by the Belgian and French governments will be sold solely in limited
circumstances set forth in the Pledge and Administration Agreement (including,
in certain circumstances, with the consent of FSA), given that such guarantees
generally are effective only for so long as the guaranteed assets remain on
FSAM’s balance sheet;

·      the Excluded
Assets and Other Assets may only be sold to the extent permitted by the Pledge
and Administration Agreement; and

·      to the
extent that free cash flow is generated, the funds can be re-invested only in “Permitted
Investments” as and to the extent specified in Appendix II (including, among
other things, subject to certain concentration limits set forth therein).

·      An active
management of the Hedge Agreements will be required to ensure that the desired
low risk profile of the GIC Business is maintained.

 

The breach of any tests or limits
set forth herein shall be reported to the ALCO as provided herein, which shall
decide on the appropriate course of action to remediate such breach.  In addition, the consequences of any such
breach (if any) shall be as set forth in the Pledge and Administration
Agreement.

 

Sources of risks:

 

Interest Rate Risk is the risk
to earnings or economic value arising from the movement of interest rates.  It arises from differences between the timing
of rate changes and the timing of cash flows (“repricing risk”); from changing
rate relationships among yield curves (“basis risk”); from changing
relationships across the spectrum of maturities (“yield curve risk”); and from
interest-rate-related options embedded in financial instruments (“option risk”).

 

Currency (or FX) Risk is the
potential that movements in currency exchange rates may adversely affect the
value of a financial instrument or portfolio. 
FX risk can result
when assets or liabilities are non-USD denominated such that a rise or fall in
FX rates can affect their market values.

 

Inflation Risk is the
potential that changes in relevant inflation rates could adversely affect the
value of “inflation-linked” assets and liabilities such that a rise or fall in such inflation rates can cause a
mismatch of the portfolio.

 

Prior to FSA becoming the Secured Party Representative
following a Dexia Event of Default and implementation of the FSA Defeasance
Plan (as defined herein), substantially all interest rate, currency and inflation risk will
be hedged which can be implemented by swapping both assets and liabilities to
USD floating rate or otherwise entering into other types of hedges to minimize
these risks.

 

Liquidity Risk can result from:

 

·      unexpected changes in the
cash flows of assets and/or liabilities, including early withdrawals from and
early terminations, of GICs,

 

·      change of mark-to-market on
the Senior Third Party Hedge Agreements, which can lead to collateral posting
requirements for FSAM or the FSAM Hedging Successor,

 

3

 

·      collateralization/termination
requirements tied to ratings of the GIC guarantors/issuers,

 

·      change of the market values
of assets used to collateralize existing GIC contracts, and

 

·      collateral assets becoming
ineligible as collateral due to ratings downgrades.

 

Prior to FSA becoming the Secured Party Representative
following a Dexia Event of Default and implementation of the FSA Defeasance
Plan, liquidity risk will be managed through scenario analysis, stress testing
and the monitoring of short-, medium- and long-term liquidity needs.

 

Credit Spread Risk can result from unexpected changes in the credit spreads of assets and/or
liabilities despite unchanged credit ratings, hence not related to credit
events (downgrades, defaults).

 

As noted above, the original goal of the GIC Business was to
earn a NIM, in part through exposure to credit spread risk.  As it issued its GICs, it purchased
investments, “locking in” positive NIMs.  As the GIC Business is now in “run-off”,
it is to be expected that credit spread risk will gradually diminish over time
and no new exposure will be taken (other than possibly in the event of either (i) a
credit rating downgrade leading to the purchase of additional Permitted Investments
for the purpose of posting collateral to various GICs, (ii) a need to
reinvest excess proceeds from maturing assets at a time when such proceeds
cannot be returned to Dexia due to the failure of the Subordinated Claims
Payment Condition to be satisfied at the time), and/or (iii) upon a Dexia
Event of Default.

 

The Administrator is directly
responsible for the oversight of ALM, including the analysis of and the
reporting on the different risks.  It is
the responsibility of the Administrator to ensure that any transactions entered
into by any of the GIC Companies are in compliance with the ALM Procedures.

 

The Administrator performs these
duties under the auspices of the ALCO (see Section 3 below).  This document is intended to provide an
overview of the ALM framework applicable to the GIC Business.

 

The objective of this document,
which describes various limits and processes applied in managing the structural
risks embedded in the GIC Business, is to monitor and steer the hedging and
other ALM activities of the GIC Business within authorized risk limits (to the
extent such limits are established and applicable) and business objectives in
line with risk governance standards and principles as set forth by the ALCO.

 

2         Strategy and Objectives

 

Subject to other applicable constraints, the Administrator is
in charge of the supervision of the GIC Companies’ balance sheet.  As such, it has the responsibility to
analyze, assess and oversee the management of the structural interest rate,
currency exchange rate, inflation rate and credit spread risk imbalances, as
well as the liquidity needs, generated by the balance sheet.

 

The Administrator will pursue an ALM focusing on value
preservation and mitigation of revenue volatility.  The mission is to manage, to its best ability
and within predefined limits (to the extent such limits are established and
applicable), interest rate, currency exchange rate, inflation rate and credit
spread risk exposure and volatility generated by cash flows (partly estimated
through behavioral models).  The
Administrator must fully support the outcome of the models employed and act
accordingly.

 

The Administrator operates within an ALM driven environment
retaining sensitivity measures as principal risk measurement tools (full
revaluation expressed in sensitivity terms). 
Global and partial risk sensitivities per time bucket are the principal
risk indicators on which the ALCO manages the risk exposure of the GIC
Companies.

 

4

 

Otherwise, as detailed below, the market
risks generated by the GIC Business are principally measured by using the
following indicators:

 

·      Global
sensitivity and partial sensitivity of net present value (“NPV”) by maturity
bucket

·      Convexity

·      Liquidity
ratios

·      Stress
testing for both cash flow and collateral posting requirements upon downgrade

 

The
Administrator will assess, monitor and manage these risks using the tests,
limits and procedures described herein and manage the portfolio of Hedge
Agreements in order to achieve the objective of maintaining a low risk profile,
focusing on preserving value of the GIC Business and maximum risk
mitigation.  The Administrator will cause
FSAM (or following the Transition Date and direction from FSA, the FSAM Hedging
Successor) to terminate existing Hedge Agreements and/or enter into new Hedge
Agreements in order to achieve the objectives described above.

 

3         ALCO

 

An asset and liability management committee (the “ALCO”)
will be established in accordance with the ALCO Charter attached hereto as
Appendix I.  The ALCO will continue in
existence until the GICs and all amounts due and payable to FSA under the
Transaction Documents have been Paid In Full. 
Upon the Transition Date, the ALCO may be transferred from FSAM to the
FSAM Hedging Successor, at the direction of FSA where a Dexia Event of Default
has occurred.

 

4         Authorized Products and Permitted
Investments

 

4.1      Hedging Portfolio

 

The following types of hedging instruments are approved for
use:

 

	
  Product

  	
   

  	
  Market

  	
   

  	
  Underlying

  	
   

  	
  Valuation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eurodollar
  futures

  	
   

  	
  CBOT

  	
   

  	
  3-month
  Libor

  	
   

  	
  Principia

  
	
  U.S.
  Treasury futures

  	
   

  	
  CBOT

  	
   

  	
  2,
  5 & 10 yr U.S. Treasuries

  	
   

  	
  Principia

  
	
  Interest
  rate swaps

  	
   

  	
  OTC

  	
   

  	
   

  	
   

  	
  Principia

  
	
  Swaptions
  / Cancelable swaps (LONG only)

  	
   

  	
  OTC

  	
   

  	
  Interest
  rate swaps

  	
   

  	
  Principia

  
	
  Caps /
  Floors (LONG only)

  	
   

  	
  OTC

  	
   

  	
   

  	
   

  	
  Principia

  
	
  Cross-currency
  swaps

  	
   

  	
  OTC

  	
   

  	
   

  	
   

  	
  Principia

  
	
  Inflation
  swaps

  	
   

  	
  OTC

  	
   

  	
  U.K.
  RPI

  	
   

  	
  Principia

  
	
  Basis
  swaps

  	
   

  	
  OTC

  	
   

  	
  1-month
  / 3-month Libor

  	
   

  	
  Principia

  

 

Prior to a Dexia Event of Default, new products may be
approved by Dexia for use by the GIC Business in accordance with Dexia’s new
products approval procedures, so long as HF Services is the Administrator.  As the GIC Business is in “run-off,” the
development and use of new products for use in connection with the GIC Business
is not expected and must be approved by the ALCO.  Following a Dexia Event of Default or the
appointment of a new Administrator, new products will only be used by the
Administrator with the approval of the ALCO and, if applicable, the Portfolio
Manager.

 

5

 

4.1.1       Hedge
Agreement Register

 

In Annex D to the Pledge and Administration Agreement, all
derivative transactions under Hedge Agreements as of the Closing Date are
categorized as either Asset Swaps or Liability Swaps.  Following the Closing Date, the Administrator
shall, consistent with the current procedures of the GIC Business, categorize
all hedges (i) converting the cash flows of specific assets (whether to
hedge against interest rate, currency and/or inflation risk) or (ii) hedging
the mark-to-market on the asset portfolio as “Asset Swaps”, and all other
hedges on the Hedge Agreement Register as “Liability Swaps”.

 

4.2       Asset
Portfolio

 

The GIC Business may only acquire “Permitted Investments” as
and to the extent specified in Appendix II (including, among other things,
subject to certain concentration limits set forth therein).

 

4.3       GIC
Portfolio

 

The GIC Business will not issue any new GICs.

 

5         Market Risk Management

 

5.1       Interest
Rate Risk

 

The objective of managing
the interest rate risk generated by the GIC Business is to hedge its fixed rate
assets or liabilities (to the extent they are not natural floaters) to
eliminate substantially all interest rate risk. 
The principal risk in this hedging is that the actual cash flows from
these fixed rate assets or liabilities deviate from the projections of such
cash flows in place at the time the hedges are initiated or subsequently
amended.

 

Sensitivity – This risk is monitored – separately for each currency
in which any assets, liabilities or hedges of the GIC Business are denominated
(currently, USD, GBP, EUR and SGD) – by (i) the calculation of a “PV01”
(change in aggregate NPV for all such assets, liabilities and hedges
denominated in a given currency resulting from a parallel upward move of 1 bp
across the entire yield curve for such currency) and “convexity” (change in
duration for all fixed rate assets, liabilities and hedges of the GIC Business
denominated in such currency resulting from a parallel upward or downward move
of 100 bps across the entire yield curve for such currency – a second order
effect), and (ii) the performance of scenario analyses showing changes in
aggregate NPV for all assets, liabilities and hedges of the GIC Business
resulting from assumed steepening or flattening of the yield curve around 2-,
5- and 10-year “pivot” points of the relevant yield curve, as described in more
detail below.  See the definitions for “PV01”
and “convexity” in Appendix III.

 

Parallel Shifts
in Interest Rates:

 

PV01:                     PV01 for all assets,
liabilities and hedges of the GIC Business shall be measured, separately for
each currency, on a net aggregate basis, as well as at each of the following
points on the yield curve:

 

	
  1 week

  	
   

  	
  1 year

  	
   

  	
  10 years

  
	
  1 month

  	
   

  	
  2 years

  	
   

  	
  15 years

  
	
  2 months

  	
   

  	
  3 years

  	
   

  	
  20 years

  
	
  3 months

  	
   

  	
  4 years

  	
   

  	
  25 years

  
	
  6 months

  	
   

  	
  5 years

  	
   

  	
  30 years

  
	
  9 months

  	
   

  	
  7 years

  	
   

  	
  40 years

  

 

6

 

The applicable net aggregate
PV01 limits (expressed in USD) at any time shall be dependent upon (i) the
currency and (ii) in the case of USD, the outstanding GIC balance at such
time, as follows:

 

	
  Currency:

  	
   

  	
  Aggregate Net

  PV01 Limit  

  (in USD)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  USD:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Outstanding
  GIC Balance:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Equal
  to or greater than 10Bn

  	
   

  	
  150,000

  	
   

  
	
  Less
  than 10Bn but equal to or greater than 5Bn

  	
   

  	
  100,000

  	
   

  
	
  Less
  than 5Bn

  	
   

  	
  75,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Non-USD Currencies:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  GBP:

  	
   

  	
  200,000

  	
   

  
	
  EUR:

  	
   

  	
  1,000

  	
   

  
	
  SGD:

  	
   

  	
  1,000

  	
   

  

 

In addition, all non-USD portfolios must be substantially cash-flow
matched (i.e., gaps of no greater than 5 Business Days).(3) 
Following a Dexia Event of Default and for purposes of making the PV01
calculations, it will be assumed that short term Treasury bills will be rolled
into similar short term Treasury bills at their maturity.

 

Remedies:             The Administrator will, at or prior to the next regularly scheduled ALCO
meeting, notify the ALCO of any breach of any aggregate net PV01 limit since
the date of the last regularly scheduled ALCO meeting and develop and implement
a strategy to remedy such breach (to the extent not already remedied), taking
into consideration the directions, recommendations and/or suggestions of the
ALCO and the Strategy and Objectives described in Section 2.

 

Convexity:             Net convexity of all
assets, liabilities and hedges of the GIC Business shall be measured separately
for each currency, on a net aggregate basis, for parallel interest rate
movements of +/- 100 bps across the entire yield curve for such currency.

 

The applicable aggregate net
convexity limits (expressed in USD) at any time (being the amount that the
aggregate net convexity shall not be less than) shall be dependent upon the
currency, as follows:

 

	
  Currency:

  	
   

  	
  Aggregate Net 

  Convexity Limit 

  (in USD)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  USD:

  	
   

  	
  (10,000,000

  	
  )

  
	
  GBP:

  	
   

  	
  (5,000,000

  	
  )

  
	
  EUR:

  	
   

  	
  (1,000,000

  	
  )

  
	
  SGD:

  	
   

  	
  (1,000,000

  	
  )

  

 

(3) Currently all the
GBP assets or liabilities are swapped back to USD and all the GBP cash flows
are substantially matched.  Due to the fact that the assets and
liabilities are discounted at swap rates plus a credit spread, while the
related hedges are discounted at swap rates without any credit spread, the
PV01’s of the assets or liabilities do not cancel exactly those of their
associated swaps, even though they are substantially cash flow matched. 
The relatively higher PV01 limit for GBP reflects this difference in
measurement.

 

7

 

Following a Dexia Event of
Default and for purposes of making the convexity calculations, it will be
assumed that short term Treasury bills will be rolled into similar short term
Treasury bills at their maturity.

 

Remedies:             The Administrator will, at or prior to the next regularly scheduled ALCO
meeting, notify the ALCO of any breach of any aggregate net convexity limit
since the date of the last regularly scheduled ALCO meeting and develop and
implement a strategy to remedy such breach (to the extent not already
remedied), taking into consideration the directions, recommendations and/or
suggestions of the ALCO and the Strategy and Objectives described in Section 2.

 

Global

 

Sensitivity:            The USD PV01 and convexity limits, for each currency
separately and for all currencies on a combined basis, will be converted for
Dexia reporting purposes into a global sensitivity limit for a 100bp change in
interest rates (i.e., the sum of (i) the applicable PV01 limit * 100 plus (ii) the
absolute value of the applicable convexity limit), expressed in EUR based on a
conservative EUR/USD exchange rate (currently set at 1.25) that will only be
reviewed in case of exchange rate fluctuations of more than 0.25.  Thus, for example, the current USD global
sensitivity limit for USD-denominated assets, liabilities and hedges of USD
25MM/100bps (as shown in the table below) currently amounts to EUR 20MM/100bps.

 

Based on the foregoing (and
given that the outstanding GIC balance currently exceeds USD 10 Bn), the
applicable global sensitivity limits for each currency separately, and on a
combined basis for all currencies, are currently as follows (provided
that, from and after the time that FSA shall have elected to become the Secured
Party Representative following the occurrence of a Dexia Event of Default, only
the Global Sensitivity Limit expressed in USD shall be applicable):

 

	
  Currency:

  	
   

  	
  Global
  Sensitivity

  Limit

  (in USD)

  	
   

  	
  Global
  Sensitivity

  Limit

  (in EUR)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  USD:

  	
   

  	
  25,000,000

  	
   

  	
  20,000,000

  	
   

  
	
  GBP:

  	
   

  	
  25,000,000

  	
   

  	
  20,000,000

  	
   

  
	
  EUR:

  	
   

  	
  1,100,000

  	
   

  	
  880,000

  	
   

  
	
  SGD:

  	
   

  	
  1,100,000

  	
   

  	
  880,000

  	
   

  
	
  Combined:

  	
   

  	
  52,200,000

  	
   

  	
  41,760,000

  	
   

  

 

Remedies:             The Administrator will, at or prior to the next regularly scheduled ALCO
meeting, notify the ALCO of any breach of any global sensitivity limit and
develop and implement a strategy to remedy such breach (to the extent not
already remedied), taking into consideration the directions, recommendations
and/or suggestions of the ALCO and the Strategy and Objectives described in Section 2.

 

8

 

Frequency of Measurement:

 

	
  PV01:

  	
  Daily

  
	
   

  	
   

  
	
  Convexity:

  	
  Monthly

  
	
   

  	
   

  
	
  Global Sensitivity:

  	
  Monthly

  

 

Yield Curve
Steepening and Flattening:

 

Scenario analyses will be
performed showing the effects on aggregate net present value of the assets,
liabilities and hedges of the GIC Business due to possible steepening and
flattening of the yield curve around 2-, 5- and 10-year “pivot” points as follows:

 

Yield
Curve Steepening:

 

2-Year Pivot
Point:  1-week rate
will be reduced by 100 bps (or, if less, the amount required to reduce the
1-week rate to 0%) to obtain a new 1-week rate.  All rates between the
1-week and 2-year rates will be linearly interpolated (using the adjusted
1-week rate).  Each rate for a point
equal to or longer than the 10-year rate will be increased by 100 bps. 
All rates between the 2-year and 10-year rates will be linearly interpolated
(using the adjusted 10-year rate).

 

5-Year Pivot
Point:  1-week rate
will be reduced by 100 bps (or, if less, the amount required to reduce the
1-week rate to 0%) to obtain a new 1-week rate.  All rates between the
1-week and 5-year rates will be linearly interpolated (using the adjusted 1-week
rate).  Each rate for a point equal to or
longer than the 10-year rate will be increased by 100 bps.  All rates
between the 5-year and 10-year rates will be linearly interpolated (using the
adjusted 10-year rate).

 

10-Year Pivot
Point:  1-week rate
will be reduced by 100 bps (or, if less, the amount required to reduce the
1-week rate to 0%) to obtain a new 1-week rate.  All rates between the
1-week and 10-year rates will be linearly interpolated (using the adjusted
1-week rate).  Each rate for a point equal
to or longer than the 20-year rate will be increased by 100 bps.  All
rates between the 10-year and 20-year rates will be linearly interpolated
(using the adjusted 20-year rate).

 

Yield
Curve Flattening:

 

2-Year Pivot
Point:  1-week rate
will be increased by 100 bps to obtain a new 1-week rate.  All rates
between the 1-week and 2-year rates will be linearly interpolated (using the
adjusted 1-week rate).  Each rate for a
point equal to or longer than the 10-year rate will be decreased by 100 bps
(or, if less, the amount required to reduce such rate(s) to 0%).  All
rates between the 2-year and 10-year rates will be linearly interpolated (using
the adjusted 10-year rate).

 

5-Year Pivot
Point:  1-week rate
will be increased by 100 bps to obtain a new 1-week rate.  All rates
between the 1-week and 5-year rates will be linearly interpolated (using the
adjusted 1-week rate).  Each rate for a
point equal to or longer than the 10-year rate will be decreased by 100 bps
(or, if less, the amount required to reduce such rate(s) to 0%).  All
rates between the 5-year and 10-year rates will be linearly interpolated (using
the adjusted 10-year rate).

 

10-Year Pivot
Point:  1-week rate
will be increased by 100 bps to obtain a new 1-week rate.  All rates
between the 1-week and 10-year rates will be linearly interpolated (using the
adjusted 1-week rate).  Each rate for a
point equal to or longer than the 20-year rate will be decreased by 100 bps
(or, if less, the amount required to reduce such rate(s) to 0%).  All
rates between the 10-year and 20-year rates will be linearly interpolated
(using the adjusted 20-year rate).

 

Frequeny of Measurement:   Monthly

 

9

 

 

VaR — This risk is monitored by the calculation of an
interest rate value-at-risk, or “VaR”, as follows.

 

	
  Measurement:

  	
   

  	
  99%, 10-day, VaR (as
  defined in Appendix III)

  
	
   

  	
   

  	
   

  
	
  Frequency of
  Measurement:

  	
   

  	
  Quarterly

  

 

	
  Process:

  	
   

  	
  After conducting such analyses, the Administrator
  will, at or prior to the next regularly scheduled ALCO meeting, notify the
  ALCO of any significant impact on the aggregate net present value of the
  assets and any trends that may cause a significant increase in the VaR and
  develop and implement a strategy to lessen such impact and/or minimize the
  effect of any such trends taking into consideration the directions,
  recommendations and/or suggestions of the ALCO and the Strategy and
  Objectives described in Section 2; provided, however, that following a
  Dexia Event of Default, any such strategy will be developed taking into
  consideration the FSA Defeasance Plan described in Appendix VI and the
  Administrator will have no obligation to implement all or any portion of any
  such strategy that is in conflict with the FSA Defeasance Plan.

  

 

5.2       Currency Risk

 

The objective of the GIC
Business is not to take foreign currency exchange, or “FX”, risk.  All foreign currency denominated assets or
liabilities are swapped back to USD via cross-currency swaps at the time of
initiation.

 

	
  Measurement:

  	
   

  	
  Scenario analyses shall be
  performed showing the result of a 10% change in the value of non-USD currency
  versus the USD

  

 

	
  Frequency of
  Measurement:

  	
   

  	
  Monthly

  

 

	
  Process:

  	
   

  	
  After conducting such analyses, the Administrator
  will, at or prior to the next regularly scheduled ALCO meeting, notify the
  ALCO of any material increase in the FX risk of the GIC Business, or any
  significant trends affecting such risk, and develop and implement a strategy
  to minimize or hedge such risk and/or minimize the effect of any such trends
  taking into consideration the directions, recommendations and/or suggestions
  of the ALCO and the Strategy and Objectives described in Section 2 and
  the objective of the GIC Business not to take FX risk as described above.

  

 

5.3       Inflation Risk

 

The objective of the GIC
Business is not to take inflation rate risk. 
All inflation-linked assets or liabilities are swapped back to USD via
inflation-linked swaps at the time of initiation.

 

	
  Measurement:

  	
   

  	
  Scenario analyses shall be performed showing the result of a 100bp
  increase in the applicable inflation rate

  

 

	
  Frequency of
  Measurement:

  	
   

  	
  Monthly

  

 

5.4       Credit Spread Risk

 

The objective of the GIC
Business is to “buy and hold” and therefore not to hedge the credit spread risk
in its assets or liabilities.  The credit
spread risks are nevertheless monitored through sensitivity and VaR
measurement, mark-to-market and the calculation of an implied credit
spread/yield.  Accordingly, the risk
management focus on these “buy and hold” positions will be on the follow-up of
the credit profile for consideration of the possible sale of
credit-deteriorated assets.  Following a
Dexia Event of Default, the 

 

10

 

Administrator will implement
the FSA Defeasance Plan in accordance with Appendix VI and have no obligation
to continue to monitor credit spread risks as described in this section.

 

Sensitivity — This risk is monitored by the calculation of “Spread
01” (change in the net present of the assets and liabilities of the GIC
Business resulting from widening of credit spreads by 1 bp), with separate
calculations for the asset and liability sides of the balance sheet.

 

	
  Measurement:

  	
   

  	
  Spread 01

  
	
   

  	
   

  	
   

  
	
  Frequency of
  Measurement:

  	
   

  	
  Monthly

  

 

VaR — This risk is monitored by the calculation of a credit
spread VaR, as follows:

 

	
  Measurement:

  	
   

  	
  99%, 10-day, VaR (as defined in
  Appendix III)

  
	
   

  	
   

  	
   

  
	
  Frequency of
  Measurement:

  	
   

  	
  Quarterly

  

 

Note:      No credit spread VaR will be calculated for assets that have
been reclassified in Loans and Receivables, as from time to time notified by
Dexia to the ALCO, and thus will be accounted for on an accrual (rather than a
mark-to-market) basis on FSAM’s (and its parents’) financial statements.

 

Mark-to-Market — This risk is monitored by the periodic valuation of
the assets, as follows:

 

	
  Measurement:

  	
   

  	
  The assets of the GIC
  Business will periodically be valued in accordance with the terms and
  conditions of the Dexia CSAs (as defined in the Pledge and Administration
  Agreement).  The Administrator will, at
  or prior to each ALCO meeting, report the results of the most recent such
  valuation(s) since the date of its last such report.

  

 

	
  Frequency of
  Measurement:

  	
   

  	
  Bi-Weekly

  

 

	
  Process:

  	
   

  	
  The Administrator will, at or prior to the next regularly
  scheduled ALCO meeting, notify the ALCO of any significant increase in the
  credit spread VaR and any trends that may cause a significant increase in the
  credit spread VaR and develop and implement a strategy to hedge and/or
  minimize the effect of any such increase and/or trends, taking into
  consideration the directions, recommendations and/or suggestions of the ALCO
  and the Strategy and Objectives described in Section 2.

  

 

5.5       Construction/Acquisition Fund Flex Risk

 

Construction and acquisition
fund GICs generally represent the investment of municipal bond proceeds pending
their use by the issuer to pay the construction or acquisition costs of one or
more specified projects.  Most of these
GICs are fixed rate and therefore hedged (mostly using, given their short-term
nature, Eurodollar futures).  The
effectiveness of any such hedge is dependent on the accuracy of the draw
projections.  To the extent that actual
draws deviate from those initially expected, such deviations require
adjustments to the associated hedges, which may entail an economic cost.  The option to draw under these GICs is not,
however, an “economic” option (i.e.,
it is not correlated to interest rates) — such draws can only be made for
construction purposes.

 

Initially, Liability Swaps
were put on for each construction/acquisition fund GIC based on a projection of
construction draws at the time of the GIC’s issuance.  Such projections will be periodically
reviewed and adjusted by the Administrator, along with the related hedges, as appropriate.  These hedge adjustments will affect the
profit and loss, or “P/L”, associated with the GIC as follows:

 

	
  ·

  	
   

  	
  If GIC draws slower than
  expected and interest rates rise

  	
  =

  	
   

  	
  positive

  

 

11

 

	
  ·

  	
   

  	
  If GIC draws slower
  than expected and interest rates fall

  	
  =

  	
   

  	
  negative

  
	
  ·

  	
   

  	
  If GIC draws faster
  than expected and interest rates rise

  	
  =

  	
   

  	
  negative

  
	
  ·

  	
   

  	
  If GIC draws faster than expected and interest rates fall

  	
  =

  	
   

  	
  positive

  

 

The strategy to manage this
risk is:

 

1)             Diversification — This reduces risk in the uncertainty of draws and the
associated hedge adjustment costs since draws under each
construction/acquisition fund GIC relate to different projects and are
therefore uncorrelated.

 

2)             Hedge tail risk — In aggregate, the construction/acquisition fund GIC
portfolio has generally drawn slower than expected.  This poses a major risk in lower interest
rate environments.  Receiver swaptions or
interest rate floors can be used to reduce this tail risk.

 

Process:

 

The projected
construction/acquisition fund GIC draw schedules will be reviewed regularly and
re-projected as needed.  These
re-projections will be based on comparisons between each GIC’s projected versus
actual draw experience and, in some cases, reports on the progress of the
project obtained from transaction participants or other available sources.  Decisions on re-projections will be made at
the ALCO meeting, and macro hedge decisions will be discussed based upon the
overall construction/acquisition fund GIC portfolio re-projection.

 

Frequency:

 

Monthly

 

5.6       Debt Service Reserve Fund Risk

 

Most debt service reserve
fund (“DSRF”) GICs, which are used to cover debt service shortfalls on the
underlying municipal bonds, are fixed rate and therefore hedged (mostly using,
given their long-term nature, interest rate swaps).  Most such debt service shortfall draws will
occur after public signs of deterioration in the underlying issuer’s
creditworthiness.  In addition, in some
cases, DSRF GICs can be terminated upon a refunding of the underlying bond
issue.

 

Generally, any draw under a
DSRF GIC will necessitate the unwinding of the associated hedge.  Therefore, the P/L impact of such a draw will
be dependent upon both the size of the draw and the direction of any change in
interest rates since the GIC was initiated, with draws in higher interest rate
environments generating negative P/L impacts and draws in lower interest rate
environments resulting in positive P/L impacts. 
Generally, DSRF GIC terminations relating to the refunding of the
underlying bonds will occur in lower interest rate environments, generating
positive P/L.  Any macro hedging for the
risk of debt service shortfall draws (which can occur in either a higher or
lower interest rate environment) will be subject to ALCO review and approval.

 

Process:

 

The credit ratings assigned
to the underlying bond issue are monitored regularly to provide early warning
of any credit deterioration and possible debt service shortfall draws.  If the underlying issue rating is at or below
the lower of BBB+/Baa1 or the equivalent internal Dexia rating, the DSRF GIC
will be reviewed for the possibility of draws and the relevant hedge/liquidity
profile will be discussed at the ALCO meeting, where a decision will be made on
the appropriate hedge activity, if any.

 

Frequency:

 

Quarterly
or as needed

 

12

 

6      Liquidity Risk Management

 

The principles in liquidity
risk management are based on applying stress scenarios by analyzing the cash
flows of various components in the asset and liability portfolios.  These scenarios measure the ability to meet
draw requirements under the GICs over various time horizons.  These include short-term periods (1 day to 1
week) and medium-term periods (1 month to 1 year).  Each period is monitored based on a liquidity
ratio calculated using the calculation methods described below.

 

Daily reporting of one-month
liquidity projections will be provided to the ALCO and to Dexia (with copies to
FSA).

 

For horizons extending more
than 1 year, stress scenarios will be run regularly and will be monitored.

 

Liquidity lines are not to
be used to create balance sheet leverage.

 

6.1       GAP Ratio; Minimum Cash Level

 

GAP Ratio — The “GAP ratio” measures the ability to cover cash flow
shortfalls resulting from the mismatch between asset and liability cash
flows.  Thus, for purposes of calculating
the GAP ratios, “GAP” is defined as follows:

 

 

Note that, by definition, a negative GAP means sufficient cash
and a positive GAP means a cash shortfall.

 

The “GAP ratio” is then calculated as follows:

 

 

where “Liquidity Reserves” includes only committed liquidity
lines and unencumbered Permitted Investments (if any).

 

Minimum Cash Position — With
respect to any date of determination, the minimum cash position (being the “Required
Reserve” as defined in the Pledge and Administration Agreement) will equal the
lesser of: (i) the sum of (x) 2% of the aggregate principal balance
of all remaining GICs on such date and (y) if (and only if) there is less
than USD 500MM of remaining available amount under the Guaranteed Liquidity
Facilities on such date, the aggregate amount of all Senior Priority Payments
individually in excess of USD 1MM expected to become due in the next seven
calendar days; and (ii) USD 200MM, provided that in no event will
such minimum amount be less than USD 35MM.

 

Limits:

 

GAP Ratio:           Not less than 105% for each of the
following periods:

 

·      1 day

·      2 days

 

13

 

·      1 week

·      2 weeks (to
be added post-closing)

·      1 month

·      3 months

·      6 months

·      1 year

 

Remedies:

 

If the
GAP ratio falls below 105% for any of the measurement periods, the
Administrator will notify the ALCO and, if such condition is expected to
persist for not less than three (3) Business Days, appropriate action will
be taken to increase available liquidity, such as through effecting an increase
in the Guaranteed Liquidity Facilities and/or the sale of assets as and to the
extent otherwise permitted.

 

Frequency:

 

The above GAP ratios for, and cash
held by, the GIC Business will be determined by the Administrator and reported
daily to the ALCO, Dexia and FSA.

 

6.2       Scenario Analysis

 

Scenario analysis of cash flows
plays an important part in the management of the liquidity risk of the GIC
Business.  Cash flows under various
assumptions for assets and liabilities will be reviewed and generated regularly.  The following describes various scenarios and
review frequency.

 

Assets:

 

All assets that are prepayable or
extendable will be reviewed regularly by the Administrator.  Both expected and stress scenarios will be
generated by applying different prepayment, default rate and recovery assumptions.  Such assumptions are set forth in Appendix
IV.

 

Frequency:

 

RMBS:                                   Monthly

Other assets:                         Quarterly

 

Liabilities:

 

All liabilities that can deviate
from their projections will be reviewed regularly by the Administrator.  Both expected and stress scenarios will be
generated applying different draw assumptions. 
Such assumptions are set forth in Appendix IV.

 

Frequency:

 

Construction/acquisition
fund GICs:                Monthly

CDO GICs:                                                             Monthly

Other GICs:                                                            As needed

 

Process:

 

See
Appendix V for a description of the processes and procedures applied for the
re-projection of asset and liability cash flows.

 

14

 

6.3       Collateral Posting Requirements upon Downgrade

 

In the event that FSA (or,
if the GIC Issuers obtain their own credit ratings, both
FSA and the relevant GIC Issuer) is (or are)
downgraded by any of the rating agencies, a number of GICs will be affected —
particularly in the case of a downgrade by Moody’s to below Aa3 or by S&P
to below AA-.  Generally, depending on the
specific GIC, the GIC Business would have the option either to post collateral
(or, in the case of already secured GICs, post additional collateral) or assign
the GIC to another provider/guarantor having the minimum specified ratings,
failing either of which the GIC would either automatically terminate or become
subject to termination at the option of the holder.  Again, depending upon the terms of the
particular GIC, any such termination could either be at par, at “market” (as
defined in the particular GIC) or at the greater of par or such “market”.  In any case, the ability to post any such
collateral depends on the ratings and the market values of the assets in the
GIC Business investment portfolio at the time, including the Dexia CSA
Collateral.

 

Process:

 

The GICs’ requirements upon
downgrade have been captured and the ability to meet such requirements will be
monitored through a report which summarizes the amount of GICs affected at
different levels of downgrade and the types of collateral then eligible to be
posted, as well as the available sources of any additional collateral that
might then be required.  The reports will
be discussed at ALCO meetings.

 

Frequency:

 

Monthly

 

7      Swap Counterparty Credit Risk Management

 

7.1       Existing Swap Counterparty Exposure

 

To hedge interest rate, currency and
inflation risks, FSAM (or following the Transition Date and direction from FSA,
the FSAM Hedging Successor) enters into various over-the-counter, or “OTC”,
derivatives transactions with various counterparties.  If the derivatives exposure to a counterparty
is “in the money”, FSAM or the FSAM Hedging Successor, as applicable, is
exposed to the creditworthiness of the counterparty, who may be required to
post collateral to FSAM or the FSAM Hedging Successor, as applicable.  Conversely, if the derivatives exposure to a
counterparty is “out of money”, the counterparty is exposed to the
creditworthiness of FSAM or the FSAM Hedging Successor, as applicable, and FSAM
or the FSAM Hedging Successor, as applicable, if such Hedge Agreement is a
Senior Third Party Hedge Agreement, may be required to post collateral to the
counterparty.

 

Process:

 

The derivatives exposure to each existing counterparty,
the credit rating of each counterparty and the threshold to collateralize under
the ISDA Credit Support Annex with each counterparty will be captured. The
collateral required to be posted will be posted by FSAM or the FSAM Hedging
Successor, as applicable, under any Senior Third Party Hedge Agreement or
requested from the counterparty under any Hedge Agreement, as the case may be.

 

Frequency:

 

Daily

 

15

 

7.2       Potential
Swap Counterparty Exposure

 

Under
various interest rate/currency/inflation scenarios, FSAM or the FSAM Hedging Successor, as applicable, might have to post collateral (or additional collateral) to
various derivatives counterparties or FSAM or the FSAM Hedging Successor may be
exposed to additional credit exposure to a counterparty.  Scenario analyses will be performed, by
stressing interest rates, currency exchange rates, and inflation rates.  Results of the analyses, as well as possible
risk mitigation measures, will be discussed at ALCO meetings.

 

Frequency:

 

Monthly

 

7.3       New Swap Counterparty Exposure

 

Any new derivatives counterparty
will be approved by the ALCO and, prior to a Dexia Event of Default, be subject
to the process and approval guidelines set by Dexia (including the
establishment of appropriate credit exposure limits).

 

8      Terminations and Other Actions Relating to GICs

 

8.1       Terminations Following Downgrade Events

 

GICs with downgrade triggers have
specific provisions that apply upon the occurrence of a credit rating downgrade
event thereunder.  Depending on the level
of the downgrade event, the GIC Business will either have an opportunity to
cure (such as by posting collateral) or the GIC may terminate or be subject to
termination at the option of the holder if such downgrade is not timely
cured.  The time periods for posting
collateral and terminations following a downgrade event vary by GIC, but in
general the time periods are not lengthy and can be as short as 2 Business
Days.

 

Given such factors, all decisions regarding whether or not to
post collateral or to terminate GICs for which a downgrade event has occurred,
and any market breakage calculations that may be required as a result of any
such termination, shall require the approval of one of the two most senior
officers of the Administrator, and shall not require further approval from the
board of directors of any of the GIC Companies, from the ALCO, or from Dexia,
FSA, Assured or any of their respective Affiliates.  The factors that will be taken into
consideration in making those decisions shall include the following:

 

·      The then
available liquidity resources of the GIC Business;

·      The economic
impact of any GIC termination, including termination of any related hedges
(and/or entering into offsetting transactions with respect to such hedges); and

·      The
availability of eligible collateral for posting, whether from the GIC Business’s
existing investment portfolio, through securities exchange facilities available
to the GIC Business, or via market purchases with funds available in accordance
with the Priority of Payments on or before the due date for the payment
thereof.

 

It has been determined that, as a
general matter, termination of secured municipal GICs, virtually all of which
are collateralized by Treasuries or Agencies, would be most beneficial (insofar
as the collateral thereby released would be eligible for posting under almost
all other GICs), and termination of so-called “sticky” GICs (where asset backed
securities, or “ABS”, rated AAA at the time of posting remains eligible as
collateral even if such securities are subsequently downgraded) would be least
beneficial, as that collateral (if in fact downgraded) would not be eligible
collateral under any other GICs.

 

16

 

8.2       Negotiated Terminations Not Due to Downgrade Event

 

The negotiated termination of any GIC for which no credit
rating downgrade condition has occurred, including termination of any related
hedges (and/or entering into offsetting transactions with respect to such
hedges), shall be subject to the following:

 

·      All such
negotiated terminations will require the approval of one of the two most senior
officers of the Administrator, who will take into account the factors listed in
Section 8.1 above;

·      In addition,
any negotiated termination which would result in a Net Loss (as described
below) will also require the prior approval of the ALCO.  For this purpose, a “Net Loss” would occur if
the amount payable to the holder of the GIC upon termination (excluding any
accrued but unpaid interest), as agreed by the parties, plus the NPV of any
related hedges, if “out-of-the-money” to FSAM (or minus the NPV of any related
hedges, if “in-the-money” to FSAM), would exceed the outstanding principal
amount of the GIC; and

·      In addition,
at any time the remaining commitment under the Guaranteed Liquidity Facilities
is USD 1 Bn or less, any negotiated termination of a GIC having an outstanding
principal balance in excess of USD 25MM shall require the prior approval of the
ALCO.

 

As noted in Section 8.1, it
has been determined that, as a general matter, termination of secured municipal
GICs, virtually all of which are collateralized by Treasuries or Agencies,
would be most beneficial (insofar as the collateral thereby released would be
eligible for posting under almost all other GICs), and termination of so-called
“sticky” GICs (where ABS rated AAA at the time of posting remains eligible as
collateral even if such securities are subsequently downgraded) would be least
beneficial, as that collateral (if in fact downgraded) would not be eligible
collateral under any other GICs.

 

8.3       Collateral Maintenance Requirements

 

Collateralized
GICs (whether in the form of collateralized investment agreements or master
repurchase agreements) typically include a covenant to maintain the required
level of collateral, determined as set forth in the collateralized GIC.  The market value of collateral pledged to a
collateralized GIC, however, is subject to change and may decline below the
required level of collateral.  If the
required level of collateral is not maintained (typically after notice and an
opportunity to cure), the GIC holder will usually have the right to terminate
the GIC.  The GIC Business intends, as a
business practice, to take actions necessary to maintain the required level of
collateral; however, the relevant GIC Issuer has the right and power under
these ALM Procedures not to take such collateral maintenance actions, subject
to the following:

 

·      All such decisions will require the approval of one of the two most senior officers of the Administrator, who will take into account the factors listed in Section 8.1
above;

·      In addition,
any failure to maintain collateral that could give rise to a GIC termination
which would result in a Net Loss (determined as described in Section 8.2
above) will also require the prior approval of the ALCO; and

·      In addition,
at any time the remaining commitment under the Guaranteed Liquidity Facilities
is USD 1 Bn or less, any failure to maintain collateral that could give rise to
the termination of a GIC having an outstanding principal balance in excess of
USD 25MM shall require the prior approval of the ALCO.

 

For the
avoidance of doubt, any failure by a GIC Issuer to maintain the required level
of collateral under a collateralized GIC due to a decline in market value that
results in a GIC termination because the GIC Issuer was unable to pledge on a
timely basis eligible collateral under such GIC sufficient to satisfy the
collateral requirement, despite its commercially reasonable efforts to do so
following notice of such deficiency, shall not constitute non-compliance with
these ALM Procedures.

 

17

 

9      Post Dexia Event of Default

 

From and after the time that FSA
shall have elected to become the Secured Party Representative following the
occurrence of a Dexia Event of Default, the provisions set forth in Appendix VI
shall become applicable, it being understood, however, that all other
provisions of these ALM Procedures, except to the extent inconsistent with the
provisions set forth in Appendix VI or except as specifically set forth herein,
shall also remain in full force and effect.

 

10   Reports

 

The Administrator will produce the
reports described below and distribute such reports to the addressees and in
the frequency provided in the following table:

 

	
  Description

  	
   

  	
  Frequency

  	
   

  	
  Distribution

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and liquidity line draw requirements on a daily
  basis for next two months

  	
   

  	
  Daily/Monthly

  	
   

  	
  Daily:
  Operations, Management

  Monthly: ALCO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liquidity report showing liquidity GAP ratios and
  reserves

  	
   

  	
  Daily/Monthly

  	
   

  	
  Daily:
  Operations, Management, Dexia, FSA

  Monthly: ALCO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Derivative exposures and sensitivities to
  counterparties; includes swaps, swaptions and caps/floors

  	
   

  	
  Daily/Monthly

  	
   

  	
  Daily:
  Operations, Management

  Monthly: ALCO
  (including stress scenario)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hedge report

  	
   

  	
  Daily/Monthly

  	
   

  	
  Daily:
  Operations, Management

  Monthly: ALCO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly risk report, compiled from various reports,
  summarizing, among other things, the activities, asset and liability
  portfolios, market risk, liquidity position, downgrade analysis and swap
  counterparty exposures (for both the GIC and non-GIC Businesses within the
  Dexia FP Group)

  	
   

  	
  Monthly

  	
   

  	
  ALCO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ALM Guideline compliance report

  	
   

  	
  Monthly

  	
   

  	
  ALCO

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liquidity projections under different scenarios

  	
   

  	
  Monthly

  	
   

  	
  ALCO, Dexia

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Collateral needs upon downgrade

  	
   

  	
  Monthly

  	
   

  	
  ALCO, Dexia

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hedge effectiveness test results

  	
   

  	
  Monthly

  	
   

  	
  Accounting

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Summary of construction/acquisition fund GIC flex

  	
   

  	
  Monthly

  	
   

  	
  Internally

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dexia-required reporting (Interest rate sensitivity
  and VaR; credit spread sensitivity and VaR; valuation report: book value,
  market value, official (OCI) 

  	
   

  	
  Quarterly

  	
   

  	
  Dexia Market Risk Management, ALCO

  

 

18

 

	
  reserves, local GAAP, annexes IFRS; scenario analysis;
  convexity; interest rate GaPs), commencing on the date mutually agreed by
  Dexia and the Administrator

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Comparison of the amounts allocated towards Administrative
  Expenses versus the established budget

  	
   

  	
  Quarterly

  	
   

  	
  ALCO

  

 

19

 

Appendix I

 

ALCO CHARTER

 

This Asset
and Liability Committee (ALCO) Charter (this “Charter”) governs the operation
of the Asset and Liability Management Committee (the “ALCO”).  The ALCO shall review the adequacy of this
Charter at least annually and recommend any proposed changes to Dexia and FSA.

 

Membership of ALCO

 

The ALCO
shall be composed of five (5) members, as follows:

 

Prior to a
Dexia Event of Default:

 

·                  One member
shall be either the chief executive officer or chief financial officer of the
Administrator

·                  One member
shall be the director of market risk management for the Administrator

·                  Two members
shall be designated by Dexia

·                  One member
shall be designated by FSA

 

Upon and
after a Dexia Event of Default:

 

·                  One member
shall be either the chief executive officer or chief financial officer of the
Administrator

·                  One member
shall be the director of market risk management for the Administrator

·                  One member
shall be designated by Dexia

·                  Two members
shall be designated by FSA

 

The chief
executive officer or chief financial officer of the Administrator, and the
director of market risk management of the Administrator, shall be referred to
as the “Administrator Members”.  The
member(s) appointed by Dexia shall be referred to as the “Dexia Member(s)”.  The member(s) appointed by FSA shall be
referred to as the “FSA Member(s)”.  The
Administrator Members shall be officers and/or employees of the Administrator
and shall receive no additional remuneration for their services on the
ALCO.  The Dexia Member(s) and the
FSA Member(s) shall be remunerated for their services on the ALCO, if at
all, solely by Dexia or FSA, or an Affiliate thereof, as applicable.

 

Members of
the ALCO shall be appointed and replaced in accordance with the above.  Upon and after FSA becoming Secured Party
Representative following a Dexia Event of Default, one Dexia Member shall
immediately resign as a member of the ALCO, and a designee of FSA, as the
second FSA Member shall be seated as a member of the ALCO with immediate effect
and shall have full voting and other rights of members of the ALCO.  The chairman of the ALCO (the “Chairman”)
shall be appointed by a majority of the ALCO members.  The Chairman of the ALCO shall be reappointed
upon the seating of the second FSA Member as a member of the ALCO following FSA
becoming Secured Party Representative following a Dexia Event of Default.  Members of the ALCO shall serve until their
removal by the entity entitled to designate them as a member, as described
above, and their successors are duly appointed.

 

All ALCO
members shall be sufficiently familiar with ALM concepts and issues, including
the ALM Procedures, as to make the judgments required of the ALCO. Topics of
frequent discussion in the ALCO include:

 

·                  GIC Business
risk profile;

·                  Interest
rate, credit, FX, inflation and liquidity risk;

·                  Risk
management;

 

 

·                  Economic
cycle;

·                  Hedging of
risk;

·                  Interest
rate yield curve; and

·                  Macro-economic
market conditions.

 

Meetings and Voting

 

The ALCO
shall meet bi-weekly, unless the ALCO unanimously decides to meet less
frequently (but in no event less frequently than monthly), and shall otherwise
meet at the call of the Chairman upon the reasonable request of any
member.  The ALCO may request any officer
or employee of the Administrator to attend a meeting of the ALCO or to meet
with any members of, or any consultant to, the ALCO.  In addition and prior to a Dexia Event of
Default, no less frequently than quarterly, the Chairman shall invite the Dexia
chief financial officer and chief risk officer to attend an ALCO meeting (it
being understood, however, that such persons shall not be considered members of
the ALCO).  Notice of meetings
designating the time and place proposed for such meeting, together with
distribution of materials, shall be provided by the Chairman to each other
member of the ALCO no later than the second Business Day prior to such meeting.

 

Each member
of the ALCO shall have one vote.  A
Quorum of members must be present at each meeting in order to make decisions of
the ALCO.  A “Quorum” shall at all times
consist of 3 members of the ALCO, including (i) prior to FSA becoming
Secured Party Representative following a Dexia Event of Default, (w) at
least one of the Administrator Members, (x) at least one of the Dexia
Members, (y) at least one member who is a representative of the Dexia risk
management function (who may be either the director of market risk management
for the Administrator or one of the Dexia Members) and (z) at least one
member who is a representative of (1) DCL and/or DCL, New York Branch, or (2) the
Dexia balance sheet management function (it being understood that any single
member may satisfy more than one of the foregoing requirements), and (ii) upon
and following FSA becoming Secured Party Representative following a Dexia Event
of Default, (x) the director of market risk management for the
Administrator and (y) the two FSA Members. 
Any member may elect to participate in any meeting by teleconference
and/or to designate a proxy to attend any meeting in his/her place, and in
either case, such member shall be deemed to be present for all purposes
hereunder.  Assuming a Quorum is present
at a meeting, a vote of the majority of the members present at such meeting is
sufficient for authorizing an action of the ALCO.  In the event that a Quorum is not present at
any properly noticed meeting, the members present may elect to proceed with the
meeting for informational purposes (though not take any binding actions) or
adjourn the meeting.

 

The ALCO
will cause to be kept adequate minutes of all its proceedings which will be
provided to the ALCO at its next regularly scheduled meeting. The ALCO members
will be furnished with copies of the minutes of each meeting and any action
taken by unanimous consent.  The ALCO
shall otherwise be governed by the same rules regarding meetings
(including meetings by conference video or telephone or similar communications
equipment), action without meetings, notice and waiver of notice, as would be
applicable to the board of directors of FSA Capital Management.  The ALCO is authorized to adopt its own rules of
procedure not inconsistent with (a) any provision of this Charter, (b) any
provision of the organizational documents of any of the GIC Issuers, (c) the
ALM Procedures or (d) the Pledge and Administration Agreement.

 

Purposes of the ALCO

 

“Asset and
Liability Management” is the process of actively managing the risk inherent in
the GIC Business’s balance sheet, primarily the GIC Business’s derivatives
portfolio, in a manner consistent with the GIC Business’s goals for maintaining
a low risk profile and preserving value. 
The ALCO shall ensure that the GIC Business focuses on maximum risk
mitigation and minimum earnings volatility.

 

 

Responsibilities and Processes

 

The primary
responsibility of the ALCO shall be to manage the financial risks (interest
rate, credit, FX, inflation and liquidity risk) associated with the GIC
Business’s assets, liabilities and derivatives portfolios, and the obligations
of FSAM or the FSAM Successor, as applicable, under the Senior Priority
Payments.  The ALCO’s process for
managing financial risk shall be based upon the following:

 

·                  Minimizing
the GIC Business’s exposure to risk

·                  Establishing
appropriate risk parameters

·                  Monitoring
risks on an ongoing basis

 

The ALCO
recognizes that risk management is a dynamic process based in part on the
judgments and perceptions of its members, which may vary significantly. The ALCO
shall therefore consider appropriate industry standards, best practices, peer
comparisons, and the views of reputable outside resources in its risk
management process.  The ALCO, in
carrying out its responsibilities, believes its policies and procedures should
remain flexible in order to best react to changing conditions and
circumstances.

 

 

Appendix II

 

PERMITTED INVESTMENTS

 

The following limits shall apply to all investments purchased
after the effective date of these ALM Procedures (it being understood, for the
avoidance of doubt, that such limits shall not be applicable to any investments
owned as of the effective date of these ALM Procedures):

 

1.              Cash
Equivalent Investments:

 

a.               Bank Deposits (“BD”) — BD
counterparties will constitute the currently approved counterparty list (see
attached Exhibit A).  The Bank of New York is the overnight sweep
account with an investment limit (in addition to its limit as an approved BD
counterparty) of USD 150MM.

 

b.              Reverse Repurchase Agreements
(“Reverse Repos”) — Contingent upon further approval of the ALCO for specific
counterparties.  The term limit is 1 week
with a maximum counterparty exposure of USD 250MM and with inclusion of
customary haircuts and collateral posing obligations acceptable to the
ALCO.  U.S. Treasuries and U.S. Agencies
are acceptable collateral with a maximum maturity of 10 years.

 

2.              U.S.
Treasury bills, notes and bonds:  Unlimited
investment amount and unlimited term

 

3.              U.S.
Securities backed by the full faith and credit of the U.S. Government:

 

a.               GNMAs
(inclusive of pass-throughs and CMOs):  Investment amount limit of USD
2,000MM or, if less, 25% of “total assets” (i.e., including assets owned as of
the effective date of these ALM Procedures) by invested dollars and WAL limit
of 12 years

 

b.              Small Business Administration
(“SBA”):  Investment amount limit of USD 250MM or, if less, 10% of total assets by
invested dollars and WAL limit of 12 years

 

c.               Agency for International
Development (“AID”):  Investment amount limit of USD 250MM or, if
less, 10% of total assets by invested dollars and WAL limit of 15 years

 

d.              Other:  For each other class of U.S. securities
backed by the full faith and credit of the U.S. Government, investment amount
limit of USD 250MM or, if less, 10% of total assets by invested dollars and WAL
limit of 5 years

 

4.              Bonds
guaranteed under the FDIC’s Temporary Liquidity Guarantee Program (maturity
limit not later than the termination of the program):  Investment amount limit
(measured in the aggregate for all such bonds under the program) of USD 1,000MM
or, if less, 20% of total assets by invested dollars and maturity limit as
established by the program (as of the effective date of these ALM Procedures,
approximately 3.5 years)

 

5.              RMBS issued
or guaranteed by FNMA or FHLMC (inclusive of pass-throughs and CMOs):  Investment amount limit (per
entity) of USD 2,000MM or, if less, 25% of total assets by invested dollars and
WAL limit of 12 years; provided that, prior to the occurrence of a Dexia
Event of Default, no such securities may be purchased without the prior
approval of Dexia in each instance

 

6.              Securities
issued on a full recourse basis by the States of France, Belgium, Germany, the
United Kingdom or the Netherlands:  Investment
amount limit (per sovereign) of USD 1,000MM or, if less, 25% of total assets by
invested dollars and maturity limit of 30 years

 

7.              Securities
guaranteed (but not issued) on a full recourse basis by the States of France,
Belgium, Germany, the United Kingdom or the Netherlands:  Investment amount limit (per
sovereign) of USD 250MM or, if less, 10% of total assets by invested dollars
and maturity limit of 10 years

 

 

·                  Notwithstanding the foregoing, (x) the aggregate
principal balance of the securities issued or guaranteed by the States of
France or Belgium may not exceed USD 1,250 MM in the aggregate, and (y) securities
issued or guaranteed by any State listed in clause 6 and 7 that does not have a
long term rating of at least “AA” or its equivalent by each Rating Agency are
not Permitted Investments.

 

·                  Notwithstanding any other provision contained in this Appendix
II, no asset shall be acquired (even if it would otherwise constitute a
Permitted Investment) if to do so (taking into account any associated Hedge
Agreement that would be acquired in connection therewith) would cause any of
the limits set forth in these ALM Procedures, including, but without
limitation, any PV01 limits, to be violated.

 

·                  The above investments will either be natural floating rate securities or
fixed rate with time certain amortization schedules that can be hedged back to
floating rate.  Fixed rate bonds with make whole provisions are acceptable
investments.  In addition, securities may be denominated in USD, Euros or
Sterling and, if denominated in Euros or Sterling, shall be swapped back to USD
(or used to offset liabilities denominated in the same non-USD currency).  Any investment limits for non-USD
transactions will be based on the FX rate as of the trade date.

 

·                  Investment limits for bonds with a principal balance and accrue interest
are based on economic balance (i.e., par * purchase price); investment limits
for zero coupon bonds are based on face (i.e., amount due at maturity)

 

·                  All investments must be Fed and/or ECB eligible as a strict condition

 

·                  All junior and mezzanine debentures and structures are strictly prohibited.

 

·                  The WAL of any Permitted Investment proposed to be acquired needs to be
reasonably aligned with the expected WAL of the liabilities.

 

·                  The above investment criteria apply at the time of purchase.  Any violations will be remedied through a
resale of such security (and the assignment of a collateral value of zero for
purposes of collateral postings for purposes of the Dexia CSAs for so long as
such security continues to be held).

 

The following terms used above in this Appendix II shall have
the following meanings:

 

	
  “CMO”:

  	
   

  	
  Collateralized mortgage obligation.

  
	
  “ECB”:

  	
   

  	
  European Central Bank.

  
	
  “FDIC”:

  	
   

  	
  Federal Deposit Insurance Corporation.

  
	
  “Fed”:

  	
   

  	
  Federal Reserve System.

  
	
  “FHLMC”:

  	
   

  	
  Federal Home Loan Mortgage Corporation.

  
	
  “FNMA”:

  	
   

  	
  Federal National Mortgage Association.

  
	
  “GNMA”:

  	
   

  	
  Governmental National Mortgage Association.

  
	
  “RMBS”:

  	
   

  	
  Residential mortgage backed securities.

  
	
  “WAL”:

  	
   

  	
  Weighted average
  life.

  

 

 

Exhibit A to

Appendix II

 

Approved Bank Deposit Counterparties

 

Each of
the following institutions is currently approved as a Bank Deposit counterparty
with an investment limit of USD 100MM and a maturity limit of 1 week; provided
that such institution has, at the time of the making of such deposit, minimum
short-term and long-term ratings of (i) P-1 and Aa3 from Moody’s; (ii) A-1+
and AA- from S&P; and (iii) if rated by Fitch, F1 and AA- from Fitch:

 

Abbey
National Treasury Services PLC

Banco Bilbao Vizcaya Argentaria, S.A.

Bank of New York

Bank of
Nova Scotia

BNP
Paribas

Branch Banking & Trust

Credit Agricole

HSBC Bank plc

JPMorgan
Chase Bank

Nordea
Bank Finland Plc

Rabobank
Nederland

Svenska
Handelsbanken AB

U.S. Bank N.A.

Wells Fargo Bank NA

 

 

Appendix III

 

CERTAIN DEFINITIONS

 

“PV01”:

 

Measures change in the net present
value of a financial instrument if rates move up by one basis point across the
entire yield curve.  In the case of PV01
for a specific time bucket, it measures the change in net present value of a
financial instrument if the rate moves up by 1 basis point only for that time
maturity bucket while the rest of the rates at other time buckets remain the
same.

 

Interest rate curves are generated
from market observable Libor/swap rates and are generated automatically in
Principia.

 

“Convexity”:

 

NPV
change (+/-100 bps) — net aggregate PV01 * 100 bps

 

“99%, 10-day, VaR”:

 

Value-at-Risk
(VaR) is defined as the maximum potential loss in the value of a portfolio of
financial instruments with a given probability over a certain horizon (the
holding period).  The 99%, 10-day VaR is
a measure of the potential loss that can be experienced with a 99% confidence
level and for a holding period of 10 business days.

 

Interest Rate VaR

 

Interest
rate risk is measured through a parametric VaR approach.

 

A
parametric model assumes a parametric probability distribution of the risk
factor returns, e.g. often a normal distribution is assumed.  The idea behind parametric methods is to
approximate the return function in order to obtain an analytical formula for
VaR, based on standard mathematical properties.

 

The
VaR calculation has the following form: 

 

where  represents the variance-covariance matrix of
the risk factors and  is the vector of exposures of this portfolio
on these risk factors (that is, the sensitivity for interest rates risk on the
different interest rate curves buckets). 
The c term is equal to the corresponding %-percentile of the one-dimension
standard normal distribution multiplied by .
This term
stands for the scaling of a 1-day horizon to a 10-day horizon.

 

Credit Spread VaR

 

Credit
spread risk is measured through a parametric VaR approach using
sensitivities.  This Credit Spread VaR
measures the specific credit spread risk at a constant credit rating for
trading and AFS positions.

 

Historical
data for each credit spread bucket is used to estimate the volatility for each
risk factor.  These estimations are used
to calculate a VaR (%-percentile) based on the same parametric estimates as in
the interest rate VaR.

 

 

Each position is mapped to a bucket based on its credit
rating and its sector.  The credit spread
volatility is estimated using historical data for each credit spread bucket
based on historically observed credit spread movements.  The impact on the position’s value is
calculated by using the exposure’s credit spread delta.  The result for each position is totaled to
derive the portfolio impact and the desired VaR.

 

 

Appendix IV

 

CASH FLOW
SCENARIO ANALYSIS ASSUMPTIONS

 

Base Scenario:

 

See
descriptions and assumptions in Appendix V — PROCESS AND PROCEDURES FOR RE-PROJECTION OF CASH FLOWS

 

Stress Scenarios:

 

Assets:

 

RMBS assets are assumed to
prepay 20% and 40% slower in each payment period (monthly) than projected in
the base scenario.

 

GICs:

 

For CLO/CDO GICs, FSA’s worst
cohort default rates are applied to each corporate CDO deal
assuming a 50% recovery for loans (CLO) and a 30% recovery for bonds (senior
unsecured).

 

 

Appendix V

 

PROCESS AND PROCEDURES FOR
RE-PROJECTION OF CASH FLOWS

 

Overview:

 

This Appendix defines the current process and procedures for
reviewing and adjusting asset prepayment and GIC flex speeds.  Such process and procedures may be adjusted
from time to time by decision of the ALCO.

 

Background:

 

For hedging and liquidity projection purposes, asset
prepayment and GIC flex speeds need to be properly modeled and reflected in
Principia.

 

Process:

 

Once each month (typically at the end of the month for
assets since most of the payments are received on or about the 25th of the month), the Administrator will develop
reports detailing the assets and GICs that are subject to prepayment/flex
risks.  The payment histories and current
projections are reviewed for speed changes to the asset and GIC schedules.

 

The following shows the specific processes that are
performed to determine and implement speed changes for asset and GIC schedules:

 

Monthly Schedule Re-projection Process
— Assets:

 

I.       Operations

 

a.               Track actual payments for comparison to expected ones.

b.              Resolve discrepancies by comparing to Bloomberg factors and contacting the
counterparty if necessary or appropriate.

c.               Update Principia balances as applicable to reflect the correct factors.

d.              Provide a spreadsheet showing all actual vs. expected payments to Risk
Management.

e.               No re-projection of prepayment occurs at this stage other than adjusting
the current schedules proportionately to reflect the actual vs. expected
payment differences; Discount Margin(4) recalculations
are automatic as part of this ratio-stripping program

 

II.      Risk
Management

 

f.                 Run program that shows all Principia deals and their related schedules to
ensure they are correct (if we own multiple positions of the same deal tranche
they share a schedule, etc.).

g.              Run program to populate spreadsheet with the latest Principia deal
information for ABS and mortgage backed securities, or “MBS” deals (current
balance, seasoning, average life and prepayment speed description).

h.              Operations data showing actual vs. expected payments is added for each deal

i.                  Any new deals that were settled since the prior month are added to the
spreadsheet library of prepayment speeds for each deal that interfaces with
Intex to produce schedules.

 

(4) NOTE: Should this be
a defined term?

 

 

j.                  Creates a summary of each deal in a spreadsheet with current balance,
seasoning, average life, expected vs. actual payments, current principal or no
current principal, current prepayment speed description, historical Intex
constant prepayment rate, or “CPR,” data, and sector-vintage.  Every MBS deal is reviewed each month
(filters identifying only certain deals for review are no longer applicable).

 

k.               Review and modify prepayment
assumptions in the above spreadsheet. 
Speed changes are identified in a specific column.  The 3-month average actual CPR data is
generated (by the Front Office) for each deal and is further split into
constant default rate, or “CDR,” and variable prepayment rate, or “VPR,”
categories.  The new prepayment speed is
determined by the following formula: 
(((3-month average actual VPR) + (3-month average actual CDR * recovery
rate)) divided by (3-month average projected CPR))) times current prepayment
curve

 

Recovery Rates to be applied to CDR data are updated on
a quarterly basis and currently equal:

 

	
  Type

  	
   

  	
  Recovery Rate

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Subprime

  	
   

  	
  50

  	
  %

  
	
  Alt-A and Prime

  	
   

  	
  65

  	
  %

  
	
  Option ARM

  	
   

  	
  65

  	
  %

  
	
  HELOC

  	
   

  	
  0

  	
  %

  
	
  Second Lien

  	
   

  	
  0

  	
  %

  

 

It should be noted that certain FNMA and FHLMC
originated RE-REMIC securities do not have CPR data available.  For those deals, the weighted average CPR
data for the underlying deals is used and the new speed calculated using the
formula.  Additionally, there are auto
loan deals run at ABS speeds that are adjusted to 3-month average ABS
speeds.  All NIM deals are re-projected
using the 3-month average factor changes as CPR data is not applicable.

 

III.     Risk
Management

 

l.                  Implements the speed changes by making changes to the prepayment speed
library.

m.            Runs program that interfaces with Intex program to produce schedules for
upload into Principia.

n.              Reviews diagnostics for each deal that show the change to average life
resulting from the current schedule run as compared to previous schedule.  Any unexpected differences are investigated and
resolved.

 

IV.    Operations

 

o.              Uploads files with new amortization schedules.  The upload program automatically calculates new Discount Margins for all
premium and discount assets to reflect the new deal spread implied by the
schedule change.  Reviews the diagnostics
that show NPV and spread changes that result from the new schedule upload.  Any large differences are reported to Risk
Management for investigation.  The
diagnostics also indicate if any deal schedules failed to run due to system
error.

 

V.      Risk
Management

 

p.              Creates a file with updates to the prepayment speed descriptions.

q.              Reviews a sample of premium and discount assets each month to verify that
the automatically calculated new Discount Margin and deal spread tag programs
are working properly.

 

 

VI.    Front
Office

 

r.                 Creates 2 files (deal level and summarized by sector-vintage) that show
projected vs. actual CPR (broken down by CDR and VPR where available) for MBS
that illustrate the impact of the current month’s speed changes by showing what
the projected CPR’s would have been for 1 month, 3 months, and 6 months
historically if the current speeds were used. 
The deal level projected vs. actual CPR data is used by Risk Management
to calculate the following month’s projections (using the formula in k.).  The data is then summarized by sector-vintage
buckets (for instance, HEL_NON_AGENCY 2007) for comparison to the actual CPR’s
for the same historical periods.

 

VII.   Risk
Management

 

s.               Summarizes the actual vs. projected payments by sector-vintage to show the
effectiveness of the prior month’s schedule re-projections.  The results are then analyzed to identify
additional process improvements.

 

Monthly Schedule
Re-projection Process — GICs:

 

I.                                         Operations

 

t.                 Track actual deposits and draws for comparison to projected ones.

u.              Update Principia balances to reflect actual payment activity.

v.              No re-projection of prepayments occurs at this stage other than adjusting
the current schedules proportionately to reflect the actual vs. expected
payment differences; Discount Margin recalculations are automatic as part of
this ratio-stripping program.

 

II.                                     Risk
Management

 

w.            Creates monthly Principia-generated “Flex Report for Construction Funds”
with the actual historical and current projected balances compared to the
original projected balances.  The Flex
Report also summarizes the Discount Margin change history and realized
historical spreads as well as GIC fixed rate buckets in comparison to current
Libor swap rates (higher or lower than current market).

 

III.                                 Risk
Management, Front Office, Operations

 

x.                Risk Management, Front Office, and Operations review the Flex Report
balance history and current projections relative to original projections and
determine whether the current schedule projections should be sped up or slowed
down (may include a call to the GIC investor by Operations).

y.              Other GIC
types, such as Float Fund GICs (Front Office) and CDO GICs (Risk Management)
are reviewed for possible speed changes on a periodic basis

 

·                  ABS CDO GICs:

 

For the ABS CDO GICs, 10 of the ABS CDO transactions in our
GIC portfolio, representing approximately 65% of the outstanding notional
amount, are modeled in Intex.  We applied
subprime and Alt-A default and severity curves to the respective portions of
the underlying assets consistent with the average rates used in our impairment
analysis.  For the subprime assets, the
CDR plateau was 28.84% which remained constant for 21 months followed by a 12
month linear decline to 7.21%.  For the
Alt-A assets, a CDR plateau of 19.62% was used for the first 21 months followed
by a 12 month linear decline to 4.91%. 
Severities for subprime are assumed to increase from 50% to 60% over the
first 15 months after which they remained constant at 60% for the remaining
life.  For the Alt-A assets, severities
were assumed to increase from 40% to 50% over the first 15 months after which
they remained constant at 50% for the remaining life.  Prepayments were assumed to be 5% 

 

 

for the first 21 months followed by a 12 month linear ramp up
to 15% after which the rate remained constant at 15% for the remaining
life.  For the transactions that we were
unable to model, the average of the modeled schedules was used to project the
GIC balance.

 

·                  CDO/CLO GICs:

 

We use Moody’s average historical default rates, applied to
the underlying collateral of each CDO/CLO deal. 
The loss severity is 50% for loans and 70% for senior unsecured
bonds.  The Moody’s historical default
rates are rating dependent.

 

z.                Recommends speed changes by creating new amortization schedules for upload
and creates “Discount Margin Change Form” showing the resulting spread change
(to be signed by Front Office, Operations, Risk Management and FP management).

 

IV.                                Risk
Management

 

aa.         Reviews all
proposed schedule changes by Front Office prior to upload by Operations

 

V.                                    Operations

 

bb.       Uploads
files with new amortization schedules and runs program to calculate new
Discount Margins for the GICS to reflect the new deal spread created by the
schedule change (reflects economics of the GIC and its hedge due to adjustment
to its hedge position as a result of speed changes).

cc.         Informs Risk
Management of any additional changes made to proposed schedule changes due to
unexpected events (draws or deposits that were not foreseen at time of schedule
creation).

dd.       Delivers the
Discount Margin Change Forms for all GICs with schedule changes to Risk
Management for review.

 

VI.                                Risk
Management

 

ee.         Reviews
changes to schedules and Discount Margins for reasonableness and calculation
accuracy and signs off on the changes.

 

 

Appendix VI

 

POST DEXIA EVENT OF DEFAULT

 

In the event that FSA shall ever
elect to become the Secured Party Representative following the occurrence of a
Dexia Event of Default, commencing at the time of such election FSA shall, and
shall cause the Administrator to, implement diligently and in good faith the “FSA
Defeasance Plan”, attached as Exhibit A hereto, as soon as reasonably
practicable in accordance with Article V of the Pledge and Administration
Agreement.  For the avoidance of doubt,
in the event that any provision set forth in this Appendix VI (including,
without limitation, in Exhibit A hereto) shall be inconsistent with any
provision set forth in the Pledge and Administration Agreement, the
inconsistent provision set forth in the Pledge and Administration Agreement
shall prevail.

 

In particular, FSA shall, and shall cause the Administrator
to, consistent with the FSA Defeasance Plan:

 

(i)                                     Match unhedged long-dated fixed rate assets (consisting solely of Permitted
Investments, Put Portfolio Assets and a de minimis amount of other assets) to
all unhedged long-dated fixed rate liabilities.

 

(ii)                                  Assess the risk of rising rates for all liability hedges and/or early
termination of any GICs and, based upon such assessment, devise and implement a
strategy to hedge such risk consistent with the Strategy and Objectives
described in Section 2, including through the purchase of one or more
swaptions or caps; provided that the particular term and structure of
such strategy will be subject to approval by the ALCO (subject, for the
avoidance of doubt, to Dexia’s rights provided in the Pledge and Administration
Agreement).

 

(iii)                               Continue to observe all limits set forth in Section 5 (“Market Risk
Management”), including, but without limitation, the PV01 limits set forth
therein.  This can be achieved by
matching some or all of the fixed rate liabilities with fixed rate assets
(consisting solely of Permitted Investments, except as set forth in clause (i) above)
and/or swapping some or all fixed rate liabilities and assets to floating rate.

 

(iv)                              Continue to observe all limits set forth in Section 6 (“Liquidity Risk
Management”).

 

For the avoidance of doubt, as provided in Section 9, all
provisions set forth in these ALM Procedures shall continue to be fully
applicable except to the extent inconsistent with any provision set forth in
this Appendix VI (including Exhibit A hereto) or except as otherwise
specifically set forth in the ALM Procedures.

 

 

Exhibit A to

Appendix VI

 

FSA Defeasance Plan

 

The FSA Defeasance Plan will use the
following resources which are expected to be available:

 

·                  Dexia CSA
Collateral, including the GIC Business Costs Amount and other amounts posted
with respect to its Hedge Agreements.

·                  FSAM Assets and
Sovereign Guarantee — the assets would at the point of a Dexia Event of Default
be put (or held until they may be put) to Dexia, guaranteed by the Sovereign
Guarantors (prior to the Liquidity and Collateral Trigger Expiration Date or
the Sovereign Guarantee Unenforceability Date) or, other than with respect to
any Permitted Investments, liquidated (on or after the Liquidity and Collateral
Trigger Expiration Date or the Sovereign Guarantee Unenforceability Date).

·                  Shares of HF
Services — FSA may direct HF Services, such that existing employees
and systems may be the same as those which had been in existence prior to the
Dexia Event of Default, although FSA may replace HF Services as the
Administrator.

·                  Asset / Liability
Swaps — The GIC Business will benefit from any collateral that has been posted
by the counterparties to FSAM or the FSAM Hedging Successor, as applicable.

·                  GICs — the GICs are expected to amortize down to approximately $6 billion over the next
two years, and the GICs with highest maturity variability (the CDO GICs) are
Libor based and therefore there are no fixed to floating swaps with respect to
such GICs.  FSA intends to invest in
Treasury Bills for this portion of the book.

·                  Options — the ability to
purchase swaptions and caps to hedge or minimize the risk of rising interest
rates and early termination or acceleration of all or any portion of the
long-dated fixed rate GICs.

 

Since it is uncertain what the
conditions will be at the time that FSA becomes the Secured Party
Representative, the tactics to achieve the low risk portfolio will change
depending on the relevant circumstances. 
The key factors in this determination are as follows:

 

·                  Composition
of GIC Portfolio — Over time, fixed rate GICs will comprise an increasing
percentage of the remaining portfolio. 
The long-dated GICs are mainly for Municipal Debt Service Reserve funds
($2.2 billion) with a WAL of approximately 15 years.  The other fixed rate GICs are shorter dated
construction funds (1.5 WAL) and capitalized interest funds (2.0 WAL).  The CDO GICs, as previously mentioned, are
expected to mature quickly and are floating rate.

·                  Interest
rates — FSA will consider swap spreads, interest rates and the shape of the
forward curve and will consider the costs of any swaptions or cap purchases
that would be necessary or appropriate to reduce the risk to the GIC Business
of rate increases.

 

The FSA Defeasance Plan will address
the following risks:

 

·                  Market
price volatility of the Permitted Investments — Permitted Investments are specified
investments that are marked to market on a weekly basis and are valued with
conservative advance rates.  FSA will
direct the Administrator to minimize the market risk associated with the
mismatch of assets and liabilities through cashflow matching, either directly
or synthetically, of assets and liabilities.

·                  Interest
rate swap / collateral posting— A rising interest rate environment
could expose the FSAM Hedging Successor to posting requirements with respect to
interest rate swaps entered into to hedge long-dated fixed rate GICs, to the
extent such swaps are Senior Third Party Hedge Agreements.  FSA will direct the Administrator to assess
the existing Senior Third Party Hedge Agreements and 

 

 

endeavor
to match the total notional of any that are asset swaps with a similar quantum
of liability swaps.  This will minimize
any need for sourcing funds of FSAM or the FSAM Hedging Successor to post as
collateral under the Senior Third Party Hedge Agreements as net flows should be
zero.  The negative MTM on the liability
swaps that are Senior Third Party Hedge Agreements will be mitigated by
re-hypothecated collateral posted to the FSAM Hedging Successor from the asset
swaps that are Senior Third Party Hedge Agreements which will have a largely
offsetting positive MTM.

·                  Fixed
Rate GIC liability acceleration — GIC
acceleration could arise due to either an FSA downgrade or other factors
(Muni-bond default or refinancing).  FSA
will direct the Administrator to assess the appropriateness of purchasing
swaptions and/or caps that will offset the asset value loss that would be
realized should GICs accelerate in light of prevailing interest rates, the
shape of the forward curve and swap spreads.Exhibit 10.9

 

EXECUTION COPY

 

SEPARATION
AGREEMENT

 

 

BY
AND AMONG

 

 

DEXIA
CRÉDIT LOCAL S.A.,

 

FINANCIAL
SECURITY ASSURANCE INC.,

 

FINANCIAL
SECURITY ASSURANCE INTERNATIONAL LTD.,

 

FSA
GLOBAL FUNDING LIMITED

 

AND

 

PREMIER
INTERNATIONAL FUNDING CO.

 

 

July 1,
2009

 

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I                                                          DEFINED
  TERMS; RULES OF CONSTRUCTION

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.1.

  	
  Definitions

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.2.

  	
  Rules of
  Construction

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.3.

  	
  UCC
  Definitions

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE II                                                      SEPARATION;
  OTHER MATTERS

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.1.

  	
  Separation

  	
  3

  
	
   

  	
   

  	
   

  
	
  Section 2.2.

  	
  The
  DCL Percentage and FSA Percentage

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.3.

  	
  Subrogation
  and Reimbursement

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 2.4.

  	
  Reinsurance
  Proceeds

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 2.5.

  	
  Expenses

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 2.6.

  	
  Amounts
  Paid Under the A-Loans

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 2.7.

  	
  Guidelines
  for Sale or Replacement of Assets

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 2.8.

  	
  Guidelines for the
  Replacement of an FSA Global Swap or a Counterparty Under an FSA Global Swap

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 2.9.

  	
  Draws
  Under Liquidity Facilities

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 2.10.

  	
  Acceleration
  of the FSA MTN Business Policies and FSA Global DCL Guaranties

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 2.11.

  	
  Blocked
  Accounts

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 2.12.

  	
  Setoff

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE III                                                  REPRESENTATIONS
  AND WARRANTIES; COVENANTS

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 3.1.

  	
  Representations
  of the Parties

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 3.2.

  	
  Representations
  of DCL

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 3.3.

  	
  Affirmative
  Covenants of the Parties

  	
  23

  
	
   

  	
   

  	
   

  
	
  Section 3.4.

  	
  Negative
  Covenants of DCL and the FSA Parties

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 3.5.

  	
  Negative
  Covenants of FSA Global and Premier; Amendments to Organizational Documents

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV                                                  PREMIUMS AND
  OTHER PAYMENTS

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 4.1.

  	
  Ongoing
  Premiums and Other Payments

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 4.2.

  	
  Premiums
  Paid Prior to the Closing Date

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 4.3.

  	
  Claims
  Reserve LOC

  	
  29

  

 

i

 

TABLE
OF CONTENTS

(continued)

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE V                                                      DCL EVENTS OF
  DEFAULT; REMEDIES

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 5.1.

  	
  DCL
  Events of Default

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 5.2.

  	
  Remedies

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 5.3.

  	
  Posting
  of Collateral

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI                                                  MODIFICATIONS
  TO REINSURANCE

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 6.1.

  	
  Commutation
  of AG Re Reinsurance Agreements

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 6.2.

  	
  Modifications
  of Reinsurance Agreements

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII                                              INSPECTION
  RIGHTS; CONSULTATION RIGHTS; COPIES OF NOTICES AND REPORTS

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 7.1.

  	
  Inspection
  Rights

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 7.2.

  	
  Consultation
  Rights

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 7.3.

  	
  Copies
  of Notice and Reports

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 7.4.

  	
  Documents
  Related to the Leveraged Tax Lease Business

  	
  35

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII                                          MISCELLANEOUS
  PROVISIONS

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 8.1.

  	
  Binding
  on Successors, Transferees and Assigns

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 8.2.

  	
  Net
  Payments

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 8.3.

  	
  Amendments;
  Waivers

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 8.4.

  	
  Notices

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 8.5.

  	
  No
  Waiver; Remedies

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 8.6.

  	
  Section Headings

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 8.7.

  	
  Severability

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 8.8.

  	
  Governing
  Law

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 8.9.

  	
  WAIVER
  OF JURY TRIAL

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 8.10.

  	
  Counterparts

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 8.11.

  	
  Third
  Party Beneficiaries

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 8.12.

  	
  Insurance
  and Indemnity Agreements

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 8.13.

  	
  Non-Petition

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 8.14.

  	
  Limited
  Recourse

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 8.15.

  	
  SOVEREIGN
  IMMUNITY

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 8.16.

  	
  Transaction
  Agreement

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 8.17.

  	
  No
  Partnership or Joint Venture

  	
  44

  

 

ii

 

	
  APPENDIX I

  	
  Definitions

  	
   

  
	
  APPENDIX II

  	
  Notice Contact Details

  	
   

  
	
  APPENDIX III

  	
  Form of Quarterly
  Information Reporting Template

  	
   

  
	
  APPENDIX IV

  	
  Disclosure Schedule

  	
   

  
	
  APPENDIX V

  	
  Governance Provisions

  	
   

  
	
  APPENDIX VI

  	
  Form of Notice to FSA
  MTN Business Policy Holders

  	
   

  
	
  APPENDIX VII

  	
  Form of Payment
  Failure Notice

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE A

  	
  List of MTNs and MTN
  Policies

  	
   

  
	
  SCHEDULE B

  	
  List of Leveraged Lease
  Transactions

  	
   

  
	
  SCHEDULE C

  	
  List of FSA Global Assets,
  Cypress Notes and FSA Global Asset Policies

  	
   

  
	
  SCHEDULE D

  	
  List of FSA Global Swaps,
  FSA Global Swap Policies, Cypress Swaps and Cypress Swap Policies

  	
   

  
	
  SCHEDULE E

  	
  List of Cypress Indentures

  	
   

  
	
  SCHEDULE F

  	
  List of Cypress Assets

  	
   

  
	
  SCHEDULE G

  	
  List of Matched FSA Global
  Assets and Related MTNs

  	
   

  
	
  SCHEDULE H

  	
  List of Reinsurance
  Agreements and Corresponding FSA MTN Business Policies

  	
   

  
	
  SCHEDULE I

  	
  Amended and Restated FSA
  Global and Premier Memoranda and Articles of Association

  	
   

  
	
  SCHEDULE J

  	
  List of Commuted AG Re
  Reinsurance Agreements and Commuted Amounts

  	
   

  
	
  SCHEDULE K

  	
  List of DCL Percentages
  and FSA Percentages

  	
   

  
	
  SCHEDULE L

  	
  [Reserved.]

  	
   

  
	
  SCHEDULE M

  	
  List of Specified FSA
  Global Assets Policies

  	
   

  
	
  SCHEDULE N

  	
  Distribution of Future
  Cypress Premiums

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
  Guidelines for Sale of FSA
  Global Assets, Matched FSA Global Assets and Cypress Assets

  	
   

  
	
  EXHIBIT B

  	
  Guidelines for Replacement
  of Cypress Assets

  	
   

  
	
  EXHIBIT C

  	
  Guidelines for Replacement
  of FSA Global Swap Counterparties

  	
   

  
	
  EXHIBIT D

  	
  Form of Claims
  Reserve LOC

  	
   

  

 

iii

 

SEPARATION AGREEMENT

 

THIS SEPARATION AGREEMENT
(as amended, supplemented, or otherwise modified from time to time, this “Agreement”),
dated as of July 1, 2009, is entered into among Dexia Crédit Local S.A., a
French share company licensed as a bank under French law (“DCL”),
Financial Security Assurance Inc., a stock insurance company organized under
the laws of the State of New York (“FSA”), Financial Security Assurance
International Ltd., a Bermuda company (“FSA International”), FSA Global
Funding Limited, an exempted company with limited liability organized under the
laws of the Cayman Islands (“FSA Global”) and Premier International
Funding Co., an exempted company with limited liability organized under the
laws of the Cayman Islands (“Premier”).

 

W  I  T
N  E  S  S  E  T  H:

 

WHEREAS, pursuant to a
Purchase Agreement, dated as of November 14, 2008 (as amended, modified or
otherwise supplemented from time to time, the “Purchase Agreement”),
among Dexia Holdings, Inc., a corporation incorporated under the laws of
the State of Delaware (“DHI”), DCL, and Assured Guaranty Ltd., a Bermuda
company (“Assured”), DHI has agreed to sell and transfer to Assured all
of the Shares (as defined in the Purchase Agreement) owned by DHI of Financial
Security Assurance Holdings Ltd., a New York corporation (“FSAH”);

 

WHEREAS, in connection with
the transactions contemplated by the Purchase Agreement, (a) DHI has
agreed to (i) assume all rights and obligations related to and incurred in
connection with the operation of the Medium-Term Note Business and (ii) manage
the day-to-day operations of the Medium-Term Note Business, in each case
through its Affiliate, DCL, and (b) FSA has agreed to (i) retain all
rights and obligations related to and incurred in connection with the operation
of the Leveraged Tax Lease Business and (ii) manage the day-to-day
operations of the Leveraged Tax Lease Business (such agreements being
collectively referred to as the “FSA Global Business Separation”);

 

WHEREAS, in furtherance of
the FSA Global Business Separation, the parties hereto desire to enter into
this Agreement in order to, among other things, specify the terms and
conditions under which FSA’s administration and control rights under the
Medium-Term Note Business may be exercised;

 

WHEREAS, in addition to this
Agreement, the FSA Global Business Separation will be effectuated by, among
other agreements, the FSA Global DCL Guarantees, the FSA Global Guaranty
Reimbursement Agreement and the Indemnification Agreement;

 

NOW THEREFORE, for good and
valuable consideration the receipt of which is hereby acknowledged, each party
hereto agrees as follows:

 

 

ARTICLE
I

 

DEFINED
TERMS; RULES OF CONSTRUCTION

 

Section 1.1.                                   Definitions.  Capitalized terms used herein and not defined
herein shall have the meanings provided in Appendix I or Section 1.3
unless the context otherwise requires.

 

Section 1.2.                                   Rules of
Construction.

 

(a)                                  The terms “hereby,”
“hereof,” “hereto,” “herein,” “hereunder” and any similar terms shall refer to
this Agreement as a whole and not to any particular provision of this
Agreement.

 

(b)                                 Unless otherwise
indicated in context, the terms “Article,” “Section,” “Annex,” “Exhibit,” “Schedule”
or “Appendix” shall refer to an Article or Section of, or an Annex,
Exhibit, Schedule or Appendix to, this Agreement.

 

(c)                                  Words of the
masculine, feminine or neuter gender shall mean and include the correlative
words of other genders, and words importing the singular number shall mean and
include the plural number and vice versa.

 

(d)                                 The terms “include,”
“including” and similar terms shall be construed as if followed by the phrase “without
limitation.”

 

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

 

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

 

Section 1.3.                                   UCC Definitions.  When used herein and capitalized the terms “Adverse
Claim,” “Certificated Security,” “Clearing Corporation,” “Deposit Account,” “Entitlement
Order,” “Instrument,” “Intermediary,” “Financial Asset,” “Proceeds,” “Securities
Account,” “Security,” “Security Entitlement,” “Tangible Chattel Paper” and “Uncertificated
Security” have meanings specified in Article 8 or Article 9, as
applicable, of the UCC.

 

2

 

ARTICLE
II

 

SEPARATION;
OTHER MATTERS

 

Section 2.1.                                   Separation.

 

(a)                                  Subject to the
terms and conditions of this Agreement and the other Separation Documents, (i) DCL
agrees that it will assume all rights and obligations related to and incurred
in connection with the operation of the Medium-Term Note Business and manage
the day-to-day operations of the Medium-Term Note Business and (ii) FSA
agrees that it will retain all rights and obligations related to and incurred
in connection with the operation of the Leveraged Tax Lease Business and manage
the day-to-day operations of the Leveraged Tax Lease Business.

 

(b)                                 DCL and the
applicable FSA Party will cooperate reasonably and in good faith to determine
how the applicable FSA Party will exercise FSA Rights (such determination being
referred to herein as a “Mutual Determination”).  Upon a Mutual Determination, the applicable
FSA Party will direct the applicable trustee or other applicable counterparty
or counterparties to take action (or refrain from taking action) as
contemplated by the Mutual Determination (such direction being referred to
herein as a “Direction” and to issue a Direction being referred to
herein as “Direct”).  For the
avoidance of doubt, under no circumstances shall anything in this Agreement be
construed to (i) require an FSA Party to issue a Direction (1) which
breaches an obligation of an FSA Party to a Reinsurer in connection with a
Reinsurance Agreement or (2) for which no FSA Right exists, or (ii) require
an FSA Party to be liable for taking any action (or the refraining from taking
any action) pursuant to a Mutual Determination or require an FSA Party to
ensure that any Person take the action (or refrain from taking the action)
pursuant to a Mutual Determination, or that the Direction is otherwise
followed.  DCL acknowledges that any
Direction issued by an FSA Party may be subject to the consent rights of third
parties.

 

(c)                                  Neither DCL,
nor any of its Affiliates, nor any FSA Party, nor any of their respective
Affiliates, shall seek to exercise any FSA Right with respect to the
Medium-Term Note Business except pursuant to a Mutual Determination or as
otherwise mutually agreed by DCL and the applicable FSA Party, both acting
reasonably, except as otherwise expressly provided herein.  To the extent an FSA Party receives a notice
under an MTN Business Transaction Document relating to the exercise, or
potential exercise, of an FSA Right with respect to the Medium-Term Note
Business, such FSA Party shall provide a copy of such notice to DCL within one
Business Day of such FSA Party’s receipt thereof.  In the event that an FSA Party timely
notifies DCL that an FSA Right with respect to the Medium-Term Note Business is
to be exercised but DCL (i) does not provide a response to such
notification by the earlier of (A) three Business Days following such
notification or (B) the Business Day prior to the Business Day on which
such FSA Right expires or is required to be exercised, then so long as no DCL
Event of Default shall have occurred and be continuing, such FSA Party shall
not exercise such FSA Right, and DCL shall indemnify and hold harmless the
relevant FSA Indemnified Parties for any losses incurred by such FSA
Indemnified Party arising from such FSA Party not exercising such FSA Right in
accordance with the terms of the Indemnification Agreement; provided,
that if such FSA Party delivers an MTN Business Proposal as defined under Section 2.1(d) to
change the payee or beneficiary under any Equity PUA, or Equity PUA Policy (or
the pledgee of related Equity PUA Notes) from the lessor to the lessee (or its
designee) under

 

3

 

the related leveraged lease
transaction, and DCL does not respond to such MTN Business Proposal within
three Business Days, then such FSA Party may agree to such an amendment to the
Equity PUA, or Equity PUA Policy (or pledge of the related Equity PUA Notes) so
long as the new beneficiary or payee is not an FSA Party or an Affiliate of an
FSA Party.

 

(d)                                 Each of DCL and
an FSA Party may propose to the other the exercise of one or more FSA Rights
with respect to the Medium-Term Note Business at any time and shall provide a
reasonably detailed explanation of the reason it has made such a request (each
such request, an “MTN Business Proposal”).  The party receiving the MTN Business Proposal
shall use commercially reasonable efforts to respond to the requesting party
within six Business Days (or within three Business Days if the MTN Business
Proposal states that action is required within three Business Days) of such
receipt with its determination as to whether to act on such MTN Business
Proposal.  No FSA Party need respond to
any MTN Business Proposal at any time that any DCL Event of Default has
occurred and is continuing.

 

(e)                                  Each FSA Party
shall be protected and shall incur no liability to DCL, and such FSA Party
shall be indemnified and held harmless by DCL pursuant to the Indemnification
Agreement, in relying upon the accuracy, acting in reliance upon the contents
and assuming the genuineness of, any document or other writing reasonably
believed by such FSA Party to be genuine and to have been duly executed by the
appropriate signatory, and such FSA Party shall not be required to make any
independent investigation with respect thereto; provided that this
provision shall not apply to any document or other writing received from or
executed by an FSA Party or an Affiliate thereof.

 

(f)                                    No FSA Party
shall be liable with respect to any action it takes or omits to take in good
faith in accordance with a Mutual Determination, a Direction or the exercise of
an FSA Right in connection therewith.

 

(g)                                 In no event
will any of the parties or their Affiliates be entitled to recover from any
other party or its Affiliates any special, punitive, incidental or
consequential damages, including damages based on lost profits or lost business
opportunities, arising out of a breach of the other’s obligations under any
Separation Document.

 

(h)                                 DCL may carry
out any of its responsibilities under the Separation Documents through the
Sub-Administrator, but the appointment of a Sub-Administrator by DCL shall not
relieve it of any of its obligations under the Separation Documents.

 

(i)                                     DCL
acknowledges that the FSA Rights to which the applicable FSA Party is entitled
under the MTN Business Transaction Documents may be shared rights with primary
insurers, Reinsurers and other third parties.

 

Section 2.2.                                   The DCL
Percentage and FSA Percentage.

 

(a)                                  DCL agrees to
fund 100% of all Policy Claims made under the FSA MTN Business Policies on
behalf of the applicable FSA Party in accordance with the terms of the FSA
Global DCL Guarantees.  DCL shall be
responsible for the DCL Percentage and the applicable FSA Party shall be
responsible for paying to DCL the FSA Percentage of any Policy Claim made under
an FSA MTN Business Policy.  The
applicable FSA Party shall pay to DCL the FSA

 

4

 

Percentage of a Policy Claim
under an FSA MTN Business Policy no later than 12:00 p.m. New York time on
the later of (i) one Business Day following Receipt by such FSA Party of a
notice of claim under an FSA MTN Business Policy, and (ii) two Business
Days prior to the date the related Obligation is due under the FSA MTN Business
Policy, by wire transfer of immediately available funds in the relevant
Obligation Currency of the relevant Obligations to the following account of
DCL, or such other account as may be specified by DCL to the FSA Parties from
time to time by notice to the FSA Parties.

 

Citibank N.A., New York

ABA Routing Number:  021000089

For credit to:  Dexia Credit Local New York

Acct No:  36243063

Reference:  Claim for FSA

 

Simultaneous with such
payment, the related FSA Party shall confirm payment to DCL by facsimile
delivered to DCL at its address specified herein.  The failure by such FSA Party to make any
payment in accordance with the terms of this Section 2.2(a), any
other provision of this Agreement or any other Separation Document shall not
relieve DCL of its payment obligations under the FSA Global DCL Guarantees.

 

(b)                                 Except as
described in Section 2.2(a), DCL and its Affiliates hereby waive
and release any and all other rights to receive any payment from any FSA Party
(but not from DCL on behalf of FSA pursuant to the terms of the FSA Global DCL
Guarantees) under the terms of any FSA Global Swap Policy with respect to any
FSA Global Swap or under the terms of any Cypress Swap Policy with respect to
any Cypress Swap, in each case where any of DCL or its Affiliates is a Swap
Counterparty to FSA Global or Cypress, as applicable.  Neither DCL nor its Affiliates will seek to
amend, terminate or cancel or withhold payment under any FSA Global Swap or
Cypress Swap, notwithstanding any failure of any FSA Party to make payment of
amounts owed under the related FSA Global Swap Policy or Cypress Swap Policy,
as the case may be.

 

(c)                                  Each FSA Party
agrees that, if it fails to make any payment in accordance with the terms of Section 2.2(a),
then it will pay to DCL, on demand, any such amounts due to DCL, together with (i) interest
at the Late Rate from the date on which payment was required from such FSA
Party hereunder to the date of payment, and (ii) any and all Expenses
incurred by DCL in any way relating to the enforcement of DCL’s rights under
this Section 2.2(c).  Without
prejudice to the survival of any other agreement of any FSA Party hereunder,
the obligations of such FSA Party under this Section shall survive the
payment in full of the Obligations and termination of the related FSA Global
DCL Guarantee.

 

(d)                                 Neither DCL
nor, so long as a DCL Event of Default has not occurred and is continuing, any
FSA Party, will assert that a Policy Claim delivered under an FSA MTN Business
Policy should not be paid, or attempt to obstruct or delay payment under an FSA
MTN Business Policy, unless DCL and such FSA Party in good faith, after
consulting with each other, determine that the payment of a Policy Claim with
respect to an FSA MTN Business Policy is not required.

 

5

 

(e)                                  Subject to Section 2.5,
each FSA Party agrees that no amounts will be paid or reimbursed by DCL with
respect to Policy Claims made under FSA Leveraged Tax Lease Policies.

 

Section 2.3.                                   Subrogation and
Reimbursement.

 

(a)                                  So long as no
DCL Event of Default has occurred and is continuing, no FSA Party or its
Affiliates shall exercise any FSA Rights or other rights with respect to
pursuing a claim for subrogation or reimbursement of any Policy Claim with
respect to an FSA MTN Business Policy, without the consent of DCL, not to be
unreasonably withheld or delayed. 
Following such consent, such FSA Party will use commercially reasonable
efforts to pursue subrogation and reimbursement rights on behalf of DCL and, to
the extent applicable, such FSA Party and Reinsurers.

 

(b)                                 All recoveries,
to the extent received in or converted into cash, will be applied by the
related FSA Party first to the payment of any and all Expenses paid or incurred
by such FSA Party in pursuing such recoveries or in endeavoring to collect or
realize any recoveries in respect of a Policy Claim paid under an FSA MTN
Business Policy, and any balance thereof shall be applied by such FSA Party
ratably to DCL, such FSA Party and any Reinsurers (to the extent applicable) in
proportion to the DCL Percentage (less the Reinsurer Percentage), the FSA
Percentage and the Reinsurer Percentage.

 

(c)                                  Subject to the
rights of other primary insurers (if any) and Reinsurers, an FSA Party may
exercise its FSA Rights (including, without limitation, rights of subrogation
and reimbursement) and other rights with respect to pursuing a claim for
subrogation or reimbursement against DCL or an Affiliate of DCL (other than FSA
Global or Premier, except after a DCL Event of Default has occurred and is
continuing), without any need to cooperate with DCL, obtain DCL consent or
reach any Mutual Determination; provided, that such claim for
subrogation or reimbursement is not duplicative of amounts already paid by DCL
under the FSA Global DCL Guarantees.

 

(d)                                 None of DCL,
the FSA Parties or their Affiliates may recover or seek to recover any amounts
paid with respect to any Policy Claim paid under an FSA MTN Business Policy
except through the FSA Parties in the manner, and with the proceeds being
shared, as set forth in this Section 2.3 and Section 2.4.  DCL shall not seek reimbursement of any
amounts owed to it under the FSA Global Guarantee Reimbursement Agreement
without the prior written consent of the relevant FSA Parties.  In the event that, notwithstanding the
foregoing limitation, DCL or its Affiliates receive any recoveries or
reimbursements with respect to a Policy Claim paid under an FSA MTN Business
Policy, such amounts shall be received in trust for the related FSA Party and
promptly turned over by DCL to such FSA Party for distribution in accordance
with the terms of this Section 2.3 unless such amounts were paid by
FSA Global, Premier or Cypress, in which case they will be received and
disbursed to the relevant FSA Party in accordance with the FSA Global Guaranty
Reimbursement Agreement.  For the
avoidance of doubt, the parties shall have no obligation to share amounts
recovered, reimbursed or otherwise received by DCL, an FSA Party or their
Affiliates from third parties under swaps, credit derivatives, reinsurance
(except as set forth in Section 2.4) or other risk sharing
arrangements not contemplated by this Agreement or any other Separation
Document.

 

6

 

(e)                                  All amounts due
and payable by FSA Global, Premier or Cypress, to DCL or its Affiliates under
the terms of the Separation Documents and the MTN Business Transaction
Documents shall continue to be paid to DCL or its Affiliates; provided,
that if a DCL Payment Failure has occurred and is continuing (other than a DCL
Other Payment Failure that is subject to a Good Faith Contested Payment), then
all such amounts shall be deposited by FSA Global, Premier, Cypress or DCL into
the Cash Trapping Account, other than payments made under any FSA Global Swap
or Cypress Swap, which amounts will be paid to DCL or the relevant Affiliate of
DCL in accordance with the terms of the FSA Global Swap or Cypress Swap, as
applicable.

 

Section 2.4.                                   Reinsurance
Proceeds.

 

(a)                                  Following the
payment by DCL of any Policy Claim pursuant to an FSA Global DCL Guarantee, (i) the
related FSA Party shall, at DCL’s expense, use commercially reasonable efforts
to submit claims and to pursue remedies under any Related Reinsurance Coverage
and (ii) to the extent that such FSA Party receives any Reinsurance
Proceeds with respect to such Policy Claim, such FSA Party shall remit to DCL
such Reinsurance Proceeds, subject to Sections 2.4(b) and 2.4(c) and
2.4(d).

 

(b)                                 If an FSA Party
receives Reinsurance Proceeds in respect of an AG Re Reinsurance Agreement,
then:

 

(i)                                     if DCL has paid
all amounts payable by DCL under the FSA Global DCL Guarantees in respect of
the related Policy Claim, then such FSA Party shall remit such Reinsurance
Proceeds to DCL; and

 

(ii)                                  if DCL has not
paid all amounts payable by DCL under the FSA Global DCL Guarantees in respect
of the related Policy Claim, then such Reinsurance Proceeds shall be retained
by such FSA Party and shall be applied by such FSA Party to reimburse itself
for amounts that such FSA Party paid in respect of such Policy Claim, but the
relevant FSA Party will remit all such Reinsurance Proceeds (regardless whether
applied by FSA at that time or not) to DCL if and when DCL pays all amounts
payable by DCL under the FSA Global DCL Guarantees in respect of such Policy
Claim.

 

(c)                                  If an FSA Party
receives Reinsurance Proceeds in respect of a Reinsurance Agreement other than
an AG Re Reinsurance Agreement, then:

 

(i)                                     if the Funding
Guaranty Payment Condition is satisfied with respect to the related Policy
Claim, then such FSA Party shall remit such Reinsurance Proceeds to DCL; and

 

(ii)                                  if the Funding
Guaranty Payment Condition has not been satisfied with respect to the related
Policy Claim, then (A) DCL shall have no right to such Reinsurance
Proceeds and (B) such Reinsurance Proceeds shall be retained by such FSA
Party and shall be applied by such FSA Party to reimburse itself for amounts
that such FSA Party paid in respect of such Policy Claim and, upon payment by
DCL of amounts owing by DCL under the FSA Global DCL Guarantees in respect of
such Policy Claim, any remaining amounts of such Reinsurance Proceeds in excess
of the FSA Percentage of

 

7

 

such Policy Claim will be
retained by such FSA Party to reimburse any FSA Party for the FSA Percentage of
any subsequent Policy Claim.

 

(d)                                 If there is a
Policy Claim with respect to an FSA MTN Business Policy that arises as a result
of a failure by DCL or its Affiliate to make a payment required under an MTN
Business Transaction Document, then the relevant FSA Party shall be entitled,
at its own expense, to submit and pursue claims with respect to any Related
Reinsurance Coverage and retain the related Reinsurance Proceeds for its own
account.

 

(e)                                  Each FSA Party
shall cooperate and pursue claims with respect to any Related Reinsurance
Coverage issued by an Affiliate of an FSA Party at the sole direction of DCL
and at DCL’s expense.

 

Section 2.5.                                   Expenses.

 

(a)                                  So long as no
DCL Event of Default has occurred and is continuing:

 

(i)                                     each of DCL and
the FSA Parties shall be responsible for their own Expenses incurred in
proposing, reviewing and considering the exercise of any FSA Right prior to a
Mutual Determination;

 

(ii)                                  following a
Mutual Determination,

 

(1)                                  if the Mutual
Determination is primarily related to the exercise of an FSA Right with respect
to an FSA MTN Business Policy with respect to which the relevant FSA Party has
not established a Claims Reserve, then DCL shall, within 30 days of receipt of
a reasonably itemized invoice, reimburse the related FSA Party for the DCL
Percentage of any Expenses incurred by FSA in connection with the exercise of
such FSA Right,

 

(2)                                  if the Mutual
Determination is primarily related to the exercise of an FSA Right with respect
to an FSA MTN Business Policy with respect to which the relevant FSA Party has
established a Claims Reserve, DCL shall, within 30 days of receipt of a
reasonably itemized invoice, reimburse the related FSA Party for the DCL
Percentage of all Expenses incurred by or on behalf of an FSA Party in
connection with the exercise of such FSA Right, less an amount equal to the
amount of Expenses that is for the account of Reinsurers.  If the Reinsurers have not reimbursed such
FSA Party within the time period specified under the terms of their reinsurance
arrangements with such FSA Party for the reimbursement of such Expenses, then
DCL shall reimburse such FSA Party for such amounts no later than 15 days after
notice thereof from such FSA Party.  Each
FSA Party shall use commercially reasonable efforts, at the expense of DCL, to
recover any such expense amounts owed by the Reinsurers to such FSA Party and
any such expense amounts recovered shall be promptly paid to DCL to the extent
that DCL has previously reimbursed such FSA Party for such expense amounts.

 

8

 

(b)                                 If a DCL Event
of Default has occurred and is continuing, DCL shall be responsible for the DCL
Percentage of all Expenses of each FSA Party incurred in connection with the
exercise of an FSA Right.

 

(c)                                  Notwithstanding
anything in the Separation Documents to the contrary:

 

(i)                                     to the extent
that DCL incurs Expenses in connection with the enforcement of the Separation
Documents against an FSA Party, and to the extent such enforcement leads to a
final determination, not subject to appeal, in favor of DCL, then such FSA
Party shall reimburse DCL for such Expenses;

 

(ii)                                  to the extent
that an FSA Party incurs Expenses in connection with the enforcement of the
Separation Documents against DCL, FSA Global or Premier, and to the extent such
enforcement leads to a final determination, not subject to appeal, in favor of
such FSA Party, then DCL shall reimburse such FSA Party for such Expenses; and

 

(iii)                               DCL shall bear
all Expenses incurred in connection with the Medium-Term Note Business (except
as set forth in Section 2.5(a)) and the exercise of its inspection
and information rights and each FSA Party shall bear all Expenses incurred in
connection with the Leveraged Tax Lease Business and the exercise of its
inspection and information rights.  No
party shall be responsible for the salaries, overhead costs, operating expenses
or other ordinary business costs and expenses of any other party; provided,
that, DCL shall be responsible for all fees and expenses of FSA Global
and Premier other than as provided in the Administrative Agency Agreement.

 

Section 2.6.                                   Amounts Paid
Under the A-Loans.

 

(a)                                  FSA Global will
apply all amounts paid to the Person entitled to receive such amounts under the
A-Loans to the Debt PUA Notes.

 

(b)                                 If for any
reason the amounts paid with respect to the A-Loans on any date exceed the
related amounts paid (including by means of book entries effected by or on
behalf of FSA, FSA Global or Premier) on the Debt PUA Notes, FSA Global shall
cause a payment to be made to or for the account of Premier (to the extent not
required to be paid to the lessee under the terms of the Leveraged Lease
Transaction Documents) on such date in an amount equal to such excess (and DCL
hereby guarantees that such payment will be timely made). To the extent such
amounts paid with respect to the A-Loans are paid by book entry, then such
excess may be paid to Premier by book entry. To the extent such amounts paid
with respect to the A-Loans are paid in cash, then such excess shall be paid to
FSA, on account of amounts owed to FSA by Premier, in cash.

 

(c)                                  If for any
reason the amounts paid with respect to the Debt PUA Notes on any date exceed
the related amounts paid (including by means of book entries effected by or on
behalf of FSA, FSA Global or Premier) on the Debt PUAs, Premier shall make a
payment to FSA Global on such date in an amount equal to such excess.  To the extent such amounts paid with respect
to the Debt PUA Notes are paid by book entry, then such excess may be paid to
FSA Global by book entry.  To the extent
such amounts paid with respect to the Debt PUA Notes are paid in cash, then
such excess shall be paid to FSA Global in cash.

 

9

 

Section 2.7.                                   Guidelines for
Sale or Replacement of Assets.

 

(a)                                  In forming a
Mutual Determination regarding the sale of FSA Global Assets or Cypress Assets,
DCL and the related FSA Party intend that any such Mutual Determination will be
guided by the criteria described on Exhibit A hereto, or such other
guidelines as DCL and such FSA Party may from time to time mutually agree; provided,
that an FSA Global Asset or Cypress Asset shall not be sold unless prior to or
simultaneously with any such sale, (i) the FSA MTN Business Policies (if
any) have been terminated in accordance with applicable laws and regulations on
(A) the sold FSA Global Asset and (B) the related MTN and (C) such
Related Derivative (if any) relating to such sold amount and (ii) the
Related Derivative has been terminated or amended.

 

(b)                                 In forming a
Mutual Determination regarding the replacement of Cypress Assets, DCL and the
related FSA Party intend that any such Mutual Determination will be guided by
the criteria described on Exhibit B hereto or such other guidelines
as DCL and such FSA Party may from time to time mutually agree; provided,
that a Cypress Asset shall not be replaced unless prior to or simultaneously
with any such replacement, (i) the FSA MTN Business Policies (if any) have
been amended in accordance with clause (f) of Exhibit B
or terminated in accordance with applicable laws and regulations on the
replaced Cypress Asset and the related Cypress Swap and (ii) the Related
Derivative has been terminated or amended.

 

Section 2.8.                                   Guidelines for
the Replacement of an FSA Global Swap or a Counterparty Under an FSA Global
Swap.  In forming a Mutual
Determination regarding the replacement of an FSA Global Swap or a counterparty
under an FSA Global Swap, DCL and the related FSA Party intend that any such
Mutual Determination will be guided by the criteria described on Exhibit C
hereto, or such other guidelines as DCL and such FSA Party may mutually agree
from time to time; provided, that an FSA Global Swap shall not be
replaced unless prior to or simultaneously with any such replacement, (i) the
FSA MTN Business Policies (if any) have been terminated in accordance with
applicable laws and regulations on the replaced FSA Global Swap, (ii) the
related MTN Business Transaction Documents have (if and as applicable) been
amended to permit the transactions contemplated by such replacement, and (iii) DCL
has advanced to FSA Global all funds required by it in order to effect the
foregoing replacement.

 

Section 2.9.                                   Draws Under
Liquidity Facilities.

 

(a)                                  To the extent
that the MTN Business Transaction Documents give FSA Global the right to make a
draw under any Liquidity Facility, FSA Global shall timely make such draw in
the maximum amount drawable and DCL shall cause, and FSA may cause, FSA Global
to make such draw to the extent that DCL or FSA, as applicable, has the ability
to take such actions as Administrator under the Administrative Agency Agreement
or other Separation Documents.

 

(b)                                 To the extent
an FSA Party is a party to, a third party beneficiary of or otherwise has
rights under any Liquidity Facility, such FSA Party may exercise such third
party beneficiary or other rights (i) if the Liquidity Facility is
provided by DCL or an Affiliate of DCL, in its sole discretion and without any
consent, consultation or Mutual Determination with DCL, and (ii) otherwise,
with DCL’s consent, which consent shall not be unreasonably withheld or
delayed.

 

10

 

Section 2.10.                             Acceleration of
the FSA MTN Business Policies and FSA Global DCL Guaranties.

 

(a)                                  Any amounts
owing under any FSA MTN Business Policy and any obligations of DCL under the
FSA Global DCL Guarantees may be accelerated as follows:

 

(i)                                     if (A) a
Bankruptcy Event with respect to FSA occurs on or before December 31,
2015, (B) a claim is made under an FSA MTN Business Policy on or before December 31,
2015 and (C) that FSA MTN Business Policy or a related MTN Business
Transaction Document permits the related FSA Party to elect to accelerate
amounts payable under that FSA MTN Business Policy, then (1) such FSA
Party may elect to accelerate or cause to be accelerated amounts payable under
that FSA MTN Business Policy, to the extent permitted by such FSA MTN Business
Policy or any MTN Business Transaction Document related thereto, if it makes
such election prior to December 31, 2015 and (2) DCL’s obligations
under the Funding Guaranty and Reimbursement Guaranty with respect to such
amounts will also be accelerated and will be due and payable in full on the
date on which such accelerated amounts under such FSA MTN Business Policy are
payable;

 

(ii)                                  at any time
when a DCL Event of Default is continuing, (1) the applicable FSA Party
may elect to accelerate or cause to be accelerated amounts payable under any
FSA MTN Business Policy in respect of which any claim has been made, to the
extent permitted by such FSA MTN Business Policy or any MTN Business
Transaction Document related thereto and (2) DCL’s obligations under the
Funding Guaranty and Reimbursement Guaranty with respect to such amounts will
also be accelerated and will be due and payable in full on the date on which
such accelerated amounts under such FSA MTN Business Policy are payable; and

 

(iii)                               if any of the
MTNs are or have been accelerated as a result of (a) an “Insurer Event” as
defined in the MTN Indenture (other than due to a Bankruptcy Event with respect
to FSA after December 31, 2015) or (b) a Bankruptcy Event with
respect to FSA Global (other than due to the taking of a Bankruptcy Filing
Action), then (1) FSA may elect to accelerate or cause to be accelerated
amounts payable under any FSA MTN Business Policy that insures an MTN, to the
extent permitted by such FSA MTN Business Policy or any MTN Business
Transaction Document related thereto and (2) DCL’s obligations under the
Funding Guaranty and Reimbursement Guaranty with respect to such amounts will
also be accelerated and will be due and payable in full  on the date on which such accelerated amounts
under such FSA MTN Business Policy are payable.

 

(b)                                 In all
circumstances, if a claim is made under an FSA MTN Business Policy and if the
FSA MTN Business Policy permits acceleration, the related FSA Party may
accelerate that FSA MTN Business Policy, but the FSA Global DCL Guarantees will
not be accelerated without the consent of DCL, except as set forth in clause
(a)(i), (ii) or (iii) above; provided, however,
that this clause (b) will not affect the obligation of DCL to
pay scheduled payments under the FSA Global DCL Guarantees.

 

11

 

Section 2.11.                             Blocked
Accounts.

 

(a)                                  Following the
occurrence and during the continuance of any DCL Payment Failure (other than a
DCL Other Payment Failure that is a Good Faith Contested Payment), Guarantee
Fees, Reinsurance Proceeds, subrogation recoveries, reimbursement recoveries
and any other amounts payable by any party to DCL under this Agreement or any
other Separation Document or the MTN Business Transaction Documents (other than
the FSA Global Swaps and the Cypress Swaps) will be deposited by such party (or
by DCL if such party fails to so deposit such amounts) into the Cash Trapping
Account; provided that amounts owed by an FSA Party under Sections
2.2(a) and 2.2(c) will be paid directly to DCL and not
deposited into the Cash Trapping Account unless a DCL Guaranty Payment Failure
has occurred and is continuing.

 

(b)                                 Any amounts on
deposit in the Cash Trapping Account will be applied by FSA in the following
order of priority: (first) to the
relevant FSA Party, in satisfaction of amounts due and payable to such FSA
Party in respect of any DCL Guaranty Payment Failures, (second) to DCL, in satisfaction of amounts
due and payable by such FSA Party under Sections 2.2(a) and 2.2(c) and
(third) to the FSA Parties, in
satisfaction of any other amounts due and payable to the FSA Parties under this
Agreement and any other Separation Document (other than a DCL Other Payment
Failure that is a Good Faith Contested Payment).  After all amounts required to be paid by DCL
to FSA have been paid (and any required DCL Collateral has been posted to the
Collateral Posting Account), and no other DCL Default or DCL Event of Default
has occurred and is continuing, all amounts payable to DCL under the Separation
Documents shall be paid directly to DCL and shall not be deposited into the
Cash Trapping Account.  Any amounts on
deposit in the Collateral Posting Account may be applied by the applicable FSA
Party only in accordance with Section 5.3(b) to satisfy DCL
Guaranty Payment Failures.

 

(c)                                  For the
avoidance of doubt, the deposit of any DCL Collateral into a Blocked Account
shall not relieve FSA Global, Premier, Cypress or DCL of any of their
respective obligations to make timely payments in accordance with the terms of
this Agreement, the FSA Global DCL Guarantees, the Indemnification Agreement,
the Insurance and Indemnity Agreements or any other Separation Document.

 

(d)                                 DCL hereby
grants a first priority security interest to the FSA Parties in all of DCL’s
right, title and interest in the DCL Collateral (a) in the case of the DCL
Collateral deposited into or otherwise credited to the Collateral Posting
Account, to secure DCL’s obligation to satisfy any DCL Guaranty Payment Failure
under the FSA Global DCL Guarantees and (b) in the case of the DCL
Collateral deposited into or otherwise credited to the Cash Trapping Account,
to secure DCL’s obligation to pay the amounts described in Section 2.11(b).  DCL shall take reasonable actions deemed
necessary or desirable by any FSA Party or that are required by applicable law
to continue the FSA Parties’ first priority perfected security interest in the
DCL Collateral.  The FSA Parties shall
have the rights and remedies of a secured party under the UCC.

 

Section 2.12.                             Setoff.

 

(a)                                  If (i) any
amount owing by an FSA Party to DCL under the Separation Documents (other than
an FSA Good Faith Contested Payment) is not paid when due and if such

 

12

 

amount is not paid during
the applicable FSA Cure Period and (ii) no DCL Event of Default has  occurred
and is continuing, then DCL shall be entitled to deduct such unpaid amounts
from any amounts payable to an FSA Party by DCL under the Separation Documents;
provided, that DCL may not deduct any such amounts from (i) payments
required to be made by DCL under the FSA Global DCL Guarantees, (ii) DCL
Collateral required to be deposited by DCL into a Blocked Account, (iii) the
amount of any Claims Reserve LOC required to be issued by DCL or (iv) payments
required to be made by DCL under any Claims Reserve LOC.

 

As used in this Section 2.12,
the term “FSA Cure Period” means five Business Days following receipt by
the applicable FSA Party of written notice from DCL of such FSA Party’s failure
to pay the FSA Percentage of a Policy Claim when and as required under Section 2.2(a) 
(or, in the case of any nonpayment resulting from an administrative or
operational error or omission or a force majeure, eight Business Days following
such FSA Party’s receipt of such written notice; provided, however,
that such FSA Party has provided notice to DCL no later than the third Business
Day after receipt of such written notice that such non-payment has occurred due
to administrative or operational error or omission or a force majeure).

 

(b)                                 If any amounts
owing by DCL to an FSA Party under the Separation Documents (other than a Good
Faith Contested Payment) are not paid, then each FSA Party shall be entitled to
deduct such unpaid amounts from any amounts payable to DCL by such FSA Party
under the Separation Documents; provided, that no amounts may be
deducted from amounts required to be paid by an FSA Party under Section 2.2
other than to satisfy amounts owing by DCL under an FSA Global DCL Guaranty.

 

ARTICLE
III

 

REPRESENTATIONS
AND WARRANTIES; COVENANTS

 

Section 3.1.                                   Representations
of the Parties.

 

(a)                                  Representations
of FSA Global and Premier. 
Except as set forth in the disclosure schedules attached as Appendix
IV to this Agreement, each of FSA Global and Premier represents and
warrants as to itself as of the date hereof that:

 

(i)                                     Due
Organization and Qualification.  Such party is duly organized and validly
existing under the laws of the jurisdiction of its organization, and is duly
qualified to do business, is in good standing and has obtained all necessary
licenses, permits, charters, registrations and approvals necessary for the
performance of its obligations under the Separation Documents.

 

(ii)                                  Power and
Authority.  Such party has
all necessary power and authority to conduct its business as currently
conducted and as proposed to be conducted, to execute, deliver and perform its
obligations under this Agreement and any other Separation Document to which it
is a party and to consummate the transactions contemplated hereby and thereby
and to perform all its obligations hereunder and thereunder.

 

13

 

(iii)                               Due
Authorization.  The
execution, delivery and performance of the Separation Documents have been duly
authorized by such party and do not require any additional approvals or
consents or other action by or any notice to or filing with any Person,
including any Governmental Authority.

 

(iv)                              Noncontravention.  Neither the execution and delivery of the
Separation Documents by such party, the consummation of the transactions
contemplated thereby nor the satisfaction of the terms and conditions of the
Separation Documents,

 

(1)                                  conflicts with
or results in any breach or violation of any provision of such party’s
organizational or constitutional documents or any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award currently in effect
having applicability to such party or any of its properties, including regulations
issued by a Governmental Authority having supervisory powers over such party;

 

(2)                                  constitutes a
default by such party under or a breach of any provision of any loan agreement,
mortgage, indenture or other agreement or instrument to which such party is a
party or by which it or any of its properties is or may be bound or affected;
or

 

(3)                                  results in or
requires the creation of any Lien upon or in respect of any of such party’s
assets except as contemplated in the Separation Documents.

 

(v)                                 Legal Proceedings.  Other than as disclosed in the Annual Report
on Form 10-K for the year ended December 31, 2008, or in the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 as
filed by FSAH with the SEC, there is no litigation, action, proceeding, suit or
investigation by or before any Governmental Authority against or affecting such
party or any of its properties or rights either pending or, to such party’s
knowledge after reasonable inquiry, threatened that, if determined adversely to
such party, would reasonably be likely to result in a Material Adverse Change
with respect to such party.

 

(vi)                              Valid and
Binding Obligations.  Each
Separation Document, when executed and delivered by such party, will constitute
the legal, valid and binding obligation of such party, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally.

 

(vii)                           Compliance With
Law, Etc.  No
practice, procedure or policy currently employed or proposed to be employed by
such party in the conduct of its business violates any law, rule, regulation,
judgment, agreement, order or decree applicable to such party or by which such
party or its assets may be bound, which violation would be reasonably likely to
result in a Material Adverse Change with respect to such party.  Such party is not in breach of or in default
under any applicable law or administrative regulation of the jurisdiction of
its organization, or any Governmental Authority thereof or any applicable
judgment or decree or any note, resolution, certificate, agreement or

 

14

 

other instrument to which
such party is a party or is otherwise subject which, if enforced, would
reasonably be likely to result in a Material Adverse Change with respect to
such party.

 

(viii)                        No Investment
Company Act Registration.  Such
party is not required to be registered as an “investment company” under the
Investment Company Act.

 

(ix)                                Taxes.  Such party has filed all material Tax returns
which are required to be filed, such Tax returns were correct and complete in
all material respects, and timely paid all material Taxes, if applicable,
including any assessments received by it, to the extent that such Taxes have
become due.  Any material Taxes, fees and
other governmental charges payable by such party in connection with its
execution and delivery of and performance under the Separation Documents to
which it is a party have been paid or shall have been paid at or prior to the
Closing Date if such Taxes, fees or other governmental charges were due on or
prior to the Closing Date.

 

(x)                                   Solvency.  Such party is solvent and will not be
rendered insolvent by the transactions contemplated by the Separation Documents
and, after giving effect to such transactions, such party does not believe that
it has incurred, and does not intend to incur, debts beyond its ability to pay
such debts as they mature.  Such party
does not contemplate the commencement of insolvency, bankruptcy, liquidation or
consolidation proceedings or the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of such party or any
substantial part of its assets.

 

(xi)                                Separation
Documents.  Each of the
representations and warranties of such party contained in the Separation
Documents is true and correct in all material respects and such party hereby
makes each such representation and warranty to, and for the benefit of, the FSA
Parties as if the same were set forth in full herein.

 

(xii)                             Employees.  No such party has or has had any employees
nor has or has owned, rented, leased or been in possession of any building or
other real property.

 

(b)                                 Representations
of each FSA Party.  Except as
set forth in the disclosure schedules attached as Appendix IV to this
Agreement, each FSA Party represents and warrants as of the date hereof that:

 

(i)                                     Due
Organization and Qualification.  It is duly organized and validly existing
under the laws of the jurisdiction of its organization, and is duly qualified
to do business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals necessary for the performance of
its obligations under the Separation Documents.

 

(ii)                                  Power and
Authority.  It has all
necessary power and authority to conduct its business as currently conducted
and as proposed to be conducted, to execute, deliver and perform its
obligations under this Agreement and any other Separation Document to which it
is a party and to consummate the transactions contemplated hereby and thereby
and to perform all its obligations hereunder and thereunder.

 

15

 

(iii)                               Due
Authorization.  The
execution, delivery and performance of the Separation Documents have been duly
authorized by it and do not require any additional approvals or consents or
other action by or any notice to or filing with any Person, including any
Governmental Authority.

 

(iv)                              Noncontravention.  Neither the execution and delivery of this
Agreement by it, the consummation of the transactions contemplated thereby nor
the satisfaction of the terms and conditions of the Separation Documents,

 

(1)                                  conflicts with
or results in any material breach or violation of any provision of its
organizational or constitutional documents or any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award currently in effect
having applicability to it or any of its properties, including regulations
issued by a Governmental Authority having supervisory powers over it; or

 

(2)                                  constitutes a
material default by it under or a breach of any provision of any loan
agreement, mortgage, indenture or other agreement or instrument to which it is
a party or by which it or any of its properties is or may be bound or affected.

 

(v)                                 Legal
Proceedings.  Other than
as disclosed in the Annual Report on Form 10-K for the year ended December 31,
2008, or the Quarterly Report on Form 10-Q for the quarter ended March 31,
2009, as filed by FSAH with the SEC, there is no litigation, action,
proceeding, suit or investigation by or before any Governmental Authority
against or affecting it or any of its properties or rights either pending or,
to its knowledge after reasonable inquiry, threatened that, if determined
adversely to it, would reasonably be likely to result in a Material Adverse
Change with respect to it.

 

(vi)                              Valid and
Binding Obligations.  The
Separation Documents, when executed and delivered by it, will constitute the
legal, valid and binding obligation of it, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights
generally.

 

(vii)                           Compliance With
Law, Etc.  It is not
in breach of or in default under any applicable law or administrative
regulation of the jurisdiction of its organization, or any Governmental
Authority thereof or any applicable judgment or decree or any note, resolution,
certificate, agreement or other instrument to which it is a party or is
otherwise subject which, if enforced, would reasonably be likely to result in a
Material Adverse Change with respect to it.

 

(viii)                        Solvency.  It does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of it or any of its assets. 
Such party has not charged or assigned and is not charging or assigning
its interest in its assets applicable to it with any intent to hinder, delay or
defraud any of such party’s creditors.

 

16

 

(ix)           Cypress.  Cypress is authorized to sign this Agreement
and each other Separation Document to which Cypress is a party.

 

Section 3.2.            Representations of DCL.  DCL makes the representations and warranties
set forth below as of the date hereof. 
DCL agrees that it shall promptly notify FSA if it becomes aware of any
correction to the lists set forth in Section 3.2(a) through (w).  To its knowledge following reasonable
inquiry, no financial guarantees issued by FSA or any of its Affiliates with
respect to the Medium-Term Note Business or the Leveraged Tax Lease Business
remain outstanding, as of the Closing Date, other than those set forth on the
Schedules hereto.  Neither DCL nor its
Affiliates shall be liable to any FSA Party for any correction to information
provided under Sections 3.2(b), (d), (g), (i), (k),
(x) and (y) unless the error resulted in an increase in
the net liabilities (measured as the excess of the increased liabilities over
the increased assets) of the Leveraged Tax Lease Business as of September 30,
2008, as such, liabilities were accounted for as of September 30, 2008 in
Annex F to the Purchase Agreement.

 

(a)           List of MTNs.  The list of MTNs set forth on Schedule A
(i) includes all MTNs outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(b)           List of Debt PUA Notes.  The list of Debt PUA Notes set forth on Schedule
B under the column titled “F” (i) includes all Debt PUA Notes
outstanding on the Closing Date and (ii) is true, correct and complete in
all material respects.

 

(c)           List of Equity PUA Notes.  The list of Equity PUA Notes set forth on Schedule
B under the column titled “I” (i) includes all Equity PUA Notes
outstanding on the Closing Date and (ii) is true, correct and complete in
all material respects.

 

(d)           List of Debt PUAs. 
The list of Debt PUAs set forth on Schedule B under the column
titled “L” (i) includes all Debt PUAs outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(e)           List of Equity PUAs.  The list of Equity PUAs set forth on Schedule
B under the column titled “M” (i) includes all Equity PUAs outstanding
on the Closing Date and (ii) is true, correct and complete in all material
respects.

 

(f)            List of MTN Policies.  The list of MTN Policies set forth on Schedule
A (i) includes all MTN Policies outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects. FSA or the relevant
Affiliate of FSA has delivered notice substantially in the form attached hereto
as Appendix VI to each “Holder” of an MTN Policy that DCL has been
appointed a “Fiscal Agent” under each MTN Policy, to each Person to whom such
notice must be delivered for such notice to be effective and in accordance with
the terms of such policy.

 

(g)           List of Debt PUA Notes Policies.  The list of Debt PUA Notes Policies set forth
on Schedule B under the column titled “E” (i) includes all Debt PUA
Notes Policies outstanding on the Closing Date and (ii) is true, correct
and complete in all material respects.

 

(h)           List of Equity PUA Notes Policies.  The list of Equity PUA Notes Policies set
forth on Schedule B under the column titled “H” (i) includes all
Equity PUA Notes Policies outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

17

 

FSA or the relevant
Affiliate of FSA has delivered notice substantially in the form attached hereto
as Appendix VI to each “Holder” of an Equity PUA Notes Policy that DCL
has been appointed a “Fiscal Agent” under each Equity PUA Notes Policy, to each
Person to whom such notice must be delivered for such notice to be effective
and in accordance with the terms of such policy.

 

(i)            List of Debt PUA Policies.  The list of Debt PUA Policies set forth on Schedule
B under the column titled “D” (i) includes all Debt PUA Policies
outstanding on the Closing Date and (ii) is true, correct and complete in
all material respects.

 

(j)            List of Equity PUA Policies.  The list of Equity PUA Policies set forth on Schedule
B under the column titled “G” (i) includes all Equity PUA Policies
outstanding on the Closing Date and (ii) is true, correct and complete in
all material respects. FSA or the relevant Affiliate of FSA has delivered
notice substantially in the form attached hereto as Appendix VI to each “Holder”
of an Equity PUA Policy that DCL has been appointed a “Fiscal Agent” under each
Equity PUA Policy, to each Person to whom such notice must be delivered for
such notice to be effective and in accordance with the terms of such policy.

 

(k)           List of A-Loans. 
The list of A-Loans set forth on Schedule B under the column
titled “K” (i) includes all A-Loans outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(l)            List of FSA Global Assets other than A-Loans.  The list of FSA Global Assets other than
A-Loans set forth on Schedule C (i) includes all FSA Global Assets
other than A-Loans outstanding on the Closing Date and (ii) is true,
correct and complete in all material respects.

 

(m)          List of FSA Global Swaps.  The list of FSA Global Swaps set forth on Schedule D
(i) includes all FSA Global Swaps outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(n)           List of FSA Global Swap Policies.  The list of FSA Global Swap Policies set
forth on Schedule D (i) includes all FSA Global Swap Policies
outstanding on the Closing Date and (ii) is true, correct and complete in
all material respects. FSA or the relevant Affiliate of FSA has delivered
notice substantially in the form attached hereto as Appendix VI to each “Holder”
of an FSA Global Swap Policy that DCL has been appointed a “Fiscal Agent” under
each FSA Global Swap Policy, to each Person to whom such notice must be delivered
for such notice to be effective and in accordance with the terms of such
policy.

 

(o)           List of FSA Global Asset Policies.  The list of FSA Global Assets Policies set
forth on Schedule C (i) includes all FSA Global Assets Policies
outstanding on the Closing Date and (ii) is true, correct and complete in
all material respects. FSA or the relevant Affiliates of FSA has delivered
notice substantially in the form attached hereto as Appendix VI to each “Holder”
of an FSA Global Asset Policy that DCL has been appointed a “Fiscal Agent”
under each FSA Global Asset Policy, to each Person to whom such notice must be
delivered for such notice to be effective and in accordance with the terms of
such policy.

 

18

 

(p)           List of Cypress Notes.  The list of Cypress Notes set forth on Schedule
C (i) includes all Cypress Notes outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(q)           List of Cypress Indentures.  The list of Cypress Indentures set forth on Schedule
E (i) includes all Cypress Indentures outstanding on the Closing Date
and (ii) is true, correct and complete in all material respects.

 

(r)            List of Cypress Assets.  The list of Cypress Assets set forth on Schedule
F (i) includes all Cypress Assets outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(s)           List of Cypress Swaps.  The list of Cypress Swaps set forth on Schedule
D (i) includes all Cypress Swaps outstanding on the Closing Date and (ii) is
true, correct and complete in all material respects.

 

(t)            List of Cypress Swap Policies.  The list of Cypress Swap Policies set forth
on Schedule D (i) includes all Cypress Swap Policies outstanding on
the Closing Date and (ii) is true, correct and complete in all material
respects. FSA or the relevant Affiliate of FSA has delivered notice
substantially in the form attached hereto as Appendix VI to each “Holder”
of an Cypress Swap Policy that DCL has been appointed a “Fiscal Agent” under each
Cypress Swap Policy, to each Person to whom such notice must be delivered for
such notice to be effective and in accordance with the terms of such policy.

 

(u)           List of Matched FSA Global Assets and Related MTNs.  The list of FSA Global Assets, Related
Derivatives and Related MTNs set forth on Schedule G (i) includes
all FSA Global Assets, Related Derivatives and Related MTNs and (ii) is
true, correct and complete in all material respects.

 

(v)           List of Reinsurance Agreements and Related FSA MTN
Business Policies.  The list of
Reinsurance Agreements and the list of related FSA MTN Business Policies set
forth on Schedule H (i) includes all Reinsurance Agreements and
related FSA MTN Business Policies and (ii) is true, correct and complete
in all material respects.

 

(w)          List of Leveraged Tax Lease Business Journal Entries.  The list of journal entries set forth in the
electronic file delivered to FSA on the Closing Date (such file, the “Journal
Entries File”) (i) includes all journal entries to post the interest
payments and changes in principal required to be made over the life of the Debt
PUAs, the Debt PUA Notes and the related A-Loans (determined as of the date of
this Agreement and without giving effect to any subsequent changes) in order to
evidence the monthly amortization of the A-Loans and Debt PUA Notes and the
reduction of the amounts owing under the Debt PUAs and (ii) is true,
correct and complete in all material respects.

 

(x)            Liabilities of Premier.  As of the Closing Date, there are no
outstanding liabilities (contingent or otherwise) of Premier other than Debt
PUAs listed on Schedule B and Equity PUAs listed on Schedule B
(and any reimbursement obligations of Premier to FSA in relation thereto).

 

19

 

(y)           Liabilities of FSA Global.  As of the Closing Date, there are no
outstanding liabilities (contingent or otherwise) of FSA Global other than the
MTNs listed on Schedule A, the Debt PUA Notes listed on Schedule B,
the Equity PUA Notes listed on Schedule B and the FSA Global Swaps
listed on Schedule D (and any reimbursement obligations of FSA Global to
an FSA Party in relation thereto).

 

(z)            Amendments of Certain Swaps.  With respect to each FSA Global Swap or
Cypress Swap under which DCL or any of its Affiliates is the counterparty (such
a counterparty, a “DCL Swap Counterparty”) on or prior to the Closing
Date, such swaps have been amended in the form to be agreed between DCL and FSA
to (A) provide that such swaps cannot be terminated by such DCL Swap Counterparty
as a result of a default by FSA Global or Cypress, as applicable, or a
termination event affecting FSA Global or Cypress, as applicable (B) include
a waiver and release by such DCL Swap Counterparty of any and all other rights
to receive any payment from FSA (but not from DCL on behalf of FSA pursuant to
the terms of the FSA Global DCL Guarantees) under the terms of the related FSA
Global Swap Policy or Cypress Swap Policy, as applicable, other than amounts
required to be paid by FSA under Sections 2.2(a) and 2.2(c),
(C) provide that such DCL Swap Counterparty will not seek to amend,
terminate or cancel or withhold payment under such FSA Global Swap or Cypress
Swap, as applicable, notwithstanding any failure of an FSA Party to make
payment of amounts owed under such FSA Global Swap Policy or Cypress Swap
Policy, as applicable, and (D) include a non-petition clause in the form
agreed between DCL and FSA (such amendments, as applicable, the “FSA Global
Swap Amendments” and the “Cypress Swap Amendments”).  For the avoidance of doubt, no FSA MTN
Business Policies will be terminated as a result of the FSA Global Swap
Amendments or the Cypress Swap Amendments.

 

(aa)         FSA Global and Premier Memoranda and Articles of
Association.  A true and complete
copy of the Premier and FSA Global Memoranda and Articles of Association (as
amended) are attached hereto as Schedule I.

 

(bb)         Insurance and Indemnity Agreements.

 

(i)            (a) There is an insurance and
indemnity agreement between FSA and Cypress that applies to each FSA MTN
Business Policy issued in respect of any obligation of Cypress; (b) the
insurance and indemnity agreements described in the definition of “Cypress
Insurance Agreements” is a true and complete list of all such insurance and
indemnity agreements and (c) other than the insurance and indemnity
agreements described in the definition of “Cypress Insurance Agreements,” no
other insurance and indemnity agreement between FSA and Cypress is in effect as
of the Closing Date.

 

(ii)           (a) There is an insurance and
indemnity agreement between FSA and Premier that applies to each FSA MTN
Business Policy issued in respect of any obligation of Premier and (b) such
insurance and indemnity agreements are substantially in the form of the
Insurance and Indemnity Agreement, dated as of June 26, 2003, by and
between FSA and Premier, and are all similar in form and substance in all
material respects and (c) other than the insurance and indemnity
agreements described in

 

20

 

clause (a) above, no
other insurance and indemnity agreement between FSA and Premier is in effect as
of the Closing Date.

 

(iii)          (a) There is an insurance and
indemnity agreement between FSA and FSA Global, an Affiliate of FSA immediately
prior to the Closing Date or Augusta Funding Limited that applies to each FSA
MTN Business Policy (other than (A) the FSA MTN Business Policies referred
to in clauses (i) and (ii) above and (B) the FSA
Global Assets Policies identified on Schedule M); (b) the insurance
and indemnity agreement described in the definition of “FSA Global Insurance
Agreement” is a true and complete list of all such insurance and indemnity
agreements and (c) other than the insurance and indemnity agreements
described in the definition of “FSA Global Insurance Agreement,” no other
insurance and indemnity agreement between FSA and FSA Global is in effect as of
the Closing Date.

 

(cc)         Due Organization and Qualification.  It is duly organized and validly existing
under the laws of the jurisdiction of its organization, and is duly qualified
to do business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals necessary for the performance of
its obligations under the Separation Documents.

 

(dd)         Power and Authority. 
It has all necessary power and authority to conduct its business as
currently conducted and as proposed to be conducted, to execute, deliver and
perform its obligations under this Agreement and any other Separation Document
to which it is a party and to consummate the transactions contemplated hereby
and thereby and to perform all its obligations hereunder and thereunder and to
deliver and pledge any collateral (as applicable) as provided herein.

 

(ee)         Due Authorization. 
The execution, delivery and performance of the Separation Documents to
which it is a party have been duly authorized by it and do not require any
additional approvals or consents or other action by or any notice to or filing
with any Person, including any Governmental Authority.

 

(ff)           Noncontravention. 
Neither the execution and delivery of the Separation Documents by it,
the consummation of the transactions contemplated thereby nor the satisfaction
of the terms and conditions of the Separation Documents,

 

(i)            conflicts with or results in any
breach or violation of any provision of its organizational or constitutional
documents or any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award currently in effect having applicability to it
or any of its properties, including regulations issued by a Governmental
Authority having supervisory powers over it; or

 

(ii)           constitutes a material default by it
under or a breach of any provision of any loan agreement, mortgage, indenture
or other agreement or instrument to which it is a party or by which it or any
of its properties is or may be bound or affected.

 

(gg)         Legal Proceedings.  Other than as disclosed in the annual report
of Dexia and DCL with respect to fiscal year 2008 and any subsequent quarterly
financial reports (or updates thereto) of Dexia and DCL prior to the date
hereof, there is no litigation, action, proceeding, suit

 

21

 

or investigation by or
before any Governmental Authority against or affecting it or any of its
properties or rights either pending or, to its knowledge after reasonable
inquiry, threatened that, if determined adversely to it, would reasonably be
likely to result in a Material Adverse Change with respect to it.

 

(hh)         Valid and Binding Obligations.  The Separation Documents executed by it, when
executed and delivered by it, will constitute the legal, valid and binding
obligations of it, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally.

 

(ii)           Compliance With Law, Etc.  It is not in breach of or in default under
any applicable law or administrative regulation of the jurisdiction of its
organization, or any Governmental Authority thereof or any applicable judgment
or decree or any note, resolution, certificate, agreement or other instrument
to which it is a party or is otherwise subject which, if enforced, would
reasonably be likely to result in a Material Adverse Change with respect to it.

 

(jj)           Taxes.  It
has filed all Tax returns which are required to be filed and timely paid all
Taxes, if applicable, including any assessments received by it, to the extent
that such Taxes have become due, the non-filing or non-payment of which would
result in a Material Adverse Change with respect to it.  Any Taxes, fees and other governmental
charges payable by it in connection with its execution and delivery of and
performance under the Separation Documents to which it is a party have been
paid or shall have been paid at or prior to the Closing Date if such Taxes,
fees or other governmental charges were due on or prior to the Closing Date, to
the extent non-payment would be reasonably likely to result in a Material
Adverse Change with respect to it.

 

(kk)         Solvency.  It
does not contemplate the commencement of insolvency, bankruptcy, liquidation or
consolidation proceedings or the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of it or any of its assets.

 

(ll)           Representations and Warranties with Respect to the DCL
Collateral.  DCL represents, warrants
and agrees on its own behalf with respect to the DCL Collateral on any date on
which DCL Collateral is Delivered to the FSA Parties that:

 

(i)            DCL has Granted a valid and
continuing security interest (as defined in the UCC) in such DCL Collateral in
favor of the FSA Parties, which security interest is prior to all other Liens
(except for any Permitted Liens), and is enforceable as such as against
creditors of DCL.  The security interest
of the FSA Parties in such DCL Collateral will, until the obligations and
indebtedness of DCL secured hereunder have been paid in full or release of such
DCL Collateral in accordance with the terms of this Agreement, be a perfected
security interest in such DCL Collateral, senior to all other security
interests in such DCL Collateral (except for any Permitted Liens).

 

(ii)           It owns such DCL Collateral free and
clear of any Lien, claim or encumbrance of any Person other than the FSA
Parties and it has acquired its ownership

 

22

 

in such DCL Collateral in
good faith without notice of any Adverse Claim, in each case except for any
Permitted Lien.

 

(iii)          Other than any Permitted Lien, it has
not pledged, assigned, sold, granted a Lien on or security interest in, or
otherwise conveyed any of such DCL Collateral. 
It has not authorized the filing of and is not aware of any financing
statements against it that include a description of such DCL Collateral.

 

(iv)          None of the Instruments, Tangible
Chattel Paper or Certificated Securities that constitute or evidence such DCL
Collateral has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than (x) the FSA
Parties, or (y) in connection with any Permitted Lien.

 

(v)           It has received all consents and
approvals required by the terms of such DCL Collateral to the transfer to the
FSA Parties of its interest and rights in such DCL Collateral hereunder and it
has full right to Grant a security interest in and assign and pledge all of its
right, title and interest in such DCL Collateral to the FSA Parties.

 

(vi)          It has not consented to the Intermediary’s
complying with the Entitlement Orders or other instructions originated by any
Person other than the FSA Parties in connection with either Blocked
Account.  All of such DCL Collateral
consisting of Security Entitlements and Financial Assets has been credited to
the Blocked Accounts.  The Intermediary
for the Blocked Accounts has agreed to treat all assets, except uninvested
funds, credited to the Blocked Accounts as Financial Assets.  The Blocked Accounts are Securities Accounts
with respect to securities and other Financial Assets deposited or credited to
the Blocked Accounts.  It acknowledges
that the Intermediary will agree, pursuant to the related Account Control
Agreement, to comply with all Entitlement Orders and other instructions
originated by the FSA Parties in relation to the Blocked Accounts, without its
further consent.

 

Section 3.3.            Affirmative Covenants of the
Parties.

 

(a)           DCL hereby agrees that during the
term of this Agreement, unless DCL and FSA shall otherwise expressly consent in
writing:

 

(i)            DCL shall promptly inform the FSA
Parties in writing of the occurrence of any of the following:

 

(1)           any DCL Default or
DCL Event of Default;

 

(2)           the commencement of any proceedings
by or against DCL under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect or
of any proceeding in which a receiver, liquidator, conservator, trustee or
similar official shall have been, or may be, appointed or requested for DCL or
any of its assets.

 

(ii)           DCL shall furnish or cause to be
furnished to the FSA Parties, within 30 days of the end of each fiscal quarter,
an information report with respect to the prior

 

23

 

quarter
in the form attached hereto as Appendix III (together with the
certification described in Appendix III) that is true and complete in
all material respects, together with any other information as the FSA Parties
may reasonably request.

 

(iii)          DCL shall not take any action in its
capacity as Fiscal Agent except to receive and process Policy Claims with
respect to FSA MTN Business Policies unless otherwise agreed between DCL and
the related FSA Party.

 

(iv)          DCL shall use commercially reasonable
efforts to make, or cause to be made, all journal entries for the Leveraged Tax
Lease Business in accordance with the Journal Entries File or as otherwise
directed by FSA.  FSA shall provide to
the Sub-Administrator, at least six Business Days notice in advance of any
required change to a journal entry being made, or if FSA indicates that the
change must be made within a shorter period, then FSA shall provide such notice
of such change within three Business Days, and DCL shall cause the
Sub-Administrator to promptly confirm to FSA when it has made such journal
entries.  FSA shall indemnify DCL and
hold it harmless from any Losses that result from making any such change as
requested by FSA.  DCL shall be responsible
for the due and punctual performance by the Sub-Administrator of the Sub-Administrator’s
obligations on behalf of the LTL Administrator (as defined in the
Administrative Services Agreement) under the Administrative Services Agreement.

 

(v)           To the extent that DCL receives
notice from an FSA Party or otherwise becomes aware of a financial guarantee
insurance policy issued by FSA or an Affiliate of FSA in connection with the
Medium-Term Note Business that is outstanding and under which DCL or an
Affiliate of DCL is a beneficiary (other than a Cypress Swap Policy or a FSA
Global Swap Policy), DCL will give notice of such circumstance to the FSA
Parties (if notice was not received from an FSA Party) and will enter into, or
cause any Affiliate of DCL that is the beneficiary to enter into, a customary
termination agreement of such policy in compliance with applicable laws and
regulations, and in compliance with the terms of the related MTN Business
Transaction Documents and agree (or cause such Affiliate of DCL to agree) not
to make a claim thereunder; provided, however, that if the termination
of such policy would permit a Reinsurer to raise the defense that Reinsurance
Proceeds should not be paid to FSA with respect to such policy, then

 

(1)           such policy will not
be terminated by DCL or its Affiliate;

 

(2)           DCL or such affiliate of DCL, as applicable,
will waive and release any and all rights to receive any payment from FSA (but
not from DCL on behalf of FSA pursuant to the terms of the FSA Global DCL
Guarantees) in respect of such policy, other than amounts required to be paid
by FSA under Sections 2.2(a) and 2.2(c); and

 

(3)           DCL or such Affiliate of DCL, as
applicable, will not seek to amend, terminate or cancel or withhold payment
under the obligation insured by such policy.

 

24

 

DCL hereby agrees, and
agrees to cause any applicable Affiliate which is the beneficiary of any such
policy, to enter into an agreement in form reasonably satisfactory to FSA to
document the matters set forth in this subsection (v).

 

(b)           Each of FSA Global and Premier hereby
agrees that:

 

(i)            Such party shall perform each of its
obligations under the Separation Documents and comply with all material
requirements of any law, rule or regulation applicable to it and its
material properties.

 

(ii)           Such party shall comply in all
material respects with the requirements and limitations of its powers set forth
in, and will observe all procedures required by, its organizational documents,
including that it shall not amend certain sections of its organizational
documents as provided therein. Such party shall take all appropriate action
necessary to maintain its existence and good standing under the laws of the
Cayman Islands.

 

(iii)          Such party shall keep or cause to be
kept in reasonable detail books and records of account of such party’s assets
and business, including books and records relating to the Separation Documents,
which shall be made available to FSA, DCL and other Persons as described in Article VII.  The books of such party will be kept on an
accrual basis. The fiscal year of such party will end on December 31 of
each year.

 

(iv)          Such party shall pay all annual
government fees and Taxes payable in connection with the conduct of its
business.

 

(v)           Such party shall promptly inform the
FSA Parties and DCL in writing of the occurrence of any of the following:

 

(1)           the submission of
any claim or the initiation of any legal process, litigation or administrative
or judicial investigation against such party;

 

(2)           the commencement or written threat of
any rule making or disciplinary proceedings or any proceedings instituted
by or against such party in any court or before any governmental body or
agency, or before any arbitration board, or the promulgation of any proceeding
or any proposed or final rule which, if adversely determined, would result
in a Material Adverse Change with respect to such party;

 

(3)           the commencement of any proceedings
by or against such party under any applicable bankruptcy, reorganization,
liquidation, rehabilitation, insolvency or other similar law now or hereafter
in effect or of any proceeding in which a receiver, liquidator, conservator,
trustee or similar official shall have been, or may be, appointed or requested
for such party or any of its assets;

 

(4)           the receipt of notice that (A) such
party is to be placed under regulatory supervision or (B) any license,
permit, charter, registration or approval material to the conduct of such party’s
business is to be, or reasonably likely to

 

25

 

be, suspended or revoked, or
(C) such party is to cease and desist any practice, procedure or policy
employed by such party in the conduct of its business, and such regulatory
supervision, suspension, revocation or cessation would reasonably be likely to
result in a Material Adverse Change with respect to such party; or

 

(5)           the receipt of notice (A) of any
claim or order by any Tax authority that material Taxes are owed by such
party  or (B) that any material
withholding or backup withholding taxes are to be imposed with respect to such
party.

 

(vi)          Such party shall maintain all
licenses, permits, charters and registrations that are material to the conduct
of its business.

 

(vii)         Such party shall comply in all material
respects with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated
thereunder for which non-compliance would reasonably be likely to result in a
Material Adverse Change with respect to such party.

 

(viii)        Such party shall comply with the
governance provisions set forth in Appendix V to this Agreement in all
material respects.

 

(ix)           Such party will not settle any
litigation, action, proceeding, suit or investigation relating to the
Medium-Term Note Business unless any costs of such settlement are borne or
funded by DCL or its Affiliates.

 

(x)            Such party will not settle any
litigation, action, proceeding, suit or investigation relating to the Leveraged
Tax Lease Business without the consent of FSA (it being understood that any
costs of such settlement entered into with the consent of FSA shall be borne or
funded by FSA or its Affiliates).

 

Section 3.4.            Negative Covenants of DCL and the
FSA Parties.

 

(a)           None of DCL, the FSA Parties or their
Affiliates will (i) take any action that would cause either FSA Global or
Premier to violate the terms of their organizational documents or (ii) seek
to amend, modify or supplement the organizational documents of FSA Global or
Premier without the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed.

 

(b)           None of DCL, the FSA Parties or their Affiliates shall
amend, modify or supplement any of the MTN Business Transaction Documents
except pursuant to a Mutual Determination unless a DCL Event of Default has
occurred and is continuing, in which case the applicable FSA Party, acting
alone, can take such actions or instruct FSA Global or Premier, as applicable,
to take such actions, and FSA Global and Premier shall take such actions to the
extent they have the right to do so under the applicable MTN Business
Transaction Documents.

 

(c)           DCL shall not take any actions in its capacity as fiscal
agent of an FSA Party under any FSA MTN Business Policy, other than to the
extent expressly provided in the FSA Global DCL Guarantees or as otherwise
agreed in writing by DCL and such FSA Party.

 

26

 

(d)           DCL will not settle any litigation, action, proceeding,
suit or investigation relating to the Medium-Term Note Business unless any
costs of such settlement are borne or funded by DCL or its Affiliates.

 

(e)           DCL will not settle any litigation, action, proceeding,
suit or investigation relating to the Leveraged Tax Lease Business without the
consent of FSA (it being understood that any costs of such settlement entered
into with the consent of FSA shall be borne or funded by FSA or its
Affiliates).

 

Section 3.5.            Negative Covenants of FSA Global
and Premier; Amendments to Organizational Documents.  Each of FSA Global and Premier hereby agrees
that, without the written consent of DCL and the relevant FSA Party:

 

(a)           Such party shall not amend,
supplement or otherwise modify its organizational documents (or permit any of
the foregoing) unless required by law to do so (or, to the extent possible,
permit any of the foregoing).

 

(b)           Such party shall not form or acquire, or cause to be
formed or acquired, any Subsidiaries.

 

(c)           Such party shall neither repurchase any of its shares nor
make any distributions to its shareholders, including any distribution of
dividends, except as permitted under the Separation Documents.

 

(d)           Such party shall not issue any shares of any kind or
rights, warrants or options in respect of shares of any kind or securities
convertible into or exchangeable for shares of any kind.

 

(e)           Such party shall not consolidate with or merge with or
into any Person or transfer all or substantially all of its assets to any
Person or liquidate or dissolve in whole or in part.

 

(f)            Such party shall not:

 

(i)            sell, transfer, exchange or
otherwise dispose of any of its assets except as permitted under the Separation
Documents or required by the MTN Business Transaction Documents or Leveraged
Lease Transaction Documents, or engage in any business or activity or incur any
indebtedness or other liabilities other than as contemplated by this Agreement,
the MTN Business Transaction Documents, the Leveraged Lease Transaction
Documents and its organizational documents, or

 

(ii)           institute against, or join any other
Person in instituting against, any party hereto any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under
any bankruptcy or similar law, until the FSA MTN Business Policies and FSA
Leveraged Lease Policies are terminated.

 

(g)           Such party shall not take, or permit
to be taken, any action that could cause such party to be required to (i) register
as an “investment company” under the Investment Company

 

27

 

Act, or (ii) register
any of its issued and outstanding securities under the Securities Act or any
United States state securities laws.

 

(h)           Such party shall not terminate, amend, waive, modify,
supplement or consent to any termination, amendment, waiver, modification or
supplement of, any of the Separation Documents or MTN Business Transaction
Documents except in accordance with their terms and the terms of this
Agreement.

 

(i)            Such party shall not terminate, amend, waive or
supplement any of the Leveraged Lease Transaction Documents without the prior
written consent of FSA.

 

(j)            Such party shall not terminate, amend, waive or
supplement the FSA Global Guaranty Reimbursement Agreement without the prior
written consent of FSA.

 

(k)           Such party shall neither have any employees nor own, rent,
lease or be in possession of any building or other real property.

 

ARTICLE
IV

 

PREMIUMS
AND OTHER PAYMENTS

 

Section 4.1.            Ongoing Premiums and Other
Payments.

 

(a)           In consideration for the FSA Global
DCL Guarantees, unless a DCL Default or DCL Event of Default has occurred and
is continuing, FSA Global, Premier and Cypress will be obligated to pay
directly to DCL a guarantee fee (the “Guarantee Fee”) in an amount equal
to all Premiums paid by each of them after the Closing Date with respect to the
Medium-Term Note Business, less (i) the FSA Portion applicable to each FSA
MTN Business Policy and (ii) an amount equal to any related Reinsurance
Premiums that have not been paid prior to the Closing Date, which amount,
described in clauses (i) and (ii) above, will be paid
directly by FSA Global, Premier or Cypress as applicable, to the relevant FSA
Party, and such FSA Party will, upon receipt thereof,  pay the amounts described in clause (ii) above
to the relevant Reinsurers.  Subject to Section 2.11(a),
if an FSA Party receives any Guarantee Fees, it shall hold such amounts in
trust for DCL and promptly pay them to DCL. 
None of FSA Global, Premier or Cypress shall owe any amounts to any FSA
Party as premiums under the MTN Business Transaction Documents other than the
Reinsurance Premiums described above.  An
FSA Party may request, and shall receive from DCL within 30 days of such request,
a reasonably detailed accounting of all Guarantee Fees to which DCL is entitled
under the terms of this Section 4.1(a) for a period specified
by such FSA Party.

 

As used herein, the term “FSA
Portion” means, for each FSA MTN Business Policy listed on Schedule N,
an amount equal to the product of (a) the percentage specified for such
MTN Business Transaction Policy in Column C of Schedule N and (b) the
Premiums payable to the related FSA Party in connection with such MTN Business
Transaction Document prior to the amendments made by this Agreement.

 

(b)           DCL will not be entitled to receive
insurance premiums or other payments with respect to the Leveraged Tax Lease
Business or the Strip Policies.

 

28

 

(c)           FSA will not amend any FSA Global Insurance Agreement or
Premier Insurance Agreement without the consent of DCL (which consent shall not
be unreasonably withheld or delayed).

 

Section 4.2.            Premiums Paid Prior to the
Closing Date.  The FSA Parties will
retain any Premiums (whether earned or unearned) that were paid to the FSA
Parties prior to the Closing Date with respect to any FSA MTN Business Policy.

 

Section 4.3.            Claims Reserve LOC.

 

(a)           Within 10 days after the relevant FSA
Party provides notice to DCL of the creation of a Claims Reserve with respect
to an FSA MTN Business Policy, the New York Branch of DCL shall issue to the
relevant FSA Party an unconditional letter of credit substantially in the form
attached hereto as Exhibit D (each, a “Claims Reserve LOC”).  The stated amount of such Claims Reserve LOC
shall be equal to the lesser of (i) the amount of such Claims Reserve and (ii) the
product of the DCL Percentage and the coverage amount under the related FSA MTN
Business Policy. Each Claims Reserve LOC shall be in effect until the earlier
of (i) the cancellation of the Claims Reserve, and (ii) the expiry of
the related FSA MTN Business Policy and payment in full of any amounts payable
under the FSA Global DCL Guarantees in respect thereof.  If and when there is a reduction in the
amount of the Claims Reserve, the relevant FSA Party shall provide notice to
DCL within 10 days of such reduction, and the related Claims Reserve LOC shall
be reduced by the amount of such reduction of such Claims Reserve.  If and when there is an increase in the
amount of the Claims Reserve, then, upon 10 days notice from the relevant FSA
Party to DCL, the Claims Reserve LOC will also be increased by the amount of
such increase of such Claims Reserve and any increase will likewise be subject
to this Section 4.3.

 

(b)           DCL shall not charge any fees to any FSA Party in
connection with providing any Claims Reserve LOC.

 

(c)           The payment of any amount under a Claims Reserve LOC shall
reduce, by such amount, the liability of DCL to make payment under the Funding
Guaranty or the Reimbursement Guaranty, as applicable, in respect of a claim
under the related FSA MTN Business Policy for which the Claims Reserve LOC was
issued.

 

(d)           The relevant FSA Party will not make any draw under the
Claims Reserve LOC until after the 12th Business Day after payment by DCL is
required under the terms of the Funding Guaranty.  A draw which is paid under the Claims Reserve
LOC shall be treated as a like amount drawn and received under the
Reimbursement Guaranty and DCL shall not be liable to pay such amount under the
Funding Guaranty or the Reimbursement Guaranty to the extent of such payment
under the Claims Reserve LOC and DCL shall be entitled to subrogation
recoveries with respect to such payments under any Claims Reserve LOC as if
such payment had been made under the Reimbursement Guaranty, in accordance with
Section 2.3 of this Agreement. 
For the avoidance of doubt, there can be no duplication of payments
under any of the Claims Reserve LOC, any FSA Global DCL Guarantee, and the
Indemnification Agreement with respect to the same Policy Claim.

 

29

 

(e)           Pursuant to the terms and conditions of the
Indemnification Agreement, FSA shall indemnify and hold harmless DCL from any
Losses (as defined in the Indemnification Agreement) incurred by it as a result
of a draw under the Claims Reserve LOC that would not have been required to be
paid if such draw were made in the form of a demand under the related FSA Global
DCL Guarantee (an “Improper Draw”). 
Any Losses incurred by DCL as a result of an Improper Draw will accrue
interest from the date of funding by DCL under the Claims Reserve LOC until the
date of reimbursement by FSA at the Late Rate.

 

(f)            If the relevant FSA Party determines in good faith that
the issuance of a Claims Reserve LOC will not permit the relevant FSA Party to
avoid, neutralize, offset or otherwise mitigate a Claims Reserve, FSA will not
request such Claims Reserve LOC and will cancel and return any Claims Reserve
LOC that has been previously issued.  DCL
shall have the right, at its request and upon reasonable advance notice, to
discuss with the relevant Persons at FSA and its Affiliates the nature of any Claims
Reserve and the reasons why FSA believes the issuance of the Claims Reserve LOC
may avoid, neutralize, offset or otherwise mitigate the Claims Reserve.

 

ARTICLE
V

 

DCL
EVENTS OF DEFAULT; REMEDIES

 

Section 5.1.            DCL Events of Default.

 

(a)           A “DCL Event of Default” means
any one of the following events:

 

(i)            any DCL Guaranty Payment Failure
that is not cured within the applicable Cure Period if such uncured DCL
Guaranty Payment Failure, together with the cumulative amount of previous
uncured DCL Guaranty Payment Failures, would cause the cumulative amount of all
DCL Guaranty Payment Failures to exceed $10,000,000;

 

(ii)           DCL fails to post collateral as and
when required pursuant to Section 5.3;

 

(iii)          a DCL Other Payment Failure in excess
of $25,000,000 that is not cured within the applicable Cure Period and that is
not a Good Faith Contested Payment; or

 

(iv)          a Bankruptcy Event with respect to
DCL.

 

(b)           If a DCL Event of Default occurs as a
result of a DCL Guaranty Payment Failure, and DCL subsequently pays to the
related FSA Party the amount of such DCL Guaranty Payment Failure, together
with interest thereon, calculated using the Late Rate, and deposits Eligible
Collateral into the Collateral Posting Account in an amount equal to the amount
of such DCL Guaranty Payment Failure, then subject to Section 5.2(c) below,
such DCL Event of Default shall be deemed to have been cured (and not be
continuing) for the purpose of DCL’s right to Mutual Determination and to
receive payments under the Separation Documents.

 

Section 5.2.            Remedies.

 

(a)           In addition to the other consequences
described in this Agreement, if a DCL Event of Default occurs and is
continuing,

 

30

 

(i)            each FSA Party may exercise FSA
Rights (including rights of subrogation and reimbursement) or any other right
or remedy that it may have, without the consent of, consultation with or Mutual
Determination with DCL;

 

(ii)           DCL’s rights to receive payments
under the Separation Documents or the MTN Business Transaction Documents,
including its rights to reimbursement under the FSA Global Guaranty
Reimbursement Agreement and any of DCL’s subrogation rights and rights to any
collateral securing the Equity PUAs, shall be subordinated to the rights,
interests and claims of the FSA Parties;

 

(iii)          any amounts payable by any party to
DCL under this Agreement, any other Separation Document or the MTN Business
Transaction Documents will be deposited by such party (or by DCL if paid to DCL
by such party) into the Cash Trapping Account, other than payments made to DCL
or an Affiliate of DCL under any FSA Global Swap or Cypress Swap;

 

(iv)          no funds or other property shall be
distributed (whether by dividend, distributions or otherwise) by FSA Global or
Premier to DCL or any of its Affiliates while any FSA MTN Business Policy or
FSA Leveraged Tax Lease Policy is outstanding or any amounts owed to any FSA
Party in connection with any FSA MTN Business Policy remain unpaid and such
funds and other property may be applied by such FSA Party in satisfaction of
amounts due and payable to such FSA Party under this Agreement or any
Separation Document;

 

(v)           with the consent of DCL, not to be
unreasonably withheld or delayed, FSA may exercise the rights of DCL under the
organizational documents of FSA Global and Premier, including the right to
amend such organizational documents; and

 

(vi)          DCL, FSA Global and Premier shall
deliver or make available (or cause to be delivered or made available) to FSA (1) copies
of all records and electronic data containing all information necessary to
enable FSA to administer the Medium-Term Note Business and (2) any
computer software used by FSA Global, Premier or DCL in connection with the
Medium-Term Note Business, and DCL shall grant to FSA and its designees access
to the premises and personnel of DCL and its Affiliates for the purpose of
administering the Medium-Term Note Business. 
The obligations of DCL, FSA Global and Premier pursuant to clauses (1) and
(2) above shall be carried by DCL at its expense using its
reasonable best efforts, taking into consideration any existing contractual
obligations that DCL is subject to at the time with respect to such transfer.

 

(b)           No right or remedy conferred in this
Agreement upon or reserved to an FSA Party is intended to be exclusive of any
other right or remedy (including subrogation rights or rights under the FSA
Global DCL Guaranties), and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or
otherwise.  The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate rights or remedies.

 

31

 

(c)           To the extent an FSA Party exercises rights pursuant to Section 5.2(a)(i) after
the occurrence and during the continuation of a DCL Event of Default, DCL shall
have no right of consent, consultation or Mutual Determination during such
period. To the extent that (i) an FSA Party exercises an FSA Right, (ii) such
DCL Event of Default was subsequently cured and (iii) the action directed
by such exercise of FSA Right has not yet occurred, such FSA Party and DCL will
make a Mutual Determination with respect to such FSA Right.

 

Section 5.3.            Posting of Collateral.

 

(a)           Upon the occurrence of the eighth DCL
Guaranty Payment Failure, DCL shall post to the Collateral Posting Account, for
the benefit of the FSA Parties, Eligible Collateral in the amount of $10
million (such posting, the “Collateral Posting”).  The Collateral Posting shall be required to
be made by DCL within the Cure Period following such eighth DCL Guaranty
Payment Failure.  For each DCL Guaranty
Payment Failure occurring after the Collateral Posting, DCL shall post to the
Collateral Posting Account, for the benefit of the FSA Parties, Eligible
Collateral in an amount sufficient to cause the amount on deposit in the
Collateral Posting Account (other than amounts deposited pursuant to Section 5.1(b))
to equal $10 million.

 

(b)           DCL Collateral credited to the Collateral Posting Account
pursuant to this Article V may be withdrawn only by the related FSA
Party, only to satisfy a DCL Guaranty Payment Failure under the FSA Global DCL
Guarantees, and DCL shall be required to deposit into the Collateral Posting
Account an amount equal to any amounts so withdrawn, together with interest
thereon calculated using the Late Rate, not later than the 5th Business Day
following notice to DCL of such withdrawal, until the Collateral Posting is
released under Section 5.3(c).

 

(c)           Any DCL Collateral credited to the Collateral Posting
Account shall be returned to DCL and the security interests granted to the FSA
Parties in such DCL Collateral will terminate (i) at such time as there
has been no DCL Guaranty Payment Failure for a period of 12 consecutive months;
provided, that no DCL Default shall have occurred and be continuing as
of the end of such period, or (ii) if sooner, the date on which all FSA MTN
Business Policies have been paid in full or terminated.

 

(d)           Other than with respect to the deposit of DCL Collateral
into the Blocked Accounts as described in this Agreement, neither DCL nor any
of its Affiliates shall be required to collateralize for any exposure of the
FSA Parties or their Affiliates in relation to liabilities of the Medium-Term
Note Business.

 

(e)           Other than as described in Article IV with
respect to DCL’s obligation to issue Claims Reserves LOCs under the
circumstances described therein, neither DCL nor any of its Affiliates shall be
required to be responsible for any costs of capital for any exposure of the FSA
Parties or their Affiliates in relation to liabilities of the Medium-Term Note
Business.

 

32

 

ARTICLE
VI

 

MODIFICATIONS
TO REINSURANCE

 

Section 6.1.            Commutation of AG Re Reinsurance
Agreements.  Pursuant to the
Commutation Agreement, AG Re will commute all or part of the Related
Reinsurance Coverage under the Commuted AG Re Reinsurance Agreements as shown
on Schedule J.

 

Section 6.2.            Modifications of Reinsurance
Agreements.  An FSA Party may reduce,
terminate, retrocede, commute, modify or otherwise amend any Reinsurance
Agreement in its sole discretion, subject to the following conditions:

 

(a)           No Related Reinsurance Coverage with
respect to a Reinsurance Agreement provided by AG Re may be reduced,
terminated, retroceded, commuted, modified or otherwise amended without the
prior written consent of DCL;

 

(b)           In the event that the related Reinsurer is not an
Insolvent Reinsurer, then:

 

(i)            if such FSA Party reduces the dollar
amount of Related Reinsurance Coverage, then (A) as of the date of such
reduction, the DCL Percentage will be reduced with respect to the related FSA
MTN Business Policy such that the DCL Percentage will equal the DCL Percentage
before such reduction minus a fraction (expressed as a percentage), the
numerator of which is the amount of such reduction and the denominator of which
is the policy amount under such FSA MTN Business Policy and (B) the FSA
Percentage will be increased by the same percentage that the DCL Percentage is
reduced; and

 

(ii)           if such FSA Party terminates the
Related Reinsurance Coverage or modifies or otherwise amends the Related
Reinsurance Coverage in a manner that is materially adverse to DCL, then as of
the date of such termination, modification or amendment, then (A) the DCL
Percentage will be reduced with respect to the related FSA MTN Business Policy
such that the DCL Percentage will equal the DCL Percentage before such
termination, modification or amendment minus a fraction (expressed as a
percentage), the numerator of which is the dollar amount of such Related
Reinsurance Coverage and the denominator of which is the policy amount under such
FSA MTN Business Policy and (B) the FSA Percentage will be increased by
the same percentage that the DCL Percentage is reduced; and

 

(c)           In the event that the related
Reinsurer is an Insolvent Reinsurer, if such FSA Party reduces or terminates
the Related Reinsurance Coverage or modifies or otherwise amends the Related
Reinsurance Coverage in a manner that is materially adverse to DCL, then:

 

(i)            no such cancellation, termination,
amendment or reduction shall have an effect on the DCL Percentage or FSA Percentage;

 

(ii)           such FSA Party shall pay to DCL all
amounts received by such FSA Party from such Reinsurer as a result of such
reduction, termination, modification or amendment; and

 

33

 

(iii)          such FSA Party shall use commercially
reasonable efforts on behalf of DCL, and at DCL’s expense, to recover any
amounts (including, but not limited to, unearned premiums) owed by such
Reinsurer in respect of such Related Reinsurance Coverage and shall pay any
recovered amounts to DCL, net of Expenses incurred by such FSA Party in
pursuing such recoveries.

 

ARTICLE
VII

 

INSPECTION
RIGHTS; CONSULTATION RIGHTS; 

COPIES OF NOTICES AND REPORTS

 

Section 7.1.            Inspection Rights.

 

(a)           Each FSA Party and DCL (or their
respective designees) shall have the right to inspect and audit the books and
records of FSA Global and Premier with respect to the Medium-Term Note Business
at any time during normal business hours upon reasonable advance notice at the
cost of the requesting party.

 

(b)           Each FSA Party and DCL (or their respective designees)
shall have the right to inspect and audit the books and records of FSA with
respect to the Leveraged Tax Lease Business at any time during normal business
hours upon reasonable advance notice at the cost of the requesting party.

 

(c)           With respect to the rights of each party set forth in this
Section 7.1, such party shall be entitled to permit the Rating
Agencies and any of its applicable regulators to inspect such books and records
and to consult with officers, employers and managers of each other party.

 

Section 7.2.            Consultation Rights.

 

(a)           Each FSA Party and DCL shall have the
right to consult with the directors and officers of Cypress, FSA Global and
Premier and the officers and employees of the companies servicing the
Medium-Term Note Business, FSA Global and Premier to discuss the Medium-Term
Note Business during normal business hours upon reasonable advance notice. DCL,
FSA Global and Premier shall use reasonable efforts to cooperate, and FSA and
FSA Global shall cause (to the extent FSA or FSA Global has the right to cause)
Cypress to cooperate, with such FSA Party or DCL (as the case may be) in
connection with any such consultation.

 

(b)           DCL shall have the right to consult with the officers and
employees of FSA or any other Person who administers the Leveraged Tax Lease
Business to discuss the Leveraged Tax Lease Business during normal business
hours upon reasonable advance notice. 
The relevant FSA Party shall use reasonable efforts to cooperate with
DCL in connection with any such consultation.

 

(c)           Upon the request of DCL, the related FSA Party will Direct
the trustee under the MTN Indenture, the trustee and collateral agent under the
MTN Security Agreement and the trustee under the Cypress Indentures and related
MTN Business Documents to consult with DCL

 

34

 

and to otherwise cooperate
with DCL in connection with any such consultation in accordance with the terms
of the Separation Documents.

 

Section 7.3.            Copies of Notice and Reports.  Subject to applicable obligations of
confidentiality, all third-party servicer and trustee reports, notices, bank
statements, securities statements and other financial account statements and
other written information received in relation to the Medium-Term Note Business
(i) by DCL, FSA Global or Premier shall be copied to the related FSA Party
if such FSA Party has not timely received such information under the terms of
the relevant MTN Business Transaction Documents and (ii) by an FSA Party
shall be copied to DCL if DCL has not timely received such information under
the terms of the relevant MTN Business Transaction Documents.  If any such information is confidential, the
non-disclosing party will notify the other party that it has retained
confidential information, and will use its commercially reasonable efforts to
cause the other party to be permitted to review such confidential information,
whether by executing an appropriate confidentiality agreement or otherwise.

 

Section 7.4.            Documents Related to the
Leveraged Tax Lease Business.  Upon
the request of FSA, DCL, FSA Global and Premier shall deliver or make available
(or cause to be delivered or made available) to FSA copies of all records and
electronic data containing all information necessary to enable FSA to
administer the Leveraged Tax Lease Business.

 

ARTICLE
VIII

 

MISCELLANEOUS
PROVISIONS

 

Section 8.1.            Binding on Successors,
Transferees and Assigns.

 

(a)           Neither this Agreement nor any
interest or obligation in or under this Agreement may be transferred (whether
by way of security or otherwise) by an FSA Party without the consent of DCL,
not to be unreasonably withheld or delayed, other than pursuant to any
consolidation, amalgamation, merger, transfer of all or substantially all its
assets or liabilities, or any other type of corporate reorganization, where
such successor or transferee succeeds in full to such FSA Party’s obligations
under the FSA MTN Business Policies and such FSA Party’s obligations hereunder.

 

(b)           Neither this Agreement nor any interest or obligation in
or under this Agreement may be transferred (whether by way of security or
otherwise) by DCL without the consent of FSA, not to be unreasonably withheld
or delayed, other than pursuant to a consolidation, amalgamation, merger,
transfer of all or substantially all its assets or liabilities, or any other
type of corporate reorganization, pursuant to which (i) such successor or
transferee succeeds in full to DCL’s obligations hereunder; (ii) such successor
or transferee is a regulated financial institution with a state or Federal
branch within the United States; (iii) the Rating Agency Condition with
respect to FSA is satisfied with respect to such consolidation, amalgamation,
merger, transfer or corporate reorganization; (iv) the jurisdiction of
organization of such successor or transferee is France, Belgium, Germany,
Spain, Italy, Netherlands, Luxembourg, United Kingdom, Japan, Australia, New
Zealand, Canada, Ireland, Switzerland or the United States; and (v) the
credit

 

35

 

ratings of such successor or
transferee are the same or better as those of DCL at the time of such
consolidation, amalgamation, merger, transfer or corporate reorganization.

 

(c)           Neither this Agreement nor any interest or obligation in
or under this Agreement may be transferred (whether by way of security or
otherwise) by FSA Global or Premier without the prior written consent of FSA.

 

(d)           Any purported transfer that is not in compliance with this
Section 8.1 will be void ab  initio.

 

Section 8.2.            Net Payments.

 

(a)           Each of DCL, FSA Global, Premier,
Cypress, FSA and FSA International (each a “Payor,” to the extent that
it makes or is deemed to make a payment) hereby agree that all payments under
the Separation Documents to any party (a “Payee”) shall, except as
required by law, be made without withholding or deduction for or on account of
any Taxes.

 

(i)            If any Specified Taxes are required
to be withheld or deducted from any payments (or deemed payments) under the
Separation Documents, then, except as otherwise agreed by the relevant Payor
and Payee, the Payor shall pay such additional amounts as may be necessary to
ensure that the net amount actually received by the Payee after such withholding
or deduction is equal to the amount that the Payee would have received had no
such withholding or deduction been required, provided, however, that no such
additional amounts shall be payable in respect of any Specified Taxes to the
extent such Specified Taxes are imposed as a result of the Payee’s failure to
comply with the provisions of Section 8.2(e) and Section 8.2(f) hereof.

 

(ii)           Except as otherwise specified in this
Section 8.2, if any Taxes are required by law to be withheld or
deducted or are otherwise required to be paid in connection with payments (or
deemed payments) under the Separation Documents, no additional amounts will be
payable with respect to any such Taxes, provided, however, that to the extent
that any Withholding Taxes are required to be withheld or deducted from any
payments (or deemed payments) under the Separation Documents as a result of the
Payor changing the jurisdiction in which it is organized, such Withholding
Taxes shall be treated as Specified Taxes for purposes of this Section 8.2.

 

(b)           Subject to Section 8.2(d),
the applicable Payor shall pay all Withholding Taxes referred to in Section 8.2(a) before
penalties are payable or interest accrues thereon, but if any such penalties
are payable or interest accrues, the Payor shall make payment thereof when due
to the appropriate governmental authority. 
As soon as practicable after each such payment of Withholding Taxes, the
Payor shall deliver to the Payee an official receipt (or a certified copy
thereof or other similar documentation) evidencing such payment.

 

(c)           Any and all present and future stamp and other similar
taxes (“Other Taxes”) imposed in connection with the execution of any of
the Separation Documents shall be borne equally by FSA and DCL.  In the case of any Other Taxes imposed in
connection with any ongoing transactions under the Separation Documents, all
Other Taxes attributable to the Leveraged Tax Lease Business shall be borne by
FSA, and all Other Taxes attributable to the

 

36

 

Medium-Term Note Business
shall be borne by DCL.  The party upon
whom the Other Taxes are assessed shall be responsible for collecting and
remitting such Other Taxes to the relevant governmental authority imposing such
Other Taxes in accordance with applicable law. 
The responsible party shall promptly notify the counterparty with
respect to the transaction in question as to the assessment of such Other
Taxes.  The counterparty shall promptly
pay to the responsible party its share of such Other Taxes as allocated
pursuant to this Section 8.2(c), and the responsible party shall
promptly remit the entire amount of such Other Taxes to the relevant
governmental authority.

 

(d)           Each party (an “Indemnifying
Party”) under this Section 8.2 shall indemnify each applicable
counterparty (an “Indemnified Party”) on demand in full in the currency
in which such Taxes or other amounts are paid, together with interest thereon
from and including the date of payment to but excluding the date of
indemnification at a rate equal to the Late Rate for the following Taxes
levied, imposed or assessed on (and whether or not paid directly by) such
counterparty:

 

(i)            any Specified Taxes pursuant
to Section 8.2(a)(i);

 

(ii)           any Taxes paid by an
Indemnified Party that such Indemnified Party is not obligated to pay pursuant
to this Section 8.2;

 

(iii)          any Withholding Taxes
imposed on an Indemnified Party to the extent such party made a payment under
the Separation Documents free and clear of such Withholding Taxes, and the
recipient of such payment, the Indemnifying Party, would not have been entitled
to a payment of additional amounts under Section 8.2(a)(i) had
such Withholding Taxes been deducted or withheld; and

 

(iv)          any Other Taxes paid an
Indemnified Party in excess of such Indemnified Party’s share as allocated
pursuant to Section 8.2(c).

 

Promptly upon having
knowledge that such Taxes have been levied, imposed or assessed, and promptly
upon notice thereof by the Indemnified Party, then, except as provided in the
next paragraph and in Section 8.2(i) hereof, the Indemnifying
Party shall pay such Taxes directly to the relevant Tax Authority, to the
extent such Taxes have not already been paid.

 

If a claim, assessment, levy
or imposition is made against a party (a “Claim”) or if any proceeding
shall be commenced against a party, in either case with respect to Taxes for
which a party would be obligated to pay additional amounts pursuant to Section 8.2(a)(1) hereof
or to make a payment pursuant to Section 8.2(d) hereof, or if
any Indemnified Party shall reasonably determine that any Tax as to which an
Indemnifying Party may have an indemnity obligation hereunder is required to be
paid, the relevant Party shall promptly (but no later than 30 days after such
Claim is made, proceeding is commenced or determination is made) notify the
other Party in writing of such Claim, proceeding or determination, and shall
not take any action with respect to such Claim, proceeding or Tax without the
consent of the other Party except as provided below.  If (x) the Parties agree that the Tax is
required to be paid, (y) the Indemnified Party has determined that the Tax
is required to be paid and provides an opinion reasonably satisfactory to the
Indemnifying Party to that effect, or (z) in the reasonable judgment of
the Indemnified Party 

 

37

 

or (if different) the Party
against whom a Claim or proceeding is brought, in each case after consultation
with the other Party, it is required by law or regulation that the Tax be paid
prior to any contest or other proceeding (including an audit) of the validity,
applicability or amount of such Tax, then the Indemnifying Party shall promptly
pay such Tax (or, if the parties so agree or the Indemnifying Party is not
permitted by law to make such payment, the Indemnified Party shall promptly pay
such Tax).  In any other case, the
Indemnified Party shall pay such Tax only with the consent of the Indemnifying
Party.  Notwithstanding any other
provision herein, any taxes or costs attributable to a delay or failure by the
applicable Party to provide timely notice or to pay a Tax (which, for the
avoidance of doubt, shall include non-payment of Tax by the Indemnified Party
only if that Party is permitted to pay such Tax pursuant to this paragraph) or
to provide documentation that would reduce or eliminate the amount of a Tax or
documentation evidencing the payment of such Tax or otherwise to comply with
its obligations in this Section 8.2, in each case as described
herein, shall be borne by such Party, which shall indemnify the other Party for
such Taxes or costs.

 

Indemnification for Taxes
actually paid by the Indemnified Party pursuant to the prior paragraph and the
indemnification provided in the immediately preceding sentence shall be made
within 30 days after the date the applicable Party makes written demand
therefor.  In the event that any
Withholding Taxes are levied or imposed on any amounts payable to a Party or a
Tax Authority pursuant to the indemnification obligations provided in this Section 8.2(d),
such Taxes shall be treated as Specified Taxes in respect of which the
provisions of Section 8.2(a)(i) and this Section 8.2(d) shall
apply.

 

(e)           In the case of any U.S.
source payment made to a Payee under the Separation Documents that is not a
United States person (as such term is defined in Section 7701(a)(30) of
the Code) for U.S. Federal income tax purposes, so long as it is legally
entitled to do so, the Payee agrees to complete and deliver to the Payor, on or
prior to the Closing Date (or in the case of FSA Global, within 10 days after
the Closing Date), and from time to time thereafter, (i) an accurate and
complete, validly executed original Internal Revenue Service Form W-8BEN,
certifying that it is entitled to benefits under an income tax treaty to which
the United States is a party, (ii) an accurate and complete, validly
executed original Internal Revenue Service Form W-8ECI certifying that the
income receivable on the payment is effectively connected with the conduct of a
trade or business in the United States, or (iii) if the Payee is not a
bank described in Section 881(c)(3)(A) of the Code an accurate and
complete, validly executed original Internal Revenue Service Form W-8BEN,
certifying that the Payee is not a United States person, or W-8IMY (with
appropriate attachments).  Each Payee
described in this Section 8.2(e) further agrees to complete
and deliver to the relevant Payor from time to time, so long as it is eligible
to do so, any successor or additional form required by the Internal Revenue
Service or reasonably requested by the Payor in order to secure an exemption
from, or reduction in the rate of, U.S. withholding tax.

 

(f)            In the case of any payment
not described in Section 8.2(e), each Payee agrees to comply with
any certification, identification, information, documentation or other
reporting requirement if (i) such compliance is required by law,
regulation, administrative practice or an applicable treaty as a precondition
to exemption from, or reduction in the rate of, deduction or withholding of any
Taxes for which the Payor is required to pay additional amounts pursuant to Section 8.2(a) hereof
and (ii) at least 30 days prior to the applicable payment with respect to 

 

38

 

which Taxes may be withheld
or deducted, the Payor shall have notified the Payee that the Payee will be
required to comply with such requirement, provided that (x) such Payee is
legally entitled to comply with such certification, identification,
information, documentation or other reporting requirement and (y) the
completion, execution or submission of such form or document would not
materially prejudice the legal or commercial position of the Payee.

 

(g)           Each Payee that is a United
States person agrees to complete and deliver to each relevant Payor prior to
the Closing Date a duly completed and executed copy of Internal Revenue Service
Form W-9 or successor form establishing that the Payee is not subject to
U.S. backup withholding tax.

 

(h)           Notwithstanding anything to
the contrary contained in this Section 8.2, any Payee that is an
assignee with respect to any payments under the Separation Documents shall not
be entitled to any additional amounts pursuant to Section 8.2(a) in
excess of the amounts that would have been paid to the applicable assignor.

 

(i)            Contests, etc.

 

(i)            The Indemnified Party and
Indemnifying Party shall cooperate to determine whether to contest the
validity, application or amount of any Taxes for which a party would be obligated
to pay additional amounts pursuant to Section 8.2(a)(1) hereof
or to make a payment pursuant to Section 8.2(d) hereof,
whether before or after such Taxes are paid.

 

If
requested by the Indemnifying Party in writing, within 30 days of such
Indemnifying Party’s receipt of notice under Section 8.2(d) from
an Indemnified Party as to a Claim, proceeding or determination relating to
Taxes, the Indemnified Party shall in good faith diligently contest, at the
expense of the Indemnifying Party, in the name of such Indemnified Party (or (i) if
such contest can be pursued in the name of the Indemnifying Party and
independently from any other proceeding involving a Tax liability of such
Indemnified Party, the Indemnified Party shall, at the Indemnifying Party’s
sole discretion, allow the Indemnifying Party to control the contest, (ii) if
such contest must be pursued in the name of the Indemnified Party, but can be
pursued independently from any other proceeding involving a Tax liability of
such Indemnified Party, the Indemnified Party shall, if the Indemnifying Party
requests, allow the Indemnifying Party to control the contest unless, in the
good faith judgment of the Indemnified Party, such contest by the Indemnifying
Party could have a material adverse impact on the business or operations of the
Indemnified Party, in which case the Indemnified Party may control or reassert
control of such contest pursuant to the terms described above, or (iii) in
the case of any contest, if the Indemnifying Party requests, the Indemnified
Party may allow the Indemnifying Party to control the contest), the validity,
applicability or amount of such Taxes by, in the sole discretion of the Person
conducting such contest (provided that at least five days remain for
taking such action after the date of receipt by the Indemnified Party of such
request), (A) resisting payment thereof, (B) not paying the same
except under protest, if protest is necessary and proper, or (C) if the
payment be made, using reasonable efforts to obtain a refund thereof in
appropriate administrative and judicial proceedings; provided that (1) in
the reasonable determination 

 

39

 

of the Indemnified Party
such proceedings do not involve (x) any material danger of the sale,
forfeiture or loss of or creation of any lien on the assets of the Indemnified
Party, unless the Indemnifying Party shall have adequately bonded such lien or
otherwise provided security for the Indemnifying Party’s obligations under this
Section 8.2 with respect to such claim reasonably satisfactory to
such Indemnified Party, or (y) any risk of criminal penalties, (2) all
costs of such tax proceeding are for the account of the Indemnifying Party, and
(3) the Indemnifying Party shall have provided to the Indemnified Party at
the Indemnifying Party’s sole expense an opinion of counsel reasonably
satisfactory to the Indemnified Party to the effect that, in the case of U.S.
federal Taxes, there is substantial authority (within the meaning of Code
section 6662(d)(2)(B)(i)) to prevail on such refund claim, and in the case of
all other Taxes, that there is a similar level of authority for the
Indemnifying Party’s challenge.

 

(ii)           To the extent permitted by
applicable law, the Indemnifying Party may contest in its own name any claim
that could result in an indemnity hereunder without regard to the conditions
set forth in Section 8.2(i)(i); provided, however,
that (I) such claim involves only Taxes for which the Indemnifying Party
is liable to the Tax Authority, (II) participation by the Indemnified
Party is not required, (III) no tax return of the Indemnified Party is
held open as a result of such contest, (IV) the Indemnified Party may not
reasonably be viewed as having actual or potential liability for Taxes not indemnified
by the Indemnifying Party hereunder relating to the contest, and (V) the
Indemnifying Party has delivered to such Indemnified Party a written
acknowledgment of the Indemnifying Party’s indemnity obligation for such Taxes,
which acknowledgment shall not be binding if the final resolution of such
contest clearly demonstrates that the Indemnifying Party is not so liable.

 

(iii)          In any contest conducted by
a Party, that Party shall consult in good faith with the other Party concerning
the method and forum of such contest, shall provide the other Party with a copy
of any documents or other information to be provided to an administrative or
judicial authority prior to submission and with adequate time for the other
Party to comment thereon, and shall not settle, concede or take any other
material action with respect to such context without the consent of the
Indemnifying Party.  The Party conducting
the contest shall keep the other Party fully informed as to the nature, conduct
and results of any contest.  Nothing in
this clause (iii) shall be construed as imposing any obligation on
any Indemnified Party to disclose any information regarding its tax affairs or
tax computations, returns or filings or any information which such Indemnified
Party considers confidential.

 

Section 8.3.            Amendments; Waivers.  Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the parties hereto, or in the case of a
waiver, by the party against whom the waiver is to be effective and any
amendment obtained without such agreement shall be void ab  initio.  No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof.

 

40

 

Section 8.4.            Notices.  All notices and other communications provided
for hereunder shall be in writing (including facsimile communication) and
mailed or telecopied or delivered by electronic transmission or delivered to it
at the address and in the manner set forth in Appendix II.

 

Section 8.5.            No Waiver; Remedies.  No failure on the part of a party to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.  The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

 

Section 8.6.            Section Headings.  The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.

 

Section 8.7.            Severability.  The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof unless
such invalidity or unenforceability, after taking into account the mitigation
contemplated by the next sentence, deprives a party of a material benefit
contemplated by this Agreement.  If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable: 
(a) a suitable and equitable provision shall be substituted
therefor in order to carry out, as far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision; and (b) the
remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in
any other jurisdiction.

 

Section 8.8.            Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK AND THE MANDATORY CHOICE OF
LAW RULES CONTAINED IN THE UCC.  Each of
the parties hereto hereby irrevocably submits to the exclusive jurisdiction of
any U.S. federal or state court in The City of New York for the purpose of any
suit, action, proceeding or judgment arising out of or relating to this
Agreement.  Each of the parties hereto
hereby consents to the laying of venue in any such suit, action or proceeding
in New York County, New York, and hereby irrevocably waives any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum and agrees not to plead or claim the same.  Notwithstanding the foregoing, nothing contained
in this Agreement shall limit or affect the rights of any party hereto to
enforce any judgment relating to this Agreement in any jurisdiction or
venue.  Any process in any such action
shall be duly served if mailed by registered mail, postage prepaid, with
respect to (i) FSA and FSA International, at its respective address
designated pursuant to Section 8.4 and (ii) with respect to
FSA Global, Premier, Cypress and DCL, each such party hereby appoints HF
Services LLC (the “Process Agent”), with an office (a) on the date
hereof and until July 27, 2009, at 31 West 52nd Street , New
York, New York 10019, United States and (b) on and after July 27,
2009, at 445 Park 

 

41

 

Avenue, 5th Floor, New York,
New York 10022, United States, as their agent to receive, on behalf of each
such party and its property, service of copies of the summons and complaint and
any other process which may be served in any such action or proceeding.  Such service may be made by mailing or
delivering a copy of such process to DCL, FSA Global, Cypress and Premier in
care of the Process Agent at the Process Agent’s above address, and each of
DCL, FSA Global, Cypress and Premier hereby authorizes and directs the Process
Agent to accept such service on its behalf. 
DCL, FSA Global, Cypress and Premier may appoint a replacement Process
Agent with an office in the State of New York by notice to the FSA Parties.

 

Section 8.9.            WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY ACKNOWLEDGES AND AGREES THAT IT
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION.

 

Section 8.10.          Counterparts.  This Agreement and any amendments hereto may
be executed in one or more counterparts, each of which shall be deemed to be an
original by the parties executing such counterpart, but all of which shall be
considered one and the same instrument.

 

Section 8.11.          Third Party Beneficiaries.  Nothing in this Agreement shall confer any
right, remedy or claim, express or implied, upon any Person other than the
parties hereto and Assured, and all the terms, covenants, conditions, promises
and agreements contained herein shall be for the sole and exclusive benefit of
the parties hereto and Assured and their respective successors and permitted
assigns.

 

Section 8.12.          Insurance and Indemnity
Agreements.  None of the
Separation Documents are intended to, and they shall not, modify, amend or
supplement any provision of the Insurance and Indemnity Agreements except that (i) the
payment of premiums to FSA shall be amended as described under Article IV
hereunder, (ii) FSA Global, Premier and Cypress shall have no obligation
to prepare any financial statements under such MTN Business Transaction
Documents unless a Person (other than FSA or an Affiliate of FSA) entitled to
receive such financial statements under such MTN Business Transaction Document
requests (and does not waive the requirement of) the delivery of such financial
statements and (iii) DCL and each FSA Party shall bear all of their own
costs and expenses to the extent set forth in Section 2.5(c)(iii).

 

Section 8.13.          Non-Petition.  DCL and each FSA Party agree not to cause (or
permit their respective Affiliates to cause) the filing of a petition in
bankruptcy against FSA Global or Premier during the period ending one year and
one day following the termination of all FSA MTN Business Policies and FSA
Leveraged Tax Lease Policies and the payment in full of all amounts owing to
the FSA Parties under the MTN Business Transaction Documents.  Nothing in this Section 8.13
shall preclude, or be deemed to stop, any party to this Agreement or its
Affiliates (i) from taking any action prior to the expiration of the
aforementioned period in (A) any case or proceeding voluntarily filed or
commenced by FSA Global or Premier or (B) any involuntary insolvency
proceeding filed or commenced by a person other than such party, or (ii) from
commencing against FSA Global or Premier or any of their respective properties
any legal 

 

42

 

action which is not a
bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation
proceeding.  This provision shall survive
the termination of this Agreement.

 

Section 8.14.          Limited
Recourse.

 

(a)           Recourse by an FSA Party or
DCL in respect of the obligations of FSA Global under this Agreement is limited
solely to the Collateral in accordance with the terms of, and subject to the
priority of payments set forth in, Section 8.4(b) of the MTN
Security Agreement, and, upon application of the Collateral in accordance with
the terms of the MTN Security Agreement and exhaustion thereof, all obligations
of and all claims against FSA Global under this Agreement or arising in
connection therewith shall be extinguished and shall not thereafter
revive.  The definition of “Collateral”
in this Section 8.14 has the meaning specified in the FSA Global
Insurance Agreement.  No recourse shall
be had to the directors, officers, employees, shareholders, administrators or
agents of FSA Global, in their capacities as such, in respect of the
obligations of FSA Global hereunder.  For
the avoidance of doubt, this restriction shall in no way relieve DCL or its
Affiliates of their obligations under the Separation Documents.

 

(b)           Recourse by an FSA Party or
DCL in respect of the obligations of Premier under this Agreement is limited
solely to the assets of Premier other than its initial share capital and
transaction fees payable to it from time to time.  Upon application of such assets and
exhaustion thereof, all obligations of and all claims against Premier under
this Agreement or arising in connection therewith shall be extinguished and
shall not thereafter revive.  No recourse
shall be had to the directors, officers, employees, shareholders,
administrators or agents of Premier, in their capacities as such, in respect of
the obligations of Premier hereunder. 
For the avoidance of doubt, this restriction shall in no way relieve DCL
or its Affiliates of their obligations under the Separation Documents.

 

(c)           The foregoing clauses (a) and
(b) shall not in any way limit or impair any FSA Party’s right to
make claims against DCL under the Separation Documents.

 

Section 8.15.          SOVEREIGN IMMUNITY.  To the
extent that DCL or an FSA Party, or any of their respective properties, assets
or revenues may have or may hereafter become entitled to, or have attributed to
them, any right of immunity, on the grounds of sovereignty or otherwise, from
any legal action, suit or proceeding, from the giving of any relief in any
respect thereof, from setoff or counterclaim, from the jurisdiction of any
court, from service of process, from attachment upon or prior to judgment, from
attachment in aid of execution of judgment, or from execution of judgment, or
other legal process or proceeding for the giving of any relief or for the
enforcement of any judgment, in any jurisdiction in which proceedings may at
any time be commenced, with respect to its obligations, liabilities or any
other matter under or arising out of or in connection with this Agreement, FSA
and DCL hereby irrevocably and unconditionally waive, and agree not to plead or
claim, to the fullest extent permitted by applicable law, any such immunity and
consent to such relief and enforcement.

 

Section 8.16.          Transaction Agreement.  This Agreement is a “Transaction Agreement”
executed pursuant to the Purchase Agreement.

 

43

 

Section 8.17.          No Partnership or Joint
Venture.  The parties hereto are not
partners or joint venturers with each other and nothing in this Agreement or
any other Separation Document shall be construed to make them such partners or joint
venturers or impose any liability as such on either of them.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

44

 

IN WITNESS WHEREOF, the
parties have caused this Agreement to be duly executed and delivered by its
officer thereunto as of the date first written above.

 

	
  DEXIA
  CRÉDIT LOCAL S.A.  

  	
   

  	
  FSA
  GLOBAL FUNDING LIMITED  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PREMIER
  INTERNATIONAL

  FUNDING CO.  

  	
   

  	
  FINANCIAL
  SECURITY ASSURANCE INTERNATIONAL LTD.  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  FINANCIAL
  SECURITY ASSURANCE INC.  

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

S-1

 

Joinder of Cypress Point
Funding Limited:

 

CYPRESS POINT FUNDING
LIMITED joins this Agreement solely for purposes of Section 4.1 and
Section 8.2.

 

 

	
  CYPRESS
  POINT FUNDING LIMITED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				

 

S-2

 

APPENDIX I

 

Definitions

 

“Account” has the
meaning specified in the Account Control Agreement.

 

“Account Control
Agreement” means the Securities Account Control Agreement, dated as of the Closing
Date, among DCL, the FSA Parties and the Intermediary.

 

“A-Loans” means the
assets represented by the trade identifiers listed on Schedule B hereto
under the column titled “K,” together with any other assets of FSA Global
represented by loan certificates held by FSA Global under each of the loan and
security agreements among FSA Global and the lessor trust and agent named
therein related to the Leveraged Tax Lease Business and corresponding to a Debt
PUA Note.

 

“Administrative Agency
Agreement” means the Third Amended and Restated Administrative Agency
Agreement, dated as of the Closing Date, by and between FSA Global, Premier,
DCL and FSA.

 

“Administrative Services
Agreement” means the Administrative Services Agreement entered into between
DCL, FSA and the Sub-Administrator or a similar agreement entered into with a
replacement or successor sub-administrator in accordance with the terms
thereof.

 

“Affiliate” as
applied to any Person, means any other Person directly or indirectly
Controlling, Controlled by or under common Control with such Person; provided,
that no entity for which Maples Finance Limited acts as the administrator or
the share trustee or for which Maples Finance Limited provides the directors
shall be deemed to be an Affiliate of FSA Global or any of the Affiliates of
FSA Global solely by virtue thereof.  For
purposes of this definition, “Control” and its correlative meanings, “Controlling”
and “Controlled” shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.

 

“AG Re” means Assured
Guaranty Re Ltd., a Bermuda company.

 

“AG Re Reinsurance
Agreements” means the Reinsurance Agreements issued by AG Re.

 

“Alternative Rating
Agency Condition” shall mean, with respect to any Person and with respect
to any event or circumstance, that:

 

(a)           such Person has used
commercially reasonable efforts to cause the applicable Rating Agency to provide
a written confirmation that the occurrence of such event or circumstance will
not cause such Rating Agency to downgrade or withdraw its Rating assigned to
such Person;

 

(b)           such Rating Agency has
indicated to DCL and FSA, orally or in writing that, as a matter of policy,
such Rating Agency will not issue the written confirmation referred to in clause
(a) above;

 

I-1

 

(c)           such Person has provided
such Rating Agency with the documents and other information as such Rating
Agency requests in order for such Rating Agency to evaluate the effect of such
event or circumstance on the Rating of such Person;

 

(d)           more than 30 Business Days
have elapsed since the date on which all such documents and information have been
provided to such Rating Agency; and

 

(e)           during such 30-Business Day
period, such Rating Agency has not (i) downgraded or withdrawn the Rating
of such Person as a result of such event or circumstances or (ii) indicated
to DCL and FSA that such event or circumstance would have negative implications
for its Rating of such Person.

 

Notwithstanding the
foregoing, (a) the Alternative Rating Agency Condition will not apply to
FSA if (x) FSA requests that DCL waive the Alternative Rating Agency
Condition and (y) DCL consents to such waiver (with such consent not to be
unreasonably withheld or delayed) and (b) the Alternative Rating Agency
Condition will not apply to DCL if (x) DCL requests that FSA waive the
Alternative Rating Agency Condition and (y) FSA consents to such waiver
(with such consent not to be unreasonably withheld or delayed).

 

“Assured” has the
meaning specified in the Recitals.

 

“Bankruptcy Event”
with respect to any Person means that such Person (1) is dissolved (other
than pursuant to a consolidation, amalgamation or merger); (2) becomes
insolvent or is unable to pay its debts or fails or admits in writing its
inability generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors’ rights,
or a petition is presented for its winding-up or liquidation, and, in the case
of any such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order for
its winding-up or liquidation or (B) is not dismissed, discharged, stayed
or restrained in each case within 60 days of the institution or presentation
thereof; (5) has a resolution passed for its winding-up, official
management or liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or substantially all its
assets; (7) has a secured party take possession of all or substantially
all its assets or has a distress, execution, attachment, sequestration or other
legal process levied, enforced or sued on or against all or substantially all
its assets and such secured party maintains possession, or any such process is
not dismissed, discharged, stayed or restrained, in each case within 60 days
thereafter; (8) causes or is subject to any event with respect to it
which, under the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the foregoing acts.

 

I-2

 

“Bankruptcy Filing Action”
means that FSA or its Affiliates have petitioned or otherwise instituted
against, or joined any other Person in instituting against, FSA Global or
Premier, any bankruptcy, reorganization, insolvency, or liquidation
proceedings, including, without limitation, proceedings seeking to appoint a
receiver, liquidator, sequestrator or other similar official of FSA Global or
Premier or any substantial part of the property of FSA Global or Premier. The
term “Bankruptcy Filing Action” shall not include (i) the taking of any
action by FSA or its Affiliates in (A) any case or proceeding voluntarily
filed or commenced by FSA Global or Premier or (B) any involuntary
insolvency proceeding filed or commenced by a person other than such party, or (ii) the
commencing by FSA or its Affiliates against FSA Global or Premier, or any of
their respective properties, of any legal action which is not a bankruptcy,
reorganization, arrangement, insolvency, moratorium or liquidation proceeding.

 

“Blocked Account Bank”
means The Bank of New York Mellon.

 

“Blocked Accounts”
means the Cash Trapping Account and the Collateral Posting Account.

 

“Business Day” has
the meaning specified in the Purchase Agreement.

 

“Cash Trapping Account”
means the Account with the account number 287796 identified as the “Cash
Trapping Account” under the Account Control Agreement, that is established and
maintained by the Intermediary under the Account Control Agreement, in the name
of DCL, and pledged to the Secured Parties, and any permitted replacements
thereof.

 

“Claims Reserve”
means any statutory loss or loss adjustment expense reserve established by the
relevant FSA Party in its good faith judgment in accordance with statutory
accounting principles in connection with an anticipated payment under an FSA
MTN Business Policy.

 

“Claims Reserve LOC”
has the meaning specified in Section 4.3(a).

 

“Clearing Corporation
Security” means an asset that is a Financial Asset that is registered in
the name of a Clearing Corporation or the nominee of such Clearing Corporation
and, if a Certificated Security, is in either case held in the custody of such
Clearing Corporation.

 

“Closing Date” means July 1,
2009.

 

“Collateral Account”
means (a) the “Collateral Account” as defined in the MTN Security
Agreement and (b) any account into which collateral under a Cypress
Indenture is deposited or credited, as applicable.

 

“Collateral Posting”
has the meaning specified in Section 5.3(a).

 

“Collateral Posting
Account” means the  Account with the
account number 287797 identified as the “Collateral Posting Account” under the
Account Control Agreement, that is established and maintained by the
Intermediary under the Account Control Agreement, in the name of DCL, and
pledged to the Secured Parties, and any permitted replacements thereof.

 

I-3

 

“Commutation Agreement”
means the Partial Commutation and Termination Agreement, dated as of the
Closing Date, by and between FSA and AG Re.

 

“Commuted AG Re
Reinsurance Agreements” means the AG Re Reinsurance Agreements listed on Schedule
J hereto.

 

“Cure Period” means
five Business Days following receipt of a Payment Failure Notice (or, in the
case of any nonpayment resulting from an administrative or operational error or
omission or a force majeure, eight Business Days following DCL’s receipt of
such Payment Failure Notice, provided, however, that DCL has
provided notice to FSA no later than the third Business Day after receipt of
such Payment Failure Notice that such non-payment has occurred due to
administrative or operational error or omission or a force majeure).

 

“Cypress” means
Cypress Point Funding Limited, a exempted company organized under the laws of
the Cayman Islands.

 

“Cypress Assets”
means the assets listed on Schedule F hereto, together with any other
assets that secure any Cypress Note.

 

“Cypress Indentures”
means the indentures listed on Schedule E hereto, together with any
other indentures entered into by Cypress.

 

“Cypress Insurance
Agreements” means (i) the Insurance and Indemnity Agreement, dated as
of July 22, 1999 by and between Cypress and FSA, (ii) the Insurance
and Indemnity Agreement, dated as of November 3, 1999 by and between
Cypress and FSA, (iii) the Insurance and Indemnity Agreement, dated as of June 29,
2000 by and between Cypress and FSA, (iv) the Insurance and Indemnity
Agreement, dated as of July 19, 2000 by and between Cypress and FSA, (v) the
Insurance and Indemnity Agreement, dated as of August 2, 2001 by and
between Cypress and FSA and (vi) the Insurance and Indemnity Agreement,
dated as of June 19, 2003 by and between Cypress and FSA.

 

“Cypress Notes” means
the outstanding notes issued by Cypress under the Cypress Indentures.

 

“Cypress Swap Amendments”
has the meaning specified in Section 3.2(z).

 

“Cypress Swaps” means
the derivatives listed on Schedule D hereto, together with any other
outstanding derivatives entered into by Cypress to hedge Cypress Notes or
Cypress Assets.

 

“Cypress Swap Policies”
means the policies listed on Schedule D hereto, together with any other
outstanding financial guaranty policies issued by FSA insuring the obligations
of Cypress under the Cypress Swaps.

 

“DCL” has the meaning
specified in the Preamble.

 

“DCL Collateral”
means the Blocked Accounts, the cash and securities deposited in the Blocked
Accounts and all cash, securities and other property from time to time credited
thereto and all proceeds thereof.

 

I-4

 

“DCL Default” means
the occurrence of an event that with the passage of time or the delivery of
notice shall constitute a DCL Event of Default.

 

“DCL Event of Default”
has the meaning specified in Section 5.1(a).

 

“DCL Guaranty Payment
Failure” means the failure of DCL to make a required payment under any FSA
Global DCL Guaranty in accordance with the terms of such FSA Global DCL
Guaranty (without giving effect to any grace period or cure period, if any, set
forth herein or in such FSA Global DCL Guaranty).

 

“DCL Other Payment
Failure” means the failure of DCL to make a required payment under the
Indemnification Agreement or this Agreement in accordance with the terms of the
Indemnification Agreement or this Agreement, as applicable.  For the avoidance of doubt, a DCL Other Payment
Failure shall not include a DCL Guaranty Payment Failure.

 

“DCL Payment Failure”
means a DCL Guaranty Payment Failure or a DCL Other Payment Failure.

 

“DCL Percentage”
means with respect to any FSA MTN Business Policy set forth on Schedule K
hereto, the “DCL Percentage” with respect to such FSA MTN Business Policy as
set forth on Schedule K hereto and with respect to any other FSA MTN
Business Policy, 100%.

 

“DCL Swap Counterparty”
has the meaning specified in Section 3.2(z).

 

“Debt PUAs” means the
debt payment undertaking arrangements represented by trade identifiers on Schedule
B hereto under the column titled “L,” together with any other payment
undertaking agreements issued by Premier with respect to debt related to the
Leveraged Tax Lease Business.

 

“Debt PUA Notes”
means the notes listed on Schedule B hereto under the column titled “F,”
together with any other FSA Global Notes issued to Premier and related to the
Debt PUAs.

 

“Debt PUA Notes Policies”
means the policies listed on Schedule B hereto under the column titled “E,”
together with any other outstanding financial guaranty policies issued by FSA
insuring the obligations of FSA Global under the Debt PUA Notes.

 

“Debt PUA Policies”
means the policies listed on Schedule B hereto under the column titled “D,”
together with any other outstanding financial guaranty policies issued by FSA
insuring the obligations of Premier under the Debt PUAs.

 

“Deliver” or “Delivered”
means the taking of the following steps:

 

(a)           in the case of each
Certificated Security or Instrument (other than a Clearing Corporation
Security), (A) causing the delivery of such Certificated Security or
Instrument to the Intermediary registered in the name of the Intermediary or
its affiliated nominee or endorsed to the Intermediary or in blank, (B) causing
the Intermediary to continuously identify on its books and records that such
Certificated Security or 

 

I-5

 

Instrument is credited to a
Blocked Account and (C) causing the Intermediary to maintain continuous
possession of such Certificated Security or Instrument;

 

(b)           in the case of each
Uncertificated Security (other than a Clearing Corporation Security), (A) causing
such Uncertificated Security to be continuously registered on the books of the
obligor thereof to the Intermediary and (B) causing the Intermediary to
continuously identify on its books and records that such Uncertificated
Security is credited to a Blocked Account;

 

(c)           in the case of each Clearing
Corporation Security, causing (A) the relevant Clearing Corporation to
continuously credit such Clearing Corporation Security to the securities
account of the Intermediary at such Clearing Corporation and (B) the
Intermediary to continuously identify on its books and records that such
Clearing Corporation Security is credited to a Blocked Account;

 

(d)           in the case of any Financial
Asset that is maintained in book-entry form on the records of an FRB, causing (A) the
continuous crediting of such Financial Asset to a securities account of the
Intermediary at any FRB and (B) the Intermediary to continuously identify
on its books and records that such Financial Asset is credited to a Blocked
Account;

 

(e)           in the case of Money,
causing the deposit of such Money with the Intermediary and causing the
Intermediary to continuously identify on its books and records that such Money
is credited to a Blocked Account;

 

(f)            in the case of each
Financial Asset not covered by the foregoing clauses (a) through
(e), causing the transfer of such Financial Asset to the Intermediary in
accordance with applicable law and regulation and causing the Intermediary to
continuously credit such Financial Asset to a Blocked Account; and

 

(g)           in all other cases, the
filing of an appropriate financing statement in the appropriate filing office
in accordance with the UCC.

 

“Dexia” means Dexia
SA, a Belgian corporation.

 

“DHI” has the meaning
specified in the Recitals.

 

“Direct” has the
meaning specified in Section 2.1(b).

 

“Direction” has the
meaning specified in Section 2.1(b).

 

“Dollars” or “$”or
“USD” means freely transferable lawful money of the United States of
America.

 

I-6

 

“Eligible Collateral”
means Dollars and U.S. treasury securities.

 

“Equity PUAs” means
the equity payment undertaking arrangements represented by trade identifiers on
Schedule B hereto under the column titled “M,” together with any other
payment undertaking agreements issued by Premier with respect to equity related
to the Leveraged Tax Lease Business that are subject to Equity PUA Policies.

 

“Equity PUA Notes”
means the notes listed on Schedule B hereto under the column titled “I,”
together with any other FSA Global Notes issued to Premier and related to the
Equity PUAs.

 

“Equity PUA Notes Policies”
means the policies listed on Schedule B hereto under the column titled “H,”
together with any other outstanding financial guaranty policies issued by FSA
insuring the obligations of FSA Global under the Equity PUA Notes.

 

“Equity PUA Policies”
means the policies listed on Schedule B hereto under the column titled “G,”
together with any other outstanding financial guaranty policies issued by FSA
insuring the obligations of Premier under the Equity PUAs.

 

“Exchange Act” means
the Securities Exchange Act of 1934, as amended.

 

“Expenses” means any
reasonable third party expenses, including reasonable attorneys’ fees and
costs, incurred by any Person, but shall not include salaries, overhead costs,
operating expenses or other ordinary business costs and expenses of such
Person. For the avoidance of doubt, Expenses shall not include Taxes.

 

“Fitch” means Fitch
Ratings Inc.

 

“FRB” means any U.S.
Federal Reserve Bank.

 

“FSA” has the meaning
specified in the Preamble.

 

“FSA Global” means
FSA Global Funding Limited.

 

“FSA Global Assets”
means the assets listed on Schedule C hereto, together with any other
assets of FSA Global, other than the A-Loans, that secure FSA Global Notes.

 

“FSA Global Assets
Policies” means the policies listed on Schedule C hereto, together
with any other outstanding financial guaranty policies issued by an FSA Party
insuring the FSA Global Assets.

 

“FSA Global DCL
Guarantees” means the Funding Guaranty and the Reimbursement Guaranty.

 

“FSA Global Guaranty
Reimbursement Agreement” means the FSA Global Guaranty Reimbursement
Agreement, dated as of the Closing Date, by and between FSA Global, Premier,
Cypress and DCL.

 

I-7

 

“FSA Global Insurance
Agreement” means the Second Amended and Restated Insurance and Indemnity
Agreement, dated as of May 26, 2006, by and between FSA and FSA Global.

 

“FSA Global Notes”
means the MTNs, the Debt PUA Notes and the Equity PUA Notes.

 

“FSA Global Swap
Amendments” has the meaning specified in Section 3.2(z).

 

“FSA Global Swap Policies”
means the policies listed on Schedule D hereto, together with any other
outstanding financial guaranty policies issued by FSA insuring the obligations
of FSA Global under the FSA Global Swaps.

 

“FSA Global Swaps”
means the derivatives listed on Schedule D hereto, together with any
other outstanding derivatives entered into by FSA Global to hedge FSA Global
Notes or FSA Global Assets.

 

“FSA Good Faith Contested
Payment” means a payment (i) which is not an amount required to be
paid by an FSA Party under Section 2.2(a), (ii) for which the
relevant FSA Party or its Affiliates are contesting their liability in good
faith by means of litigation or by cooperation in any formal or informal
dispute resolution process, and (iii) for which the relevant FSA Party has
paid any uncontested amounts.

 

“FSA Indemnified Parties”
has the meaning specified in the Indemnification Agreement.

 

“FSA International”
has the meaning specified in the Preamble.

 

“FSA Leveraged Tax Lease
Policies” means the financial guaranty insurance policies issued by FSA and
relating to the Leveraged Tax Lease Business, including the Debt PUA Policies
and the Debt PUA Notes Policies, but excluding the FSA MTN Business Policies.

 

“FSA MTN Business
Policies” means the financial guaranty insurance policies issued by FSA or
FSA International, as applicable, and relating to the Medium-Term Note
Business, including the MTN Policies, the Equity PUA Notes Policies, the Equity
PUA Policies, the FSA Global Swap Policies, the FSA Global Assets Policies and
the Cypress Swap Policies.

 

“FSA Parties” means
FSA and FSA International.

 

“FSA Percentage”
means with respect to (a) any FSA MTN Business Policy set forth on Schedule
K hereto, 100% minus the “DCL Percentage” with respect to such FSA MTN Business
Policy as set forth on Schedule K hereto, as such DCL Percentage may be
reduced pursuant to Section 6.2 and (b) with respect to any
FSA MTN Business Policy not set forth on Schedule K hereto, 0%.

 

“FSA Right” means any
contractual right of the applicable FSA Party under any MTN Business
Transaction Document relating to the Medium-Term Note Business to make any
request or to give any demand, instruction, authorization, direction, notice,
consent, amendment or waiver.

 

I-8

 

“Funding Guaranty”
means the Funding Guaranty, issued on the Closing Date, by DCL in favor of the
FSA Parties.

 

“Funding Guaranty Payment
Condition” means, with respect to any claim on an FSA MTN Business Policy,
that (i) DCL has paid to the related FSA Party all amounts required to be
paid under the Funding Guaranty or the Reimbursement Guaranty and (ii) with
respect to Related Reinsurance Coverage that is provided by Reinsurers other
than AG Re and its successors or assigns, DCL has paid such amounts in full on
or before the 12th Business Day following the date when such amounts are
required to be paid by DCL under the Funding Guaranty.

 

“Good Faith Contested
Payment” means a payment (i) which is not an amount required to be
paid under the terms of any FSA Global DCL Guaranty (or a reimbursement payment
to the related FSA Party arising from such FSA Party’s payment of such amount
under an FSA MTN Business Policy), (ii) for which DCL or its Affiliates
are contesting their liability in good faith by means of litigation or by
cooperation in any formal or informal dispute resolution process, and (iii) for
which DCL has paid any uncontested amounts.

 

“Governmental Authority”
means any federal, state, local or foreign court, including the Cayman Islands,
or governmental department, commission, board, bureau, agency, authority,
instrumentality or regulatory body.

 

“Grant” means, as to
any asset or property, to mortgage, pledge, assign and grant a security
interest in such asset or property. A Grant of the DCL Collateral or any
assigned document, instrument or agreement will include all rights, powers and
options (but none of the obligations, except to the extent required by law), of
DCL thereunder or with respect thereto, including the immediate and continuing
right to claim, collect, receive and give receipt for all moneys payable
thereunder and all income, proceeds, products, rents and profits thereof, to
give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring proceedings in the
name of DCL or otherwise, and generally to do and receive anything which DCL is
or may be entitled to do or receive thereunder or with respect thereto.

 

“Guarantee Fees” has
the meaning specified in Section 4.1(a).

 

“Improper Draw” has
the meaning specified in Section 4.3(e).

 

“Indemnification
Agreement” means the Indemnification Agreement, dated as of the Closing
Date, by and between FSA, DCL and Assured, with respect to the Medium-Term Note
Business.

 

“Insolvent Reinsurer”
means, with respect to any Reinsurer, that such Reinsurer is placed into
rehabilitation, liquidation, dissolution or receivership (whether voluntary or
involuntary), or has instituted against it proceedings for the appointment of a
receiver, rehabilitator, liquidator, sequestrator, conservator, trustee in
bankruptcy, other statutory successor, or agent known by whatever name, to take
possession of its assets or control its operations.

 

“Insurance and Indemnity
Agreements” means the Cypress Insurance Agreements, the FSA Global
Insurance Agreement and the Premier Insurance Agreements.

 

I-9

 

“Intermediary” means
the Blocked Account Bank.

 

“Investment Company Act”
means the United States Investment Company Act of 1940, as amended.

 

“Journal Entries File”
has the meaning specified in Section 3.2(w).

 

“Late Rate” means a
per annum rate equal to the sum of the Prime Lending Rate plus 2.00%.

 

“Leveraged Lease
Transaction Documents” means all Debt PUA Notes, Debt PUA Note Policies,
the A-Loans and all other documents related to the Leveraged Tax Lease Business
that are not MTN Business Transaction Documents.

 

“Leveraged Tax Lease
Business” has the meaning specified in Section 6.13(d)(i)(B) of
the Purchase Agreement.

 

“Lien” means, with
respect to any property, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such property.

 

“Liquidity Facilities”
means (i) the $144,375,000 Liquidity Facility, dated as of June 29,
2000, by and among FSA Global, Dexia Bank S.A., New York Branch, and FSA, (ii) the
$125,000,000 Liquidity Facility, dated as of July 19, 2000, by and among
FSA Global, Dexia Bank S.A., New York Branch, and FSA, (iii) the
$108,000,000 Liquidity Facility, dated as of August 2, 2001, by and among
FSA Global, Dexia Bank S.A., Cayman Branch, and FSA, (iv) the $42,000,000
Liquidity Facility, dated as of August 2, 2001, by and among FSA Global,
Dexia Bank S.A., Cayman Branch, and FSA, (v) the Liquidity Agreement, dated
as of July 22, 1999, by and among Cypress Point Funding Limited, XL
Insurance Ltd. and Bankers Trustee Company Limited and (vi) the Liquidity
Agreement, dated as of November 3, 1999, by and among Cypress Point
Funding Limited, XL Insurance Ltd. and Bankers Trustee Company Limited.

 

“Matched FSA Global
Assets” means the assets listed on Schedule G hereto, together with
any other FSA Global Assets that are match funded by a Related MTN.

 

“Material Adverse Change”
means, with respect to any Person, a material adverse change (x) in the
business, financial condition, results of operations or property of such
Person, (y) in the ability of such Person to perform its obligations under
any of the Separation Documents to which it is a party, or (z) in the
practical realization by such Person of any of the benefits or security
afforded or intended to be afforded under any of the Separation Documents.

 

“Medium-Term Note
Business” has the meaning specified in Section 6.13(d)(i)(A) of
the Purchase Agreement.

 

“Moody’s” means Moody’s
Investors Service Inc.

 

I-10

 

“MTNs” means the
notes represented by the trade identifiers listed on Schedule A hereto,
together with any other notes issued by FSA Global under the MTN Indenture
other than the Debt PUA Notes and Equity PUA Notes.

 

“MTN Business Transaction
Documents” means the MTN Indenture, the MTN Security Agreement, the MTNs,
the Equity PUAs, the Equity PUA Notes, the FSA Global Assets (other than the A
Loans), the FSA Global Swaps, the Administrative Agency Agreement and related
agreements relating to the Medium-Term Note Business, the Insurance and
Indemnity Agreements and each Cypress Indenture, each Cypress Note, each
Cypress Asset, each Liquidity Facility, each Cypress Swap and any other
document or agreement relating to the forgoing MTN Business Transaction
Documents or the Medium-Term Note Business, but excluding the Separation
Documents (other than the Administrative Agency Agreement).

 

“MTN Indenture” means
the Second Amended and Restated Indenture, dated as of May 26, 2006, by
and among FSA Global, FSA and Citibank, N.A.

 

“MTN Policies” means
the policies listed on Schedule A hereto, together with any other
financial guaranty insurance policies issued by FSA that insure MTNs other than
the Debt PUA Notes Policies and Equity PUA Notes Policies.

 

“MTN Security Agreement”
has the meaning specified in the MTN Indenture.

 

“Mutual Determination”
has the meaning specified in Section 2.1(b).

 

“Non-Excluded Taxes”
shall mean any Taxes other than Taxes imposed on a Payee (i) by any
governmental authority under the laws of which the Payee is organized, or (ii) as
a result of any present or former connection between the Payee and the relevant
taxing jurisdiction other than any such connection arising solely as a result
of the Payee having executed, delivered or performed its obligations or
received a payment under, or enforced, the Separation Documents.

 

“Obligation” has the
meaning provided under the related Funding Guaranty.

 

“Obligation Currency”
has the meaning provided under the Funding Guaranty.

 

“Other Taxes” shall
have the meaning provided in Section 8.2(b).

 

“Payee” shall have
the meaning provided in Section 8.2(a).

 

“Payment Failure Notice”
means a notice of nonpayment in the form attached as Appendix VII.

 

“Payor” shall have
the meaning provided in Section 8.2(a).

 

“Person” means an
individual, joint stock company, trust, unincorporated association, joint
venture, corporation, limited liability company, business or owner trust,
partnership or other organization or entity (whether governmental or private).

 

I-11

 

“Permitted Lien”
means any lien in favor of the Intermediary securing the fees, costs and
expenses of the Intermediary.

 

“Pledge and
Administration Agreement” means the Pledge and Administration Agreement,
dated as of the Closing Date, among DCL, Dexia Bank Belgium S.A., Dexia, Dexia
FP Holdings Inc., FSA, FSA Asset Management LLC, FSA Portfolio Asset Limited,
FSA Capital Management Services LLC, FSA Capital Markets Services LLC, FSA
Capital Markets Services (Caymans) Ltd. and The Bank of New York Mellon.

 

“Policy Claim” means,
with respect to any FSA MTN Business Policy, a claim for payment under such FSA
MTN Business Policy.

 

“Premier” has the
meaning specified in the Preamble.

 

“Premier Insurance
Agreements” means all of the insurance and indemnity agreements by and
between FSA and Premier in effect on the Closing Date.

 

“Premium” means the
insurance premiums payable to an FSA Party in connection with any MTN Business
Transaction Document.

 

“Prime Lending Rate”
shall mean the rate that The Bank of New York Mellon announces from time to
time as its prime lending rate, the Prime Lending Rate to change when and as
such prime lending rate changes.

 

“Purchase Agreement”
has the meaning specified in the Recitals.

 

“Rating” shall mean,
with respect to any Person and any date of determination, either (a) the
claims-paying ability, insured financial strength or insurer financial strength
rating given by a Rating Agency with respect to such Person on and as of such
date, if such Person is an insurance company, or (b) the long-term
unsecured debt rating given by a Rating Agency with respect to such Person on
and as of such date, if such Person is not an insurance company, as applicable.

 

“Rating Agencies”
means S&P, Moody’s and Fitch.

 

“Rating Agency Condition”
means, with respect to any Person and with respect to any event or
circumstance, (a) written confirmation by each Rating Agency that the
occurrence of such event or circumstance will not cause such Rating Agency to
downgrade or withdraw its Rating assigned to such Person or (b) (i) written
confirmation by two Rating Agencies that the occurrence of such event or
circumstance will not cause such Rating Agencies to downgrade or withdraw their
respective Ratings assigned to such Person and (ii) with respect to the
remaining Rating Agency, satisfaction of the Alternative Rating Agency
Condition with respect to such Person. Notwithstanding the foregoing, the
Rating Agency Condition with respect to any event or circumstance shall not be
satisfied in the event that any Rating Agency indicates in writing that such
event or circumstance would adversely affect its Ratings of, or its outlook on
its Ratings of, such Person.

 

“Receipt” shall have
the meaning provided in the relevant FSA MTN Business Policy.

 

I-12

 

“Reimbursement Guaranty”
means the Reimbursement Guaranty, issued on the Closing Date, by DCL in favor
of the FSA Parties.

 

“Reinsurance Agreements”
means the reinsurance agreements and retrocession corresponding to the policies
listed on Schedule H hereto, together with any other reinsurance
agreements and retrocession under which any FSA MTN Business Policy is
reinsured.

 

“Reinsurance Premiums”
means the reinsurance premiums payable to a Reinsurer in connection with the
Related Reinsurance Coverage under any Reinsurance Agreement.

 

“Reinsurance Proceeds”
means the proceeds collected by an FSA Party in connection with any claims made
after the Closing Date on a Reinsurance Agreement in respect of the Related
Reinsurance Coverage, net of all Expenses incurred in recovering such
Reinsurance Proceeds.

 

“Reinsurer” means,
with respect to any Reinsurance Agreement, the reinsurer under such Reinsurance
Agreement.

 

“Reinsurer Percentage”
means the percentage of a Policy Claim under an FSA MTN Business Policy that
has been paid or reimbursed under a Reinsurance Agreement.

 

“Related Derivative”
means the derivative transactions listed on Schedule G hereto, together
with any other derivative transactions identified in relation to a set of
Related MTNs and Related Assets.

 

“Related MTNs” means
the MTNs listed on Schedule G hereto, together with any other MTNs
identified in relation to a set of Related MTNs and Matched FSA Global Assets.

 

“Related Reinsurance
Coverage” means, with respect to any Reinsurance Agreement, that portion of
the coverage under such Reinsurance Agreement that reinsures an FSA MTN Business
Policy. Related Reinsurance Coverage shall not include any portion of coverage
under a Reinsurance Agreement that reinsures policies which are not FSA MTN
Business Policies.

 

“S&P” means
Standard and Poor’s Rating Services, a division of The McGraw Hill Companies, Inc.

 

“SEC” means the U.S.
Securities and Exchange Commission.

 

“Securities Act”
means the U.S. Securities Act of 1933, as amended.

 

“Separation Documents”
means this Agreement, the FSA Global DCL Guaranties, the Commutation Agreement,
any Claims Reserve LOC, the Account Control Agreement, the FSA Global Guaranty
Reimbursement Agreement, the Indemnification Agreement, the Administrative
Agency Agreement, the Administrative Services Agreement, the FSA Global Swap
Amendments and the Cypress Swap Amendments.

 

“Specified Taxes”
means:

 

I-13

 

(a)           Withholding Taxes imposed on
guarantee payments by DCL to third-party Payees on behalf of an FSA Party
pursuant to the Funding Guaranty, provided that the amount (net of Withholding
Taxes) payable by DCL to the Payee shall be an amount equal to the amount (net
of Withholding Taxes) that the Payee would have been entitled to receive from
the FSA Party under the Policy Claim;

 

(b)           Withholding Taxes imposed on
payments by an FSA Party to third-party Payees that were required to be made by
DCL as guarantee payments pursuant to the Funding Guarantee;

 

(c)           Withholding Taxes imposed on
deemed guarantee payments from an FSA Party to or on behalf of a third-party
Payee, in the event that a Tax Authority characterizes guarantee payments by
DCL to third-party Payees on behalf of an FSA Party pursuant to the Funding
Guaranty as paid first by DCL to an FSA Party, and then by such FSA Party to
the third-party Payee;

 

(d)           Withholding Taxes imposed by
the Bermuda Islands (“Bermuda”) on payments by an FSA Party to DCL of the FSA
Percentage of a Policy Claim, pursuant to Section 2.2(a);

 

(e)           Withholding Taxes imposed on
payments of interest and Expenses by an FSA Party to DCL, pursuant to Section 2.2(c);

 

(f)            Withholding Taxes imposed on
guarantee payments by DCL to an FSA Party pursuant to the Funding Guaranty or
the Reimbursement Guaranty;

 

(g)           Withholding Taxes imposed on
payments of interest and Expenses by DCL to an FSA Party, pursuant to Section 5.1(b);

 

(h)           Withholding Taxes imposed on
payments of Guarantee Fees by FSA Global, Premier or Cypress to DCL, pursuant
to Section 4.1(a);

 

(i)            Withholding Taxes imposed on
deemed payments from an FSA Party to DCL, in the event that a Tax Authority
characterizes Guarantee Fees paid by FSA Global, Premier or Cypress to DCL
pursuant to Section 4.1(a) as paid first by FSA Global,
Premier or Cypress to an FSA Party, and then by such FSA Party to DCL;

 

(j)            Withholding Taxes imposed on
Reinsurance Premiums and the FSA Portion paid by FSA Global, Premier or Cypress
to an FSA Party, to the extent not otherwise covered by the Insurance and
Indemnity Agreements; and

 

(k)           Withholding Taxes imposed on
any indemnification payment made under the Indemnification Agreement or Section 8(d) of
the Administrative Services Agreement.

 

I-14

 

For the avoidance of doubt,
the following are not Specified Taxes:

 

(a)           any Taxes on payments
referred to in subsection (d) of the definition of Specified Taxes,
other than Withholding Taxes imposed by Bermuda (or any sub-jurisdiction
therein);

 

(b)           any Taxes imposed on deemed
income or deemed payments, other than Withholding Taxes referred to in subsections
(c) and (i) of the definition of Specified Taxes under the
circumstances specified therein;

 

(c)           any Withholding Taxes
imposed on subrogation, reimbursement or other recovery payments made pursuant
to Section 2.3;

 

(d)           any Withholding Taxes
imposed on the payment of any Reinsurance Proceeds paid pursuant to Section 2.4;
and

 

(e)           any Taxes other than
Withholding Taxes imposed on any indemnification payments made pursuant to the
Indemnification Agreement or the Administrative Services Agreement.

 

“Strip Policies”
shall means each financial guaranty insurance policy that was issued by the
Borrower or an Affiliate or subsidiary thereof with respect to the equity strip
portion of the Leveraged Tax Lease Business and was outstanding as of November 13,
2008.

 

“Sub-Administrator” means
HF Services LLC, a Delaware limited liability company or one or more
sub-administrators appointed by DCL or FSA, as applicable from time to time
pursuant to the Administrative Services Agreement.

 

“Subsidiary” of any
specified Person means any other Person directly or indirectly controlled by
such specified Person. For the purposes of this definition, “control”
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the term “controlled”
has the meaning correlative to the foregoing.

 

“Tax” or “Taxes”
means any and all income, stamp or other taxes, duties, levies, imposts,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by and governmental authority, and all
interest, penalties or similar liabilities with respect thereto.

 

“Tax Authority” means
a governmental entity responsible for the administration or imposition of
Taxes.

 

“UCC” or “Uniform
Commercial Code” means, unless otherwise specified, the Uniform Commercial
Code as in effect from time to time in the State of New York.

 

“Withholding Taxes”
means any Taxes on a payment that are or are required to be withheld or
deducted from the source of the payment, and any Taxes that are assessed by a
Tax Authority in lieu of such withholding or deduction, including Taxes imposed
by a Tax Authority 

 

I-15

 

other than the jurisdiction where the Payor
is organized, but excluding Taxes imposed on a Payee by any governmental
authority under the laws of which the Payee is organized.  For the avoidance of doubt, the term “Withholding
Taxes” does not include income, franchise or similar taxes, and any Taxes that
are imposed by a Tax Authority in lieu of or in order to ensure compliance with
income, franchise or similar taxes.

 

I-16

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