Document:

STRUCTURED ASSET MORTGAGE INVESTMENTS INC.,
                                     SELLER

                         BANK ONE, NATIONAL ASSOCIATION,
                                     TRUSTEE

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
                  MASTER SERVICER AND SECURITIES ADMINISTRATOR

                                       and

                            EMC MORTGAGE CORPORATION

         --------------------------------------------------------------

                         POOLING AND SERVICING AGREEMENT

                             Dated as of May 1, 2002

         --------------------------------------------------------------

                   Structured Asset Mortgage Investments Inc.
           Bear Stearns ARM Trust, Mortgage Pass-Through Certificates

                                  Series 2002-5

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                                                 TABLE OF CONTENTS

                                                                                                               Page
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ARTICLE I
         Definitions..............................................................................................2

ARTICLE II
         Conveyance of Mortgage Loans;
         Original Issuance of Certificates.......................................................................40
                  Section 2.01      CONVEYANCE OF MORTGAGE LOANS TO TRUSTEE......................................40
                  Section 2.02      ACCEPTANCE OF MORTGAGE LOANS BY TRUSTEE......................................42
                  Section 2.03      ASSIGNMENT OF INTEREST IN THE MORTGAGE LOAN PURCHASE AGREEMENT
                   ..............................................................................................44
                  Section 2.04      SUBSTITUTION OF MORTGAGE LOANS...............................................45
                  Section 2.05      ISSUANCE OF CERTIFICATES.....................................................46
                  Section 2.06      REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLER.........................47

ARTICLE III
         Administration and Servicing of Mortgage Loans..........................................................49
                  Section 3.01      MASTER SERVICER..............................................................49
                  Section 3.02      REMIC-RELATED COVENANTS......................................................50
                  Section 3.03      MONITORING OF SERVICERS......................................................50
                  Section 3.04      FIDELITY BOND................................................................51
                  Section 3.05      POWER TO ACT; PROCEDURES.....................................................51
                  Section 3.06      DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS...................................52
                  Section 3.07      RELEASE OF MORTGAGE FILES....................................................52
                  Section 3.08      DOCUMENTS, RECORDS AND FUNDS IN POSSESSION OF MASTER SERVICER TO
                  BE HELD FOR TRUSTEE............................................................................53
                  Section 3.09      STANDARD HAZARD INSURANCE AND FLOOD INSURANCE POLICIES.......................54
                  Section 3.10      PRESENTMENT OF CLAIMS AND COLLECTION OF PROCEEDS.............................54
                  Section 3.11      MAINTENANCE OF THE PRIMARY MORTGAGE INSURANCE POLICIES.......................54
                  Section 3.12      TRUSTEE TO RETAIN POSSESSION OF CERTAIN INSURANCE POLICIES AND
                  DOCUMENTS......................................................................................55
                  Section 3.13      REALIZATION UPON DEFAULTED MORTGAGE LOANS....................................55
                  Section 3.14      COMPENSATION FOR THE MASTER SERVICER.........................................55
                  Section 3.15      REO PROPERTY.................................................................56
                  Section 3.16      ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE................................56
                  Section 3.17      ANNUAL INDEPENDENT ACCOUNTANT'S SERVICING REPORT.............................57
                  Section 3.18      REPORTS FILED WITH SECURITIES AND EXCHANGE COMMISSION........................57
                  Section 3.19      EMC..........................................................................58
                  Section 3.20      UCC..........................................................................58
                  Section 3.21      OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS................................58

                                                        -i-

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ARTICLE IV
         Accounts................................................................................................59
                  Section 4.01      PROTECTED ACCOUNTS...........................................................59
                  Section 4.02      MASTER SERVICER COLLECTION ACCOUNT...........................................60
                  Section 4.03      PERMITTED WITHDRAWALS AND TRANSFERS FROM THE MASTER SERVICER
                  COLLECTION ACCOUNT.............................................................................61
                  Section 4.04      DISTRIBUTION ACCOUNT.........................................................62
                  Section 4.05      PERMITTED WITHDRAWALS AND TRANSFERS FROM THE DISTRIBUTION ACCOUNT
                   ..............................................................................................62

ARTICLE V
         Certificates............................................................................................65
                  Section 5.01      CERTIFICATES.................................................................65
                  Section 5.02      REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES........................77
                  Section 5.03      MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES............................80
                  Section 5.04      PERSONS DEEMED OWNERS........................................................80
                  Section 5.05      TRANSFER RESTRICTIONS ON RESIDUAL CERTIFICATES...............................81
                  Section 5.06      RESTRICTIONS ON TRANSFERABILITY OF CERTIFICATES..............................82
                  Section 5.07      ERISA RESTRICTIONS...........................................................82
                  Section 5.08      RULE 144A INFORMATION........................................................83

ARTICLE VI
         Payments to Certificateholders..........................................................................84
                  Section 6.01      DISTRIBUTIONS ON THE CERTIFICATES............................................84
                  Section 6.02      ALLOCATION OF LOSSES.........................................................90
                  Section 6.03      PAYMENTS.....................................................................91
                  Section 6.04      STATEMENTS TO CERTIFICATEHOLDERS.............................................92
                  Section 6.05      MONTHLY ADVANCES.............................................................94
                  Section 6.06      COMPENSATING INTEREST PAYMENTS...............................................95

ARTICLE VII
         The Master Servicer.....................................................................................96
                  Section 7.01      LIABILITIES OF THE MASTER SERVICER...........................................96
                  Section 7.02      MERGER OR CONSOLIDATION OF THE MASTER SERVICER...............................96
                  Section 7.03      INDEMNIFICATION OF THE TRUSTEE, THE MASTER SERVICER AND THE SECURITIES
                  ADMINISTRATOR..................................................................................96
                  Section 7.04      LIMITATIONS ON LIABILITY OF THE MASTER SERVICER AND OTHERS...................97
                  Section 7.05      MASTER SERVICER NOT TO RESIGN................................................98
                  Section 7.06      SUCCESSOR MASTER SERVICER....................................................98
                  Section 7.07      SALE AND ASSIGNMENT OF MASTER SERVICING......................................98

ARTICLE VIII
         Default................................................................................................100
                  Section 8.01      EVENTS OF DEFAULT...........................................................100
                  Section 8.02      TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR....................................101
                  Section 8.03      NOTIFICATION TO CERTIFICATEHOLDERS..........................................102

                                                       -ii-

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                  Section 8.04      WAIVER OF DEFAULTS..........................................................102
                  Section 8.05      LIST OF CERTIFICATEHOLDERS..................................................103

ARTICLE IX
         Concerning the Trustee and the Securities Administrator................................................104
                  Section 9.01      DUTIES OF TRUSTEE...........................................................104
                  Section 9.02      CERTAIN MATTERS AFFECTING THE TRUSTEE AND THE SECURITIES ADMINISTRATOR
                   .............................................................................................106
                  Section 9.03      TRUSTEE AND SECURITIES ADMINISTRATOR NOT LIABLE FOR CERTIFICATES OR
                  MORTGAGE LOANS................................................................................108
                  Section 9.04      TRUSTEE AND SECURITIES ADMINISTRATOR MAY OWN CERTIFICATES...................108
                  Section 9.05      TRUSTEE'S AND SECURITIES ADMINISTRATOR'S FEES AND EXPENSES..................108
                  Section 9.06      ELIGIBILITY REQUIREMENTS FOR TRUSTEE AND SECURITIES ADMINISTRATOR
                   .............................................................................................109
                  Section 9.07      INSURANCE...................................................................109
                  Section 9.08      RESIGNATION AND REMOVAL OF THE TRUSTEE AND SECURITIES ADMINISTRATOR
                   .............................................................................................109
                  Section 9.09      SUCCESSOR TRUSTEE AND SUCCESSOR SECURITIES ADMINISTRATOR....................110
                  Section 9.10      MERGER OR CONSOLIDATION OF TRUSTEE OR SECURITIES ADMINISTRATOR
                   .............................................................................................111
                  Section 9.11      APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE...............................111
                  Section 9.12      FEDERAL INFORMATION RETURNS AND REPORTS TO CERTIFICATEHOLDERS;
                  REMIC ADMINISTRATION..........................................................................112

ARTICLE X
         Termination............................................................................................115
                  Section 10.01     TERMINATION UPON REPURCHASE BY THE SELLER OR ITS DESIGNEE OR
                  LIQUIDATION OF THE MORTGAGE LOANS.............................................................115
                  Section 10.02     REPURCHASE BY COUNTRYWIDE OF THE COUNTRYWIDE MORTGAGE LOANS.
                   .............................................................................................118
                  Section 10.03     ADDITIONAL TERMINATION REQUIREMENTS.........................................118

ARTICLE XI
         Miscellaneous Provisions...............................................................................120
                  Section 11.01     INTENT OF PARTIES...........................................................120
                  Section 11.02     AMENDMENT...................................................................120
                  Section 11.03     RECORDATION OF AGREEMENT....................................................121
                  Section 11.04     LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS..................................121
                  Section 11.05     ACTS OF CERTIFICATEHOLDERS..................................................122
                  Section 11.06     GOVERNING LAW...............................................................123
                  Section 11.07     NOTICES.....................................................................123
                  Section 11.08     SEVERABILITY OF PROVISIONS..................................................123
                  Section 11.09     SUCCESSORS AND ASSIGNS......................................................124
                  Section 11.10     ARTICLE AND SECTION HEADINGS................................................124
                  Section 11.11     COUNTERPARTS................................................................124
                  Section 11.12     NOTICE TO RATING AGENCIES...................................................124
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                                    EXHIBITS

Exhibit A-1               -    Form of Class A and Class X Certificates
Exhibit A-2               -    Form of Class B Certificates
Exhibit A-3               -    Form of Class R Certificates
Exhibit B                 -    Mortgage Loan Schedule
Exhibit C                 -    [Reserved]
Exhibit D                 -    Request for Release of Documents
Exhibit E                 -    Form of Affidavit pursuant to Section 860E(e)(4)
Exhibit F-1               -    Form of Investment Letter
Exhibit F-2               -    Form of Rule 144A and Related Matters Certificate
Exhibit G                 -    Form of Custodial Agreement
Exhibit H-1 to H-8        -    Servicing Agreements
Exhibit I                 -    Assignment Agreements
Exhibit J                 -    Mortgage Loan Purchase Agreement

                                       -v-

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                         POOLING AND SERVICING AGREEMENT
                         -------------------------------

         Pooling and Servicing Agreement dated as of May 1, 2002, among
Structured Asset Mortgage Investments Inc., a Delaware corporation, as seller
(the "Seller"), Bank One, National Association, a national banking association,
not in its individual capacity but solely as trustee (the "Trustee"), Wells
Fargo Bank Minnesota, National Association, as master servicer (in such
capacity, the "Master Servicer") and as securities administrator (in such
capacity, the "Securities Administrator"), and EMC Mortgage Corporation ("EMC").

                              PRELIMINARY STATEMENT

         On or prior to the Closing Date, the Seller acquired the Mortgage Loans
from EMC. On the Closing Date, the Seller will sell the Mortgage Loans and
certain other property to the Trust Fund and receive in consideration therefor
Certificates evidencing the entire beneficial ownership interest in the Trust
Fund.

         The Trustee on behalf of the Trust shall make an election for the
assets constituting REMIC I to be treated for federal income tax purposes as a
REMIC. On the Startup Day, the REMIC I Regular Interests will be designated
"regular interests" in such REMIC and the Class R-I Certificate will be
designated the "residual interests" in such REMIC.

         The Trustee on behalf of the Trust shall make an election for the
assets constituting REMIC II to be treated for federal income tax purposes as a
REMIC. On the Startup Day, the REMIC II Regular Interests will be designated
"regular interests" in such REMIC and the Class R-II Certificate will be
designated the "residual interests" in such REMIC.

         The Trustee on behalf of the Trust shall make an election for the
assets constituting REMIC III to be treated for federal income tax purposes as a
REMIC. On the Startup Day, the REMIC III Regular Interests will be designated
"regular interests" in such REMIC and the Class R-III Interest will be
designated the "residual interests" in such REMIC.

         The Trustee on behalf of the Trust shall make an election for the
assets constituting REMIC IV to be treated for federal income tax purposes as a
REMIC. On the Startup Day, the REMIC IV Regular Certificates will be designated
"regular interests" in such REMIC and the Class R-IV Interest will be designated
the "residual interests" in such REMIC.

         The Mortgage Loans will have an Outstanding Principal Balance as of the
Cut-off Date, after deducting all Scheduled Principal due on or before the
Cut-off Date, of approximately $888,703,522. The initial principal amount of the
Certificates will not exceed such Outstanding Principal Balance.

         In consideration of the mutual agreements herein contained, the Seller,
the Master Servicer, the Securities Administrator, EMC and the Trustee agree as
follows:

<PAGE>

                                    ARTICLE I
                                   Definitions

         Whenever used in this Agreement, the following words and phrases,
unless otherwise expressly provided or unless the context otherwise requires,
shall have the meanings specified in this Article.

         ACCEPTED MASTER SERVICING PRACTICES: With respect to any Mortgage Loan,
as applicable, either (x) those customary mortgage servicing practices of
prudent mortgage servicing institutions that master service mortgage loans of
the same type and quality as such Mortgage Loan in the jurisdiction where the
related Mortgaged Property is located, to the extent applicable to the Trustee
or the Master Servicer (except in its capacity as successor to a Servicer), or
(y) as provided in the applicable Servicing Agreement, to the extent applicable
to any Servicer, but in no event below the standard set forth in clause (x).

         ACCOUNT: The Master Servicer Collection Account and the Protected
Account as the context may require.

         ACCRUED CERTIFICATE INTEREST: For any Certificate (other than the Class
IV-X Certificates) for any Distribution Date, the interest accrued during the
related Interest Accrual Period at the applicable Pass-Through Rate on the
Current Principal Amount of such Certificate immediately prior to such
Distribution Date, and, in the case of the Class IV-X Certificates, for any
Distribution Date, the aggregate amount of interest accrued on each Component
thereof during the related Interest Accrual Period at the applicable
Pass-Through Rate on the related Notional Amount immediately prior to such
Distribution Date, in each case calculated on the basis of a 360-day year
consisting of twelve 30-day months, less (i) in the case of a Senior
Certificate, such Certificate's share of any Net Interest Shortfall from the
related Mortgage Loans and, after the Cross-Over Date, the interest portion of
any Realized Losses on the related Mortgage Loans allocated thereto in
accordance with Section 6.02(g) and (ii) in the case of a Subordinate
Certificate, such Certificate's share of any Net Interest Shortfall from the
Mortgage Loans and the interest portion of any Realized Losses on the Mortgage
Loans allocated thereto in accordance with Section 6.02(g).

         ADDITIONAL COLLATERAL: As defined in the Servicing Agreement attached
hereto as Exhibit H-4.

         AFFILIATE: As to any Person, any other Person controlling, controlled
by or under common control with such Person. "Control" means the power to direct
the management and policies of a Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise. "Controlled" and
"Controlling" have meanings correlative to the foregoing. The Trustee may
conclusively presume that a Person is not an Affiliate of another Person unless
a Responsible Officer of the Trustee has actual knowledge to the contrary.

         AGREEMENT: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.

         ALLIANCE: Alliance Mortgage Company.

                                       -2-

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         ALLIANCE SERVICING AGREEMENTS: With respect to Mortgage Loans
originated by Emigrant, the Servicing Agreement dated as of April 1, 2002
between EMC (as owner) and Alliance (as servicer) and, with respect to the
Mortgage Loans originated by Homebanc, the Servicing Agreements dated as of
March 1, 2002, April 1, 2002, May 2002, May 15, 2002 and June 1, 2002 between
EMC (as owner) and Alliance (as servicer), each as attached hereto as Exhibit
H-5.

         ALLOCABLE SHARE: With respect to each Class of Subordinate
Certificates:

         (a) as to any Distribution Date and amounts distributable pursuant to
clauses (i), (iv) and (vi) of the definition of Subordinate Optimal Principal
Amount, the fraction, expressed as a percentage, the numerator of which is the
Current Principal Amount of such Class and the denominator of which is the
aggregate Current Principal Amount of all Classes of the Subordinate
Certificates; and

         (b) as to any Distribution Date and amounts distributable pursuant to
clauses (ii), (iii) and (v) of the definition of Subordinate Optimal Principal
Amount, and as to each Class of Subordinate Certificates (other than the Class
of Subordinate Certificates having the lowest numerical designation as to which
the Class Prepayment Distribution Trigger shall not be applicable) for which (x)
the related Class Prepayment Distribution Trigger has been satisfied on such
Distribution Date, the fraction, expressed as a percentage, the numerator of
which is the Current Principal Amount of such Class and the denominator of which
is the aggregate Current Principal Amount of all such Classes of Subordinate
Certificates and (y) the related Class Prepayment Distribution Trigger has not
been satisfied on such Distribution Date, 0%; provided that if on a Distribution
Date, the Current Principal Amount of any Class of Subordinate Certificates for
which the related Class Prepayment Distribution Trigger was satisfied on such
Distribution Date is reduced to zero, any amounts distributed pursuant to this
clause (b), to the extent of such Class's remaining Allocable Share, shall be
distributed to the remaining Classes of Subordinate Certificates which satisfy
the related Class Prepayment Distribution Trigger and to the Class of
Subordinate Certificates having the lowest numerical designation in reduction of
their respective Current Principal Amounts in the order of their numerical Class
designations.

         APPLICABLE CREDIT RATING: For any long-term deposit or security, a
credit rating of AAA in the case of S&P or Aaa in the case of Moody's. For any
short-term deposit or security, or a rating of A-l+ in the case of S&P or P-1 in
the case of Moody's.

         APPLICABLE STATE LAW: For purposes of Section 9.12(d), the Applicable
State Law shall be (a) the law of the State of New York and (b) such other state
law whose applicability shall have been brought to the attention of the
Securities Administrator and the Trustee by either (i) an Opinion of Counsel
reasonably acceptable to the Securities Administrator and the Trustee delivered
to it by the Master Servicer or the Seller, or (ii) written notice from the
appropriate taxing authority as to the applicability of such state law.

         APPRAISED VALUE: For any Mortgaged Property related to a Mortgage Loan,
the amount set forth as the appraised value of such Mortgaged Property in an
appraisal made for the mortgage originator in connection with its origination of
the related Mortgage Loan.

                                       -3-

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         ASSIGNMENT AGREEMENTS: The agreements attached hereto as Exhibit I,
whereby the Servicing Agreements were assigned to the Trustee for the benefit of
the Certificateholders.

         ASSUMED FINAL DISTRIBUTION DATE: June 25, 2032 (or, with respect to the
Class IV-X Certificates, December 25, 2006), or if such day is not a Business
Day, the next succeeding Business Day.

         AVAILABLE FUNDS: With respect to any Distribution Date, the sum of the
Group 1, Group 2, Group 3, Group 4, Group 5, Group 6 and Group 7 Available Funds
for such Distribution Date.

         AVERAGE LOSS SEVERITY: With respect to any period and each Loan Group,
the fraction obtained by dividing (x) the aggregate amount of Realized Losses
for the related Mortgage Loans for such period by (y) the number of related
Mortgage Loans which had Realized Losses for such period.

         BANKRUPTCY CODE: The United States Bankruptcy Code, as amended as
codified in 11 U.S.C. ss.ss.101-1330.

         BANKRUPTCY LOSS: With respect to any Mortgage Loan, any Deficient
Valuation or Debt Service Reduction related to such Mortgage Loan.

         BOOK-ENTRY CERTIFICATES: Initially, all Classes of Certificates other
than the Private Certificates and the Residual Certificates.

         BUSINESS DAY: Any day other than (i) a Saturday or a Sunday, or (ii) a
day on which the New York Stock Exchange or Federal Reserve is closed or on
which banking institutions in the jurisdiction in which the Trustee, the Master
Servicer, any Servicer or the Securities Administrator are authorized or
obligated by law or executive order to be closed.

         CALENDAR QUARTER: January 1 to March 31, April 1 to June 30, July 1 to
September 30, or October 1 to December 31, as applicable.

         CENDANT: Cendant Mortgage Corporation.

         CENDANT SERVICING AGREEMENTS: The Mortgage Loan Flow Purchase, Sale and
Servicing Agreement dated as of April 26, 2001, between EMC (as purchaser) and
Cendant and Bishop's Gate Residential Mortgage Trust (formerly known as Cendant
Residential Mortgage Trust) (as sellers) and, with respect to the Mortgage Loans
secured by Additional Collateral, Additional Collateral Assignment and Servicing
Agreement, dated as of April 26, 2001 between Cendant and EMC (whereby MLCC
retained its rights to service the Additional Collateral in accordance thereto),
each as attached hereto as Exhibit H-4.

         CERTIFICATE: Any mortgage pass-through certificate evidencing a
beneficial ownership interest in the Trust Fund signed and countersigned by the
Trustee in substantially the forms annexed hereto as Exhibits A-1, A-2 and A-3,
with the blanks therein appropriately completed.

                                       -4-

<PAGE>

         CERTIFICATE GROUP: The Group 1 Senior Certificates, Group 2 Senior
Certificates, Group 3 Senior Certificates, Group 4 Senior Certificates, Group 5
Senior Certificates, Group 6 Senior Certificates and Group 7 Senior
Certificates, as applicable, and the Subordinate Certificates to the extent such
Certificates represent an interest in such groups of Certificates.

         CERTIFICATE OWNER: Any Person who is the beneficial owner of a
Certificate registered in the name of the Depository or its nominee.

         CERTIFICATE REGISTER: The register maintained pursuant to Section 5.02.

         CERTIFICATEHOLDER: A Holder of a Certificate.

         CLASS: With respect to the Certificates, I-A, II-A, R-I, R-II, R-III,
R-IV, III-A, IV-A1, IV-A2, IV-A3, IV-A4, IV-A5, IV-X, V-A, VI-A, VII-A, B-1,
B-2, B-3, B-4, B-5, B-6.

         CLASS IV-A4 OPTIMAL PERCENTAGE: As to any Distribution Date on and
after the Cross-Over Date and the Class IV-A4 Certificates, a percentage
expressed as a fraction, the numerator of which is the Current Principal Amount
of the Class IV-A4 Certificates immediately prior to that Distribution Date and
the denominator of which is the aggregate Current Principal Amount of the Group
4 Senior Certificates (other than Class IV-X Certificates) immediately prior to
that Distribution Date.

         CLASS IV-A4 OPTIMAL PRINCIPAL DISTRIBUTION AMOUNT: As to any
Distribution Date on and after the Cross-Over Depletion Date and the Class IV-A4
Certificates, an amount equal to the product of (a) the then-applicable Class
IV-A4 Optimal Percentage and (b) the Group 4 Senior Optimal Principal Amount.

         CLASS PREPAYMENT DISTRIBUTION TRIGGER: For a Class of Subordinate
Certificates for any Distribution Date, the Class Prepayment Distribution
Trigger is satisfied if the fraction (expressed as a percentage), the numerator
of which is the aggregate Current Principal Amount of such Class and each Class
of Subordinate Certificates subordinate thereto, if any, and the denominator of
which is the Scheduled Principal Balance of all of the Mortgage Loans as of the
related Due Date, equals or exceeds such percentage calculated as of the Closing
Date.

         CLASS R CERTIFICATES: The Class R-I, R-II, R-III and Class R-IV
Certificates.

         CLOSING DATE: May 31, 2002.

         CODE: The Internal Revenue Code of 1986, as amended.

         COMPENSATING INTEREST PAYMENT: As defined in Section 6.06.

         COMPONENT: With respect to the Class IV-X Certificates, Component X-1,
Component X-2, Component X-3, Component X-4 and Component X-5. The Components of
the Class IV-X Certificates are not separately transferable.

                                       -5-

<PAGE>

         CORPORATE TRUST OFFICE: The office of the Trustee at which at any
particular time its corporate trust business is administered, which office, at
the date of the execution of this Agreement, is located at 1 Bank One Plaza,
Mail Suite IL1-0126, Chicago, Illinois 60670, Attention: Global Corporate Trust
Services.

         CORRESPONDING CERTIFICATE: With respect to (i) REMIC III Regular
Interest I-A, (ii) REMIC III Regular Interest II-A, (iii) REMIC III Regular
Interest III-A, (iv) REMIC III Regular Interest IV-A1, (v) REMIC III Regular
Interest IV-A2, (vi) REMIC III Regular Interest IV-A3, (vii) REMIC III Regular
Interest IV-A4, (viii) REMIC III Regular Interest IV-A5, (ix) REMIC III Regular
Interest V-A, (x) REMIC III Regular Interest VI-A, (xi) REMIC III Regular
Interest VII-A, (xii) REMIC III Regular Interest B-1, (xiii) REMIC III Regular
Interest B-2, (xiv) REMIC III Regular Interest B-3, (xv) REMIC III Regular
Interest B-4, (xvi) REMIC III Regular Interest B-5, (xvii) REMIC III Regular
Interest B-6, and (xviii) REMIC III Regular Interest LT-R, (i) the Class I-A
Certificates, (ii) the Class II-A Certificates, (iii) the Class III-A
Certificates, (iv) the Class IV-A1 Certificates and Component X-1, (v) the Class
IV-A2 Certificates and Component X-2, (vi) the Class IV-A3 Certificates and
Component X-3, (vii) the Class IV-A4 Certificates and Component X-4, (viii) the
Class IV-A5 Certificates and Component X-5, (ix) the Class V-A Certificates, (x)
the Class VI-A Certificates, (xi) the Class VII-A Certificates, (xii) the Class
B-1 Certificates, (xiii) the Class B-2 Certificates, (xiv) the Class B-3
Certificates, (xv) the Class B-4 Certificates, (xvi) the Class B-5 Certificates,
(xvii) the Class B-6 Certificates, and (xviii) the Class R-IV Certificates,
respectively.

         COUNTRYWIDE: Countrywide Home Loans, Inc.

         COUNTRYWIDE MORTGAGE LOANS: The Mortgage Loans included in the Trust
Fund which were originated by Countrywide, as indicated on the Mortgage Loan
Schedule.

         COUNTRYWIDE SERVICING AGREEMENT: The Seller's Warranties and Servicing
Agreement dated as of March 28, 2002, between EMC (as purchaser) and Countrywide
(as company), as attached hereto as Exhibit H-6.

         CROSS-OVER DATE: The first Distribution Date on which the aggregate
Current Principal Amount of the Subordinate Certificates has been reduced to
zero (giving effect to all distributions on such Distribution Date).

         CURRENT PRINCIPAL AMOUNT: With respect to any Certificate as of any
Distribution Date, the initial principal amount of such Certificate, and reduced
by (i) all amounts distributed on previous Distribution Dates on such
Certificate with respect to principal, (ii) the principal portion of all
Realized Losses allocated prior to such Distribution Date to such Certificate,
taking account of the Loss Allocation Limitation and (iii) in the case of a
Subordinate Certificate, such Certificate's pro rata share, if any, of the
applicable Subordinate Certificate Writedown Amount for previous Distribution
Dates. With respect to any Class of Certificates, the Current Principal Amount
thereof will equal the sum of the Current Principal Amounts of all Certificates
in such Class. Notwithstanding the foregoing, solely for purposes of giving
consents, directions, waivers, approvals, requests and notices, the Class R-I,
Class R-II, Class R-III and Class R-IV Certificates after the Distribution Date
on which they each receive the distribution of the last dollar of their
respective original principal amount shall be deemed to have Current Principal
Amounts equal to

                                       -6-

<PAGE>

their respective Current Principal Amounts on the day immediately preceding such
Distribution Date.

         CUSTODIAL AGREEMENT: An agreement, dated as of the Closing Date among
the Seller, the Master Servicer, the Trustee and the Custodian in substantially
the form of Exhibit G hereto.

         CUSTODIAN: Wells Fargo Bank Minnesota, National Association, or any
successor custodian appointed pursuant to the provisions hereof and of the
Custodial Agreement.

         CUT-OFF DATE: May 1, 2002.

         CUT-OFF DATE BALANCE: $888,703,522.35.

         DEBT SERVICE REDUCTION: Any reduction of the Scheduled Payments which a
Mortgagor is obligated to pay with respect to a Mortgage Loan as a result of any
proceeding under the Bankruptcy Code or any other similar state law or other
proceeding.

         DEFICIENT VALUATION: With respect to any Mortgage Loan, a valuation of
the Mortgaged Property by a court of competent jurisdiction in an amount less
than the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the Bankruptcy Code or any other
similar state law or other proceeding.

         DEPOSITORY: The Depository Trust Company, the nominee of which is Cede
& Co., or any successor thereto.

         DEPOSITORY AGREEMENT: The meaning specified in Subsection 5.01(a)
hereof.

         DEPOSITORY PARTICIPANT: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.

         DESIGNATED DEPOSITORY INSTITUTION: A depository institution (commercial
bank, federal savings bank, mutual savings bank or savings and loan association)
or trust company (which may include the Trustee), the deposits of which are
fully insured by the FDIC to the extent provided by law.

         DETERMINATION DATE: With respect to each Mortgage Loan, the
Determination Date as defined in the related Servicing Agreement.

         DISQUALIFIED ORGANIZATION: Any of the following: (i) the United States,
any State or political subdivision thereof, any possession of the United States,
or any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for the Freddie Mac or any successor thereto, a majority of its
board of directors is not selected by such governmental unit), (ii) any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, (iii) any organization (other than certain farmers'
cooperatives described in Section 521 of the Code) which is exempt from the

                                       -7-

<PAGE>

tax imposed by Chapter 1 of the Code (including the tax imposed by Section 511
of the Code on unrelated business taxable income), (iv) rural electric and
telephone cooperatives described in Section 1381(a)(2)(C) of the Code or (v) any
other Person so designated by the Trustee based upon an Opinion of Counsel that
the holding of an ownership interest in a Residual Certificate by such Person
may cause any REMIC contained in the Trust or any Person having an ownership
interest in the Residual Certificate (other than such Person) to incur a
liability for any federal tax imposed under the Code that would not otherwise be
imposed but for the transfer of an ownership interest in a Residual Certificate
to such Person. The terms "United States," "State" and "international
organization" shall have the meanings set forth in Section 7701 of the Code or
successor provisions.

         DISTRIBUTION ACCOUNT: The trust account or accounts created and
maintained pursuant to Section 4.04, which shall be denominated "Bank One,
National Association, as Trustee f/b/o holders of Structured Asset Mortgage
Investments Inc., Bear Stearns ARM Trust, Mortgage Pass-Through Certificates,
Series 2002-5 - Distribution Account."

         DISTRIBUTION ACCOUNT DEPOSIT DATE: The Business Day prior to each
Distribution Date.

         DISTRIBUTION DATE: The 25th day of any month, beginning in the month
immediately following the month of the Closing Date, or, if such 25th day is not
a Business Day, the Business Day immediately following.

         DTC CUSTODIAN: Bank One, National Association, or its successors in
interest as custodian for the Depository.

         DUE DATE: With respect to each Mortgage Loan, the date in each month on
which its Scheduled Payment is due if such due date is the first day of a month
and otherwise is deemed to be the first day of the following month or such other
date specified in the related Servicing Agreement.

         DUE PERIOD: With respect to any Distribution Date and each Mortgage
Loan, the period commencing on the second day of the month preceding the month
in which the Distribution Date occurs and ending at the close of business on the
first day of the month in which the Distribution Date occurs.

         EMC: EMC Mortgage Corporation.

         EMIGRANT: Emigrant Mortgage Company, Inc.

         ERISA: The Employee Retirement Income Security Act of 1974, as amended.

         E*TRADE: E*TRADE Bank (f/k/a Telebank).

         EVENT OF DEFAULT: An event of default described in Section 8.01.

         EXCESS LIQUIDATION PROCEEDS: To the extent that such amount is not
required by law to be paid to the related Mortgagor, the amount, if any, by
which Liquidation Proceeds with respect to a Liquidated Mortgage Loan exceed the
sum of (i) the Outstanding Principal Balance of such

                                       -8-

<PAGE>

Mortgage Loan and accrued but unpaid interest at the related Mortgage Interest
Rate through the last day of the month in which the related Liquidation Date
occurs, plus (ii) related Liquidation Expenses.

         FANNIE MAE: Federal National Mortgage Association or any successor
thereto.

         FDIC: Federal Deposit Insurance Corporation or any successor thereto.

         FINAL CERTIFICATION: The certification substantially in the form of
Exhibit Three to the Custodial Agreement.

         FRACTIONAL UNDIVIDED INTEREST: With respect to any Class of
Certificates, the fractional undivided interest evidenced by any Certificate of
such Class the numerator of which is the Current Principal Amount of such
Certificate and the denominator of which is the Current Principal Amount of such
Class. With respect to the Certificates in the aggregate, the fractional
undivided interest evidenced by (i) the Class IV-X Certificates and each Class
of Residual Certificates will be deemed to equal 1.00% and 0.25%, respectively,
and (ii) any other such Class will be deemed to equal 98.00% multiplied by a
fraction, the numerator of which is the Current Principal Amounts of such
Certificates in such Class and the denominator of which is the aggregate Current
Principal Amounts of the Certificates in all such other Classes.

         FREDDIE MAC: Freddie Mac, formerly the Federal Home Loan Mortgage
Corporation, or any successor thereto.

         GLOBAL CERTIFICATE: Any Private Certificate registered in the name of
the Depository or its nominee, beneficial interests in which are reflected on
the books of the Depository or on the books of a Person maintaining an account
with such Depository (directly or as an indirect participant in accordance with
the rules of such depository).

         GMAC: GMAC Mortgage Corp.

         GMAC SERVICING AGREEMENTS: The Flow Sale and Servicing Agreement, dated
as of August 1, 1999, between E*TRADE Bank (f/k/a Telebank) and GMAC, as amended
by Amendment No. One to Flow Sale and Servicing Agreement, dated as of August
31, 2000; and the Loan Servicing Agreement, dated as of November 30, 1999,
between E*TRADE Bank (f/k/a Telebank) and GMAC, as amended by the Amendment to
Loan Servicing Agreement, dated as of October 27, 2000 between the parties, each
as attached hereto as Exhibit H-2.

         GROSS MARGIN: As to each Mortgage Loan, the fixed percentage set forth
in the related Mortgage Note and indicated on the Mortgage Loan Schedule which
percentage is added to the related Index on each Interest Adjustment Date to
determine (subject to rounding, the minimum and maximum Mortgage Interest Rate
and the Periodic Rate Cap) the Mortgage Interest Rate until the next Interest
Adjustment Date.

         GROUP 1 AVAILABLE FUNDS, GROUP 2 AVAILABLE FUNDS, GROUP 3 AVAILABLE
FUNDS, GROUP 4 AVAILABLE FUNDS, GROUP 5 AVAILABLE FUNDS, GROUP 6 AVAILABLE FUNDS
OR GROUP 7 AVAILABLE FUNDS:

                                       -9-

<PAGE>

With respect to any Distribution Date, an amount equal to the aggregate of the
following amounts with respect to the Mortgage Loans in the related Loan Group:
(a) all previously undistributed payments on account of principal (including the
principal portion of Scheduled Payments, Principal Prepayments and the principal
portion of Net Liquidation Proceeds) and all previously undistributed payments
on account of interest received after the Cut-off Date and on or prior to the
related Determination Date, (b) any Monthly Advances and Compensating Interest
Payments by the Servicers or the Master Servicer with respect to such
Distribution Date and (c) any reimbursed amount in connection with losses on
investments of deposits in an account, except:

                  (i) all payments that were due on or before the Cut-off Date;

                  (ii) all Principal Prepayments and Liquidation Proceeds
         received after the applicable Prepayment Period;

                  (iii) all payments, other than Principal Prepayments, that
         represent early receipt of Scheduled Payments due on a date or dates
         subsequent to the related Due Date;

                  (iv) amounts received on particular Mortgage Loans as late
         payments of principal or interest and respecting which, and to the
         extent that, there are any unreimbursed Monthly Advances;

                  (v) amounts representing Monthly Advances determined to be
         Nonrecoverable Advances;

                  (vi) any investment earnings on amounts on deposit in the
         Master Servicer Collection Account and the Distribution Account and
         amounts permitted to be withdrawn from the Master Servicer Collection
         Account and the Distribution Account pursuant to this Agreement;

                  (vii) to pay the Servicing Fees or to reimburse any Servicer
         or the Master Servicer for such amounts as are due under the applicable
         Servicing Agreement and the Agreement and have not been retained by or
         paid to such Servicer or the Master Servicer; and

                  (viii) any expenses or other amounts reimbursable to the
         Securities Adminstrator pursuant to Section 9.05.

         GROUP 1 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

         GROUP 2 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

         GROUP 3 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

                                      -10-

<PAGE>

         GROUP 4 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

         GROUP 5 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

         GROUP 6 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

         GROUP 7 MORTGAGE LOANS: The Mortgage Loans identified as such on the
Mortgage Loan Schedule.

         GROUP 1 SENIOR CERTIFICATES: The Class I-A Certificates.

         GROUP 2 SENIOR CERTIFICATES: The Class R-I, Class R-II, Class R-III,
Class R-IV and Class II- A Certificates.

         GROUP 3 SENIOR CERTIFICATES: The Class III-A Certificates.

         GROUP 4 SENIOR CERTIFICATES: The Class IV-A1, Class IV-A2, Class IV-A3,
Class IV-A4, Class IV-A5 and Class IV-X Certificates.

         GROUP 5 SENIOR CERTIFICATES: The Class V-A Certificates.

         GROUP 6 SENIOR CERTIFICATES: The Class VI-A Certificates.

         GROUP 7 SENIOR CERTIFICATES: The Class VII-A Certificates.

         GROUP 1 SENIOR OPTIMAL PRINCIPAL AMOUNT, GROUP 2 SENIOR OPTIMAL
PRINCIPAL AMOUNT, GROUP 3 SENIOR OPTIMAL PRINCIPAL AMOUNT, GROUP 4 SENIOR
OPTIMAL PRINCIPAL AMOUNT, GROUP 5 SENIOR OPTIMAL PRINCIPAL AMOUNT, GROUP 6
SENIOR OPTIMAL PRINCIPAL AMOUNT OR GROUP 7 SENIOR OPTIMAL PRINCIPAL AMOUNT: With
respect to each Distribution Date, an amount equal to the sum, without
duplication, of the following (but in no event greater than the aggregate
Current Principal Amounts of the Group 1, Group 2, Group 3, Group 4, Group 5,
Group 6 or Group 7 Senior Certificates, as applicable, immediately prior to such
Distribution Date):

                  (i) the applicable Senior Percentage of all scheduled payments
         of principal allocated to the Scheduled Principal Balance due on each
         Outstanding Mortgage Loan in the related Loan Group on the related Due
         Date as specified in the amortization schedule at the time applicable
         thereto (after adjustments for previous Principal Prepayments but
         before any adjustment to such amortization schedule by reason of any
         bankruptcy or similar proceeding or any moratorium or similar waiver or
         grace period);

                  (ii) the applicable Senior Prepayment Percentage of the
         Scheduled Principal Balance of each Mortgage Loan in the related Loan
         Group which was the subject of a

                                      -11-

<PAGE>

         Principal Prepayment in full received by the Master Servicer during the
         related Prepayment Period;

                  (iii) the applicable Senior Prepayment Percentage of all
         Principal Prepayments in part received by the Master Servicer during
         the related Prepayment Period with respect to each Mortgage Loan in the
         related Loan Group;

                  (iv) the lesser of (a) the applicable Senior Prepayment
         Percentage of the sum of (A) all Net Liquidation Proceeds allocable to
         principal received in respect of each Mortgage Loan in the related Loan
         Group which became a Liquidated Mortgage Loan during the related
         Prepayment Period (other than Mortgage Loans described in the
         immediately following clause (B)) and (B) the Scheduled Principal
         Balance of each such Mortgage Loan in the related Loan Group purchased
         by an insurer from the Trustee during the related Prepayment Period
         pursuant to the related primary mortgage insurance policy, if any, or
         otherwise; and (b) the applicable Senior Percentage of the sum of (A)
         the Scheduled Principal Balance of each Mortgage Loan in the related
         Loan Group which became a Liquidated Mortgage Loan during the related
         Prepayment Period (other than the Mortgage Loans described in the
         immediately following clause (B)) and (B) the Scheduled Principal
         Balance of each such Mortgage Loan in the related Loan Group that was
         purchased by an insurer from the Trustee during the related Prepayment
         Period pursuant to the related primary mortgage insurance policy, if
         any or otherwise;

                  (v) the applicable Senior Prepayment Percentage of the sum of
         (a) the Scheduled Principal Balance of each Mortgage Loan in the
         related Loan Group which was repurchased by the Mortgage Loan Seller in
         connection with such Distribution Date and (b) the excess, if any, of
         the Scheduled Principal Balance of a Mortgage Loan in the related Loan
         Group that has been replaced by the Mortgage Loan Seller with a
         substitute Mortgage Loan pursuant to the Mortgage Loan Purchase
         Agreement in connection with such Distribution Date over the Scheduled
         Principal Balance of such substitute Mortgage Loan.

         GROUP 1 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 1
Senior Certificates immediately preceding such Distribution Date by the
aggregate Scheduled Principal Balance of the Group 1 Mortgage Loans as of the
beginning of the related Due Period.

         GROUP 2 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 2
Senior Certificates immediately preceding such Distribution Date by the
aggregate Scheduled Principal Balance of the Group 2 Mortgage Loans as of the
beginning of the related Due Period.

         GROUP 3 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 3
Senior Certificates immediately preceding such

                                      -12-

<PAGE>

Distribution Date by the aggregate Scheduled Principal Balance of the Group 3
Mortgage Loans as of the beginning of the related Due Period.

         GROUP 4 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 4
Senior Certificates immediately preceding such Distribution Date by the
aggregate Scheduled Principal Balance of the Group 4 Mortgage Loans as of the
beginning of the related Due Period.

         GROUP 5 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 5
Senior Certificates immediately preceding such Distribution Date by the
aggregate Scheduled Principal Balance of the Group 5 Mortgage Loans as of the
beginning of the related Due Period.

         GROUP 6 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 6
Senior Certificates immediately preceding such Distribution Date by the
aggregate Scheduled Principal Balance of the Group 6 Mortgage Loans as of the
beginning of the related Due Period.

         GROUP 7 SENIOR PERCENTAGE: Initially, 96.25%. On any Distribution Date,
the lesser of (i) 100% and (ii) the percentage (carried to six places rounded
up) obtained by dividing the aggregate Current Principal Amount of the Group 7
Senior Certificates immediately preceding such Distribution Date by the
aggregate Scheduled Principal Balance of the Group 7 Mortgage Loans as of the
beginning of the related Due Period.

         GROUP 1 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 1 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 1 Senior Percentage plus 70% of the Group
                                                      1 Subordinate Percentage

June 25, 2010 - May 25, 2011                          Group 1 Senior Percentage plus 60% of the Group
                                                      1 Subordinate Percentage

June 25, 2011 - May 25, 2012                          Group 1 Senior Percentage plus 40% of the Group
                                                      1 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 1 Senior Percentage plus 20% of the Group
                                                      1 Subordinate Percentage

June 25, 2013 and thereafter                          Group 1 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 1 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the aggregate Scheduled Principal Balance
of the Mortgage Loans delinquent 60 days or more (including

                                      -13-

<PAGE>

for this purpose any such Mortgage Loans in foreclosure and Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50%;
and (B) cumulative Realized Losses on the Mortgage Loans do not exceed (a) 30%
of the Original Subordinate Principal Balance if such Distribution Date occurs
between and including June 2009 and May 2010, (b) 35% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including June 2010 and May 2011, (c) 40% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including June 2011 and May
2012, (d) 45% of the Original Subordinate Principal Balance if such Distribution
Date occurs between and including June 2012 and May 2013, and (e) 50% of the
Original Subordinate Principal Balance if such Distribution Date occurs during
or after June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the Distribution Date in May 2005 cumulative Realized
Losses on the Mortgage Loans do not exceed 20% of the Original Subordinate
Principal Balance and (ii) after the Distribution Date in May 2005 cumulative
Realized Losses on the Mortgage Loans do not exceed 30% of the Original
Subordinate Principal Balance, then, in each case, the Group 1 Senior Prepayment
Percentage for such Distribution Date will equal the Group 1 Senior Percentage;
provided, however, if the current weighted average Subordinate Percentage for
the Certificates is equal to or greater than two times the initial weighted
average Subordinate Percentage for the Certificates prior to June 25, 2005 and
the above delinquency and loss tests are met, then the Group 1 Senior Prepayment
Percentage for such Distribution Date will equal the Group 1 Senior Percentage
plus 50% of the Group 1 Subordinate Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 1
Senior Percentage exceeds the Group 1 Senior Percentage as of the Cut-Off Date,
the Group 1 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 1 Senior Certificates are reduced to zero, the Group 1 Senior Prepayment
Percentage shall be the minimum percentage sufficient to effect such reduction
and thereafter shall be zero.

         GROUP 2 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 2 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 2 Senior Percentage plus 70% of the Group
                                                      2 Subordinate Percentage

June 25, 2010 - May 25, 2011                          Group 2 Senior Percentage plus 60% of the Group
                                                      2 Subordinate Percentage

                                      -14-

<PAGE>

June 25, 2011 - May 25, 2012                          Group 2 Senior Percentage plus 40% of the Group
                                                      2 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 2 Senior Percentage plus 20% of the Group
                                                      2 Subordinate Percentage

June 25, 2013 and thereafter                          Group 2 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 2 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the aggregate Scheduled Principal Balance
of the Mortgage Loans delinquent 60 days or more (including for this purpose any
such Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust), averaged over the
last six months, as a percentage of the sum of the aggregate Current Principal
Amount of the Subordinate Certificates does not exceed 50%; and (B) cumulative
Realized Losses on the Mortgage Loans do not exceed (a) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including June 2009 and May 2010, (b) 35% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including Junel 2010 and
May 2011, (c) 40% of the Original Subordinate Principal Balance if such
Distribution Date occurs between and including June 2011 and May 2012, (d) 45%
of the Original Subordinate Principal Balance if such Distribution Date occurs
between and including June 2012 and May 2013, and (e) 50% of the Original
Subordinate Principal Balance if such Distribution Date occurs during or after
June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the Distribution Date in May 2005 cumulative Realized
Losses on the Mortgage Loans do not exceed 20% of the Original Subordinate
Principal Balance and (ii) after the Distribution Date in May 2005 cumulative
Realized Losses on the Mortgage Loans do not exceed 30% of the Original
Subordinate Principal Balance, then, in each case, the Group 2 Senior Prepayment
Percentage for such Distribution Date will equal the Group 2 Senior Percentage;
provided, however, if the current weighted average Subordinate Percentage for
the Certificates is equal to or greater than two times the initial weighted
average Subordinate Percentage for the Certificates prior to June 25, 2005 and
the above delinquency and loss tests are met, then the Group 2 Senior Prepayment
Percentage for such Distribution Date will equal the Group 2 Senior Percentage
plus 50% of the Group 2 Subordinate Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 2
Senior Percentage exceeds the Group 2 Senior Percentage as of the Cut-Off Date,
the Group 2 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 2 Senior Certificates are reduced to zero, the Group 2 Senior Prepayment
Percentage shall be the minimum percentage sufficient to effect such reduction
and thereafter shall be zero.

                                      -15-

<PAGE>

         GROUP 3 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 3 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 3 Senior Percentage plus 70% of the Group
                                                      3 Subordinate Percentage

June 25, 2010 - May 25, 2011                          Group 3 Senior Percentage plus 60% of the Group
                                                      3 Subordinate Percentage

June 25, 2011 - May 25, 2012                          Group 3 Senior Percentage plus 40% of the Group
                                                      3 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 3 Senior Percentage plus 20% of the Group
                                                      3 Subordinate Percentage

June 25, 2013 and thereafter                          Group 3 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 3 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the aggregate Scheduled Principal Balance
of the Mortgage Loans delinquent 60 days or more (including for this purpose any
such Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust), averaged over the
last six months, as a percentage of the sum of the aggregate Current Principal
Amount of the Subordinate Certificates does not exceed 50%; and (B) cumulative
Realized Losses on the Mortgage Loans do not exceed (a) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including June 2009 and May 2010, (b) 35% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including June 2010 and May
2011, (c) 40% of the Original Subordinate Principal Balance if such Distribution
Date occurs between and including June 2011 and May 2012, (d) 45% of the
Original Subordinate Principal Balance if such Distribution Date occurs between
and including June 2012 and May 2013, and (e) 50% of the Original Subordinate
Principal Balance if such Distribution Date occurs during or after June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the Distribution Date in May 2005 cumulative Realized
Losses on the Mortgage Loans do not exceed 20% of the Original Subordinate
Principal Balance and (ii) after the Distribution Date in May 2005 cumulative
Realized Losses on the Mortgage Loans do not exceed 30% of the Original
Subordinate Principal Balance, then, in each case, the Group 3 Senior Prepayment
Percentage for such Distribution Date will equal the Group 3 Senior Percentage;
provided, however, if the current weighted average Subordinate Percentage for
the Certificates is equal to or greater than two times the initial weighted
average Subordinate Percentage for the Certificates prior to June 25, 2005 and
the above delinquency and loss tests are

                                      -16-

<PAGE>

met, then the Group 3 Senior Prepayment Percentage for such Distribution Date
will equal the Group 3 Senior Percentage plus 50% of the Group 3 Subordinate
Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 3
Senior Percentage exceeds the Group 3 Senior Percentage as of the Cut-Off Date,
the Group 3 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 3 Senior Certificates are reduced to zero, the Group 3 Senior Prepayment
Percentage shall be the minimum percentage sufficient to effect such reduction
and thereafter shall be zero.

         GROUP 4 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 4 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 4 Senior Percentage plus 70% of the Group
                                                      4 Subordinate Percentage

June 25, 2010 - May 25, 2011                          Group 4 Senior Percentage plus 60% of the Group
                                                      4 Subordinate Percentage

June 25, 2011 - May 25, 2012                          Group 4 Senior Percentage plus 40% of the Group
                                                      4 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 4 Senior Percentage plus 20% of the Group
                                                      4 Subordinate Percentage

June 25, 2013 and thereafter                          Group 4 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 4 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the aggregate Scheduled Principal Balance
of the Mortgage Loans delinquent 60 days or more (including for this purpose any
such Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust), averaged over the
last six months, as a percentage of the sum of the aggregate Current Principal
Amount of the Subordinate Certificates does not exceed 50%; and (B) cumulative
Realized Losses on the Mortgage Loans do not exceed (a) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including June 2009 and May 2010, (b) 35% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including June 2010 and May
2011, (c) 40% of the Original Subordinate Principal Balance if such Distribution
Date occurs between and including June 2011 and May 2012, (d) 45% of the
Original Subordinate Principal Balance if such Distribution Date occurs between
and including June 2012 and May 2013, and (e) 50% of the Original Subordinate
Principal Balance if such Distribution Date occurs during or after June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six

                                      -17-

<PAGE>

months, as a percentage of the sum of the aggregate Current Principal Amount of
the Subordinate Certificates does not exceed 50% and (b)(i) on or prior to the
Distribution Date in May 2005 cumulative Realized Losses on the Mortgage Loans
do not exceed 20% of the Original Subordinate Principal Balance and (ii) after
the Distribution Date in May 2005 cumulative Realized Losses on the Mortgage
Loans do not exceed 30% of the Original Subordinate Principal Balance, then, in
each case, the Group 4 Senior Prepayment Percentage for such Distribution Date
will equal the Group 4 Senior Percentage; provided, however, if the current
weighted average Subordinate Percentage for the Certificates is equal to or
greater than two times the initial weighted average Subordinate Percentage for
the Certificates prior to June 25, 2005 and the above delinquency and loss tests
are met, then the Group 4 Senior Prepayment Percentage for such Distribution
Date will equal the Group 4 Senior Percentage plus 50% of the Group 4
Subordinate Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 4
Senior Percentage exceeds the Group 4 Senior Percentage as of the Cut-Off Date,
the Group 4 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 4 Senior Certificates are reduced to zero, the Group 4 Senior Prepayment
Percentage shall be the minimum percentage sufficient to effect such reduction
and thereafter shall be zero.

         GROUP 5 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 5 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 5 Senior Percentage plus 70% of the Group
                                                      5 Subordinate Percentage

June 25, 2010 - May 25, 2011                          Group 5 Senior Percentage plus 60% of the Group
                                                      5 Subordinate Percentage

June 25, 2011 - May 25, 2012                          Group 5 Senior Percentage plus 40% of the Group
                                                      5 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 5 Senior Percentage plus 20% of the Group
                                                      5 Subordinate Percentage

June 25, 2013 and thereafter                          Group 5 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 5 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the aggregate Scheduled Principal Balance
of the Mortgage Loans delinquent 60 days or more (including for this purpose any
such Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust), averaged over the
last six months, as a percentage of the sum of the aggregate Current Principal
Amount of the Subordinate Certificates does not exceed 50%; and (B) cumulative
Realized Losses on the Mortgage Loans do not exceed (a) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including June 2009 and May 2010, (b) 35% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including June 2010 and May
2011, (c) 40% of the Original Subordinate Principal Balance if such Distribution
Date occurs between and including June 2011

                                      -18-

<PAGE>

and May 2012, (d) 45% of the Original Subordinate Principal Balance if such
Distribution Date occurs between and including June 2012 and May 2013, and (e)
50% of the Original Subordinate Principal Balance if such Distribution Date
occurs during or after June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the Distribution Date in May 2005 cumulative Realized
Losses on the Mortgage Loans do not exceed 20% of the Original Subordinate
Principal Balance and (ii) after the Distribution Date in May 2005 cumulative
Realized Losses on the Mortgage Loans do not exceed 30% of the Original
Subordinate Principal Balance, then, in each case, the Group 5 Senior Prepayment
Percentage for such Distribution Date will equal the Group 5 Senior Percentage;
provided, however, if the current weighted average Subordinate Percentage for
the Certificates is equal to or greater than two times the initial weighted
average Subordinate Percentage for the Certificates prior to June 25, 2005 and
the above delinquency and loss tests are met, then the Group 5 Senior Prepayment
Percentage for such Distribution Date will equal the Group 5 Senior Percentage
plus 50% of the Group 5 Subordinate Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 5
Senior Percentage exceeds the Group 5 Senior Percentage as of the Cut-Off Date,
the Group 5 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 5 Senior Certificates are reduced to zero, the Group 5 Senior Prepayment
Percentage shall be the minimum percentage sufficient to effect such reduction
and thereafter shall be zero.

         GROUP 6 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 6 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 6 Senior Percentage plus 70% of the Group
                                                      6 Subordinate Percentage

June 25, 2010 - May 25, 2011                          Group 6 Senior Percentage plus 60% of the Group
                                                      6 Subordinate Percentage

June 25, 2011 - May 25, 2012                          Group 6 Senior Percentage plus 40% of the Group
                                                      6 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 6 Senior Percentage plus 20% of the Group
                                                      6 Subordinate Percentage

June 25, 2013 and thereafter                          Group 6 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 6 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the

                                      -19-

<PAGE>

aggregate Scheduled Principal Balance of the Mortgage Loans delinquent 60 days
or more (including for this purpose any such Mortgage Loans in foreclosure and
Mortgage Loans with respect to which the related Mortgaged Property has been
acquired by the Trust), averaged over the last six months, as a percentage of
the sum of the aggregate Current Principal Amount of the Subordinate
Certificates does not exceed 50%; and (B) cumulative Realized Losses on the
Mortgage Loans do not exceed (a) 30% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including June 2009 and May
2010, (b) 35% of the Original Subordinate Principal Balance if such Distribution
Date occurs between and including June 2010 and May 2011, (c) 40% of the
Original Subordinate Principal Balance if such Distribution Date occurs between
and including June 2011 and May 2012, (d) 45% of the Original Subordinate
Principal Balance if such Distribution Date occurs between and including June
2012 and May 2013, and (e) 50% of the Original Subordinate Principal Balance if
such Distribution Date occurs during or after June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the Distribution Date in May 2005 cumulative Realized
Losses on the Mortgage Loans do not exceed 20% of the Original Subordinate
Principal Balance and (ii) after the Distribution Date in May 2005 cumulative
Realized Losses on the Mortgage Loans do not exceed 30% of the Original
Subordinate Principal Balance, then, in each case, the Group 6 Senior Prepayment
Percentage for such Distribution Date will equal the Group 6 Senior Percentage;
provided, however, if the current weighted average Subordinate Percentage for
the Certificates is equal to or greater than two times the initial weighted
average Subordinate Percentage for the Certificates prior to June 25, 2005 and
the above delinquency and loss tests are met, then the Group 6 Senior Prepayment
Percentage for such Distribution Date will equal the Group 6 Senior Percentage
plus 50% of the Group 6 Subordinate Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 6
Senior Percentage exceeds the Group 6 Senior Percentage as of the Cut-Off Date,
the Group 6 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 6 Senior Certificates are reduced to zero, the Group 6 Senior Prepayment
Percentage shall be the minimum percentage sufficient to effect such reduction
and thereafter shall be zero.

         GROUP 7 SENIOR PREPAYMENT PERCENTAGE: On any Distribution Date
occurring during the periods set forth below, as follows:

<TABLE>
<CAPTION>
Period (dates inclusive)                              Group 7 Senior Prepayment Percentage
----------------------------------------------------- -------------------------------------------------------------
<S>                                                   <C>
June 25, 2002 - May 25, 2009                          100%

June 25, 2009 - May 25, 2010                          Group 7 Senior Percentage plus 70% of the Group
                                                      7 Subordinate Percentage

                                      -20-

<PAGE>

June 25, 2010 - May 25, 2011                          Group 7 Senior Percentage plus 60% of the Group
                                                      7 Subordinate Percentage

June 25, 2011 - May 25, 2012                          Group 7 Senior Percentage plus 40% of the Group
                                                      7 Subordinate Percentage

June 25, 2012 - May 25, 2013                          Group 7 Senior Percentage plus 20% of the Group
                                                      7 Subordinate Percentage

June 25, 2013 and thereafter                          Group 7 Senior Percentage
</TABLE>

         In addition, no reduction of the Group 7 Senior Prepayment Percentage
shall occur on any Distribution Date unless, as of the last day of the month
preceding such Distribution Date, (A) the aggregate Scheduled Principal Balance
of the Mortgage Loans delinquent 60 days or more (including for this purpose any
such Mortgage Loans in foreclosure and Mortgage Loans with respect to which the
related Mortgaged Property has been acquired by the Trust), averaged over the
last six months, as a percentage of the sum of the aggregate Current Principal
Amount of the Subordinate Certificates does not exceed 50%; and (B) cumulative
Realized Losses on the Mortgage Loans do not exceed (a) 30% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including June 2009 and May 2010, (b) 35% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including June 2010 and May
2011, (c) 40% of the Original Subordinate Principal Balance if such Distribution
Date occurs between and including June 2011 and May 2012, (d) 45% of the
Original Subordinate Principal Balance if such Distribution Date occurs between
and including June 2012 and May 2013, and (e) 50% of the Original Subordinate
Principal Balance if such Distribution Date occurs during or after June 2013.

         In addition, if the current weighted average Subordinate Percentage is
equal to or greater than two times the initial weighted average Subordinate
Percentage for the Certificates, and (a) the aggregate Scheduled Principal
Balance of the Mortgage Loans delinquent 60 days or more (including for this
purpose any such Mortgage Loans in foreclosure and such Mortgage Loans with
respect to which the related Mortgaged Property has been acquired by the Trust),
averaged over the last six months, as a percentage of the sum of the aggregate
Current Principal Amount of the Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the Distribution Date in May 2005 cumulative Realized
Losses on the Mortgage Loans do not exceed 20% of the Original Subordinate
Principal Balance and (ii) after the Distribution Date in May 2005 cumulative
Realized Losses on the Mortgage Loans do not exceed 30% of the Original
Subordinate Principal Balance, then, in each case, the Group 7 Senior Prepayment
Percentage for such Distribution Date will equal the Group 7 Senior Percentage;
provided, however, if the current weighted average Subordinate Percentage for
the Certificates is equal to or greater than two times the initial weighted
average Subordinate Percentage for the Certificates prior to June 25, 2005 and
the above delinquency and loss tests are met, then the Group 7 Senior Prepayment
Percentage for such Distribution Date will equal the Group 7 Senior Percentage
plus 50% of the Group 7 Subordinate Percentage.

         Notwithstanding the foregoing, if on any Distribution Date the Group 7
Senior Percentage exceeds the Group 7 Senior Percentage as of the Cut-Off Date,
the Group 7 Senior Prepayment Percentage for such Distribution Date will equal
100%. On the Distribution Date on which the Current Principal Amounts of the
Group 7 Senior Certificates are reduced to zero, the Group 7

                                      -21-

<PAGE>

Senior Prepayment Percentage shall be the minimum percentage sufficient to
effect such reduction and thereafter shall be zero.

         GROUP 1 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 1 Senior Percentage.

         GROUP 2 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 2 Senior Percentage.

         GROUP 3 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 3 Senior Percentage.

         GROUP 4 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 4 Senior Percentage.

         GROUP 5 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 5 Senior Percentage.

         GROUP 6 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 6 Senior Percentage.

         GROUP 7 SUBORDINATE PERCENTAGE: On any Distribution Date, 100% minus
the Group 7 Senior Percentage.

         GROUP 1 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 1
Mortgage Loans, on any Distribution Date, 100% minus the Group 1 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 1 Senior Certificates have each been reduced to
zero, the Group 1 Subordinate Prepayment Percentage will equal 100%.

         GROUP 2 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 2
Mortgage Loans, on any Distribution Date, 100% minus the Group 2 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 2 Senior Certificates have each been reduced to
zero, the Group 2 Subordinate Prepayment Percentage will equal 100%.

         GROUP 3 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 3
Mortgage Loans, on any Distribution Date, 100% minus the Group 3 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 3 Senior Certificates have each been reduced to
zero, the Group 3 Subordinate Prepayment Percentage will equal 100%.

         GROUP 4 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 4
Mortgage Loans, on any Distribution Date, 100% minus the Group 4 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 4 Senior Certificates (other than the Class IV-X
Certificates) have each been reduced to zero, the Group 4 Subordinate Prepayment
Percentage will equal 100%.

                                      -22-

<PAGE>

         GROUP 5 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 5
Mortgage Loans, on any Distribution Date, 100% minus the Group 5 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 5 Senior Certificates have each been reduced to
zero, the Group 5 Subordinate Prepayment Percentage will equal 100%.

         GROUP 6 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 6
Mortgage Loans, on any Distribution Date, 100% minus the Group 6 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 6 Senior Certificates have each been reduced to
zero, the Group 6 Subordinate Prepayment Percentage will equal 100%.

         GROUP 7 SUBORDINATE PREPAYMENT PERCENTAGE: With respect to the Group 7
Mortgage Loans, on any Distribution Date, 100% minus the Group 7 Senior
Prepayment Percentage, except that on any Distribution Date after the Current
Principal Amounts of the Group 7 Senior Certificates have each been reduced to
zero, the Group 7 Subordinate Prepayment Percentage will equal 100%.

         HOLDER: The Person in whose name a Certificate is registered in the
Certificate Register, except that, subject to Subsections 12.02(b) and 12.05(e),
solely for the purpose of giving any consent pursuant to this Agreement, any
Certificate registered in the name of the Seller, the Master Servicer or the
Trustee or any Affiliate thereof shall be deemed not to be outstanding and the
Fractional Undivided Interest evidenced thereby shall not be taken into account
in determining whether the requisite percentage of Fractional Undivided
Interests necessary to effect any such consent has been obtained.

         HOMEBANC: HomeBanc Mortgage Corporation.

         HSBC: HSBC Mortgage Corporation (USA) (f/k/a Marine Midland Mortgage
Corporation).

         HSBC SERVICING AGREEMENT: The Servicing Agreement, dated as of January
27, 1999 between E*TRADE Bank (f/k/a Telebank) and HSBC, as attached hereto as
Exhibit H-8.

         INDEMNIFIED PERSONS: The Trustee, the Master Servicer, and the
Securities Administrator and their officers, directors, agents and employees
and, with respect to the Trustee, any separate co- trustee and its officers,
directors, agents and employees.

         INDEPENDENT: When used with respect to any specified Person, this term
means that such Person (a) is in fact independent of the Seller or the Master
Servicer and of any Affiliate of the Seller or the Master Servicer, (b) does not
have any direct financial interest or any material indirect financial interest
in the Seller or the Master Servicer or any Affiliate of the Seller or the
Master Servicer and (c) is not connected with the Seller or the Master Servicer
or any Affiliate as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.

         INDEX: The index, if any, specified in a Mortgage Note by reference to
which the related Mortgage Interest Rate will be adjusted from time to time.

         INDIVIDUAL CERTIFICATE: Any Private Certificate registered in the name
of the Holder other than the Depository or its nominee.

                                      -23-

<PAGE>

         INITIAL CERTIFICATION: The certification substantially in the form of
Exhibit One to the Custodial Agreement.

         INSTITUTIONAL ACCREDITED INVESTOR: Any Person meeting the requirements
of Rule 501(a)(l), (2), (3) or (7) of Regulation D under the Securities Act or
any entity all of the equity holders in which come within such paragraphs.

         INSURANCE POLICY: With respect to any Mortgage Loan, any standard
hazard insurance policy, flood insurance policy or title insurance policy.

         INSURANCE PROCEEDS: Amounts paid by the insurer under any Insurance
Policy covering any Mortgage Loan or Mortgaged Property other than amounts
required to be paid over to the Mortgagor pursuant to law or the related
Mortgage Note or Security Instrument and other than amounts used to repair or
restore the Mortgaged Property or to reimburse insured expenses.

         INTEREST ACCRUAL PERIOD: With respect to each Distribution Date, for
each Class of Certificates, the calendar month preceding the month in which such
Distribution Date occurs.

         INTEREST ADJUSTMENT DATE: With respect to a Mortgage Loan, the date, if
any, specified in the related Mortgage Note on which the Mortgage Interest Rate
is subject to adjustment.

         INTEREST SHORTFALL: With respect to any Distribution Date and each
Mortgage Loan that during the related Prepayment Period was the subject of a
Principal Prepayment or constitutes a Relief Act Mortgage Loan, an amount
determined as follows:

         (a) Partial principal prepayments received during the relevant
Prepayment Period: The difference between (i) one month's interest at the
applicable Net Rate on the amount of such prepayment and (ii) the amount of
interest for the calendar month of such prepayment (adjusted to the applicable
Net Rate) received at the time of such prepayment;

         (b) Principal prepayments in full received during the relevant
Prepayment Period: The difference between (i) one month's interest at the
applicable Net Rate on the Scheduled Principal Balance of such Mortgage Loan
immediately prior to such prepayment and (ii) the amount of interest for the
calendar month of such prepayment (adjusted to the applicable Net Rate) received
at the time of such prepayment; and

         (c) Relief Act Mortgage Loans: As to any Relief Act Mortgage Loan, the
excess of (i) 30 days' interest (or, in the case of a principal prepayment in
full, interest to the date of prepayment) on the Scheduled Principal Balance
thereof (or, in the case of a principal prepayment in part, on the amount so
prepaid) at the related Net Rate over (ii) 30 days' interest (or, in the case of
a principal prepayment in full, interest to the date of prepayment) on such
Scheduled Principal Balance (or, in the case of a Principal Prepayment in part,
on the amount so prepaid) at the Net Rate required to be paid by the Mortgagor
as limited by application of the Relief Act.

         INTERIM CERTIFICATION: The certification substantially in the form of
Exhibit Two to the Custodial Agreement.

                                      -24-

<PAGE>

         INVESTMENT LETTER: The letter to be furnished by each Institutional
Accredited Investor which purchases any of the Private Certificates in
connection with such purchase, substantially in the form set forth as Exhibit
F-1 hereto.

         LIQUIDATED MORTGAGE LOAN: Any defaulted Mortgage Loan as to which the
related Servicer or the Master Servicer has determined that all amounts it
expects to recover from or on account of such Mortgage Loan have been recovered.

         LIQUIDATION DATE: With respect to any Liquidated Mortgage Loan, the
date on which the Master Servicer or the related Servicer has certified that
such Mortgage Loan has become a Liquidated Mortgage Loan.

         LIQUIDATION EXPENSES: With respect to a Mortgage Loan in liquidation,
unreimbursed expenses paid or incurred by or for the account of the Master
Servicer or the related Servicers in connection with the liquidation of such
Mortgage Loan and the related Mortgage Property, such expenses including (a)
property protection expenses, (b) property sales expenses, (c) foreclosure and
sale costs, including court costs and reasonable attorneys' fees, and (d)
similar expenses reasonably paid or incurred in connection with liquidation.

         LIQUIDATION PROCEEDS: Cash received in connection with the liquidation
of a defaulted Mortgage Loan, whether through trustee's sale, foreclosure sale,
Insurance Proceeds, condemnation proceeds or otherwise.

         LOAN GROUP: Loan Group 1, Loan Group 2, Loan Group 3, Loan Group 4,
Loan Group 5, Loan Group 6 or Loan Group 7, as applicable.

         LOAN GROUP 1: The group of Mortgage Loans designated as belonging to
Loan Group 1 on the Mortgage Loan Schedule.

         LOAN GROUP 2: The group of Mortgage Loans designated as belonging to
Loan Group 2 on the Mortgage Loan Schedule.

         LOAN GROUP 3: The group of Mortgage Loans designated as belonging to
Loan Group 3 on the Mortgage Loan Schedule.

         LOAN GROUP 4: The group of Mortgage Loans designated as belonging to
Loan Group 4 on the Mortgage Loan Schedule.

         LOAN GROUP 5: The group of Mortgage Loans designated as belonging to
Loan Group 5 on the Mortgage Loan Schedule.

         LOAN GROUP 6: The group of Mortgage Loans designated as belonging to
Loan Group 6 on the Mortgage Loan Schedule.

         LOAN GROUP 7: The group of Mortgage Loans designated as belonging to
Loan Group 7 on the Mortgage Loan Schedule.

                                      -25-

<PAGE>

         LOAN-TO-VALUE RATIO: With respect to any Mortgage Loan, the fraction,
expressed as a percentage, the numerator of which is the original principal
balance of the related Mortgage Loan and the denominator of which is the
Original Value of the related Mortgaged Property.

         LOSS ALLOCATION LIMITATION: The meaning specified in Section 6.02(c)
hereof.

         LOST NOTES: The original Mortgage Notes that have been lost, as
indicated on the Mortgage Loan Schedule.

         MASTER SERVICER: As of the Closing Date, Wells Fargo Bank Minnesota,
National Association and, thereafter, its respective successors in interest who
meet the qualifications of the Servicing Agreements and this Agreement. The
Master Servicer shall have no obligations with respect to the Additional
Collateral which, instead, shall be serviced by MLCC pursuant to the applicable
Cendant Servicing Agreement.

         MASTER SERVICER COLLECTION ACCOUNT: The trust account or accounts
created and maintained pursuant to Section 4.02, which shall be denominated
"Bank One, National Association, as Trustee f/b/o holders of Structured Asset
Mortgage Investments Inc., Bear Stearns ARM Trust, Mortgage Pass-Through
Certificates, Series 2002-5 - Master Servicer Collection Account."

         MASTER SERVICING COMPENSATION: The meaning specified in Section
3.14(a).

         MAXIMUM LIFETIME MORTGAGE RATE: The maximum level to which a Mortgage
Interest Rate can adjust in accordance with its terms, regardless of changes in
the applicable Index.

         MINIMUM LIFETIME MORTGAGE RATE: The minimum level to which a Mortgage
Interest Rate can adjust in accordance with its terms, regardless of changes in
the applicable Index.

         MLCC: Merrill Lynch Credit Corporation.

         MONTHLY ADVANCE: An advance of principal or interest required to be
made by the applicable Servicer pursuant to the related Servicing Agreement or
the Master Servicer pursuant to Section 6.05.

         MOODY'S: Moody's Investors Service, Inc. or its successor in interest.

         MORTGAGE FILE: The mortgage documents listed in Section 2.01(b)
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.

         MORTGAGE INTEREST RATE: The annual rate at which interest accrues from
time to time on any Mortgage Loan pursuant to the related Mortgage Note, which
rate is equal to the "Mortgage Interest Rate" set forth with respect thereto on
the Mortgage Loan Schedule.

                                      -26-

<PAGE>

         MORTGAGE LOAN: A mortgage loan transferred and assigned to the Trustee
pursuant to Section 2.01 or Section 2.04 and held as a part of the Trust Fund,
as identified in the Mortgage Loan Schedule, including a mortgage loan the
property securing which has become an REO Property.

         MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase Agreement
dated as of May 31, 2002, between EMC, as seller, and Structured Asset Mortgage
Investments Inc., as purchaser, and all amendments thereof and supplements
thereto, attached as Exhibit J.

         MORTGAGE LOAN SCHEDULE: The schedule, attached hereto as Exhibit B with
respect to the Mortgage Loans and as amended from time to time to reflect the
repurchase or substitution of Mortgage Loans pursuant to this Agreement.

         MORTGAGE LOAN SELLER: EMC Mortgage Corporation, as mortgage loan seller
under the Mortgage Loan Purchase Agreement.

         MORTGAGE NOTE: The originally executed note or other evidence of the
indebtedness of a Mortgagor under the related Mortgage Loan.

         MORTGAGED PROPERTY: Land and improvements securing the indebtedness of
a Mortgagor under the related Mortgage Loan or, in the case of REO Property,
such REO Property.

         MORTGAGOR: The obligor on a Mortgage Note.

         NCMC: National City Mortgage Corporation.

         NCMC SERVICING AGREEMENT: The Purchase, Warranties and Servicing
Agreement, dated as of October 1, 2001 between EMC (as purchaser) and NCMC (as
company), as attached hereto as Exhibit H-7.

         NET INTEREST SHORTFALL: With respect to any Distribution Date, the
Interest Shortfall, if any, for such Distribution Date net of Compensating
Interest Payments made with respect to such Distribution Date.

         NET LIQUIDATION PROCEEDS: As to any Liquidated Mortgage Loan,
Liquidation Proceeds net of (i) Liquidation Expenses which are payable therefrom
by the related Servicer or the Master Servicer in accordance with the related
Servicing Agreement or this Agreement and (ii) unreimbursed advances by the
related Servicer or the Master Servicer and Monthly Advances.

         NET RATE: With respect to each Mortgage Loan, the Mortgage Interest
Rate in effect from time to time less the Servicing Fee Rate (expressed as a per
annum rate).

         NONRECOVERABLE ADVANCE: Any advance or Monthly Advance (i) which was
previously made or is proposed to be made by the Master Servicer, the Trustee
(as successor Master Servicer) or applicable Servicer and (ii) which, in the
good faith judgment of the Master Servicer, the Trustee or applicable Servicer,
will not or, in the case of a proposed advance or Monthly Advance, would not, be
ultimately recoverable by the Master Servicer, the Trustee (as successor Master
Servicer) or

                                      -27-

<PAGE>

applicable Servicer from Liquidation Proceeds, Insurance Proceeds or future
payments on the Mortgage Loan for which such advance or Monthly Advance was
made.

         NOTIONAL AMOUNT: The Notional Amount of the Class IV-X Certificates
shall consist of the sum of the Notional Amount of five components: (i)
Component X-1, which is equal to the Uncertificated Prinicpal Amount of REMIC
III Regular Interest IV-A1, (ii) Component X-2, which is equal to the
Uncertificated Prinicpal Amount of REMIC III Regular Interest IV-A2, (iii)
Component X-3, which is equal to the Uncertificated Prinicpal Amount of REMIC
III Regular Interest IV-A3, (iv) Component X-4, which is equal to the
Uncertificated Prinicpal Amount of REMIC III Regular Interest IV-A4 and (v)
Component X-5, which is equal to the Uncertificated Prinicpal Amount of REMIC
III Regular Interest IV-A5. The Class IV-X Certificates will bear interest (A)
at a pass-through rate on the Notional Amount in clause (i) above equal to
0.486% per annum; (B) at a pass-through rate on the Notional Amount in clause
(ii) above equal to 0.691% per annum; (C) at a pass-through rate on the Notional
Amount in clause (iii) above equal to 0.796% per annum; (D) at a pass-through
rate on the Notional Amount in clause (iv) above equal to 0.266% per annum; and
(E) at a pass-through rate on the Notional Amount in clause (v) above equal to
0.266% per annum.

         OFFERED CERTIFICATE: Any Senior Certificate or Offered Subordinate
Certificate.

         OFFERED SUBORDINATE CERTIFICATES: The Class B-l, Class B-2 and Class
B-3 Certificates.

         OFFICER'S CERTIFICATE: A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a Vice President or
Assistant Vice President or other authorized officer of the Master Servicer or
the Seller, as applicable, and delivered to the Trustee, as required by this
Agreement.

         OPINION OF COUNSEL: A written opinion of counsel who is or are
acceptable to the Trustee and who, unless required to be Independent (an
"Opinion of Independent Counsel"), may be internal counsel for EMC, the Master
Servicer or the Seller.

         ORIGINAL SUBORDINATE PRINCIPAL BALANCE: The sum of the aggregate
Current Principal Amounts of each Class of Subordinate Certificates as of the
Closing Date.

         ORIGINAL VALUE: The lesser of (i) the Appraised Value or (ii) the sales
price of a Mortgaged Property at the time of origination of a Mortgage Loan,
except in instances where either clauses (i) or (ii) is unavailable, the other
may be used to determine the Original Value, or if both clauses (i) and (ii) are
unavailable, Original Value may be determined from other sources reasonably
acceptable to the Seller.

         OUTSTANDING MORTGAGE LOAN: With respect to any Due Date, a Mortgage
Loan which, prior to such Due Date, was not the subject of a Principal
Prepayment in full, did not become a Liquidated Mortgage Loan and was not
purchased or replaced.

         OUTSTANDING PRINCIPAL BALANCE: As of the time of any determination, the
principal balance of a Mortgage Loan remaining to be paid by the Mortgagor, or,
in the case of an REO Property, the

                                      -28-

<PAGE>

principal balance of the related Mortgage Loan remaining to be paid by the
Mortgagor at the time such property was acquired by the Trust Fund less any Net
Liquidation Proceeds with respect thereto to the extent applied to principal.

         PASS-THROUGH RATE: As to each Class of Certificates and the REMIC I
Regular Interests, REMIC II Regular Interests and REMIC III Regular Interests,
the rate of interest determined as provided with respect thereto, in Section
5.01(c). Any monthly calculation of interest at a stated rate shall be based
upon annual interest at such rate divided by twelve.

         PERIODIC RATE CAP: With respect to each Mortgage Loan, the maximum
adjustment that can be made to the Mortgage Interest Rate on each Interest
Adjustment Date in accordance with its terms, regardless of changes in the
applicable Index.

         PERMITTED INVESTMENTS: Any one or more of the following obligations or
securities held in the name of the Trustee for the benefit of the
Certificateholders:

                  (i) direct obligations of, and obligations the timely payment
         of which are fully guaranteed by the United States of America or any
         agency or instrumentality of the United States of America the
         obligations of which are backed by the full faith and credit of the
         United States of America;

                  (ii) (a) demand or time deposits, federal funds or bankers'
         acceptances issued by any depository institution or trust company
         incorporated under the laws of the United States of America or any
         state thereof (including the Trustee or the Master Servicer or its
         Affiliates acting in its commercial banking capacity) and subject to
         supervision and examination by federal and/or state banking
         authorities, provided that the commercial paper and/or the short- term
         debt rating and/or the long-term unsecured debt obligations of such
         depository institution or trust company at the time of such investment
         or contractual commitment providing for such investment have the
         Applicable Credit Rating or better from each Rating Agency and (b) any
         other demand or time deposit or certificate of deposit that is fully
         insured by the Federal Deposit Insurance Corporation;

                  (iii) repurchase obligations with respect to (a) any security
         described in clause (i) above or (b) any other security issued or
         guaranteed by an agency or instrumentality of the United States of
         America, the obligations of which are backed by the full faith and
         credit of the United States of America, in either case entered into
         with a depository institution or trust company (acting as principal)
         described in clause (ii)(a) above where the Trustee holds the security
         therefor;

                  (iv) securities bearing interest or sold at a discount issued
         by any corporation (including the Trustee or the Master Servicer or its
         Affiliates) incorporated under the laws of the United States of America
         or any state thereof that have the Applicable Credit Rating or better
         from each Rating Agency at the time of such investment or contractual
         commitment providing for such investment; provided, however, that
         securities issued by any particular corporation will not be Permitted
         Investments to the extent that investments therein will cause the then
         outstanding principal amount of securities issued by such corporation
         and held

                                      -29-

<PAGE>

         as part of the Trust to exceed 10% of the aggregate Outstanding
         Principal Balances of all the Mortgage Loans and Permitted Investments
         held as part of the Trust;

                  (v) commercial paper (including both non-interest-bearing
         discount obligations and interest-bearing obligations payable on demand
         or on a specified date not more than one year after the date of
         issuance thereof) having the Applicable Credit Rating or better from
         each Rating Agency at the time of such investment;

                  (vi) a Reinvestment Agreement issued by any bank, insurance
         company or other corporation or entity;

                  (vii) any other demand, money market or time deposit,
         obligation, security or investment as may be acceptable to each Rating
         Agency as evidenced in writing by each Rating Agency to the Trustee;
         and

                  (viii) any money market or common trust fund having the
         Applicable Credit Rating or better from each Rating Agency, including
         any such fund for which the Trustee or Master Servicer or any affiliate
         of the Trustee or Master Servicer acts as a manager or an advisor;
         provided, however, that no instrument or security shall be a Permitted
         Investment if such instrument or security evidences a right to receive
         only interest payments with respect to the obligations underlying such
         instrument or if such security provides for payment of both principal
         and interest with a yield to maturity in excess of 120% of the yield to
         maturity at par or if such instrument or security is purchased at a
         price greater than par.

         PERMITTED TRANSFEREE: Any Person other than a Disqualified Organization
or an "electing large partnership" (as defined by Section 775 of the Code).

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

         PHYSICAL CERTIFICATES: The Residual Certificates and the Private
Certificates.

         PREPAYMENT CHARGE: With respect to any Mortgage Loan, the charges or
premiums, if any, due in connection with a full or partial prepayment of such
Mortgage Loan in accordance with the terms thereof.

         PREPAYMENT PERIOD: With respect to any Mortgage Loan and any
Distribution Date, the calendar month preceding the month in which such
Distribution Date occurs.

         PRINCIPAL PREPAYMENT: Any payment (whether partial or full) or other
recovery of principal on a Mortgage Loan which is received in advance of its
scheduled Due Date to the extent that it is not accompanied by an amount as to
interest representing scheduled interest due on any date or dates in any month
or months subsequent to the month of prepayment, including Insurance Proceeds
and Repurchase Proceeds, but excluding the principal portion of Net Liquidation
Proceeds.

                                      -30-

<PAGE>

         PRIVATE CERTIFICATES: Any Class B-4, Class B-5 and Class B-6
Certificate.

         PROTECTED ACCOUNT: An account established and maintained for the
benefit of Certificateholders by each Servicer with respect to the related
Mortgage Loans and with respect to REO Property pursuant to the respective
Servicing Agreements.

         QIB: A Qualified Institutional Buyer as defined in Rule 144A
promulgated under the Securities Act.

         QUALIFIED INSURER: Any insurance company duly qualified as such under
the laws of the state or states in which the related Mortgaged Property or
Mortgaged Properties is or are located, duly authorized and licensed in such
state or states to transact the type of insurance business in which it is
engaged and approved as an insurer by the Master Servicer, so long as the claims
paying ability of which is acceptable to the Rating Agencies for pass-through
certificates having the same rating as the Certificates rated by the Rating
Agencies as of the Closing Date.

         RATING AGENCIES: S&P and Moody's.

         REALIZED LOSS: Any (i) Bankruptcy Loss or (ii) as to any Liquidated
Mortgage Loan, (x) the Outstanding Principal Balance of such Liquidated Mortgage
Loan plus accrued and unpaid interest thereon at the Mortgage Interest Rate
through the last day of the month of such liquidation, less (y) the related Net
Liquidation Proceeds with respect to such Mortgage Loan and the related Mortgage
Property.

         RECORD DATE: With respect to any Distribution Date, the close of
business on the last Business Day of the month immediately preceding the month
of such Distribution Date.

         REINVESTMENT AGREEMENTS: One or more reinvestment agreements,
acceptable to the Rating Agencies, from a bank, insurance company or other
corporation or entity (including the Trustee).

         RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.

         RELIEF ACT MORTGAGE LOAN: Any Mortgage Loan as to which the Scheduled
Payment thereof has been reduced due to the application of the Relief Act.

         REMIC: A real estate mortgage investment conduit, as defined in the
Code.

         REMIC I: That group of assets contained in the Trust Fund designated as
a REMIC consisting of (i) the Countrywide Mortgage Loans, (ii) the Master
Servicer Collection Account to the extent relating to the Countrywide Mortgage
Loans, (iii) any REO Property relating to the Countrywide Mortgage Loans, (iv)
the rights with respect to the Countrywide Servicing Agreement and (v) any
proceeds of the foregoing.

         REMIC I INTERESTS: The REMIC I Regular Interests and the Class R-I
Certificates.

                                      -31-

<PAGE>

         REMIC I REGULAR INTERESTS: The REMIC I Regular Interests, with such
terms as described in Section 5.01(c).

         REMIC II: That group of assets contained in the Trust Fund designated
as a REMIC consisting of (i) the REMIC I Regular Interests and the Mortgage
Loans other than the Countrywide Mortgage Loans, (ii) the Master Servicer
Collection Account to the extent relating to the Mortgage Loans other than the
Countrywide Mortgage Loans, (iii) any REO Property relating to the Mortgage
Loans other than the Countrywide Mortgage Loans and (iv) any proceeds of the
foregoing.

         REMIC II INTERESTS: The REMIC II Regular Interests and the Class R-II
Certificates.

         REMIC II REGULAR INTERESTS: As defined in Section 5.01(c).

         REMIC II SUBORDINATED BALANCE RATIO: The ratio among the Uncertificated
Principal Balances of each of the REMIC II Regular Interests ending with the
designation "A," equal to the ratio among, with respect to each such REMIC II
Regular Interest, the excess of (x) the aggregate Scheduled Principal Balance of
the Mortgage Loans in the related Loan Group over (y) the Current Principal
Amount of the Senior Certificates in the related Group

         REMIC III: That group of assets contained in the Trust Fund designated
as a REMIC consisting of the REMIC II Regular Interests.

         REMIC III INTERESTS: The REMIC III Regular Interests and the Class
R-III Certificates.

         REMIC III REGULAR INTERESTS: As defined in Section 5.01(c).

         REMIC IV: That group of assets contained in the Trust Fund designated
as a REMIC consisting of the REMIC III Regular Interests.

         REMIC IV CERTIFICATES: The REMIC IV Regular Certificates and the Class
R-IV Certificates.

         REMIC IV REGULAR CERTIFICATES: As defined in Section 5.01(c).

         REMIC OPINION: An Opinion of Independent Counsel, to the effect that
the proposed action described therein would not, under the REMIC Provisions, (i)
cause REMIC I, REMIC II, REMIC III or REMIC IV to fail to qualify as a REMIC
while any regular interest in such REMIC is outstanding, (ii) result in a tax on
prohibited transactions with respect to any REMIC or (iii) constitute a taxable
contribution to any REMIC after the Startup Day.

         REMIC PROVISIONS: The provisions of the federal income tax law relating
to the REMIC, which appear at Sections 860A through 860G of the Code, and
related provisions and regulations promulgated thereunder, as the foregoing may
be in effect from time to time.

         REO PROPERTY: A Mortgaged Property acquired in the name of the Trustee,
for the benefit of Certificateholders, by foreclosure or deed-in-lieu of
foreclosure in connection with a defaulted Mortgage Loan.

                                      -32-

<PAGE>

         REPURCHASE PRICE: With respect to any Mortgage Loan (or any property
acquired with respect thereto) required to be repurchased by the Mortgage Loan
Seller pursuant to the Mortgage Loan Purchase Agreement or Article II of this
Agreement, an amount equal to the sum of (i) 100% of the Outstanding Principal
Balance of such Mortgage Loan as of the date of repurchase (or if the related
Mortgaged Property was acquired with respect thereto, 100% of the Outstanding
Principal Balance at the date of the acquisition), plus (ii) accrued but unpaid
interest on the Outstanding Principal Balance at the related Mortgage Interest
Rate, through and including the last day of the month of repurchase, and reduced
by (iii) any portion of the Master Servicing Compensation, Monthly Advances and
advances payable to the purchaser of the Mortgage Loan.

         REPURCHASE PROCEEDS: the Repurchase Price in connection with any
repurchase of a Mortgage Loan by the Mortgage Loan Seller and any cash deposit
in connection with the substitution of a Mortgage Loan.

         REQUEST FOR RELEASE: A request for release in the form attached hereto
as Exhibit D.

         REQUIRED INSURANCE POLICY: With respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time under this
Agreement with respect to such Mortgage Loan.

         RESIDUAL CERTIFICATES: Any of the Class R Certificates.

         RESPONSIBLE OFFICER: Any officer assigned to the Corporate Trust Office
(or any successor thereto), including any Vice President, Assistant Vice
President, Trust Officer, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Agreement, and any other officer
of the Trustee to whom a matter arising hereunder may be referred.

         RULE 144A CERTIFICATE: The certificate to be furnished by each
purchaser of a Private Certificate (which is also a Physical Certificate) which
is a Qualified Institutional Buyer as defined under Rule 144A promulgated under
the Securities Act, substantially in the form set forth as Exhibit F-2 hereto.

         S&P: Standard & Poor's, a division of The McGraw-Hill Companies, Inc.,
and its successors in interest.

         SCHEDULED PAYMENT: With respect to any Mortgage Loan and any month, the
scheduled payment or payments of principal and interest due during such month on
such Mortgage Loan which either is payable by a Mortgagor in such month under
the related Mortgage Note or, in the case of REO Property, would otherwise have
been payable under the related Mortgage Note.

         SCHEDULED PRINCIPAL: The principal portion of any Scheduled Payment.

         SCHEDULED PRINCIPAL BALANCE: With respect to any Mortgage Loan on any
Distribution Date, (i) the unpaid principal balance of such Mortgage Loan as of
the close of business on the related Due

                                      -33-

<PAGE>

Date (i.e., taking account of the principal payment to be made on such Due Date
and irrespective of any delinquency in its payment), as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such amortization schedule by reason of any bankruptcy or similar proceeding
occurring after the Cut-off Date (other than a Deficient Valuation) or any
moratorium or similar waiver or grace period) and less (ii) any Principal
Prepayments (including the principal portion of Net Liquidation Proceeds)
received during or prior to the related Prepayment Period; provided that the
Scheduled Principal Balance of a Liquidated Mortgage Loan is zero.

         SECURITIES ACT: The Securities Act of 1933, as amended.

         SECURITIES ADMINISTRATOR: Wells Fargo Bank Minnesota, National
Association, or its successor in interest, or any successor securities
administrator appointed as herein provided.

         SECURITIES LEGEND: "THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR UNDER ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER
APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR
ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER
HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (3)
IN CERTIFICATED FORM TO AN "INSTITUTIONAL ACCREDITED INVESTOR" WITHIN THE
MEANING THEREOF IN RULE 501(a)(1), (2), (3) or (7) OF REGULATION D UNDER THE ACT
OR ANY ENTITY IN WHICH ALL OF THE EQUITY OWNERS COME WITHIN SUCH PARAGRAPHS
PURCHASING NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, SUBJECT TO
(A) THE RECEIPT BY THE TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM PROVIDED IN
THE AGREEMENT AND (B) THE RECEIPT BY THE TRUSTEE OF SUCH OTHER EVIDENCE
ACCEPTABLE TO THE TRUSTEE THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND ANY
OTHER APPLICABLE JURISDICTION. THIS CERTIFICATE MAY NOT BE ACQUIRED DIRECTLY OR
INDIRECTLY BY, OR ON BEHALF OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT
ARRANGEMENT WHICH IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, AND/OR SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED [in the case of the Class B-4, Class B-5 and Class B-6
Certificates:, UNLESS THE PROPOSED TRANSFER AND/OR HOLDING OF A CERTIFICATE AND
THE SERVICING, MANAGEMENT AND/OR OPERATION OF THE TRUST AND ITS ASSETS: (I) WILL
NOT RESULT IN ANY PROHIBITED TRANSACTION WHICH IS NOT COVERED UNDER AN
INDIVIDUAL OR

                                      -34-

<PAGE>

CLASS PROHIBITED TRANSACTION EXEMPTION, INCLUDING, BUT NOT LIMITED TO,
PROHIBITED TRANSACTION EXEMPTION ("PTE") 84-14, PTE 91-38, PTE 90-1, PTE 95-60
OR PTE 96-23 AND (II) WILL NOT GIVE RISE TO ANY ADDITIONAL FIDUCIARY DUTIES ON
THE PART OF THE SELLER, THE SECURITIES ADMINISTRATOR, THE MASTER SERVICER OR THE
TRUSTEE, WHICH WILL BE DEEMED REPRESENTED BY AN OWNER OF A BOOK-ENTRY
CERTIFICATE OR A GLOBAL CERTIFICATE AND WILL BE EVIDENCED BY A REPRESENTATION OR
AN OPINION OF COUNSEL TO SUCH EFFECT BY OR ON BEHALF OF AN INSTITUTIONAL
ACCREDITED INVESTOR]."

         SECURITY INSTRUMENT: A written instrument creating a valid first lien
on a Mortgaged Property securing a Mortgage Note, which may be any applicable
form of mortgage, deed of trust, deed to secure debt or security deed, including
any riders or addenda thereto.

         SELLER: Structured Asset Mortgage Investments Inc., a Delaware
corporation, or its successors in interest.

         SENIOR CERTIFICATES: The Group 1 Senior Certificates, Group 2 Senior
Certificates, Group 3 Senior Certificates, Group 4 Senior Certificates, Group 5
Senior Certificates, Group 6 Senior Certificates or Group 7 Senior Certificates.

         SENIOR OPTIMAL PRINCIPAL AMOUNT: Group 1 Senior Optimal Principal
Amount, Group 2 Senior Optimal Principal Amount, Group 3 Senior Optimal
Principal Amount, Group 4 Senior Optimal Principal Amount, Group 5 Senior
Optimal Principal Amount, Group 6 Senior Optimal Principal Amount, or Group 7
Senior Optimal Principal Amount, as applicable.

         SENIOR PERCENTAGE: The Group 1 Senior Percentage, Group 2 Senior
Percentage, Group 3 Senior Percentage, Group 4 Senior Percentage, Group 5 Senior
Percentage, Group 6 Senior Percentage or Group 7 Senior Percentage.

         SENIOR PREPAYMENT PERCENTAGE: The Group 1 Senior Prepayment Percentage,
Group 2 Senior Prepayment Percentage, Group 3 Senior Prepayment Percentage,
Group 4 Senior Prepayment Percentage, Group 5 Senior Prepayment Percentage,
Group 6 Senior Prepayment Percentage or Group 7 Senior Prepayment Percentage.

         SERVICER: With respect to each Mortgage Loan, WFHM, GMAC, U.S. Bank,
Cendant, Alliance, Countrywide, NCMC or HSBC.

         SERVICER REMITTANCE DATE: With respect to each Mortgage Loan, the date
set forth in the related Servicing Agreement.

         SERVICING AGREEMENTS: The WFHM Servicing Agreements, GMAC Servicing
Agreements, U.S. Bank Servicing Agreement, Cendant Servicing Agreements,
Alliance Servicing Agreements, Countrywide Servicing Agreement, NCMC Servicing
Agreement and HSBC Servicing Agreement.

                                      -35-

<PAGE>

         SERVICING FEE: As to any Mortgage Loan and Distribution Date, an amount
equal to the product of (i) the Scheduled Principal Balance of such Mortgage
Loan as of the Due Date in the preceding calendar month and (ii) the applicable
Servicing Fee Rate.

         SERVICING FEE RATE: As to any Mortgage Loan, a per annum rate as set
forth in the Mortgage Loan Schedule.

         STARTUP DAY: May 31, 2002.

         SUBORDINATE CERTIFICATES: The Class B-1, Class B-2, Class B-3, Class
B-4, Class B-5 and Class B-6 Certificates.

         SUBORDINATE CERTIFICATE WRITEDOWN AMOUNT: As to any Distribution Date,
the amount by which (a) the sum of the Current Principal Amounts of all the
Certificates (after giving effect to the distribution of principal and the
allocation of applicable Realized Losses in reduction of the Current Principal
Amounts of such Certificates on such Distribution Date) exceeds (b) the
aggregate Scheduled Principal Balances of the Mortgage Loans on the Due Date
related to such Distribution Date.

         SUBORDINATE OPTIMAL PRINCIPAL AMOUNT: As to any Distribution Date, an
amount equal to the sum, without duplication, of the following for the Group 1,
Group 2, Group 3, Group 4, Group 5, Group 6 and Group 7 Mortgage Loans (but in
no event greater than the aggregate Current Principal Amount of the Subordinate
Certificates immediately prior to such Distribution Date):

                  (i) the applicable Subordinate Percentage of the principal
         portion of all Scheduled Payments due on each Outstanding Mortgage Loan
         in the related Loan Group on the related Due Date as specified in the
         amortization schedule at the time applicable thereto (after adjustment
         for previous Principal Prepayments but before any adjustment to such
         amortization schedule by reason of any bankruptcy or similar proceeding
         or any moratorium or similar waiver or grace period);

                  (ii) the applicable Subordinate Prepayment Percentage of the
         Scheduled Principal Balance of each Mortgage Loan in the related Loan
         Group that was the subject of a Principal Prepayment in full received
         by the Master Servicer during the related Prepayment Period;

                  (iii) the applicable Subordinate Prepayment Percentage of each
         Principal Prepayment in part received during the related Prepayment
         Period with respect to each Mortgage Loan in the related Loan Group;

                  (iv) the excess, if any, of (a) all Net Liquidation Proceeds
         allocable to principal received during the related Prepayment Period in
         respect of each Liquidated Mortgage Loan in the related Loan Group over
         (b) the sum of the amounts distributable to the related Senior
         Certificateholders pursuant to clause (iv) of the related definition of
         Senior Optimal Principal Amount on such Distribution Date;

                                      -36-

<PAGE>

                  (v) the applicable Subordinate Prepayment Percentage of the
         sum of (a) the Scheduled Principal Balance of each Mortgage Loan in the
         related Loan Group which was purchased with respect to such
         Distribution Date and (b) the difference, if any, between the Scheduled
         Principal Balance of a Mortgage Loan in the related Loan Group that has
         been replaced by the Mortgage Loan Seller with a Substitute Mortgage
         Loan pursuant to the Mortgage Loan Purchase Agreement in connection
         with such Distribution Date over the Scheduled Principal Balance of
         such Substitute Mortgage Loan; and

                  (vi) on the Distribution Date on which the Current Principal
         Amounts of the Group 1 Senior Certificates, Group 2 Senior
         Certificates, Group 3 Senior Certificates, Group 4 Senior Certificates
         (other than the Class IV-X Certificates), Group 5 Senior Certificates,
         Group 6 Senior Certificates or Group 7 Senior Certificates have all
         been reduced to zero, 100% of the related Senior Optimal Principal
         Amount. After the aggregate Current Principal Amount of the Subordinate
         Certificates has been reduced to zero, the Subordinate Optimal
         Principal Amount shall be zero.

         SUBORDINATE PERCENTAGE: The Group 1, Group 2, Group 3, Group 4, Group
5, Group 6 or Group 7 Subordinate Percentage, with respect to the Group 1, Group
2, Group 3, Group 4, Group 5, Group 6 or Group 7 Mortgage Loans, respectively.

         SUBORDINATE PREPAYMENT PERCENTAGE: The Group 1, Group 2, Group 3, Group
4, Group 5, Group 6 or Group 7 Subordinate Prepayment Percentage, with respect
to the Group 1, Group 2, Group 3, Group 4, Group 5, Group 6 or Group 7 Mortgage
Loans, respectively.

         SUBSTITUTE MORTGAGE LOAN: A mortgage loan tendered to the Trustee
pursuant to the related Servicing Agreement, the Mortgage Loan Purchase
Agreement or Section 2.04 of this Agreement, as applicable, in each case, (i)
which has an Outstanding Principal Balance not greater nor materially less than
the Mortgage Loan for which it is to be substituted; (ii) which has a Mortgage
Interest Rate and Net Rate not less than, and not materially greater than, such
Mortgage Loan; (iii) which has a maturity date not materially earlier or later
than such Mortgage Loan and not later than the latest maturity date of any
Mortgage Loan; (iv) which is of the same property type and occupancy type as
such Mortgage Loan; (v) which has a Loan-to-Value Ratio not greater than the
Loan-to-Value Ratio of such Mortgage Loan; (vi) which is current in payment of
principal and interest as of the date of substitution; (vii) as to which the
payment terms do not vary in any material respect from the payment terms of the
Mortgage Loan for which it is to be substituted and (viii) which has a Gross
Margin, Periodic Rate Cap and Maximum Lifetime Mortgage Rate no less than those
of such Mortgage Loan, has the same Index and interval between Interest
Adjustment Dates as such Mortgage Loan, and a Minimum Lifetime Mortgage Rate no
lower than that of such Mortgage Loan.

         TAX ADMINISTRATION AND TAX MATTERS PERSON: The Securities Administrator
or any successor thereto or assignee thereof shall serve as tax administrator
hereunder and as agent for the Tax Matters Person. The Holder of each Class of
Residual Certificates shall be the Tax Matters Person for the related REMIC, as
more particularly set forth in Section 9.12 hereof.

         TRUST FUND OR TRUST: The corpus of the trust created by this Agreement,
consisting of the Mortgage Loans and the other assets described in Section
2.01(a).

                                      -37-

<PAGE>

         TRUSTEE: Bank One, National Association, or its successor in interest,
or any successor trustee appointed as herein provided.

         UNCERTIFICATED PRINCIPAL BALANCE: With respect to any REMIC I Regular
Interest, REMIC II Regular Interest or REMIC III Regular Interest as of any
Distribution Date, the initial principal amount of such Regular Interest,
reduced by (i) all amounts distributed on previous Distribution Dates on such
Regular Interest with respect to principal, (ii) the principal portion of all
Realized Losses allocated prior to such Distribution Date to such Regular
Interest, taking account of the Loss Allocation Limitation and (iii) in the case
of a REMIC III Regular Interest for which the Corresponding Certificate is a
Subordinate Certificate, such Regular Interest's pro rata share, if any, of the
applicable Subordinate Certificate Writedown Amount allocated to such
Corresponding Certificate for previous Distribution Dates.

         UNDERLYING SELLER: With respect to each Mortgage Loan, WFHM, E*TRADE,
U.S. Bank, Cendant, MLCC, Homebanc, Emigrant, Countrywide or NCMC, as indicated
on the Mortgage Loan Schedule.

         UNINSURED CAUSE: Any cause of damage to a Mortgaged Property or related
REO Property such that the complete restoration of such Mortgaged Property or
related REO Property is not fully reimbursable by the hazard insurance policies
required to be maintained pursuant the related Servicing Agreement, without
regard to whether or not such policy is maintained.

         UNITED STATES PERSON: A citizen or resident of the United States, a
corporation or partnership (including an entity treated as a corporation or
partnership for federal income tax purposes) created or organized in, or under
the laws of, the United States or any state thereof or the District of Columbia
(except, in the case of a partnership, to the extent provided in regulations),
provided that, for purposes solely of the Class R Certificates, no partnership
or other entity treated as a partnership for United States federal income tax
purposes shall be treated as a United States Person unless all persons that own
an interest in such partnership either directly or through any entity that is
not a corporation for United States federal income tax purposes are United
States Persons, or an estate whose income is subject to United States federal
income tax regardless of its source, or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more such United States Persons have the authority to control
all substantial decisions of the trust. To the extent prescribed in regulations
by the Secretary of the Treasury, which have not yet been issued, a trust which
was in existence on August 20, 1996 (other than a trust treated as owned by the
grantor under subpart E of part I of subchapter J of chapter 1 of the Code), and
which was treated as a United States person on August 20, 1996 may elect to
continue to be treated as a United States person notwithstanding the previous
sentence.

         U.S. BANK: U.S. Bank Home Mortgage.

         U.S. BANK SERVICING AGREEMENT: The Purchase, Warranties and Servicing
Agreement, dated as of March 1, 2002 between EMC (as purchaser) and U.S. Bank
(as company), as attached hereto as Exhibit H-3.

         WFHM: Wells Fargo Home Mortgage, Inc.

                                      -38-

<PAGE>

         WFHM SERVICING AGREEMENTS: The Seller's Warranties and Servicing
Agreement, dated as of May 1, 2002, between EMC (as purchase) and WFHM (as
company) (7/1 ARMS); and the Seller's Warranties and Servicing Agreement, dated
as of March 1, 2002, between EMC (as purchaser) and WFHM (as company) (5/1
ARMS), each as attached hereto as Exhibit H-1.

                                      -39-

<PAGE>

                                   ARTICLE II
                          Conveyance of Mortgage Loans;
                        Original Issuance of Certificates

         Section 2.01 CONVEYANCE OF MORTGAGE LOANS TO TRUSTEE. (a) The Seller
concurrently with the execution and delivery of this Agreement, sells, transfers
and assigns to the Trust without recourse all its right, title and interest in
and to (i) the Mortgage Loans identified in the Mortgage Loan Schedule,
including all interest and principal due with respect to the Mortgage Loans
after the Cut-off Date, but excluding any payments of principal and interest due
on or prior to the Cut-off Date; (ii) such assets as shall from time to time be
credited or are required by the terms of this Agreement to be credited to the
Master Servicer Collection Account, (iii) such assets relating to the Mortgage
Loans as from time to time may be held by the Servicers in Protected Accounts,
the Master Servicer in the Master Servicer Collection Account and the Trustee in
the Distribution Account for the benefit of the Trustee on behalf of the
Certificateholders, (iv) any REO Property, (v) the Required Insurance Policies
and any amounts paid or payable by the insurer under any Insurance Policy (to
the extent the mortgagee has a claim thereto), (vi) the Mortgage Loan Purchase
Agreement to the extent provided in Subsection 2.03(a), (vii) the rights with
respect to the Servicing Agreements as assigned to the Trustee on behalf of the
Certificateholders by the Assignment Agreements and (viii) any proceeds of the
foregoing. Although it is the intent of the parties to this Agreement that the
conveyance of the Seller's right, title and interest in and to the Mortgage
Loans and other assets in the Trust Fund pursuant to this Agreement shall
constitute a purchase and sale and not a loan, in the event that such conveyance
is deemed to be a loan, it is the intent of the parties to this Agreement that
the Seller shall be deemed to have granted to the Trustee a first priority
perfected security interest in all of the Seller's right, title and interest in,
to and under the Mortgage Loans and other assets in the Trust Fund, and that
this Agreement shall constitute a security agreement under applicable law.

         (b) In connection with the above transfer and assignment, the Seller
hereby deposits with the Trustee or the Custodian, as its agent, with respect to
each Mortgage Loan, (i) the original Mortgage Note, endorsed without recourse to
the order of the Trustee and showing an unbroken chain of endorsements from the
original payee thereof to the Person endorsing it to the Trustee, or lost note
affidavit, (ii) the original Security Instrument, which shall have been
recorded, with evidence of such recording indicated thereon, (iii) a certified
copy of the assignment (which may be in the form of a blanket assignment if
permitted in the jurisdiction in which the Mortgaged Property is located) to
"Bank One, National Association, as Trustee", with evidence of recording with
respect to each Mortgage Loan in the name of the Trustee thereon (or if clause
(x) in the proviso below applies or for Mortgage Loans with respect to which the
related Mortgaged Property is located in a state other than Maryland or an
Opinion of Counsel has been provided as set forth in this Section 2.01(b), shall
be in recordable form), (iv) all intervening assignments of the Security
Instrument, if applicable and only to the extent available to the Seller with
evidence of recording thereon, (v) the original or a copy of the policy or
certificate of primary mortgage guaranty insurance, to the extent available, if
any, (vi) the original policy of title insurance or mortgagee's certificate of
title insurance or commitment or binder for title insurance and (vii) originals
of all modification agreements, if applicable and available;

                                      -40-

<PAGE>

PROVIDED, HOWEVER, that in lieu of the foregoing, the Seller may deliver the
following documents, under the circumstances set forth below: (x) in lieu of the
original Security Instrument, assignments to the Trustee or intervening
assignments thereof which have been delivered, are being delivered or will, upon
receipt of recording information relating to the Security Instrument required to
be included thereon, be delivered to recording offices for recording and have
not been returned to the Seller in time to permit their delivery as specified
above, the Seller may deliver a true copy thereof with a certification by the
Seller, on the face of such copy, substantially as follows: "Certified to be a
true and correct copy of the original, which has been transmitted for
recording"; (y) in lieu of the Security Instrument, assignment to the Trustee or
intervening assignments thereof, if the applicable jurisdiction retains the
originals of such documents (as evidenced by a certification from the Seller to
such effect) the Seller may deliver photocopies of such documents containing an
original certification by the judicial or other governmental authority of the
jurisdiction where such documents were recorded; and (z) the Seller shall not be
required to deliver intervening assignments or Mortgage Note endorsements
between the related Underlying Seller and EMC Mortgage Corporation, between EMC
Mortgage Corporation and the Depositor, and between the Depositor and the
Trustee; and provided, further, however, that in the case of Mortgage Loans
which have been prepaid in full after the Cut-off Date and prior to the Closing
Date, the Seller, in lieu of delivering the above documents, may deliver to the
Trustee or the Custodian, as its agent, a certification to such effect and shall
deposit all amounts paid in respect of such Mortgage Loans in the Master
Servicer Collection Account on the Closing Date. The Seller shall deliver such
original documents (including any original documents as to which certified
copies had previously been delivered) to the Trustee or the Custodian, as its
agent, promptly after they are received. The Seller shall cause, at its expense,
the assignment of the Security Instrument to the Trustee to be recorded not
later than 180 days after the Closing Date, unless such recordation is not
required by the Rating Agencies or an Opinion of Counsel has been provided to
the Trustee (with a copy to the Custodian) which states that recordation of such
Security Instrument is not required to protect the interests of the
Certificateholders in the related Mortgage Loans; provided, however, that each
assignment shall be submitted for recording by the Seller in the manner
described above, at no expense to the Trust or the Trustee or the Custodian, as
its agent, upon the earliest to occur of : (i) reasonable direction by the
Holders of Certificates evidencing Fractional Undivided Interests aggregating
not less than 25% of the Trust, (ii) the occurrence of an Event of Default,
(iii) the occurrence of a bankruptcy, insolvency or foreclosure relating to the
Seller and (iv) the occurrence of a servicing transfer as described in Section
8.02 hereof. Notwithstanding the foregoing, if the Seller fails to pay the cost
of recording the assignments, such expense will be paid by the Trustee and the
Trustee shall be reimbursed for such expenses by the Trust in accordance with
Section 9.05.

         (c) The Seller hereby assigns to the Trustee its security interest in
and to any Additional Collateral, its right to receive amounts due or to become
due in respect of any Additional Collateral pursuant to the related Servicing
Agreement.

                                      -41-

<PAGE>

         Section 2.02 ACCEPTANCE OF MORTGAGE LOANS BY TRUSTEE. (a) The Trustee
acknowledges the sale, transfer and assignment of the Trust to it by the Seller
and receipt of, subject to further review and the exceptions which may be noted
pursuant to the procedures described below, and declares that it holds, the
documents (or certified copies thereof) delivered to it pursuant to Section
2.01, and declares that it will continue to hold those documents and any
amendments, replacements or supplements thereto and all other assets of the
Trust Fund delivered to it as Trustee in trust for the use and benefit of all
present and future Holders of the Certificates. On the Closing Date, the
Custodian, with respect to the Mortgage Loans, shall acknowledge with respect to
each Mortgage Loan by an Initial Certification receipt of the Mortgage File, but
without review of such Mortgage File, except to the extent necessary to confirm
that such Mortgage File contains the related Mortgage Note or lost note
affidavit. No later than 90 days after the Closing Date (or, with respect to any
Substitute Mortgage Loan, within five Business Days after the receipt by the
Trustee or Custodian thereof), the Trustee agrees, for the benefit of the
Certificateholders, to review or cause to be reviewed by the Custodian on its
behalf (under the Custodial Agreement), each Mortgage File delivered to it and
to execute and deliver, or cause to be executed and delivered, to the Seller and
the Master Servicer an Interim Certification. In conducting such review, the
Trustee or Custodian will ascertain whether all required documents have been
executed and received, and based on the Mortgage Loan Schedule, whether those
documents relate, determined on the basis of the Mortgagor name, original
principal balance and loan number, to the Mortgage Loans it has received, as
identified in the Mortgage Loan Schedule. In performing any such review, the
Trustee or the Custodian, as its agent, may conclusively rely on the purported
due execution and genuineness of any such document and on the purported
genuineness of any signature thereon. If the Trustee or the Custodian, as its
agent, finds any document constituting part of the Mortgage File not to have
been executed or received, or to be unrelated to the Mortgage Loans identified
in Exhibit B or to appear to be defective on its face, the Trustee or the
Custodian, as its agent, shall promptly notify the Mortgage Loan Seller. In
accordance with the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller
shall correct or cure any such defect within ninety (90) days from the date of
notice from the Trustee or the Custodian, as its agent, of the defect and if the
Mortgage Loan Seller fails to correct or cure the defect within such period, and
such defect materially and adversely affects the interests of the
Certificateholders in the related Mortgage Loan, the Trustee or the Custodian,
as its agent, shall enforce the Mortgage Loan Seller's obligation pursuant to
the Mortgage Loan Purchase Agreement, within 90 days from the Trustee's or the
Custodian's notification, to purchase such Mortgage Loan at the Repurchase
Price; provided that, if such defect would cause the Mortgage Loan to be other
than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any
such cure or repurchase must occur within 90 days from the date such breach was
discovered; provided, however, that if such defect relates solely to the
inability of the Mortgage Loan Seller to deliver the original Security
Instrument or intervening assignments thereof, or a certified copy because the
originals of such documents, or a certified copy have not been returned by the
applicable jurisdiction, the Mortgage Loan Seller shall not be required to
purchase such Mortgage Loan if the Mortgage Loan Seller delivers such original
documents or certified copy promptly upon receipt, but in no event later than
360 days after the Closing Date. The foregoing repurchase obligation shall not
apply in the event that the Mortgage Loan Seller cannot deliver such original or
copy of any document submitted for recording to the appropriate recording office
in the applicable jurisdiction because such document has not been returned by
such office; provided that the Mortgage Loan Seller shall instead deliver a
recording receipt of such recording office or, if such receipt is not available,
a certificate confirming that such documents have been accepted for recording,
and delivery to the Trustee or the

                                      -42-

<PAGE>

Custodian, as its agent, shall be effected by the Mortgage Loan Seller within
thirty days of its receipt of the original recorded document.

         (b) No later than 180 days after the Closing Date, the Trustee or the
Custodian, as its agent, will review, for the benefit of the Certificateholders,
the Mortgage Files delivered to it and will execute and deliver or cause to be
executed and delivered to the Seller a Final Certification. In conducting such
review, the Trustee or the Custodian, as its agent, will ascertain whether an
original of each document required to be recorded has been returned from the
recording office with evidence of recording thereon or a certified copy has been
obtained from the recording office. If the Trustee or the Custodian, as its
agent, finds any document constituting part of the Mortgage File has not been
received, or to be unrelated, determined on the basis of the Mortgagor name,
original principal balance and loan number, to the Mortgage Loans identified in
Exhibit B or to appear defective on its face, the Trustee or the Custodian, as
its agent, shall promptly notify the Mortgage Loan Seller (provided, however,
that with respect to those documents described in subsection (b)(iv), (b)(v) and
(b)(vii) of Section 2.01, the Trustee's obligations shall extend only to the
documents actually delivered pursuant to such subsections). In accordance with
the Mortgage Loan Purchase Agreement, the Mortgage Loan Seller shall correct or
cure any such defect or EMC shall deliver to the Trustee an Opinion of Counsel
to the effect that such defect does not materially or adversely affect the
interests of Certificateholders in such Mortgage Loan within 90 days from the
date of notice from the Trustee of the defect and if the Mortgage Loan Seller is
unable to cure such defect within such period, and if such defect materially and
adversely affects the interests of the Certificateholders in the related
Mortgage Loan, the Trustee shall enforce the Mortgage Loan Seller's obligation
under the Mortgage Loan Purchase Agreement to purchase such Mortgage Loan at the
Repurchase Price, provided, however, that if such defect relates solely to the
inability of the Mortgage Loan Seller to deliver the original Security
Instrument or intervening assignments thereof, or a certified copy, because the
originals of such documents. or a certified copy, have not been returned by the
applicable jurisdiction, the Mortgage Loan Seller shall not be required to
purchase such Mortgage Loan, if the Mortgage Loan Seller delivers such original
documents or certified copy promptly upon receipt, but in no event later than
360 days after the Closing Date.

         (c) In the event that a Mortgage Loan is purchased by the Mortgage Loan
Seller in accordance with Subsections 2.02(a) or (b) above, the Mortgage Loan
Seller shall remit to the Master Servicer the Repurchase Price for deposit in
the Master Servicer Collection Account and the Mortgage Loan Seller shall
provide to the Trustee written notification detailing the components of the
Repurchase Price. Upon deposit of the Repurchase Price in the Master Servicer
Collection Account, the Seller shall notify the Trustee and the Trustee or the
Custodian, as its agent (upon receipt of a Request for Release in the form of
Exhibit D attached hereto with respect to such Mortgage Loan), shall release to
the Mortgage Loan Seller the related Mortgage File and the Trustee shall execute
and deliver all instruments of transfer or assignment, without recourse,
furnished to it by the Mortgage Loan Seller as are necessary to vest in the
Mortgage Loan Seller title to and rights under the Mortgage Loan. Such purchase
shall be deemed to have occurred on the date on which the Repurchase Price in
available funds is received by the Trustee. The Trustee shall amend the Mortgage
Loan Schedule, which was previously delivered to it by Seller in a form agreed
to between the Seller and the Trustee, to reflect such repurchase and shall
promptly notify the Rating Agencies and the Master Servicer of such amendment.
The obligation of the Mortgage Loan Seller to repurchase any Mortgage Loan as to
which such a defect in a constituent document exists shall be

                                      -43-

<PAGE>

the sole remedy respecting such defect available to the Certificateholders or to
the Trustee on their behalf.

         Section 2.03 ASSIGNMENT OF INTEREST IN THE MORTGAGE LOAN PURCHASE
AGREEMENT. (a) The Seller hereby assigns to the Trustee, on behalf of the
Certificateholders, all of its right, title and interest in the Mortgage Loan
Purchase Agreement, including but not limited to Seller's rights and obligations
pursuant to the Servicing Agreements (noting that the Mortgage Loan Seller has
retained the right in the event of breach of the representations, warranties and
covenants, if any, with respect to the related Mortgage Loans of the related
Servicer under the related Servicing Agreement to enforce the provisions thereof
and to seek all or any available remedies). The obligations of the Mortgage Loan
Seller to substitute or repurchase, as applicable, a Mortgage Loan shall be the
Trustee's and the Certificateholders' sole remedy for any breach thereof. At the
request of the Trustee, the Seller shall take such actions as may be necessary
to enforce the above right, title and interest on behalf of the Trustee and the
Certificateholders or shall execute such further documents as the Trustee may
reasonably require in order to enable the Trustee to carry out such enforcement.

         (b) If the Seller, the Securities Administrator or the Trustee
discovers a breach of any of the representations and warranties set forth in the
Mortgage Loan Purchase Agreement, which breach materially and adversely affects
the value of the interests of Certificateholders or the Trustee in the related
Mortgage Loan, the party discovering the breach shall give prompt written notice
of the breach to the other parties. The Mortgage Loan Seller, within 90 days of
its discovery or receipt of notice that such breach has occurred (whichever
occurs earlier), shall cure the breach in all material respects or, subject to
the Mortgage Loan Purchase Agreement or Section 2.04 of this Agreement, as
applicable, shall purchase the Mortgage Loan or any property acquired with
respect thereto from the Trustee; provided, however, that if there is a breach
of any representation set forth in the Mortgage Loan Purchase Agreement or
Section 2.04 of this Agreement, as applicable, and the Mortgage Loan or the
related property acquired with respect thereto has been sold, then the Mortgage
Loan Seller shall pay, in lieu of the Repurchase Price, any excess of the
Repurchase Price over the Net Liquidation Proceeds received upon such sale. (If
the Net Liquidation Proceeds exceed the Repurchase Price, any excess shall be
paid to the Mortgage Loan Seller to the extent not required by law to be paid to
the borrower.) Any such purchase by the Mortgage Loan Seller shall be made by
providing an amount equal to the Repurchase Price to the Master Servicer for
deposit in the Master Servicer Collection Account and written notification
detailing the components of such Repurchase Price. The Seller shall notify the
Trustee and submit to the Trustee or the Custodian, as its agent, a Request for
Release, and the Trustee shall release, or the Trustee shall cause the Custodian
to release, to the Mortgage Loan Seller the related Mortgage File and the
Trustee shall execute and deliver all instruments of transfer or assignment
furnished to it by the Mortgage Loan Seller, without recourse, as are necessary
to vest in the Mortgage Loan Seller title to and rights under the Mortgage Loan
or any property acquired with respect thereto. Such purchase shall be deemed to
have occurred on the date on which the Repurchase Price in available funds is
received by the Trustee. The Trustee shall amend the Mortgage Loan Schedule to
reflect such repurchase and shall promptly notify the Master Servicer and the
Rating Agencies of such amendment. Enforcement of the obligation of the Mortgage
Loan Seller to purchase (or substitute a Substitute Mortgage Loan for) any
Mortgage Loan or any property acquired with respect thereto (or pay the
Repurchase Price as set forth in the above proviso) as to which a breach has
occurred and is continuing shall constitute

                                      -44-

<PAGE>

the sole remedy respecting such breach available to the Certificateholders or
the Trustee on their behalf.

         Section 2.04 SUBSTITUTION OF MORTGAGE LOANS. Notwithstanding anything
to the contrary in this Agreement, in lieu of purchasing a Mortgage Loan
pursuant to the Mortgage Loan Purchase Agreement or Sections 2.02 or 2.03 of
this Agreement, the Mortgage Loan Seller may, no later than the date by which
such purchase by the Mortgage Loan Seller would otherwise be required, tender to
the Trustee a Substitute Mortgage Loan accompanied by a certificate of an
authorized officer of the Mortgage Loan Seller that such Substitute Mortgage
Loan conforms to the requirements set forth in the definition of "Substitute
Mortgage Loan" in the Mortgage Loan Purchase Agreement or this Agreement, as
applicable; provided, however, that substitution pursuant to the Mortgage Loan
Purchase Agreement or Section 2.04 of this Agreement, as applicable, in lieu of
purchase shall not be permitted after the termination of the two-year period
beginning on the Startup Day; provided, further, that if the breach would cause
the Mortgage Loan to be other than a "qualified mortgage" as defined in Section
860G(a)(3) of the Code, any such cure or substitution must occur within 90 days
from the date the breach was discovered. The Trustee or the Custodian, as its
agent, shall examine the Mortgage File for any Substitute Mortgage Loan in the
manner set forth in Section 2.02(a) and the Trustee or the Custodian, as its
agent, shall notify the Mortgage Loan Seller, in writing, within five Business
Days after receipt, whether or not the documents relating to the Substitute
Mortgage Loan satisfy the requirements of the fourth sentence of Subsection
2.02(a). Within two Business Days after such notification, the Mortgage Loan
Seller shall provide to the Trustee for deposit in the Distribution Account the
amount, if any, by which the Outstanding Principal Balance as of the next
preceding Due Date of the Mortgage Loan for which substitution is being made,
after giving effect to Scheduled Principal due on such date, exceeds the
Outstanding Principal Balance as of such date of the Substitute Mortgage Loan,
after giving effect to Scheduled Principal due on such date, which amount shall
be treated for the purposes of this Agreement as if it were the payment by the
Mortgage Loan Seller of the Repurchase Price for the purchase of a Mortgage Loan
by the Mortgage Loan Seller. After such notification to the Mortgage Loan Seller
and, if any such excess exists, upon receipt of such deposit, the Trustee shall
accept such Substitute Mortgage Loan which shall thereafter be deemed to be a
Mortgage Loan hereunder. In the event of such a substitution, accrued interest
on the Substitute Mortgage Loan for the month in which the substitution occurs
and any Principal Prepayments made thereon during such month shall be the
property of the Trust Fund and accrued interest for such month on the Mortgage
Loan for which the substitution is made and any Principal Prepayments made
thereon during such month shall be the property of the Mortgage Loan Seller. The
Scheduled Principal on a Substitute Mortgage Loan due on the Due Date in the
month of substitution shall be the property of the Mortgage Loan Seller and the
Scheduled Principal on the Mortgage Loan for which the substitution is made due
on such Due Date shall be the property of the Trust Fund. Upon acceptance of the
Substitute Mortgage Loan (and delivery to the Trustee or Custodian of a Request
for Release for such Mortgage Loan), the Trustee shall release to the Mortgage
Loan Seller the related Mortgage File related to any Mortgage Loan released
pursuant to the Mortgage Loan Purchase Agreement or Section 2.04 of this
Agreement, as applicable, and shall execute and deliver all instruments of
transfer or assignment, without recourse, in form as provided to it as are
necessary to vest in the Mortgage Loan Seller title to and rights under any
Mortgage Loan released pursuant to the Mortgage Loan Purchase Agreement or
Section 2.04 of this Agreement, as applicable. The Mortgage Loan Seller shall
deliver the documents related to the Substitute Mortgage Loan in accordance with
the provisions of the Mortgage Loan Purchase

                                      -45-

<PAGE>

Agreement or Subsections 2.01(b) and 2.02(b) of this Agreement, as applicable,
with the date of acceptance of the Substitute Mortgage Loan deemed to be the
Closing Date for purposes of the time periods set forth in those Subsections.
The representations and warranties set forth in the Mortgage Loan Purchase
Agreement shall be deemed to have been made by the Mortgage Loan Seller with
respect to each Substitute Mortgage Loan as of the date of acceptance of such
Mortgage Loan by the Trustee. The Master Servicer shall amend the Mortgage Loan
Schedule to reflect such substitution and shall provide a copy of such amended
Mortgage Loan Schedule to the Trustee and the Rating Agencies.

         Section 2.05      ISSUANCE OF CERTIFICATES.

         (a) The Trustee acknowledges the assignment to it of the Mortgage Loans
and the other assets comprising the Trust Fund and, concurrently therewith, has
signed, and countersigned and delivered to the Seller, in exchange therefor,
Certificates in such authorized denominations representing such Fractional
Undivided Interests as the Seller has requested. The Trustee agrees that it will
hold the Mortgage Loans and such other assets as may from time to time be
delivered to it segregated on the books of the Trustee in trust for the benefit
of the Certificateholders.

         (b) The Seller, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey in trust to the
Trustee without recourse all the right, title and interest of the Seller in and
to the REMIC I Regular Interests and the other assets of REMIC II for the
benefit of the holders of the REMIC II Certificates. The Trustee acknowledges
receipt of the REMIC I Regular Interests (which are uncertificated) and the
other assets of REMIC II and declares that it holds and will hold the same in
trust for the exclusive use and benefit of the holders of the REMIC II
Certificates.

         (c) The Seller, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey in trust to the
Trustee without recourse all the right, title and interest of the Seller in and
to the REMIC II Regular Interests and the other assets of REMIC II for the
benefit of the holders of the REMIC III Certificates. The Trustee acknowledges
receipt of the REMIC II Regular Interests (which are uncertificated) and the
other assets of REMIC II and declares that it holds and will hold the same in
trust for the exclusive use and benefit of the holders of the REMIC III
Certificates.

         (d) The Seller, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey in trust to the
Trustee without recourse all the right, title and interest of the Seller in and
to the REMIC III Regular Interests and the other assets of REMIC III for the
benefit of the holders of the REMIC IV Certificates. The Trustee acknowledges
receipt of the REMIC III Regular Interests (which are uncertificated) and the
other assets of REMIC III and declares that it holds and will hold the same in
trust for the exclusive use and benefit of the holders of the REMIC IV
Certificates.

                                      -46-

<PAGE>

         Section 2.06 REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLER. The
Seller hereby represents and warrants to the Trustee, the Master Servicer and
the Securities Administrator as follows:

                  (i) the Seller (a) is a corporation duly organized, validly
         existing and in good standing under the laws of the State of Delaware
         and (b) is qualified and in good standing as a foreign corporation to
         do business in each jurisdiction where such qualification is necessary,
         except where the failure so to qualify would not reasonably be expected
         to have a material adverse effect on the Seller's business as presently
         conducted or on the Seller's ability to enter into this Agreement and
         to consummate the transactions contemplated hereby;

                  (ii) the Seller has full corporate power to own its property,
         to carry on its business as presently conducted and to enter into and
         perform its obligations under this Agreement;

                  (iii) the execution and delivery by the Seller of this
         Agreement have been duly authorized by all necessary corporate action
         on the part of the Seller; and neither the execution and delivery of
         this Agreement, nor the consummation of the transactions herein
         contemplated, nor compliance with the provisions hereof, will conflict
         with or result in a breach of, or constitute a default under, any of
         the provisions of any law, governmental rule, regulation, judgment,
         decree or order binding on the Seller or its properties or the articles
         of incorporation or by-laws of the Seller, except those conflicts,
         breaches or defaults which would not reasonably be expected to have a
         material adverse effect on the Seller's ability to enter into this
         Agreement and to consummate the transactions contemplated hereby;

                  (iv) the execution, delivery and performance by the Seller of
         this Agreement and the consummation of the transactions contemplated
         hereby do not require the consent or approval of, the giving of notice
         to, the registration with, or the taking of any other action in respect
         of, any state, federal or other governmental authority or agency,
         except those consents, approvals, notices, registrations or other
         actions as have already been obtained, given or made;

                  (v) this Agreement has been duly executed and delivered by the
         Seller and, assuming due authorization, execution and delivery by the
         other parties hereto, constitutes a valid and binding obligation of the
         Seller enforceable against it in accordance with its terms (subject to
         applicable bankruptcy and insolvency laws and other similar laws
         affecting the enforcement of the rights of creditors generally);

                  (vi) there are no actions, suits or proceedings pending or, to
         the knowledge of the Seller, threatened against the Seller, before or
         by any court, administrative agency, arbitrator or governmental body
         (i) with respect to any of the transactions contemplated by this
         Agreement or (ii) with respect to any other matter which in the
         judgment of the Seller will be determined adversely to the Seller and
         will if determined adversely to the Seller materially and adversely
         affect the Seller's ability to enter into this Agreement or perform its
         obligations under this Agreement; and the Seller is not in default with
         respect to any order of any court, administrative agency, arbitrator or
         governmental body so as to materially and adversely affect the
         transactions contemplated by this Agreement; and

                                      -47-

<PAGE>

                  (vii) immediately prior to the transfer and assignment to the
         Trustee, each Mortgage Note and each Mortgage were not subject to an
         assignment or pledge, and the Seller had good and marketable title to
         and was the sole owner thereof and had full right to transfer and sell
         such Mortgage Loan to the Trustee free and clear of any encumbrance,
         equity, lien, pledge, charge, claim or security interest.

                                      -48-

<PAGE>

                                   ARTICLE III
                 Administration and Servicing of Mortgage Loans

         Section 3.01 MASTER SERVICER. The Master Servicer shall supervise,
monitor and oversee the obligation of the Servicers to service and administer
their respective Mortgage Loans in accordance with the terms of the applicable
Servicing Agreement and shall have full power and authority to do any and all
things which it may deem necessary or desirable in connection with such master
servicing and administration. In performing its obligations hereunder, the
Master Servicer shall act in a manner consistent with Accepted Master Servicing
Practices. Furthermore, the Master Servicer shall oversee and consult with each
Servicer as necessary from time-to-time to carry out the Master Servicer's
obligations hereunder, shall receive, review and evaluate all reports,
information and other data provided to the Master Servicer by each Servicer and
shall cause each Servicer to perform and observe the covenants, obligations and
conditions to be performed or observed by such Servicer under the applicable
Servicing Agreement. The Master Servicer shall independently and separately
monitor each Servicer's servicing activities with respect to each related
Mortgage Loan, reconcile the results of such monitoring with such information
provided in the previous sentence on a monthly basis and coordinate corrective
adjustments to the Servicers' and Master Servicer's records, and based on such
reconciled and corrected information, the Master Servicer shall provide such
information to the Securities Administrator as shall be necessary in order for
it to prepare the statements specified in Section 6.04, and prepare any other
information and statements required to be forwarded by the Master Servicer
hereunder. The Master Servicer shall reconcile the results of its Mortgage Loan
monitoring with the actual remittances of the Servicers to the Protected Account
pursuant to the applicable Servicing Agreements.

         The Trustee shall furnish the Servicers and the Master Servicer with
any powers of attorney and other documents in form as provided to it necessary
or appropriate to enable the Servicers and the Master Servicer to service and
administer the related Mortgage Loans and REO Property.

         The Trustee shall provide access to the records and documentation in
possession of the Trustee regarding the related Mortgage Loans and REO Property
and the servicing thereof to the Certificateholders, the FDIC, and the
supervisory agents and examiners of the FDIC, such access being afforded only
upon reasonable prior written request and during normal business hours at the
office of the Trustee; provided, however, that, unless otherwise required by
law, the Trustee shall not be required to provide access to such records and
documentation if the provision thereof would violate the legal right to privacy
of any Mortgagor. The Trustee shall allow representatives of the above entities
to photocopy any of the records and documentation and shall provide equipment
for that purpose at a charge that covers the Trustee's actual costs.

         The Trustee shall execute and deliver to the related Servicer and the
Master Servicer any court pleadings, requests for trustee's sale or other
documents necessary or desirable to (i) the foreclosure or trustee's sale with
respect to a Mortgaged Property; (ii) any legal action brought to obtain
judgment against any Mortgagor on the Mortgage Note or Security Instrument;
(iii) obtain a deficiency judgment against the Mortgagor; or (iv) enforce any
other rights or remedies provided by the Mortgage Note or Security Instrument or
otherwise available at law or equity.

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         Section 3.02 REMIC-RELATED COVENANTS. For as long as each REMIC shall
exist, the Trustee and the Securities Administrator shall act in accordance
herewith to assure continuing treatment of such REMIC as a REMIC, and the
Trustee and the Securities Administrator shall comply with any directions of the
Seller, the related Servicer or the Master Servicer to assure such continuing
treatment. In particular, the Trustee shall not (a) sell or permit the sale of
all or any portion of the Mortgage Loans or of any investment of deposits in an
Account unless such sale is as a result of a repurchase of the Mortgage Loans
pursuant to this Agreement or the Trustee has received a REMIC Opinion prepared
at the expense of the Trust Fund; and (b) other than with respect to a
substitution pursuant to the Mortgage Loan Purchase Agreement or Section 2.04 of
this Agreement, as applicable, accept any contribution to any REMIC after the
Startup Day without receipt of a REMIC Opinion.

         Section 3.03 MONITORING OF SERVICERS. (a) The Master Servicer shall be
responsible for reporting to the Trustee and the Seller the compliance by each
Servicer with its duties under the related Servicing Agreement. In the review of
each Servicer's activities, the Master Servicer may rely upon an officer's
certificate of the Servicer with regard to such Servicer's compliance with the
terms of its Servicing Agreement. In the event that the Master Servicer, in its
judgment, determines that a Servicer should be terminated in accordance with its
Servicing Agreement, or that a notice should be sent pursuant to such Servicing
Agreement with respect to the occurrence of an event that, unless cured, would
constitute grounds for such termination, the Master Servicer shall notify the
Seller and the Trustee thereof and the Master Servicer shall issue such notice
or take such other action as it deems appropriate.

         (b) The Master Servicer, for the benefit of the Trustee and the
Certificateholders, shall enforce the obligations of each Servicer under the
related Servicing Agreement, and shall, in the event that a Servicer fails to
perform its obligations in accordance with the related Servicing Agreement,
subject to the preceding paragraph, terminate the rights and obligations of such
Servicer thereunder and act as servicer of the related Mortgage Loans or to
cause the Trustee to enter in to a new Servicing Agreement with a successor
Servicer selected by the Master Servicer; provided, however, it is understood
and acknowledged by the parties hereto that there will be a period of transition
(not to exceed 90 days) before the actual servicing functions can be fully
transferred to such successor Servicer. Such enforcement, including, without
limitation, the legal prosecution of claims, termination of Servicing Agreements
and the pursuit of other appropriate remedies, shall be in such form and carried
out to such an extent and at such time as the Master Servicer, in its good faith
business judgment, would require were it the owner of the related Mortgage
Loans. The Master Servicer shall pay the costs of such enforcement at its own
expense, provided that the Master Servicer shall not be required to prosecute or
defend any legal action except to the extent that the Master Servicer shall have
received reasonable indemnity for its costs and expenses in pursuing such
action.

         (c) To the extent that the costs and expenses of the Master Servicer
related to any termination of a Servicer, appointment of a successor Servicer or
the transfer and assumption of servicing by the Master Servicer with respect to
any Servicing Agreement (including, without limitation, (i) all legal costs and
expenses and all due diligence costs and expenses associated with an evaluation
of the potential termination of the Servicer as a result of an event of default
by such Servicer and (ii) all costs and expenses associated with the complete
transfer of servicing, including

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all servicing files and all servicing data and the completion, correction or
manipulation of such servicing data as may be required by the successor servicer
to correct any errors or insufficiencies in the servicing data or otherwise to
enable the successor service to service the Mortgage Loans in accordance with
the related Servicing Agreement) are not fully and timely reimbursed by the
terminated Servicer, the Master Servicer shall be entitled to reimbursement of
such costs and expenses from the Master Servicer Collection Account.

         (d) The Master Servicer shall require each Servicer to comply with the
remittance requirements and other obligations set forth in the related Servicing
Agreement.

         (e) If the Master Servicer acts as Servicer, it will not assume
liability for the representations and warranties of the Servicer, if any, that
it replaces.

         Section 3.04 FIDELITY BOND. The Master Servicer, at its expense, shall
maintain in effect a blanket fidelity bond and an errors and omissions insurance
policy, affording coverage with respect to all directors, officers, employees
and other Persons acting on such Master Servicer's behalf, and covering errors
and omissions in the performance of the Master Servicer's obligations hereunder.
The errors and omissions insurance policy and the fidelity bond shall be in such
form and amount generally acceptable for entities serving as master servicers or
trustees.

         Section 3.05 POWER TO ACT; PROCEDURES. The Master Servicer shall master
service the Mortgage Loans and shall have full power and authority, subject to
the REMIC Provisions and the provisions of Article X hereof, to do any and all
things that it may deem necessary or desirable in connection with the master
servicing and administration of the Mortgage Loans, including but not limited to
the power and authority (i) to execute and deliver, on behalf of the
Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages, (iii) to
collect any Insurance Proceeds and Liquidation Proceeds, and (iv) to effectuate
foreclosure or other conversion of the ownership of the Mortgaged Property
securing any Mortgage Loan, in each case, in accordance with the provisions of
this Agreement and the related Servicing Agreement, as applicable; provided,
however, that the Master Servicer shall not (and, consistent with its
responsibilities under Section 3.03, shall not permit any Servicer to) knowingly
or intentionally take any action, or fail to take (or fail to cause to be taken)
any action reasonably within its control and the scope of duties more
specifically set forth herein, that, under the REMIC Provisions, if taken or not
taken, as the case may be, would cause REMIC I, REMIC II, REMIC III or REMIC IV
to fail to qualify as a REMIC or result in the imposition of a tax upon the
Trust Fund (including but not limited to the tax on prohibited transactions as
defined in Section 860F(a)(2) of the Code and the tax on contributions to a
REMIC set forth in Section 860G(d) of the Code) unless the Master Servicer has
received an Opinion of Counsel (but not at the expense of the Master Servicer)
to the effect that the contemplated action will not would cause REMIC I, REMIC
II, REMIC III or REMIC IV to fail to qualify as a REMIC or result in the
imposition of a tax upon REMIC I, REMIC II, REMIC III or REMIC IV, as the case
may be. The Trustee shall furnish the Master Servicer, upon written request from
a Servicing Officer, with any powers of attorney empowering the Master Servicer
or any Servicer to execute and deliver instruments of satisfaction or
cancellation, or of partial or full release or discharge, and to foreclose upon
or otherwise liquidate Mortgaged Property, and to appeal, prosecute or defend in
any court action relating to the Mortgage Loans or the Mortgaged Property,

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in accordance with the applicable Servicing Agreement and this Agreement, and
the Trustee shall execute and deliver such other documents, as the Master
Servicer may request, to enable the Master Servicer to master service and
administer the Mortgage Loans and carry out its duties hereunder, in each case
in accordance with Accepted Master Servicing Practices (and the Trustee shall
have no liability for misuse of any such powers of attorney by the Master
Servicer or any Servicer). If the Master Servicer or the Trustee has been
advised that it is likely that the laws of the state in which action is to be
taken prohibit such action if taken in the name of the Trustee or that the
Trustee would be adversely affected under the "doing business" or tax laws of
such state if such action is taken in its name, the Master Servicer shall join
with the Trustee in the appointment of a co-trustee pursuant to Section 9.11
hereof. In the performance of its duties hereunder, the Master Servicer shall be
an independent contractor and shall not, except in those instances where it is
taking action in the name of the Trustee, be deemed to be the agent of the
Trustee.

         Section 3.06 DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS. To the extent
provided in the applicable Servicing Agreement, to the extent Mortgage Loans
contain enforceable due-on-sale clauses, the Master Servicer shall cause the
Servicers to enforce such clauses in accordance with the applicable Servicing
Agreement. If applicable law prohibits the enforcement of a due-on-sale clause
or such clause is otherwise not enforced in accordance with the applicable
Servicing Agreement, and, as a consequence, a Mortgage Loan is assumed, the
original Mortgagor may be released from liability in accordance with the
applicable Servicing Agreement.

         Section 3.07 RELEASE OF MORTGAGE FILES. (a) Upon becoming aware of the
payment in full of any Mortgage Loan, or the receipt by any Servicer of a
notification that payment in full has been escrowed in a manner customary for
such purposes for payment to Certificateholders on the next Distribution Date,
the Servicer will, if required under the applicable Servicing Agreement,
promptly furnish to the Custodian, on behalf of the Trustee, two copies of a
certification substantially in the form of Exhibit D hereto signed by a
Servicing Officer or in a mutually agreeable electronic format which will, in
lieu of a signature on its face, originate from a Servicing Officer (which
certification shall include a statement to the effect that all amounts received
in connection with such payment that are required to be deposited in the
Protected Account maintained by the applicable Servicer pursuant to Section 4.01
or by the applicable Servicer pursuant to its Servicing Agreement have been or
will be so deposited) and shall request that the Custodian, on behalf of the
Trustee, deliver to the applicable Servicer the related Mortgage File. Upon
receipt of such certification and request, the Custodian, on behalf of the
Trustee, shall promptly release the related Mortgage File to the applicable
Servicer and the Trustee and Custodian shall have no further responsibility with
regard to such Mortgage File. Upon any such payment in full, each Servicer is
authorized, to give, as agent for the Trustee, as the mortgagee under the
Mortgage that secured the Mortgage Loan, an instrument of satisfaction (or
assignment of mortgage without recourse) regarding the Mortgaged Property
subject to the Mortgage, which instrument of satisfaction or assignment, as the
case may be, shall be delivered to the Person or Persons entitled thereto
against receipt therefor of such payment, it being understood and agreed that no
expenses incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Protected Account.

         (b) From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan and in accordance with the applicable Servicing
Agreement, the Trustee shall execute such documents as shall be prepared and
furnished to the Trustee by a Servicer or the Master Servicer (in

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<PAGE>

form reasonably acceptable to the Trustee) and as are necessary to the
prosecution of any such proceedings. The Custodian, on behalf of the Trustee,
shall, upon the request of a Servicer or the Master Servicer, and delivery to
the Custodian, on behalf of the Trustee, of two copies of a request for release
signed by a Servicing Officer substantially in the form of Exhibit D (or in a
mutually agreeable electronic format which will, in lieu of a signature on its
face, originate from a Servicing Officer), release the related Mortgage File
held in its possession or control to the Servicer or the Master Servicer, as
applicable. Such trust receipt shall obligate the Servicer or the Master
Servicer to return the Mortgage File to the Custodian on behalf of the Trustee,
when the need therefor by the Servicer or the Master Servicer no longer exists
unless the Mortgage Loan shall be liquidated, in which case, upon receipt of a
certificate of a Servicing Officer similar to that hereinabove specified, the
Mortgage File shall be released by the Custodian, on behalf of the Trustee, to
the Servicer or the Master Servicer.

         Section 3.08 DOCUMENTS, RECORDS AND FUNDS IN POSSESSION OF MASTER
SERVICER TO BE HELD FOR TRUSTEE.

         (a) The Master Servicer shall transmit and each Servicer (to the extent
required by the related Servicing Agreement) shall transmit to the Trustee or
Custodian such documents and instruments coming into the possession of the
Master Servicer or such Servicer from time to time as are required by the terms
hereof, or in the case of the Servicers, the applicable Servicing Agreement, to
be delivered to the Trustee or Custodian. Any funds received by the Master
Servicer or by a Servicer in respect of any Mortgage Loan or which otherwise are
collected by the Master Servicer or by a Servicer as Liquidation Proceeds or
Insurance Proceeds in respect of any Mortgage Loan shall be held for the benefit
of the Trustee and the Certificateholders subject to the Master Servicer's right
to retain or withdraw from the Master Servicer Collection Account the Master
Servicing Compensation and other amounts provided in this Agreement, and to the
right of each Servicer to retain its Servicing Fee and other amounts as provided
in the applicable Servicing Agreement. The Master Servicer shall, and (to the
extent provided in the applicable Servicing Agreement) shall cause each Servicer
to, provide access to information and documentation regarding the Mortgage Loans
to the Trustee, its agents and accountants at any time upon reasonable request
and during normal business hours, and to Certificateholders that are savings and
loan associations, banks or insurance companies, the Office of Thrift
Supervision, the FDIC and the supervisory agents and examiners of such Office
and Corporation or examiners of any other federal or state banking or insurance
regulatory authority if so required by applicable regulations of the Office of
Thrift Supervision or other regulatory authority, such access to be afforded
without charge but only upon reasonable request in writing and during normal
business hours at the offices of the Master Servicer designated by it. In
fulfilling such a request the Master Servicer shall not be responsible for
determining the sufficiency of such information.

         (b) All Mortgage Files and funds collected or held by, or under the
control of, the Master Servicer, in respect of any Mortgage Loans, whether from
the collection of principal and interest payments or from Liquidation Proceeds
or Insurance Proceeds, shall be held by the Master Servicer for and on behalf of
the Trustee and the Certificateholders and shall be and remain the sole and
exclusive property of the Trustee; provided, however, that the Master Servicer
and each Servicer shall be entitled to setoff against, and deduct from, any such
funds any amounts that are properly due

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<PAGE>

and payable to the Master Servicer or such Servicer under this Agreement or the
applicable Servicing Agreement.

         Section 3.09 STANDARD HAZARD INSURANCE AND FLOOD INSURANCE POLICIES.

         (a) For each Mortgage Loan, the Master Servicer shall enforce any
obligation of the Servicers under the related Servicing Agreements to maintain
or cause to be maintained standard fire and casualty insurance and, where
applicable, flood insurance, all in accordance with the provisions of the
related Servicing Agreements. It is understood and agreed that such insurance
shall be with insurers meeting the eligibility requirements set forth in the
applicable Servicing Agreement and that no earthquake or other additional
insurance is to be required of any Mortgagor or to be maintained on property
acquired in respect of a defaulted loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance.

         (b) Pursuant to Section 4.01 and 4.02, any amounts collected by the
Servicers or the Master Servicer, or by any Servicer, under any insurance
policies (other than amounts to be applied to the restoration or repair of the
property subject to the related Mortgage or released to the Mortgagor in
accordance with the applicable Servicing Agreement) shall be deposited into the
Master Servicer Collection Account, subject to withdrawal pursuant to Section
4.02 and 4.03. Any cost incurred by the Master Servicer or any Servicer in
maintaining any such insurance if the Mortgagor defaults in its obligation to do
so shall be added to the amount owing under the Mortgage Loan where the terms of
the Mortgage Loan so permit; provided, however, that the addition of any such
cost shall not be taken into account for purposes of calculating the
distributions to be made to Certificateholders and shall be recoverable by the
Master Servicer or such Servicer pursuant to Section 4.02 and 4.03.

         Section 3.10 PRESENTMENT OF CLAIMS AND COLLECTION OF PROCEEDS. The
Master Servicer shall (to the extent provided in the applicable Servicing
Agreement) cause the related Servicer to, prepare and present on behalf of the
Trustee and the Certificateholders all claims under the Insurance Policies and
take such actions (including the negotiation, settlement, compromise or
enforcement of the insured's claim) as shall be necessary to realize recovery
under such policies. Any proceeds disbursed to the Master Servicer (or disbursed
to a Servicer and remitted to the Master Servicer) in respect of such policies,
bonds or contracts shall be promptly deposited in the Master Servicer Collection
Account upon receipt, except that any amounts realized that are to be applied to
the repair or restoration of the related Mortgaged Property as a condition
precedent to the presentation of claims on the related Mortgage Loan to the
insurer under any applicable Insurance Policy need not be so deposited (or
remitted).

         Section 3.11 MAINTENANCE OF THE PRIMARY MORTGAGE INSURANCE POLICIES.

         (a) The Master Servicer shall not take, or permit any Servicer (to the
extent such action is prohibited under the applicable Servicing Agreement) to
take, any action that would result in noncoverage under any applicable primary
mortgage insurance policy of any loss which, but for the actions of such Master
Servicer or Servicer, would have been covered thereunder. The Master Servicer
shall use its best reasonable efforts to cause each Servicer (to the extent
required under the related Servicing Agreement) to keep in force and effect (to
the extent that the Mortgage Loan

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requires the Mortgagor to maintain such insurance), primary mortgage insurance
applicable to each Mortgage Loan in accordance with the provisions of this
Agreement and the related Servicing Agreement, as applicable. The Master
Servicer shall not, and shall not permit any Servicer (to the extent required
under the related Servicing Agreement) to, cancel or refuse to renew any such
primary mortgage insurance policy that is in effect at the date of the initial
issuance of the Mortgage Note and is required to be kept in force hereunder
except in accordance with the provisions of this Agreement and the related
Servicing Agreement, as applicable.

         (b) The Master Servicer agrees to present, or to cause each Servicer
(to the extent required under the related Servicing Agreement) to present, on
behalf of the Trustee and the Certificateholders, claims to the insurer under
any Primary Mortgage Insurance Policies and, in this regard, to take such
reasonable action as shall be necessary to permit recovery under any Primary
Mortgage Insurance Policies respecting defaulted Mortgage Loans. Pursuant to
Section 4.01 and 4.02, any amounts collected by the Master Servicer or any
Servicer under any Primary Mortgage Insurance Policies shall be deposited in the
Master Servicer Collection Account, subject to withdrawal pursuant to Section
4.03.

         Section 3.12 TRUSTEE TO RETAIN POSSESSION OF CERTAIN INSURANCE POLICIES
AND DOCUMENTS.

         The Trustee (or the Custodian, as directed by the Trustee), shall
retain possession and custody of the originals (to the extent available) of any
Primary Mortgage Insurance Policies, or certificate of insurance if applicable,
and any certificates of renewal as to the foregoing as may be issued from time
to time as contemplated by this Agreement. Until all amounts distributable in
respect of the Certificates have been distributed in full and the Master
Servicer otherwise has fulfilled its obligations under this Agreement, the
Trustee (or its Custodian, if any, as directed by the Trustee) shall also retain
possession and custody of each Mortgage File in accordance with and subject to
the terms and conditions of this Agreement. The Master Servicer shall promptly
deliver or cause to be delivered to the Trustee (or the Custodian, as directed
by the Trustee), upon the execution or receipt thereof the originals of any
Primary Mortgage Insurance Policies, any certificates of renewal, and such other
documents or instruments that constitute portions of the Mortgage File that come
into the possession of the Master Servicer from time to time.

         Section 3.13 REALIZATION UPON DEFAULTED MORTGAGE LOANS. The Master
Servicer shall cause each Servicer (to the extent required under the related
Servicing Agreement) to foreclose upon, repossess or otherwise comparably
convert the ownership of Mortgaged Properties securing such of the Mortgage
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments, all in
accordance with the applicable Servicing Agreement.

         Section 3.14 COMPENSATION FOR THE MASTER SERVICER.

         The Master Servicer will be entitled to all income and gain realized
from any investment of funds in the Distribution Account and the Master Servicer
Collection Account, pursuant to Article IV, for the performance of its
activities hereunder. Servicing compensation in the form of assumption fees, if
any, late payment charges, as collected, if any, or otherwise (but not including
any prepayment premium or penalty) shall be retained by the applicable Servicer
and shall not be

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deposited in the Protected Account. The Master Servicer shall be required to pay
all expenses incurred by it in connection with its activities hereunder and
shall not be entitled to reimbursement therefor except as provided in this
Agreement.

         Section 3.15 REO PROPERTY.

         (a) In the event the Trust Fund acquires ownership of any REO Property
in respect of any related Mortgage Loan, the deed or certificate of sale shall
be issued to the Trustee, or to its nominee, on behalf of the related
Certificateholders. The Master Servicer shall, to the extent provided in the
applicable Servicing Agreement, cause the applicable Servicer to sell, any REO
Property as expeditiously as possible and in accordance with the provisions of
this Agreement and the related Servicing Agreement, as applicable. Pursuant to
its efforts to sell such REO Property, the Master Servicer shall cause the
applicable Servicer to protect and conserve, such REO Property in the manner and
to the extent required by the applicable Servicing Agreement, in accordance with
the REMIC Provisions and in a manner that does not result in a tax on "net
income from foreclosure property" or cause such REO Property to fail to qualify
as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code.

         (b) The Master Servicer shall, to the extent required by the related
Servicing Agreement, cause the applicable Servicer to deposit all funds
collected and received in connection with the operation of any REO Property in
the Protected Account.

         (c) The Master Servicer and the applicable Servicer, upon the final
disposition of any REO Property, shall be entitled to reimbursement for any
related unreimbursed Monthly Advances and other unreimbursed advances as well as
any unpaid Servicing Fees from Liquidation Proceeds received in connection with
the final disposition of such REO Property; provided, that any such unreimbursed
Monthly Advances as well as any unpaid Servicing Fees may be reimbursed or paid,
as the case may be, prior to final disposition, out of any net rental income or
other net amounts derived from such REO Property.

         (d) To the extent provided in the related Servicing Agreement, the
Liquidation Proceeds from the final disposition of the REO Property, net of any
payment to the Master Servicer and the applicable Servicer as provided above
shall be deposited in the Protected Account on or prior to the Determination
Date in the month following receipt thereof and be remitted by wire transfer in
immediately available funds to the Master Servicer for deposit into the related
Master Servicer Collection Account on the next succeeding Servicer Remittance
Date.

         Section 3.16 ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.

         (a) The Master Servicer shall deliver to the Trustee and the Rating
Agencies on or before May 31 of each year, commencing on May 31, 2003, an
Officer's Certificate, certifying that with respect to the period ending
December 31 of the prior year: (i) such Servicing Officer has reviewed the
activities of such Master Servicer during the preceding calendar year or portion
thereof and its performance under this Agreement, (ii) to the best of such
Servicing Officer's knowledge, based on such review, such Master Servicer has
performed and fulfilled its duties, responsibilities and obligations under this
Agreement in all material respects throughout such year, or, if there has been

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a default in the fulfillment of any such duties, responsibilities or
obligations, specifying each such default known to such Servicing Officer and
the nature and status thereof, (iii) nothing has come to the attention of such
Servicing Officer to lead such Servicing Officer to believe that any Servicer
has failed to perform any of its duties, responsibilities and obligations under
its Servicing Agreement in all material respects throughout such year, or, if
there has been a material default in the performance or fulfillment of any such
duties, responsibilities or obligations, specifying each such default known to
such Servicing Officer and the nature and status thereof.

         (b) Copies of such statements shall be provided to any
Certificateholder upon request, by the Master Servicer or by the Trustee at the
Master Servicer's expense if the Master Servicer failed to provide such copies
(unless (i) the Master Servicer shall have failed to provide the Trustee with
such statement or (ii) the Trustee shall be unaware of the Master Servicer's
failure to provide such statement).

         Section 3.17 ANNUAL INDEPENDENT ACCOUNTANT'S SERVICING REPORT. If the
Master Servicer has, during the course of any fiscal year, directly serviced any
of the Mortgage Loans, then the Master Servicer at its expense shall cause a
nationally recognized firm of independent certified public accountants to
furnish a statement to the Trustee, the Rating Agencies and the Seller on or
before May 31 of each year, commencing on May 31, 2003 to the effect that, with
respect to the most recently ended fiscal year, such firm has examined certain
records and documents relating to the Master Servicer's performance of its
servicing obligations under this Agreement and pooling and servicing and trust
agreements in material respects similar to this Agreement and to each other and
that, on the basis of such examination conducted substantially in compliance
with the audit program for mortgages serviced for Freddie Mac or the Uniform
Single Attestation Program for Mortgage Bankers, such firm is of the opinion
that the Master Servicer's activities have been conducted in compliance with
this Agreement, or that such examination has disclosed no material items of
noncompliance except for (i) such exceptions as such firm believes to be
immaterial, (ii) such other exceptions as are set forth in such statement and
(iii) such exceptions that the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages Serviced by Freddie Mac requires it
to report. Copies of such statements shall be provided to any Certificateholder
upon request by the Master Servicer, or by the Trustee at the expense of the
Master Servicer if the Master Servicer shall fail to provide such copies. If
such report discloses exceptions that are material, the Master Servicer shall
advise the Trustee whether such exceptions have been or are susceptible of cure,
and will take prompt action to do so.

         Section 3.18 REPORTS FILED WITH SECURITIES AND EXCHANGE COMMISSION.
Within 15 days after each Distribution Date, the Securities Administrator shall,
in accordance with industry standards, file with the Commission via the
Electronic Data Gathering and Retrieval System ("EDGAR"), a Form 8-K with a copy
of the statement to the Trustee who shall furnish a copy of the statement to the
Certificateholders for such Distribution Date as an exhibit thereto. Prior to
January 30, 2003, the Securities Administrator shall, in accordance with
industry standards and only if instructed by the Seller, file a Form 15
Suspension Notice with respect to the Trust Fund, if applicable. Prior to March
30, 2003, the Securities Administrator shall file a Form 10-K, in substance
conforming to industry standards, with respect to the Trust Fund. The Seller
hereby grants to the Securities Administrator a limited power of attorney to
execute and file each such document on behalf of the Seller. Such power of
attorney shall continue until either the earlier of (i) receipt by the
Securities Administrator

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from the Seller of written termination of such power of attorney and (ii) the
termination of the Trust Fund. The Seller agrees to promptly furnish to the
Securities Administrator, from time to time upon request, such further
information, reports and financial statements within its control related to this
Agreement and the Mortgage Loans as the Securities Administrator reasonably
deems appropriate to prepare and file all necessary reports with the Commission.
The Securities Administrator shall have no responsibility to file any items
other than those specified in this Section 3.18; provided, however, the
Securities Administrator will cooperate with the Seller in connection with any
additional filings with respect to the Trust Fund as the Seller deems necessary
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Copies of all reports filed by the Securities Administrator under the Exchange
Act shall be sent to: the Seller c/o Bear, Stearns & Co. Inc., Attn: Managing
Director-Analysis and Control, One Metrotech Center North, Brooklyn, New York
11202- 3859. Fees and expenses incurred by the Securities Administrator in
connection with this Section 3.18 shall not be reimbursable from the Trust Fund.

         Section 3.19 EMC. On the Closing Date, EMC will receive from the Seller
a payment of $5,000.

         Section 3.20 UCC. The Trustee agrees to file continuation statements
for any Uniform Commercial Code financing statements which the Seller has
informed the Trustee were filed on the Closing Date in connection with the
Trust. The Seller shall file any financing statements or amendments thereto
required by any change in the Uniform Commercial Code.

         Section 3.21 OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS.

         With respect to any Mortgage Loan which as of the first day of a
Calendar Quarter is delinquent in payment by 90 days or more or is an REO
Property, EMC shall have the right to purchase such Mortgage Loan from the Trust
at a price equal to the Repurchase Price; provided however (i) that such
Mortgage Loan is still 90 days or more delinquent or is an REO Property as of
the date of such purchase and (ii) this purchase option, if not theretofore
exercised, shall terminate on the date prior to the last day of the related
Calendar Quarter. This purchase option, if not exercised, shall not be
thereafter reinstated unless the delinquency is cured and the Mortgage Loan
thereafter again becomes 90 days or more delinquent or becomes an REO Property,
in which case the option shall again become exercisable as of the first day of
the related Calendar Quarter.

         If at any time EMC remits to the Master Servicer a payment for deposit
in the Master Servicer Collection Account covering the amount of the Repurchase
Price for such a Mortgage Loan, and EMC provides to the Trustee a certification
signed by a Servicing Officer stating that the amount of such payment has been
deposited in the Master Servicer Collection Account, then the Trustee shall
execute the assignment of such Mortgage Loan at the request of EMC without
recourse to EMC which shall succeed to all the Trustee's right, title and
interest in and to such Mortgage Loan, and all security and documents relative
thereto. Such assignment shall be an assignment outright and not for security.
EMC will thereupon own such Mortgage, and all such security and documents, free
of any further obligation to the Trustee or the Certificateholders with respect
thereto.

                                      -58-

<PAGE>

                                   ARTICLE IV
                                    Accounts

         Section 4.01 PROTECTED ACCOUNTS. (a) The Master Servicer shall enforce
the obligation of each Servicer to establish and maintain a Protected Account in
accordance with the applicable Servicing Agreement, with records to be kept with
respect thereto on a Mortgage Loan by Mortgage Loan basis, into which accounts
shall be deposited within 48 hours (or as of such other time specified in the
related Servicing Agreement) of receipt all collections of principal and
interest on any Mortgage Loan and with respect to any REO Property received by a
Servicer, including Principal Prepayments, Insurance Proceeds, Liquidation
Proceeds, and advances made from the Servicer's own funds (less servicing
compensation as permitted by the applicable Servicing Agreement in the case of
any Servicer) and all other amounts to be deposited in the Protected Account.
The Servicer is hereby authorized to make withdrawals from and deposits to the
related Protected Account for purposes required or permitted by this Agreement.
To the extent provided in the related Servicing Agreement, the Protected Account
shall be held in a Designated Depository Institution and segregated on the books
of such institution in the name of the Trustee for the benefit of
Certificateholders.

         (b) To the extent provided in the related Servicing Agreement, amounts
on deposit in a Protected Account may be invested in Permitted Investments in
the name of the Trustee for the benefit of Certificateholders and, except as
provided in the preceding paragraph, not commingled with any other funds, such
Permitted Investments to mature, or to be subject to redemption or withdrawal,
no later than the date on which such funds are required to be withdrawn for
deposit in the Master Servicer Collection Account, and shall be held until
required for such deposit. The income earned from Permitted Investments made
pursuant to this Section 4.01 shall be paid to the related Servicer under the
applicable Servicing Agreement, and the risk of loss of moneys required to be
distributed to the Certificateholders resulting from such investments shall be
borne by and be the risk of the related Servicer. The related Servicer (to the
extent provided in the Servicing Agreement) shall deposit the amount of any such
loss in the Protected Account within two Business Days of receipt of
notification of such loss but not later than the second Business Day prior to
the Distribution Date on which the moneys so invested are required to be
distributed to the Certificateholders.

         (c) To the extent provided in the related Servicing Agreement and
subject to this Article IV, on or before each Servicer Remittance Date, the
related Servicer shall withdraw or shall cause to be withdrawn from the
Protected Accounts and shall immediately deposit or cause to be deposited in the
Master Servicer Collection Account amounts representing the following
collections and payments (other than with respect to principal of or interest on
the Mortgage Loans due on or before the Cut-off Date) with respect to each Loan
Group:

                  (i) Scheduled Payments on the Mortgage Loans received or any
         related portion thereof advanced by the Servicers pursuant to the
         Servicing Agreements which were due on or before the related Due Date,
         net of the amount thereof comprising the Servicing Fees;

                  (ii) Full Principal Prepayments and any Liquidation Proceeds
         received by the Servicers with respect to such Mortgage Loans in the
         related Prepayment Period, with

                                      -59-

<PAGE>

         interest to the date of prepayment or liquidation, net of the amount
         thereof comprising the Servicing Fees;

                  (iii) Partial Principal Prepayments received by the Servicers
         for such Mortgage Loans in the related Prepayment Period; and

                  (iv) Any amount to be used as an Advance.

         (d) Withdrawals may be made from an Account only to make remittances as
provided in Section 4.01(c), 4.02 and 4.03; to reimburse the Master Servicer or
a Servicer for Monthly Advances which have been recovered by subsequent
collection from the related Mortgagor; to remove amounts deposited in error; to
remove fees, charges or other such amounts deposited on a temporary basis; or to
clear and terminate the account at the termination of this Agreement in
accordance with Section 10.01. As provided in Sections 4.01(c) and 4.02(b)
certain amounts otherwise due to the Servicers may be retained by them and need
not be deposited in the Master Servicer Collection Account.

         Section 4.02 MASTER SERVICER COLLECTION ACCOUNT. (a) The Master
Servicer shall establish and maintain in the name of the Trustee, for the
benefit of the Certificateholders, the Master Servicer Collection Account as a
segregated trust account or accounts. The Master Servicer will deposit in the
Master Servicer Collection Account as identified by the Master Servicer and as
received by the Master Servicer, the following amounts:

                  (i) Any amounts withdrawn from a Protected Account;

                  (ii) Any Monthly Advance and any Compensating Interest
         Payments;

                  (iii) Any Insurance Proceeds or Net Liquidation Proceeds
         received by or on behalf of the Master Servicer or which were not
         deposited in a Protected Account;

                  (iv) The Repurchase Price with respect to any Mortgage Loans
         purchased by the Mortgage Loan Seller or Section 2.02 or 2.03, any
         amounts which are to be treated pursuant to Section 2.04 of this
         Agreement as the payment of such a Repurchase Price, the Repurchase
         Price with respect to any Mortgage Loans purchased by EMC pursuant to
         Section 3.21, and all proceeds of any Mortgage Loans or property
         acquired with respect thereto repurchased by the Seller or its designee
         pursuant to Section 10.01;

                  (v) Any amounts required to be deposited with respect to
         losses on investments of deposits in an Account; and

                  (vi) Any other amounts received by or on behalf of the Master
         Servicer and required to be deposited in the Master Servicer Collection
         Account pursuant to this Agreement.

         (c) All amounts deposited to the Master Servicer Collection Account
shall be held by the Master Servicer in the name of the Trustee in trust for the
benefit of the Certificateholders in

                                      -60-

<PAGE>

accordance with the terms and provisions of this Agreement. The requirements for
crediting the Master Servicer Collection Account or the Distribution Account
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of (i) prepayment or late
payment charges or assumption, tax service, statement account or payoff,
substitution, satisfaction, release and other like fees and charges and (ii) the
items enumerated in Subsections 4.05(a)(i), (ii), (iii), (iv), (vi), (vii),
(viii), (ix), (xi) and (xii) with respect to the Securities Administrator, need
not be credited by the Master Servicer or the related Servicer to the
Distribution Account or the Master Servicer Collection Account, as applicable.
In the event that the Master Servicer shall deposit or cause to be deposited to
the Distribution Account any amount not required to be credited thereto, the
Trustee, upon receipt of a written request therefor signed by a Servicing
Officer of the Master Servicer, shall promptly transfer such amount to the
Master Servicer, any provision herein to the contrary notwithstanding.

         (d) The amount at any time credited to the Master Servicer Collection
Account shall be invested, in the name of the Trustee, or its nominee, for the
benefit of the Certificateholders, in Permitted Investments as directed by
Master Servicer. All Permitted Investments shall mature or be subject to
redemption or withdrawal on or before, and shall be held until, the next
succeeding Distribution Account Deposit Date. Any and all investment earnings on
amounts on deposit in the Master Servicer Account from time to time shall be for
the account of the Master Servicer. The Master Servicer from time to time shall
be permitted to withdraw or receive distribution of any and all investment
earnings from the Master Servicer Account. The risk of loss of moneys required
to be distributed to the Certificateholders resulting from such investments
shall be borne by and be the risk of the Master Servicer. The Master Servicer
shall deposit the amount of any such loss in the Master Servicer Collection
Account within two Business Days of receipt of notification of such loss but not
later than the second Business Day prior to the Distribution Date on which the
moneys so invested are required to be distributed to the Certificateholders.

         Section 4.03 PERMITTED WITHDRAWALS AND TRANSFERS FROM THE MASTER
SERVICER COLLECTION ACCOUNT. (a) The Master Servicer will, from time to time on
demand of the Master Servicer or the Securities Administrator, make or cause to
be made such withdrawals or transfers from the Master Servicer Collection
Account as the Master Servicer has designated for such transfer or withdrawal
pursuant to the Servicing Agreements. The Master Servicer may clear and
terminate the Master Servicer Collection Account pursuant to Section 10.01 and
remove amounts from time to time deposited in error.

         (b) On an ongoing basis, the Master Servicer shall withdraw from the
Master Servicer Collection Account (i) any expenses recoverable by the Trustee,
the Master Servicer or the Securities Administrator pursuant to Sections 3.03,
7.01, 7.04 and 9.05 and (ii) any amounts payable to the Master Servicer as set
forth in Section 3.14.

         (c) In addition, on or before each Distribution Account Deposit Date,
the Master Servicer shall deposit in the Distribution Account (or remit to the
Trustee for deposit therein) any Monthly Advances required to be made by the
Master Servicer with respect to the Mortgage Loans.

         (d) No later than 3:00 p.m. New York time on each Distribution Account
Deposit Date, the Master Servicer will transfer all Available Funds on deposit
in the Master Servicer Collection

                                                       -61-

<PAGE>

Account with respect to the related Distribution Date to the Trustee for deposit
in the Distribution Account.

         Section 4.04 DISTRIBUTION ACCOUNT. (a) The Trustee shall establish and
maintain in the name of the Trustee, for the benefit of the Certificateholders,
the Distribution Account as a segregated trust account or accounts.

         (b) All amounts deposited to the Distribution Account shall be held by
the Trustee in the name of the Trustee in trust for the benefit of the
Certificateholders in accordance with the terms and provisions of this
Agreement.

         (c) The Distribution Account shall constitute a trust account of the
Trust Fund segregated on the books of the Trustee and held by the Trustee in
trust in its Corporate Trust Office, and the Distribution Account and the funds
deposited therein shall not be subject to, and shall be protected from, all
claims, liens, and encumbrances of any creditors or depositors of the Trustee or
the Master Servicer (whether made directly, or indirectly through a liquidator
or receiver of the Trustee or the Master Servicer). The amount at any time
credited to the Distribution Account shall be (i) fully insured by the FDIC to
the maximum coverage provided thereby or (ii) invested in the name of the
Trustee, in such Permitted Investments selected by the Master Servicer or
deposited in demand deposits with such depository institutions as selected by
the Master Servicer, provided that time deposits of such depository institutions
would be a Permitted Investment. All Permitted Investments shall mature or be
subject to redemption or withdrawal on or before, and shall be held until, the
next succeeding Distribution Date if the obligor for such Permitted Investment
is the Trustee or, if such obligor is any other Person, the Business Day
preceding such Distribution Date. All investment earnings on amounts on deposit
in the Distribution Account or benefit from funds uninvested therein from time
to time shall be for the account of the Master Servicer. The Master Servicer
shall be permitted to withdraw or receive distribution of any and all investment
earnings from the Distribution Account on each Distribution Date. If there is
any loss on a Permitted Investment or demand deposit, the Master Servicer shall
remit the amount of the loss to the Trustee who shall deposit such amount in the
Distribution Account. With respect to the Distribution Account and the funds
deposited therein, the Master Servicer shall take such action as may be
necessary to ensure that the Certificateholders shall be entitled to the
priorities afforded to such a trust account (in addition to a claim against the
estate of the Trustee) as provided by 12 U.S.C. ss. 92a(e), and applicable
regulations pursuant thereto, if applicable, or any applicable comparable state
statute applicable to state chartered banking corporations.

         Section 4.05 PERMITTED WITHDRAWALS AND TRANSFERS FROM THE DISTRIBUTION
ACCOUNT. (a) The Trustee will, from time to time on demand of the Master
Servicer or the Securities Administrator, make or cause to be made such
withdrawals or transfers from the Distribution Account as the Master Servicer
has designated for such transfer or withdrawal pursuant to the Servicing
Agreements or as the Securities Administrator has instructed hereunder for the
following purposes (limited in the case of amounts due the Master Servicer to
those not withdrawn from the Master Servicer Collection Account in accordance
with the terms of this Agreement):

                  (i) to reimburse the Master Servicer or any Servicer for any
         Monthly Advance of its own funds or any advance of such Servicer's own
         funds, the right of the Master

                                      -62-

<PAGE>

         Servicer or a Servicer to reimbursement pursuant to this subclause (i)
         being limited to amounts received on a particular Mortgage Loan
         (including, for this purpose, the Repurchase Price therefor, Insurance
         Proceeds and Liquidation Proceeds) which represent late payments or
         recoveries of the principal of or interest on such Mortgage Loan
         respecting which such Monthly Advance or advance was made;

                  (ii) to reimburse the Master Servicer or any Servicer from
         Insurance Proceeds or Liquidation Proceeds relating to a particular
         Mortgage Loan for amounts expended by the Master Servicer or such
         Servicer in good faith in connection with the restoration of the
         related Mortgaged Property which was damaged by an Uninsured Cause or
         in connection with the liquidation of such Mortgage Loan;

                  (iii) to reimburse the Master Servicer or any Servicer from
         Insurance Proceeds relating to a particular Mortgage Loan for insured
         expenses incurred with respect to such Mortgage Loan and to reimburse
         the Master Servicer or such Servicer from Liquidation Proceeds from a
         particular Mortgage Loan for Liquidation Expenses incurred with respect
         to such Mortgage Loan; provided that the Master Servicer shall not be
         entitled to reimbursement for Liquidation Expenses with respect to a
         Mortgage Loan to the extent that (i) any amounts with respect to such
         Mortgage Loan were paid as Excess Liquidation Proceeds pursuant to
         clause (xi) of this Subsection 4.03 (a) to the Master Servicer; and
         (ii) such Liquidation Expenses were not included in the computation of
         such Excess Liquidation Proceeds;

                  (iv) to pay the Master Servicer or any Servicer, as
         appropriate, from Liquidation Proceeds or Insurance Proceeds received
         in connection with the liquidation of any Mortgage Loan, the amount
         which it or such Servicer would have been entitled to receive under
         subclause (ix) of this Subsection 4.03(a) as servicing compensation on
         account of each defaulted scheduled payment on such Mortgage Loan if
         paid in a timely manner by the related Mortgagor;

                  (v) to pay the Master Servicer or any Servicer from the
         Repurchase Price for any Mortgage Loan, the amount which it or such
         Servicer would have been entitled to receive under subclause (ix) of
         this Subsection 4.03 (a) as servicing compensation;

                  (vi) to reimburse the Master Servicer or any Servicer for
         advances of funds pursuant to Sections, and the right to reimbursement
         pursuant to this subclause being limited to amounts received on the
         related Mortgage Loan (including, for this purpose, the Repurchase
         Price therefor, Insurance Proceeds and Liquidation Proceeds) which
         represent late recoveries of the payments for which such advances were
         made;

                  (vii) to reimburse the Master Servicer or any Servicer for any
         Monthly Advance or advance, after a Realized Loss has been allocated
         with respect to the related Mortgage Loan if the Monthly Advance or
         advance has not been reimbursed pursuant to clauses (i) and (vi);

                  (viii) to pay the Master Servicer as set forth in Section
         3.14;

                                      -63-

<PAGE>

                  (ix) to reimburse the Master Servicer for expenses, costs and
         liabilities incurred by and reimbursable to it pursuant to Sections
         3.03, 7.04(c) and (d);

                  (x) to pay to the Master Servicer, as additional servicing
         compensation, any Excess Liquidation Proceeds to the extent not
         retained by the related Servicer;

                  (xi) to reimburse or pay any Servicer any such amounts as are
         due thereto under the applicable Servicing Agreement and have not been
         retained by or paid to the Servicer, to the extent provided in the
         related Servicing Agreement;

                  (xii) to reimburse the Trustee or the Securities Administrator
         for expenses, costs and liabilities incurred by or reimbursable to it
         pursuant to this Agreement;

                  (xiii) to remove amounts deposited in error; and

                  (xiv) to clear and terminate the Distribution Account pursuant
         to Section 10.01.

         (b) The Master Servicer shall keep and maintain separate accounting, on
a Mortgage Loan by Mortgage Loan basis, for the purpose of accounting for any
reimbursement from the Distribution Account pursuant to subclauses (i) through
(vi), inclusive, and (viii) or with respect to any such amounts which would have
been covered by such subclauses had the amounts not been retained by the Master
Servicer without being deposited in the Distribution Account under Section
4.02(b).

         (c) On each Distribution Date, the Trustee shall distribute the Group
Available Funds for each Loan Group to the Holders of the Certificates in
accordance with Section 6.01.

                                      -64-

<PAGE>

                                    ARTICLE V
                                  Certificates

         Section 5.01 CERTIFICATES. (a) The Depository, the Seller and the
Trustee have entered into a Depository Agreement dated as of the Closing Date
(the "Depository Agreement"). Except for the Residual Certificates, the Private
Certificates and the Individual Certificates and as provided in Subsection
5.01(b), the Certificates shall at all times remain registered in the name of
the Depository or its nominee and at all times: (i) registration of such
Certificates may not be transferred by the Trustee except to a successor to the
Depository; (ii) ownership and transfers of registration of such Certificates on
the books of the Depository shall be governed by applicable rules established by
the Depository; (iii) the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants; (iv) the Trustee shall
deal with the Depository as representative of such Certificate Owners of the
respective Class of Certificates for purposes of exercising the rights of
Certificateholders under this Agreement, and requests and directions for and
votes of such representative shall not be deemed to be inconsistent if they are
made with respect to different Certificate Owners; and (v) the Trustee may rely
and shall be fully protected in relying upon information furnished by the
Depository with respect to its Depository Participants.

         The Residual Certificates and the Private Certificates are initially
Physical Certificates. If at any time the Holders of all of the Certificates of
one or more such Classes request that the Trustee cause such Class to become
Global Certificates, the Trustee and the Seller will take such action as may be
reasonably required to cause the Depository to accept such Class or Classes for
trading if it may legally be so traded.

         All transfers by Certificate Owners of such respective Classes of
Book-Entry Certificates and any Global Certificates shall be made in accordance
with the procedures established by the Depository Participant or brokerage firm
representing such Certificate Owners. Each Depository Participant shall only
transfer Book-Entry Certificates of Certificate Owners it represents or of
brokerage firms for which it acts as agent in accordance with the Depository's
normal procedures.

         (b) If (i)(A) the Seller advises the Trustee in writing that the
Depository is no longer willing or able to properly discharge its
responsibilities as Depository and (B) the Trustee or the Seller is unable to
locate a qualified successor within 30 days or (ii) the Seller at its option
advises the Trustee in writing that it elects to terminate the book-entry system
through the Depository, the Trustee shall request that the Depository notify all
Certificate Owners of the occurrence of any such event and of the availability
of definitive, fully registered Certificates to Certificate Owners requesting
the same. Upon surrender to the Trustee of the Certificates by the Depository,
accompanied by registration instructions from the Depository for registration,
the Trustee shall issue the definitive Certificates. Neither the Seller nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.

         (c) (i) REMIC I will be evidenced by (x) the REMIC I Regular Interests
(designated below), which will be uncertificated and non-transferable and are
hereby designated as the "regular interests" in REMIC I and have the principal
balances and accrue interest at the Pass-Through Rates

                                      -65-

<PAGE>

equal to those set forth in this Section 5.01(c)(i) and (y) the Class R-I
Certificates, which is hereby designated as the single "residual interest" in
REMIC I.

         The REMIC I Regular Interests and the Class R-I Interest will have the
following designations, initial balances and pass-through rates:

<TABLE>
<CAPTION>
  REMIC I Interest       Initial Balance        Pass-Through Rate                    Related Group
  ----------------       ---------------        -----------------                    -------------
<S>                  <C>                        <C>                       <C>
         I           $  19,568,622.67                  (1)                Group 2 (Countrywide Mortgage Loans)
         II          $  42,073,589.59                  (2)                Group 4 (Countrywide Mortgage Loans)
     Class R-I       $          50.00                  (1)                Group 2 (Countrywide Mortgage Loans)
</TABLE>

------------------------------------

(1) The weighted average of the Net Rates of the Countrywide Mortgage Loans that
are Group 2 Mortgage Loans, weighted on the basis of the respective Scheduled
Principal Balance of each such Mortgage Loan as of the beginning of the Due
Period immediately preceding the related Distribution Date.

(2) The weighted average of the Net Rates of the Countrywide Mortgage Loans that
are Group 4 Mortgage Loans, weighted on the basis of the respective Scheduled
Principal Balance of each such Mortgage Loan as of the beginning of the Due
Period immediately preceding the related Distribution Date.

         Principal and interest shall be payable to, and shortfalls, losses and
prepayments are allocable to, REMIC I Regular Interests I and II as such amounts
are attributable to the Countrywide Mortgage Loans in Group 2 and Group 4,
respectively.

         (ii) REMIC II will be evidenced by (x) the REMIC II Regular Interests
(designated below), which will be uncertificated and non-transferable and are
hereby designated as the "regular interests" in REMIC II and have the principal
balances and accrue interest at the Pass-Through Rates equal to those set forth
in this Section 5.01(c)(ii) and (y) the Class R-II Interest, which is hereby
designated as the single "residual interest" in REMIC II.

         Distributions shall be deemed to be made to the REMIC II Regular
Interests first, so as to keep the Uncertificated Principal Balance of each
REMIC II Regular Interest ending with the designation "B" equal to 0.01% of the
aggregate Scheduled Principal Balance of the Mortgage Loans in the related
Group; second, to each REMIC II Regular Interest ending with the designation
"A," so that the Uncertificated Principal Balance of each such REMIC II Regular
Interest is equal to 0.01% of the excess of (x) the aggregate Scheduled
Principal Balance of the Mortgage Loans in the related Group over (y) the
Current Principal Amount of the Senior Certificate in the related Group (except
that if any such excess is a larger number than in the preceding distribution
period, the least amount of principal shall be distributed to such REMIC II
Regular Interests such that the REMIC II Subordinated Balance Ratio is
maintained); and third, any remaining principal to REMIC II Regular Interest
ZZZ. Realized Losses shall be applied after all distributions have been made on
each Distribution Date first, so as to keep the Uncertificated Principal Balance
of each REMIC II Regular Interest ending with the designation "B" equal to 0.01%
of the aggregate Scheduled Principal Balance of the Mortgage Loans in the
related Group; second, to each REMIC II Regular Interest ending with the
designation "A," so that the Uncertificated Principal Balance of each such REMIC
II Regular Interest is equal to 0.01% of the excess of (x) the aggregate
Scheduled Principal Balance of the Mortgage Loans in the related Group over (y)
the Current Principal Amount of the

                                      -66-

<PAGE>

Senior Certificate in the related Group (except that if any such excess is a
larger number than in the preceding distribution period, the least amount of
Realized Losses shall be applied to such REMIC II Regular Interests such that
the REMIC II Subordinated Balance Ratio is maintained); and third, the remaining
Realized Losses shall be allocated to REMIC II Regular Interest ZZZ.

         The REMIC II Regular Certificates and the Class R-I Certificates will
have the following designations, initial balances and pass-through rates:

<TABLE>
<CAPTION>
      REMIC II
      Interest           Initial Balance        Pass-Through Rate          Related Group
      --------           ---------------        -----------------          -------------
<S>                   <C>                       <C>                        <C>
         1A           $           137.07              (8)                    Group 1
         1B           $         3,655.09              (1)                    Group 1
         2A           $           290.10              (8)                    Group 2
         2B           $         7,735.54              (2)                    Group 2
         3A           $            75.58              (8)                    Group 3
         3B           $         2,015.26              (3)                    Group 3
         4A           $         1,496.33              (8)                    Group 4
         4B           $        39,901.93              (4)                    Group 4
         5A           $           311.85              (8)                    Group 5
         5B           $         8,315.73              (5)                    Group 5
         6A           $           968.65              (8)                    Group 6
         6B           $        25,830.48              (6)                    Group 6
         7A           $            53.12              (8)                    Group 7
         7B           $         1,416.33              (7)                    Group 7
        ZZZ           $   888,611,219.31              (8)                      N/A
     Class R-II       $            50.00              (4)                    Group 2
</TABLE>

------------------------------------

(1) The weighted average of the Net Rates of the Group 1 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date.

(2) The weighted average of the Net Rates of the Group 2 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date; provided that for federal income tax purposes such
weighted average shall be the equivalent of the foregoing, expressed as above
but substituting REMIC I Regular Interest I (weighted on the basis of the
Uncertificated Principal Balance thereof immediately preceding the related
Distribution Date) for the Countrywide Mortgage Loans in Group 2.

(3) The weighted average of the Net Rates of the Group 3 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date.

(4) The weighted average of the Net Rates of the Group 4 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date ; provided that for federal income tax purposes such
weighted average shall be the

                                      -67-

<PAGE>

equivalent of the foregoing, expressed as above but substituting REMIC I Regular
Interest II (weighted on the basis of the Uncertificated Principal Balance
thereof immediately preceding the related Distribution Date) for the Countrywide
Mortgage Loans in Group 4.

(5) The weighted average of the Net Rates of the Group 5 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date.

(6) The weighted average of the Net Rates of the Group 6 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date.

(7) The weighted average of the Net Rates of the Group 7 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balance of each such
Mortgage Loan as of the beginning of the Due Period immediately preceding the
related Distribution Date.

(8) The weighted average of the Net Rates of the Mortgage Loans, weighted on the
basis of the respective Scheduled Principal Balance of each such Mortgage Loan
as of the beginning of the Due Period immediately preceding the related
Distribution Date; provided that for federal income tax purposes such weighted
average shall be the equivalent of the foregoing, expressed as above but
substituting REMIC I Regular Interest I (weighted on the basis of the
Uncertificated Principal Balance thereof immediately preceding the related
Distribution Date) for the Countrywide Mortgage Loans in Group 2 and REMIC I
Regular Interest II (weighted on the basis of the Uncertificated Principal
Balance thereof immediately preceding the related Distribution Date) for the
Countrywide Mortgage Loans in Group 4.

         (iii) REMIC III will be evidenced by (x) the REMIC III Regular
Interests (designated below), which will be uncertificated and non-transferable
and are hereby designated as the "regular interests" in REMIC III and have the
principal balances and accrue interest at the Pass-Through Rates equal to those
set forth in this Section 5.01(c)(iii) and (y) the Class R-III Interest, which
is hereby designated as the single "residual interest" in REMIC III.

         The REMIC III Regular Interests and the Class R-III Interest will have
the following designations, initial balances and pass-through rates:

<TABLE>
<CAPTION>
     REMIC III
      INTEREST        INITIAL BALANCE            PASS-THROUGH RATE
      --------        ---------------            -----------------
<S>                   <C>                        <C>
       I-A            $ 35,180,200.00                   (1)
       II-A           $ 74,454,400.00                   (2)
       R-III          $         50.00                   (2)
       III-A          $ 19,396,800.00                   (3)
       IV-A1          $188,000,000.00                   (4)
       IV-A2          $ 74,000,000.00                   (4)
       IV-A3          $ 40,000,000.00                   (4)
       IV-A4          $ 81,000,000.00                   (4)

                                      -68-

<PAGE>

       IV-A5          $  1,056,000.00                 (4)
       V-A            $ 80,038,800.00                 (5)
       VI-A           $248,618,300.00                 (6)
       VII-A          $ 13,632,100.00                 (7)
       B-1            $ 13,774,900.00                 (8)
       B-2            $  8,442,700.00                 (8)
       B-3            $  4,443,400.00                 (8)
       B-4            $  2,221,800.00                 (8)
       B-5            $  2,221,900.00                 (8)
       B-6            $  2,222,022.00                 (8)
       LT-R           $         50.00                 (8)
</TABLE>

------------------------------------

      (1) REMIC III Regular Interest I-A will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 1
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such regular interest will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC II Regular Interest 1B, weighted on the basis of the
Uncertificated Principal Balance of such REMIC II Regular Interest immediately
preceding the related Distribution Date. The Pass-Through Rate with respect to
the first Interest Accrual Period is expected to be approximately 6.220% per
annum.

      (2) REMIC III Regular Interest II-A and the Class R-II Certificates will
bear interest at a variable Pass- Through Rate equal to the weighted average of
the Net Rates of the Group 2 Mortgage Loans, weighted on the basis of the
respective Scheduled Principal Balances of each such Mortgage Loan as of the
beginning of the Due Period immediately preceding the related Distribution Date;
provided that for federal income tax purposes such regular interest will bear
interest at a rate equivalent to the foregoing, expressed as the weighted
average of the Pass-Through Rate on REMIC II Regular Interest 2B, weighted on
the basis of the Uncertificated Principal Balance of such REMIC II Regular
Interest immediately preceding the related Distribution Date. The Pass-Through
Rate with respect to the first Interest Accrual Period is expected to be
approximately 5.653% per annum.

      (3) REMIC III Regular Interest III-A will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 3
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such regular interest will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC II Regular Interest 3B, weighted on the basis of the
Uncertificated Principal Balance of such REMIC II Regular Interest immediately
preceding the related Distribution Date. The Pass-Through Rate with respect to
the first Interest Accrual Period is expected to be approximately 6.107% per
annum.

      (4) REMIC III Regular Interests IV-A1, IV-A2, IV-A3, IV-A4 and IV-A5 will
bear interest at a variable Pass- Through Rate equal to the weighted average of
the Net Rates of the Group 4 Mortgage Loans, weighted on the basis of

                                      -69-

<PAGE>

the respective Scheduled Principal Balances of each such Mortgage Loan as of the
beginning of the Due Period immediately preceding the related Distribution Date;
provided that for federal income tax purposes such regular interests will bear
interest at a a rate equivalent to the foregoing, expressed as the weighted
average of the Pass-Through Rate on REMIC II Regular Interest 4B. The
Pass-Through Rate with respect to the first Interest Accrual Period is expected
to be approximately 5.620% per annum.

      (5) REMIC III Regular Interest V-A will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 5
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such regular interest will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC II Regular Interest 5B, weighted on the basis of the
Uncertificated Principal Balance of such REMIC II Regular Interest immediately
preceding the related Distribution Date. The Pass-Through Rate with respect to
the first Interest Accrual Period is expected to be approximately 6.178% per
annum.

      (6) REMIC III Regular Interest VI-A will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 6
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such regular interest will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC II Regular Interest 6B, weighted on the basis of the
Uncertificated Principal Balance of such REMIC II Regular Interest immediately
preceding the related Distribution Date. The Pass-Through Rate with respect to
the first Interest Accrual Period is expected to be approximately 6.139% per
annum.

      (7) REMIC III Regular Interest VII-A will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 7
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such regular interest will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC II Regular Interest 7B, weighted on the basis of the
Uncertificated Principal Balance of such REMIC II Regular Interest immediately
preceding the related Distribution Date. The Pass-Through Rate with respect to
the first Interest Accrual Period is expected to be approximately 6.761% per
annum.

      (8) REMIC III Regular Interests B-1, B-2, B-3, B-4, B-5, B-6 and LT-R will
bear interest at a variable Pass- Through Rate equal to the weighted average of
the Pass-Through Rates on each REMIC II Regular Interest ending with the
designation "A", weighted on the basis of the Uncertificated Principal Balance
of each such REMIC II Regular Interest immediately preceding the related
Distribution Date; provided that for purposes of such weighted average, the
Pass-Through Rate of each such REMIC II Regular Interest shall be subject to a
cap and a floor equal to the Pass- Through Rate of the REMIC II Regular Interest
from the related Group ending with the designation "B". The Pass- Through Rate
with respect to the first interest accrual period is expected to be
approximately 6.102% per annum.

      Principal shall be payable to, and shortfalls, losses and prepayments are
allocable to, the REMIC III Regular Interests as such amounts are payable and
allocable to the Corresponding Certificates.

      (iv) REMIC IV will be evidenced by (x) the Certificates (other than the
Class R Certificates) (the "REMIC IV Regular Certificates"), which are hereby
designated as the "regular interests" in REMIC IV and have the principal
balances and accrue interest at the Pass-Through Rates equal to those set forth
in this Section 5.01(c)(iv) and (y) the Class R-IV Certificate, which is hereby
designated as the single "residual interest" in REMIC IV.

      The Classes of the Certificates shall have the following designations,
initial principal amounts and Pass-Through Rates:

                                      -70-

<PAGE>

<TABLE>
<CAPTION>
DESIGNATION                           INITIAL PRINCIPAL AMOUNT                  PASS-THROUGH RATE
-----------                           ------------------------                  -----------------
<S>                                   <C>                                       <C>
    I-A                                 $   35,180,200.00                               (1)
    II-A                                $   74,454,400.00                               (2)
    R-I                                 $           50.00                               (2)
    R-II                                $           50.00                               (2)
    R-III                               $           50.00                               (2)
    R-IV                                $           50.00                               (2)
    III-A                               $   19,396,800.00                               (3)
    IV-A1                               $  188,000,000.00                               (4)
    IV-A2                               $   74,000,000.00                               (5)
    IV-A3                               $   40,000,000.00                               (6)
    IV-A4                               $   81,000,000.00                               (7)
    IV-A5                               $    1,056,000.00                               (8)
    IV-X                                $            *                                  (9)
    V-A                                 $   80,038,800.00                               (10)
    VI-A                                $  248,618,300.00                               (11)
    VII-A                               $   13,632,100.00                               (12)
    B-1                                 $   13,774,900.00                               (13)
    B-2                                 $    8,442,700.00                               (13)
    B-3                                 $    4,443,400.00                               (13)
    B-4                                 $    2,221,800.00                               (13)
    B-5                                 $    2,221,900.00                               (13)
    B-6                                 $    2,222,022.00                               (13)
</TABLE>

------------------------------------
*     See "Notional Amount" defined above.

      (1) The Class I-A Certificates will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 1
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such Certificates will bear interest at a a rate equivalent
to the foregoing, expressed as the weighted average of the Pass-Through Rate on
REMIC III Regular Interest I-A. The Pass-Through Rate with respect to the first
Interest Accrual Period is expected to be approximately 6.220% per annum.

                                      -71-

<PAGE>

      (2) The Class II-A, Class R-I, Class R-II, Class R-III and Class R-IV
Certificates will bear interest at a variable Pass-Through Rate equal to the
weighted average of the Net Rates of the Group 2 Mortgage Loans, weighted on the
basis of the respective Scheduled Principal Balances of each such Mortgage Loan
as of the beginning of the Due Period immediately preceding the related
Distribution Date; provided that for federal income tax purposes such
Certificates will bear interest at a a rate equivalent to the foregoing,
expressed as the weighted average of the Pass- Through Rate on REMIC III Regular
Interest II-A, weighted on the basis of the Uncertificated Principal Balance of
such REMIC III Regular Interest immediately preceding the related Distribution
Date. The Pass-Through Rate with respect to the first Interest Accrual Period is
expected to be approximately 5.653% per annum.

      (3) The Class III-A Certificates will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 3
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes such Certificates will bear interest at a a rate equivalent
to the foregoing, expressed as the weighted average of the Pass-Through Rate on
REMIC III Regular Interest III-A, weighted on the basis of the Uncertificated
Principal Balance of such REMIC III Regular Interest immediately preceding the
related Distribution Date. The Pass-Through Rate with respect to the first
Interest Accrual Period is expected to be approximately 6.262% per annum.

      (4) On or prior to the Distribution Date occurring in December 2006, the
Class IV-A1 Certificates will bear interest at a variable Pass-Through Rate
equal to the weighted average of the Net Rates of the Group 4 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balances of each
such Mortgage Loan as of the beginning of the Due Period immediately preceding
the related Distribution Date, less the pass-through rate described in clause
(A) of the definition of Notional Amount; provided that, on such distribution
dates, for federal income tax purposes the Class IV-A1 Certificates will bear
interest at a a rate equivalent to the foregoing, expressed as the weighted
average of the Pass- Through Rate on REMIC III Regular Interest IV-A1, less the
pass-through rate described in clause (A) of the definition of Notional Amount,
weighted on the basis of the Uncertificated Principal Balance of such REMIC III
Regular Interest immediately preceding the related Distribution Date. After the
Distribution Date occurring in December 2006, the Class IV-A1 Certificates will
bear interest at a variable Pass-Through Rate equal to the weighted average of
the Net Rates of the Group 4 Mortgage Loans, weighted on the basis of the
respective Scheduled Principal Balances of each such Mortgage Loan as of the
beginning of the Due Period immediately preceding the related Distribution Date;
provided that, on such distribution dates, for federal income tax purposes the
Class IV-A1 Certificates will bear interest at a a rate equivalent to the
foregoing, expressed as the weighted average of the Pass-Through Rate on REMIC
III Regular Interest IV-A1, weighted on the basis of the Uncertificated
Principal Balance of such REMIC III Regular Interest immediately preceding the
related Distribution Date. The Pass-Through Rate with respect to the first
Interest Accrual Period is expected to be approximately 5.620% per annum.

      (5) On or prior to the Distribution Date occurring in December 2006, the
Class IV-A2 Certificates will bear interest at a variable Pass-Through Rate
equal to the weighted average of the Net Rates of the Group 4 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balances of each
such Mortgage Loan as of the beginning of the Due Period immediately preceding
the related Distribution Date, less the pass-through rate described in clause
(A) of the definition of Notional Amount, weighted on the basis of the
Uncertificated Principal Balance of such REMIC III Regular Interest immediately
preceding the related Distribution Date provided that, on such distribution
dates, for federal income tax purposes the Class IV-A2 Certificates will bear
interest at a a rate equivalent to the foregoing, expressed as the weighted
average of the Pass-Through Rate on REMIC III Regular Interest IV-A2, less the
pass-through rate described in clause (A) of the definition of Notional Amount
After the Distribution Date occurring in December 2006, the Class IV-A2
Certificates will bear interest at a variable Pass-Through Rate equal to the
weighted average of the Net Rates of the Group 4 Mortgage Loans, weighted on the
basis of the respective Scheduled Principal Balances of each such Mortgage Loan
as of the beginning of the Due Period immediately preceding the related
Distribution Date; provided that, on such distribution dates, for federal income
tax purposes the Class IV-A2 Certificates will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC III Regular Interest IV-A2, weighted on the basis of
the Uncertificated Principal Balance of such REMIC III Regular Interest
immediately preceding the related Distribution Date. The Pass-Through Rate with
respect to the first Interest Accrual Period is expected to be approximately
5.415% per annum.

                                      -72-

<PAGE>

      (6) On or prior to the Distribution Date occurring in December 2006, the
Class IV-A3 Certificates will bear interest at a variable Pass-Through Rate
equal to the weighted average of the Net Rates of the Group 4 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balances of each
such Mortgage Loan as of the beginning of the Due Period immediately preceding
the related Distribution Date, less the pass-through rate described in clause
(A) of the definition of Notional Amount; provided that, on such distribution
dates, for federal income tax purposes the Class IV-A3 Certificates will bear
interest at a a rate equivalent to the foregoing, expressed as the weighted
average of the Pass- Through Rate on REMIC III Regular Interest IV-A3, less the
pass-through rate described in clause (A) of the definition of Notional Amount,
weighted on the basis of the Uncertificated Principal Balance of such REMIC III
Regular Interest immediately preceding the related Distribution Date. After the
Distribution Date occurring in December 2006, the Class IV-A3 Certificates will
bear interest at a variable Pass-Through Rate equal to the weighted average of
the Net Rates of the Group 4 Mortgage Loans, weighted on the basis of the
respective Scheduled Principal Balances of each such Mortgage Loan as of the
beginning of the Due Period immediately preceding the related Distribution Date;
provided that, on such distribution dates, for federal income tax purposes the
Class IV-A3 Certificates will bear interest at a a rate equivalent to the
foregoing, expressed as the weighted average of the Pass-Through Rate on REMIC
III Regular Interest IV-A3, weighted on the basis of the Uncertificated
Principal Balance of such REMIC III Regular Interest immediately preceding the
related Distribution Date. The Pass-Through Rate with respect to the first
Interest Accrual Period is expected to be approximately 5.310% per annum.

      (7) On or prior to the Distribution Date occurring in December 2006, the
Class IV-A4 Certificates will bear interest at a variable Pass-Through Rate
equal to the weighted average of the Net Rates of the Group 4 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balances of each
such Mortgage Loan as of the beginning of the Due Period immediately preceding
the related Distribution Date, less the pass-through rate described in clause
(A) of the definition of Notional Amount; provided that, on such distribution
dates, for federal income tax purposes the Class IV-A4 Certificates will bear
interest at a a rate equivalent to the foregoing, expressed as the weighted
average of the Pass- Through Rate on REMIC III Regular Interest IV-A4, less the
pass-through rate described in clause (A) of the definition of Notional Amount,
weighted on the basis of the Uncertificated Principal Balance of such REMIC III
Regular Interest immediately preceding the related Distribution Date. After the
Distribution Date occurring in December 2006, the Class IV-A4 Certificates will
bear interest at a variable Pass-Through Rate equal to the weighted average of
the Net Rates of the Group 4 Mortgage Loans, weighted on the basis of the
respective Scheduled Principal Balances of each such Mortgage Loan as of the
beginning of the Due Period immediately preceding the related Distribution Date;
provided that, on such distribution dates, for federal income tax purposes the
Class IV-A4 Certificates will bear interest at a a rate equivalent to the
foregoing, expressed as the weighted average of the Pass-Through Rate on REMIC
III Regular Interest IV-A4, weighted on the basis of the Uncertificated
Principal Balance of such REMIC III Regular Interest immediately preceding the
related Distribution Date. The Pass-Through Rate with respect to the first
Interest Accrual Period is expected to be approximately 5.840% per annum.

      (8) On or prior to the Distribution Date occurring in December 2006, the
Class IV-A5 Certificates will bear interest at a variable Pass-Through Rate
equal to the weighted average of the Net Rates of the Group 4 Mortgage Loans,
weighted on the basis of the respective Scheduled Principal Balances of each
such Mortgage Loan as of the beginning of the Due Period immediately preceding
the related Distribution Date, less the pass-through rate described in clause
(A) of the definition of Notional Amount; provided that, on such distribution
dates, for federal income tax purposes the Class IV-A5 Certificates will bear
interest at a a rate equivalent to the foregoing, expressed as the weighted
average of the Pass- Through Rate on REMIC III Regular Interest IV-A5, less the
pass-through rate described in clause (A) of the definition of Notional Amount,
weighted on the basis of the Uncertificated Principal Balance of such REMIC III
Regular Interest immediately preceding the related Distribution Date. After the
Distribution Date occurring in December 2006, the Class IV-A5 Certificates will
bear interest at a variable Pass-Through Rate equal to the weighted average of
the Net Rates of the Group 4 Mortgage Loans, weighted on the basis of the
respective Scheduled Principal Balances of each such Mortgage Loan as of the
beginning of the Due Period immediately preceding the related Distribution Date;
provided that, on such distribution dates, for federal income tax purposes the
Class IV-A5 Certificates will bear interest at a a rate equivalent to the
foregoing, expressed as the weighted average of the Pass-Through Rate on REMIC
III Regular Interest IV-A5, weighted on the basis of the Uncertificated
Principal Balance of such REMIC III Regular Interest immediately preceding the
related Distribution Date. The Pass-Through Rate with respect to the first
Interest Accrual Period is expected to be approximately 5.840% per annum.

                                      -73-

<PAGE>

      (9) The Class IV-X Certificates will be entitled to the interest on
Component X-1, Component X-2, Component X-3, Component X-4 and Component X-5.
Component X-1 will bear interest on the Notional Amount thereof at a rate equal
to 0.486% per annum. Component X-2 will bear interest on the Notional Amount
thereof at a rate equal to 0.691% per annum. Component X-3 will bear interest on
the Notional Amount thereof at a rate equal to 0.796% per annum. Component X-4
will bear interest on the Notional Amount thereof at a rate equal to 0.266% per
annum. Component X-5 will bear interest on the Notional Amount thereof at a rate
equal to 0.266% per annum.

      (10) The Class V-A Certificates will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 5
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes the Class V-A Certificates will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC III Regular Interest V-A, weighted on the basis of
the Uncertificated Principal Balance of such REMIC III Regular Interest
immediately preceding the related Distribution Date. The Pass-Through Rate with
respect to the first Interest Accrual Period is expected to be approximately
6.178% per annum.

      (11) The Class VI-A Certificates will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 6
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes the Class VI-A Certificates will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC III Regular Interest VI-A, weighted on the basis of
the Uncertificated Principal Balance of such REMIC III Regular Interest
immediately preceding the related Distribution Date. The Pass-Through Rate with
respect to the first Interest Accrual Period is expected to be approximately
6.139% per annum.

      (12) The Class VII-A Certificates will bear interest at a variable
Pass-Through Rate equal to the weighted average of the Net Rates of the Group 7
Mortgage Loans, weighted on the basis of the respective Scheduled Principal
Balances of each such Mortgage Loan as of the beginning of the Due Period
immediately preceding the related Distribution Date; provided that for federal
income tax purposes the Class VI-A Certificates will bear interest at a a rate
equivalent to the foregoing, expressed as the weighted average of the
Pass-Through Rate on REMIC III Regular Interest VII-A, weighted on the basis of
the Uncertificated Principal Balance of such REMIC III Regular Interest
immediately preceding the related Distribution Date. The Pass-Through Rate with
respect to the first Interest Accrual Period is expected to be approximately
6.761% per annum.

      (13) The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class
B-6 Certificates will bear interest at a variable Pass-Through Rate equal to the
weighted average of the Pass-Through Rates on REMIC III Regular Interests B-1,
B-2, B-3, B-4, B-5 and B-6, weighted on the basis of the Uncertificated
Principal Balance of each such REMIC III Regular Interest immediately preceding
the related Distribution Date. The Pass-Through Rate with respect to the first
interest accrual period is expected to be approximately 6.102% per annum.

      (d) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date for
the Mortgage Loan with the latest maturity date in the Trust Fund has been
designated as the "latest possible maturity date" for the REMIC I Regular
Interests and the Certificates.

      (e) With respect to each Distribution Date, each Class of Certificates
shall accrue interest during the related Interest Accrual Period. With respect
to each Distribution Date and each such Class of Certificates, interest shall be
calculated, on the basis of a 360-day year comprised of twelve 30-day months,
based upon the respective Pass-Through Rate set forth, or determined as
provided, above and the Current Principal Amount of such Class applicable to
such Distribution Date.

                                      -74-

<PAGE>

      (f) The Certificates shall be substantially in the forms set forth in
Exhibits A-1, A-2 and A- 3. On original issuance, the Trustee shall sign,
countersign and shall deliver them at the direction of the Seller. Pending the
preparation of definitive Certificates of any Class, the Trustee may sign and
countersign temporary Certificates that are printed, lithographed or
typewritten, in authorized denominations for Certificates of such Class,
substantially of the tenor of the definitive Certificates in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers or authorized signatories executing such
Certificates may determine, as evidenced by their execution of such
Certificates. If temporary Certificates are issued, the Seller will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the office of the Trustee, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Certificates, the
Trustee shall sign and countersign and deliver in exchange therefor a like
aggregate principal amount, in authorized denominations for such Class, of
definitive Certificates of the same Class. Until so exchanged, such temporary
Certificates shall in all respects be entitled to the same benefits as
definitive Certificates.

      (g) Each Class of Book-Entry Certificates will be registered as a single
Certificate of such Class held by a nominee of the Depository or the DTC
Custodian, and beneficial interests will be held by investors through the
book-entry facilities of the Depository in minimum denominations of (i) in the
case of the Senior Certificates (other than the Residual Certificates), $1,000
and in each case increments of $1.00 in excess thereof, and (ii) in the case of
the Offered Subordinate Certificates, $25,000 and increments of $1.00 in excess
thereof, except that one Certificate of each such Class may be issued in a
different amount so that the sum of the denominations of all outstanding
Certificates of such Class shall equal the Current Principal Amount of such
Class on the Closing Date. On the Closing Date, the Trustee shall execute and
countersign Physical Certificates all in an aggregate principal amount that
shall equal the Current Principal Amount of such Class on the Closing Date. The
Private Certificates shall be issued in certificated fully-registered form in
minimum dollar denominations of $25,000 and integral multiples of $1.00 in
excess thereof, except that one Private Certificate of each Class may be issued
in a different amount so that the sum of the denominations of all outstanding
Private Certificates of such Class shall equal the Current Principal Amount of
such Class on the Closing Date. The Residual Certificates shall each be issued
in certificated fully-registered form in the denomination of $50 and $50,
respectively. Each Class of Global Certificates, if any, shall be issued in
fully registered form in minimum dollar denominations of $50,000 and integral
multiples of $1.00 in excess thereof, except that one Certificate of each Class
may be in a different denomination so that the sum of the denominations of all
outstanding Certificates of such Class shall equal the Current Principal Amount
of such Class on the Closing Date. On the Closing Date, the Trustee shall
execute and countersign (i) in the case of each Class of Offered Certificates,
the Certificate in the entire Current Principal Amount of the respective Class
and (ii) in the case of each Class of Private Certificates, Individual
Certificates all in an aggregate principal amount that shall equal the Current
Principal Amount of each such respective Class on the Closing Date. The
Certificates referred to in clause (i) and if at any time there are to be Global
Certificates, the Global Certificates shall be delivered by the Seller to the
Depository or pursuant to the Depository's instructions, shall be delivered by
the Seller on behalf of the Depository to and deposited with the DTC Custodian.
The Trustee shall sign the Certificates by facsimile or manual signature and
countersign them by manual signature on behalf of the Trustee by one or more

                                      -75-

<PAGE>

authorized signatories, each of whom shall be Responsible Officers of the
Trustee or its agent. A Certificate bearing the manual and facsimile signatures
of individuals who were the authorized signatories of the Trustee or its agent
at the time of issuance shall bind the Trustee, notwithstanding that such
individuals or any of them have ceased to hold such positions prior to the
delivery of such Certificate.

      (h) No Certificate shall be entitled to any benefit under this Agreement,
or be valid for any purpose, unless there appears on such Certificate the
manually executed countersignature of the Trustee or its agent, and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly executed and delivered hereunder.
All Certificates issued on the Closing Date shall be dated the Closing Date. All
Certificates issued thereafter shall be dated the date of their
countersignature.

      (i) The Closing Date is hereby designated as the "startup" day of each
REMIC within the meaning of Section 860G(a)(9) of the Code.

      (j) For federal income tax purposes, each REMIC shall have a tax year that
is a calendar year and shall report income on an accrual basis.

      (k) The Trustee on behalf of the Trust shall cause each REMIC to timely
elect to be treated as a REMIC under Section 860D of the Code. Any
inconsistencies or ambiguities in this Agreement or in the administration of any
Trust established hereby shall be resolved in a manner that preserves the
validity of such elections.

      (l) The following legend shall be placed on the Residual Certificates and
Private Certificates, whether upon original issuance or upon issuance of any
other Certificate of any such Class in exchange therefor or upon transfer
thereof:

      THIS CERTIFICATE MAY NOT BE ACQUIRED DIRECTLY OR INDIRECTLY BY, OR ON
      BEHALF OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT WHICH
      IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
      1974, AS AMENDED, AND/OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
      1986, AS AMENDED [in the case of Private Certificates Only], UNLESS THE
      PROPOSED TRANSFER AND/OR HOLDING OF A CERTIFICATE AND THE SERVICING,
      MANAGEMENT AND/OR OPERATION OF THE TRUST AND ITS ASSETS: (I) WILL NOT
      RESULT IN ANY PROHIBITED TRANSACTION WHICH IS NOT COVERED UNDER AN
      INDIVIDUAL OR CLASS PROHIBITED TRANSACTION EXEMPTION, INCLUDING, BUT NOT
      LIMITED TO, PROHIBITED TRANSACTION EXEMPTION ("PTE") 84-14, PTE 91-38, PTE
      90-1, PTE 95-60 OR PTE 96-23 AND (II) WILL NOT GIVE RISE TO ANY ADDITIONAL
      FIDUCIARY OBLIGATIONS ON THE PART OF THE SELLER, THE SECURITIES
      ADMINISTRATOR, THE MASTER SERVICER OR THE TRUSTEE, WHICH WILL BE DEEMED
      REPRESENTED BY AN OWNER OF A BOOK-ENTRY CERTIFICATE OR A GLOBAL
      CERTIFICATE AND WILL BE EVIDENCED BY A REPRESENTATION OR AN OPINION OF
      COUNSEL TO SUCH EFFECT BY OR ON BEHALF OF AN INSTITUTIONAL ACCREDITED
      INVESTOR.

                                      -76-

<PAGE>

         Section 5.02 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a)
The Trustee shall maintain at its Corporate Trust Office a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the
Trustee shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided.

         (b) Subject to Subsection 5.01(a) and, in the case of any Global
Certificate or Physical Certificate upon the satisfaction of the conditions set
forth below, upon surrender for registration of transfer of any Certificate at
any office or agency of the Trustee maintained for such purpose, the Trustee
shall sign, countersign and shall deliver, in the name of the designated
transferee or transferees, a new Certificate of a like Class and aggregate
Fractional Undivided Interest, but bearing a different number.

         (c) By acceptance of an Individual Certificate, whether upon original
issuance or subsequent transfer, each holder of such a Certificate acknowledges
the restrictions on the transfer of such Certificate set forth in the Securities
Legend and agrees that it will transfer such a Certificate only as provided
herein. In addition to the provisions of Subsection 5.02(h), the following
restrictions shall apply with respect to the transfer and registration of
transfer of an Individual Certificate to a transferee that takes delivery in the
form of an Individual Certificate:

                  (i) The Trustee shall register the transfer of an Individual
         Certificate if the requested transfer is being made to a transferee who
         has provided the Trustee with a Rule 144A Certificate or comparable
         evidence as to its QIB status.

                  (ii) The Trustee shall register the transfer of any Individual
         Certificate if (x) the transferor has advised the Trustee in writing
         that the Certificate is being transferred to an Institutional
         Accredited Investor; and (y) prior to the transfer the transferee
         furnishes to the Trustee an Investment Letter (and the Trustee shall be
         fully protected in so doing), provided that, if based upon an Opinion
         of Counsel to the effect that the delivery of (x) and (y) above are not
         sufficient to confirm that the proposed transfer is being made pursuant
         to an exemption from, or in a transaction not subject to, the
         registration requirements of the Securities Act and other applicable
         laws, the Trustee shall as a condition of the registration of any such
         transfer require the transferor to furnish such other certifications,
         legal opinions or other information prior to registering the transfer
         of an Individual Certificate as shall be set forth in such Opinion of
         Counsel.

         (d) Subject to Subsection 5.02(h), so long as a Global Certificate of
such Class is outstanding and is held by or on behalf of the Depository,
transfers of beneficial interests in such Global Certificate, or transfers by
holders of Individual Certificates of such Class to transferees that take
delivery in the form of beneficial interests in the Global Certificate, may be
made only in accordance with this Subsection 5.02(d) and in accordance with the
rules of the Depository:

                  (i) In the case of a beneficial interest in the Global
         Certificate being transferred to an Institutional Accredited Investor,
         such transferee shall be required to take delivery in the form of an
         Individual Certificate or Certificates and the Trustee shall register
         such transfer only upon compliance with the provisions of Subsection
         5.02(c)(ii).

                                      -77-

<PAGE>

                  (ii) In the case of a beneficial interest in a Class of Global
         Certificates being transferred to a transferee that takes delivery in
         the form of an Individual Certificate or Certificates of such Class,
         except as set forth in clause (i) above, the Trustee shall register
         such transfer only upon compliance with the provisions of Subsection
         5.02(c)(i).

                  (iii) In the case of an Individual Certificate of a Class
         being transferred to a transferee that takes delivery in the form of a
         beneficial interest in a Global Certificate of such Class, the Trustee
         shall register such transfer if the transferee has provided the Trustee
         with a Rule 144A Certificate or comparable evidence as to its QIB
         status.

                  (iv) No restrictions shall apply with respect to the transfer
         or registration of transfer of a beneficial interest in the Global
         Certificate of a Class to a transferee that takes delivery in the form
         of a beneficial interest in the Global Certificate of such Class;
         provided that each such transferee shall be deemed to have made such
         representations and warranties contained in the Rule 144A Certificate
         as are sufficient to establish that it is a QIB.

         (e) Subject to Subsection 5.02(h), an exchange of a beneficial interest
in a Global Certificate of a Class for an Individual Certificate or Certificates
of such Class, an exchange of an Individual Certificate or Certificates of a
Class for a beneficial interest in the Global Certificate of such Class and an
exchange of an Individual Certificate or Certificates of a Class for another
Individual Certificate or Certificates of such Class (in each case, whether or
not such exchange is made in anticipation of subsequent transfer, and, in the
case of the Global Certificate of such Class, so long as such Certificate is
outstanding and is held by or on behalf of the Depository) may be made only in
accordance with this Subsection 5.02(e) and in accordance with the rules of the
Depository:

                  (i) A holder of a beneficial interest in a Global Certificate
         of a Class may at any time exchange such beneficial interest for an
         Individual Certificate or Certificates of such Class.

                  (ii) A holder of an Individual Certificate or Certificates of
         a Class may exchange such Certificate or Certificates for a beneficial
         interest in the Global Certificate of such Class if such holder
         furnishes to the Trustee a Rule 144A Certificate or comparable evidence
         as to its QIB status.

                  (iii) A holder of an Individual Certificate of a Class may
         exchange such Certificate for an equal aggregate principal amount of
         Individual Certificates of such Class in different authorized
         denominations without any certification.

         (f) (i) Upon acceptance for exchange or transfer of an Individual
Certificate of a Class for a beneficial interest in a Global Certificate of such
Class as provided herein, the Trustee shall cancel such Individual Certificate
and shall (or shall request the Depository to) endorse on the schedule affixed
to the applicable Global Certificate (or on a continuation of such schedule
affixed to the Global Certificate and made a part thereof) or otherwise make in
its books and records an appropriate notation evidencing the date of such
exchange or transfer and an increase in the

                                      -78-

<PAGE>

certificate balance of the Global Certificate equal to the certificate balance
of such Individual Certificate exchanged or transferred therefor.

                  (ii) Upon acceptance for exchange or transfer of a beneficial
         interest in a Global Certificate of a Class for an Individual
         Certificate of such Class as provided herein, the Trustee shall (or
         shall request the Depository to) endorse on the schedule affixed to
         such Global Certificate (or on a continuation of such schedule affixed
         to such Global Certificate and made a part thereof) or otherwise make
         in its books and records an appropriate notation evidencing the date of
         such exchange or transfer and a decrease in the certificate balance of
         such Global Certificate equal to the certificate balance of such
         Individual Certificate issued in exchange therefor or upon transfer
         thereof.

         (g) The Securities Legend shall be placed on any Individual Certificate
issued in exchange for or upon transfer of another Individual Certificate or of
a beneficial interest in a Global Certificate.

         (h) Subject to the restrictions on transfer and exchange set forth in
this Section 5.02, the holder of any Individual Certificate may transfer or
exchange the same in whole or in part (in an initial certificate balance equal
to the minimum authorized denomination set forth in Section 5.01(h) above or any
integral multiple of $1.00 in excess thereof) by surrendering such Certificate
at the Corporate Trust Office, or at the office of any transfer agent, together
with an executed instrument of assignment and transfer satisfactory in form and
substance to the Trustee in the case of transfer and a written request for
exchange in the case of exchange. The holder of a beneficial interest in a
Global Certificate may, subject to the rules and procedures of the Depository,
cause the Depository (or its nominee) to notify the Trustee in writing of a
request for transfer or exchange of such beneficial interest for an Individual
Certificate or Certificates. Following a proper request for transfer or
exchange, the Trustee shall, within five Business Days of such request made at
such Corporate Trust Office, sign, countersign and deliver at such Corporate
Trust Office, to the transferee (in the case of transfer) or holder (in the case
of exchange) or send by first class mail at the risk of the transferee (in the
case of transfer) or holder (in the case of exchange) to such address as the
transferee or holder, as applicable, may request, an Individual Certificate or
Certificates, as the case may require, for a like aggregate Fractional Undivided
Interest and in such authorized denomination or denominations as may be
requested. The presentation for transfer or exchange of any Individual
Certificate shall not be valid unless made at the Corporate Trust Office by the
registered holder in person, or by a duly authorized attorney-in-fact.

         (i) At the option of the Certificateholders, Certificates may be
exchanged for other Certificates of authorized denominations of a like Class and
aggregate Fractional Undivided Interest, upon surrender of the Certificates to
be exchanged at any such office or agency; provided, however, that no
Certificate may be exchanged for new Certificates unless the original Fractional
Undivided Interest represented by each such new Certificate (i) is at least
equal to the minimum authorized denomination or (ii) is acceptable to the Seller
as indicated to the Trustee in writing. Whenever any Certificates are so
surrendered for exchange, the Trustee shall sign and countersign and the Trustee
shall deliver the Certificates which the Certificateholder making the exchange
is entitled to receive.

                                      -79-

<PAGE>

         (j) If the Trustee so requires, every Certificate presented or
surrendered for transfer or exchange shall be duly endorsed by, or be
accompanied by a written instrument of transfer, with a signature guarantee, in
form satisfactory to the Trustee, duly executed by the holder thereof or his or
her attorney duly authorized in writing.

         (k) No service charge shall be made for any transfer or exchange of
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.

         (l) The Trustee shall cancel all Certificates surrendered for transfer
or exchange but shall retain such Certificates in accordance with its standard
retention policy or for such further time as is required by the record retention
requirements of the Securities Exchange Act of 1934, as amended, and thereafter
may destroy such Certificates.

         Section 5.03 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. (a) If
(i) any mutilated Certificate is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee such security or
indemnity as it may require to save it harmless, and (iii) the Trustee has not
received notice that such Certificate has been acquired by a third Person, the
Trustee shall sign, countersign and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and Fractional Undivided Interest but in each case bearing a different
number. The mutilated, destroyed, lost or stolen Certificate shall thereupon be
canceled of record by the Trustee and shall be of no further effect and evidence
no rights.

         (b) Upon the issuance of any new Certificate under this Section 5.03,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Any duplicate Certificate issued pursuant to this Section 5.03 shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.

         Section 5.04 PERSONS DEEMED OWNERS. Prior to due presentation of a
Certificate for registration of transfer, the Seller, the Trustee and any agent
of the Seller or the Trustee may treat the Person in whose name any Certificate
is registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 6.01 and for all other purposes whatsoever.
Neither the Seller, the Trustee nor any agent of the Seller or the Trustee shall
be affected by notice to the contrary. No Certificate shall be deemed duly
presented for a transfer effective on any Record Date unless the Certificate to
be transferred is presented no later than the close of business on the third
Business Day preceding such Record Date.

                                      -80-

<PAGE>

         Section 5.05 TRANSFER RESTRICTIONS ON RESIDUAL CERTIFICATES. (a)
Residual Certificates, or interests therein, may not be transferred without the
prior express written consent of the Tax Matters Person and the Seller. As a
prerequisite to such consent, the proposed transferee must provide the Tax
Matters Person, the Seller and the Trustee with an affidavit that the proposed
transferee is a Permitted Transferee (and, unless the Tax Matters Person and the
Seller consent to the transfer to a person who is not a U.S. Person, an
affidavit that it is a U.S. Person) as provided in Subsection 5.05(b).

         (b) No transfer, sale or other disposition of a Residual Certificate
(including a beneficial interest therein) may be made unless, prior to the
transfer, sale or other disposition of a Residual Certificate, the proposed
transferee (including the initial purchasers thereof) delivers to the Tax
Matters Person, the Trustee and the Seller an affidavit in the form attached
hereto as Exhibit E stating, among other things, that as of the date of such
transfer (i) such transferee is a Permitted Transferee and that (ii) such
transferee is not acquiring such Residual Certificate for the account of any
person who is not a Permitted Transferee. The Tax Matters Person shall not
consent to a transfer of a Residual Certificate if it has actual knowledge that
any statement made in the affidavit issued pursuant to the preceding sentence is
not true. Notwithstanding any transfer, sale or other disposition of a Residual
Certificate to any Person who is not a Permitted Transferee, such transfer, sale
or other disposition shall be deemed to be of no legal force or effect
whatsoever and such Person shall not be deemed to be a Holder of a Residual
Certificate for any purpose hereunder, including, but not limited to, the
receipt of distributions thereon. If any purported transfer shall be in
violation of the provisions of this Subsection 5.05(b), then the prior Holder
thereof shall, upon discovery that the transfer of such Residual Certificate was
not in fact permitted by this Subsection 5.05(b), be restored to all rights as a
Holder thereof retroactive to the date of the purported transfer. None of the
Trustee, the Tax Matters Person or the Seller shall be under any liability to
any Person for any registration or transfer of a Residual Certificate that is
not permitted by this Subsection 5.05(b) or for making payments due on such
Residual Certificate to the purported Holder thereof or taking any other action
with respect to such purported Holder under the provisions of this Agreement so
long as the written affidavit referred to above was received with respect to
such transfer, and the Tax Matters Person, the Trustee and the Seller, as
applicable, had no knowledge that it was untrue. The prior Holder shall be
entitled to recover from any purported Holder of a Residual Certificate that was
in fact not a permitted transferee under this Subsection 5.05(b) at the time it
became a Holder all payments made on such Residual Certificate. Each Holder of a
Residual Certificate, by acceptance thereof, shall be deemed for all purposes to
have consented to the provisions of this Subsection 5.05(b) and to any amendment
of this Agreement deemed necessary (whether as a result of new legislation or
otherwise) by counsel of the Tax Matters Person or the Seller to ensure that the
Residual Certificates are not transferred to any Person who is not a Permitted
Transferee and that any transfer of such Residual Certificates will not cause
the imposition of a tax upon the Trust or cause any REMIC to fail to qualify as
a REMIC.

         (c) Unless the Tax Matters Person shall have consented in writing
(which consent may be withheld in the Tax Matters Person's sole discretion), the
Residual Certificates (including a beneficial interest therein) may not be
purchased by or transferred to any person who is not a United States Person.

                                      -81-

<PAGE>

         (d) By accepting a Residual Certificate, the purchaser thereof agrees
to be a Tax Matters Person, and appoints the Securities Administrator to act as
its agent with respect to all matters concerning the tax obligations of the
Trust.

         Section 5.06 RESTRICTIONS ON TRANSFERABILITY OF CERTIFICATES. (a) No
offer, sale, transfer or other disposition (including pledge) of any Certificate
shall be made by any Holder thereof unless registered under the Securities Act,
or an exemption from the registration requirements of the Securities Act and any
applicable state securities or "Blue Sky" laws is available and the prospective
transferee (other than the Seller) of such Certificate signs and delivers to the
Trustee an Investment Letter, if the transferee is an Institutional Accredited
Investor, in the form set forth as Exhibit F-l hereto, or a Rule 144A
Certificate, if the transferee is a QIB, in the form set forth as Exhibit F-2
hereto. Notwithstanding the provisions of the immediately preceding sentence, no
restrictions shall apply with respect to the transfer or registration of
transfer of a beneficial interest in any Certificate that is a Global
Certificate of a Class to a transferee that takes delivery in the form of a
beneficial interest in the Global Certificate of such Class provided that each
such transferee shall be deemed to have made such representations and warranties
contained in the Rule 144A Certificate as are sufficient to establish that it is
a QIB. In the case of a proposed transfer of any Certificate to a transferee
other than a QIB, the Trustee may require an Opinion of Counsel that such
transaction is exempt from the registration requirements of the Securities Act.
The cost of such opinion shall not be an expense of the Trustee or the Trust
Fund.

         (b) The Private Certificates shall each bear a Securities Legend.

         Section 5.07 ERISA RESTRICTIONS. (a) Subject to the provisions of
subsection (b), no Residual Certificates or Private Certificates may be acquired
directly or indirectly by, or on behalf of, an employee benefit plan or other
retirement arrangement which is subject to Title I of ERISA and/or Section 4975
of the Code, unless the proposed transferee provides either (i) the Trustee, the
Master Servicer and the Securities Administrator with an Opinion of Counsel
satisfactory to the Trustee, the Master Servicer and the Securities
Administrator, which opinion will not be at the expense of the Trustee, the
Master Servicer or the Securities Administrator, that the purchase of such
Certificates by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in a nonexempt prohibited transaction under ERISA
or Section 4975 of the Code and will not subject the Trustee, the Master
Servicer or the Securities Administrator to any obligation in addition to those
undertaken in the Agreement or (ii) in the case of the Class B-4, Class B-5 and
Class B-6 Certificates, a representation or certification to the Trustee (upon
which the Trustee is authorized to rely) to the effect that the proposed
transfer and/or holding of such a Certificate and the servicing, management and
operation of the Trust: (I) will not result in a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code which is not covered under an
individual or class prohibited transaction exemption including but not limited
to Department of Labor Prohibited Transaction Exemption ("PTE") 84-14 (Class
Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers); PTE 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds); PTE 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts), PTE 95-60 (Class Exemption for Certain Transactions Involving
Insurance Company General Accounts), and PTCE 96-23 (Class Exemption for Plan
Asset Transactions Determined by In-House Asset Managers and

                                      -82-

<PAGE>

(II) will not subject the Seller, the Securities Administrator, the Master
Servicer or the Trustee to any obligation in addition to those undertaken in the
Agreement.

         (b) Any Person acquiring an interest in a Global Certificate which is a
Private Certificate, by acquisition of such Certificate, shall be deemed to have
represented to the Trustee that in the case of the Class B-4, Class B-5 and
Class B-6 Certificates, either: (i) it is not acquiring an interest in such
Certificate directly or indirectly by, or on behalf of, an employee benefit plan
or other retirement arrangement which is subject to Title I of ERISA and/or
Section 4975 of the Code, or (ii) the transfer and/or holding of an interest in
such Certificate to that Person and the subsequent servicing, management and/or
operation of the Trust and its assets: (I) will not result in any prohibited
transaction which is not covered under an individual or class prohibited
transaction exemption, including, but not limited to, PTE 84-14, PTE 91-38, PTE
90-1, PTE 95-60 or PTE 96- 23 and (II) will not subject the Seller, the
Securities Administrator, the Master Servicer or the Trustee to any obligation
in addition to those undertaken in the Agreement.

         (c) Neither the Trustee, the Master Servicer nor the Securities
Administrator will be required to monitor, determine or inquire as to compliance
with the transfer restrictions with respect to the Global Certificates. Any
attempted or purported transfer of any Certificate in violation of the
provisions of Subsections (a) or (b) above shall be void ab initio and such
Certificate shall be considered to have been held continuously by the prior
permitted Certificateholder. Any transferor of any Certificate in violation of
such provisions, shall indemnify and hold harmless the Trustee, the Securities
Administrator and the Master Servicer from and against any and all liabilities,
claims, costs or expenses incurred by the Trustee, the Securities Administrator
or the Master Servicer as a result of such attempted or purported transfer. The
Trustee shall have no liability for transfer of any such Global Certificates in
or through book-entry facilities of any Depository or between or among
Depository Participants or Certificate Owners made in violation of the transfer
restrictions set forth herein.

         Section 5.08 RULE 144A INFORMATION. For so long as any Certificates are
outstanding and are "restricted securities" within the meaning of Rule 144(a)(3)
of the Securities Act, (1) the Seller will provide or cause to be provided to
any holder of such Certificates and any prospective purchaser thereof designated
by such a holder, upon the request of such holder or prospective purchaser, the
information required to be provided to such holder or prospective purchaser by
Rule 144A(d)(4) under the Securities Act; and (2) the Seller shall update such
information from time to time in order to prevent such information from becoming
false and misleading and will take such other actions as are necessary to ensure
that the safe harbor exemption from the registration requirements of the
Securities Act under Rule 144A is and will be available for resales of such
Certificates conducted in accordance with Rule 144A.

                                      -83-

<PAGE>

                                   ARTICLE VI
                         Payments to Certificateholders

         Section 6.01 DISTRIBUTIONS ON THE CERTIFICATES. (a) Interest and
principal on the Certificates will be distributed monthly on each Distribution
Date, commencing in June 2002, in an aggregate amount equal to the sum of the
Available Funds for such Distribution Date. On each Distribution Date, the
Available Funds shall be distributed as follows:

                  (A) On each Distribution Date, the Group 1 Available Funds
                  will be distributed in the following order of priority among
                  the Group 1 Senior Certificates:

                           FIRST, to the Group 1 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest Shortfalls shall be allocated among the
                           Senior Certificates as described below;

                           SECOND, to the Group 1 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 1 Available Funds;

                           THIRD, to the Group 1 Senior Certificates, in
                           reduction of the Current Principal Amounts thereof,
                           the Group 1 Senior Optimal Principal Amount for such
                           Distribution Date to the extent of remaining Group 1
                           Available Funds, until the Current Principal Amount
                           thereof has been reduced to zero;

                  (B) On each Distribution Date, the Group 2 Available Funds
                  will be distributed to the Group 2 Senior Certificates as
                  follows:

                           FIRST, to the Group 2 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest Shortfalls shall be allocated among the
                           Senior Certificates as described below;

                           SECOND, to the Group 2 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 2 Available Funds;

                           THIRD, sequentially, in the following order, to the
                           Class R-I, Class R-II, Class R-III, Class R-IV and
                           Class II-A Certificates, the Group 2 Optimal
                           Principal Amount for such Distribution Date to the
                           extent of remaining Group 2 Available Funds, until
                           the aggregate Current Principal Amount of the Group 2
                           Senior Certificates has been reduced to zero.

                                      -84-

<PAGE>

                  (C) On each Distribution Date, the Group 3 Available Funds
                  will be distributed to the Group 3 Senior Certificates as
                  follows:

                           FIRST, to the Group 3 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest Shortfalls shall be allocated among the
                           Senior Certificates as described below;

                           SECOND, to the Group 3 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 3 Available Funds;

                           THIRD, to the Group 3 Senior Certificates, in
                           reduction of the Current Principal Amounts thereof,
                           the Group 3 Senior Optimal Principal Amount for such
                           Distribution Date to the extent of remaining Group 3
                           Available Funds, until the Current Principal Amount
                           thereof has been reduced to zero;

                  (D) On each Distribution Date, the Group 4 Available Funds
                  will be distributed to the Group 4 Senior Certificates as
                  follows:

                           FIRST, to the Group 4 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest Shortfalls shall be allocated among the
                           Senior Certificates as described below;

                           SECOND, to the Group 4 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 4 Available Funds;

                           THIRD, to the Group 4 Senior Certificates (other than
                           the Class IV-X Certificates) on a pro rata basis
                           based upon their Current Principal Amounts
                           immediately prior to such Distribution Date, in
                           reduction of the Current Principal Amounts thereof,
                           the Group 4 Senior Optimal Principal Amount for such
                           Distribution Date to the extent of remaining Group 4
                           Available Funds, until the Current Principal Amount
                           of such Classes have been reduced to zero;

                  PROVIDED, HOWEVER, after the Cross-Over Date but prior to the
                  reduction of the Current Principal Amounts of the Class IV-A5
                  Certificates to zero, the aggregate amount distributable to
                  the Group 4 Senior Certificates will be distributed among
                  those certificates in the priority set forth in clause (K)
                  below.

                                      -85-

<PAGE>

                  (E) On each Distribution Date, the Group 5 Available Funds
                  will be distributed to the Group 5 Senior Certificates as
                  follows:

                           FIRST, to the Group 5 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest Shortfalls shall be allocated among the
                           Senior Certificates as described below;

                           SECOND, to the Group 5 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 5 Available Funds;

                           THIRD, to the Group 5 Senior Certificates, in
                           reduction of the Current Principal Amounts thereof,
                           the Group 5 Senior Optimal Principal Amount for such
                           Distribution Date to the extent of remaining Group 5
                           Available Funds, until the Current Principal Amount
                           thereof has been reduced to zero;

                  (F) On each Distribution Date, the Group 6 Available Funds
                  will be distributed to the Group 6 Senior Certificates as
                  follows:

                           FIRST, to the Group 6 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest Shortfalls shall be allocated among the
                           Senior Certificates as described below;

                           SECOND, to the Group 6 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 6 Available Funds;

                           THIRD, to the Group 6 Senior Certificates, in
                           reduction of the Current Principal Amounts thereof,
                           the Group 6 Senior Optimal Principal Amount for such
                           Distribution Date to the extent of remaining Group 6
                           Available Funds, until the Current Principal Amount
                           thereof has been reduced to zero;

                  (G) On each Distribution Date, the Group 7 Available Funds
                  will be distributed to the Group 7 Senior Certificates as
                  follows:

                           FIRST, to the Group 7 Senior Certificates, the
                           Accrued Certificate Interest on such Class for such
                           Distribution Date. As described below, Accrued
                           Certificate Interest on the Senior Certificates is
                           subject to reduction in the event of certain Net
                           Interest Shortfalls allocable thereto. Any Net
                           Interest

                                      -86-

<PAGE>

                           Shortfalls shall be allocated among the Senior
                           Certificates as described below;

                           SECOND, to the Group 7 Senior Certificates, any
                           Accrued Certificate Interest thereon remaining
                           undistributed from previous Distribution Dates, to
                           the extent of remaining Group 7 Available Funds;

                           THIRD, to the Group 7 Senior Certificates, in
                           reduction of the Current Principal Amounts thereof,
                           the Group 7 Senior Optimal Principal Amount for such
                           Distribution Date to the extent of remaining Group 7
                           Available Funds, until the Current Principal Amount
                           thereof has been reduced to zero.

                  (H) Except as provided in (I) and (J) below, on each
                  Distribution Date prior to the Cross-Over Date, an amount
                  equal to any remaining Group 1, Group 2, Group 3, Group 4,
                  Group 5, Group 6 and Group 7 Available Funds after the
                  distributions in (A), (B), (C), (D), (E), (F) and (G) above
                  will be distributed sequentially, in the following order, to
                  the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and
                  Class B-6 Certificates, in each case up to an amount equal to
                  and in the following order: (a) the Accrued Certificate
                  Interest thereon for such Distribution Date, (b) any Accrued
                  Certificate Interest thereon remaining undistributed from
                  previous Distribution Dates and (c) such Class's Allocable
                  Share for such Distribution Date, in each case, to the extent
                  of remaining Available Funds.

                  (I) On each Distribution Date prior to the Cross-Over Date,
                  but after the reduction of the Current Principal Amount of the
                  Group 1, Group 2, Group 3, Group 4, Group 5, Group 6 or Group
                  7 Senior Certificates to zero, the remaining Class or Classes
                  of Senior Certificates will be entitled to receive in
                  reduction of their Current Principal Amounts, pro rata based
                  upon their Current Principal Amounts immediately prior to such
                  Distribution Date, in addition to any Principal Prepayments
                  related to such remaining Senior Certificates' respective Loan
                  Group allocated to such Group of Senior Certificates, 100% of
                  the Principal Prepayments on any Mortgage Loan in the Loan
                  Group relating to the fully repaid Class of Senior
                  Certificates; provided, however, that if (A) the weighted
                  average Subordinate Percentage equals or exceeds 7.50% on such
                  Distribution Date and (B) the aggregate Scheduled Principal
                  Balance of the Mortgage Loans delinquent 60 days or more
                  (including for this purpose any such Mortgage Loans in
                  foreclosure and Mortgage Loans with respect to which the
                  related Mortgaged Property has been acquired by the Trust),
                  averaged over the last six months, as a percentage of the sum
                  of the aggregate Current Principal Amount of the Subordinate
                  Certificates does not exceed 100%, then the additional
                  allocation of Principal Prepayments to the Senior Certificates
                  in accordance with this clause (I) will not be made.

                  (J) If on any Distribution Date on which the aggregate Current
                  Principal Amount of any Class or Classes of Senior
                  Certificates would be greater than the aggregate Scheduled
                  Principal Balance of the Mortgage Loans in its related Loan
                  Group and any Subordinate Certificates are still outstanding
                  in each case after giving effect to

                                      -87-

<PAGE>

                  distributions to be made on such Distribution Date, (i) 100%
                  of amounts otherwise allocable to the Subordinate Certificates
                  in respect of principal will be distributed to such Class or
                  Classes of Senior Certificates in reduction of the Current
                  Principal Amounts thereof, until the aggregate Current
                  Principal Amount of such Class or Classes of Senior
                  Certificates is an amount equal to the aggregate Scheduled
                  Principal Balance of the Mortgage Loans in its related Loan
                  Group, and (ii) the Accrued Certificate Interest otherwise
                  allocable to the Subordinate Certificates on such Distribution
                  Date will be reduced, if necessary, and distributed to such
                  Class or Classes of Senior Certificates in an amount equal to
                  the Accrued Certificate Interest for such Distribution Date on
                  the excess of (x) the aggregate Current Principal Balance of
                  such Class or Classes of Senior Certificates over (y) the
                  aggregate Scheduled Principal Balance of the Mortgage Loans in
                  the related Loan Group. Any such reduction in the Accrued
                  Certificate Interest on the Subordinate Certificates will be
                  allocated in reverse order of the Subordinate Certificates
                  numerical designations, commencing with the Class B-6
                  Certificates.

                  (K) On or after the occurrence of the Cross-Over Date but
                  prior to the reduction of the Current Principal Amounts of the
                  Class IV-A5 Certificates to zero, all priorities relating to
                  distributions as described in clause (D) above relating to
                  principal among the Group 4 Senior Certificates will be
                  disregarded. Instead, Accrued Certificate Interest on the
                  Group 4 Senior Certificates will be distributed as provided in
                  clauses FIRST and SECOND of clause (D) above and the Group 4
                  Senior Optimal Principal Amount will be distributed to the
                  Group 4 Senior Certificates pro rata in accordance with their
                  respective outstanding Current Principal Amounts; provided
                  that the aggregate amount distributable to the Class IV-A4
                  Certificates and the Class IV-A5 Certificates in respect of
                  the aggregate Accrued Certificate Interest thereon and in
                  respect of their aggregate pro rata portion of the Group 4
                  Senior Optimal Principal Amount will be distributed among the
                  Group 4 Senior Certificates in the following priority: FIRST,
                  to the Class IV-A4 Certificates, up to an amount equal to the
                  Accrued Certificate Interest and any unpaid Accrued
                  Certificate Interest thereon; SECOND, to the Class IV-A4
                  Certificates, up to an amount equal to the Class IV-A4 Optimal
                  Principal Distribution Amount, in reduction of the Current
                  Principal Amount thereof, until the Current Principal Amount
                  thereof has been reduced to zero; THIRD, to the Class IV-A5
                  Certificates, up to an amount equal to the Accrued Certificate
                  Interest and any unpaid Accrued Certificate Interest thereon;
                  and FOURTH, to the Class IV-A5 Certificates, the remainder, in
                  each case until the Current Principal Amount thereof has been
                  reduced to zero.

         (b) If, after distributions have been made pursuant to priorities first
and second of clauses (a)(i)(A), (B), (C), (D), (E), (F) or (G) above on any
Distribution Date, the remaining Group 1, Group 2, Group 3, Group 4, Group 5,
Group 6 or Group 7 Available Funds are less than the sum of the Group 1, Group
2, Group 3, Group 4, Group 5, Group 6 or Group 7 Senior Optimal Principal
Amounts such amount shall be reduced, and such remaining funds will be
distributed on the related Senior Certificates on the basis of such reduced
amount.

                                      -88-

<PAGE>

         (c) "Pro rata" distributions among Classes of Certificates will be made
in proportion to the then Current Principal Amount of such Classes.

         (d) On each Distribution Date, any Available Funds remaining after
payment of interest and principal to the Classes of Certificates entitled
thereto, as described above, will be distributed to the Class R-II Certificates;
provided that if on any Distribution Date there are any Group 1, Group 2, Group
3, Group 4, Group 5, Group 6 or Group 7 Available Funds remaining after payment
of interest and principal to a Class or Classes of Certificates entitled
thereto, such amounts will be distributed to the other Classes of Senior
Certificates, pro rata, based upon their Current Principal Amounts, until all
amounts due to all Classes of Senior Certificates have been paid in full, before
any amounts are distributed to the Class R-II Certificates.

         (e) No Accrued Certificate Interest will be payable with respect to any
Class of Certificates after the Distribution Date on which the Current Principal
Amount of such Certificate has been reduced to zero.

         (f) If on any Distribution Date the Available Funds for the Senior
Certificates in any Certificate Group is less than the Accrued Certificate
Interest on the related Senior Certificates for such Distribution Date prior to
reduction for Net Interest Shortfall and the interest portion of Realized
Losses, the shortfall will be allocated among the holders of each Class of
Senior Certificates in such Certificate Group in proportion to the respective
amounts of Accrued Certificate Interest that would have been allocated thereto
in the absence of such Net Interest Shortfall and/or Realized Losses for such
Distribution Date; provided, however, any such shortfall otherwise allocable to
the holders Class IV-A4 Certificates will be allocated first among the holders
of the Class IV-A5 Certificates, until the respective amounts of Accrued
Certificate Interest that would have been allocated to the Class IV-A5
Certificates in the absence of such Net Interest Shortfall and/or Realized
Losses for such Distribution Date (reduced first by the shortfall allocable to
the holders of the Class IV-A5 Certificates pursuant to this clause (f) on such
Distribution Date prior to the application of this proviso) have been reduced to
zero, and then to the holders of the Class IV-A4 Certificates. In addition, the
amount of any interest shortfalls with respect to the Mortgage Loans in the
related Loan Group that are covered by subordination, and the amount of any
interest shortfalls otherwise allocable to the Class IV-A4 Certificates that are
covered by the Class IV-A5 Certificates, will constitute unpaid Accrued
Certificate Interest and will be distributable to holders of the Certificates of
the related Classes entitled to such amounts on subsequent Distribution Dates,
to the extent of the applicable Available Funds after current interest
distributions as required herein. Any such amounts so carried forward will not
bear interest. Shortfalls in interest payments will not be offset by a reduction
in the servicing compensation of the Master Servicer or otherwise, except to the
extent of applicable Compensating Interest Payments.

         (g) The expenses and fees of the Trust shall be paid by each of the
REMICs, to the extent that such expenses relate to the assets of each of such
respective REMICs, and all other expenses and fees of the Trust shall be paid
pro rata by each of the REMICs.

                                      -89-

<PAGE>

         Section 6.02 ALLOCATION OF LOSSES. (a) On or prior to each
Determination Date, the Master Servicer shall determine the amount of any
Realized Loss in respect of each Mortgage Loan that occurred during the
immediately preceding calendar month.

         (b) With respect to any Certificates on any Distribution Date, the
principal portion of each Realized Loss on a Mortgage Loan shall be allocated as
follows:

                  first, to the Class B-6 Certificates until the Current
         Principal Amount thereof has been reduced to zero;

                  second, to the Class B-5 Certificates until the Current
         Principal Amount thereof has been reduced to zero;

                  third, to the Class B-4 Certificates until the Current
         Principal Amount thereof has been reduced to zero;

                  fourth, to the Class B-3 Certificates until the Current
         Principal Amount thereof has been reduced to zero;

                  fifth, to the Class B-2 Certificates until the Current
         Principal Amount thereof has been reduced to zero;

                  sixth, to the Class B-1 Certificates until the Current
         Principal Amount thereof has been reduced to zero;

                  seventh, if such loss is on a Group 1, Group 2, Group 3, Group
         4, Group 5, Group 6 or Group 7 Mortgage Loan, to the Group 1, Group 2,
         Group 3, Group 4 (other than the Class IV-X Certificates), Group 5,
         Group 6 or Group 7 Senior Certificates, respectively.

                  eighth, to the Senior Certificates, on a pro rata basis;

         PROVIDED, HOWEVER, any Realized Loss that would otherwise be allocable
to the Class IV-A4 Certificates, will be allocated first to the Class IV-A5
Certificates, until the Current Principal Amounts of such Certificates have been
reduced to zero, and then to the Class IV-A4 Certificates.

         (c) Notwithstanding the foregoing clause (b), no such allocation of any
Realized Loss shall be made on a Distribution Date to any Class of Certificates
to the extent that such allocation would result in the reduction of the
aggregate Current Principal Amounts of all the Certificates as of such
Distribution Date, after giving effect to all distributions and prior
allocations of Realized Losses on such date, to an amount less than the
aggregate Scheduled Principal Balance of all of the Mortgage Loans as of the
first day of the month of such Distribution Date (such limitation, the "Loss
Allocation Limitation").

         (d) Any Realized Losses allocated to a Class of Certificates shall be
allocated among the Certificates of such Class in proportion to their respective
Current Principal Amounts. Any

                                      -90-

<PAGE>

allocation of Realized Losses shall be accomplished by reducing the Current
Principal Amount of the related Certificates on the related Distribution Date.

         (e) Realized Losses shall be allocated on the Distribution Date in the
month following the month in which such loss was incurred and, in the case of
the principal portion thereof, after giving effect to distributions made on such
Distribution Date.

         (f) On each Distribution Date, the Securities Administrator shall
determine and notify the Trustee of the Subordinate Certificate Writedown
Amount. Any such Subordinate Certificate Writedown Amount shall effect a
corresponding reduction in the Current Principal Amount of (i) if prior to the
Cross-Over Date, the Current Principal Amounts of the Subordinate Certificates,
in the reverse order of their numerical Class designations and (ii) from and
after the Cross-Over Date, the Senior Certificates which reduction shall occur
on such Distribution Date after giving effect to distributions made on such
Distribution Date.

         (g) Any Net Interest Shortfall will be allocated among the Classes of
Certificates in proportion to the respective amounts of Accrued Certificate
Interest that would have been allocated thereto in the absence of such Net
Interest Shortfall for such Distribution Date. The interest portion of any
Realized Losses with respect to the Mortgage Loans occurring on or prior to the
Cross-Over Date will not be allocated among any Certificates, but will reduce
the amount of Available Funds on the related Distribution Date. As a result of
the subordination of the Subordinate Certificates in right of distribution, such
Realized Losses will be borne by the Subordinate Certificates in inverse order
of their numerical Class designations. Following the Cross-Over Date, the
interest portion of Realized Losses on the Mortgage Loans in any Loan Group will
be allocated to the related Senior Certificates on a pro rata basis based on
each Certificate's respective Current Principal Amount; PROVIDED, HOWEVER, such
Realized Loss otherwise allocable to the Class IV-A4 Certificates will be
allocated first to the Class IV-A5 Certificates, until the outstanding Current
Principal Amount of such Certificates has been reduced to zero, and then to the
Class IV-A4 Certificates.

         Section 6.03 PAYMENTS. (a) On each Distribution Date, other than the
final Distribution Date, the Trustee shall distribute to each Certificateholder
of record on the directly preceding Record Date the Certificateholder's pro rata
share of its Class (based on the aggregate Fractional Undivided Interest
represented by such Holder's Certificates) of all amounts required to be
distributed on such Distribution Date to such Class, based on information
provided to the Securities Administrator by the Master Servicer. The Securities
Administrator shall calculate the amount to be distributed to each Class and,
based on such amounts, the Securities Administrator shall determine the amount
to be distributed to each Certificateholder. All of the Securities
Administrator's calculations of payments shall be based solely on information
provided to the Securities Administrator by the Master Servicer. The Securities
Administrator shall not be required to confirm, verify or recompute any such
information but shall be entitled to rely conclusively on such information.

         (b) Payment of the above amounts to each Certificateholder shall be
made (i) by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register or (ii) upon receipt by the
Trustee on or before the fifth Business Day preceding the Record Date of written
instructions from a Certificateholder by wire transfer to a United States dollar
account maintained by the payee at any United States depository institution with
appropriate facilities for

                                      -91-

<PAGE>

receiving such a wire transfer; provided, however, that the final payment in
respect of each Class of Certificates will be made only upon presentation and
surrender of such respective Certificates at the office or agency of the Trustee
specified in the notice to Certificateholders of such final payment.

         Section 6.04 STATEMENTS TO CERTIFICATEHOLDERS. (a) Concurrently with
each distribution to Certificateholders, the Securities Administrator shall make
available to the parties hereto and each Certificateholder via the Securities
Administrator's internet website as set forth below, the following information,
expressed with respect to clauses (i) through (vii) in the aggregate and as a
Fractional Undivided Interest representing an initial Current Principal Amount
of $1,000, or in the case of each Class of Residual Certificates, an initial
Current Principal Amount of $50:

                  (i) the Current Principal Amount or Notional Amount of each
         Class of Certificates immediately prior to such Distribution Date;

                  (ii) the amount of the distribution allocable to principal on
         each applicable Class of Certificates;

                  (iii) the aggregate amount of interest accrued at the related
         Pass-Through Rate with respect to each Class during the related
         Interest Accrual Period;

                  (iv) the Net Interest Shortfall and any other adjustments to
         interest at the related Pass-Through Rate necessary to account for any
         difference between interest accrued and aggregate interest distributed
         with respect to each Class of Certificates;

                  (v) the amount of the distribution allocable to interest on
         each Class of Certificates;

                  (vi) the Pass-Through Rates for each Class of Certificates
         with respect to such Distribution Date;

                  (vii) the Current Principal Amount or Notional Amount of each
         Class of Certificates after such Distribution Date;

                  (viii) the amount of any Monthly Advances, Compensating
         Interest Payments and outstanding unreimbursed advances by the Master
         Servicer or the Servicer included in such distribution separately
         stated for each Loan Group;

                  (ix) the aggregate amount of any Realized Losses (listed
         separately for each category of Realized Loss and for each Loan Group)
         during the related Prepayment Period and cumulatively since the Cut-off
         Date and the amount and source (separately identified) of any
         distribution in respect thereof included in such distribution;

                  (x) with respect to each Mortgage Loan which incurred a
         Realized Loss during the related Prepayment Period, (i) the loan
         number, (ii) the Scheduled Principal Balance of such Mortgage Loan as
         of the Cut-off Date, (ii) the Scheduled Principal Balance of such
         Mortgage Loan as of the beginning of the related Due Period, (iii) the
         Net Liquidation

                                      -92-

<PAGE>

         Proceeds with respect to such Mortgage Loan and (iv) the amount of the
         Realized Loss with respect to such Mortgage Loan;

                  (xi) with respect to each Loan Group, the amount of Scheduled
         Principal and Principal Prepayments, (including but separately
         identifying the principal amount of principal prepayments, Insurance
         Proceeds, the purchase price in connection with the purchase of
         Mortgage Loans, cash deposits in connection with substitutions of
         Mortgage Loans and Net Liquidation Proceeds) and the number and
         principal balance of Mortgage Loans purchased or substituted for during
         the relevant period and cumulatively since the Cut- off Date;

                  (xii) the number of Mortgage Loans (excluding REO Property) in
         each Loan Group remaining in the Trust Fund as of the end of the
         related Prepayment Period;

                  (xiii) information for each Loan Group and in the aggregate
         regarding any Mortgage Loan delinquencies as of the end of the related
         Prepayment Period, including the aggregate number and aggregate
         Outstanding Principal Balance of Mortgage Loans (a) delinquent 30 to 59
         days on a contractual basis, (b) delinquent 60 to 89 days on a
         contractual basis, and (c) delinquent 90 or more days on a contractual
         basis, in each case as of the close of business on the last Business
         Day of the immediately preceding month;

                  (xiv) for each Loan Group, the number of Mortgage Loans in the
         foreclosure process as of the end of the related Due Period and the
         aggregate Outstanding Principal Balance of such Mortgage Loans;

                  (xv) for each Loan Group, the number and aggregate Outstanding
         Principal Balance of all Mortgage Loans as to which the Mortgaged
         Property was REO Property as of the end of the related Due Period;

                  (xvi) the book value (the sum of (A) the Outstanding Principal
         Balance of the Mortgage Loan, (B) accrued interest through the date of
         foreclosure and (C) foreclosure expenses) of any REO Property in each
         Loan Group; provided that, in the event that such information is not
         available to the Securities Administrator on the Distribution Date,
         such information shall be furnished promptly after it becomes
         available;

                  (xvii) the amount of Realized Losses allocated to each Class
         of Certificates since the prior Distribution Date and in the aggregate
         for all prior Distribution Dates; and

                  (xviii) the Average Loss Severity for the prior calendar month
         for each Loan Group; and

                  (xix) the then applicable Group 1, Group 2, Group 3, Group 4,
         Group 5, Group 6 and Group 7 Senior Percentage, Group 1, Group 2, Group
         3, Group 4, Group 5, Group 6 and Group 7 Senior Prepayment Percentage,
         Group 1, Group 2, Group 3, Group 4, Group 5, Group 6 and Group 7
         Subordinate Percentage and Group 1, Group 2, Group 3, Group 4, Group 5,
         Group 6 and Group 7 Subordinate Prepayment Percentage.

                                      -93-

<PAGE>

         The information set forth above shall be calculated or reported, as the
case may be, by the Securities Administrator, based solely on, and to the extent
of, information provided to the Securities Administrator by the Master Servicer.
The Securities Administrator may conclusively rely on such information and shall
not be required to confirm, verify or recalculate any such information.

         The Securities Administrator may make available each month, to any
interested party , the monthly statement to Certificateholders via the
Securities Administrator's website initially located at "www.ctslink.com."
Assistance in using the website can be obtained by calling the Securities
Administrator's customer service desk at (301) 815-6600. Parties that are unable
to use the above distribution option are entitled to have a paper copy mailed to
them via first class mail by calling the customer service desk and indicating
such. The Securities Administrator shall have the right to change the way such
reports are distributed in order to make such distribution more convenient
and/or more accessible to the parties, and the Securities Administrator shall
provide timely and adequate notification to all parties regarding any such
change.

         (b) By April 30 of each year beginning in 2003, the Trustee will
furnish such report to each Holder of the Certificates of record at any time
during the prior calendar year as to the aggregate of amounts reported pursuant
to subclauses (a)(ii) and (a)(v) above with respect to the Certificates, plus
information with respect to the amount of servicing compensation and such other
customary information as the Securities Administrator may determine and advises
the Trustee to be necessary and/or to be required by the Internal Revenue
Service or by a federal or state law or rules or regulations to enable such
Holders to prepare their tax returns for such calendar year. Such obligations
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Securities Administrator or the
Trustee pursuant to the requirements of the Code.

         Section 6.05 MONTHLY ADVANCES. If the Scheduled Payment on a Mortgage
Loan that was due on a related Due Date and is delinquent other than as a result
of application of the Relief Act and for which the related Servicer was required
to make an advance pursuant to the related Servicing Agreement exceeds the
amount deposited in the Master Servicer Collection Account which will be used
for an advance with respect to such Mortgage Loan, the Master Servicer will
deposit in the Master Servicer Collection Account not later than the
Distribution Account Deposit Date immediately preceding the related Distribution
Date an amount equal to such deficiency, net of the Servicing Fee for such
Mortgage Loan except to the extent the Master Servicer determines any such
advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds or
future payments on the Mortgage Loan for which such Monthly Advance was made.
Subject to the foregoing, the Master Servicer shall continue to make such
advances through the date that the related Servicer is required to do so under
its Servicing Agreement. If applicable, on the Distribution Account Deposit
Date, the Master Servicer shall present an Officer's Certificate to the Trustee
(i) stating that the Master Servicer elects not to make a Monthly Advance in a
stated amount and (ii) detailing the reason it deems the advance to be
nonrecoverable.

                                      -94-

<PAGE>

         Section 6.06 COMPENSATING INTEREST PAYMENTS. The Master Servicer shall
deposit in the Master Servicer Collection Account not later than each
Distribution Account Deposit Date an amount equal to the aggregate amounts
required to be paid by the Servicers under the Servicing Agreements with respect
to subclauses (a) and (b) of the definition of Interest Shortfall with respect
to the Mortgage Loans for the related Distribution Date, and not so paid by the
related Servicers (such amount, the "Compensating Interest Payment"). The Master
Servicer shall not be entitled to any reimbursement of any Compensating Interest
Payment.

                                      -95-

<PAGE>

                                   ARTICLE VII
                               The Master Servicer

         Section 7.01 LIABILITIES OF THE MASTER SERVICER. The Master Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by it herein.

         Section 7.02 MERGER OR CONSOLIDATION OF THE MASTER SERVICER.

         (a) The Master Servicer will keep in full force and effect its
existence, rights and franchises as a corporation under the laws of the state of
its incorporation, and will obtain and preserve its qualification to do business
as a foreign corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability of this Agreement,
the Certificates or any of the Mortgage Loans and to perform its duties under
this Agreement.

         (b) Any Person into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger or consolidation to
which the Master Servicer shall be a party, or any Person succeeding to the
business of the Master Servicer, shall be the successor of the Master Servicer
hereunder, without the execution or filing of any paper or further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.

         Section 7.03 INDEMNIFICATION OF THE TRUSTEE, THE MASTER SERVICER AND
THE SECURITIES ADMINISTRATOR. (a) The Master Servicer agrees to indemnify the
Indemnified Persons for, and to hold them harmless against, any loss, liability
or expense (including reasonable legal fees and disbursements of counsel)
incurred on their part that may be sustained in connection with, arising out of,
or relating to, any claim or legal action (including any pending or threatened
claim or legal action) relating to this Agreement or the Certificates (i)
related to the Master Servicer's failure to perform its duties in compliance
with this Agreement (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to this Agreement) or (ii) incurred by reason of
the Master Servicer's willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder, provided, in each case, that with respect to
any such claim or legal action (or pending or threatened claim or legal action),
the Trustee shall have given the Master Servicer and the Seller written notice
thereof promptly after the Trustee shall have with respect to such claim or
legal action knowledge thereof. This indemnity shall survive the resignation or
removal of the Trustee, Master Servicer or the Securities Administrator and the
termination of this Agreement.

         (b) The Seller will indemnify any Indemnified Person for any loss,
liability or expense of any Indemnified Person not otherwise referred to in
Subsection (a) above.

                                      -96-

<PAGE>

         Section 7.04 LIMITATIONS ON LIABILITY OF THE MASTER SERVICER AND
OTHERS. Subject to the obligation of the Master Servicer to indemnify the
Indemnified Persons pursuant to Section 7.03:

         (a) Neither the Master Servicer nor any of the directors, officers,
employees or agents of the Master Servicer shall be under any liability to the
Indemnified Persons, the Seller, the Trust Fund or the Certificateholders for
taking any action or for refraining from taking any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Master Servicer or any such Person against
any breach of warranties or representations made herein or any liability which
would otherwise be imposed by reason of such Person's willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder.

         (b) The Master Servicer and any director, officer, employee or agent of
the Master Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder.

         (c) The Master Servicer, the Custodian and any director, officer,
employee or agent of the Master Servicer or the Custodian shall be indemnified
by the Trust and held harmless thereby against any loss, liability or expense
(including reasonable legal fees and disbursements of counsel) incurred on their
part that may be sustained in connection with, arising out of, or related to,
any claim or legal action (including any pending or threatened claim or legal
action) relating to this Agreement, the Certificates or any Servicing Agreement
(except to the extent that the Master Servicer is indemnified by the Servicer
thereunder), other than (i) any such loss, liability or expense related to the
Master Servicer's failure to perform its duties in compliance with this
Agreement (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement), or to the Custodian's failure to
perform its duties under the Custodial Agreement, respectively, or (ii) any such
loss, liability or expense incurred by reason of the Master Servicer's or the
Custodian's willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or under the Custodial Agreement, as applicable,
or by reason of reckless disregard of obligations and duties hereunder or under
the Custodial Agreement, as applicable.

         (d) The Master Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action that is not incidental to its duties under
this Agreement and that in its opinion may involve it in any expense or
liability; provided, however, the Master Servicer may in its discretion, with
the consent of the Trustee (which consent shall not be unreasonably withheld),
undertake any such action which it may deem necessary or desirable with respect
to this Agreement and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust Fund, and the Master Servicer shall
be entitled to be reimbursed therefor out of the Master Servicer Collection
Account as provided by Section 4.03. Nothing in this Subsection 7.04(d) shall
affect the Master Servicer's obligation to supervise, or to take such actions as
are necessary to ensure, the servicing and administration of the Mortgage Loans
pursuant to Subsection 3.01(a).

         (e) In taking or recommending any course of action pursuant to this
Agreement, unless specifically required to do so pursuant to this Agreement, the
Master Servicer shall not be required

                                      -97-

<PAGE>

to investigate or make recommendations concerning potential liabilities which
the Trust might incur as a result of such course of action by reason of the
condition of the Mortgaged Properties but shall give notice to the Trustee if it
has notice of such potential liabilities.

         (f) The Master Servicer shall not be liable for any acts or omissions
of any Servicer, except as otherwise expressly provided herein.

         Section 7.05 MASTER SERVICER NOT TO RESIGN. Except as provided in
Section 7.07, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except upon a determination that any such duties
hereunder are no longer permissible under applicable law and such
impermissibility cannot be cured. Any such determination permitting the
resignation of the Master Servicer shall be evidenced by an Opinion of
Independent Counsel to such effect delivered to the Trustee. No such resignation
by the Master Servicer shall become effective until EMC or the Trustee or a
successor to the Master Servicer reasonably satisfactory to the Trustee shall
have assumed the responsibilities and obligations of the Master Servicer in
accordance with Section 8.02 hereof. The Trustee shall notify the Rating
Agencies of the resignation of the Master Servicer.

         Section 7.06 SUCCESSOR MASTER SERVICER. In connection with the
appointment of any successor Master Servicer or the assumption of the duties of
the Master Servicer, EMC or the Trustee may make such arrangements for the
compensation of such successor master servicer out of payments on the Mortgage
Loans as EMC or the Trustee and such successor master servicer shall agree. If
the successor master servicer does not agree that such market value is a fair
price, such successor master servicer shall obtain two quotations of market
value from third parties actively engaged in the servicing of single-family
mortgage loans.

         Section 7.07 SALE AND ASSIGNMENT OF MASTER SERVICING. The Master
Servicer may sell and assign its rights and delegate its duties and obligations
in its entirety as Master Servicer under this Agreement and EMC may terminate
the Master Servicer without cause and select a new Master Servicer; provided,
however, that: (i) the purchaser or transferee accepting such assignment and
delegation (a) shall be a Person which shall be qualified to service mortgage
loans for Fannie Mae or Freddie Mac; (b) shall have a net worth of not less than
$10,000,000 (unless otherwise approved by each Rating Agency pursuant to clause
(ii) below); (c) shall be reasonably satisfactory to the Trustee (as evidenced
in a writing signed by the Trustee); and (d) shall execute and deliver to the
Trustee an agreement, in form and substance reasonably satisfactory to the
Trustee, which contains an assumption by such Person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by it as master servicer under this Agreement, any custodial agreement
from and after the effective date of such agreement; (ii) each Rating Agency
shall be given prior written notice of the identity of the proposed successor to
the Master Servicer and each Rating Agency's rating of the Certificates in
effect immediately prior to such assignment, sale and delegation will not be
downgraded, qualified or withdrawn as a result of such assignment, sale and
delegation, as evidenced by a letter to such effect delivered to the Master
Servicer and the Trustee; (iii) the Master Servicer assigning and selling the
master servicing shall deliver to the Trustee an Officer's Certificate and an
Opinion of Independent Counsel, each stating that all conditions precedent to
such action under this Agreement have been completed and such action is
permitted by and complies with the terms of this Agreement; and (iv) in the
event the Master Servicer is terminated without cause by EMC, EMC shall pay the
terminated Master Servicer a

                                      -98-

<PAGE>

termination fee equal to 0.25% of the aggregate Scheduled Principal Balance of
the Mortgage Loans at the time the master servicing of the Mortgage Loans is
transferred to the successor Master Servicer. No such assignment or delegation
shall affect any liability of the Master Servicer arising prior to the effective
date thereof.

                                      -99-

<PAGE>

                                  ARTICLE VIII
                                     Default

         Section 8.01 EVENTS OF DEFAULT. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and
only with respect to the defaulting Master Servicer:

                  (i) The Master Servicer fails to cause to be deposited in the
         Distribution Account any amount so required to be deposited pursuant to
         this Agreement, and such failure continues unremedied for a period of
         three Business Days after the date upon which written notice of such
         failure, requiring the same to be remedied, shall have been given to
         the Master Servicer; or

                  (ii) The Master Servicer fails to observe or perform in any
         material respect any other material covenants and agreements set forth
         in this Agreement to be performed by it, which covenants and agreements
         materially affect the rights of Certificateholders, and such failure
         continues unremedied for a period of 60 days after the date on which
         written notice of such failure, properly requiring the same to be
         remedied, shall have been given to the Master Servicer by the Trustee
         or to the Master Servicer and the Trustee by the Holders of
         Certificates evidencing Fractional Undivided Interests aggregating not
         less than 25% of the Trust Fund; or

                  (iii) There is entered against the Master Servicer a decree or
         order by a court or agency or supervisory authority having jurisdiction
         in the premises for the appointment of a conservator, receiver or
         liquidator in any insolvency, readjustment of debt, marshaling of
         assets and liabilities or similar proceedings, or for the winding up or
         liquidation of its affairs, and the continuance of any such decree or
         order is unstayed and in effect for a period of 60 consecutive days, or
         an involuntary case is commenced against the Master Servicer under any
         applicable insolvency or reorganization statute and the petition is not
         dismissed within 60 days after the commencement of the case; or

                  (iv) The Master Servicer consents to the appointment of a
         conservator or receiver or liquidator in any insolvency, readjustment
         of debt, marshaling of assets and liabilities or similar proceedings of
         or relating to the Master Servicer or substantially all of its
         property; or the Master Servicer admits in writing its inability to pay
         its debts generally as they become due, files a petition to take
         advantage of any applicable insolvency or reorganization statute, makes
         an assignment for the benefit of its creditors, or voluntarily suspends
         payment of its obligations; or

                  (v) The Master Servicer assigns or delegates its duties or
         rights under this Agreement in contravention of the provisions
         permitting such assignment or delegation under Sections 7.05 or 7.07.

                                      -100-

<PAGE>

In each and every such case, so long as such Event of Default with respect to
the Master Servicer shall not have been remedied, either the Trustee or the
Holders of Certificates evidencing Fractional Undivided Interests aggregating
not less than 51% of the principal of the Trust Fund, by notice in writing to
the Master Servicer (and to the Trustee if given by such Certificateholders),
with a copy to the Rating Agencies, and with the consent of EMC, may terminate
all of the rights and obligations (but not the liabilities) of the Master
Servicer under this Agreement and in and to the Mortgage Loans and/or the REO
Property serviced by the Master Servicer and the proceeds thereof. Upon the
receipt by the Master Servicer of the written notice, all authority and power of
the Master Servicer under this Agreement, whether with respect to the
Certificates, the Mortgage Loans, REO Property or under any other related
agreements (but only to the extent that such other agreements relate to the
Mortgage Loans or related REO Property) shall, subject to Section 8.02,
automatically and without further action pass to and be vested in the Trustee
pursuant to this Section 8.01; and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Master
Servicer as attorney-in-fact or otherwise, any and all documents and other
instruments and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. The Master Servicer agrees to cooperate with
the Trustee in effecting the termination of the Master Servicer's rights and
obligations hereunder, including, without limitation, the transfer to the
Trustee of (i) the property and amounts which are then or should be part of the
Trust or which thereafter become part of the Trust; and (ii) originals or copies
of all documents of the Master Servicer reasonably requested by the Trustee to
enable it to assume the Master Servicer's duties thereunder. In addition to any
other amounts which are then, or, notwithstanding the termination of its
activities under this Agreement, may become payable to the Master Servicer under
this Agreement, the Master Servicer shall be entitled to receive, out of any
amount received on account of a Mortgage Loan or related REO Property, that
portion of such payments which it would have received as reimbursement under
this Agreement if notice of termination had not been given. The termination of
the rights and obligations of the Master Servicer shall not affect any
obligations incurred by the Master Servicer prior to such termination.

         Section 8.02 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a) Upon the
receipt by the Master Servicer of a notice of termination pursuant to Section
8.01 or an Opinion of Independent Counsel pursuant to Section 7.05 to the effect
that the Master Servicer is legally unable to act or to delegate its duties to a
Person which is legally able to act, the Trustee shall automatically become the
successor in all respects to the Master Servicer in its capacity under this
Agreement and the transactions set forth or provided for herein and shall
thereafter be subject to all the responsibilities, duties, liabilities and
limitations on liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof; provided, however, that EMC shall have the right to
either (a) immediately assume the duties of the Master Servicer or (b) select a
successor Master Servicer; provided further, however, that the Trustee shall
have no obligation whatsoever with respect to any liability (other than advances
deemed recoverable and not previously made) incurred by the Master Servicer at
or prior to the time of termination. As compensation therefor, but subject to
Section 7.06, the Trustee shall be entitled to all funds relating to the
Mortgage Loans which the Master Servicer would have been entitled to retain if
the Master Servicer had continued to act hereunder, except for those amounts due
the Master Servicer as reimbursement permitted under this Agreement for advances
previously made or expenses previously incurred. Notwithstanding the above, the
Trustee may, if it shall be unwilling so to act, or shall, if it is legally
unable so to act, appoint or petition a

                                      -101-

<PAGE>

court of competent jurisdiction to appoint, any established housing and home
finance institution which is a Fannie Mae- or Freddie Mac-approved servicer, and
with respect to a successor to the Master Servicer only, having a net worth of
not less than $10,000,000, as the successor to the Master Servicer hereunder in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Master Servicer hereunder; provided, that the Trustee shall obtain a
letter from each Rating Agency that the ratings, if any, on each of the
Certificates will not be lowered as a result of the selection of the successor
to the Master Servicer. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the Trustee may
make such arrangements for the compensation of such successor out of payments on
the Mortgage Loans as it and such successor shall agree; provided, however, that
the provisions of Section 7.06 shall apply, no such compensation shall be in
excess of that permitted the Trustee under this Subsection 8.02(a), and that
such successor shall undertake and assume the obligations of the Trustee to pay
compensation to any third Person acting as an agent or independent contractor in
the performance of master servicing responsibilities hereunder. The Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession.

         (b) If the Trustee shall succeed to any duties of the Master Servicer
respecting the Mortgage Loans as provided herein, it shall do so in a separate
capacity and not in its capacity as Trustee and, accordingly, the provisions of
Article IX shall be inapplicable to the Trustee in its duties as the successor
to the Master Servicer in the servicing of the Mortgage Loans (although such
provisions shall continue to apply to the Trustee in its capacity as Trustee);
the provisions of Article VII, however, shall apply to it in its capacity as
successor master servicer.

         Section 8.03 NOTIFICATION TO CERTIFICATEHOLDERS. Upon any termination
or appointment of a successor to the Master Servicer, the Trustee shall give
prompt written notice thereof to Certificateholders at their respective
addresses appearing in the Certificate Register and to the Rating Agencies.

         Section 8.04 WAIVER OF DEFAULTS. The Trustee shall transmit by mail to
all Certificateholders, within 60 days after the occurrence of any Event of
Default known to the Trustee, unless such Event of Default shall have been
cured, notice of each such Event of Default hereunder known to the Trustee. The
Holders of Certificates evidencing Fractional Undivided Interests aggregating
not less than 51% of the Trust Fund may, on behalf of all Certificateholders,
waive any default by the Master Servicer in the performance of its obligations
hereunder and the consequences thereof, except a default in the making of or the
causing to be made any required distribution on the Certificates. Upon any such
waiver of a past default, such default shall be deemed to cease to exist, and
any Event of Default arising therefrom shall be deemed to have been timely
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived. The Trustee shall give notice of any such waiver to
the Rating Agencies.

                                      -102-

<PAGE>

         Section 8.05 LIST OF CERTIFICATEHOLDERS. Upon written request of three
or more Certificateholders of record, for purposes of communicating with other
Certificateholders with respect to their rights under this Agreement, the
Trustee will afford such Certificateholders access during business hours to the
most recent list of Certificateholders held by the Trustee.

                                      -103-

<PAGE>

                                   ARTICLE IX
             Concerning the Trustee and the Securities Administrator

         Section 9.01 DUTIES OF TRUSTEE. (a) The Trustee, prior to the
occurrence of an Event of Default and after the curing or waiver of all Events
of Default which may have occurred, and the Securities Administrator each
undertake to perform such duties and only such duties as are specifically set
forth in this Agreement as duties of the Trustee and the Securities
Administrator, respectively. If an Event of Default has occurred and has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and subject to Section 8.02(b) use the same
degree of care and skill in their exercise, as a prudent person would exercise
under the circumstances in the conduct of his own affairs.

         (b) Upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments which are specifically
required to be furnished to the Trustee and the Securities Administrator
pursuant to any provision of this Agreement, the Trustee and the Securities
Administrator, respectively, shall examine them to determine whether they are in
the form required by this Agreement; provided, however, that neither the Trustee
nor the Securities Administrator shall be responsible for the accuracy or
content of any resolution, certificate, statement, opinion, report, document,
order or other instrument furnished by the Master Servicer; provided, further,
that neither the Trustee nor the Securities Administrator shall be responsible
for the accuracy or verification of any calculation provided to it pursuant to
this Agreement.

         (c) On each Distribution Date, the Trustee shall make monthly
distributions and the final distribution to the Certificateholders from funds in
the Distribution Account as provided in Sections 6.01 and 10.01 herein based the
report of the Securities Administrator.

         (d) No provision of this Agreement shall be construed to relieve the
Trustee or the Securities Administrator from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct;
provided, however, that:

                  (i) Prior to the occurrence of an Event of Default, and after
         the curing or waiver of all such Events of Default which may have
         occurred, the duties and obligations of the Trustee and the Securities
         Administrator shall be determined solely by the express provisions of
         this Agreement, neither the Trustee nor the Securities Administrator
         shall be liable except for the performance of their respective duties
         and obligations as are specifically set forth in this Agreement, no
         implied covenants or obligations shall be read into this Agreement
         against the Trustee or the Securities Administrator and, in the absence
         of bad faith on the part of the Trustee or the Securities
         Administrator, respectively, the Trustee or the Securities
         Administrator, respectively, may conclusively rely, as to the truth of
         the statements and the correctness of the opinions expressed therein,
         upon any certificates or opinions furnished to the Trustee or the
         Securities Administrator, respectively, and conforming to the
         requirements of this Agreement;

                  (ii) Neither the Trustee nor the Securities Administrator
         shall be liable in its individual capacity for an error of judgment
         made in good faith by a Responsible Officer or

                                      -104-

<PAGE>

         Responsible Officers of the Trustee or an officer of the Securities
         Administrator, respectively, unless it shall be proved that the Trustee
         or the Securities Administrator, respectively, was negligent in
         ascertaining the pertinent facts;

                  (iii) Neither the Trustee nor the Securities Administrator
         shall be liable with respect to any action taken, suffered or omitted
         to be taken by it in good faith in accordance with the directions of
         the Holders of Certificates evidencing Fractional Undivided Interests
         aggregating not less than 25% of the Trust Fund, if such action or
         non-action relates to the time, method and place of conducting any
         proceeding for any remedy available to the Trustee or the Securities
         Administrator, respectively, or exercising any trust or other power
         conferred upon the Trustee or the Securities Administrator,
         respectively, under this Agreement;

                  (iv) The Trustee shall not be required to take notice or be
         deemed to have notice or knowledge of any default or Event of Default
         unless a Responsible Officer of the Trustee's Corporate Trust Office
         shall have actual knowledge thereof. In the absence of such notice, the
         Trustee may conclusively assume there is no such default or Event of
         Default;

                  (v) The Trustee shall not in any way be liable by reason of
         any insufficiency in any Account held by or in the name of Trustee
         unless it is determined by a court of competent jurisdiction that the
         Trustee's gross negligence or willful misconduct was the primary cause
         of such insufficiency (except to the extent that the Trustee is obligor
         and has defaulted thereon);

                  (vi) Anything in this Agreement to the contrary
         notwithstanding, in no event shall the Trustee or the Securities
         Administrator be liable for special, indirect or consequential loss or
         damage of any kind whatsoever (including but not limited to lost
         profits), even if the Trustee or the Securities Administrator,
         respectively, has been advised of the likelihood of such loss or damage
         and regardless of the form of action; and

                  (vii) None of the Securities Administrator, EMC or the Trustee
         shall be responsible for the acts or omissions of the other, it being
         understood that this Agreement shall not be construed to render them
         partners, joint venturers or agents of one another.

         Neither the Trustee nor the Securities Administrator shall be required
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there is reasonable ground for believing that the repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it, and none of the provisions contained in this Agreement
shall in any event require the Trustee or the Securities Administrator to
perform, or be responsible for the manner of performance of, any of the
obligations of the Master Servicer under the Servicing Agreements, except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers and privileges of, the Master Servicer in accordance
with the terms of this Agreement.

         (e) All funds received by the Master Servicer and the Trustee and
required to be deposited in the Master Servicer Collection Account or
Distribution Account pursuant to this Agreement will be promptly so deposited by
the Master Servicer and the Trustee.

                                      -105-

<PAGE>

         (f) Except for those actions that the Trustee or the Securities
Administrator is required to take hereunder, neither the Trustee nor the
Securities Administrator shall have any obligation or liability to take any
action or to refrain from taking any action hereunder in the absence of written
direction as provided hereunder.

         Section 9.02 CERTAIN MATTERS AFFECTING THE TRUSTEE AND THE SECURITIES
ADMINISTRATOR. Except as otherwise provided in Section 9.01:

                  (i) The Trustee and the Securities Administrator may rely and
         shall be protected in acting or refraining from acting in reliance on
         any resolution, certificate of a Seller, Master Servicer or Servicer,
         certificate of auditors or any other certificate, statement,
         instrument, opinion, report, notice, request, consent, order,
         appraisal, bond or other paper or document believed by it to be genuine
         and to have been signed or presented by the proper party or parties;

                  (ii) The Trustee and the Securities Administrator may consult
         with counsel and any advice of such counsel or any Opinion of Counsel
         shall be full and complete authorization and protection with respect to
         any action taken or suffered or omitted by it hereunder in good faith
         and in accordance with such advice or Opinion of Counsel;

                  (iii) Neither the Trustee nor the Securities Administrator
         shall be under any obligation to exercise any of the trusts or powers
         vested in it by this Agreement, other than its obligation to give
         notices pursuant to this Agreement, or to institute, conduct or defend
         any litigation hereunder or in relation hereto at the request, order or
         direction of any of the Certificateholders pursuant to the provisions
         of this Agreement, unless such Certificateholders shall have offered to
         the Trustee reasonable security or indemnity against the costs,
         expenses and liabilities which may be incurred therein or thereby.
         Nothing contained herein shall, however, relieve the Trustee of the
         obligation, upon the occurrence of an Event of Default of which a
         Responsible Officer of the Trustee's Corporate Trust Office has actual
         knowledge (which has not been cured or waived), subject to Section
         8.02(b), to exercise such of the rights and powers vested in it by this
         Agreement, and to use the same degree of care and skill in their
         exercise, as a prudent person would exercise under the circumstances in
         the conduct of his own affairs;

                  (iv) Prior to the occurrence of an Event of Default hereunder
         and after the curing or waiver of all Events of Default which may have
         occurred, neither the Trustee nor the Securities Administrator shall be
         liable in its individual capacity for any action taken, suffered or
         omitted by it in good faith and believed by it to be authorized or
         within the discretion or rights or powers conferred upon it by this
         Agreement;

                  (v) Neither the Trustee nor the Securities Administrator shall
         be bound to make any investigation into the facts or matters stated in
         any resolution, certificate, statement, instrument, opinion, report,
         notice, request, consent, order, approval, bond or other paper or
         document, unless requested in writing to do so by Holders of
         Certificates evidencing Fractional Undivided Interests aggregating not
         less than 25% of the Trust Fund and provided

                                      -106-

<PAGE>

         that the payment within a reasonable time to the Trustee or the
         Securities Administrator, as applicable, of the costs, expenses or
         liabilities likely to be incurred by it in the making of such
         investigation is, in the opinion of the Trustee or the Securities
         Administrator, as applicable, reasonably assured to the Trustee or the
         Securities Administrator, as applicable, by the security afforded to it
         by the terms of this Agreement. The Trustee or the Securities
         Administrator may require reasonable indemnity against such expense or
         liability as a condition to taking any such action. The reasonable
         expense of every such examination shall be paid by the
         Certificateholders requesting the investigation;

                  (vi) The Trustee and the Securities Administrator may execute
         any of the trusts or powers hereunder or perform any duties hereunder
         either directly or through Affiliates, agents or attorneys; provided,
         however, that the Trustee may not appoint any agent to perform its
         custodial functions with respect to the Mortgage Files or paying agent
         functions under this Agreement without the express written consent of
         the Master Servicer, which consent will not be unreasonably withheld.
         Neither the Trustee nor the Securities Administrator shall be liable or
         responsible for the misconduct or negligence of any of the Trustee's or
         the Securities Administrator's agents or attorneys or a custodian or
         paying agent appointed hereunder by the Trustee or the Securities
         Administrator with due care and, when required, with the consent of the
         Master Servicer;

                  (vii) Should the Trustee or the Securities Administrator deem
         the nature of any action required on its part, other than a payment or
         transfer under Subsection 4.01(b) or Section 4.02, to be unclear, the
         Trustee or the Securities Administrator, respectively, may require
         prior to such action that it be provided by the Seller with reasonable
         further instructions;

                  (viii) The right of the Trustee or the Securities
         Administrator to perform any discretionary act enumerated in this
         Agreement shall not be construed as a duty, and neither the Trustee nor
         the Securities Administrator shall be accountable for other than its
         negligence or willful misconduct in the performance of any such act;

                  (ix) Neither the Trustee nor the Securities Administrator
         shall be required to give any bond or surety with respect to the
         execution of the trust created hereby or the powers granted hereunder,
         except as provided in Subsection 9.07; and

                  (x) Neither the Trustee nor the Securities Administrator shall
         have any duty to conduct any affirmative investigation as to the
         occurrence of any condition requiring the repurchase of any Mortgage
         Loan by the Mortgage Loan Seller pursuant to this Agreement or the
         Mortgage Loan Purchase Agreement, as applicable, or the eligibility of
         any Mortgage Loan for purposes of this Agreement.

                                      -107-

<PAGE>

         Section 9.03 TRUSTEE AND SECURITIES ADMINISTRATOR NOT LIABLE FOR
CERTIFICATES OR MORTGAGE LOANS. The recitals contained herein and in the
Certificates (other than the signature and countersignature of the Trustee on
the Certificates) shall be taken as the statements of the Seller, and neither
the Trustee nor the Securities Administrator shall have any responsibility for
their correctness. Neither the Trustee nor the Securities Administrator makes
any representation as to the validity or sufficiency of the Certificates (other
than the signature and countersignature of the Trustee on the Certificates) or
of any Mortgage Loan except as expressly provided in Sections 2.02 and 2.05
hereof; provided, however, that the foregoing shall not relieve the Trustee of
the obligation to review the Mortgage Files pursuant to Sections 2.02 and 2.04.
The Trustee's signature and countersignature (or countersignature of its agent)
on the Certificates shall be solely in its capacity as Trustee and shall not
constitute the Certificates an obligation of the Trustee in any other capacity.
Neither the Trustee or the Securities Administrator shall be accountable for the
use or application by the Seller of any of the Certificates or of the proceeds
of such Certificates, or for the use or application of any funds paid to the
Seller with respect to the Mortgage Loans. Subject to the provisions of Section
2.05, neither the Trustee nor the Securities Administrator shall not be
responsible for the legality or validity of this Agreement or any document or
instrument relating to this Agreement, the validity of the execution of this
Agreement or of any supplement hereto or instrument of further assurance, or the
validity, priority, perfection or sufficiency of the security for the
Certificates issued hereunder or intended to be issued hereunder. Neither the
Trustee nor the Securities Administrator shall at any time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Mortgage or any Mortgage Loan, or the perfection and
priority of any Mortgage or the maintenance of any such perfection and priority,
or for or with respect to the sufficiency of the Trust Fund or its ability to
generate the payments to be distributed to Certificateholders, under this
Agreement. Neither the Trustee nor the Securities Administrator shall have any
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to record this Agreement
other than any continuation statements filed by the Trustee pursuant to Section
3.20.

         Section 9.04 TRUSTEE AND SECURITIES ADMINISTRATOR MAY OWN CERTIFICATES.
The Trustee and the Securities Administrator in its individual capacity or in
any capacity other than as Trustee hereunder may become the owner or pledgee of
any Certificates with the same rights it would have if it were not Trustee or
the Securities Administrator, as applicable, and may otherwise deal with the
parties hereto.

         Section 9.05 TRUSTEE'S AND SECURITIES ADMINISTRATOR'S FEES AND
EXPENSES. The fees and expenses of the Trustee and the Securities Administrator
shall be paid in accordance with a side letter agreement. In addition, the
Trustee and the Securities Administrator will be entitled to recover from the
Master Servicer Collection Account pursuant to Section 4.03(b) all reasonable
out-of- pocket expenses, disbursements and advances and the expenses of the
Trustee and the Securities Administrator, respectively, in connection with any
Event of Default, any breach of this Agreement or any claim or legal action
(including any pending or threatened claim or legal action) incurred or made by
the Trustee or the Securities Administrator, respectively, in the administration
of the trusts hereunder (including the reasonable compensation, expenses and
disbursements of its counsel) except any such expense, disbursement or advance
as may arise from its negligence or intentional misconduct or which is the
responsibility of the Certificateholders or the Trust Fund hereunder. If

                                      -108-

<PAGE>

funds in the Master Servicer Collection Account are insufficient therefor, the
Trustee and the Securities Administrator shall recover such expenses from the
Seller. Such compensation and reimbursement obligation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust.

         Section 9.06 ELIGIBILITY REQUIREMENTS FOR TRUSTEE AND SECURITIES
ADMINISTRATOR. The Trustee and any successor Trustee and the Securities
Administrator and any successor Securities Administrator shall during the entire
duration of this Agreement be a state bank or trust company or a national
banking association organized and doing business under the laws of such state or
the United States of America, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus and undivided profits of at
least $40,000,000 or, in the case of a successor Trustee, $50,000,000, subject
to supervision or examination by federal or state authority and, in the case of
the Trustee, rated "BBB" or higher by S&P with respect to their long-term rating
and rated "BBB" or higher by S&P and "Baa2" or higher by Moody's with respect to
any outstanding long-term unsecured unsubordinated debt, and, in the case of a
successor Trustee or successor Securities Administrator other than pursuant to
Section 9.10, rated in one of the two highest long-term debt categories of, or
otherwise acceptable to, each of the Rating Agencies. If the Trustee publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.06 the combined capital and surplus of such corporation shall be
deemed to be its total equity capital (combined capital and surplus) as set
forth in its most recent report of condition so published. In case at any time
the Trustee or the Securities Administrator shall cease to be eligible in
accordance with the provisions of this Section 9.06, the Trustee or the
Securities Administrator shall resign immediately in the manner and with the
effect specified in Section 9.08.

         Section 9.07 INSURANCE. The Trustee and the Securities Administrator,
at their own expense, shall at all times maintain and keep in full force and
effect: (i) fidelity insurance, (ii) theft of documents insurance and (iii)
forgery insurance (which may be collectively satisfied by a "Financial
Institution Bond" and/or a "Bankers' Blanket Bond"). All such insurance shall be
in amounts, with standard coverage and subject to deductibles, as are customary
for insurance typically maintained by banks or their affiliates which act as
custodians for investor-owned mortgage pools. A certificate of an officer of the
Trustee or the Securities Administrator as to the Trustee's or the Securities
Administrator's, respectively, compliance with this Section 9.07 shall be
furnished to any Certificateholder upon reasonable written request.

         Section 9.08 RESIGNATION AND REMOVAL OF THE TRUSTEE AND SECURITIES
ADMINISTRATOR. (a) The Trustee and the Securities Administrator may at any time
resign and be discharged from the Trust hereby created by giving written notice
thereof to the Seller and the Master Servicer, with a copy to the Rating
Agencies. Upon receiving such notice of resignation, the Seller shall promptly
appoint a successor Trustee or successor Securities Administrator, as
applicable, by written instrument, in triplicate, one copy of which instrument
shall be delivered to each of the resigning Trustee or Securities Administrator,
as applicable, the successor Trustee or Securities Administrator, as applicable.
If no successor Trustee or Securities Administrator shall have been so appointed
and have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee or Securities Administrator may petition any
court of competent jurisdiction for the appointment of a successor Trustee or
Securities Administrator.

                                      -109-

<PAGE>

         (b) If at any time the Trustee or the Securities Administrator shall
cease to be eligible in accordance with the provisions of Section 9.06 and shall
fail to resign after written request therefor by the Seller or if at any time
the Trustee or the Securities Administrator shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or the
Securities Administrator, as applicable, or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or the
Securities Administrator, as applicable, or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then the Seller shall
promptly remove the Trustee, or shall be entitled to remove the Securities
Administrator, as applicable, and appoint a successor Trustee or Securities
Administrator, as applicable, by written instrument, in triplicate, one copy of
which instrument shall be delivered to each of the Trustee or Securities
Administrator, as applicable, so removed, the successor Trustee or Securities
Administrator, as applicable.

         (c) The Holders of Certificates evidencing Fractional Undivided
Interests aggregating not less than 51% of the Trust Fund may at any time remove
the Trustee or the Securities Administrator and appoint a successor Trustee or
Securities Administrator by written instrument or instruments, in quadruplicate,
signed by such Holders or their attorneys-in-fact duly authorized, one complete
set of which instruments shall be delivered to the Seller, the Master Servicer,
the Securities Administrator (if the Trustee is removed), the Trustee (if the
Securities Administrator is removed), and the Trustee or Securities
Administrator so removed and the successor so appointed.

         (d) No resignation or removal of the Trustee or the Securities
Administrator and appointment of a successor Trustee or Securities Administrator
pursuant to any of the provisions of this Section 9.08 shall become effective
except upon appointment of and acceptance of such appointment by the successor
Trustee or Securities Administrator as provided in Section 9.09.

         Section 9.09 SUCCESSOR TRUSTEE AND SUCCESSOR SECURITIES ADMINISTRATOR.
(a) Any successor Trustee or Securities Administrator appointed as provided in
Section 9.08 shall execute, acknowledge and deliver to the Seller and to its
predecessor Trustee or Securities Administrator an instrument accepting such
appointment hereunder. The resignation or removal of the predecessor Trustee or
Securities Administrator shall then become effective and such successor Trustee
or Securities Administrator, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Trustee or
Securities Administrator herein. The predecessor Trustee or Securities
Administrator shall after payment of its outstanding fees and expenses promptly
deliver to the successor Trustee or Securities Administrator, as applicable, all
assets and records of the Trust held by it hereunder, and the Seller and the
predecessor Trustee or Securities Administrator, as applicable, shall execute
and deliver such instruments and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in the successor
Trustee or Securities Administrator, as applicable, all such rights, powers,
duties and obligations.

         (b) No successor Trustee or Securities Administrator shall accept
appointment as provided in this Section 9.09 unless at the time of such
acceptance such successor Trustee or Securities Administrator shall be eligible
under the provisions of Section 9.06.

                                      -110-

<PAGE>

         (c) Upon acceptance of appointment by a successor Trustee or Securities
Administrator as provided in this Section 9.09, the successor Trustee or
Securities Administrator shall mail notice of the succession of such Trustee or
Securities Administrator hereunder to all Certificateholders at their addresses
as shown in the Certificate Register and to the Rating Agencies. EMC shall pay
the cost of any mailing by the successor Trustee or Securities Administrator.

         Section 9.10 MERGER OR CONSOLIDATION OF TRUSTEE OR SECURITIES
ADMINISTRATOR. Any state bank or trust company or national banking association
into which the Trustee or the Securities Administrator may be merged or
converted or with which it may be consolidated or any state bank or trust
company or national banking association resulting from any merger, conversion or
consolidation to which the Trustee or the Securities Administrator,
respectively, shall be a party, or any state bank or trust company or national
banking association succeeding to all or substantially all of the corporate
trust business of the Trustee or the Securities Administrator, respectively,
shall be the successor of the Trustee or the Securities Administrator,
respectively, hereunder, provided such state bank or trust company or national
banking association shall be eligible under the provisions of Section 9.06. Such
succession shall be valid without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.

         Section 9.11 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a)
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust or property constituting the same may at the time be located, the Seller
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
and the Seller to act as cotrustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust, and to
vest in such Person or Persons, in such capacity, such title to the Trust, or
any part thereof, and, subject to the other provisions of this Section 9.11,
such powers, duties, obligations, rights and trusts as the Seller and the
Trustee may consider necessary or desirable.

         (b) If the Seller shall not have joined in such appointment within 15
days after the receipt by it of a written request so to do, the Trustee shall
have the power to make such appointment without the Seller.

         (c) No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor Trustee under Section 9.06
hereunder and no notice to Certificateholders of the appointment of
co-trustee(s) or separate trustee(s) shall be required under Section 9.08
hereof.

         (d) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.11, all rights, powers, duties and obligations
conferred or imposed upon the Trustee and required to be conferred on such
co-trustee shall be conferred or imposed upon and exercised or performed by the
Trustee and such separate trustee or co-trustee jointly, except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed (whether as Trustee hereunder or as successor to the Master
Servicer hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in any such

                                      -111-

<PAGE>

jurisdiction) shall be exercised and performed by such separate trustee or
co-trustee at the direction of the Trustee.

         (e) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.

         (f) To the extent not prohibited by law, any separate trustee or
co-trustee may, at any time, request the Trustee, its agent or attorney-in-fact,
with full power and authority, to do any lawful act under or with respect to
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor Trustee.

         (g) No trustee under this Agreement shall be personally liable by
reason of any act or omission of another trustee under this Agreement. The
Seller and the Trustee acting jointly may at any time accept the resignation of
or remove any separate trustee or co-trustee.

         Section 9.12 FEDERAL INFORMATION RETURNS AND REPORTS TO
CERTIFICATEHOLDERS; REMIC ADMINISTRATION. (a) For federal income tax purposes,
the taxable year of each of REMIC I, REMIC II, REMIC III and REMIC IV shall be a
calendar year and the Securities Administrator shall maintain or cause the
maintenance of the books of each such REMIC on the accrual method of accounting.

         (b) The Securities Administrator shall prepare and file or cause to be
filed with the Internal Revenue Service, and the Trustee shall sign, Federal tax
information returns or elections required to be made hereunder with respect to
each of REMIC I, REMIC II, REMIC III and REMIC IV, the Trust Fund, if
applicable, and the Certificates containing such information and at the times
and in the manner as may be required by the Code or applicable Treasury
regulations, and shall furnish to each Holder of Certificates at any time during
the calendar year for which such returns or reports are made such statements or
information at the times and in the manner as may be required thereby,
including, without limitation, reports relating to interest, original issue
discount and market discount or premium (using a constant prepayment assumption
of 25% CPR). The Securities Administrator will apply for an Employee
Identification Number from the IRS under Form SS-4 or any other acceptable
method for all tax entities. In connection with the foregoing, the Securities
Administrator shall timely prepare and file, and the Trustee shall sign, IRS
Form 8811, which shall provide the name and address of the person who can be
contacted to obtain information required to be reported to the holders of
regular interests in each of REMIC I, REMIC II, REMIC III and REMIC IV (the
"REMIC Reporting Agent"). The Trustee shall make elections to treat each of
REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC (which elections shall
apply to the

                                      -112-

<PAGE>

taxable period ending December 31, 2002 and each calendar year thereafter) in
such manner as the Code or applicable Treasury regulations may prescribe, and as
described by the Securities Administrator. The Trustee shall sign all tax
information returns filed pursuant to this Section and any other returns as may
be required by the Code. The Holder of the Class R-I Certificate is hereby
designated as the "Tax Matters Person" (within the meaning of Treas. Reg.
ss.ss.1.860F-4(d)) for REMIC I, the Holder of the Class R-II Certificate is
hereby designated as the "Tax Matters Person" for REMIC II, the Holder of the
Class R-III Certificate is hereby designated as the "Tax Matters Person" for
REMIC III and the Holder of the Class R-IV Certificate is hereby designated as
the "Tax Matters Person" for REMIC IV. The Securities Administrator is hereby
designated and appointed as the agent of each such Tax Matters Person. Any
Holder of a Residual Certificate will by acceptance thereof appoint the
Securities Administrator as agent and attorney-in-fact for the purpose of acting
as Tax Matters Person for each of REMIC I, REMIC II, REMIC III and REMIC IV
during such time as the Securities Administrator does not own any such Residual
Certificate. In the event that the Code or applicable Treasury regulations
prohibit the Trustee from signing tax or information returns or other
statements, or the Securities Administrator from acting as agent for the Tax
Matters Person, the Trustee and the Securities Administrator shall take whatever
action that in its sole good faith judgment is necessary for the proper filing
of such information returns or for the provision of a tax matters person,
including designation of the Holder of a Residual Certificate to sign such
returns or act as tax matters person. Each Holder of a Residual Certificate
shall be bound by this Section.

         (c) The Securities Administrator shall provide upon request and receipt
of reasonable compensation, such information as required in Section
860D(a)(6)(B) of the Code to the Internal Revenue Service, to any Person
purporting to transfer a Residual Certificate to a Person other than a
transferee permitted by Section 5.05(b), and to any regulated investment
company, real estate investment trust, common trust fund, partnership, trust,
estate, organization described in Section 1381 of the Code, or nominee holding
an interest in a pass-through entity described in Section 860E(e)(6) of the
Code, any record holder of which is not a transferee permitted by Section
5.05(b) (or which is deemed by statute to be an entity with a disqualified
member).

         (d) The Securities Administrator shall prepare and file or cause to be
filed, and the Trustee shall sign, any state income tax returns required under
Applicable State Law with respect to each of REMIC I, REMIC II, REMIC III and
REMIC IV or the Trust Fund.

         (e) Notwithstanding any other provision of this Agreement, the Trustee
and the Securities Administrator shall comply with all federal withholding
requirements respecting payments to Certificateholders of interest or original
issue discount on the Mortgage Loans, that the Trustee or the Securities
Administrator reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for such withholding. In the event the
Trustee or the Securities Administrator withholds any amount from interest or
original issue discount payments or advances thereof to any Certificateholder
pursuant to federal withholding requirements, the Trustee or the Securities
Administrator shall, together with its monthly report to such
Certificateholders, indicate such amount withheld.

         (f) The Trustee and the Securities Administrator agree to indemnify the
Trust Fund and the Seller for any taxes and costs including, without limitation,
any reasonable attorneys fees

                                      -113-

<PAGE>

imposed on or incurred by the Trust Fund, the Seller or the Master Servicer, as
a result of a breach of the Trustee's covenants and the Securities
Administrator's covenants, respectively, set forth in this Section 9.12;
provided, however, such liability and obligation to indemnify in this paragraph
shall not be joint and several and neither the Trustee nor the Securities
Administrator shall be liable or be obligated to indemnify the Trust Fund for
the failure by the other to perform any duty under this Agreement or the breach
by the other of any covenant in this Agreement.

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<PAGE>

                                    ARTICLE X
                                   Termination

         Section 10.01 TERMINATION UPON REPURCHASE BY THE SELLER OR ITS DESIGNEE
OR LIQUIDATION OF THE MORTGAGE LOANS.

         (a) Subject to Section 10.03, the respective obligations and
responsibilities of the Seller, the Trustee, the Master Servicer and the
Securities Administrator created hereby, other than the obligation of the
Trustee to make payments to Certificateholders as hereinafter set forth shall
terminate upon:

                  (i) the repurchase by or at the direction of the Seller or its
         designee of all Mortgage Loans and all related REO Property remaining
         in the Trust at a price equal to (a) 100% of the Outstanding Principal
         Balance of each Mortgage Loan (other than a Mortgage Loan related to
         REO Property) as of the date of repurchase, net of the principal
         portion of any unreimbursed Monthly Advances made by the purchaser,
         together with interest at the applicable Mortgage Interest Rate accrued
         but unpaid to, but not including, the first day of the month of
         repurchase, plus (b) the appraised value of any related REO Property,
         less the good faith estimate of the Seller of liquidation expenses to
         be incurred in connection with its disposal thereof (but not more than
         the Outstanding Principal Balance of the related Mortgage Loan,
         together with interest at the applicable Mortgage Interest Rate accrued
         on that balance but unpaid to, but not including, the first day of the
         month of repurchase), such appraisal to be calculated by an appraiser
         mutually agreed upon by the Seller and the Trustee at the expense of
         the Seller; or

                  (ii) the later of the making of the final payment or other
         liquidation, or any advance with respect thereto, of the last Mortgage
         Loan remaining in the Trust Fund or the disposition of all property
         acquired with respect to any Mortgage Loan; provided, however, that in
         the event that an advance has been made, but not yet recovered, at the
         time of such termination, the Person having made such advance shall be
         entitled to receive, notwithstanding such termination, any payments
         received subsequent thereto with respect to which such advance was
         made; or

                  (iii) the payment to Certificateholders of all amounts
         required to be paid to them pursuant to this Agreement.

         (b) In no event, however, shall the Trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James's, living on the date of this Agreement.

         (c) The right of the Seller or its designee to repurchase all the
Mortgage Loans pursuant to Subsection 10.01(a)(i) above shall be exercisable
only if (i) the aggregate Scheduled Principal Balance of the Mortgage Loans at
the time of any such repurchase is less than 5% of the Cut-off Date Balance or
(ii) the Seller, based upon an Opinion of Counsel, has determined that the REMIC
status of the REMIC I, REMIC II, REMIC III or REMIC IV has been lost or that a
substantial risk exists that such REMIC status will be lost for the then-current
taxable year. At any time thereafter,

                                      -115-

<PAGE>

in the case of (i) or (ii) above, the Seller may elect to terminate REMIC I,
REMIC II, REMIC III and REMIC IV at any time, and upon such election, the Seller
or its designee, shall repurchase all the Mortgage Loans.

         (d) The Trustee shall give notice of any termination to the
Certificateholders, with a copy to the Master Servicer, the Securities
Administrator and the Rating Agencies, upon which the Certificateholders shall
surrender their Certificates to the Trustee for payment of the final
distribution and cancellation. Such notice shall be given by letter, mailed not
earlier than the l5th day and not later than the 25th day of the month next
preceding the month of such final distribution, and shall specify (i) the
Distribution Date upon which final payment of the Certificates will be made upon
presentation and surrender of the Certificates at the office of the Trustee
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trustee therein specified.

         (e) If the option of the Seller to repurchase or cause the repurchase
of all the Mortgage Loans under Subsection 10.01 (a)(i) above is exercised, the
Seller and/or its designee shall deliver to the Trustee for deposit in the
Distribution Account, by the Business Day prior to the applicable Distribution
Date, an amount equal to the repurchase price for the Mortgage Loans being
purchased by it and all property acquired with respect to such Mortgage Loans
remaining in REMIC I, REMIC II, REMIC III and REMIC IV. Upon presentation and
surrender of the Certificates by the Certificateholders, the Trustee shall
distribute to the Certificateholders an amount determined as follows: with
respect to each Certificate (other than the Class R Certificates), the
outstanding Current Principal Amount, plus with respect to each Certificate
(other than the Class R Certificates), one month's interest thereon at the
applicable Pass-Through Rate; and with respect to the Class R Certificates, the
percentage interest evidenced thereby multiplied by the difference, if any,
between the above described repurchase price and the aggregate amount to be
distributed to the Holders of the Certificates (other than the Class R
Certificates). If the proceeds with respect to the Group 1 Mortgage Loans are
not sufficient to pay all of the Group 1 Certificates in full, any such
deficiency will be allocated first, to the Subordinate Certificates, in inverse
order of their numerical designation, and then to the Group 1 Senior
Certificates on a pro rata basis. If the proceeds with respect to the Group 2
Mortgage Loans are not sufficient to pay all of the Group 2 Certificates in
full, any such deficiency will be allocated first, to the Subordinate
Certificates, in inverse order of their numerical designation, and then to the
Group 2 Senior Certificates on a pro rata basis. If the proceeds with respect to
the Group 2 Mortgage Loans are not sufficient to pay all of the Group 2
Certificates in full, any such deficiency will be allocated first, to the
Subordinate Certificates, in inverse order of their numerical designation, and
then to the Group 2 Senior Certificates on a pro rata basis. If the proceeds
with respect to the Group 3 Mortgage Loans are not sufficient to pay all of the
Group 3 Certificates in full, any such deficiency will be allocated first, to
the Subordinate Certificates, in inverse order of their numerical designation,
and then to the Group 3 Senior Certificates on a pro rata basis. If the proceeds
with respect to the Group 4 Mortgage Loans are not sufficient to pay all of the
Group 4 Certificates in full, any such deficiency will be allocated first, to
the Subordinate Certificates, in inverse order of their numerical designation,
and then to the Group 4 Senior Certificates on a pro rata basis. If the proceeds
with respect to the Group 5 Mortgage Loans are not sufficient to pay all of the
Group 5 Certificates in full, any such deficiency will be allocated first, to
the Subordinate Certificates, in inverse order of their numerical designation,
and then to the Group

                                      -116-

<PAGE>

5 Senior Certificates on a pro rata basis. If the proceeds with respect to the
Group 6 Mortgage Loans are not sufficient to pay all of the Group 6 Certificates
in full, any such deficiency will be allocated first, to the Subordinate
Certificates, in inverse order of their numerical designation, and then to the
Group 6 Senior Certificates on a pro rata basis. If the proceeds with respect to
the Group 7 Mortgage Loans are not sufficient to pay all of the Group 7
Certificates in full, any such deficiency will be allocated first, to the
Subordinate Certificates, in inverse order of their numerical designation, and
then to the Group 7 Senior Certificates on a pro rata basis. Upon deposit of the
required repurchase price and following such final Distribution Date, the
Trustee shall release promptly to the Seller and/or its designee the Mortgage
Files for the remaining applicable Mortgage Loans, and the Accounts with respect
thereto shall terminate, subject to the Trustee's obligation to hold any amounts
payable to Certificateholders in trust without interest pending final
distributions pursuant to Subsection 10.01(g). Any other amounts remaining in
the Accounts will belong to the Seller. Upon deposit of the required repurchase
price and following such final Distribution Date, the Trustee shall release
promptly to the Seller and/or its designee, as the case may be, the Mortgage
Files for the remaining Mortgage Loans, and the Accounts with respect thereto
shall terminate, subject to the Trustee's obligation to hold any amounts payable
to Certificateholders in trust without interest pending final distributions
pursuant to Subsection 10.01(g).

         (f) In the event that this Agreement is terminated by reason of the
payment or liquidation of all Mortgage Loans or the disposition of all property
acquired with respect to all Mortgage Loans under Subsection 10.01(a)(ii) above,
the Master Servicer shall deliver to the Trustee for deposit in the Distribution
Account all distributable amounts remaining in the Master Servicer Collection
Account. Upon the presentation and surrender of the Certificates, the Trustee
shall distribute to the remaining Certificateholders, in accordance with their
respective interests, all distributable amounts remaining in the Distribution
Account. Upon deposit by the Master Servicer of such distributable amounts, and
following such final Distribution Date, the Trustee shall release promptly to
the Seller or its designee the Mortgage Files for the remaining Mortgage Loans,
and the Master Servicer Collection Account and the Distribution Account shall
terminate, subject to the Trustee's obligation to hold any amounts payable to
the Certificateholders in trust without interest pending final distributions
pursuant to this Subsection 10.01(g).

         (g) If not all of the Certificateholders shall surrender their
Certificates for cancellation within six months after the time specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice, not all the Certificates shall have been
surrendered for cancellation, the Trustee may take appropriate steps, or appoint
any agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Certificates, and the cost thereof shall be paid
out of the funds and other assets which remain subject to this Agreement.

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<PAGE>

         Section 10.02 REPURCHASE BY COUNTRYWIDE OF THE COUNTRYWIDE MORTGAGE
LOANS. If the option of Countrywide to repurchase or cause the repurchase of all
the Countrywide Mortgage Loans as provided in the Countrywide Servicing
Agreement is exercised, the Seller and/or its designee shall deliver to the
Trustee for deposit in the Distribution Account, by the Business Day prior to
the applicable Distribution Date, an amount equal to the repurchase price for
the Mortgage Loans being purchased by it and all property acquired with respect
to such Mortgage Loans remaining in REMIC I.

         Section 10.03 ADDITIONAL TERMINATION REQUIREMENTS. (a) If the option of
the Seller to repurchase all the Mortgage Loans under Subsection 10.01(a)(i)
above is exercised, the Trust Fund and each of REMIC I, REMIC II, REMIC III and
REMIC IV shall be terminated, or if the option of Countrywide to repurchase all
the Countrywide Mortgage Loans under the related Servicing Agreement is
exercised, REMIC I shall be terminated, in each case in accordance with the
following additional requirements, unless the Trustee has been furnished with an
Opinion of Counsel to the effect that the failure of the Trust to comply with
the requirements of this Section 10.03 will not (i) result in the imposition of
taxes on "prohibited transactions" as defined in Section 860F of the Code on
REMIC I, REMIC II, REMIC III or REMIC IV or (ii) cause any REMIC to fail to
qualify as a REMIC at any time that any Regular Certificates are outstanding:

                  (i) within 90 days prior to the final Distribution Date, at
         the written direction of the Seller, the Trustee, as agent for the
         respective Tax Matters Persons, shall adopt a plan of complete
         liquidation of REMIC I, REMIC II, REMIC III and REMIC IV in the case of
         a termination under Subsection 10.01(a)(i), or a plan of complete
         liquidation of REMIC I in the case of a termination under Subsection
         10.02, provided to it by the Seller meeting the requirements of a
         "qualified liquidation" under Section 860F of the Code and any
         regulations thereunder.

                  (ii) the Seller shall notify the Trustee at the commencement
         of such 90-day liquidation period and, at or prior to the time of
         making of the final payment on the Certificates, the Trustee shall sell
         or otherwise dispose of all of the remaining assets of the Trust Fund
         in accordance with the terms hereof; and

                  (iii) at or after the time of adoption of such a plan of
         complete liquidation of any of REMIC I, REMIC II, REMIC III and REMIC
         IV, or REMIC I, as applicable, and at or prior to the final
         Distribution Date relating thereto, the Trustee shall sell for cash all
         of the assets of the Trust, or all the assets of REMIC I, as
         applicable, to or at the direction of the Seller, and REMIC I, REMIC
         II, REMIC III and REMIC IV, or REMIC I, as applicable, shall terminate
         at such time.

         (b) By their acceptance of the Residual Certificates, the Holders
thereof hereby (i) agree to adopt such a plan of complete liquidation of the
related REMIC upon the written request of the Seller, and to take such action in
connection therewith as may be reasonably requested by the Seller and (ii)
appoint the Seller as their attorney-in-fact, with full power of substitution,
for purposes of adopting such a plan of complete liquidation. The Trustee shall
adopt such plan of liquidation by filing the appropriate statement on the final
tax return of each REMIC. Upon complete liquidation

                                      -118-

<PAGE>

or final distribution of all of the assets of the Trust Fund, the Trust Fund and
each of REMIC I, REMIC II, REMIC III and REMIC IV shall terminate.

                                      -119-

<PAGE>

                                   ARTICLE XI
                            Miscellaneous Provisions

         Section 11.01 INTENT OF PARTIES. The parties intend that each of REMIC
I, REMIC II, REMIC III and REMIC IV shall be treated as a REMIC for federal
income tax purposes and that the provisions of this Agreement should be
construed in furtherance of this intent.

         Section 11.02 AMENDMENT. (a) This Agreement may be amended from time to
time by EMC, the Seller, the Master Servicer, the Securities Administrator and
the Trustee, and the Servicing Agreements may be amended from time to time by
EMC, the Master Servicer and the Trustee, without notice to or the consent of
any of the Certificateholders, to cure any ambiguity, to correct or supplement
any provisions herein or therein that may be defective or inconsistent with any
other provisions herein or therein, to comply with any changes in the Code or to
make any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that such action shall not, as evidenced by an
Opinion of Independent Counsel, addressed to the Trustee, adversely affect in
any material respect the interests of any Certificateholder.

         (b) This Agreement may also be amended from time to time by EMC, the
Master Servicer, the Seller, the Securities Administrator and the Trustee, and
the Servicing Agreements may also be amended from time to time by the Master
Servicer and the Trustee, with the consent of the Holders of Certificates
evidencing Fractional Undivided Interests aggregating not less than 51% of the
Trust Fund or of the applicable Class or Classes, if such amendment affects only
such Class or Classes, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Certificateholders; provided, however,
that no such amendment shall (i) reduce in any manner the amount of, or delay
the timing of, payments received on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) reduce the aforesaid percentage of Certificates the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all Certificates then outstanding, or (iii) cause REMIC I, REMIC II,
REMIC III or REMIC IV to fail to qualify as a REMIC for federal income tax
purposes, as evidenced by an Opinion of Independent Counsel which shall be
provided to the Trustee other than at the Trustee's expense. Notwithstanding any
other provision of this Agreement, for purposes of the giving or withholding of
consents pursuant to Section 11.02(b), Certificates registered in the name of or
held for the benefit of the Seller, the Securities Administrator, the Master
Servicer, or the Trustee or any Affiliate thereof shall be entitled to vote
their Fractional Undivided Interests with respect to matters affecting such
Certificates.

         (c) Promptly after the execution of any such amendment, the Trustee
shall furnish a copy of such amendment or written notification of the substance
of such amendment to each Certificateholder, with a copy to the Rating Agencies.

         (d) In the case of an amendment under Subsection 11.02(b) above, it
shall not be necessary for the Certificateholders to approve the particular form
of such an amendment. Rather, it shall be sufficient if the Certificateholders
approve the substance of the amendment. The manner

                                      -120-

<PAGE>

of obtaining such consents and of evidencing the authorization of the execution
thereof by Certificateholders shall be subject to such reasonable regulations as
the Trustee may prescribe.

         (e) Prior to the execution of any amendment to this Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Trustee and the Securities Administrator may, but shall not be
obligated to, enter into any such amendment which affects the Trustee's or the
Securities Administrator's own respective rights, duties or immunities under
this Agreement.

         Section 11.03 RECORDATION OF AGREEMENT. To the extent permitted by
applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated, and
in any other appropriate public recording office or elsewhere. The Seller shall
effect such recordation, at the expense of the Trust upon the request in writing
of a Certificateholder, but only if such direction is accompanied by an Opinion
of Counsel (provided at the expense of the Certificateholder requesting
recordation) to the effect that such recordation would materially and
beneficially affect the interests of the Certificateholders or is required by
law.

         Section 11.04 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. (a) The death
or incapacity of any Certificateholder shall not terminate this Agreement or the
Trust, nor entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

         (b) Except as expressly provided in this Agreement, no
Certificateholders shall have any right to vote or in any manner otherwise
control the operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Certificates, be construed so as to establish the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholders be under any liability to any third Person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.

         (c) No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon, under or with respect to this Agreement against the
Seller, the Securities Administrator, the Master Servicer or any successor to
any such parties unless (i) such Certificateholder previously shall have given
to the Trustee a written notice of a continuing default, as herein provided,
(ii) the Holders of Certificates evidencing Fractional Undivided Interests
aggregating not less than 51% of the Trust Fund shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs and expenses and liabilities to be
incurred therein or thereby, and (iii) the Trustee, for 60 days after its
receipt of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding.

         (d) No one or more Certificateholders shall have any right by virtue of
any provision of this Agreement to affect the rights of any other
Certificateholders or to obtain or seek to obtain

                                      -121-

<PAGE>

priority or preference over any other such Certificateholder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section 11.04, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.

         Section 11.05 ACTS OF CERTIFICATEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by Certificateholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Certificateholders in person or by an agent duly appointed in writing.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is expressly required, to the Seller. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Agreement and conclusive in favor of the Trustee and the Seller,
if made in the manner provided in this Section 11.05.

         (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her authority. The fact and date of the execution of any such
instrument or writing, or the authority of the individual executing the same,
may also be proved in any other manner which the Trustee deems sufficient.

         (c) The ownership of Certificates (notwithstanding any notation of
ownership or other writing on such Certificates, except an endorsement in
accordance with Section 5.02 made on a Certificate presented in accordance with
Section 5.04) shall be proved by the Certificate Register, and neither the
Trustee, the Securities Administrator, the Seller, the Master Servicer nor any
successor to any such parties shall be affected by any notice to the contrary.

         (d) Any request, demand, authorization, direction, notice, consent,
waiver or other action of the holder of any Certificate shall bind every future
holder of the same Certificate and the holder of every Certificate issued upon
the registration of transfer or exchange thereof, if applicable, or in lieu
thereof with respect to anything done, omitted or suffered to be done by the
Trustee, the Securities Administrator, the Seller, the Master Servicer or any
successor to any such party in reliance thereon, whether or not notation of such
action is made upon such Certificates.

         (e) In determining whether the Holders of the requisite percentage of
Certificates evidencing Fractional Undivided Interests have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Certificates owned by the Trustee, the Securities Administrator, the Seller, the
Master Servicer or any Affiliate thereof shall be disregarded, except as
otherwise provided in Section 11.02(b) and except that, in determining whether
the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Certificates which the
Trustee knows to be so owned shall be so disregarded. Certificates which have
been pledged in good faith to the Trustee, the Securities Administrator, the
Seller, the Master

                                      -122-

<PAGE>

Servicer or any Affiliate thereof may be regarded as outstanding if the pledgor
establishes to the satisfaction of the Trustee the pledgor's right to act with
respect to such Certificates and that the pledgor is not an Affiliate of the
Trustee, the Securities Administrator, the Seller, or the Master Servicer, as
the case may be.

         Section 11.06 GOVERNING LAW. THIS AGREEMENT AND THE CERTIFICATES SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO ITS CONFLICT OF LAWS RULES AND THE OBLIGATIONS, RIGHTS AND REMEDIES
OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         Section 11.07 NOTICES. All demands and notices hereunder shall be in
writing and shall be deemed given when delivered at (including delivery by
facsimile) or mailed by registered mail, return receipt requested, postage
prepaid, or by recognized overnight courier, to (i) in the case of the Seller,
383 Madison Avenue, New York, New York 10179, Attention: Vice
President-Servicing, telecopier number: (212) 272-5591, or to such other address
as may hereafter be furnished to the other parties hereto in writing; (ii) in
the case of the Trustee, at its Corporate Trust Office, or such other address as
may hereafter be furnished to the other parties hereto in writing; (iii) in the
case of the EMC, 383 Madison Avenue, New York, New York 10179, Attention: Vice
President-Servicing, telecopier number: (212) 272-5591, or to such other address
as may hereafter be furnished to the other parties hereto in writing; (iv) in
the case of the Master Servicer or Securities Administrator, Wells Fargo Bank
Minnesota, National Association, 9062 Old Annapolis Road, Columbia, Maryland
21044 (Attention: BART 2002-5), facsimile no.: (410) 715-4513, or such other
address as may hereafter be furnished to the other parties hereto in writing; or
(v) in the case of the Rating Agencies, Moody's Investors Service, Inc., 99
Church Street, New York, New York 10007, and Standard & Poor's, a division of
The McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041. Any
notice delivered to the Seller, the Master Servicer, the Securities
Administrator or the Trustee under this Agreement shall be effective only upon
receipt. Any notice required or permitted to be mailed to a Certificateholder,
unless otherwise provided herein, shall be given by first-class mail, postage
prepaid, at the address of such Certificateholder as shown in the Certificate
Register. Any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given when mailed, whether or
not the Certificateholder receives such notice.

         Section 11.08 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severed from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.

                                      -123-

<PAGE>

         Section 11.09 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto.

         Section 11.10 ARTICLE AND SECTION HEADINGS. The article and section
headings herein are for convenience of reference only, and shall not limit or
otherwise affect the meaning hereof.

         Section 11.11 COUNTERPARTS. This Agreement may be executed in two or
more counterparts each of which when so executed and delivered shall be an
original but all of which together shall constitute one and the same instrument.

         Section 11.12 NOTICE TO RATING AGENCIES. The article and section
headings herein are for convenience of reference only, and shall not limited or
otherwise affect the meaning hereof. The Trustee shall promptly provide notice
to each Rating Agency with respect to each of the following of which it has
actual knowledge:

         1.       Any material change or amendment to this Agreement or the
Servicing Agreements;

         2.       The occurrence of any Event of Default that has not been
cured;

         3.       The resignation or termination of the Master Servicer, the
Trustee or the Securities Administrator;

         4.       The repurchase or substitution of Mortgage Loans;

         5.       The final payment to Certificateholders; and

         6.       Any change in the location of the Master Servicer Collection
Account or the Distribution Account.

                                      -124-

<PAGE>

         IN WITNESS WHEREOF, the Seller, the Trustee, the Master Servicer and
the Securities Administrator have caused their names to be signed hereto by
their respective officers thereunto duly authorized as of the day and year first
above written.

                                        STRUCTURED ASSET MORTGAGE
                                        INVESTMENTS INC., as Seller

                                        By:
                                           -------------------------------------
                                        Name: Baron Silverstein
                                        Title: Managing Director

                                        BANK ONE, NATIONAL ASSOCIATION,
                                        as Trustee

                                        By:
                                           -------------------------------------
                                        Name:
                                        Title:

                                        WELLS FARGO BANK MINNESOTA,
                                        NATIONAL ASSOCIATION, as Master
                                        Servicer

                                        By:
                                           -------------------------------------
                                        Name: Stacey Wainwright
                                        Title: Assistant Vice President

                                        WELLS FARGO BANK MINNESOTA,
                                        NATIONAL ASSOCIATION, as Securities
                                        Administrator

                                        By:
                                           -------------------------------------
                                        Name: Stacey Wainwright
                                        Title: Assistant Vice President

<PAGE>

                                        EMC MORTGAGE CORPORATION

                                        By:
                                           -------------------------------------
                                        Name:
                                        Title:

Accepted and Agreed as to
Sections 2.01, 2.02, 2.03, 2.04 and 9.09(c)
in its capacity as Mortgage Loan Seller

EMC MORTGAGE CORPORATION

By:
   ---------------------------------
Name:
Title:

<PAGE>

STATE OF NEW YORK    )
                     ) ss.:
COUNTY OF NEW YORK   )

         On the __th day of May, 2002 before me, a notary public in and for said
State, personally appeared Baron Silverstein, known to me to be a(n) Managing
Director of Structured Asset Mortgage Investments Inc., the corporation that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                ______________________________
                                                      Notary Public

[Notarial Seal]

<PAGE>

STATE OF NEW YORK       )
                        ) ss.:
COUNTY OF NEW YORK      )

         On the ___ day of May, 2002 before me, a notary public in and for said
State, personally appeared _______________, known to me to be a(n)
______________ of Bank One, National Association, the entity that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said entity, and acknowledged to me that such entity executed the
within instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                ______________________________
                                                      Notary Public

[Notarial Seal]

<PAGE>

STATE OF MARYLAND      )
                       ) ss.:
COUNTY OF HOWARD       )

         On the ___ day of May, 2002 before me, a notary public in and for said
State, personally appeared Stacey Wainwright, known to me to be a(n) Assistant
Vice President of Wells Fargo Bank Minnesota, National Association, the entity
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said entity, and acknowledged to me that such entity
executed the within instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                ______________________________
                                                      Notary Public

[Notarial Seal]

<PAGE>

STATE OF MARYLAND       )
                        ) ss.:
COUNTY OF HOWARD        )

         On the ___ day of May, 2002 before me, a notary public in and for said
State, personally appeared Stacey Wainwright, known to me to be a(n) Assistant
Vice President of Wells Fargo Bank Minnesota, National Association, the entity
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said entity, and acknowledged to me that such entity
executed the within instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                ______________________________
                                                      Notary Public

[Notarial Seal]

<PAGE>

STATE OF NEW YORK       )
                        ) ss.:
COUNTY OF NEW YORK      )

         On the ___ day of May, 2002 before me, a notary public in and for said
State, personally appeared _______________, known to me to be ______________ of
EMC Mortgage Corporation, the corporation that executed the within instrument,
and also known to me to be the person who executed it on behalf of said
corporation, and acknowledged to me that such corporation executed the within
instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                ______________________________
                                                      Notary Public

[Notarial Seal]

<PAGE>

STATE OF NEW YORK                   )
                                    ) ss.:
COUNTY OF NEW YORK                  )

         On the __th day of May, 2002 before me, a notary public in and for said
State, personally appeared ________________, known to me to be ______________ of
EMC Mortgage Corporation, the corporation that executed the within instrument,
and also known to me to be the person who executed it on behalf of said
corporation, and acknowledged to me that such corporation executed the within
instrument.

         IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.

                                                ______________________________
                                                      Notary Public

[Notarial Seal]

<PAGE>

                                                                     EXHIBIT A-1

                       FORM OF CLASS [_-A] [X] CERTIFICATE

                  SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE
IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986 (THE "CODE").

                  THE CURRENT PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE
DECREASED BY THE PRINCIPAL PAYMENTS HEREON AND REALIZED LOSSES ALLOCABLE HERETO.
ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CURRENT
PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE DENOMINATION
SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE NAMED HEREIN.

                  UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE TRUSTEE OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED WILL
BE REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT WILL
BE MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.

                                       A-1

<PAGE>

<TABLE>
<CAPTION>
<S>                                                       <C>
Certificate No._                                          Variable Pass-Through Rate

Class [_-A] Senior

Date of Pooling and Servicing Agreement and               Aggregate [Notional ][ Initial Current
Cut-off Date: May 1, 2002                                 Principal] Amount of the Senior Certificates as
                                                          of the Cut-off Date:
                                                          $-----------

First Distribution Date:                                  Initial [Notional] [Current Principal] Amount
June 25, 2002                                             of this Senior Certificate as of the Cut-off
                                                          Date: $___________

Master Servicer:
Wells Fargo Bank Minnesota, National
Association                                               CUSIP:___________

Assumed Final Distribution Date:
June 25, 2032
</TABLE>

                        MORTGAGE PASS-THROUGH CERTIFICATE
                                  SERIES 2002-5

         evidencing a fractional undivided interest in the distributions
         allocable to the Class [_-A] Certificates with respect to a Trust Fund
         consisting primarily of a pool of adjustable interest rate mortgage
         loans secured by first liens on one-to-four family residential
         properties and individual condominium units sold by STRUCTURED ASSET
         MORTGAGE INVESTMENTS INC.

                  This Certificate is payable solely from the assets of the
Trust Fund, and does not represent an obligation of or interest in Structured
Asset Mortgage Investments Inc., the Master Servicer or the Trustee referred to
below or any of their affiliates or any other person. Neither this Certificate
nor the underlying Mortgage Loans are guaranteed or insured by any governmental
entity or by Structured Asset Mortgage Investments Inc., the Master Servicer or
the Trustee or any of their affiliates or any other person. None of Structured
Asset Mortgage Investments Inc., the Master Servicer or any of their affiliates
will have any obligation with respect to any certificate or other obligation
secured by or payable from payments on the Certificates.

                  This certifies that __________ is the registered owner of the
Fractional Undivided Interest evidenced hereby in the beneficial ownership
interest of Certificates of the same Class as this Certificate in a trust (the
"Trust Fund") generally consisting of conventional adjustable rate mortgage
loans secured by first liens on one- to four- family residences, units in
planned unit

                                       A-2

<PAGE>

developments and individual condominium units (collectively, the "Mortgage
Loans") sold by Structured Asset Mortgage Investments Inc. ("SAMI"). The
Mortgage Loans were sold by EMC Mortgage Corporation ("EMC") to SAMI. Wells
Fargo Bank Minnesota, National Association ("Wells Fargo") will act as master
servicer of the Mortgage Loans (the "Master Servicer," which term includes any
successors thereto under the Agreement referred to below). The Trust Fund was
created pursuant to the Pooling and Servicing Agreement dated as of the Cut-off
Date specified above (the "Agreement"), among SAMI, as seller (the "Seller"),
Wells Fargo Bank Minnesota, National Association as master servicer and
securities administrator, EMC Mortgage Corporation and Bank One, National
Association, as trustee (the "Trustee"), a summary of certain of the pertinent
provisions of which is set forth hereafter. To the extent not defined herein,
capitalized terms used herein shall have the meaning ascribed to them in the
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of its acceptance hereof assents and by which such
Holder is bound.

                  Interest on this Certificate will accrue during the month
prior to the month in which a Distribution Date (as hereinafter defined) occurs
on the Current Principal Amount hereof at a per annum rate equal to the
Pass-Through Rate set forth above. The Trustee will distribute on the 25th day
of each month, or, if such 25th day is not a Business Day, the immediately
following Business Day (each, a "Distribution Date"), commencing on the First
Distribution Date specified above, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day (or if such last
day is not a Business Day, the Business Day immediately preceding such last day)
of the calendar month preceding the month of such Distribution Date, an amount
equal to the product of the Fractional Undivided Interest evidenced by this
Certificate and the amount (of interest and principal, if any) required to be
distributed to the Holders of Certificates of the same Class as this
Certificate. The Assumed Final Distribution Date is the Distribution Date in the
month immediately following the month of the latest scheduled maturity date of
any Mortgage Loan and is not likely to be the date on which the Current
Principal Amount of this Class of Certificates will be reduced to zero.

                  Distributions on this Certificate will be made by the Trustee
by check mailed to the address of the Person entitled thereto as such name and
address shall appear on the Certificate Register or, if such Person so requests
by notifying the Trustee in writing as specified in the Agreement.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose and designated in such notice. The
Initial Current Principal Amount of this Certificate is set forth above. The
Current Principal Amount hereof will be reduced to the extent of distributions
allocable to principal hereon and any Realized Losses allocable hereto.

                  This Certificate is one of a duly authorized issue of
Certificates designated as set forth on the face hereof (the "Certificates"),
issued in twenty three Classes. The Certificates, in the aggregate, evidence the
entire beneficial ownership interest in the Trust Fund formed pursuant to the
Agreement.

                                       A-3

<PAGE>

                  The Certificateholder, by its acceptance of this Certificate,
agrees that it will look solely to the Trust Fund for payment hereunder and that
the Trustee is not liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.

                  This Certificate does not purport to summarize the Agreement
and reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

                  The Agreement permits, with certain exceptions therein
provided; (i) the amendment thereof and the modification of the rights and
obligations of the Seller, the Master Servicer and the Trustee and the rights of
the Certificateholders under the Agreement from time to time by EMC, the Seller,
the Master Servicer, the Securities Administrator and the Trustee, and (ii) the
amendment of the Servicing Agreements by the Mater Servicer and the Trustee with
the consent of the Holders of Certificates evidencing Fractional Undivided
Interests aggregating not less than 51% of the Trust Fund (or in certain cases,
Holders of Certificates of affected Classes evidencing such percentage of the
Fractional Undivided Interests thereof). Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in lieu hereof whether or not notation of such consent is made upon
this Certificate. The Agreement also permits the amendment thereof and of the
Servicing Agreements in certain limited circumstances, without the consent of
the Holders of any of the Certificates.

                  As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
with the Trustee upon surrender of this Certificate for registration of transfer
at the offices or agencies maintained by the Trustee for such purposes, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
in authorized denominations representing a like aggregate Fractional Undivided
Interest will be issued to the designated transferee.

                  The Certificates are issuable only as registered Certificates
without coupons in the Classes and denominations specified in the Agreement. As
provided in the Agreement and subject to certain limitations therein set forth,
this Certificate is exchangeable for one or more new Certificates evidencing the
same Class and in the same aggregate Fractional Undivided Interest, as requested
by the Holder surrendering the same.

                  No service charge will be made to the Certificateholders for
any such registration of transfer, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. The Seller, the Master Servicer, the Trustee and any agent of any of
them may treat the Person in whose name this Certificate is registered as the
owner hereof for all purposes, and none of Seller, the Master Servicer, the
Trustee or any such agent shall be affected by notice to the contrary.

                  The obligations created by the Agreement and the Trust Fund
created thereby (other than the obligations to make payments to
Certificateholders with respect to the termination of the

                                       A-4

<PAGE>

Agreement) shall terminate upon the earlier of (i) the later of the (A) final
payment or other liquidation (or Advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund and (B) disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan
and the remittance of all funds due under the Agreement, or (ii) the optional
repurchase by the party named in the Agreement of all the Mortgage Loans and
other assets of the Trust Fund in accordance with the terms of the Agreement.
Such optional repurchase may be made only on or after the Distribution Date on
which the aggregate unpaid principal balance of the Mortgage Loans is less than
the percentage of the aggregate Outstanding Principal Balance specified in the
Agreement of the Mortgage Loans at the Cut-off Date. The exercise of such right
will effect the early retirement of the Certificates. In no event, however, will
the Trust Fund created by the Agreement continue beyond the expiration of 21
years after the death of certain persons identified in the Agreement.

                  Unless this Certificate has been countersigned by an
authorized signatory of the Trustee by manual signature, this Certificate shall
not be entitled to any benefit under the Agreement, or be valid for any purpose.

                                       A-5

<PAGE>

                  IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.

Dated: May __, 2002                         BANK ONE, NATIONAL ASSOCIATION
                                              Not in its individual capacity but
                                              solely as Trustee

                                              By:
                                                 -------------------------------
                                                     Authorized Signatory

                          CERTIFICATE OF AUTHENTICATION
                          -----------------------------

                  This is one of the Class [_-A] [X] Certificates referred to in
the within-mentioned Agreement.

                                              BANK ONE, NATIONAL ASSOCIATION
                                              Authorized signatory of Bank One,
                                              National Association, not in its
                                              individual capacity but solely as
                                              Trustee

                                              By:
                                                 -------------------------------
                                                     Authorized Signatory

<PAGE>

                                   ASSIGNMENT
                                   ----------

                  FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto __________________________________ (Please print or
typewrite name and address including postal zip code of assignee) a Fractional
Undivided Interest evidenced by the within Mortgage Pass-Through Certificate and
hereby authorizes the transfer of registration of such interest to assignee on
the Certificate Register of the Trust Fund.

                  I (We) further direct the Certificate Registrar to issue a new
Certificate of a like denomination and Class, to the above named assignee and
deliver such Certificate to the following address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Dated:
                           -----------------------------------------------------
                                    Signature by or on behalf of assignor

                                     -------------------------------------------
                                                Signature Guaranteed

                            DISTRIBUTION INSTRUCTIONS

                  The assignee should include the following for purposes of
distribution:

                  Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________ for the account
of _________________________ account number _____________, or, if mailed by
check, to ______________________________. Applicable statements should be mailed
to _____________________________________________.

                  This information is provided by __________________, the
assignee named above, or ________________________, as its agent.

<PAGE>

                                                                     EXHIBIT A-2

                         FORM OF CLASS [B-_] CERTIFICATE

                  SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE
IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986 (THE "CODE").

                  THE CURRENT PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE
DECREASED BY THE PRINCIPAL PAYMENTS HEREON AND ANY REALIZED LOSSES ALLOCABLE
HERETO. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE
CURRENT PRINCIPAL AMOUNT OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE
DENOMINATION SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS
CURRENT PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE NAMED HEREIN.

                  [THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE,
AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS
AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A
PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A
QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH
CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (3) IN CERTIFICATED FORM
TO AN "INSTITUTIONAL ACCREDITED INVESTOR" WITHIN THE MEANING THEREOF IN RULE
501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE ACT OR ANY ENTITY IN WHICH
ALL OF THE EQUITY OWNERS COME WITHIN SUCH PARAGRAPHS PURCHASING NOT FOR
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, SUBJECT TO (A) THE RECEIPT BY
THE TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM PROVIDED IN THE AGREEMENT AND
(B) THE RECEIPT BY THE TRUSTEE OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE TRUSTEE
THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND ANY OTHER APPLICABLE
JURISDICTION.]

<PAGE>

                  [THIS CERTIFICATE MAY NOT BE ACQUIRED DIRECTLY OR INDIRECTLY
BY, OR ON BEHALF OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT
WHICH IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, AND/OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, UNLESS THE PROPOSED TRANSFER AND/OR HOLDING OF A CERTIFICATE AND THE
SERVICING, MANAGEMENT AND/OR OPERATION OF THE TRUST AND ITS ASSETS: (I) WILL NOT
RESULT IN ANY PROHIBITED TRANSACTION WHICH IS NOT COVERED UNDER AN INDIVIDUAL OR
CLASS PROHIBITED TRANSACTION EXEMPTION, INCLUDING, BUT NOT LIMITED TO,
PROHIBITED TRANSACTION EXEMPTION ("PTE") 84-14, PTE 91-38, PTE 90-1, PTE 95-60
OR PTE 96-23 AND (II) WILL NOT GIVE RISE TO ANY ADDITIONAL FIDUCIARY OBLIGATIONS
ON THE PART OF THE SELLER, THE MASTER SERVICER OR THE TRUSTEE, WHICH WILL BE
DEEMED REPRESENTED BY AN OWNER OF A BOOK-ENTRY CERTIFICATE OR A GLOBAL
CERTIFICATE AND WILL BE EVIDENCED BY A REPRESENTATION OR AN OPINION OF COUNSEL
TO SUCH EFFECT BY OR ON BEHALF OF AN INSTITUTIONAL ACCREDITED INVESTOR.]

                                      A-2-2

<PAGE>

<TABLE>
<CAPTION>
<S>                                                       <C>
Certificate No._                                          Variable Pass-Through Rate

Class [B-_]

Date of Pooling and Servicing Agreement and               Aggregate Initial Current Principal Amount of
Cut-off Date: May 1, 2001                                 the Class B-_ Certificates as of the Cut-off
                                                          Date: $_______

First Distribution Date:                                  Initial Current Principal Amount of this
June 25, 2002                                             Certificate as of the Cut-off Date: $_______

Master Servicer:
Wells Fargo Bank Minnesota, National
Association                                               CUSIP: ___________

Assumed Final Distribution Date:
June 25, 2032
</TABLE>

                        MORTGAGE PASS-THROUGH CERTIFICATE
                                  SERIES 2002-5

         evidencing a fractional undivided interest in the distributions
         allocable to the Class [B-_] Certificates with respect to a Trust Fund
         consisting primarily of a pool of adjustable interest rate mortgage
         loans secured by first liens on one-to-four family residential
         properties and individual condominium units sold by STRUCTURED ASSET
         MORTGAGE INVESTMENTS INC.

                  This Certificate is payable solely from the assets of the
Trust Fund, and does not represent an obligation of or interest in Structured
Asset Mortgage Investments Inc., the Master Servicer or the Trustee referred to
below or any of their affiliates or any other person. Neither this Certificate
nor the underlying Mortgage Loans are guaranteed or insured by any governmental
entity or by Structured Asset Mortgage Investments Inc., the Master Servicer or
the Trustee or any of their affiliates or any other person. None of Structured
Asset Mortgage Investments Inc., the Master Servicer or any of their affiliates
will have any obligation with respect to any certificate or other obligation
secured by or payable from payments on the Certificates.

                  This certifies that_______________________________ is the
registered owner of the Fractional Undivided Interest evidenced hereby in the
beneficial ownership interest of Certificates of the same Class as this
Certificate in a trust (the "Trust Fund") generally consisting of conventional
adjustable rate mortgage loans secured by first liens on one- to four- family
residences and individual condominium units (collectively, the "Mortgage Loans")
sold by Structured Asset Mortgage Investments Inc. ("SAMI"). The Mortgage Loans
were sold by EMC Mortgage Corporation ("EMC") to SAMI. Wells Fargo Bank
Minnesota, National Association

                                      A-2-3

<PAGE>

("Wells Fargo") will act as master servicer of the Mortgage Loans (the "Master
Servicer," which term includes any successors thereto under the Agreement
referred to below). The Trust Fund was created pursuant to the Pooling and
Servicing Agreement dated as of the Cut-off Date specified above (the
"Agreement"), among SAMI, as seller (the "Seller"), Wells Fargo Bank Minnesota,
National Association as master servicer and securities administrator, EMC
Mortgage Corporation and Bank One, National Association, as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, capitalized terms used herein
shall have the meaning ascribed to them in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of its
acceptance hereof assents and by which such Holder is bound.

                  Interest on this Certificate will accrue during the month
prior to the month in which a Distribution Date (as hereinafter defined) occurs
on the Current Principal Amount hereof at a per annum rate equal to the
Pass-Through Rate set forth above. The Trustee will distribute on the 25th day
of each month, or, if such 25th day is not a Business Day, the immediately
following Business Day (each, a "Distribution Date"), commencing on the First
Distribution Date specified above, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day (or if such last
day is not a Business Day, the Business Day immediately preceding such last day)
of the calendar month preceding the month of such Distribution Date, an amount
equal to the product of the Fractional Undivided Interest evidenced by this
Certificate and the amount (of interest and principal, if any) required to be
distributed to the Holders of Certificates of the same Class as this
Certificate. The Assumed Final Distribution Date is the Distribution Date in the
month immediately following the month of the latest scheduled maturity date of
any Mortgage Loan and is not likely to be the date on which the Current
Principal Amount of this Class of Certificates will be reduced to zero.

                  Distributions on this Certificate will be made by the Trustee
by check mailed to the address of the Person entitled thereto as such name and
address shall appear on the Certificate Register or, if such Person so requests
by notifying the Trustee in writing as specified in the Agreement.
Notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Trustee of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
appointed by the Trustee for that purpose and designated in such notice. The
Initial Current Principal Amount of this Certificate is set forth above. The
Current Principal Amount hereof will be reduced to the extent of distributions
allocable to principal hereon and any Realized Losses allocable hereto.

                  [No transfer of this Class B-_ Certificate will be made unless
such transfer is (i) exempt from the registration requirements of the Securities
act of 1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws and (ii) made in accordance with Section 5.02
of the Agreement. In the event that such transfer is to be made the Trustee
shall register such transfer if, (i) made to a transferee who has provided the
Trustee with evidence as to its QIB status; or (ii) (A) the transferor has
advised the Trustee in writing that the Certificate is being transferred to an
Institutional Accredited Investor and (B) prior to such transfer the transferee
furnishes to the Trustee an Investment Letter; provided that if based upon an
Opinion of Counsel to the effect that (A) and (B) above are met sufficient to
confirm that such transfer is

                                      A-2-4

<PAGE>

being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act and other applicable laws.]

                  [This Certificate may not be acquired directly or indirectly
by, or on behalf of, an employee benefit plan or other retirement arrangement
which is subject to Title I of the Employee Retirement Income Security Act of
1974, as amended, and/or Section 4975 of the Internal Revenue Code of 1986, as
amended, unless the proposed transfer and/or holding of a Certificate and the
servicing, management and/or operation of the trust and its assets: (i) will not
result in any prohibited transaction which is not covered under an individual or
class prohibited transaction exemption, including, but not limited to,
Prohibited Transaction Exemption ("PTE") 84-14, PTE 91-38, PTE 90-1, PTE 95-60
or PTE 96-23 and (ii) will not give rise to any additional fiduciary obligations
on the part of the Seller, the Master Servicer or the Trustee, which will be
deemed represented by an owner of a Book-Entry Certificate or a Global
Certificate and will be evidenced by a representation or an Opinion of Counsel
to such effect by or on behalf of an Institutional Accredited Investor.]

                  This Certificate is one of a duly authorized issue of
Certificates designated as set forth on the face hereof (the "Certificates"),
issued in twenty three Classes. The Certificates, in the aggregate, evidence the
entire beneficial ownership interest in the Trust Fund formed pursuant to the
Agreement.

                  The Certificateholder, by its acceptance of this Certificate,
agrees that it will look solely to the Trust Fund for payment hereunder and that
the Trustee is not liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.

                  This Certificate does not purport to summarize the Agreement
and reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

                  The Agreement permits, with certain exceptions therein
provided; (i) the amendment thereof and the modification of the rights and
obligations of the Seller, the Master Servicer and the Trustee and the rights of
the Certificateholders under the Agreement from time to time by EMC, the Seller,
the Master Servicer, the Securities Administrator and the Trustee, and (ii) the
amendment of the Servicing Agreements by the Mater Servicer and the Trustee with
the consent of the Holders of Certificates evidencing Fractional Undivided
Interests aggregating not less than 51% of the Trust Fund (or in certain cases,
Holders of Certificates of affected Classes evidencing such percentage of the
Fractional Undivided Interests thereof). Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in lieu hereof whether or not notation of such consent is made upon
this Certificate. The Agreement also permits the amendment thereof and of the
Servicing Agreements in certain limited circumstances, without the consent of
the Holders of any of the Certificates.

                  As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
with the Trustee upon surrender of this Certificate for registration of transfer
at the offices or agencies maintained by the Trustee for such purposes, duly

                                      A-2-5

<PAGE>

endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
in authorized denominations representing a like aggregate Fractional Undivided
Interest will be issued to the designated transferee.

                  The Certificates are issuable only as registered Certificates
without coupons in the Classes and denominations specified in the Agreement. As
provided in the Agreement and subject to certain limitations therein set forth,
this Certificate is exchangeable for one or more new Certificates evidencing the
same Class and in the same aggregate Fractional Undivided Interest, as requested
by the Holder surrendering the same.

                  No service charge will be made to the Certificateholders for
any such registration of transfer, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. The Seller, the Master Servicer, the Trustee and any agent of any of
them may treat the Person in whose name this Certificate is registered as the
owner hereof for all purposes, and none of the Seller, the Master Servicer, the
Trustee or any such agent shall be affected by notice to the contrary.

                  The obligations created by the Agreement and the Trust Fund
created thereby (other than the obligations to make payments to
Certificateholders with respect to the termination of the Agreement) shall
terminate upon the earlier of (i) the later of the (A) final payment or other
liquidation (or Advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund and (B) disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure of any Mortgage Loan and the
remittance of all funds due under the Agreement, or (ii) the optional repurchase
by the party named in the Agreement of all the Mortgage Loans and other assets
of the Trust Fund in accordance with the terms of the Agreement. Such optional
repurchase may be made only on or after the Distribution Date on which the
aggregate unpaid principal balance of the Mortgage Loans is less than the
percentage of the aggregate Outstanding Principal Balance specified in the
Agreement of the Mortgage Loans at the Cut-off Date. The exercise of such right
will effect the early retirement of the Certificates. In no event, however, will
the Trust Fund created by the Agreement continue beyond the expiration of 21
years after the death of certain persons identified in the Agreement.

                  Unless this Certificate has been countersigned by an
authorized signatory of the Trustee by manual signature, this Certificate shall
not be entitled to any benefit under the Agreement, or be valid for any purpose.

                                      A-2-6

<PAGE>

                  IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.

Dated: May __, 2002                         BANK ONE, NATIONAL ASSOCIATION
                                              Not in its individual capacity but
                                              solely as Trustee

                                              By:
                                                 -------------------------------
                                                     Authorized Signatory

                          CERTIFICATE OF AUTHENTICATION
                          -----------------------------

                  This is one of the Class [B-_] Certificates referred to in
the within-mentioned Agreement.

                                              BANK ONE, NATIONAL ASSOCIATION
                                              Authorized signatory of Bank One,
                                              National Association, not in its
                                              individual capacity but solely as
                                              Trustee

                                              By:
                                                 -------------------------------
                                                     Authorized Signatory

<PAGE>

                                   ASSIGNMENT
                                   ----------

                  FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto __________________________________ (Please print or
typewrite name and address including postal zip code of assignee) a Fractional
Undivided Interest evidenced by the within Mortgage Pass-Through Certificate and
hereby authorizes the transfer of registration of such interest to assignee on
the Certificate Register of the Trust Fund.

                  I (We) further direct the Certificate Registrar to issue a new
Certificate of a like denomination and Class, to the above named assignee and
deliver such Certificate to the following address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Dated:
                           -----------------------------------------------------
                                    Signature by or on behalf of assignor

                                     -------------------------------------------
                                                Signature Guaranteed

                            DISTRIBUTION INSTRUCTIONS

                  The assignee should include the following for purposes of
distribution:

                  Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________ for the account
of _________________________ account number _____________, or, if mailed by
check, to ______________________________. Applicable statements should be mailed
to _____________________________________________.

                  This information is provided by __________________, the
assignee named above, or ________________________, as its agent.

<PAGE>

                                                                     EXHIBIT A-3

                         FORM OF CLASS [R-_] CERTIFICATE

                  THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A
NON-UNITED STATES PERSON, A PUBLICLY TRADED PARTNERSHIP OR A DISQUALIFIED
ORGANIZATION (AS DEFINED BELOW).

                  SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE
IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986 (THE "CODE").

                  THIS CERTIFICATE MAY NOT BE ACQUIRED DIRECTLY OR INDIRECTLY
BY, OR ON BEHALF OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT
WHICH IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, AND/OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, UNLESS THE PROPOSED TRANSFER AND/OR HOLDING OF A CERTIFICATE AND THE
SERVICING, MANAGEMENT AND/OR OPERATION OF THE TRUST AND ITS ASSETS: (1) WILL NOT
RESULT IN OR CONSTITUTE A NONEXEMPT PROHIBITED TRANSACTION AND IS PERMISSIBLE
UNDER APPLICABLE LAW AND (2) WILL NOT GIVE RISE TO ANY ADDITIONAL FIDUCIARY
OBLIGATIONS ON THE PART OF THE SELLER, THE MASTER SERVICER OR THE TRUSTEE, WHICH
MUST BE EVIDENCED BY AN OPINION OF COUNSEL TO SUCH EFFECT BY OR ON BEHALF OF AN
INSTITUTIONAL ACCREDITED INVESTOR.

                  ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE
MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE
MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED
STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY
INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE
FOREGOING, (B) ANY ORGANIZATION (OTHER THAN A COOPERATIVE DESCRIBED IN SECTION
521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE
CODE, (C) ANY ORGANIZATION DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE, (ANY
SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B) OR (C) BEING HEREIN
REFERRED TO AS A "DISQUALIFIED ORGANIZATION") OR (D) AN AGENT OF A DISQUALIFIED
ORGANIZATION, (2) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR
COLLECTION OF TAX AND (3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL
CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE.
NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER,
SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A

                                      A-2-1

<PAGE>

DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH
REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND
SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE
HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS
CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE
SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH.

                                      A-2-2

<PAGE>

<TABLE>
<CAPTION>
<S>                                                       <C>
Certificate No._                                          Variable Pass-Through Rate

Class [R-_] Senior

Date of Pooling and Servicing Agreement and               Aggregate Initial Current Principal Amount of
Cut-off Date: May 1, 2002                                 this Certificate as of the Cut-off Date:
                                                          $50.00

First Distribution Date:                                  Initial Current Principal Amount of this
June 25, 2002                                             Certificate as of the Cut-off Date: $50.00

Master Servicer:
Wells Fargo Bank Minnesota, National
Association                                               CUSIP: ___________

Assumed Final Distribution Date:
June 25, 2032
</TABLE>

                        MORTGAGE PASS-THROUGH CERTIFICATE
                                  SERIES 2002-5

         evidencing a fractional undivided interest in the distributions
         allocable to the Class [R-_] Certificates with respect to a Trust Fund
         consisting primarily of a pool of adjustable interest rate mortgage
         loans secured by first liens on one-to-four family residential
         properties and individual condominium units sold by STRUCTURED ASSET
         MORTGAGE INVESTMENTS INC.

                  This Certificate is payable solely from the assets of the
Trust Fund, and does not represent an obligation of or interest in Structured
Asset Mortgage Investments Inc., the Master Servicer or the Trustee referred to
below or any of their affiliates or any other person. Neither this Certificate
nor the underlying Mortgage Loans are guaranteed or insured by any governmental
entity or by Structured Asset Mortgage Investments Inc., the Master Servicer or
the Trustee or any of their affiliates or any other person. None of Structured
Asset Mortgage Investments Inc., the Master Servicer or any of their affiliates
will have any obligation with respect to any certificate or other obligation
secured by or payable from payments on the Certificates.

                  This certifies that ______________________________ is the
registered owner of the Fractional Undivided Interest evidenced hereby in the
beneficial ownership interest of Certificates of the same Class as this
Certificate in a trust (the "Trust Fund") generally consisting of conventional
adjustable rate mortgage loans secured by first liens on one- to four- family
residences and individual condominium units (collectively, the "Mortgage Loans")
sold by Structured Asset Mortgage Investments Inc. ("SAMI"). The Mortgage Loans
were sold by EMC Mortgage Corporation ("EMC") to SAMI. Wells Fargo Bank
Minnesota, National Association ("Wells Fargo") will act as

                                      A-2-3

<PAGE>

master servicer of the Mortgage Loans (the "Master Servicer," which term
includes any successors thereto under the Agreement referred to below). The
Trust Fund was created pursuant to the Pooling and Servicing Agreement dated as
of the Cut-off Date specified above (the "Agreement'), among SAMI, as seller
(the "Seller"), Wells Fargo Bank Minnesota, National Association as master
servicer and securities administrator, EMC Mortgage Corporation and Bank One,
National Association, as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. To the extent not defined
herein, capitalized terms used herein shall have the meaning ascribed to them in
the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of its acceptance hereof assents and by which such
Holder is bound.

                  Interest on this Certificate will accrue during the month
prior to the month in which a Distribution Date (as hereinafter defined) occurs
on the Current Principal Amount hereof at a per annum rate equal to the
Pass-Through Rate set forth above. The Trustee will distribute on the 25th day
of each month, or, if such 25th day is not a Business Day, the immediately
following Business Day (each, a "Distribution Date"), commencing on the First
Distribution Date specified above, to the Person in whose name this Certificate
is registered at the close of business on the last Business Day (or if such last
day is not a Business Day, the Business Day immediately preceding such last day)
of the calendar month preceding the month of such Distribution Date, an amount
equal to the product of the Fractional Undivided Interest evidenced by this
Certificate and the amount (of interest and principal, if any) required to be
distributed to the Holders of Certificates of the same Class as this
Certificate. The Assumed Final Distribution Date is the Distribution Date in the
month immediately following the month of the latest scheduled maturity date of
any Mortgage Loan and is not likely to be the date on which the Current
Principal Amount of this Class of Certificates will be reduced to zero.

                  Distributions on this Certificate will be made by the Trustee
by check mailed to the address of the Person entitled thereto as such name and
address shall appear on the Certificate Register. Notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the office or agency appointed by the Trustee
for that purpose and designated in such notice. The Initial Current Principal
Amount of this Certificate is set forth above. The Current Principal Amount
hereof will be reduced to the extent of distributions allocable to principal
hereon and any Realized Losses allocable hereto.

                  Each Holder of this Certificate will be deemed to have agreed
to be bound by the restrictions set forth in the Agreement to the effect that
(i) each person holding or acquiring any Ownership Interest in this Certificate
must be a United States Person and a Permitted Transferee, (ii) the transfer of
any Ownership Interest in this Certificate will be conditioned upon the delivery
to the Trustee of, among other things, an affidavit to the effect that it is a
United States Person and Permitted Transferee, (iii) any attempted or purported
transfer of any Ownership Interest in this Certificate in violation of such
restrictions will be absolutely null and void and will vest no rights in the
purported transferee, and (iv) if any person other than a United States Person
and a Permitted Transferee acquires any Ownership Interest in this Certificate
in violation of such restrictions, then the Seller will have the right, in its
sole discretion and without notice to the Holder of this

                                      A-2-4

<PAGE>

Certificate, to sell this Certificate to a purchaser selected by the Company,
which purchaser may be the Seller, or any affiliate of the Seller, on such terms
and conditions as the Seller may choose.

                  This certificate may not be acquired directly or indirectly
by, or on behalf of, an employee benefit plan or other retirement arrangement
which is subject to title I of the employee retirement income security act of
1974, as amended, and/or section 4975 of the internal revenue code of 1986, as
amended, unless the proposed transfer and/or holding of a certificate and the
servicing, management and/or operation of the trust and its assets: (1) will not
result in or constitute a nonexempt prohibited transaction and is permissible
under applicable law and (2) will not give rise to any additional fiduciary
obligations on the part of the seller, the master servicer or the trustee, which
must be evidenced by an opinion of counsel to such effect by or on behalf of an
institutional accredited investor.

                  This Certificate is one of a duly authorized issue of
Certificates designated as set forth on the face hereof (the "Certificates"),
issued in twenty three Classes. The Certificates, in the aggregate, evidence the
entire beneficial ownership interest in the Trust Fund formed pursuant to the
Agreement.

                  The Certificateholder, by its acceptance of this Certificate,
agrees that it will look solely to the Trust Fund for payment hereunder and that
the Trustee is not liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.

                  This Certificate does not purport to summarize the Agreement
and reference is made to the Agreement for the interests, rights and limitations
of rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

                  The Agreement permits, with certain exceptions therein
provided; (i) the amendment thereof and the modification of the rights and
obligations of the Seller, the Master Servicer and the Trustee and the rights of
the Certificateholders under the Agreement from time to time by EMC, the Seller,
the Master Servicer, the Securities Administrator and the Trustee, and (ii) the
amendment of the Servicing Agreements by the Mater Servicer and the Trustee with
the consent of the Holders of Certificates evidencing Fractional Undivided
Interests aggregating not less than 51% of the Trust Fund (or in certain cases,
Holders of Certificates of affected Classes evidencing such percentage of the
Fractional Undivided Interests thereof). Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in lieu hereof whether or not notation of such consent is made upon
this Certificate. The Agreement also permits the amendment thereof and of the
Servicing Agreements in certain limited circumstances, without the consent of
the Holders of any of the Certificates.

                  As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
with the Trustee upon surrender of this Certificate for registration of transfer
at the offices or agencies maintained by the Trustee for such purposes, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and

                                      A-2-5

<PAGE>

thereupon one or more new Certificates in authorized denominations representing
a like aggregate Fractional Undivided Interest will be issued to the designated
transferee.

                  The Certificates are issuable only as registered Certificates
without coupons in the Classes and denominations specified in the Agreement. As
provided in the Agreement and subject to certain limitations therein set forth,
this Certificate is exchangeable for one or more new Certificates evidencing the
same Class and in the same aggregate Fractional Undivided Interest, as requested
by the Holder surrendering the same.

                  No service charge will be made to the Certificateholders for
any such registration of transfer, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. The Seller, the Master Servicer, the Trustee and any agent of any of
them may treat the Person in whose name this Certificate is registered as the
owner hereof for all purposes, and none of the Seller, the Master Servicer, the
Trustee or any such agent shall be affected by notice to the contrary.

                  The obligations created by the Agreement and the Trust Fund
created thereby (other than the obligations to make payments to
Certificateholders with respect to the termination of the Agreement) shall
terminate upon the earlier of (i) the later of the (A) final payment or other
liquidation (or Advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund and (B) disposition of all property acquired upon
foreclosure or deed in lieu of foreclosure of any Mortgage Loan and the
remittance of all funds due under the Agreement, or (ii) the optional repurchase
by the party named in the Agreement of all the Mortgage Loans and other assets
of the Trust Fund in accordance with the terms of the Agreement. Such optional
repurchase may be made only on or after the Distribution Date on which the
aggregate unpaid principal balance of the Mortgage Loans is less than the
percentage of the aggregate Outstanding Principal Balance specified in the
Agreement of the Mortgage Loans at the Cut-off Date. The exercise of such right
will effect the early retirement of the Certificates. In no event, however, will
the Trust Fund created by the Agreement continue beyond the expiration of 21
years after the death of certain persons identified in the Agreement.

                  Unless this Certificate has been countersigned by an
authorized signatory of the Trustee by manual signature, this Certificate shall
not be entitled to any benefit under the Agreement, or be valid for any purpose.

                                      A-2-6

<PAGE>

                  IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.

Dated: May __, 2002                         BANK ONE, NATIONAL ASSOCIATION
                                              Not in its individual capacity but
                                              solely as Trustee

                                              By:
                                                 -------------------------------
                                                     Authorized Signatory

                          CERTIFICATE OF AUTHENTICATION
                          -----------------------------

                  This is one of the Class [R-_] Certificates referred to in
the within-mentioned Agreement.

                                              BANK ONE, NATIONAL ASSOCIATION
                                              Authorized signatory of Bank One,
                                              National Association, not in its
                                              individual capacity but solely as
                                              Trustee

                                              By:
                                                 -------------------------------
                                                     Authorized Signatory

<PAGE>

                                   ASSIGNMENT
                                   ----------

                  FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto __________________________________ (Please print or
typewrite name and address including postal zip code of assignee) a Fractional
Undivided Interest evidenced by the within Mortgage Pass-Through Certificate and
hereby authorizes the transfer of registration of such interest to assignee on
the Certificate Register of the Trust Fund.

                  I (We) further direct the Certificate Registrar to issue a new
Certificate of a like denomination and Class, to the above named assignee and
deliver such Certificate to the following address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Dated:
                           -----------------------------------------------------
                                    Signature by or on behalf of assignor

                                     -------------------------------------------
                                                Signature Guaranteed

                            DISTRIBUTION INSTRUCTIONS

                  The assignee should include the following for purposes of
distribution:

                  Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to _________________________________ for the account
of _________________________ account number _____________, or, if mailed by
check, to ______________________________. Applicable statements should be mailed
to _____________________________________________.

                  This information is provided by __________________, the
assignee named above, or ________________________, as its agent.

<PAGE>

                                                                       EXHIBIT B

                             MORTGAGE LOAN SCHEDULE
                             ----------------------

                             [PROVIDED UPON REQUEST]

                                       B-2

<PAGE>

                                                                       EXHIBIT C

                                   [RESERVED]

                                       C-1

<PAGE>

                                                                       EXHIBIT D

                        REQUEST FOR RELEASE OF DOCUMENTS

To:      Bank One, National Association
         153  West  51st St., 5th Floor
         New York, New York 10019

RE:      Pooling and Servicing Agreement dated as of
         May 1, 2002, among SAMI,
         Wells Fargo Bank Minnesota,
         National Association, as master servicer
          and securities administrator,
         EMC Mortgage Corporation and
          Bank One, National Association
         as Trustee

         In connection with the administration of the Mortgage Loans held by you
pursuant to the above-captioned Pooling and Servicing Agreement, we request the
release, and hereby acknowledge receipt, of the Mortgage File for the Mortgage
Loan described below, for the reason indicated.

Mortgage Loan Number:
--------------------

Mortgagor Name, Address & Zip Code:
----------------------------------

Reason for Requesting Documents (check one):
-------------------------------------------

_____             1.       Mortgage Paid in Full and proceeds have been
                           deposited into the Custodial Account

_____             2.       Foreclosure

_____             3.       Substitution

_____             4.       Other Liquidation

_____             5.       Nonliquidation         Reason:
                                                         -----------------------

_____             6.       California Mortgage Loan paid in full

                                                  By:
                                                     ---------------------------
                                                         (authorized signer)

                                                  Issuer:
                                                           ---------------------
                                                  Address:
                                                            --------------------
                                                  Date:
                                                       -------------------------

                                       D-1

<PAGE>

                                                                       EXHIBIT E

                                                  Affidavit pursuant to Section
                                                  860E(e)(4) of the Internal
                                                  Revenue Code of 1986, as
                                                  amended, and for other
                                                  purposes

STATE OF                   )
                           )ss:
COUNTY OF                  )

         [NAME OF OFFICER], being first duly sworn, deposes and says:

         1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of ] [the United States], on behalf of which he
makes this affidavit.

         2. That (i) the Investor is not a "disqualified organization" as
defined in Section 860E(e)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), and will not be a disqualified organization as of [Closing Date]
[date of purchase]; (ii) it is not acquiring the Structured Asset Mortgage
Investments Inc., Bear Stearns ARM Trust, Mortgage Pass-Through Certificates,
Series 2002-5, Class R Certificates (the "Residual Certificates") for the
account of a disqualified organization; (iii) it consents to any amendment of
the Pooling and Servicing Agreement that shall be deemed necessary by Structured
Asset Mortgage Investments Inc. (upon advice of counsel) to constitute a
reasonable arrangement to ensure that the Residual Certificates will not be
owned directly or indirectly by a disqualified organization; and (iv) it will
not transfer such Residual Certificates unless (a) it has received from the
transferee an affidavit in substantially the same form as this affidavit
containing these same four representations and (b) as of the time of the
transfer, it does not have actual knowledge that such affidavit is false.

         3. That the Investor is one of the following: (i) a citizen or resident
of the United States, (ii) a corporation or partnership (including an entity
treated as a corporation or partnership for federal income tax purposes) created
or organized in, or under the laws of, the United States or any state thereof or
the District of Columbia (except, in the case of a partnership, to the extent
provided in regulations), provided that no partnership or other entity treated
as a partnership for United States federal income tax purposes shall be treated
as a United States Person unless all persons that own an interest in such
partnership either directly or through any entity that is not a corporation for
United States federal income tax purposes are United States Persons, (iii) an
estate whose income is subject to United States federal income tax regardless of
its source, or (iv) a trust other than a "foreign trust," as defined in Section
7701 (a)(31) of the Code.

         4. That the Investor's taxpayer identification number is
______________________.

         5. That no purpose of the acquisition of the Residual Certificates is
to avoid or impede the assessment or collection of tax.

                                       E-1

<PAGE>

         6. That the Investor understands that, as the holder of the Residual
Certificates, the Investor may incur tax liabilities in excess of any cash flows
generated by such Residual Certificates.

         7. That the Investor intends to pay taxes associated with holding the
Residual Certificates as they become due.

         IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] this ____ day of _________, 20__.

                                     [NAME OF INVESTOR]

                                     By:
                                           -------------------------------------
                                           [Name of Officer]
                                           [Title of Officer]
                                           [Address of Investor for receipt of
                                           distributions]

                                           Address of Investor
                                           for receipt of tax
                                           information:

                                       E-2

<PAGE>

         Personally appeared before me the above-named [Name of Officer], known
or proved to me to be the same person who executed the foregoing instrument and
to be the [Title of Officer] of the Investor, and acknowledged to me that he
executed the same as his free act and deed and the free act and deed of the
Investor.

         Subscribed and sworn before me this ___ day of _________, 20___.

NOTARY PUBLIC

COUNTY OF

STATE OF

My commission expires the ___ day of ___________________, 20___.

                                       E-3

<PAGE>

                                                                     EXHIBIT F-1

                            FORM OF INVESTMENT LETTER

                                                        [Date]
[SELLER]

Bank One, National Association
153 West 51st  St., 5th Floor
New York ,New York 10019

Structured Asset Mortgage Investments Inc.
383 Madison Avenue
New York, New York 10179

         Re:      Structured Asset Mortgage Investments Inc., Bear Stearns ARM
                  Trust, Series 2002-5 Mortgage Pass-Through Certificates (the
                  "Certificates"), including the [Class B-4, Class B-5, Class
                  B-6] Certificates (the "Privately Offered Certificates")
                  ------------------------------------------------------------

Dear Ladies and Gentlemen:

         In connection with our purchase of Privately Offered Certificates, we
confirm that:

                  (i)      we understand that the Privately Offered Certificates
                           are not being registered under the Securities Act of
                           1933, as amended (the "Act") or any applicable state
                           securities or "Blue Sky" laws, and are being sold to
                           us in a transaction that is exempt from the
                           registration requirements of such laws;

                  (ii)     any information we desired concerning the
                           Certificates, including the Privately Offered
                           Certificates, the trust in which the Certificates
                           represent the entire beneficial ownership interest
                           (the "Trust") or any other matter we deemed relevant
                           to our decision to purchase Privately Offered
                           Certificates has been made available to us;

                  (iii)    we are able to bear the economic risk of investment
                           in Privately Offered Certificates; we are an
                           institutional "accredited investor" as defined in
                           Section 501(a) of Regulation D promulgated under the
                           Act and a sophisticated institutional investor;

                  (iv)     we are acquiring Privately Offered Certificates for
                           our own account, not as nominee for any other person,
                           and not with a present view to any distribution or
                           other disposition of the Privately Offered
                           Certificates;

                  (v)      we agree the Privately Offered Certificates must be
                           held indefinitely by us (and may not be sold,
                           pledged, hypothecated or in any way disposed of)

                                      F-1-1

<PAGE>

                           unless subsequently registered under the Act and any
                           applicable state securities or "Blue Sky" laws or an
                           exemption from the registration requirements of the
                           Act and any applicable state securities or "Blue Sky"
                           laws is available;

                  (vi)     we agree that in the event that at some future time
                           we wish to dispose of or exchange any of the
                           Privately Offered Certificates (such disposition or
                           exchange not being currently foreseen or
                           contemplated), we will not transfer or exchange any
                           of the Privately Offered Certificates unless:

                                    (A) (1) the sale is to an Eligible Purchaser
                           (as defined below), (2) if required by the Pooling
                           and Servicing Agreement (as defined below) a letter
                           to substantially the same effect as either this
                           letter or, if the Eligible Purchaser is a Qualified
                           Institutional Buyer as defined under Rule 144A of the
                           Act, the Rule 144A and Related Matters Certificate in
                           the form attached to the Pooling and Servicing
                           Agreement (as defined below) (or such other
                           documentation as may be acceptable to the Trustee) is
                           executed promptly by the purchaser and delivered to
                           the addressees hereof and (3) all offers or
                           solicitations in connection with the sale, whether
                           directly or through any agent acting on our behalf,
                           are limited only to Eligible Purchasers and are not
                           made by means of any form of general solicitation or
                           general advertising whatsoever; and

                                    (B) if the Privately Offered Certificate is
                           not registered under the Act (as to which we
                           acknowledge you have no obligation), the Privately
                           Offered Certificate is sold in a transaction that
                           does not require registration under the Act and any
                           applicable state securities or "blue sky" laws and,
                           if Bank One, National Association (the "Trustee") so
                           requests, a satisfactory Opinion of Counsel is
                           furnished to such effect, which Opinion of Counsel
                           shall be an expense of the transferor or the
                           transferee;

                  (vii)    we agree to be bound by all of the terms (including
                           those relating to restrictions on transfer) of the
                           Pooling and Servicing, pursuant to which the Trust
                           was formed; we have reviewed carefully and understand
                           the terms of the Pooling and Servicing Agreement;

                  (viii)   we either: (i) are not acquiring the Privately
                           Offered Certificate directly or indirectly by, or on
                           behalf of, an employee benefit plan or other
                           retirement arrangement which is subject to Title I of
                           the Employee Retirement Income Security Act of 1974,
                           as amended, and/or section 4975 of the Internal
                           Revenue Code of 1986, as amended, or (ii) are
                           providing a representation or an opinion of counsel
                           to the effect that the proposed transfer and/or
                           holding of a Privately Offered Certificate and the
                           servicing, management and/or operation of the Trust
                           and its assets: (I) will not result in any prohibited
                           transaction which is not covered under an individual
                           or class prohibited transaction exemption, including,
                           but not limited to, Prohibited Transaction

                                      F-1-2

<PAGE>

                           Exemption ("PTE") 84-14, PTE 91-38, PTE 90-1, PTE
                           95-60, PTE 96-23 or Section 401(c) of ERISA and the
                           regulations promulgated thereunder and (II) will not
                           give rise to any additional fiduciary duties on the
                           part of the Seller, the Master Servicer or the
                           Trustee.

                  (ix)     We understand that each of the Class B-4, Class B-5
                           and Class B-6 Certificates bears, and will continue
                           to bear, a legend to substantiate the following
                           effect: "THIS CERTIFICATE HAS NOT BEEN AND WILL NOT
                           BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                           AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE
                           SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING
                           THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE
                           REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
                           ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER
                           APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A
                           UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON
                           THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
                           INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
                           (A "QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A QIB
                           PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER
                           HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE,
                           PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
                           RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM
                           REGISTRATION PROVIDED BY RULE 144 UNDER THE
                           SECURITIES ACT (IF AVAILABLE) OR (3) IN CERTIFICATED
                           FORM TO AN "INSTITUTIONAL ACCREDITED INVESTOR" WITHIN
                           THE MEANING THEREOF IN RULE 501(a)(1), (2), (3) or
                           (7) OF REGULATION D UNDER THE ACT OR ANY ENTITY IN
                           WHICH ALL OF THE EQUITY OWNERS COME WITHIN SUCH
                           PARAGRAPHS PURCHASING NOT FOR DISTRIBUTION IN
                           VIOLATION OF THE SECURITIES ACT, SUBJECT TO (A) THE
                           RECEIPT BY THE TRUSTEE OF A LETTER SUBSTANTIALLY IN
                           THE FORM PROVIDED IN THE AGREEMENT AND (B) THE
                           RECEIPT BY THE TRUSTEE OF SUCH OTHER EVIDENCE
                           ACCEPTABLE TO THE TRUSTEE THAT SUCH REOFFER, RESALE,
                           PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE
                           SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH
                           CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
                           LAWS OF THE UNITED STATES AND ANY OTHER APPLICABLE
                           JURISDICTION. THIS CERTIFICATE MAY NOT BE ACQUIRED
                           DIRECTLY OR INDIRECTLY BY, OR ON BEHALF OF, AN
                           EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT
                           WHICH IS SUBJECT TO TITLE I OF THE EMPLOYEE
                           RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED,
                           AND/OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF
                           1986, AS AMENDED, UNLESS THE PROPOSED TRANSFER AND/OR
                           HOLDING OF A CERTIFICATE AND THE SERVICING,

                                      F-1-3

<PAGE>

                           MANAGEMENT AND/OR OPERATION OF THE TRUST AND ITS
                           ASSETS: (1) WILL NOT RESULT IN ANY PROHIBITED
                           TRANSACTION WHICH IS NOT COVERED UNDER AN INDIVIDUAL
                           OR CLASS PROHIBITED TRANSACTION EXEMPTION, INCLUDING,
                           BUT NOT LIMITED TO, PROHIBITED TRANSACTION EXEMPTION
                           ("PTE") 84-14, PTE 91-38, PTE 90-1, PTE 95-60, PTE
                           96-23 OR SECTION 401(C) OF ERISA AND THE REGULATIONS
                           TO BE PROMULGATED THEREUNDER AND (II) WILL NOT GIVE
                           RISE TO ANY ADDITIONAL FIDUCIARY DUTIES ON THE PART
                           OF THE SELLER, THE MASTER SERVICER OR THE TRUSTEE,
                           WHICH WILL BE DEEMED REPRESENTED BY AN OWNER OF A
                           BOOK-ENTRY CERTIFICATE OR A GLOBAL CERTIFICATE AND
                           WILL BE EVIDENCED BY A REPRESENTATION OR AN OPINION
                           OF COUNSEL TO SUCH EFFECT BY OR ON BEHALF OF A HOLDER
                           OF A PRIVATE CERTIFICATE."

         "ELIGIBLE PURCHASER" means a corporation, partnership or other entity
which we have reasonable grounds to believe and do believe (i) can make
representations with respect to itself to substantially the same effect as the
representations set forth herein, and (ii) is either a Qualified Institutional
Buyer as defined under Rule 144A of the Act or an institutional "Accredited
Investor" as defined under Rule 501 of the Act.

         Terms not otherwise defined herein shall have the meanings assigned to
them in the Pooling and Servicing Agreement, dated as of May 1, 2002, among
Structured Asset Mortgage Investments Inc., Wells Fargo Bank Minnesota, National
Association as master servicer and securities administrator, EMC Mortgage
Corporation and Bank One, National Association, as Trustee (the "Pooling and
Servicing Agreement').

         If the Purchaser proposes that its Certificates be registered in the
name of a nominee on its behalf, the Purchaser has identified such nominee
below, and has caused such nominee to complete the Nominee Acknowledgment at the
end of this letter.

Name of Nominee (if any):
                          ---------------------------------

                                      F-1-4

<PAGE>

         IN WITNESS WHEREOF, this document has been executed by the undersigned
who is duly authorized to do so on behalf of the undersigned Eligible Purchaser
on the ___ day of ________, 20___.

                                               Very truly yours,

                                               [PURCHASER]

                                               By:
                                                    ----------------------------
                                                        (Authorized Officer)

                                               [By:
                                                   -----------------------------
                                                        Attorney-in-fact]

                                      F-1-5

<PAGE>

                             Nominee Acknowledgment

         The undersigned hereby acknowledges and agrees that as to the
Certificates being registered in its name, the sole beneficial owner thereof is
and shall be the Purchaser identified above, for whom the undersigned is acting
as nominee.

                                           [NAME OF NOMINEE]

                                           By:
                                              ----------------------------------
                                                    (Authorized Officer)

                                           [By:
                                                 -------------------------------
                                                    Attorney-in-fact]

                                      F-1-6

<PAGE>

                                                                     EXHIBIT F-2

                  FORM OF RULE 144A AND RELATED MATTERS CERTIFICATE

[SELLER]                                                     [Date]

Bank One, National Association
153 West 51st  St., 5th Floor
New York, New York 10019

Structured Asset Mortgage Investments Inc.
383 Madison Avenue
New York, New York 10179

                  Re:      Structured Asset Mortgage Investments Inc., Bear
                           Stearns ARM Trust, Series 2002-5 Mortgage
                           Pass-Through Certificates, Class B-4, Class B-5 and
                           Class B-6 Certificates (the "Privately Offered
                           Certificates")
                           ---------------------------------------------------

Dear Ladies and Gentlemen:

         In connection with our purchase of Privately Offered Certificates, the
undersigned certifies to each of the parties to whom this letter is addressed
that it is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act of 1933, as amended (the "Act")) as follows:

1.       It owned and/or invested on a discretionary basis eligible securities
         (excluding affiliate's securities, bank deposit notes and CD's, loan
         participations, repurchase agreements, securities owned but subject to
         a repurchase agreement and swaps), as described below:

         Date: ______________, 20__ (must be on or after the close of its most
         recent fiscal year)

         Amount: $ _____________________; and

2.       The dollar amount set forth above is:

         a.       greater than $100 million and the undersigned is one of the
                  following entities:

                  (x)      |_|      an insurance company as defined in Section
                                    2(13) of the Act1; or

--------

1   A purchase by an insurance company for one or more of its separate accounts,
    as defined by Section 2(a)(37) of the Investment Company Act of 1940, which
    are neither registered nor required to be registered thereunder, shall be
    deemed to be a purchase for the account of such insurance company.

                                      F-2-1

<PAGE>

                  (y)      |_|      an investment company registered under the
                                    Investment Company Act or any business
                                    development company as defined in Section
                                    2(a)(48) of the Investment Company Act of
                                    1940; or

                  (z)      |_|      a Small Business Investment Company licensed
                                    by the U.S. Small Business Administration
                                    under Section 301(c) or (d) of the Small
                                    Business Investment Act of 1958; or

                  (aa)     |_|      a plan (i) established and maintained by a
                                    state, its political subdivisions, or any
                                    agency or instrumentality of a state or its
                                    political subdivisions, the laws of which
                                    permit the purchase of securities of this
                                    type, for the benefit of its employees and
                                    (ii) the governing investment guidelines of
                                    which permit the purchase of securities of
                                    this type; or

                  (bb)     |_|      a business development company as defined in
                                    Section 202(a)(22) of the Investment
                                    Advisers Act of 1940; or

                  (cc)     |_|      a corporation (other than a U.S. bank,
                                    savings and loan association or equivalent
                                    foreign institution), partnership,
                                    Massachusetts or similar business trust, or
                                    an organization described in Section
                                    501(c)(3) of the Internal Revenue Code; or

                  (dd)     |_|      a U.S. bank, savings and loan association or
                                    equivalent foreign institution, which has an
                                    audited net worth of at least $25 million as
                                    demonstrated in its latest annual financial
                                    statements; or

                  (ee)     |_|      an investment adviser registered under the
                                    Investment Advisers Act; or

         b.       |_|      greater than $10 million, and the undersigned is a
                           broker-dealer registered with the SEC; or

         c.       |_|      less than $ 10 million, and the undersigned is a
                           broker-dealer registered with the SEC and will only
                           purchase Rule 144A securities in transactions in
                           which it acts as a riskless principal (as defined in
                           Rule 144A); or

         d.       |_|      less than $100 million, and the undersigned is an
                           investment company registered under the Investment
                           Company Act of 1940, which, together with one or more
                           registered investment companies having the same or an
                           affiliated investment adviser, owns at least $100
                           million of eligible securities; or

         e.       |_|      less than $100 million, and the undersigned is an
                           entity, all the equity owners of which are qualified
                           institutional buyers.

                                      F-2-2

<PAGE>

         The undersigned further certifies that it is purchasing a Privately
Offered Certificate for its own account or for the account of others that
independently qualify as "Qualified Institutional Buyers" as defined in Rule
144A. It is aware that the sale of the Privately Offered Certificates is being
made in reliance on its continued compliance with Rule 144A. It is aware that
the transferor may rely on the exemption from the provisions of Section 5 of the
Act provided by Rule 144A. The undersigned understands that the Privately
Offered Certificates may be resold, pledged or transferred only to (i) a person
reasonably believed to be a Qualified Institutional Buyer that purchases for its
own account or for the account of a Qualified Institutional Buyer to whom notice
is given that the resale, pledge or transfer is being made in reliance in Rule
144A, or (ii) an institutional "accredited investor," as such term is defined
under Rule 501 of the Act in a transaction that otherwise does not constitute a
public offering.

         The undersigned agrees that if at some future time it wishes to dispose
of or exchange any of the Privately Offered Certificates, it will not transfer
or exchange any of the Privately Offered Certificates to a Qualified
Institutional Buyer without first obtaining a Rule 144A and Related Matters
Certificate in the form hereof from the transferee and delivering such
certificate to the addressees hereof. Prior to making any transfer of Privately
Offered Certificates, if the proposed Transferee is an institutional "accredited
investor," the transferor shall obtain from the transferee and deliver to the
addressees hereof an Investment Letter in the form attached to the Pooling and
Servicing Agreement, dated as of May 1, 2002, among Structured Asset Mortgage
Investments Inc., Wells Fargo Bank Minnesota, National Association, EMC Mortgage
Corporation and Bank One, National Association, as Trustee, pursuant to
Certificates were issued.

         The undersigned certifies that it either: (i) is not acquiring the
Privately Offered Certificate directly or indirectly by, or on behalf of, an
employee benefit plan or other retirement arrangement which is subject to Title
I of the Employee Retirement Income Security Act of 1974, as amended, and/or
section 4975 of the Internal Revenue Code of 1986, as amended, or (ii) is
providing a representation or an opinion of counsel to the effect that the
proposed transfer and/or holding of a Privately Offered Certificate and the
servicing, management and/or operation of the Trust and its assets: (I) will not
result in any prohibited transaction which is not covered under a prohibited
transaction exemption, including, but not limited to, Prohibited Transaction
Exemption ("PTE") 84- 14, PTE 91-38, PTE 90-1, PTE 95-60, PTE 96-23 or Section
401(c) of ERISA and the regulations to be promulgated thereunder and (II) will
not give rise to any additional fiduciary duties on the part of the Seller, the
Master Servicer or the Trustee.

         If the Purchaser proposes that its Certificates be registered in the
name of a nominee on its behalf, the Purchaser has identified such nominee
below, and has caused such nominee to complete the Nominee Acknowledgment at the
end of this letter.

                                      F-2-3

<PAGE>

Name of Nominee (if any):

IN WITNESS WHEREOF, this document has been executed by the undersigned who is
duly authorized to do so on behalf of the undersigned Eligible Purchaser on the
____ day of ___________, 20___.

                                              Very truly yours,

                                              [PURCHASER]

                                              By:
                                                  ------------------------------
                                                       (Authorized Officer)

                                              [By:
                                                   -----------------------------
                                                       Attorney-in-fact]

                                      F-2-4

<PAGE>

                             Nominee Acknowledgment

         The undersigned hereby acknowledges and agrees that as to the
Certificates being registered in its name, the sole beneficial owner thereof is
and shall be the Purchaser identified above, for whom the undersigned is acting
as nominee.

                                             [NAME OF NOMINEE]

                                             By:
                                                 -------------------------------
                                                      (Authorized Officer)

                                             [By:
                                                  ------------------------------
                                                      Attorney-in-fact]

                                      F-2-5

<PAGE>

                                                                       EXHIBIT G
                           FORM OF CUSTODIAL AGREEMENT
                           ---------------------------

                  THIS CUSTODIAL AGREEMENT (as amended and supplemented from
time to time, the "Agreement'), dated as of May __, 2002, by and among BANK ONE,
NATIONAL ASSOCIATION, as trustee (including its successors under the Pooling and
Servicing Agreement defined below, the "Trustee"), STRUCTURED ASSET MORTGAGE
INVESTMENTS INC., as company (together with any successor in interest, the
"Company"), WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as master servicer
and securities administrator (together with any successor in interest or
successor under the Pooling and Servicing Agreement referred to below, the
"Master Servicer") and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as
custodian (together with any successor in interest or any successor appointed
hereunder, the "Custodian").

                                WITNESSETH THAT:
                                ---------------

                  WHEREAS, the Company, the Master Servicer and the Trustee have
entered into a Pooling and Servicing Agreement, dated as of May 1, 2002,
relating to the issuance of Bear Stearns ARM Trust, Mortgage Pass-Through
Certificates, Series 2002-5 (as in effect on the date of this agreement, the
"Original Pooling and Servicing Agreement," and as amended and supplemented from
time to time, the "Pooling and Servicing Agreement'); and

                  WHEREAS, the Custodian has agreed to act as agent for the
Trustee for the purposes of receiving and holding certain documents and other
instruments delivered by the Company or the Master Servicer under the Pooling
and Servicing Agreement and the Servicers under their respective Servicing
Agreements, all upon the terms and conditions and subject to the limitations
hereinafter set forth;

                  NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the Trustee, the Company,
the Master Servicer and the Custodian hereby agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

                  Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned in the Original Pooling and Servicing
Agreement, unless otherwise required by the context herein.

                                   ARTICLE II.
                          CUSTODY OF MORTGAGE DOCUMENTS

                  Section 2.1. CUSTODIAN TO ACT AS AGENT: ACCEPTANCE OF MORTGAGE
FILES. The Custodian, as the duly appointed agent of the Trustee for these
purposes, acknowledges (subject to any exceptions noted in the Initial
Certification referred to in Section 2.3(a) receipt of the Mortgage

<PAGE>

Files relating to the Mortgage Loans identified on the schedule attached hereto
(the "Mortgage Files") and declares that it holds and will hold such Mortgage
Files as agent for the Trustee, in trust, for the use and benefit of all present
and future Certificateholders.

                  Section 2.2. RECORDATION OF ASSIGNMENTS. If any Mortgage File
includes one or more assignments of Mortgage to the Trustee in a state which is
specifically excluded from the Opinion of Counsel delivered by the Seller to the
Trustee (with a copy to the Custodian) pursuant to the provisions of Section
2.01 of the Pooling and Servicing Agreement, each such assignment shall be
delivered by the Custodian to the Company for the purpose of recording it in the
appropriate public office for real property records, and the Company, at no
expense to the Custodian, shall promptly cause to be recorded in the appropriate
public office for real property records each such assignment of Mortgage and,
upon receipt thereof from such public office, shall return each such assignment
of Mortgage to the Custodian.

                  Section 2.3. REVIEW OF MORTGAGE FILES.

                  (a) On or prior to the Closing Date, in accordance with
Section 2.02 of the Pooling and Servicing Agreement, the Custodian shall deliver
to the Trustee an Initial Certification in the form annexed hereto as Exhibit
One evidencing receipt (subject to any exceptions noted therein) of a Mortgage
File for each of the Mortgage Loans listed on the Schedule attached hereto (the
"Mortgage Loan Schedule").

                  (b) Within 90 days of the Closing Date, the Custodian agrees,
for the benefit of Certificateholders, to review, in accordance with the
provisions of Section 2.02 of the Pooling and Servicing Agreement, each such
document, and shall deliver to the Trustee an Interim Certification in the form
annexed hereto as Exhibit Two to the effect that all such documents have been
executed and received and that such documents relate to the Mortgage Loans
identified on the Mortgage Loan Schedule, except for any exceptions listed on
Schedule A attached to such Interim Certification. The Custodian shall be under
no duty or obligation to inspect, review or examine said documents, instruments,
certificates or other papers to determine that the same are genuine,
enforceable, or appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they purport to be on
their face.

                  (c) Not later than 180 days after the Closing Date, the
Custodian shall review the Mortgage Files as provided in Section 2.02 of the
Pooling and Servicing Agreement and deliver to the Trustee a Final Certification
in the form annexed hereto as Exhibit Three evidencing the completeness of the
Mortgage Files.

                  (d) In reviewing the Mortgage Files as provided herein and in
the Pooling and Servicing Agreement, the Custodian shall make no representation
as to and shall not be responsible to verify (i) the validity, legality,
enforceability, due authorization, recordability, sufficiency or genuineness of
any of the documents included in any Mortgage File or (ii) the collectibility,
insurability, effectiveness or suitability of any of the documents in any
Mortgage File.

                                       -2-

<PAGE>

         Upon receipt of written request from the Trustee, the Custodian shall
as soon as practicable supply the Trustee with a list of all of the documents
relating to the Mortgage Loans then contained in the Mortgage Files.

                  Section 2.4. NOTIFICATION OF BREACHES OF REPRESENTATIONS AND
WARRANTIES. Upon discovery by the Custodian of a breach of any representation or
warranty made by the Company as set forth in the Pooling and Servicing Agreement
with respect to a Mortgage Loan relating to a Mortgage File, the Custodian shall
give prompt written notice to the Company, the related Servicer and the Trustee.

                  Section 2.5. CUSTODIAN TO COOPERATE: RELEASE OF MORTGAGE
FILES. Upon receipt of written notice from the Trustee that the Mortgage Loan
Seller has repurchased a Mortgage Loan pursuant to Article II of the Pooling and
Servicing Agreement, and that the purchase price therefore has been deposited in
the Master Servicer Collection Account or the Distribution Account, then the
Custodian agrees to promptly release to the Mortgage Loan Seller the related
Mortgage File.

                  Upon the Custodian's receipt of a request for release (a
"Request for Release") substantially in the form of Exhibit D to the Pooling and
Servicing Agreement signed by a Servicing Officer of the related Servicer
stating that it has received payment in full of a Mortgage Loan or that payment
in full will be escrowed in a manner customary for such purposes, the Custodian
agrees promptly to release to the related Servicer the related Mortgage File.
The Company shall deliver to the Custodian and the Custodian agrees to accept
the Mortgage Note and other documents constituting the Mortgage File with
respect to any Substitute Mortgage Loan.

                  From time to time as is appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any Primary Insurance Policy, the related Servicer shall deliver to the
Custodian a Request for Release signed by a Servicing Officer requesting that
possession of all of the Mortgage File be released to the related Servicer and
certifying as to the reason for such release and that such release will not
invalidate any insurance coverage provided in respect of the Mortgage Loan under
any of the Insurance Policies. Upon receipt of the foregoing, the Custodian
shall deliver the Mortgage File to the related Servicer. The related Servicer
shall cause each Mortgage File or any document therein so released to be
returned to the Custodian when the need therefore by the related Servicer no
longer exists, unless (i) the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Master Servicer Collection Account or the Distribution Account or (ii) the
Mortgage File or such document has been delivered to an attorney, or to a public
trustee or other public official as required by law, for purposes of initiating
or pursuing legal action or other proceedings for the foreclosure of the
Mortgaged Property either judicially or non-judicially, and the related Servicer
has delivered to the Custodian a certificate of a Servicing Officer certifying
as to the name and address of the Person to which such Mortgage File or such
document was delivered and the purpose or purposes of such delivery.

                  At any time that a Servicer is required to deliver to the
Custodian a Request for Release, the Servicer shall deliver two copies of the
Request for Release if delivered in hard copy or the Servicer may furnish such
Request for Release electronically to the Custodian, in which event the
Servicing Officer transmitting the same shall be deemed to have signed the
Request for Release.

                                       -3-

<PAGE>

In connection with any Request for Release of a Mortgage File because of a
repurchase of a Mortgage Loan, such Request for Release shall be accompanied by
an assignment of mortgage, without recourse, from the Trustee to the Mortgage
Loan Seller and the related Mortgage Note shall be endorsed without recourse by
the Trustee and be returned to the Mortgage Loan Seller. In connection with any
Request for Release of a Mortgage File because of the payment in full of a
Mortgage Loan, such Request for Release shall be accompanied by a certificate of
satisfaction or other similar instrument to be executed by or on behalf of the
Trustee and returned to the related Servicer.

                  Section 2.6. ASSUMPTION AGREEMENTS. In the event that any
assumption agreement or substitution of liability agreement is entered into with
respect to any Mortgage Loan subject to this Agreement in accordance with the
terms and provisions of the Pooling and Servicing Agreement, the Master
Servicer, to the extent provided in the related Servicing Agreement, shall cause
the related Servicer to notify the Custodian that such assumption or
substitution agreement has been completed by forwarding to the Custodian the
original of such assumption or substitution agreement, which shall be added to
the related Mortgage File and, for all purposes, shall be considered a part of
such Mortgage File to the same extent as all other documents and instruments
constituting parts thereof.

                                  ARTICLE III.
                            CONCERNING THE CUSTODIAN

                  Section 3.1. CUSTODIAN A BAILEE AND AGENT OF THE TRUSTEE. With
respect to each Mortgage Note, Mortgage and other documents constituting each
Mortgage File which are delivered to the Custodian, the Custodian is exclusively
the bailee and agent of the Trustee and has no instructions to hold any Mortgage
Note or Mortgage for the benefit of any person other than the Trustee and the
Certificateholders and undertakes to perform such duties and only such duties as
are specifically set forth in this Agreement. Except upon compliance with the
provisions of Section 2.5 of this Agreement, no Mortgage Note, Mortgage or
Mortgage File shall be delivered by the Custodian to the Company, the Servicers
or the Master Servicer or otherwise released from the possession of the
Custodian.

                  Section 3.2. RESERVED.

                  Section 3.3. CUSTODIAN MAY OWN CERTIFICATES. The Custodian in
its individual or any other capacity may become the owner or pledgee of
Certificates with the same rights it would have if it were not Custodian.

                  Section 3.4. MASTER SERVICER TO PAY CUSTODIAN'S FEES AND
EXPENSES. The Master Servicer covenants and agrees to pay to the Custodian from
time to time, and the Custodian shall be entitled to, reasonable compensation
for all services rendered by it in the exercise and performance of any of the
powers and duties hereunder of the Custodian, and the Master Servicer will pay
or reimburse the Custodian upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Custodian in accordance with
any of the provisions of this Agreement (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ), except any such expense, disbursement or advance as
may

                                       -4-

<PAGE>

arise from its negligence or bad faith or to the extent that such cost or
expense is indemnified by the Company pursuant to the Pooling and Servicing
Agreement.

                  Section 3.5. CUSTODIAN MAY RESIGN TRUSTEE MAY REMOVE
CUSTODIAN. The Custodian may resign from the obligations and duties hereby
imposed upon it as such obligations and duties relate to its acting as Custodian
of the Mortgage Loans. Upon receiving such notice of resignation, the Trustee
shall either take custody of the Mortgage Files itself and give prompt notice
thereof to the Company, the Master Servicer and the Custodian, or promptly
appoint a successor Custodian by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Custodian and one copy to
the successor Custodian. If the Trustee shall not have taken custody of the
Mortgage Files and no successor Custodian shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Custodian may petition any court of competent
jurisdiction for the appointment of a successor Custodian.

                  The Trustee may remove the Custodian at any time with the
consent of the Master Servicer. In such event, the Trustee shall appoint, or
petition a court of competent jurisdiction to appoint, a successor Custodian
hereunder. Any successor Custodian shall be a depository institution subject to
supervision or examination by federal or state authority, shall be able to
satisfy the other requirements contained in Section 3.7 and shall be
unaffiliated with the Servicer or the Company.

                  Any resignation or removal of the Custodian and appointment of
a successor Custodian pursuant to any of the provisions of this Section 3.5
shall become effective upon acceptance of appointment by the successor
Custodian. The Trustee shall give prompt notice to the Company and the Master
Servicer of the appointment of any successor Custodian. No successor Custodian
shall be appointed by the Trustee without the prior approval of the Company and
the Master Servicer.

                  Section 3.6. MERGER OR CONSOLIDATION OF CUSTODIAN. Any Person
into which the Custodian 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 Custodian shall be a party, or any Person succeeding
to the business of the Custodian, shall be the successor of the Custodian
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.

                  Section 3.7. REPRESENTATIONS OF THE CUSTODIAN. The Custodian
hereby represents that it is a depository institution subject to supervision or
examination by a federal or state authority, has a combined capital and surplus
of at least $15,000,000 and is qualified to do business in the jurisdictions in
which it will hold any Mortgage File.

                                   ARTICLE IV.
                            MISCELLANEOUS PROVISIONS

                  Section 4.1. NOTICES. All notices, requests, consents and
demands and other communications required under this Agreement or pursuant to
any other instrument or document delivered hereunder shall be in writing and,
unless otherwise specifically provided, may be delivered personally, by telegram
or telex, or by registered or certified mail, postage prepaid, return receipt

                                       -5-

<PAGE>

requested, at the addresses specified on the signature page hereof (unless
changed by the particular party whose address is stated herein by similar notice
in writing), in which case the notice will be deemed delivered when received.

                  Section 4.2. AMENDMENTS. No modification or amendment of or
supplement to this Agreement shall be valid or effective unless the same is in
writing and signed by all parties hereto, and neither the Company, the Master
Servicer nor the Trustee shall enter into any amendment hereof except as
permitted by the Pooling and Servicing Agreement. The Trustee shall give prompt
notice to the Custodian of any amendment or supplement to the Pooling and
Servicing Agreement and furnish the Custodian with written copies thereof.

                  Section 4.3. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

                  Section 4.4. RECORDATION OF AGREEMENT. To the extent permitted
by applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Company and at the Trust's expense on
direction by the Trustee, but only upon direction accompanied by an Opinion of
Counsel reasonably satisfactory to the Company to the effect that the failure to
effect such recordation is likely to materially and adversely affect the
interests of the Certificateholders.

                  For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.

                  Section 4.5. SEVERABILITY OF PROVISIONS. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.

                                       -6-

<PAGE>

                  IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.

Address:                               BANK ONE, NATIONAL
                                       ASSOCIATION, as Trustee
153 West 51st St., 5th Floor
New York, New York 10019
                                       By:
Attention:                             Name:
Telecopy:                              Title:
Confirmation:
Address:                               STRUCTURED ASSET MORTGAGE
                                       INVESTMENTS INC.
383 Madison Avenue
New York, New York 10179
                                       By:
                                       Name:
                                       Title:

Address:                               WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION, as Master
9062 Old Annapolis Road                Servicer
Columbia, Maryland 21045

                                       By:
                                       Name:
                                       Title:

Address:                               WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION, as Custodian
9062 Old Annapolis Road
Columbia, Maryland 21045               By:
                                          --------------------------------------
                                       Name:
                                       Title:

                                       -7-

<PAGE>

STATE OF ________          )
                           )ss:
COUNTY OF ________         )

                  On the __th day of May 20__ before me, a notary public in and
for said State, personally appeared _______________, known to me to be a
_________________of Bank One, National Association, a national banking
association that executed the within instrument, and also known to me to be the
person who executed it on behalf of said corporation and acknowledged to me that
such corporation executed the within instrument.

                  IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                ____________________________
                                                       Notary Public

[SEAL]

                                       -8-

<PAGE>

STATE OF ________              )
                               ) ss:
COUNTY OF __________           )

                  On the __th day of May 20__ before me, a notary public in and
for said State, personally appeared _________________, known to me to be an
________________________ of Wells Fargo Bank Minnesota, National Association, a
national banking association that executed the within instrument, and also known
to me to be the person who executed it on behalf of said national banking
association, and acknowledged to me that such national banking association
executed the within instrument.

                  IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                ____________________________
                                                       Notary Public
[SEAL]

                                       -9-

<PAGE>

STATE OF _________             )
                               )ss:
COUNTY OF ________             )

                  On the __th day of May 20__ before me, a notary public in and
for said State, personally appeared ___________, known to me to be a
______________ of Structured Asset Mortgage Investments Inc., one of the
corporations that executed the within instrument, and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.

                  IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                ____________________________
                                                       Notary Public
[Notarial Seal]

                                      -10-

<PAGE>

STATE OF ________                   )
                                    )ss:
COUNTY OF ______                    )

                  On the __th day of May 20__ before me, a notary public in and
for said State, personally appeared _________________, known to me to be an
________________________ of Wells Fargo Bank Minnesota, National Association,
one of the corporations that executed the within instrument, and also known to
me to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.

                  IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                ____________________________
                                                       Notary Public
[Notarial Seal]

                                      -11-

<PAGE>

                                   EXHIBIT ONE

                     FORM OF CUSTODIAN INITIAL CERTIFICATION

                                                       May __, 20__

Bank One, National Association
153 West 51st St., 5th Floor
New York, New York 10019

Attention: Structured Asset Mortgage Investments Inc., Series 2002-5

                  Re:      Custodial Agreement, dated as of May__, 20__, by and
                           among Bank One, National Association, Structured
                           Asset Mortgage Investments Inc. and Wells Fargo Bank
                           Minnesota, National Association relating to Bear
                           Stearns ARM Trust, Mortgage Pass-Through
                           Certificates, Series 2002-5
                           ----------------------------------------------------

Ladies and Gentlemen:

                  In accordance with Section 2.3 of the above-captioned
Custodial Agreement, and subject to Section 2.02 of the Pooling and Servicing
Agreement, the undersigned, as Custodian, hereby certifies that it has received
a Mortgage File (which contains an original Mortgage Note or lost note
affidavit) to the extent required in Section 2.01 of the Pooling and Servicing
Agreement with respect to each Mortgage Loan listed in the Mortgage Loan
Schedule, with any exceptions listed on Schedule A attached hereto.

                  Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Custodial Agreement.

                                                    WELLS FARGO BANK MINNESOTA,
                                                    NATIONAL ASSOCIATION

                                                    By:
                                                       -------------------------
                                                    Name:
                                                    Title:

                                      -12-

<PAGE>

                                   EXHIBIT TWO

                     FORM OF CUSTODIAN INTERIM CERTIFICATION

                                                           May __, 20__

Bank One, National Association
153 West 51st St., 5th Floor
New York, New York 10019

Attention:  Structured Asset Mortgage Investments Inc., Series 2002-5

                  Re:   Custodial Agreement, dated as of May __, 20__, by and
                        among Bank One, National Association, Structured Asset
                        Mortgage Investments Inc. and Wells Fargo Bank
                        Minnesota, National Association relating to Bear Stearns
                        ARM Trust, Mortgage Pass-Through Certificates, Series
                        2002-5
                        --------------------------------------------------------

Ladies and Gentlemen:

                  In accordance with Section 2.3 of the above-captioned
Custodial Agreement, the undersigned, as Custodian, hereby certifies that it has
received a Mortgage File to the extent required pursuant to Section 2.01 of the
Pooling and Servicing Agreement with respect to each Mortgage Loan listed in the
Mortgage Loan Schedule, and it has reviewed the Mortgage File and the Mortgage
Loan Schedule and has determined that: all required documents have been executed
and received and that such documents related to the Mortgage Loans identified on
the Mortgage Loan Schedule, with any exceptions listed on Schedule A attached
hereto.

                  Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Custodial Agreement.

                                        WELLS FARGO BANK MINNESOTA,
                                        NATIONAL ASSOCIATION

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------

                                      -13-

<PAGE>

                                  EXHIBIT THREE

                      FORM OF CUSTODIAN FINAL CERTIFICATION

                                                       May __, 20__

Bank One, National Association
153 West 51st St., 5th Floor
New York, New York 10019

Attention: Structured Asset Mortgage Investments Inc., Series 2002-5

                  Re:   Custodial Agreement, dated as of May __, 20__, by and
                        among Bank One, National Association, Structured Asset
                        Mortgage Investments Inc. and Wells Fargo Bank
                        Minnesota, National Association relating to Bear Stearns
                        ARM Trust, Mortgage Pass-Through Certificates, Series
                        2002-5
                        --------------------------------------------------------

Ladies and Gentlemen:

                  In accordance with Section 2.3 of the above-captioned
Custodial Agreement, the undersigned, as Custodian, hereby certifies that it has
received a Mortgage File with respect to each Mortgage Loan listed in the
Mortgage Loan Schedule containing with respect to each such Mortgage Loan:

                  (i) The original Mortgage Note, endorsed without recourse to
         the order of the Trustee and showing an unbroken chain of endorsements
         from the originator thereof to the Person endorsing it to the Trustee
         or an original lost note affidavit from the related Seller stating that
         the original Mortgage Note was lost, misplaced or destroyed, together
         with a copy of the related Mortgage Note;

                  (ii) The original Mortgage with evidence of recording
         indicated thereon or a copy of the Mortgage certified by the public
         recording office in which such mortgage has been recorded;

                  (iii) An original Assignment of the Mortgage to the Trustee
         with evidence of recording indicated thereon or a copy of such
         assignment certified by the public recording office in which such
         assignment has been recorded;

                  (iv) With respect to each Mortgage Loan, to the extent
         available, the original recorded assignment or assignments of the
         Mortgage showing an unbroken chain of title from the originator thereof
         to the Person assigning it to the Trustee or a copy of such

                                      -14-

<PAGE>

         assignment or assignments of the Mortgage certified by the public
         recording office in which such assignment or assignments have been
         recorded; and

                  (v) The original of each modification, assumption, extension
or guaranty agreement, if any, relating to such Mortgage Loan or a copy of each
modification, assumption, extension or guaranty agreement certified by the
public recording office in which such document has been recorded.

                  Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Custodial Agreement.

                                                      WELLS FARGO BANK
                                                      MINNESOTA, NATIONAL
                                                      ASSOCIATION

                                                      By:
                                                         -----------------------
                                                      Name:
                                                           ---------------------
                                                      Title:
                                                            --------------------

                                      -15-

<PAGE>

                                                                     EXHIBIT H-1

                               SERVICING AGREEMENT

                            WELLS FARGO HOME MORTGAGE

                                   [SEE TAB 5]

                                      H-1-1

<PAGE>

                                                                     EXHIBIT H-2

                              SERVICING AGREEMENTS

                                    HSBC USA

        (as successor in interest to Marine Midland Mortgage Corporation)

                                   [SEE TAB 7]

                                      H-2-1

<PAGE>

                                                                     EXHIBIT H-3

                               SERVICING AGREEMENT

                            GMAC MORTGAGE CORPORATION

                                   [SEE TAB 8]

                                      H-3-1

<PAGE>

                                                                     EXHIBIT H-4

                               SERVICING AGREEMENT

           CENDANT MORTGAGE CAPITAL AND BISHOPS GATE RESIDENTIAL TRUST

                                   [SEE TAB 9]

                                      H-4-1

<PAGE>

                                                                     EXHIBIT H-5

                               SERVICING AGREEMENT

                       NATIONAL CITY MORTGAGE CORPORATION

                                  [SEE TAB 10]

                                      H-5-1

<PAGE>

                                                                     EXHIBIT H-6

                               SERVICING AGREEMENT

                               US BANK ASSOCIATION

                                  [SEE TAB 11]

                                      H-6-1

<PAGE>

                                                                     EXHIBIT H-7

                               SERVICING AGREEMENT

                             COUNTRYWIDE HOME LOANS

                                  [SEE TAB 12]

                                      H-7-1

<PAGE>

                                                                     EXHIBIT H-8

                               SERVICING AGREEMENT

                          ALLIANCE MORTGAGE CORPORATION

                                  [SEE TAB 13]

                                      H-8-1

<PAGE>

                                                                       EXHIBIT I

                              ASSIGNMENT AGREEMENTS

                      [SEE TAB 5, 7, 8, 9, 10, 11,12 & 13]

                                       I-1

<PAGE>

                                                                       EXHIBIT J

                        MORTGAGE LOAN PURCHASE AGREEMENT

                                   [SEE TAB 4]

                                       J-1<PAGE>

                                                                   Exhibit 10.15

CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been
omitted pursuant to a request for confidential treatment and, where applicable,
has been marked with an asterisk to denote where omissions have been made. The
confidential material has been filed separately with the Commission.

                             GLOBAL SUPPLY AGREEMENT

                         APPLIED MATERIALS CONFIDENTIAL

This Global Supply Agreement dated and effective as of June 1, 2002 is by and
between Applied Materials, Inc., a Delaware corporation, having places of
business in Santa Clara, California and Austin, Texas, and Kinetics Fluid
Systems, Inc., a California corporation, having places of business in Santa
Clara, California, and Austin, Texas.

In consideration of the mutual promises and consideration provided for in this
Agreement, the parties agree as follows:

DEFINITIONS

The following capitalized terms will have the meanings given below when used in
this Agreement:

"Agreement" means this Global Supply Agreement, all its Exhibits and
Attachments, and all Specifications for Items, all as amended from time to time,
and all Applied Purchase Orders and other Authorized Demand Signals that may be
issued for the purchase of Items (including Services). When used with reference
to the purchase of a particular Item or Items, "Agreement" means those
provisions of the foregoing that apply to such Item or Items and to the
transaction for such purchase.

"Applied's Standard Terms and Conditions of Purchase" means Exhibit 1 to this
Agreement.

"Applied" means Applied Materials, Inc., and all of its domestic and
international divisions and subsidiaries.

"Applied IP" has the meaning given in the IPA.

"Applied System(s)" means capital equipment sold by Applied that incorporates a
Fluid Delivery System.

"Asset Purchase Agreement" means the Asset Purchase Agreement dated June 25,
1999 between Applied Materials, Inc. and Kinetics Fluid Systems, Inc., as
amended and supplemented from time to time.

"Attachment" means one of the documents, records or instruments identified as an
"Attachment" on the List of Exhibits and Attachments set out in this Agreement.

<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

"Authorized Demand Signal" means an order or record issued by Applied to
Supplier pursuant to Section 2.1.5.1.

"Bus Route" or "Blanket Order" means an arrangement, method or agreement for the
order and purchase of goods under which the buyer issues a standing, blanket or
open order (under which quantities may be indeterminate, forecasted, or
otherwise provided for) and then periodically specifies quantities for delivery
through summary orders, issuance of a purchase order document, or by electronic
or other notice.

"Business Day" means a day that is not a Saturday, a Sunday, or a holiday or
operating shut down day under the most current fiscal year operating calendar of
Applied in effect under this Agreement.

"Committed Delivery Date" means the date on which Supplier shall deliver a
completed Item and all required documentation to Applied, as determined under
Sections 2.1.5.2 and 2.1.5.3. As to Services for which a Purchase Order is the
"Authorized Demand Signal," the "Committed Delivery Date" means each date
established by such Purchase Order for completion of Services and delivery of
work product or other deliverables to Applied.

"Confidential Information" means all of the following: (a) "Confidential
Information," as such term is defined by the IPA, a Design SOW, a DSA or a DVA
(each as defined below), (b) Internal Applied Data, as defined below, and new
product plans of Applied that are included as Confidential Information under
Section 2.9.2 below, and (c) "Confidential Information" or "Proprietary
Information" of, or received from, Applied or Supplier, under (and as such
term(s) are defined in) any NDA now in effect or hereafter in effect (but in any
case, only for the period applicable under the IPA, NDA or other agreement, as
applicable).

"Configurable Subassemblies" means those configurable products identified by a
non-repeating part numbering system established by Applied (in which a
Subassembly part numbering follows a particular convention, i.e., XXXX-cont.). A
Configurable Subassembly may contain a number of Piece Parts, Modules or devices
(or a combination thereof) that are electrically and/or mechanically connected
and perform a specific function. An FDS is a Configurable Subassembly.

"Configuration Engineering Services" means the engineering services requested by
Applied and provided by Supplier for Applied *

"CCR Services" means the Configuration Engineering Services or CES Services
provided by Supplier pursuant to Applied's CCR.

"CCR" means Applied's request for CES Services or Configuration Engineering
Services in the revision of a Configured BOM or CES Package, which request is
issued after Supplier's acceptance of the applicable SSR or NSO order.

* Material has been omitted and filed separately with the Commission.

                                       2
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

"Contract Price" means the price for an Item, including a Service, established
by or in accordance with Attachment 1 or, as to Services for which pricing is
not determined under Attachment 1, the price for Services established by or in
accordance with the applicable Applied Purchase Order issued under this
Agreement.

"CES Package" means all documentation, drawings, specifications and information
prepared or provided by Supplier to implement and record a CES.

"CES Services" means the engineering services provided by Supplier pursuant to
Applied's request to Supplier for a Customer Engineering Special.

"CES" or "Customer Engineering Special" means a modification to an existing
standard Fluid Delivery System configuration, wherein the modification involves
either *

"CPS" means Applied's Installed Customer Productivity Support organization,
formerly known as the Installed Base Service & Support organization, and any
successor organization (such organization being sometimes referred to as "IBSS"
or "CPS").

"Design Services," "Design SOW," "Design Services Agreement," and "DSA" have the
meanings given in the IPA.

"Development Services," "Development Services Agreement," and "DVA" have the
meanings given in the IPA.

"ECO" means an Engineering Change Order issued by Applied to change a
Specification or to make another Engineering Change under (and as defined in)
Section 4.1.1 below or approved by Applied to authorize a change in a
Specification or to make another Engineering Change under Section 4.1.1 below.

"ERS Program" means Applied's "Evaluated Receipts Settlement Program," which is
a system for payment by Applied for Items purchased hereunder, as described in
Section 2.11.1.3 below.

"Exhibit" means one of the documents, records or instruments identified as an
"Exhibit" on the list of Exhibits and Attachments set out in this Agreement.

"FDS" or "Fluid Delivery System" has the meaning given in the IPA. The term FDS
includes (unless otherwise limited by particular provisions of this Agreement)
Volume Manufacturing FDS, Pilot FDS, R&D FDS and NSO FDS.

"First Article" means a new Item, an Item with revised Specifications (including
drawings), or an Item manufactured after a change in Supplier's (or a sub-tier
supplier's) manufacturing location, manufacturing process or any other change
that, pursuant to the QRD (defined below) or the Quality Framework Document
(Attachment 15 to this Agreement), requires the change or the affected Item to
be evaluated and accepted by Applied prior to delivery to Applied or use in
manufacturing of Items under this Agreement.

* Material has been omitted and filed separately with the Commission.

                                       3
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

"Internal Applied Data" means all non-public, proprietary information from any
source that is recorded, displayed, maintained or accessed on Applied's SPR,
SSR, NSR, CCR or any internal database, subject to the exclusions of Section
4.1, clauses (i) through (v) of the IPA.

"IP Rights" has the meaning given in the IPA.

"Item" or "Items" means FDS(s), Module(s), other Subassembly(ies), Piece Part(s)
and any other good(s) or Service(s) that (a) Supplier is to provide to Applied
under this Agreement pursuant to any Authorized Demand Signal and (b) are
identified in, or have pricing terms determined as set forth in, Attachment 1
and any amendments to Attachment 1 or are identified in and have pricing terms
set forth in an Applied Purchase Order issued as an Authorized Demand Signal
under this Agreement. Items (excluding Services) shall be deemed to constitute
"goods" as that term is defined in, and used in, the Uniform Commercial Code as
adopted in California, including amendments to such statutes. Certain exclusions
affecting "Items" are also set out in Section 1.4 below.

"Manufacturing Process" has the meaning given in the IPA.

"MFC" means mass flow controller.

"Module" means those standard or configurable parts that may be identified by a
single Applied part number, that contain multiple Piece Parts and that are sold
by Supplier to Applied on a recurring basis as separate units or as assemblies
for use in FDSs, NSOs or other fluid delivery products.

"NDA" means any and all agreements between Applied and Supplier for
confidentiality, nondisclosure or limitation on use of Confidential Information.
Such term, unless otherwise indicated in this Agreement, includes the IPA.

"New Product Transition" or "NPT" means the transition, in accordance with
criteria approved by Applied, of an FDS or Applied System from * to *, or from *
to *.

"New Product Transition Services" or "NPT Services" means the *, * and *
preparation services necessary for New Product Transition. The particular
requirements for each NPT Services project will be defined in * for NPT Services
issued pursuant to an RFP/RFQ process, and will generally include (when
appropriate to the particular project and with compensation to be negotiated)
*and *,* and * specifications, * and *,* of * and *, and * preparation.

"NSO" or "Non-System Order" means a Subassembly or other Item (excluding an FDS)
that (a) is ordered by Applied for Volume Manufacturing, Pilot Manufacturing or
R&D use and (b) either is to be installed or incorporated in a previously
manufactured Configurable Subassembly or is to be used by Applied for R&D
purposes.

"NSR" means a nonstandard request for an Item to be manufactured by Supplier,
which request will include basic process, platform, fab, and chamber information
and other information to describe the Item ordered.

* Material has been omitted and filed separately with the Commission.

                                       4
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

"Piece Parts" means piece parts that are contained in Subassemblies or that are
provided by Supplier to Applied separately from a Subassembly.

"Pilot FDSs" means FDSs manufactured by Supplier for incorporation into Applied
Systems under Applied's Pilot Manufacturing program.

"Pilot Manufacturing" excludes R&D Manufacturing and means (i) manufacturing in
the United States of America of FDSs or Modules that have not been released for
Volume Manufacturing by completion of New Product Transition, and/or (ii)
manufacturing of FDSs or Modules in each other country which is specifically
identified from time to time in an Attachment to this Agreement as a country in
which Supplier may provide FDSs or Modules that have not been released for
Volume Manufacturing by completion of New Product Transition.

"Product Development Process" means Applied's process and management procedures
for its new product development programs employed to control design and delivery
of Applied's products.

"Purchase Order," (i) when used to describe a method of ordering Items, means
that method of ordering (sometimes also referred to as "Spot Buy") under which
Applied issues Authorized Demand Signals in accordance with Section 2.1.5.1,
including SSRs, NSRs and Purchase Orders (as defined in the following clause
(ii)), that identify or describe particular Items to be manufactured or provided
to Applied; and (ii) when used to describe an order issued by Applied for
particular Item(s), means Applied's order for particular Item(s) contained in an
Applied purchase order form, except that the provisions of this Agreement
(including Exhibit 1 to this Agreement) shall be a part of each purchase order
form issued as a Purchase Order under this Agreement and shall supersede and
replace in their entirety the terms and conditions stated on the reverse side of
the purchase order form. The Purchase Order method is distinguished from the Bus
Route method. The Purchase Order method will be utilized for the ordering of
FDSs by Applied from Supplier. When used in Section 2.2.3, "Spot Buy" refers to
Supplier's method, arrangement or agreement for the purchase of Piece Parts
under a Purchase Order method.

"QRD" means the "Quality Requirements Document for Manufactured
Assemblies--Kinetics Gas Systems," attached to this Agreement as Attachment 20,
as such document is modified from time to time.

"R&D" means the development, design and related scientific analysis (a) for new
or modified capital equipment for use or application in any Applied System; and
(b) for the prototype manufacture of such new or modified capital equipment.

"R&D Manufacturing" means the manufacturing of FDSs or Modules on a prototype or
other limited basis for use by Applied for R&D purposes.

"R&D Services" means Design Services and Development Services required for R&D
or R&D Manufacturing. R&D Services may include creation of product definitions
and functional requirements, schematics, product structure trees, electronic
valve assignments, definition of test requirements, determination and resolution
of manufacturing engineering issues, and the manufacture of one or more
prototypes. CES Services are not included in the term R&D Services.

                                       5
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

"RFP," "RFQ," or "RFP/RFQ" means, as applicable, Applied's Request for Proposal
or Request for Quotation process, as applicable, or a combination of such
processes.

"SAT" means the Supply Account Team (or successor organization) assigned to
Supplier by Applied.

"Services" means Configuration Engineering Services, CES Services, CCR Services,
NPT Services, Design Services, Development Services, and other services
performed by Supplier for Applied pursuant to this Agreement, the IPA (to the
extent applicable), or (as to Design Services or Development Services) the
relevant DSA or DVA.

"SMT" means Applied's Subsystem Management Team (or successor organization)
assigned to Supplier by Applied.

"Source Inspection" means any inspection at Supplier's facilities required by
the quality provisions of this Agreement, including the QRD or the Quality
Framework, Attachment 15.

"Spares" means Items ordered by Applied's CPS pursuant to Section 2.1.5 below.

"Specifications" means authorized drawings, designs, specifications,
instructions relating to installation, assembly and testing, and manufacturing
and product requirements that are applicable to an Item. Specifications include
any ECOs applicable to an Item and information of the types set out above that
is included in, or referred to in, an SSR, NSR, CCR or Purchase Order issued as
to an Item.

"SPR" or "System Production Report" means, as to Volume Manufacturing FDSs,
Pilot Manufacturing FDSs, and NSO Items, Applied's schedule for anticipated
production of Applied Systems and NSOs, which is posted by Applied from time to
time and updated at least weekly for Supplier's electronic access and review,
identifying the Applied Systems and NSO transactions for which Supplier (subject
to the provisions of this Agreement) is anticipated to provide FDSs or NSOs
under this Agreement.

"Standard Services" means any or all of the following: Configuration Engineering
Services; CCR Services; CES Services; and NPT Services.

"Standard Subassemblies" means those products discretely identified by a single
Applied part number. A Standard Subassembly may contain a number of Piece Parts,
Modules or devices (or a combination thereof) that are electrically and/or
mechanically connected and performs a specific function.

"Subassemblies" means both Standard Subassemblies and Configurable
Subassemblies.

"Supplier" means Kinetics Fluid Systems, Inc., a California corporation, and (x)
all unincorporated divisions of Kinetics Fluid Systems, Inc. and (y) those
subsidiaries and affiliates of Kinetics Fluid Systems, Inc. that are approved
(through written supplement to this Agreement) by Applied as permitted to
perform supply or service obligations hereunder. Unit Instruments, Inc. shall
not be included in the term "Supplier" unless a written amendment to this
Agreement, executed by all parties, so provides. As set out in Section 1.4
below, this Agreement does not

                                       6
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

apply to goods, products, parts or services that are the subject of agreement(s)
previously entered into with Applied by Insync Systems, Inc., even though
Supplier has succeeded to such prior agreement(s) by merger.

"Supplier Performance Plan" means a formal performance plan for Supplier in the
form of Attachment 16, as modified from time to time. Attachment 16 is the
Supplier Performance Plan in effect on the Effective Date.

"System Specification Report" or "SSR" means Applied's internally generated
report of basic process, platform, fab and chamber information and requirements
describing an order for an Applied System requiring FDS or other Item(s), or for
an NSO, from Supplier, as the same is posted by Applied to the Applied website
designated for Supplier access or as otherwise furnished to Supplier.

"UCC" means the Uniform Commercial Code, as adopted, amended and in effect in
the State of California from time to time, which is currently codified in the
California Commercial Code.

"Volume Manufacturing FDSs" means FDSs manufactured by Supplier for
incorporation into Applied Systems in Applied's Volume Manufacturing operations.

"Volume Manufacturing" or "VMO" means (i) manufacturing in the United States of
America of those FDSs or Modules that are released *, and also (ii)
manufacturing of FDSs or Modules in each other country which is specifically
identified from time to time in an Attachment to this Agreement as a country in
which Supplier may provide FDSs or Modules that have been released *.

"Will" or "shall" have the same meaning and are used to convey an affirmative
duty or obligation (i.e., a requirement).

Capitalized terms used in this Agreement and defined in other provisions will
have the meanings in this Agreement given in such other provision(s). Unless
otherwise indicated, references to Sections, provisions, paragraphs or like
terms are to such elements of this Agreement and to all subsections or subparts
of the referenced Section, provision or paragraph, and "hereof," "herein" and
like words refer to this Agreement as a whole and not to a particular provision,
also unless otherwise indicated. "Including" or "includes" does not indicate a
limitation. Capitalized terms defined in the text of this Global Supply
Agreement that are also used in its Attachments or Exhibits are used in the
Attachments and Exhibits as defined in the text of the Global Supply Agreement,
unless the context of usage indicates otherwise.

1.    SCOPE.

1.1.  Description of Agreement.

This Agreement defines the terms and requirements applicable between Applied and
Supplier with respect to the supply of Items by Supplier to Applied and to
matters related to such supply

* Material has been omitted and filed separately with the Commission.

                                       7
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

that are covered by this Agreement; each party agrees to observe, perform under
and comply with this Agreement. Applied may, from time to time, issue Authorized
Demand Signals to Supplier for the purchase of Items. Upon acceptance (including
deemed acceptance) of each Authorized Demand Signal, and for valuable
consideration received, Supplier agrees that it shall, throughout the term of
this Agreement, sell and deliver the Item(s) covered by each such Authorized
Demand Signal under and in compliance with this Agreement. Decisions regarding
future purchases from Supplier will be based in part upon Supplier's performance
under this Agreement, and Supplier's achievement toward Applied's business
objectives.

1.2.  Addresses and Contact Persons; Notices.

      1.2.1. Contact Persons.

      The persons to receive notices generally under this Agreement and the
      procedures for notice are set out in Section 1.2.2. The following
      individual contact persons are identified for convenience of the parties
      and certain of the persons listed below are designated, in specific
      sections of this Agreement, as the person(s) to receive or initiate
      certain specific notices or actions. Each party may change any of its
      contact persons or other information in this Section 1.2.1 from time to
      time. Upon any such change, notice of the change shall be given promptly
      to the other party through the person(s) specified to receive notice under
      Section 1.2.2 below, and until such notice is given the change shall not
      be effective as to the other party.

      SUPPLIER CONTACT PERSONS: KINETICS FLUID SYSTEMS, INC.

      Senior Vice President: Joe Foster
      Phone: (408) 935-4570
      Facsimile: (408) 934-6302
      E-mail address: jfoster@kineticsgroup.com

      Vice President Operations: Brad Sander
      Phone: (512) 246-5100
      E-mail address: bsander@kineticsgroup.com

      Vice President Sales: Mark Thomas
      Phone: (408) 935-4592
      E-mail address: mthomas@kineticsgroup.com

      Senior Director of Operations - Round Rock Division: Mark Hutson
      Phone: (512) 246-5103
      E-mail address: mhutson@kineticsgroup.com

      Director of Operations - Milpitas Division: Shireen Zekanoski
      Phone: (408) 934-4603
      E-mail address: szekanoski@kineticsgroup.com

                                       8
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      Customer Service Manager (Austin): Geoff Chriswisser
      Phone: (512) 246-5852
      E-mail address: gchriswisser@kineticsgroup.com
      Cell phone: (512) 917-4670 Pager: (888) 789-1928

      Customer Service Manager (Milpitas): Sapana Talwalker
      Phone: (408) 935-7414
      Email address: stalwalker@kineticsgroup.com
      Cell phone: (408) 621-6605 Pager: (408) 388-0687

      Engineering Manager: John Rowland
      Phone: (512) 246-5841
      E-mail address: jrowland@kineticsgroup.com

      Quality Manager (Round Rock): Dave Thomas
      Phone: (512) 246-5775
      E-mail address: dthomas@kineticsgroup.com

      Quality Manager (Milpitas): Tina Caspar
      Phone: (408) 935-4595
      E-mail address: tcaspar@kineticsgroup.com

      Finance Manager (Milpitas): Diep Ha
      Phone: (408) 935-7470
      E-mail address: dha@kineticsgroup.com

      Finance Manager (Round Rock): Paul Senecal
      Phone: (512) 246-5104
      E-mail address: psenecal@kineticsgroup.com

      Customer Service Manager-Warranty Claims: Mark Kitchen
      Phone: (512) 246-5848
      E-mail address: mkitchen@kineticsgroup.com

      Senior Counsel - Austin: Nicol Hebert
      Phone: (512) 246-9092
      E-mail address: nhebert@kineticsgroup.com

      Milpitas Division Address:
      1463 Center Pointe Drive, Milpitas, CA 95035

      Austin/Round Rock Division Address:
      200 C. Parker Drive, Austin, Texas 78728

                                       9
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      APPLIED CONTACT PERSON:

      Craig Romick, Supply Account Team Lead, M/S 3300
      Applied Materials, Inc., 9700 Highway 290E, Austin Texas 78724
      Phone: 512-272-2535
      Facsimile: (512) 272-3908 Attn: Craig Romick
      E-mail: Craig_A_Romick@amat.com

      1.2.2. Notices.

      Notices required or permitted under this Agreement shall be given in
      writing, which shall include facsimile and e-mail transmission with
      receipt confirmed (either electronically or by the recipient or on behalf
      of the recipient) to the recipient, at the recipient's current business
      address, facsimile number or e-mail address, addressed to Supplier or
      Applied, as the case may be, and to the attention of the persons specified
      below, except as otherwise provided in this Agreement. If hand-delivered
      or transmitted by facsimile or e-mail, notice is effective at the time of
      receipt at the designated business address, facsimile number or e-mail
      address or on the next Business Day after receipt if receipt occurs after
      5:00 p.m. (local time of recipient) or on a non-Business Day; if sent by
      nationally recognized courier or express service (e.g., Federal Express,
      Airborne, Express Mail or equivalent service), or by mail (which shall be
      certified mail -- return receipt requested), notice is effective on the
      Business Day of receipt, or the next Business Day after receipt, if
      receipt occurs on a non-Business Day.

      The persons specified to receive notices under the Agreement as provided
      in this Section 1.2.2 are:

            FOR APPLIED,

            Craig Romick, Supply Account Team Lead, at the address given above
            in Section 1.2.1,

            with a copy to:

            Barry Quan, Vice President-Legal Affairs, Applied Materials, Inc.,
            Legal Department, 2881 Scott Blvd., Building 20, Santa Clara,
            California 95050.
            Telephone: (408) 986-7930, Facsimile: (408) 986-2836,
            E-mail: Barry_Quan@amat.com;

            FOR SUPPLIER,

            Joe Foster, Senior Vice President, 2805 Mission College Blvd., Santa
            Clara, California 95054, and whose telephone and facsimile numbers
            and e-mail address are given above in Section 1.2.1,

            with a copy to:

                                       10
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

            (a) Brad Sander, Vice President Operations at the address given
            above in Section 1.2.1, and

            (b) John Goodman, Vice President and General Counsel, 2805 Mission
            College Blvd., Santa Clara, California 95054.
            Telephone: (408) 588-4422, Facsimile: (408) 576-0196,
            E-mail: jgoodman@kineticsgroup.com.

      Either party may specify that notices to it, and any required copies of
      same, be provided to no more than three persons, and notice shall be
      effective as to a party when it has been given as above provided to all
      persons so specified. Further, each party may, from time to time, change
      the persons(s) specified to receive notice under this Section 1.2.2.
      Notice of such a change shall be given to the person(s) specified to
      receive notice for the other party under this Section 1.2.2, and such
      change shall be effective when notice thereof is effective under the
      procedures of this Section 1.2.2.

In certain instances, notice may also be given to one or more "Guarantors" under
and for purposes of the "Performance Guaranty Agreement" (such terms being
defined below) relating to this Agreement. The persons to receive such notice(s)
are set out in such Performance Guaranty Agreement.

1.3.  Entire Agreement; Related Agreements; Modification; Prior Transactions.

      1.3.1. Certain Related Agreements.

      In addition to this Agreement, the parties and certain affiliates of
      Supplier have entered into and delivered concurrently with this Agreement
      certain other agreements related to, and constituting part of the
      consideration for, this Agreement (the "Related Agreements"). The Related
      Agreements are the following:

            (i) an Acknowledgement and Supplement agreement of even date
            herewith to the Asset Purchase Agreement;

            (ii) two Acknowledgement and Supplement agreements of even date
            herewith to the two Facilities Use Agreements between the parties
            and dated, respectively, June 28, 1999, as to Applied's facilities
            in Austin, Texas, and September 20, 1999, as to Applied's facilities
            in Santa Clara County, California, as the same have been amended
            (such Facilities Use Agreements, as amended, being called the
            "FUAs");

            (iii) An Amended and Restated Intellectual Property Agreement of
            even date herewith (such agreement, as amended from time to time,
            being called the "IPA"); and

            (iv) a Performance Guaranty Agreement of even date herewith of
            Kinetics Holdings Corporation (sometimes called "KHC") and

                                       11
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      The Kinetics Group, Inc. (sometimes called "KGI") (such agreement, as
      amended from time to time, being called the "Performance Guaranty
      Agreement" and such corporations being collectively called "Guarantors")
      with and for the benefit of Applied.

      1.3.2. Entire Agreement.

      This Agreement and the Related Agreements set forth the entire
      understanding and agreement of the parties as to the subject matter of
      this Agreement and of the Related Agreements. From and after the Effective
      Date (defined below) of this Agreement, this Agreement and the Related
      Agreements supersede, in accordance with their respective terms and
      subject to the other provisions below in this Section 1.3.2, all prior
      agreements, understandings, negotiations and discussions between the
      parties as to the subject matter of this Agreement and of the Related
      Agreements.

            1.3.2.1. In addition to this Agreement and the Related Agreements,
            other agreements now in effect between Applied and Supplier and
            referred to in Section 1.3.2.2, clause "third" below, relate to the
            subject matter of this Agreement and provide Applied or Supplier
            with rights in or licenses of Confidential Information or
            intellectual property of the other party, or protect or limit the
            use by either of Confidential Information or intellectual property
            of the other party (the "Separate Confidential Information
            Agreements"). The Separate Confidential Information Agreements shall
            remain in effect for the respective terms thereof and each of such
            agreements shall control as to the matters covered by such Separate
            Confidential Information Agreements, subject to Section 1.3.2.2.

            1.3.2.2. In the event (and to the extent) of conflict between or
            among any of the documents set out in this Section 1.3.2.2,
            precedence shall be given as follows (except as otherwise expressly
            agreed in writing, with reference to this Agreement or to the other
            affected agreement):

                  first, to any DVA entered into by Applied and Supplier, and
                  then to the IPA ;

                  second, to this Agreement (other than its incorporated
                  Exhibits or Attachments, unless and to the extent otherwise
                  provided expressly by this Agreement);

                  third, to any DSA, and then to any applicable Separate
                  Confidential Information Agreement (including any NDA) other
                  than the IPA, a DVA or DSA;

                  fourth, to Exhibit 1 to this Agreement, and then to all
                  Attachments and other Exhibits (if any) to this Agreement;

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CONFIDENTIAL TREATMENT REQUESTED

                  fifth, to Specifications, to other technical documents
                  incorporated in this Agreement (other than Attachments), and
                  then to Authorized Demand Signals; and

                  sixth, to any of the Related Agreements that are not
                  specifically identified above for precedence.

            1.3.2.3. From and after the Effective Date (defined below), this
            Agreement supersedes and replaces in its entirety the Amended and
            Restated Comprehensive Supplier Agreement dated as of June 28, 1999,
            as amended and extended through the Effective Date (the "CSA"), so
            that the term of the CSA expires concurrently with this Agreement
            becoming effective on its Effective Date, except as to those
            obligations, rights and liabilities arising under such CSA that have
            accrued at or prior to the Effective Date, or that hereafter accrue
            with respect to transactions between the parties that have occurred
            under and pursuant to such CSA at or prior to the Effective Date
            (including, by way of example, obligations, rights and liabilities
            relating to Items provided prior to the Effective Date of this
            Agreement), as to which the CSA shall continue in effect in
            accordance with its terms. In this regard, the parties specifically
            agree (i) that pricing for Items for which an SSR or Purchase Order
            issued under the CSA has been accepted, under the procedures
            described in Section 2.1.5.1 below, prior to the Effective Date
            shall be determined under the CSA, and (ii) that, except for such
            pricing of those Items within clause (i) above, the provisions of
            this Agreement will apply to Items that are delivered after the
            Effective Date but were ordered under the CSA prior to the Effective
            Date of this Agreement.

      1.3.3. Provisions Continuing in Effect.

      Following any termination, cancellation, or expiration of this Agreement,
      the provisions of each of Articles 2, 3, 5, 9,11, 21, 22, and 27 of
      Exhibit 1 and Sections 2.9.1.1.D, 2.9.2, 4.8, 7 and 9 of this Agreement
      will remain in full force and effect, unless specifically terminated by
      mutual written agreement between the parties, until the respective stated
      expiration of such provisions. The termination, cancellation or expiration
      of this Agreement shall not relieve a party of its obligations and
      liabilities that accrue or arise under or in connection with this
      Agreement through the time of, or in connection with, termination,
      cancellation or expiration of this Agreement (or thereafter under or in
      connection with provisions that survive as set out above), which
      obligations and liabilities and related claims, demands and causes of
      action shall continue until the expiration of the applicable period for
      the bringing of claims under controlling statutes of limitation or repose.
      The various Related Agreements and Separate Confidential Information
      Agreements (including NDAs) shall terminate or continue in effect as
      provided in such agreements.

      1.3.4. Modification.

      No amendment to or modification of this Agreement will be binding unless
      in writing and signed by a duly authorized representative of each party,
      except for amendments or

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CONFIDENTIAL TREATMENT REQUESTED

      modifications which Applied is permitted to initiate by posting or notice
      under this Section 1.3.4. The Attachments to this Agreement that are
      identified on the List of Exhibits and Attachments following the signature
      page of this Agreement as subject to modification or amendment by Applied
      upon notice (the "Implementation Attachments"), will be deemed to be the
      most current versions of such Attachments, as updated and revised from
      time to time by Applied in accordance with this Section 1.3.4.

      Unless prohibited by law or by separate modification of this Agreement, to
      initiate a modification or amendment of an Implementation Attachment,
      Applied will either (i) post updates or revisions to current versions of
      such Attachment on the Applied website which shall be designated for
      Supplier's use and made available to Supplier, or (ii) provide other
      written or electronic notice to Supplier of the revision or update, which
      notice shall be sent or given to Supplier's Senior Counsel - Austin
      identified in Section 1.2.1 above.

      If Supplier fails to object within thirty (30) calendar days after the
      date (i) on which such modification or amendment to an Implementation
      Attachment was posted on Applied's website (provided that Supplier had
      timely notice of posting of such modification or amendment through notice
      on the Applied website designated for Supplier's use) or (ii) on which
      such other notice was provided to Supplier, then such Attachment, as
      modified or amended, shall be deemed to be accepted by Supplier as the
      Attachment to this Agreement and shall be effective as the applicable
      Attachment upon the expiration of such thirty (30) day period.

      Any update or revision to an Attachment that is initiated by Applied's
      posting of the update or revision on the applicable Applied web site and
      that would have the effect of amending this Agreement (other than the
      modification or amendment of the affected Attachment) shall be effective
      only if Supplier fails to object within thirty (30) days after written,
      electronic or other actual notice of such update or revision is received
      by Supplier. Notice of such an update or revision subject to this
      provision shall be given to Supplier's Senior Counsel - Austin, as above
      identified.

1.4.  Items Covered.

All Items supplied (including Services other than Development Services) to
Applied by Supplier, even if sold pursuant to a separate Purchase Order, will be
covered by this Agreement; provided that the terms, provisions and conditions of
this Agreement (if any) applicable to Services rendered pursuant to a DVA shall
be determined in accordance with the DVA. This Agreement does not apply to
goods, parts, products or services that Unit Instruments, Inc., or any other
subsidiary or affiliate of Supplier provides to Applied. This Agreement likewise
does not apply to goods, parts, products or services provided to Applied
pursuant to the currently effective Global Supply Agreement dated as of October
27, 2000 (with execution dates of October 4, 2000 and October 19, 2000), for
weldments and other items provided to Applied by Insync Systems, Inc. (now
merged into, and a division of, Supplier), or pursuant to subsequent agreements
for such goods, parts, products or services, even though Supplier is successor
by merger to Insync Systems, Inc. Such other agreement(s) for goods, parts,
products or services shall continue in effect in accordance with their
respective terms, but shall not affect this Agreement. New Items may be added to
Attachment 1 upon mutual written agreement of Applied and Supplier from time to
time.

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CONFIDENTIAL TREATMENT REQUESTED

1.5.  Duration of Agreement.

This Agreement is effective and commences on and as of June 1, 2002 (the
"Effective Date").

This Agreement will remain in effect for a term of *, from the Effective Date
through * (the "Initial Term"), unless and to the extent earlier terminated or
cancelled in accordance with its provisions. At any time before expiration of
the Initial Term, Applied may, at Applied's option, extend the term of this
Agreement (subject to all other provisions of this Agreement) for an additional
period of up to 6 months, by notifying Supplier in writing of such extension.
The Initial Term shall include the period of such an extension.

2.    LOGISTICS, ORDERING AND OPERATIONAL FRAMEWORK.

2.1.  Operation and Management of Orders.

      2.1.1. Operating Calendar & Holidays.

      This Agreement operates on the basis of Applied's current fiscal year
      operating calendar, shown in Attachment 2, as modified from time to time.
      Recognized holidays and operating shut down days are as shown on such
      calendar. Supplier shall, unless commercially impracticable, adjust its
      operations, holidays and any shut down days as necessary to provide all
      Items (including Services) and meet its other agreements and obligations
      in accordance with this Agreement. Applied may, in accordance with Section
      1.3.4, modify its calendar as needed for its operations, which may result
      in the requirement for production support seven days a week, twenty-four
      hours a day.

      2.1.2. Monthly Volume Summaries.

      Supplier will prepare periodic summary reports showing quantities of FDSs
      and Modules projected by Applied for manufacture by Supplier (the "Monthly
      Volume Summaries"), and Supplier will retain a copy or electronic record
      of at least one (1) Monthly Volume Summary for each month during the term
      of this Agreement. Supplier will retain such copies and records for audit
      purposes for a minimum of twelve (12) months following the end of the
      month for which the respective Monthly Volume Summary was prepared. All of
      Applied's SPRs and other reports regarding Items or Applied Systems and
      the information provided by Applied in such SPRs and reports are Applied
      Confidential Information, to be used only by Supplier to meet its
      obligations to Applied under this Agreement and treated by Supplier as
      Confidential Information of Applied. The Monthly Volume Summaries are
      Confidential Information of each of Applied and Supplier to the extent of
      their respective Confidential Information included in, or used in the
      preparation of, any Monthly Volume Summary.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      2.1.3. Manufacture and Delivery.

      Supplier will manufacture, provide, sell and deliver all Items to Applied
      for which an Authorized Demand Signal has been issued and accepted or
      deemed accepted. Supplier will deliver all such Items to the locations, in
      the quantities, and at the times specified in or determined from the
      applicable Authorized Demand Signal, as accepted or deemed accepted, as
      such Authorized Demand Signal is modified pursuant to this Agreement and
      as otherwise required by a controlling provision of this Agreement.

            2.1.3.1. Delivery Mechanics.

            The specific mechanics and requirements for delivery of Items to
            Applied are set out in Attachment 3, and other delivery and
            transportation terms and requirements are set out in Section 2.10.3.
            Applied and Supplier may provide, by subsequent written agreement,
            that Supplier shall manufacture and deliver Items on a lean
            manufacturing system; if so, the requirements and specific mechanics
            to be followed for lean manufacturing shall be as shown in
            Attachment 3, subject to such modifications as may be mutually
            agreed at the time.

            2.1.3.2. Delivery Dates.

            Supplier shall deliver each Item to Applied on its Committed
            Delivery Date, as determined under Section 2.1.5.2, as the same may
            be modified pursuant to or as provided by Section 2.1.5.3 (or
            Section 2.1.4) or extended pursuant to Section 4.2.4(b). Supplier
            may make actual delivery of an Item no more than three (3) Business
            Days prior to the Committed Delivery Date; unless an earlier actual
            delivery date is permitted pursuant to Section 2.5.3. Delivery shall
            not be made after an Item is cancelled as provided in this
            Agreement, except as provided in Section 2.3.3(a). Supplier shall
            use all commercially reasonable efforts to make delivery of an Item
            on a date requested by Applied pursuant to Section 2.1.4.4. If Items
            are purchased under a Blanket Order (Bus Route) procedure, Items
            under the Blanket Order procedures shall be delivered at the date,
            time and location specified in the applicable Bus Route delivery
            requirements.

            The provisions of Section 2.1 shall control over provisions of
            Attachment 3 with regard to determination of actual and permitted
            dates of delivery.

      2.1.4. Change in Delivery Date.

            2.1.4.1. Applied may request Supplier to accelerate the manufacture,
            completion and delivery of any Item to a date other than the
            Committed Delivery Date then established under Section 2.1.5 below.
            A request for accelerated delivery shall be issued by a written or
            electronic record transmitted to Supplier to the attention of the
            Customer Service Manager or Director of Operations (including Senior
            Director of Operations) at the affected facility. A request for
            accelerated delivery may propose modification of the delivery date
            of one or more scheduled Items.

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CONFIDENTIAL TREATMENT REQUESTED

            2.1.4.2. Supplier will respond to the request for accelerated
            delivery within forty-eight (48) hours (measured during Business
            Days and under prevailing Pacific Time), after its receipt of the
            request. Supplier will include in its response the following:
            changes in price for accelerated manufacture, completion and
            delivery; impact of requested accelerated manufacture, completion
            and delivery on other Items for which an Authorized Demand Signal
            has been issued or which are listed on the most recent SPR;
            additional NSR or CCR information required; and limitations or
            requirements applicable to the response. Upon request by either
            party, Applied and Supplier will consult regarding the request for
            accelerated delivery during such forty-eight (48) hour period to
            facilitate Supplier's response and to resolve questions as to the
            request or response.

            2.1.4.3. Promptly upon receipt of Supplier's response to the request
            for accelerated delivery, Applied will review such response and
            consult with Supplier regarding any additional information needed by
            Applied or Supplier. Upon agreement of the parties pursuant to such
            request and response, Applied shall issue a revised Authorized
            Demand Signal and include in such revised Authorized Demand Signal
            the new Committed Delivery Date and all changes in price or other
            cost, established in accordance with the request and response.

            2.1.4.4. A request for a change accelerating delivery by three (3)
            Business days or less from the applicable Committed Delivery Date is
            not an accelerated delivery subject to this Section, and the
            Contract Price for the Item will not (due to the acceleration of
            delivery) be changed. Likewise, the Committed Delivery Date shall
            not be deemed to be altered, unless otherwise expressly agreed,
            pursuant to a request for accelerated delivery of three (3) Business
            days or less.

      2.1.5. Orders for Items.

      Orders for Items may be issued by Applied under the following methods of
      ordering:

            Bus Route or Blanket Order: If Bus Route Orders apply, then Applied
            will send via daily EDI transmission an Authorized Demand Signal to
            Supplier containing Applied's material requirements for Items, which
            will be organized according to part numbers and will represent
            Applied's daily purchase from Supplier. Unless otherwise agreed by
            Applied and Supplier by written amendment to this Agreement, the
            Blanket Order or Bus Route method shall not be used for the ordering
            and delivery of Items.

            Purchase Order: As needed by Applied, Applied will issue Authorized
            Demand Signals for one or more Items to Supplier under the
            procedures set out in Section 2.1.5.1. Each Authorized Demand Signal
            shall apply to the particular Item(s) specified in that signal.

      Authorized Demand Signals for orders by Applied under this Agreement may
      be issued by Applied using any of the methods provided for in Section
      2.1.5.1.

            2.1.5.1. Authorized Demand Signals.

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CONFIDENTIAL TREATMENT REQUESTED

            Each Authorized Demand Signal issued by Applied constitutes
            Applied's offer to purchase from Supplier, in accordance with and
            subject to this Agreement, the Item(s) identified in such Authorized
            Demand Signal. Supplier agrees that (subject to the refusal terms of
            this Agreement and to Section 4.11 of this Agreement) it will accept
            the Authorized Demand Signals issued by Applied and sell, provide
            and deliver, in accordance with and subject to this Agreement
            (including delivery in accordance with provisions regarding
            Committed Delivery Date), all Items for which an Authorized Demand
            Signal is accepted or deemed accepted by Supplier. Issuance of a
            Purchase Order as an Authorized Demand Signal may be made by e-mail
            transmission or by facsimile transmission, or, if such transmission
            services are not available, by mail or hand delivery, and shall be
            effective when transmitted or delivered to Supplier's Customer
            Service Manager - Austin, or Customer Service Manager - Milpitas, as
            appropriate. Issuance of an Authorized Demand Signal to Supplier
            through website posting by Applied and acceptance of such posted
            Authorized Demand Signals is effective between the parties as
            provided in other provisions below in this Section 2.1.5.1.

            A.    Issuance of Authorized Demand Signal.

                  1. VMO or Pilot FDSs, NSOs, and Modules. An Authorized Demand
                  Signal for Volume Manufacturing FDSs, Pilot Manufacturing
                  FDSs, NSOs or Modules is issued by Applied posting, at the
                  Applied website designated for Supplier's access (or, at such
                  times that website access is unavailable, by transmission by
                  e-mail or facsimile to, or other delivery to, Supplier's
                  Customer Service Manager - Austin or Milpitas, as
                  appropriate), an SSR, NSR, or equivalent spreadsheet, report
                  or record of basic FDS or other Item Specification, which
                  identifies the FDS or other Item(s) being ordered and includes
                  the Applied Project Number or Applied "Spec Id" number. If
                  Applied elects to provide an Applied Configured BOM pursuant
                  to Section 2.1.5.1.A.4.c below (Coordination as to Services),
                  Applied shall issue (or make available by electronic means)
                  the Applied Configured BOM as part of the Authorized Demand
                  Signal.

                  The SSR, NSR, or equivalent spreadsheet, report or record so
                  posted or furnished (and including an Applied Configured BOM
                  if such is provided) is an "Authorized Demand Signal."

                  Applied may also order Modules through an RFP/RFQ process and
                  issuance of a Purchase Order, as provided in Section
                  2.1.5.1.A.3 below.

                  2. R&D. An Authorized Demand Signal for Items for Applied's
                  R&D purposes is issued by Applied in either of the following
                  ways:

                        (a) for FDSs, Modules and NSOs that do not require
                        Design Services or Development Services, by issuing (or
                        furnishing) an SSR, NSR or equivalent spreadsheet,
                        report or record of basic

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CONFIDENTIAL TREATMENT REQUESTED

                        Specification to Supplier in the manner provided in
                        Paragraph A.1 above; or

                        (b) for any Item to be manufactured in connection with
                        or as a deliverable under a Design Services Agreement or
                        Development Services Agreement, by issuance to Supplier
                        of the Purchase Order that is a part of the relevant
                        Design Services Agreement, or the Purchase Order for the
                        Development Services Agreement, in each instance based
                        on Supplier's proposals or quotations received by
                        Applied through an RFP/RFQ process and as agreed by the
                        parties pursuant to the RFP/RFQ process.

                  The SSR, NSR or equivalent spreadsheet, report or record, or
                  Purchase Order, for FDS or other Items ordered for R&D
                  purposes is an "Authorized Demand Signal." Authorized Demand
                  Signals for R&D purposes shall be issued by electronic
                  transmission (including e-mail or facsimile transmission), or
                  by delivery of a written Purchase Order to Supplier to the
                  attention of Supplier's Customer Service Manager -Milpitas. If
                  an Item is to be manufactured in connection with or as a
                  deliverable in connection with Design Services or Development
                  Services, the Authorized Demand Signal must include the
                  Purchase Order for such Services and the Authorized Demand
                  Signal is not effective until that Purchase Order is accepted
                  or deemed accepted.

                  3. Spares and Certain Modules. An Authorized Demand Signal for
                  Spares or for Modules not ordered through the issuance and
                  acceptance of an SSR ("Non SSR Modules") is issued by Applied
                  when it issues a Purchase Order to Supplier, to the attention
                  of Supplier's Customer Service Manager - Warranty based on
                  Supplier's proposals or quotations received by Applied through
                  the RFP/RFQ process. A Purchase Order so issued is an
                  "Authorized Demand Signal." A Purchase Order issued as an
                  Authorized Demand Signal for Spares or Non SSR Modules, issued
                  pursuant to an RFP/RFQ process and in conformity with
                  Supplier's proposal or quotation (or as agreed by the parties
                  pursuant to such process), is deemed accepted on issuance.

                  4. Services. An Authorized Demand Signal for Services is
                  issued as follows:

                    a. Configuration Engineering Services, CES Services and CCR
                    Services.

                        (i)   For Configuration Engineering Services, by issuing
                              the SSR for the Applied System for which
                              Configuration Engineering is to be performed, or,
                              as to Configuration Engineering Services that are
                              CCR Services incident to a CCR, by issuing the
                              CCR.

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CONFIDENTIAL TREATMENT REQUESTED

                        (ii)  For CES Services, by issuing an NSR incident to an
                              SSR, and for CES Services that are CCR Services
                              incident to a CCR, by issuing the CCR.

                  Issuance of an NSR, SSR, CCR or Purchase Order as to Services
                  under this Section 2.1.5.1.A.4.a shall be made as follows:

                        with respect to VMO or Pilot FDSs, NSOs or Modules, by
                        posting electronic record of the NSR or SSR on the
                        Applied website designated by Supplier's access (or as
                        otherwise provided by Section 2.1.5.1.A as to Purchase
                        Orders, and in other circumstances as there provided
                        for), or,

                        with respect to NSRs, SSRs or Purchase Orders for Items
                        for which posting is not used, by e-mail or facsimile
                        transmission (or as otherwise provided by Section
                        2.1.5.1.A as to Purchase Orders, and in other
                        circumstances as there provided for), or

                        with respect to CCR Services, by e-mail or facsimile
                        transmission, or by hand delivery (if e-mail or
                        facsimile transmission is not available), of the CCR to
                        Supplier, to the attention of the Supplier contact
                        person to whom the initial order to which the CCR
                        relates was issued.

                    b. Other Services.

                  All other Services (including NPT Services) shall be ordered
                  through a Request for Proposal/Request for Quotation process,
                  pursuant to which the Authorized Demand Signal will be an
                  Applied Purchase Order issued in accordance with this Section
                  2.1.5.1.A.4.b. Design Services or Development Services shall
                  only be ordered through an RFP/RFQ process and by issuance of
                  an Applied Purchase Order conforming to Supplier's response to
                  the RFP/RFQ (or as is otherwise agreed by the parties pursuant
                  to the RFP/RFQ process). If Item(s) are to be manufactured in
                  connection with, or as a deliverable under, a Design Services
                  Agreement or Development Services Agreement, the Purchase
                  Order that is a part of the Design Services Agreement, or that
                  is issued for the Development Services Agreement, must also
                  include the order for such Item(s). Further, a Purchase Order
                  for Design Services or for Development Services shall also be
                  issued in accordance with the IPA (including provisions of the
                  IPA applicable to a DSA or DVA.) The IPA (and any DVA, as
                  applicable) shall control and have priority in the event of
                  conflict with this Agreement in accordance with Section
                  1.3.2.2 above.

                    c. Coordination as to Services.

                  (i) Applied may, at the time it issues the Authorized Demand
                  Signal for an Item, elect to provide to Supplier the
                  Configured BOM for the Item

                                       20
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CONFIDENTIAL TREATMENT REQUESTED

                  that would otherwise be prepared by Supplier as part of its
                  Configuration Engineering Services (the "Applied Configured
                  BOM"). If Applied elects to provide an Applied Configured BOM
                  for an Item, the Authorized Demand Signal for the Item will be
                  the SSR, NSR or equivalent spreadsheet, report or record plus
                  the Applied Configured BOM issued with and included in the
                  SSR, NSR or equivalent document.

                  If Applied does not issue an Applied Configured BOM as part of
                  its Authorized Demand Signal in accordance with this Section
                  2.1.5.1.A.4.c, then Supplier shall perform those Services that
                  are ordered pursuant to the Authorized Demand Signal as
                  determined under other provisions of Section 2.1.5.1.A.4, and
                  Applied shall pay for Services so performed at the rates
                  applicable under the cost model (Attachment 1).

                  (ii) Applied shall be responsible for engineering services in
                  the preparation of an Applied Configured BOM. Supplier shall
                  not be required to perform or provide engineering review of an
                  Applied Configured BOM prior to commencing the manufacture of
                  the Item.

                  (iii) Supplier will advise Applied of defects in an Applied
                  Configured BOM that are identified by Supplier in the
                  manufacture of the Item. If an Applied Configured BOM is
                  defective:

                        (a) Supplier is excused from compliance with the
                        Committed Delivery Date applicable at the time the
                        defect in the Applied Configured BOM was identified;

                        (b) Applied will re-engineer the Applied Configured BOM
                        to correct the defect(s), or, upon mutual written
                        agreement pursuant to an RFP/RFQ process (which includes
                        e-mail and facsimile records of the agreement), Supplier
                        will re-engineer the Applied Configured BOM to correct
                        the defect(s) pursuant to the Purchase Order issued
                        through the RFP/RFQ process;

                        (c) Changes in Piece Parts for an Item that result from
                        re-engineering of an Applied Configured BOM pursuant to
                        this Section 2.1.5.1.A.4.c. (excluding changes involving
                        digital line-side configurable MFCs) shall be treated as
                        *s in accordance with Section 2.8 of this Agreement if
                        occurring within the period covered by Section 2.8.3.1;

                        (d) Applied and Supplier shall negotiate in good faith
                        to determine an adjusted Committed Delivery Date; and

                        (e) Appropriate written modifications of the Committed
                        Delivery Date shall be made upon mutual agreement.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

                  (iv) Supplier shall review the documentation and information
                  provided as part of each Authorized Demand Signal and shall
                  coordinate its Services so that Supplier provides or performs
                  those Services necessary or appropriate under the Authorized
                  Demand Signal and its related documentation or information.

                  (v) The parties may, by mutual written agreement, amend the
                  scope of or charges for Services for repeat build Items.

                    d. Quotation of CES Charges.

                  (i) Applied may require that Supplier provide "Quoted CES
                  Charges" (as such term is defined below) as to one or more
                  product line(s), type(s) or model(s) of Applied Systems. The
                  Applied SAT Team Lead for Supplier shall notify Supplier's
                  Engineering Manager that Quoted CES Charges are required, and
                  such notice shall specify the Applied product line(s), type(s)
                  or model(s) of Applied Systems for which Quoted CES Hours are
                  required, the date on which Supplier shall commence providing
                  such quotes, and the person at Applied to whom the Quoted CES
                  Charges shall be sent. Quotations setting out Quoted CES
                  Charges shall be provided by Supplier by e-mail or facsimile
                  transmission to the person so identified.

                  (ii) "Quoted CES Charges" means the charges for CES Services
                  that Supplier is to perform pursuant to an Authorized Demand
                  Signal for CES Services under Section 2.1.5.1.A.4.a that are
                  in excess of 20 hours as to a Volume Manufacturing FDS or 40
                  hours as to a Pilot Manufacturing FDS, or such higher
                  reportable charges threshold as may be specified in the notice
                  requiring Supplier to provide quotations. Supplier may charge,
                  in addition to Quoted CES Charges, for two (2) hours of
                  engineering services for the release of a Configured BOM
                  through Applied's ECO procedures applicable to an Item when
                  Supplier performs Configuration Engineering Services or CCR
                  Services as to the Configured BOM, without having to include
                  such charges for release of the Configured BOM in its quote.

                  (iii) If Quoted CES Charges are required with respect to a
                  Volume Manufacturing FDS or Pilot Manufacturing FDS for which
                  the Authorized Demand Signal (for the FDS and related CES
                  Services) is the NSR incident to the primary SSR (a
                  "Conditional ADS") Supplier shall accept or refuse the
                  Conditional ADS within the time period otherwise applicable to
                  that Authorized Demand Signal. The obligations of Supplier and
                  Applied with respect to a Conditional ADS upon its acceptance
                  under other provisions of Section 2.1.5.1 are, however,
                  subject to subsequent agreement on Quoted CES Charges, as
                  provided in this Section 2.1.5.1.A.4.d. Within two (2)
                  Business Days after the date of acceptance of a Conditional
                  ADS, Supplier shall provide its quotation of hours and amounts
                  to be charged for Quoted CES Services to Applied. Until

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CONFIDENTIAL TREATMENT REQUESTED

                  Applied accepts (or is deemed to have accepted) the time and
                  amount for Quoted CES Services shown on the quotation of
                  Quoted CES Charges, the affected Conditional ADS shall be
                  subject to Applied's acceptance of the quote for Quoted CES
                  Services and until such acceptance the Conditional ADS shall
                  not be binding as to Applied; Supplier, however, shall not
                  revoke its acceptance of the Conditional ADS or withdraw its
                  quote of Quoted CES Charges.

                  (iv) Applied may reject or accept a quotation of Quoted CES
                  Services by e-mail, facsimile or other record or writing (but
                  not by telephone or voice-mail) at any time prior to the time
                  acceptance is deemed to occur by the following sentence. If a
                  quote for Quoted CES Services is not rejected by Applied
                  within two (2) Business Days after the quote is issued to
                  Applied, then the quote for Quoted CES Services shall be
                  deemed accepted by Applied. Upon Applied's acceptance of the
                  quotation of Quoted CES Charges, the related Conditional ADS
                  Demand Signal becomes binding on and agreed to by both
                  Supplier and Applied at such time. The Committed Delivery Date
                  shall be determined based on such date of acceptance of the
                  quotation of Quoted CES Services. Applied's notice of
                  rejection of Quoted CES Services shall be issued to Supplier's
                  Engineering Manager. If Applied rejects a quote for Quoted CES
                  Services, then Supplier and Applied shall promptly negotiate
                  as to the scope, time and costs for Quoted CES Services. If
                  the parties agree on the scope, time and costs for Quoted CES
                  Services after a quote is rejected, then Supplier shall issue
                  a revised quote for Quoted CES Services and upon Applied's
                  issuance of an acceptance of such revised quote, the related
                  Authorized Demand Signal shall be binding on and is agreed to
                  by both Supplier, and the Committed Delivery Date shall be
                  determined based on the date of acceptance of the revised
                  quote by Applied.

                  (v) Except in those instances in which a quotation of Quoted
                  CES Charges applies and has been accepted, CCR Services are
                  not subject to the procedures for quotation and acceptance in
                  this Section 2.1.5.1.A.4.d. If, after a quote of Quoted CES
                  Charges has been accepted, Applied changes the relevant SSR or
                  NSR and such change affects CES Services previously quoted and
                  accepted, then (a) Supplier shall promptly requote its Quoted
                  CES Charges to include additional CES Services (or CCR
                  Services) resulting from the changes in SSR or NSR, (b)
                  Applied shall promptly accept or reject the Quoted CES
                  Charges, as so requoted, (c) requoted Quoted CES Charges
                  accepted by Applied shall become part of the Contract Price of
                  the Item(s) affected; and (d) the parties shall negotiate in
                  good faith to determine an adjusted Committed Delivery Date
                  (if any) due to changes in the SSR or NSR that adversely
                  affect Supplier's ability to meet the otherwise applicable
                  Committed Delivery Date.

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CONFIDENTIAL TREATMENT REQUESTED

                  (vi) A charge for up to two (2) hours for engineering services
                  for release of a Configured BOM through Applied's ECO
                  procedures applicable to the Item may be made in addition to
                  Quoted CES Services.

            B. Acceptance and Refusal. Each Authorized Demand Signal issued by
            Applied in compliance with Section 2.1.5.1.A and not timely refused
            by Supplier as provided by this Section 2.1.5.1.B is agreed to have
            been accepted and is effective between Applied and Supplier upon the
            expiration of the period specified for Supplier's refusal.

                  1. VMO or Pilot FDSs, NSOs and Modules. Supplier may refuse an
                  Authorized Demand Signal issued by Applied for purchases
                  within the scope of Paragraph A.1. (a) for error by Applied in
                  the SSR, CCR, or NSR (or equivalent document), (b) as
                  exceeding Supplier's capacity or flexibility requirements
                  determined under Section 2.5 (except as to CCRs), or (c) for
                  failure to provide a required NSR or to provide an Applied
                  Configured BOM that should have been part of the Authorized
                  Demand Signal under Section 2.1.5.1.A.4.c, but not for other
                  reasons. Supplier shall effect a refusal to accept an SSR,
                  CCR, or NSR (or equivalent document) by posting its refusal on
                  Supplier's Master Production Schedule document as maintained
                  on an Applied server, or (if server access is unavailable) by
                  e-mail or facsimile transmission to the Applied purchasing
                  representative for the Applied organization issuing the SSR,
                  CCR, or NSR. Refusal shall be made within ninety-six (96)
                  hours (measured during Business Days and under prevailing
                  Pacific Time) after Applied's issuance of the Authorized
                  Demand Signal for orders in this category.

                  2. R&D. Supplier may refuse an Authorized Demand Signal issued
                  by Applied initiated by the SSR process for R&D purchases
                  within the scope of Paragraph A.2 for (a) error by Applied in
                  the SSR or NSR (or equivalent document), (b) incomplete design
                  or unresolved manufacturing issues, (c) as exceeding
                  Supplier's capacity or flexibility requirements under Section
                  2.5 below, or (d) failure to provide a required NSR, but not
                  otherwise. Supplier shall effect a refusal to accept an R&D
                  SSR order (or equivalent) by posting its refusal on Supplier's
                  Master Production Schedule document as maintained on an
                  Applied server, or (if server access is unavailable) by e-mail
                  or facsimile transmission to the purchasing representative for
                  the Applied organization issuing the Authorized Demand Signal.
                  Refusal shall be made within five (5) Business Days after
                  posting of the R&D SSR. A Purchase Order issued as an
                  Authorized Demand Signal for an R&D purchase pursuant to an
                  RFQ/RFP process and in conformity with the proposal or
                  quotation received from Supplier and the requirements of
                  Section 2.1.5.1.A.2 where applicable (or as agreed by the
                  parties pursuant to such RFP/RFQ process) is deemed accepted
                  upon its issuance.

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CONFIDENTIAL TREATMENT REQUESTED

                  3. Services. With respect to those Standard Services that are
                  required for or are incident to the manufacture of an Item or
                  Items for which the Authorized Demand Signal is an SSR or NSR
                  (or equivalent spreadsheet or record), the corresponding
                  Authorized Demand Signal for Standard Services is accepted or
                  deemed accepted upon and by the acceptance or deemed
                  acceptance of the SSR or NSR. An Authorized Demand Signal for
                  CCR Services is deemed accepted upon and by acceptance or
                  deemed acceptance of the CCR under Section 2.1.5.1.B.1. A
                  Purchase Order constituting an Authorized Demand Signal for
                  other Services, issued in accordance with Section 2.1.5.1.A.4,
                  is deemed accepted upon issuance, whether for Services
                  required for or incident to manufacture of an Item or Items,
                  or otherwise.

                  4. Assurance to Supplier. In addition to the matters set out
                  above in this Section 2.1.5.1.B as grounds for refusal of an
                  Authorized Demand Signal, Supplier may also refuse an
                  Authorized Demand Signal in the circumstances allowed by
                  Section 2609 of the UCC.

            2.1.5.2. Committed Delivery Dates.

                  A. Except as provided for in Paragraph B, C or D below in this
                  Section 2.1.5.2, the Committed Delivery Date for Volume, Pilot
                  and R&D Items shall be determined in accordance with
                  applicable cycle times in effect at the time the Authorized
                  Demand Signal is accepted or deemed accepted under the
                  following schedule:

                        Volume: From the date of acceptance or deemed acceptance
                        of Authorized Demand Signal *.

                        Pilot: From the date of acceptance or deemed acceptance
                        of Authorized Demand Signal *.

                        R&D: From the date of acceptance or deemed acceptance of
                        Authorized Demand Signal when issued by SSR, *; and, for
                        R&D Items for which a Purchase Order is issued, * from
                        the date of issuance of the Purchase Order, unless
                        another date is specified in the Purchase Order.

                  B. The Committed Delivery Date for NSO Items shall be * from
                  the date of acceptance or deemed acceptance of the Authorized
                  Demand Signal; the Committed Delivery Date for Modules shall
                  be * from the date of acceptance or deemed acceptance of the
                  Authorized Demand Signal.

* Material has been omitted and filed separately with the Commission.

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                  C. Services for Items ordered through an SSR, NSR, CCR or
                  equivalent process shall be provided and completed as required
                  to achieve the applicable Committed Delivery Date for the
                  Items. Services for which the Authorized Demand Signal is a
                  Purchase Order (or DSA or DVA, if applicable) shall be
                  provided in accordance with the applicable Purchase Order (or
                  DSA or DVA, if applicable) and its Committed Delivery Date or
                  other delivery or completion requirements of such Purchase
                  Order (or DSA or DVA, if applicable).

                  D. For any Items not otherwise governed by the preceding terms
                  for which the initial Authorized Demand Signal is an Applied
                  Purchase Order, the Committed Delivery Date shall be the
                  delivery date set out in such Purchase Order.

                  E. By mutual written agreement, the parties may amend the
                  cycle times provided in this Section 2.1.5.2 with respect to
                  one or more Item(s). The parties will consult together,
                  identify and, upon mutual written agreement, implement
                  reductions in cycle time for repeat build Item(s).

         2.1.5.3 Modification of Committed Delivery Dates.

            A. For Items for which the Committed Delivery Date is established
            pursuant to Section 2.1.5.2.A or B, the Committed Delivery Date may
            be changed only with Supplier's approval; provided that any
            Committed Delivery Date may be changed, without Supplier's approval,
            as provided in Section 2.3.2. The delivery date for an Item as
            modified as provided in Section 2.3.2 shall become the "Committed
            Delivery Date" for such Item.

            B. For Items for which the Committed Delivery Date is established by
            a Purchase Order issued under Sections 2.1.5.1 and 2.1.5.2, the
            Committed Delivery Date shall be modified only through issuance of a
            revised Purchase Order, or pursuant to Section 2.3.2.

            C. The Committed Delivery Date for an Item may also be modified
            pursuant to Section 2.1.4 or Section 2.1.5.1.A.4.c. or d.

      2.1.6. Electronic Commerce.

      For transactions conducted by electronic means (other than facsimile,
      internet or e-mail transmission), Supplier is required to communicate with
      Applied using the then current EDI ANSI standards and encouraged to use
      either GEIS, EDICT or other approved software. Facsimile, internet and
      e-mail transmissions shall be made using commercially available systems
      compatible with Applied's e-mail, internet and facsimile applications.

      The parties agree that they shall conduct transactions hereunder by
      various electronic means and will rely upon electronic means to issue
      Authorized Demand Signals, to enter into purchase and sale transactions,
      and to exchange delivery and order information under this Agreement. To
      the extent electronic means are not accessible or become otherwise

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CONFIDENTIAL TREATMENT REQUESTED

      unavailable due to technical difficulties or due to the effect of any law
      or regulation governing electronic transactions (collectively
      "Unavailability"), the parties agree: (1) that any transactions entered
      into, and any delivery or order information received, by electronic means
      prior to the Unavailability date will remain valid, and Supplier and
      Applied shall honor their respective obligations; and (2) that they will
      continue to conduct their transactions, to the extent of the
      Unavailability, by other than electronic means, such as written form or
      fax as contemplated in Section 2.1.5 of this Agreement. This Agreement
      shall not require all transactions to be conducted by electronic means. If
      required by applicable law, a separate agreement concerning electronic
      transactions between Applied and Supplier will set out other terms that
      will control as to certain aspects of electronic transactions.

      2.1.7. Pro Forma.

            2.1.7.1. Estimated Pro Forma.

            No later than three (3) Business Days prior to Supplier's shipment
            of each Item to Applied for which the Contract Price is determined
            under Attachment 1, Supplier shall transmit its preliminary "pro
            forma invoice" (a "Pro Forma") for such Item. The preliminary Pro
            Forma shall identify the Item(s) covered, shall calculate the
            Contract Price by applying the appropriate elements of the cost
            model set out in Attachment 1, and shall specify separately any
            charges (stated separately as to each applicable category) for *s,
            Reconfigure Items, Relabel Items, Restock Items (as such terms are
            defined below), and any other charges included as applicable to the
            Item(s) but not provided for in Attachment 1. The preliminary Pro
            Forma shall be delivered by e-mail (or upon request by Applied, by
            fax or hand delivery) to the finance representative of the Applied
            organization issuing the Authorized Demand Signal, and to such other
            persons as Applied may reasonably request. The preliminary Pro Forma
            shall identify charges for Standard Services by category.

            2.1.7.2. Final Pro Forma.

            At the time of Supplier's shipment of each Item to Applied for which
            the Contract Price is determined under Attachment 1, Supplier shall
            transmit to Applied its final Pro Forma for such Item. The final Pro
            Forma shall contain all information, costs and charges applicable to
            the Item, including all elements described in Section 2.1.7.1, and
            shall be delivered in the manner and to the persons specified in
            Section 2.1.7.1. The final Pro Forma shall further identify
            separately for each category of Standard Services the charges for
            that category of Service and the portions of such charges
            attributable to Configuration Engineering Services, CES Services,
            and engineering for the release of the Bill of Materials for the
            Item through Applied's ECO procedures, as applicable.

* Material has been omitted and filed separately with the Commission.

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2.2.  Definition of Terms for Certain Provisions Affecting Prices or Charges.

      2.2.1 The definitions set out in this Section shall apply in determining
      charges, credits and payments under Sections 2.8 (*), 2.14 (Provisions for
      Reconfiguration or Restocking), 3.1.4 (Further Agreements as to Pricing)
      through 3.1.6 (Adjustment for *), and 4.11 (Wind Down Provisions).

      Each of these sections will provide further definitions or procedures that
      will control the particular matters to which it applies.

      2.2.2 For the purposes of Section 2.2 and the sections identified in
      Section 2.2.1, Piece Parts (including MFCs) installed on or removed from
      an Item are classified in one of the following categories:

            i)    NonReusable Materials

            ii)   NonConsumable Materials

            iii)  NonConsumable MFCs

            iv)   Consumable Materials

            v)    Consumable MFCs

            vi)   Floor Stock Scrap.

      2.2.3 The following provisions and definitions apply generally for the
      purposes of Section 2.2 and the Sections indicated above:

            (a) "NonReusable Materials" means those Piece Parts, excluding Floor
            Stock Scrap, used in the manufacture of an Item that are (i) missing
            or damaged at the time of inspection prior to disassembly and
            teardown (as Reconfigure or Restock Items only), (ii) damaged in the
            course of disassembly and teardown when using commercially
            reasonable practices, or (iii) obsolete and no longer meet current
            revision levels of applicable specifications.

            (b) "Floor Stock Scrap" means those Piece Parts removed from an Item
            in the course of disassembly and teardown that have a unit cost of
            $10.00 or less.

            (c) "Consumable Materials" are all recoverable Piece Parts for an
            Item other than NonReusable Materials, NonConsumable Materials,
            NonConsumable MFCs and Floor Stock Scrap.

            (d) "NonConsumable Materials" consists of Bus Route NonConsumable
            Materials, and Spot Buy NonConsumable Materials.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

            (e) "Bus Route NonConsumable Materials" are those * Piece Parts for
            an Item that * on a Bus Route basis and have been used in, or
            delivered to Supplier for, the manufacture of the Item at the
            Relevant Date that are * (x) Supplier's * for such Piece Parts over
            the * following the Relevant Date *.

            (f) "Spot Buy NonConsumable Materials" are those * Piece Parts for
            an Item that * on a Spot Buy basis and have been used in, or
            delivered to Supplier for (or for which Supplier has issued its
            non-cancelable purchase order), the manufacture of the Item at the
            Relevant Date, that are * (x) Supplier's * for such Piece Parts over
            the * following the Relevant Date, *.

            (g) "NonConsumable MFCs" are those MFCs (excluding all *
            configurable MFCs) that have been used in, or delivered to Supplier
            for (or for which Supplier has issued its non-cancelable purchase
            order), the manufacture of the Item at the Relevant Date, and that
            are in excess of Supplier's then applicable * (calculated separately
            for Spot Buy and Bus Route MFCs using the methodology for Spot Buy
            NonConsumable Materials and for Bus Route NonConsumable Materials)
            for such MFCs current at the Relevant Date. NonConsumable MFCs shall
            be handled only under provisions for NonConsumable MFCs, and not
            through charges for NonConsumable Materials.

            (h) Supplier's "Current Average Cost of Materials" shall be the
            average cost to Supplier calculated with respect to quantities * and
            taking into account the * of the affected Piece Part under the
            method employed by Supplier on the Effective Date and in accordance
            with generally accepted accounting principles in effect in the
            United States of America and consistently applied. The "Current
            Average Cost of Materials" as so determined is subject to adjustment
            under Sections 3.1.5 and 3.1.6 of this Agreement.

            (i) Supplier's "Standard Cost of Materials" is the materials cost
            charged by Supplier to Applied for Piece Parts incorporated in Items
            sold to Applied and conforming to the schedule or database of
            materials costs then in effect and maintained by Supplier on its
            Oracle (or other enterprise accounting system) database. The
            "Standard Cost of Materials" as so determined is subject to
            adjustment under Sections 3.1.5 and 3.1.6 of this Agreement.

            (j) "MRP Demand" means the demand for an affected Piece Part under
            the manufacturing requirements planning standards employed in the
            industry.

            (k) "Relevant Date" means the following:

                  1) For * charges (Section 2.8.3), the date on which the * is
                  requested by Applied.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

                  2) For Restock Items and Reconfigure Items (Section 2.14), the
                  date on which the Item is classified by Applied as a Restock
                  Item or Reconfigure Item.

            (l) Each Piece Part shall be included in only one category of
            charge.

            (m) Supplier shall return to Applied's Asset Recovery Management
            organization, or destroy if so instructed by Applied, all Piece
            Parts for which a cancellation charge is made, except for Floor
            Stock Scrap and NonConsumable MFCs (to be retained by Supplier).

2.3.  Cancellation of Items.

      2.3.1. Items Subject to Cancellation.

      Applied may cancel Items in accordance with this Section 2.3 at any time
      by written or electronic notice (but not telephone or verbal notice) to
      Supplier's Customer Service Manager (Austin or Milpitas, as applicable) as
      designated in Section 1.2, between (a) the date on which Applied's
      Authorized Demand Signal has been accepted or deemed accepted and (b) the
      Committed Delivery Date. Applied may withdraw order(s) for Item(s) set out
      in Authorized Demand Signal(s) issued, but not accepted or deemed
      accepted, at any time prior to acceptance or deemed acceptance.

      2.3.2. Deferral.

      Without cancellation of an Item, Applied may defer the delivery date of
      any Item(s) for a period of up to * following the initially applicable
      Committed Delivery Date *. To defer delivery, Applied shall give notice of
      deferral, to the Supplier contact person and in the manner provided under
      Section 2.3.1, no later than * before the Committed Delivery Date in
      effect at the time of deferral; provided that the cumulative period of
      deferral as to each Item shall not exceed * from the initially applicable
      Committed Delivery Date.

      In exercising its rights of deferral under this Section 2.3.2, Applied
      will consult with Supplier with respect to the date that will become the
      new Committed Delivery Date resulting from deferral so that, to the extent
      consistent with Applied's requirements for manufacturing and shipment of
      Applied Systems, such new Committed Delivery Date is not unreasonably
      burdensome to Supplier, taking into account the available manufacturing
      capacity and flexibility capabilities of Supplier through the new
      Committed Delivery Date. Applied shall, however, be entitled to set the
      new Committed Delivery Date as required for its timely manufacturing and
      shipment of Applied Systems.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      2.3.3. Cancellation.

      If Applied cancels an Item (including as a cancellation any Item as to
      which Applied does not initiate delivery of an Item within the * period
      provided by Section 2.3.2 following a deferral), the costs, expenses and
      charges arising from such cancellation (including failure to initiate
      delivery) shall be governed by the following terms:

            (a) If cancellation occurs less than * calendar days before the
            Committed Delivery Date, then Applied shall purchase the Item at its
            *, the Item shall be delivered to Applied only if requested by
            Applied, and the Item may be classified by Applied as a * Item under
            Section 2.14 below. Applied shall have no obligation to Supplier
            arising from cancellation except those under this Section 2.3.3(a).

            (b) All costs, expenses and charges for cancellation of Items, other
            than cancellations to which Section 2.3.3(a) applies, are accounted
            for and included in the * and shall be the sole responsibility of
            Supplier. Applied shall have no obligation to Supplier arising from
            cancellations to which Section 2.3.3(a) does not apply.

      2.3.4. Applicability; Payment.

            (a) If an Item that has been deferred under Section 2.3.2 is
            subsequently cancelled, Section 2.3.3(a) applies if either (a) the
            cancellation occurs * before the Committed Delivery Date as then
            applicable following deferral, or (b) the Item was initially
            deferred * prior to the original Committed Delivery Date.

            (b) The Pro Forma for an Item purchased pursuant to Section 2.3.3(a)
            shall be issued by Supplier to Applied within * after the date on
            which cancellation becomes effective, and such purchase amount shall
            be payable (and subject to prompt payment discount) under the terms
            of Section 2.11.

      2.3.5. Other Rights.

      Applied's rights of cancellation are in addition to, and shall be
      independent of its rights under, and the limitations of, Section 2.14 of
      this Agreement, except as to Items that become classified under Section
      2.14 pursuant to Section 2.3.3(a).

      2.3.6. Services.

      If Services for which a Purchase Order was issued are cancelled, and such
      cancelled Services are not CES Services, Configuration Engineering
      Services or CCR Services performed on a cancelled Item, Supplier shall
      charge for its Services actually performed through the date of
      cancellation, at rates and in accordance with the applicable Purchase
      Order.

* Material has been omitted and filed separately with the Commission.

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2.4.  Response Time, Turnaround and Implementation Time.

This Section establishes the methods by which Applied will communicate its
Production Issues to Supplier and the time periods for Supplier to respond and
implement solutions.

      2.4.1. Production Issues.

      A "Production Issue" is an interruption or stoppage of any of Applied's
      manufacturing operations in the United States of America (as, or
      equivalent to, a "line down" situation) that results from a failure of an
      Item to conform to warranty, from other defect in or damage to an Item
      delivered by Supplier, a failure or interruption in the timely delivery of
      Items by Supplier on Committed Delivery Dates, or from other failure in
      Supplier's performance under this Agreement. Applied shall notify Supplier
      of a Production Issue by telephone, cell-phone or pager to the following
      persons:

            Supplier's Customer Service Manager at Austin or Milpitas, as
            appropriate, using the contact information set out in Section 1.2.1.

      Supplier shall contact the Applied originator of a notice of Production
      Issue within * of the issuance by Applied of the notice of a Production
      Issue. This notice and response procedure is not subject to Section 1.2.2.

      2.4.2. Turnaround and Implementation Time.

      Supplier will, in the case of a Production Issue, repair, replace and
      correct Item(s), deliver (or restore delivery of) Items, and otherwise
      resolve and correct such Production Issue in accordance with the following
      requirements:

            (a) Supplier shall commence its repair, replacement, correction or
            solution of a Production Issue within one (1) hour after its
            response to Applied and shall complete the repair, replacement,
            correction or solution within the time period necessary to meet
            Applied's production requirements, not to exceed * after its
            response to Applied, unless a longer time is required for completion
            in accordance with best practices in the industry.

            (b) Supplier shall provide timely status reports to Applied
            regarding the repair, replacement, correction or solution to assist
            Applied in managing its manufacturing operations affected by the
            Production Issue.

2.5.  Capacity Planning and Flexibility Requirements.

      2.5.1 Capacity Planning.

            (a) Supplier will use commercially reasonable efforts to plan its
      manufacturing capacity, including materials, staff, engineering support,
      facilities, and other production factors in order to:

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

            have capacity adequate for projected quantities and projected
            delivery dates shown in Applied's SPR, as released to Supplier and
            as revised from time to time (and at least weekly);

            have additional capacity available to supply Items ordered through
            Purchase Orders as Authorized Demand Signals but not previously
            shown on the SPR provided to Supplier; and

            to implement adjustments in operations and manufacturing to comply
            with the flexibility requirements applicable under Section 2.5.2.

            (b) As part of its capacity planning, Supplier shall review with
      Applied's Supplier Performance Management organization and any Applied
      organization subsequently performing its functions (the "SPM") on a
      monthly basis (as part of its monthly performance review) Supplier's
      manufacturing capacity and Supplier's capability to increase such capacity
      when and as changes occur in Applied's manufacturing volumes and
      requirements. Supplier shall advise Applied at such monthly meetings of
      Supplier's manufacturing capacity as planned by Supplier under Section
      2.5.1 (a) and, in consultation with the Applied SPM, determine appropriate
      changes in manufacturing capacity for periods covered in the monthly
      performance review (collectively, the "Capacity Projections") The Capacity
      Projections shall be made a part of the Supplier Performance Plan
      (Attachment 16) and shall provide capacity at least equal to the rolling *
      forecast of the then-current SPR for Items anticipated to be provided by
      Supplier.

      2.5.2 Flexibility.

            In addition to manufacturing capacity planning under Section 2.5.1,
      Supplier shall also use commercially reasonable efforts to plan for and to
      implement manufacturing flexibility capabilities in addition to Supplier's
      manufacturing capacity. Supplier shall review such plans and capabilities
      with Applied's SPM at least monthly (as part of the monthly performance
      review activity) and, in consultation with the Applied SPM, establish
      manufacturing flexibility levels applicable to Supplier as part of the
      Supplier Performance Plan (Attachment 16) consistent with known or
      anticipated changes in Applied's manufacturing volumes, delivery dates and
      product requirements. Supplier's manufacturing flexibility levels shall at
      least allow for manufacturing volumes and output to * over Supplier's
      basic manufacturing capacity established and reported to Applied, from
      time to time, in accordance with Section 2.5.1 within a given * period.

* Material has been omitted and filed separately with the Commission.

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      2.5.3. Acceptance; Delivery.

            (a) Supplier shall not refuse to accept, on the basis of the
      quantity of Items involved, Authorized Demand Signals under Section
      2.1.5.1 that are within current manufacturing capacities, production
      volumes, and operating levels or are within Capacity Projections or
      flexibility levels included in the Supplier Performance Plan. Supplier
      shall also advise Applied (upon request) regarding additional volumes of
      Items that are within increases in such capacities, volumes and levels,
      beyond the Capacity Projections and flexibility levels under the Supplier
      Performance Plan, that Supplier can achieve through use of commercially
      reasonable efforts.

            (b) If week to week variations in the quantities of Items
      deliverable under Authorized Demand Signals, together with changes in
      Committed Delivery Dates through deferral of Items pursuant to Section
      2.3.3 cause the volumes of Items that are to be delivered in a weekly
      period to exceed Supplier's delivery volumes provided for by the Supplier
      Performance Plan and if Supplier is not able to complete and make delivery
      of the quantities solely due to such variations (and exclusive of any
      delivery volume limitations or other problems resulting from Supplier's
      failure or inability to achieve capacity and flexibility levels
      established for the affected periods under the Supplier Performance Plan),
      then Applied will allow Supplier to deliver Items that are affected by the
      excessive increase for that period up to a maximum of two (2) weeks in
      advance of the applicable Committed Delivery Dates. Such early delivery
      allowance shall be in effect only to the extent and for the period
      commercially necessary to enable Supplier to comply with the Committed
      Delivery Date(s) of Items exceeding its capacity and flexibility levels,
      and in no event later than the time revised capacity or flexibility
      requirements can be established on a commercially reasonable basis.

      This Section 2.5 does not alter the provisions of this Agreement in
      Section 2.3 (Cancellation of Items), Section 2.14 (Provisions for
      Reconfiguration or Restocking), or Section 2.8 (*).

2.6.  On-Site Support Requirements.

Supplier may be asked by Applied to provide appropriate or necessary personnel
required to support on-site operations at Applied's facilities. On-site
representatives will comply with all Applied facilities requirements. Applied,
at its sole discretion, may require Supplier to execute an On-site
Representative Agreement, in the form set forth in Attachment 18, and may
require the On-site Representative to execute an NDA joinder in the form
required by the On-Site Representative Agreement, prior to issuing a building
badge to Supplier's representative(s) or permitting access to Confidential
Information. Supplier agrees to notify Applied immediately of any changes in its
staffing assignments involving those individuals with access to Applied's
facilities or IS&T systems, applications or databases.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

In the event that Supplier's personnel will provide such support at the premises
of a customer of Applied, Supplier agrees to comply with the requirements and
restrictions imposed by such customer for access to its premises (in addition to
the terms of any On-site Representative Agreement executed by Supplier).

2.7.  [Omitted]

2.8.  *.

      2.8.1. Modifications and *s.

      In addition to its rights of cancellation under Section 2.3 and of
      relabeling, reconfiguration and restocking under Section 2.14, Applied
      shall have the right to modify the SSR or Specifications for Items after
      the issuance and acceptance of any Authorized Demand Signal and prior to
      the actual delivery of the Item. Changes initiated by Applied as to an
      Item through changes to an SSR or Specifications (including those
      initiated by Applied as ECOs) * covered by this Section 2.8 are * or "*s."

      2.8.2. Scope of *s.

      An * includes only changes initiated by Applied * the * of an Authorized
      Demand Signal and excludes changes resulting from other requests for CES
      Services, CCR Services or Configuration Engineering Services, and design
      or engineering changes attributable to Supplier. Changes that involve *
      are not *s.

      2.8.3. Charges for *s.

      Applied shall * for *s ("*") determined under the following terms:

            1.    If the * is requested * prior to the then applicable Committed
                  Delivery Date, the * Charges shall be the *: Supplier's
                  Standard Cost of Materials for Bus Route NonConsumable
                  Materials, Supplier's Standard Cost of Materials for Spot Buy
                  NonConsumable Materials, 70% of Supplier's Standard Cost of
                  Materials for NonConsumable MFCs, and Supplier's Standard Cost
                  of Materials for NonReusable Materials, applied to Piece Parts
                  removed from the affected Item as a result of the *. * for
                  materials resulting from an * shall be shown as a separate
                  line item materials charge in Supplier's Pro Forma for the
                  affected Item and become a part of the Contract Price for an
                  Item.

            2.    If the * is requested * or more prior to the then applicable
                  Committed Delivery Date, no * Charges shall apply.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

            3.    Supplier shall also charge for, as a rate per hour charge in
                  accordance with the terms of Attachment 1, but subject to the
                  terms of Section 2.1.5.1.A.4.d as to "Quoted CES Charges" and
                  Section 2.1.5.1.A.4.c as to "Coordination of Services," the
                  actual CES, CCR and Configuration Engineering Services
                  resulting from an *, as part of the Contract Price for the
                  affected Item.

      Supplier shall maintain a record of the Piece Parts removed from an Item
      or classified as NonConsumable or NonReusable as a result of *s, and
      Supplier shall identify all NonConsumable and NonReusable Materials
      (excluding Floor Stock Scrap) by preparation of a Bill of Materials for
      NonConsumable and NonReusable Materials (the "NRM BOM"), classified by the
      affected Applied System or affected Purchase Order, which NRM BOM will be
      invoiced on the Pro Forma for the Item and will be retained by Supplier
      for a period of one (1) year from the invoice date for the *. All removed
      Piece Parts, excluding NonConsumable MFCs, for which an * is made to
      Applied shall be delivered to Applied's Asset Recovery Management Unit.

2.9.  Information.

      2.9.1. Applied Internal Databases.

      Supplier may be given electronic access to Internal Applied Data, and such
      access may, at Applied's sole discretion, be subject to certain further
      limitations and requirements on Supplier, including Supplier-provided
      employee control lists, audit rights and the requirement that Supplier's
      employees execute a joinder in the IPA as to confidentiality with Applied.
      This access, if granted, and all Internal Applied Data accessed shall be
      used solely by Supplier and only to directly facilitate Supplier's
      production and delivery of Items to support Applied's requirements.
      Supplier's access to, and utilization of, all Internal Applied Data is
      subject to the confidentiality provisions and obligations of the IPA with
      respect to Confidential Information and the terms of this Agreement and
      any applicable NDA between the parties. Applied may terminate Supplier's
      access to Internal Applied Data at any time at the discretion of Applied.

      If Applied terminates Supplier's access to Internal Applied Data under
      this Section, whether with or without cause, then Applied and Supplier
      shall promptly consult to develop alternative ways of providing Supplier
      with access to Internal Applied Data for the purpose of Supplier's
      performance under this Agreement.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

            2.9.1.1. Applied IS&T Services.

                  A. Applied and Supplier have agreed on the services and scope
                  of services * for voice and data telecommunication and * to
                  Applied *, all for Supplier's use in the performance of its
                  obligations under this Agreement and the Related Agreements,
                  as more fully set out in the "EPSP Global Help Desk Service
                  Level Agreement" attached to this Agreement as Attachment 21
                  (the "IS&T Services" and the "IS&T Agreement"), as such is
                  modified by the provisions of this Section 2.9.1.1 regarding
                  costs and rates of charge. The IPA and the Tooling Loan
                  Agreement (Attachment 19) also set out rights and obligations
                  of Applied and Supplier with respect to the services, * and
                  telecommunications and access services provided under the IS&T
                  Agreement. Applied and Supplier each shall perform, provide,
                  pay for and observe such IS&T Agreement, as herein modified,
                  as part of this Agreement from and after the Effective Date
                  hereof for the term of this Agreement, as the same may be
                  amended from time to time.

                  B. All charges and costs payable by Supplier pursuant to the
                  "Custom IS Services Service Level Agreement" as in effect
                  between Applied and Supplier pursuant to the FUAs prior to the
                  Effective Date through the Effective Date have been resolved
                  by the parties through, and are payable by Supplier to the
                  extent provided for by, separate agreements. From and after
                  the Effective Date, Applied will * not be * charges and costs
                  for IS&T Services * of the IS&T Agreement for initial set-up
                  activities or for additional services requested by Supplier.

                  C. Except as provided below, failure by Applied to furnish the
                  IS&T Services to any extent, or any cessation thereof, shall
                  not render Applied liable in any respect for damages to either
                  person or property, and such failure or cessation shall not
                  relieve Supplier from performing as provided in this
                  Agreement, except to the extent that such failure to perform
                  on the part of Supplier is excused under Article 23(b) of
                  Exhibit 1. If IS&T Services are not restored by the fifteenth
                  (15th) Business Day after cessation or failure by Applied to
                  furnish such Services, Supplier may terminate the IS&T
                  Agreement with respect to the particular IS&T Services
                  affected. To the extent so terminated, neither Supplier nor
                  Applied shall have any further rights or obligations under the
                  IS&T Agreement from and after the date of termination except
                  for any rights or obligations that expressly survive
                  termination of the IS&T Agreement. Termination by Supplier
                  under this paragraph shall not relieve Supplier of its
                  obligations for performance under this Agreement, but such
                  performance shall be excused to the extent provided by Article
                  23(b) of Exhibit 1, or the time for performance shall be
                  equitably adjusted.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

                  D. Access to IS&T Services. The IS&T Services are those
                  services to be provided by Applied, as specified in the IS&T
                  Agreement.

                        D.1. Access Restriction. Access to Applied's network and
                        the Confidential Information contained thereon is
                        granted to Supplier solely to facilitate the performance
                        of Supplier's obligations under this Agreement and the
                        IPA, is limited to the specific information,
                        applications, systems, time periods and personnel
                        approved by Supplier and Applied and is subject to the
                        obligations regarding confidentiality of Article 4 of
                        the IPA. Access is subject to and Supplier agrees to be
                        governed by business control and information protection
                        policies, standards, and guidelines of Applied. Use of
                        any other Applied information, applications, systems or
                        in other time periods or by other personnel is expressly
                        prohibited. This prohibition applies even when
                        information or an application or system that Supplier is
                        authorized to access serves as a gateway to other
                        information, application(s) or system outside the scope
                        of Supplier's authorization. Without limiting the
                        foregoing, Supplier shall be responsible for the
                        implementation and execution of security measures as to
                        its operations and personnel designed to comply with the
                        above obligations and to insure that access granted
                        hereunder will not impair the integrity and availability
                        of Applied's information, applications and systems.

                        D.2. Provision of Information. Supplier agrees to take
                        commercially reasonable actions to provide to Applied
                        all employee and other information that is reasonably
                        necessary for Applied to approve or disapprove, as the
                        case may be, access and use by any Supplier employees,
                        consultants, agents or representatives to the Applied
                        network. Furthermore, Supplier agrees to advise Applied,
                        as soon as reasonably possible, of any changes in the
                        status or identities of those employees, consultants,
                        agents, or representatives to whom Applied has granted
                        access and use.

                        D.3. Audit Rights. Supplier acknowledges that Applied
                        has a vested interest in assuring that Supplier complies
                        with its obligations of confidentiality. Accordingly,
                        Supplier agrees that Applied may take all steps that
                        Applied, in its sole discretion, believes are useful in
                        limiting and controlling Supplier's access to the
                        Applied network and the Applied Confidential Information
                        presented or accessed thereby, including the provision
                        of passwords, the utilization of security checks, and
                        the issuance of user identifications that restrict
                        Supplier's access, provided that such discretion shall
                        be reasonably exercised. Supplier also agrees that
                        Applied, upon prior notice to Supplier's Senior Director
                        of

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<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

                        Operations - Round Rock, or Director of Operations -
                        Milpitas, as appropriate, and at reasonable times, may
                        audit Supplier's access to the Applied network and use
                        of Applied Confidential Information, including
                        inspection or audit of Supplier's facilities, inventory,
                        records, documentation and personnel, with respect to
                        compliance with the requirements of this Section 2.9.1.
                        Applied, in its sole discretion, will decide the
                        frequency and extent of such audits, provided that such
                        discretion shall be reasonably exercised. Applied agrees
                        to cooperate with Supplier to limit the burden to
                        Supplier of any such audits and to implement steps to
                        protect the Applied Confidential Information.

                        D.4. Segregation of Applied Confidential Information.
                        Supplier agrees: to segregate the Applied Confidential
                        Information that it receives; to take all other
                        reasonable steps to keep Applied Confidential
                        Information separate from Supplier information or
                        information of others to which Supplier has access; and
                        to assure that the Applied Confidential Information is
                        readily locatable and identifiable.

                        D.5. Effect of Failure to Comply. Supplier agrees that
                        its failure to comply in any material respect with any
                        duty or obligation pursuant to this Section 2.9.1.1.D
                        constitutes a breach of its confidentiality obligations
                        under the IPA and that Applied may initiate termination
                        pursuant to Section 5.2.3 of the IPA.

                        D.6. Need to Know. The parties will cooperate to limit
                        the number of Supplier's employees accessing and
                        utilizing the Applications and Databases (as such are
                        defined in the IPA) to only those employees reasonably
                        necessary for Supplier to perform its duties and
                        obligations under this Agreement and the Related
                        Agreements. The parties agree, however, that Applied
                        retains final approval concerning access to and
                        utilization of any such Applications and Databases.
                        Supplier agrees to have all current employees with
                        access to Applied Confidential Information execute an
                        Employee Joinder (in the form attached to the IPA)
                        within two (2) weeks after the execution and delivery of
                        this Agreement, and to forward a copy of each signed
                        Joinder to Applied, by transmission to Applied
                        Materials, Inc., Attn: Law Department, 9700 Highway
                        290E, M/S 3100, Austin, Texas 78724. Thereafter,
                        Supplier agrees to provide to Applied, as soon as
                        reasonably possible and to its Law Department at the
                        above address, a copy of an executed Joinder for each
                        employee receiving Applied Confidential Information. In
                        this regard, for those Supplier employees requiring
                        access to the Applied computer network, Supplier will
                        forward the original executed Joinders concurrently with
                        the respective request for access to the Applied

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<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

                        Law Department at the above address. For those Supplier
                        employees receiving Applied Confidential Information,
                        but for whom access to the Applied computer network is
                        not required, Supplier will forward copies of executed
                        Joinders to the Applied Law Department, at the above
                        address. The liability of Supplier and any of its
                        employees involved for any violation of the provisions
                        of this Agreement or of the IPA regarding Applied's
                        Confidential Information, shall be joint and several. If
                        an employee violates any of the provisions of this
                        Agreement or the IPA regarding Applied's Confidential
                        Information after the time his or her employment with
                        Supplier has terminated and if Supplier, as part of its
                        exit interviews and procedures, specifically advised
                        such former employee of the continuing nature of his or
                        her obligation regarding such Confidential Information,
                        then Supplier shall not have such joint and several
                        liability to Applied for such subsequent violation by
                        such former employee by reason of the previous
                        employment relationship.

      2.9.2. Applied New Product Plans.

      Supplier will, on occasion and at Applied's discretion, be invited to
      forums in which Applied's new product plans are shared. Any Applied new
      product plans provided to Supplier are Confidential Information of Applied
      and are subject to the confidentiality provisions of Article 4 of the IPA
      and of this Agreement, and any applicable NDA executed in connection with
      the forum(s) at which such plans are shared.

      2.9.3. Compliance with Securities Laws.

      Supplier agrees that the Internal Applied Data and Applied new product
      plans contain Confidential Information of or disclosed by Applied to
      Supplier and to those of its employees, contractors, representatives, and
      agents receiving such Confidential Information or new product plans solely
      for performance of Supplier's obligations to Applied, and that possession
      of Confidential Information which is material, non-public information
      concerning companies with publicly-traded securities prohibits Supplier
      and its employees, contractors, representatives and agents with direct or
      indirect access to such Confidential Information from (1) buying or
      selling such companies' publicly traded securities (stock, options, etc.)
      ("insider trading") until after such Confidential Information has been
      disclosed to the public and absorbed by the market (at least two business
      days), and (2) passing the Confidential Information on to anyone who may
      buy or sell such companies' securities ("tipping"). Supplier shall comply
      with (and shall direct its employees, contractors, representatives and
      agents to comply with) all federal and state securities laws prohibiting
      insider trading and tipping, and shall immediately notify Applied if
      Supplier violates any such laws or if Supplier becomes aware of any such
      violation by any of its employees, contractors, agents or representatives.
      Supplier also agrees to execute additional NDAs or other agreements as may
      be required to comply with applicable securities laws. Applied has
      established a corporate policy prohibiting insider trading and tipping by
      all members of its workforce as to its securities

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<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      and as to securities of companies other than Applied. Applied will
      maintain a policy against such insider trading and tipping in effect
      throughout the term of this Agreement.

2.10. Packaging and Transportation.

      2.10.1. Packaging and Shipment.

      Supplier will have all Items packaged "ready for use" in accordance with
      Applied's packaging Specification (Attachment 6a). Supplier will mark and
      identify every Item in compliance with Applied's part marking
      identification Specifications and requirements (Attachment 6b). In
      addition, Applied may require specific fit-for-use packaging for certain
      Items and/or deliveries.

      2.10.2. Bar Coding.

      All shipments of Items shall be bar coded to Applied's Specifications in
      Attachment 5.

      2.10.3. Transportation Requirements.

            2.10.3.1. F.O.B Destination.

            Supplier shall ship all Items "F.O.B. Destination," provided that
            allocation of risk of loss and terms for passage of title otherwise
            applicable as to Items shipped by Supplier may be varied by the
            provisions of this Agreement. Applied will specify the applicable
            destination point, which may be an Applied Facility or another
            location. Supplier shall ship all Items in accordance with Applied's
            Corporate Routing Guide (Attachment 7), including use of approved
            carriers. Supplier shall ship all Items to accomplish delivery of
            all Items at the applicable destination point, on time.

            2.10.3.2. Freight and Delivery Costs.

            Except for Items shipped by Supplier on Supplier owned trucks
            pursuant to prior written approval by Applied and except as provided
            below for Items shipped with freight prepaid with prior approval,
            all freight and delivery costs for Items shall be specified as
            "Freight Collect" on bills of lading or shipping receipts, to be
            paid directly by Applied. With prior written approval by Applied,
            Supplier may prepay freight and delivery costs (to be shown as
            "Freight Paid and Charged Back" on the bills of lading or shipping
            receipts) and invoice Applied for the actual amounts of such costs.
            Applied will not pay freight and delivery costs in excess of the
            costs determined under the Corporate Routing Guide for applicable
            delivery methods. Applied will not pay any freight and delivery
            costs if Supplier uses a carrier that is not approved under
            Applied's Corporate Routing Guide. Any variance in these
            requirements must be approved by Applied in advance, in writing.

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<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

            2.10.3.3. Risk of Loss; Title.

            For all Items shipped Freight Collect or "Freight Prepaid and
            Charged Back" in accordance with 2.10.3.2 and by a carrier approved
            by Applied, Applied shall bear all risk of loss as to such Items
            while in transit. For those Items that, with Applied's prior written
            approval, are shipped using Supplier owned trucks, Supplier shall
            bear all risk of loss as to all such Items while in transit and
            continuing until Applied or its designee has acknowledged receipt of
            the Items at the specified destination point. Acknowledgment of
            receipt occurs when Applied enters the receipt of the Items in
            Applied's data and accounting system. Applied shall be responsible,
            however, for any loss as to an Item occasioned by the gross
            negligence of its employees, acting within the scope of their
            employment, regardless of whether there has been acknowledgement of
            receipt or passing of title as to such Item.

2.11. Payment.

      2.11.1. Invoices; Certain Acceptance Terms.

      (a) Invoices (other than for Services invoiced under Section 2.11.1(c)
      below) shall contain the following information: Purchase Order number,
      Item number, description, sizes, quantities, unit prices, and extended
      totals in addition to tax amounts and any other information requested. Pro
      Formas shall comply with Section 2.1.7. Applied's payment of an invoice or
      other account, or payment made under an ERS Program, does not in itself
      represent unconditional acceptance of Items or preclude revocation of
      acceptance.

      (b) If Services are included in an invoice described in Section 2.11.1(a),
      Supplier shall provide on the invoice the charges for each category of
      Service, and the portions of such charges attributable to Configuration
      Engineering Services, CES Services, engineering for Design Services or
      Development Services, and engineering for the release of the Bill of
      Materials for the Item through Applied's ECO procedures, as applicable.

      (c) When Supplier has completed Services which are not related to an Item
      for which Supplier is to issue a Pro Forma or an invoice and has delivered
      any work product or other deliverables related to the Services, Supplier
      shall issue an invoice or other notice of completion of Services and
      delivery (a "Completion Notice") to Applied, to the attention of the
      purchasing representative of the Applied organization issuing the relevant
      Authorized Demand Signal, which may have been a Purchase Order that is
      part of a DSA or that was issued for a DVA. A Completion Notice shall
      include: the Applied Purchase Order number, the date(s) of completion and
      delivery, a description of the Services performed and work product or
      other deliverables delivered, and the Applied representative to whom
      delivery was made. A Completion Notice may be issued by Supplier in
      invoice form or as an e-mail or letter, and may be delivered by mail,
      facsimile, or e-mail transmission.

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      (d) (i) Applied may reject any Item (including Services handled under
      Section 2.11.1(d)(ii)) until receipt of that Item has been acknowledged by
      entry of the receipt in Applied's data and accounting system (a "Receipt
      Entry"). Applied's Receipt Entry is deemed to be acceptance of the Item(s)
      identified in the Receipt Entry, in accordance with and subject to the
      terms of this Agreement. Supplier agrees that Applied may revoke its
      acceptance as to any Item or Items deemed accepted through Receipt Entry
      that do not conform to the warranty terms applicable to the Item(s) and
      are not timely corrected, repaired or replaced by Supplier in compliance
      with Section 7.2.2, as the value of such Item(s) to Applied is
      substantially impaired. Revocation of acceptance as to such Item(s) shall
      be made within a reasonable time after Applied discovers the defect or
      nonconformity and is not effective until Applied notifies Supplier of
      revocation.

            (ii) Services performed or provided by Supplier pursuant to a
      Purchase Order, DSA or DVA will be handled under the preceding Receipt
      Entry procedures by issuance of an Applied "in-house packing slip."
      Acceptance of such Services by Applied for purposes of payment shall not
      occur until all of the following have occurred: (i) an Applied Purchase
      Order, DSA or DVA, as applicable, has been issued for such Services; (ii)
      the Services have been completed and all work product deliverables have
      been delivered to Applied in accordance with the Purchase Order, DSA or
      DVA; (iii) Supplier has delivered its Completion Notice for the Services
      to Applied in accordance with the applicable Purchase Order, DSA or DVA;
      and (iv) Applied has issued its "in-house packing slip" to initiate
      payment of the amounts charged under the Completion Notice, whether by
      check, electronic funds transfer or otherwise.

            (iii) Acceptance of Items or of Services, as described above, is
      acceptance for purposes of payment and shall not impair any remedy or
      right of Applied, or warranty or other obligation of Supplier, under this
      Agreement or applicable law other than that of rejection of Item(s) deemed
      accepted that are governed by the UCC and rights equivalent to rejection
      as to Services governed by laws other than the UCC. All payments made by
      Applied will be subject to adjustment for errors, shortages or
      nonconformity with warranty provisions, and to revocation of acceptance
      where applicable.

            2.11.1.1. Delivery of Invoices.

            All invoices must be sent directly to Applied's Accounts Payable
            Department in Austin:

            Accounts Payable
            Applied Materials
            9700 US Highway 290 East M/S 4200
            Austin, TX  78724-1199

            2.11.1.2. Method of Payment.

            Applied is authorized by Supplier to make payments under this
            Agreement by either check or electronic funds transfer. Supplier
            will provide Applied with the

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CONFIDENTIAL TREATMENT REQUESTED

            required bank routing coordinates and other information that may be
            required by Applied to establish electronic funds transfer
            capability.

            2.11.1.3. ERS Program.

            If Supplier participates in Applied's ERS Program, Supplier will
            provide Pro Formas pursuant to Section 2.1.7, but otherwise will not
            provide invoices to Applied for sales of Items to which that program
            applies. Supplier will be responsible for the verification of all
            prices and quantities prior to shipment and will enter that
            information on the Pro Forma for each Item. All applicable sales and
            use tax will be remitted to Supplier with payment by Applied. ERS
            payments will be subject to adjustment for errors, shortages,
            non-conformities or defects, as well as prompt payment discounts.

            2.11.1.4. Packing Slips.

            Supplier must include a valid packing slip number or package ID on
            each package or shipment.

      2.11.2. *.

      Payment terms will be *:

            a. if payment is made from Supplier's invoice, then from the later
            of (i) Applied's receipt of Supplier's invoice, in form and
            substance acceptable to Applied, for the Item(s), or (ii) delivery
            of, and Applied's entry of receipt for, the Item(s) in Applied's
            data and accounting system.

            b. if payment is made under the ERS Program, then from the date of
            Applied's entry of its receipt of the Item(s) in Applied's data and
            accounting system.

      If payment is made within * after the applicable date under clause (a) or
      (b) *.

      2.11.3. Offsets, Debits.

      Applied may at any time set off any amount owed by Applied to Supplier
      against any amount owed by Supplier (whether in Supplier's name or in the
      name of Insync Systems, Incorporated) to Applied.

      Applied anticipates implementing, in the Third Quarter of its 2002 fiscal
      year, a procedure under which Applied will issue to Supplier notices of
      scheduled debits or offsets approximately * in advance of the execution of
      such debit or offset. Applied will advise Supplier if Applied will not be
      able to implement such procedure in the anticipated period with use of
      commercially reasonable efforts, and the parties will negotiate in good
      faith to determine if alternative notice procedures can be established by
      the parties.

* Material has been omitted and filed separately with the Commission.

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      Notices of debits or offsets under such a procedure, if implemented, shall
      be given to Supplier's Finance Manager.

      2.11.4. Effect of Payment.

      Time and method of payment shall not alter the time at which title to
      Items passes to Applied, nor shall payment, in itself, preclude Applied
      from the exercise of remedies under this Agreement or as permitted by law,
      in each instance in accordance with this Agreement.

      2.11.5. Reconciliation of Payment Discrepancies.

      Attachment 22 to this Agreement sets out agreements of Applied and
      Supplier as to any claims of Supplier with respect to "Payment
      Discrepancies," as such term is defined in Attachment 22.

      To the extent permitted by Attachment 22, Applied may initiate
      amendment(s) of such Attachment 22 by posting of an amendment on the
      Applied website to which Supplier has access in accordance with Section
      1.3.4, and each amendment so initiated becomes effective if Supplier does
      not object to the amendment within thirty (30) days of such posting.
      Amendments that the terms of Attachment 22 exclude from such website
      modification procedure shall be made in accordance with the provisions of
      such attachment.

2.12. Disaster Recovery Plan.

Supplier shall develop and provide to Applied, upon request, reasonable
information describing or evidence of a disaster recovery plan that includes
emergency back up capacity, and appropriate record protection and recovery.
Applied shall have the right to verify Supplier's internal processes for
compliance with this provision.

2.13. Performance Constraints.

      2.13.1. Constraints.

      Supplier shall use commercially reasonable efforts to anticipate material
      constraints affecting its ability to perform its obligations under this
      Agreement. If Supplier believes that any such constraints are reasonably
      likely to materially and adversely affect its performance under this
      Agreement, Supplier will inform Applied's Subsystems Management Team and
      Supply Chain Management organizations (through the contact persons
      designated for Supplier by those organizations) thereof and of action
      plans to resolve them. Typical constraints might include, but are not
      limited to:

            a.    Consumption over forecast
            b.    Consumption under forecast
            c.    Quality problems
            d.    Capacity/production problems
            e.    Sub-tier supplier supply-chain management problems

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2.14. Provisions for Reconfiguration or Restocking.

      2.14.1. "Affected Items."

      This Section 2.14 applies to those FDS, NSO, Module and Spares Items which
      have been delivered to Applied by Supplier pursuant to an Authorized
      Demand Signal issued under Section 2.1.5, which conform to applicable
      requirements (including Specifications) of this Agreement, and which,
      subsequent to delivery to Applied (and prior to shipment by Applied to its
      customer), Applied identifies for relabeling, reconfiguration, or return
      and restock based on Applied's current manufacturing requirements
      ("Affected Items"). As to Items that Applied identifies as Affected Items,
      Applied shall use its commercially reasonable efforts to locate Applied
      customers that will purchase Affected Items, so that such will be treated
      as Relabel or Reconfigure Items, rather than as Restock Items.

      2.14.2. Categories.

      Applied shall notify Supplier of those Items that are identified as
      Affected Items by Applied from time to time. Applied's notice to Supplier
      of the Affected Items so classified shall be given by fax or e-mail notice
      to Supplier's Customer Service Manager in Austin or Milpitas, as
      appropriate. Applied will classify Affected Items in the following
      categories:

            a.    Relabel Items

            b.    Reconfigure Items

            c.    Restock Items

      2.14.3. "Relabel Items."

      An Affected Item which Applied determines is appropriate for relabeling
      and/or minor reworking (for which no re-testing is required) at Applied's
      facility, to meet the requirements of an Applied customer, is a "Relabel
      Item."

            2.14.3.A. Applied shall issue new or revised configuration, labeling
            and related Specifications and completion requirements (the "Revised
            SSR") to Supplier for each Relabel Item at the time when Applied has
            determined the particular manufacturing requirements of Applied and
            its customer. Within ninety-six (96) hours (measured during Business
            Days and under prevailing Pacific Time) following receipt of the
            Revised SSR, Supplier will determine if the Revised SSR requires any
            CES Services or Configuration Engineering Services, beyond
            Configuration Engineering Services required solely to relabel, and
            if the completion requirements are feasible. Unless (i) Supplier
            specifically refuses (under the standards applicable to refusal of
            an initial SSR) the new or Revised SSR for the Relabel Item within
            forty-eight (48) hours (measured during Business Days and under
            prevailing Pacific Time) following the time Supplier has made the
            determinations under the preceding sentence, or (ii) Supplier
            determines, with

                                       46
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CONFIDENTIAL TREATMENT REQUESTED

            Applied's concurrence, that CES Services or Configuration
            Engineering Services, beyond Configuration Engineering Services
            solely to relabel, are required by the Revised SSR, Supplier shall
            rework and relabel each Relabel Item at the Applied manufacturing
            facility where that Item is held. Such reworking and relabeling
            shall be performed by Supplier in compliance with all requirements
            of the Agreement applicable to such Item, including Applied's new or
            Revised SSR issued under this Section 2.14.3; as reworked and
            relabeled, the Relabel Item shall be deemed a new Item for warranty,
            performance and other provisions of this Agreement.

            2.14.3.B. The total charge from Supplier to Applied for each Relabel
            Item shall be *.

            2.14.3.C. Upon notice to Supplier, to be sent to the attention of
            Supplier's Customer Service Manager - Austin or - Milpitas, as
            appropriate, Applied may change the classification of a Relabel Item
            to another category, whether or not work under the applicable SSR
            has been initiated or completed. Pricing for a Relabel Item that is
            changed to a Restock Item after the work has been performed by
            Supplier for the relabeling shall be calculated as if such had
            originally been a *.

      2.14.4. "Reconfigure Items."

      An Affected Item (i) which Applied determines (after consultation with
      Supplier as to the scope of work involved) is appropriate for reworking,
      reconfiguration (including related CES or Configuration Engineering
      Services) and testing at Supplier's facilities to meet the requirements of
      Applied or its customer(s), and (ii) for which Applied has issued a new or
      Revised SSR from which a new Committed Delivery Date is determined, is a
      "Reconfigure Item." Unless Supplier specifically refuses the applicable
      new or Revised SSR within ninety-six (96) hours (measured during Business
      Days and under prevailing Pacific Time) after its issuance by Applied
      (under the standards applicable to refusal of an initial SSR) the SSR
      shall be deemed accepted by Supplier and the Committed Delivery Date shall
      (unless otherwise mutually agreed) be determined by the standard cycle
      time for the Item based on the date of acceptance or deemed acceptance.

            2.14.4.A. Upon Supplier's acceptance or deemed acceptance of a
            Revised SSR, Applied will ship Reconfigure Items to Supplier, at
            Applied's cost and risk of loss until delivery to Supplier's
            receiving dock. Supplier shall have risk of loss and shall hold all
            Reconfigure Items as bailee for Applied from the time the Item is
            delivered to Supplier's receiving dock. Supplier shall maintain in
            force insurance covering Reconfigure Items against risks and in
            amounts that are appropriate to protect the interests of Applied in
            such goods. Applied shall include, as part of its shipment to
            Supplier, any safety notice required for the Affected Item, to
            include a notice that the Affected Item has not been exposed to
            toxic or corrosive gases or chemicals and that no decontamination is
            required.

* Material has been omitted and filed separately with the Commission.

                                       47
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CONFIDENTIAL TREATMENT REQUESTED

            2.14.4.B. Applied shall issue a new SSR or a Revised SSR for each
            Reconfigure Item when Applied has determined the particular
            manufacturing requirements of Applied and its customer and prior to
            shipment of the Reconfigure Item to Supplier. Supplier will perform
            applicable CES Services, Configuration Engineering Services and CCR
            Services and reconfigure, rework, test, and relabel each Reconfigure
            Item at Supplier's facility. Such CES Services, Configuration
            Engineering Services and CCR Services, reconfiguration, reworking,
            testing, and relabeling shall be performed by Supplier in compliance
            with all requirements and Specifications of the Agreement applicable
            to such Item, including Applied's new SSR or Revised SSR issued
            under this Section 2.14.4, and as reconfigured, reworked, tested and
            relabeled, the Reconfigure Item shall be deemed a new Item for
            warranty, performance and other provisions of this Agreement.

            2.14.4.C. The total charge from Supplier to Applied for each
            Reconfigure Item shall be equal to the sum of:

                  *

            2.14.4.D. Upon notice to Supplier, whether or not the
            reconfiguration has been initiated or completed, which notice shall
            be given by e-mail or fax transmission to the attention of
            Supplier's Customer Service Manager - Austin or - Milpitas, as
            appropriate, Applied may direct that Supplier cease work on a
            Reconfigure Item or may change the classification of a Reconfigure
            Item. Applied shall specify in its notice under this Section
            2.14.4.D whether the Item as to which work is to cease shall then
            become a new Reconfigure Item, a Relabel Item, or a Restock Item;
            alternatively, Applied may direct that it be delivered as an
            incomplete Reconfigure Item. The date of the notice of conversion
            shall be deemed the date of receipt by Supplier of the Item as a
            Restock, Relabel, or new Reconfigure Item. If the Item is changed
            from a Reconfigure Item to a Restock Item, Section 2.14.5 shall
            apply after that date.

            2.14.4.E. Each completed Reconfigure Item shall be shipped to
            Applied by Supplier in accordance with the terms of the Agreement
            and on the Committed Delivery Date. Supplier shall provide its Pro
            Forma for the Reconfigure Item in accordance with Section 2.1.7 and
            payment shall be handled under the applicable payment procedures for
            new Items. Applied shall review the Pro Forma under the applicable
            pricing model, shall advise Supplier of any dispute as to the Pro
            Forma amount, and then issue its Purchase Order in accordance with
            the pricing model, the above terms as to Reconfigure Items, and the
            Pro Forma (as revised, if necessary).

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

            2.14.4.F. All NonReusable and NonConsumable Materials removed by
            Supplier from a Reconfigure Item (other than NonConsumable MFCs,
            missing parts and Floor Stock Scrap) shall be returned to Applied in
            accordance with Applied's Asset Recovery Management process.

            2.14.4.G. If Applied directs Supplier to cease work on a Reconfigure
            Item under Section 2.14.4.D above without delivery of same to
            Applied, such Item shall be treated as a Restock Item under Section
            2.14.5 as of the date of the direction to cease work. Supplier
            shall, however, charge Applied for the following amounts, which
            shall be determined in addition to the amounts payable with respect
            to the Restock Item:

                  *

      2.14.5. "Restock Items."

      Affected Items returned by Applied for disassembly and restocking by
      Supplier as set out in Sections 2.14.5 and 2.14.6 are "Restock Items."
      Applied will ship Restock Items to Supplier, at Applied's cost and risk of
      loss until delivery to Supplier's receiving dock. Supplier shall have risk
      of loss from the time the Restock Item is delivered to its receiving dock.
      Supplier shall acquire all Restock Items (including all materials and
      Piece Parts other than NonConsumable Materials or NonReusable Materials
      and Floor Stock Scrap) from Applied. Supplier shall deliver to Applied any
      applicable tax exemption certificates and shall pay any applicable tax.
      Supplier shall return all NonReusable Materials and NonConsumable
      Materials to Applied in accordance with Applied's Asset Recovery
      Management process (or destroy, as instructed by Applied). Applied shall
      include, as part of its shipment to Supplier, any safety notice required
      for the Affected Item, to include a notice that the Affected Item has not
      been exposed to toxic or corrosive gases or chemicals and that no
      decontamination is required.

      2.14.6. Restocking Process and Charges.

            2.14.6.A. Within ten (10) days after completion of disassembly of
            each Restock Item by Supplier, Supplier shall (i) immediately record
            and notify Applied under Section 2.14.6.C below of, all
            NonConsumable and NonReusable Materials (as defined in Section
            2.2.3) and deliver a detailed listing of all Piece Parts; (ii)
            restock, or (as to NonConsumable and NonReusable Materials) return,
            all Piece Parts, and (iii) deliver to Applied the
            Reconfiguration/Tear-Down Reconciliation Form ("Reconciliation
            Form") for each Restock Item. The Reconciliation Form shall specify
            the amount for which Supplier shall acquire the Consumable Materials
            and NonConsumable MFCs from the Restock Item, which amount payable
            by Supplier is equal to the total of *.

            Supplier must identify on the Reconciliation Form prices for all
            NonReusable Materials and NonConsumable Materials (excluding Floor
            Stock Scrap) for each Restock Item being handled under this Section,
            which prices shall be *.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

            2.14.6.B. Supplier shall deliver the Reconciliation Form to Applied
            as required by Section 2.14.6.A. Applied shall audit such form for
            compliance with the terms of this Section 2.14 and for any
            NonReusable Materials or NonConsumable Materials with costs in
            excess of $250.00. The Reconciliation Form shall not be released for
            processing and payment until Applied has approved same under
            Sections 2.14.6.B and C.

            2.14.6.C. Supplier shall return all NonConsumable and NonReusable
            Materials to Applied (other than missing parts or materials and
            NonConsumable MFCs) at Applied's Asset Recovery Management location,
            or destroy such NonConsumable and NonReusable Materials if so
            directed by Applied, in writing.

      2.14.7. Provisions as to Restocked or Removed Parts.

      A. Supplier shall identify and return to Applied (for Asset Recovery
      Management by Applied) all NonReusable Materials removed from any Affected
      Item and shall scrap or destroy all Floor Stock Scrap. Supplier accepts
      all Restock Items and all Piece Parts and materials removed or obtained
      from any other Affected Item (not identified by it, and returned, as
      NonReusable Materials or scrapped as Floor Stock Scrap) (collectively,
      "Goods") "AS IS."

      B. EXCEPT FOR THE WARRANTY IN PARAGRAPH D BELOW, APPLIED MAKES NO WARRANTY
      OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE GOODS OR ANY PART
      THEREOF. APPLIED HEREBY DISCLAIMS WITH RESPECT TO THE GOODS ALL IMPLIED
      WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
      FOR A PARTICULAR PURPOSE AND WARRANTIES OF TITLE AND OF NONINFRINGEMENT.

      C. WITH RESPECT TO SUCH GOODS AND EXCEPT AS TO MATTERS COVERED BY THE
      WARRANTY OF PARAGRAPH D BELOW, IN NO EVENT SHALL APPLIED BE LIABLE FOR ANY
      DAMAGES THAT ARE EXCLUDED DAMAGES UNDER ARTICLE 17 OF EXHIBIT 1 TO THIS
      AGREEMENT FOR ANY REASON, WHETHER OR NOT APPLIED OR SUPPLIER HAS BEEN
      ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND APPLIED EXCLUDES AND
      SUPPLIER WAIVES ANY LIABILITY OF APPLIED FOR ANY SUCH DAMAGES.

      D. Applied WARRANTS to Supplier: (a) that none of the Goods returned as
      Reconfigure Items or Restock Items shall have been exposed to toxic or
      corrosive gases or chemicals; (b) that as to any Items returned to
      Supplier as a result of a warranty claim of Applied under this Agreement
      or pursuant to Section 5.2.1, Applied will have decontaminated and
      prepared for safe handling under all applicable safety and environmental
      laws and regulations any such Items delivered to Supplier that have been
      exposed to toxic or corrosive gases or chemicals while in Applied's
      possession; (c) that all applicable safety and environmental notices and
      labels shall be affixed to or provided with the delivery of any such Goods
      or Items; and (d) that none of such Goods have been delivered to any
      person other than Applied or Supplier following Applied's receipt of

                                       50
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      same. The limitations of Paragraph C above do not apply to the warranties
      set out in this Section 2.14.7.D.

      2.14.8. Processing and Payments.

      Supplier shall calculate the amount payable by it for Restock Items in
      accordance with the provisions of this Section 2.14, and shall authorize
      Applied to charge Supplier for the Restock Item by issuing the
      Reconciliation Form and related NRM BOM. Applied shall review the
      Reconciliation Form and NRM BOM and shall charge and collect from Supplier
      the calculated amount payable to Applied for the Restock Item by debit
      memo or other offset against amounts otherwise payable by Applied to
      Supplier. If Applied believes that additional amounts are properly payable
      by Supplier in excess of the calculated amount, it shall promptly advise
      Supplier of such claim and the parties shall review the determination of
      the amount payable by Supplier for the affected Restock Item. If the
      parties do not agree on the proper charge to be made within 30 days after
      the dispute arises, the parties shall proceed under the Business Review
      Process as defined in Section 7 below to attempt resolution of the
      dispute. Applied shall not effect a debit or other offset (in excess of
      the amount initially calculated by Supplier) until the parties have failed
      to reach agreement and have failed to reach a resolution within the time
      allowed for the Business Review Process.

3.    PRICING FRAMEWORK

3.1.  Contract Prices.

      3.1.1. Pricing and Cost Model of Attachment 1.

      Attachment 1 contains the contract terms agreed upon with respect to the
      following: (i) the pricing and cost model, which set out the elements and
      calculations by which Contract Prices are determined on an ongoing basis;
      * indicated periods during the term of the Agreement. Any modifications to
      Attachment 1 must be made in accordance with Section 1.3.4 of this
      Agreement. Supplier shall price and sell, and Applied shall purchase, all
      Items in accordance with this Agreement, including Attachment 1. Supplier
      will provide R&D Items at non-discriminatory prices that take into
      consideration the total value of Applied's business with Supplier.

      Applied and Supplier have established pricing for certain Services on a
      rate-per-hour basis as part of Attachment 1 or in other provisions of this
      Agreement. Unless otherwise agreed at the time, pricing for Services
      provided by Supplier pursuant to Purchase Order(s) will be determined at
      applicable rates set out in Attachment 1.

      The Contract Prices of additional and/or revised Items will be based upon
      applicable elements of the pricing or cost model set forth in Attachment
      1.

* Material has been omitted and filed separately with the Commission.

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<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      Attachment 1 is sometimes referred to as the "cost model" or "pricing
      model" for the Agreement.

      3.1.2. Application of Prices.

      On the Effective Date and in accordance with Section 1.3.2.3, the pricing
      for Items shall be determined pursuant to this Agreement, including
      Attachment 1; provided that pricing under this Agreement shall not apply
      to FDSs or other Items for which an SSR or Purchase Order has been
      accepted (based on the procedures of Section 2.1.5.1 hereof) prior to the
      Effective Date.

      Specific circumstances may result in a review of Agreement terms,
      including Contract Prices. These circumstances include, but are not
      limited to:

            a.    Volume increases or decreases resulting in an increase or
                  decrease in the value of the Agreement of over 20%;
            b.    Addition or deletion of Items to the Agreement increasing or
                  decreasing the value of the Agreement over 20%;
            c.    Cost increases or reductions exceeding those committed in
                  Supplier's Performance Plan; and
            d.    Reductions or increases in market prices for equivalent
                  materials and services.

      Any amendment or change in terms shall be made in accordance with Section
      1.3.4 of this Agreement. Nothing contained in this Section 3.1 shall
      require either party to amend or change any term of this Agreement.

      3.1.3. Pricing Model.

      The parties have anticipated that changes will occur in the design,
      Specifications, Piece Parts, and other elements of Items to be provided
      pursuant to this Agreement and have negotiated the pricing model shown in
      Attachment 1 to accommodate such changes and to apply to Items that are
      affected by such change. The pricing model is agreed to apply
      appropriately to Items as changed in the future. However, if unanticipated
      changes not within the contemplation of the parties have a material and
      adverse impact on the operation of the pricing model, and alternative
      pricing is not agreed to by the parties at the time, then the Item(s)
      affected shall be removed from this Agreement. Such removal shall not be
      classified as a partial termination.

      3.1.4. Further Agreements as to Pricing.

      (a) Upon request made by Applied through the SAT Team Lead for Supplier
      and delivered to Supplier's Vice President - Sales, Applied and Supplier
      will review pricing models proposed by Applied from time to time,
      including by way of example, option based pricing models. The parties may,
      by mutual written amendment to this Agreement, implement one or more
      alternative pricing models with respect to those Item(s) identified in or
      made subject to such alternative pricing model(s) by such amendment. The
      Items or Piece Parts subject to an alternative pricing model shall not be
      subject to Section 3.1.5 or

                                       52
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      Section 3.1.6 unless the parties expressly so provide in the amendment
      implementing the relevant alternative pricing model.

      (b) (i) The prices of Piece Parts sold to Applied, whether incorporated in
      FDSs or otherwise sold to Applied, shall be as follows:

            A. Non-Unit MFCs (defined below in Section 3.1.4(b)(ii) shall be *;

            B. All other Piece Parts *; and

            C. Adjustments to the foregoing prices shall be made in accordance
            with Section 3.1.5 and 3.1.6.

            (ii) *

      (c) Upon request of Applied or Supplier, the parties shall confer and
      establish milestones and criteria applicable for the transition of Item(s)
      from R&D Manufacturing to Pilot Manufacturing, and from Pilot
      Manufacturing to Volume Manufacturing and further shall develop, based on
      milestones and criteria established, checklists and procedures appropriate
      to the transition of the affected Item(s). An illustrative form of NPT
      checklist is attached to this Agreement as Attachment 23.

      3.1.5. * Terms.

      (a) The "Commodity Classifications" are * "Weldments," and "Unit MFC."
      Guidelines for determining the Commodity Classification applicable to a
      particular Commodity for each periodic reclassification are set out in
      Section 3.1.5.1(d). The * are the periods, denominated periods 1 through 5
      and stated as monthly periods from June 1, 2002 and ending on the last
      date of the indicated month, in the table set out in Section 3.1.5 (d).

      (b) Prior to each * and in accordance with Sections 3.1.5 and 3.1.6,
      Supplier will prepare a preliminary table of Commodity Classifications for
      all Commodities. Supplier and Applied shall review and consult on, and
      agree to, the actual classification of Commodities for * for purposes of
      the * Matrix for the *. Each actual classification of Commodities agreed
      upon by the parties shall be attached to this Agreement as part of
      Attachment 24.

      (c) Two weeks prior to each * and in accordance with the table classifying
      Commodities as agreed upon by the parties and with Sections 3.1.5 and
      3.1.6, Supplier shall prepare a * under Section 3.1.5.1 (e) that specifies
      * for each Piece Part that is to be incorporated in any FDS forecasted to
      be built during that * and is included in the Commodity Classification to
      which * in the next * ("Forecasted Piece Part"). The Applied Forecast to
      be used in preparing a * Matrix shall be the most recent Applied Forecast
      reflected in Supplier's MRP system as of the date which is * prior to the
      beginning of the applicable * (the "* Forecast"). Supplier shall then
      implement such

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      pricing for each Forecasted Piece Part used in an Item ordered during the
      * or that is sold to Applied under this Agreement as a separately
      purchased Item (excluding in this latter case Unit MFCs). In addition,
      Supplier shall also * in accordance with Section 3.1.6 for all Piece Parts
      for which * apply as a result of *.

      (d) The * and * for each Commodity Classification are as follows:

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------------
                  *                    * FOR *            * FOR *             *% FOR *                *
                                     COMMODITIES        COMMODITIES                                % FOR *
      -----------------------------------------------------------------------------------------------------------
<S>              <C>                 <C>                <C>                   <C>                  <C>
                 #1/*                     *                  *                   *                    *
      -----------------------------------------------------------------------------------------------------------
                 #2/*                     *                  *                   *                    *
      -----------------------------------------------------------------------------------------------------------
                 #3/*                     *                  *                   *                    *
      -----------------------------------------------------------------------------------------------------------
                 #4/*                     *                  *                   *                    *
      -----------------------------------------------------------------------------------------------------------
                 #5/*                     *                  *                   *                    *
      -----------------------------------------------------------------------------------------------------------
</TABLE>

            3.1.5.1 Calculation of New *.

      (a) Initial Classifications. Attachment 24 to this Agreement is the
      initial table of Commodity Classifications and *, agreed upon by the
      parties as of the Effective Date and applicable for * No. 1, classifying
      all Piece Parts into *:*.

      (b) Periodic Reclassifications. Not later than * prior to the beginning of
      each * after the first period, Supplier shall deliver to Applied (to the
      attention of the Supplier's SAT Team Lead at Applied) Supplier's proposed
      classification table of all * for the next *. Applied and Supplier shall
      promptly review and negotiate in good faith to establish the
      classification table for *, utilizing the classification guidelines set
      out in Section 3.1.5.1(d) below. If the parties fail to agree upon the
      classification table to be used within ten (10) Business Days after
      Supplier's delivery of the proposed classification table, either party may
      initiate the Business Review Process of Section 7.2.5 with respect to such
      failure as a "Dispute."

      (c) Special Provisions. Special provisions related to prices applicable to
      Piece Parts affected by * (as such term is defined in Section 3.1.6) will
      be governed by Section 3.1.6, and those provisions shall control over the
      * provisions of Section 3.1.5 to the extent of any conflict.

      (d) Commodity Classification Guidelines. In preparing the Commodity
      Classification table for each *, Supplier and Applied shall utilize the
      guidelines of this Section 3.1.5(d), subject to the exclusions applicable
      under Section 3.1.5.2.

* Material has been omitted and filed separately with the Commission.

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<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

            A. Guidelines for * Commodities Classification.

            * Commodities will include all Commodities that are identified by
            the parties under any of the following descriptions:

                  (i) Sheet metal, cables, harnesses, and hardware and such
                  other Commodities as are set out as * on the initial table of
                  Commodity Classifications in Attachment 24.

                  (ii) All Commodities for which Supplier has had authority to
                  select the supplier or source of such Commodity, whether as a
                  no-preference choice or because neither Applied nor its
                  customers have required a specific source or supplier provided
                  that the Piece Parts meet Applied design requirements and, if
                  applicable, the provider is a qualified supplier, in at least
                  * of the FDSs which Applied has ordered from Supplier in the 9
                  month period preceding the start of the applicable *. Examples
                  of Commodities that will be evaluated under this guideline are
                  valves, transducers, filters and similar Commodities.

            B. Guidelines for * Commodity Classification.

            * Commodities are Commodities that are not now or hereafter
            classified as *, and include, by way of example, *.

            C. Status Change.

            Once a Commodity is classified as *, that Commodity (to include, as
            to a commodity group, all Piece Parts in such group) remains
            classified as * during the remainder of the Agreement and shall not
            be reclassified in a periodic reclassification process.

            D. MFCs.

            MFCs are not treated as *. Unit MFCs shall have pricing adjustments
            made in accordance with the table set out in Section 3.1.5(d).

            E. Weldments.

            Weldment Commodities will include all weldments that are
            incorporated in an FDS ordered by Applied under this Agreement.
            After the first *, Supplier may treat the Weldment Commodities and
            the * Commodities as one Commodity Classification for purposes of
            calculation of the Total Gross Dollars, the * and new Piece Part
            pricing applicable pursuant to Sections 3.1.5.1(e) (4), (5) and (6)
            of this Agreement.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      (e) *. Each * Matrix for a * shall reflect:

            (1) The Commodity Classification of each Forecasted Piece Part.

            (2) The pricing then in effect for each Forecasted Piece Part within
            the Commodity Classification to which the reduction will apply.
            After the initial price reduction is made with respect to a
            particular Forecasted Piece Part, whether as a result of the * or
            application of a Negotiated Price under Section 3.1.6. below,
            references in this Agreement (including these * terms) to applicable
            Piece Part prices will mean such prices as then adjusted under
            Sections 3.1.5 and 3.1.6.

            (3) The forecasted demand for each Forecasted Piece Part during the
            applicable * based on the * Forecast.

            (4) The total gross dollars forecasted for the entire list of
            Forecasted Piece Parts in the Commodity Classification based on the
            * Forecast, to which a percentage reduction applies during the
            applicable * ("Total Gross Dollars"). Total Gross Dollars equals the
            sum of the then current Forecasted Piece Part pricing (i.e., the
            prices actually charged to Applied by Supplier immediately prior to
            the start of the applicable *) multiplied by the respective
            forecasted demand in the * Forecast.

            (5) The * dollar amount * which is the product of the * multiplied
            by the Total Gross Dollars.

            (6) The new Piece Part pricing which represents Kinetics' allocation
            of the * across the list of Forecasted Piece Parts. Supplier shall
            use commercially reasonable methods in its allocation of the * and
            its selection of new Piece Part pricing. However, the difference
            between the Total Gross Dollars and the sum of the new Piece Part
            pricing multiplied by the respective forecasted demand in the
            applicable * Forecast must equal the * Percentage for the applicable
            *.

            3.1.5.2 Exclusion; Particular Terms.

      (a) A particular Piece Part shall not be classified or included in the *
      (either as a Forecasted Part utilized in calculating the * or as a Piece
      Part to which a price reduction shall apply pursuant to a Pricing
      Reduction Matrix) until the first * that occurs six (6) months after the
      time when the Piece Part is first assigned a part number.

      (b) A particular Piece Part that is a non-recurring purchase resulting
      from a CES requirement shall not be included as a Forecasted Piece Part
      and Supplier shall provide a list of such excluded Piece Parts with the
      affected *.

* Material has been omitted and filed separately with the Commission.

                                       56
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      (c) Prices of Unit MFCs under a * apply only to purchases of Unit MFC's
      that are incorporated in an FDS ordered by Applied under this Agreement.

      (d) Prices of * are not subject to the * terms of this Section 3.1.5.

      3.1.6. Adjustment for *.

      (a) Applied may *

      (b) The parties shall meet at least once per quarter to coordinate their
      respective efforts related to existing commitments from, or ongoing
      negotiations with, * This notice will be given to Supplier's Vice
      President Sales.

      (c) The *:

            (1) If the * for that Piece Part, the price charged to Applied *.

            (2) If the Negotiated Price for a Piece Part is below Supplier's
            Current Average Cost for such part, * under this Section 3.1.6.

            (3) *

3.2.  Volume.

Applied does not commit to buy a specific volume, quantity, or percentage of any
Piece Part or Item from Supplier, and Applied may buy the same or similar Piece
Part or Item from multiple sources.

3.3. Export.

Applied may require, from time to time, Supplier to ship Items to locations
outside of the United States of America. Supplier will prepare the export
paperwork and be the exporter of record. Supplier must utilize Applied's
preferred carriers for the export of the Items. Applied will pay the freight
charges based on Applied's rates with its preferred carriers. Applied will be
responsible for importing the goods into the destination country.

3.4. Currency.

All prices shall be quoted by Supplier in U. S. dollars; prices for foreign
manufactured Items will not be adjusted to reflect changes in the exchange rate.
Supplier is encouraged to obtain any necessary currency exchange protection
which it deems appropriate.

* Material has been omitted and filed separately with the Commission.

                                       57
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

4.    TECHNICAL FRAMEWORK.

4.1.  Engineering Change Orders.

      4.1.1. ECO Procedures.

      (a) Applied may change its Specifications at any time and generate a
      proposed ECO with respect to such change. An Applied Supplier Engineer may
      review with Supplier the Applied proposed ECOs that affect any Item(s).

      (b) Supplier shall utilize one of the following procedures to initiate or
      request any engineering change to an Item or a change affecting
      Specifications (an "Engineering Change"):

            i) Supplier may prepare and submit for approval a proposed ECO for
            an Engineering Change if such action is authorized under Supplier's
            Manufacturing Engineering Authority ("MEA"), as defined in Applied's
            documentation of its ECO procedures and standards in effect from
            time to time and provided to Supplier (a "Supplier ECO"); or

            ii) Supplier may request an ECO to authorize an Engineering Change
            through a Request for Engineering Action ("REA") if such request is
            authorized under Supplier's MEA (a "Supplier Request"); or

            iii) Supplier may initiate the development of an Engineering Change
            by submitting a Supplier Problem Sheet (Attachment 13) (an "SPS") to
            the SPS Administrator designated for Supplier.

      (c) Changes to which an SPS or the ECO process applies shall not be
      implemented by Supplier (and Supplier shall not ship any Items with any
      Engineering Change) until written permission to proceed is given by
      Applied as required by its applicable SPS and ECO procedures. Applied will
      provide, in writing (to the attention of Supplier's Engineering Manager)
      or by release on Applied's current ECO database, notice of approved ECOs
      (Attachment 12), indicating the effective dates of all changes. Unless
      otherwise notified, Applied's receiving inspection will inspect to the
      latest revision in effect at the time of receipt of Items.

      (d) If Applied has not responded to an SPS, REA or proposed ECO within the
      time period indicated in this Paragraph (d), Supplier may request review
      of the SPS, REA or proposed ECO by the SMT Supplier Engineer for Supplier.
      Applied is not obligated to approve any SPS, REA or proposed ECO. The
      response time for purposes of this Paragraph (d) is eighteen (18) days
      after initial submission of a proposed ECO or REA or after initial
      submission of an SPS.

      (e) Each Supplier ECO and Supplier Request shall be handled in accordance
      with applicable MEA procedures and shall not modify or eliminate any
      requirement of the Quality Framework Document (Attachment 15) or the QRD
      (Attachment 20) for review

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      and approval by Applied prior to implementation. Each Engineering Change
      initiated as a Supplier Request or Supplier ECO shall, prior to
      implementation by Supplier:

      (i) have been released by Supplier to Applied's assigned organizations for
      REA or ECO review and approval under the REA and ECO workflow and approval
      routing requirements of Applied in effect at the time;

      (ii) have been properly completed and documented under Applied's REA and
      ECO workflow and preparation requirements, including

            (a) the document control process,

            (b) applicable safety checklists, and

            (c) other safety engineering or information requirements, as in
            effect at the time; and

      (iii) have been approved, in writing (to include electronic authorization)
      as required by Applied's ECO, REA or other applicable approval procedures.

4.2.  Tooling.

      4.2.1. General Tooling Provisions.

      (a) Except as otherwise set forth in Section 4.2 or as otherwise agreed by
      the parties in a separate writing, special dies, tools, patterns, test
      fixtures, and like equipment (collectively, "Tooling") used in the
      manufacture of Items shall be furnished by and at the expense of Supplier
      and shall be owned by Supplier. As to those items of Tooling covered in
      Sections 4.2.2 and 4.2.3 (the "Test Fixture Hardware" and "Test Fixture
      Software," such latter term being defined in Section 4.2.3(c)), the terms
      of Sections 4.2.2 and 4.2.3 shall apply and not the terms of this Section
      4.2.1.

      (b) Supplier agrees that Applied may, at Applied's option, purchase from
      Supplier Tooling to which this Section 4.2.1 applies that is unique to the
      Items or is unique to the manufacture of Items, *. Pursuant to such
      option, Applied may purchase from time to time (but subject to the
      limitations and requirements of Section 4.2.4(c)) items of such Tooling at
      the fair market value of such Tooling, as determined at the time of the
      exercise by Applied of this option. As part of such purchase and without
      additional consideration, Supplier shall assign to Applied, or if such
      assignment is not possible, license on a royalty-free, non-terminable
      basis, all IP Rights associated with such Tooling, including software (if
      any) associated with such Tooling *. In this regard, Supplier will obtain
      from its employees, consultants, agents and representatives, as necessary,
      all assignments necessary for assignment of IP Rights to Applied.

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      (c) Prior to acquisition of an item of Tooling that is unique to the Items
      or is unique to the manufacture of Items, Supplier will provide a separate
      line item quote for any such item of Tooling (excluding, however, Tooling
      subject to provisions of Sections 4.2.2 or 4.2.3) that Supplier will
      acquire for use in the manufacture of Items after the Effective Date. If
      Applied accepts such quote under such procedures, Applied will pay the
      cost of such Tooling separately, title to the Tooling shall be held by
      Applied, and the parties shall execute and deliver a Tooling Loan
      Agreement (or a supplement or schedule to an existing Tooling Loan
      Agreement) as to such Tooling. Supplier will establish appropriate
      accountability and tracking of any Tooling owned by Applied.

      (d) Supplier shall not at any time use Tooling owned by Applied ("Applied
      Tooling") for the production of goods for persons other than Applied or in
      any manner other than in performance of Supplier's obligations under this
      Agreement, without Applied's written approval. Applied and Supplier shall
      execute a tooling loan agreement of even date with this Agreement in the
      form of Attachment 19 (the "Tooling Loan Agreement") for any Applied
      Tooling in Supplier's possession, or a supplement or schedule to include
      such Applied Tooling under an existing Tooling Loan Agreement.

      4.2.2. Current FDS Test Fixtures.

      (a) The FDS test fixtures (including, for purposes of this Section 4.2, *)
      identified on Schedule 4.2.2(a) to this Agreement (the "Purchased FDS Test
      Fixtures") were purchased by Supplier from Applied. Each Purchased FDS
      Test Fixture (i) shall be located only at premises approved, in writing
      and in advance, by Applied (subject to the provision below as to changes
      of location among facilities of Supplier), and (ii) shall be used by
      Supplier solely to perform its obligations under this Agreement for
      manufacturing Applied FDSs to be sold to Applied pursuant to this
      Agreement. Further, Supplier grants and extends to all Purchased FDS Test
      Fixtures a security interest in favor of Applied to secure performance by
      Supplier of its obligations in respect of repurchase of the Purchased FDS
      Test Fixtures by Applied pursuant to Section 4.2.2(b) below.

      Supplier may, upon at least ten (10) calendar days prior notice to Applied
      given to Applied's Supply Account Team Lead as specified under Section
      1.2.2 above, relocate any of the Purchased FDS Test Fixtures from their
      current locations to any manufacturing facility of Supplier in Milpitas,
      California, Austin, Texas or Round Rock, Texas.

      (b) Supplier grants to Applied the right, exercisable from time to time by
      Applied, at its option, whether or not default has occurred under this
      Agreement but subject to the requirements of Section 4.2.4(c) below, to
      purchase from Supplier any or all of the Purchased FDS Test Fixtures(s)
      and all then existing hardware modifications and improvements to such
      fixture(s). The purchase price for such Purchased FDS Test Fixture(s)
      shall be equal to the following percentages of the purchase price
      initially paid by Supplier to Applied for such Purchased FDS Test Fixtures
      and modifications and improvements: *. Upon payment of such purchase price
      Supplier shall convey to

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      Applied, and Applied shall be the owner of, such test fixture(s) and all
      IP rights in or to such test fixture(s) (*). Supplier agrees to assign to
      Applied as part of such purchase and without additional consideration, and
      to obtain from its employees, consultants, agents and representatives, as
      necessary, all assignments of, all IP Rights it or they may have relating
      to the Purchased FDS Test Fixture(s) (*).

      (c) The FDS test fixtures identified on * to this Agreement are owned by
      Applied (the "Applied Test Fixtures") *.

      (d) The FDS test fixtures identified on * are owned by Supplier (the
      "Supplier Test Fixtures"). *. Improvements, additions and alterations to
      the Supplier Test Fixtures (excluding Improved Software, as defined below)
      shall be procured, purchased, funded and owned by Supplier.

      4.2.3. Future FDS Test Fixtures.

      (a) Capacity FDS Hardware.

      Supplier shall regularly consult with Applied's SPM regarding such new FDS
      test fixture hardware and any modifications to existing FDS test fixture
      hardware (excluding modifications to the *) that Supplier will need within
      the following six (6) month period either (i) to meet manufacturing
      capacity and flexibility requirements under the Supplier Performance Plan
      then in effect, (ii) to achieve production levels established pursuant to
      its capacity planning under Section 2.5.1, or (iii) to achieve increases
      in manufacturing capacity and flexibility, production volumes or operating
      levels to accommodate changes in quantities of Items under Section 2.5.2
      (the "Capacity FDS Hardware"), and to develop operational requirements for
      the Capacity FDS Hardware and a schedule for the acquisition and
      installation of such hardware, together with any related software. Applied
      shall provide or purchase all items of Capacity FDS Hardware that are, in
      its commercially reasonable judgment, necessary and appropriate for the
      purposes set out above in this Section 4.2.3(a). All Capacity FDS Hardware
      purchased or provided by Applied shall be owned by Applied and shall be
      subject to the Tooling Loan Agreement and this Agreement and upon request
      by Applied shall be identified by a supplement to * as Applied Test
      Fixtures. Whether or not default has occurred under this Agreement but
      subject to the requirements and limitations of Section 4.2.4(c) below,
      Applied shall have the right to remove or otherwise take possession of
      such Capacity FDS Hardware.

* Material has been omitted and filed separately with the Commission.

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      (b) Product Change Hardware and Improved Software.

      Supplier shall regularly consult with the Applied SAT Lead regarding (i)
      any new or modified hardware for test fixtures that will be used to
      manufacture or test any FDS, Module, or other Item for Applied, which new
      or modified hardware will be needed as a result of new Applied products,
      modifications of existing Applied products, or new or modified testing
      requirements or Specifications for Applied products that Supplier may be
      selected to manufacture or supply Items for (the "Product Change
      Hardware") and (ii) any new or modified software for test fixtures that
      will be used to manufacture or test any FDS, Module or other Item for
      Applied, which new or modified software will be needed as a result of new
      Applied products, modifications of existing Applied products, or new or
      modified testing requirements or Specifications for Applied products that
      Supplier may be selected to manufacture or supply Items for, or changes in
      Supplier's manufacturing capacities, equipment or volumes (the "Improved
      Software"). Applied (including its SAT Lead and the Tooling and Test
      Organization) shall regularly consult with Supplier as to new Applied FDS
      products and modifications of existing Applied FDS products that Supplier
      may be selected to manufacture and as to changes in Applied's FDS test
      requirements. Supplier will use commercially reasonable efforts to
      identify and advise the SAT Lead of Product Change Hardware and Improved
      Software, the need for which is known to Supplier, that will result from
      such new or modified products, testing, manufacturing requirements, or
      Specifications.

      Applied shall have the option to provide or purchase all items of Product
      Change Hardware and Improved Software that, in its commercially reasonable
      judgment, are necessary and appropriate for the manufacture and testing of
      FDSs, Modules or other Items for Applied, but shall not be required to
      provide or purchase Product Change Hardware or Improved Software. Supplier
      will not acquire or install Improved Software not purchased or provided by
      Applied. All Product Change Hardware and Improved Software purchased or
      provided by Applied shall be owned by Applied and, in the case of Product
      Change Hardware and Improved Software, be subject to the Tooling Loan
      Agreement and this Agreement and upon request by Applied shall be
      identified by a supplement to * as Applied Test Fixtures. Whether or not
      default has occurred under this Agreement, but subject to the requirements
      of Section 4.2.4(c) below, Applied shall have the right to remove or
      otherwise take possession of such Product Change Hardware.

      (c) Right to Remove or Copy Software.

      Applied owns, has provided to Supplier and has paid the cost of the
      software currently used in the testing operation of all test fixtures
      listed on Schedules 4.2.2(a)-(d) (the "Current TF Software"). (The Current
      TF Software, the software for Capacity FDS Hardware and the Improved
      Software are the "Test Fixture Software.") Any Test Fixture Software in
      Supplier's possession may be copied by Applied at any time or times, upon
      reasonable notice to Supplier, to the attention of Supplier's Engineering
      Manager. Test Fixture Software in Supplier's possession may also be
      removed by Applied at any time or times; provided that as to removal of
      Test Fixture Software, Applied shall give the notice

* Material has been omitted and filed separately with the Commission.

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      and comply with the other requirements of Section 4.2.4(c) below. Applied
      shall have the right to hold all source code and original documentation of
      Test Fixture Software. Applied shall have the obligation to maintain the
      Test Fixture Software, and Supplier shall cooperate with Applied in such
      maintenance.

      4.2.4. General Application.

      (a) Supplier shall not at any time use Test Fixture Hardware or the Test
      Fixture Software (other than the Supplier Test Fixtures and hardware or
      software that, in each instance (i) are not provided or purchased by
      Applied under Sections 4.2.3(a)-(c) or (ii) do not constitute Applied IP)
      for the production of goods for persons other than Applied or in any
      manner other than in performance of Supplier's obligations under this
      Agreements without Applied's written approval. Any such Test Fixture
      Hardware in Supplier's possession shall be subject to this Agreement, the
      IPA, and also the Tooling Loan Agreement; the Test Fixture Software shall
      be subject to this Agreement, the Tooling Loan Agreement, and also the
      IPA.

      (b) If Applied fails to provide or delays providing (after notice by
      Supplier, given to Applied's SMT Operations Manager, that the failure or
      delay will affect Committed Delivery Dates), items of Capacity FDS
      Hardware, Product Change Hardware or Improved Software that are required
      for the manufacture and testing of new FDSs, Modules or other Items for
      Applied Systems, modifications of existing Applied Systems, or new or
      modified testing requirements or Specifications for Applied Systems that
      Supplier is selected to manufacture or to supply Items for, or changes in
      Supplier's manufacturing capacities, equipment or volumes, after the
      Effective Date, then, to the extent of delays in testing and delivery that
      result directly from such failure of Applied after notice under this
      Section 4.2.4(b), the Committed Delivery Date of the Items(s) so delayed
      shall be extended for a period equal to the period of Applied's failure or
      delay in providing such hardware or software.

      (c) Applied may exercise any of its options or rights to purchase,
      repossess, or remove any Tooling or Test Fixture Hardware and Test Fixture
      Software, to the extent provided for in this Section 4.2, at any time,
      without the occurrence or continuance of a default by Supplier, but only
      in connection with a termination or cancellation of this Agreement, in
      whole or in part. If exercised in connection with a partial termination or
      cancellation, the right of Applied shall extend only to such items of
      Tooling, Test Fixtures and Test Fixture Software that are reasonably
      required for or in connection with the manufacture and testing of those
      Items (including Applied System product lines) as to which the termination
      or cancellation relates. Applied shall give Supplier prior notice under
      Section 1.2.2 of Applied's intent to purchase, repossess or remove any
      Tooling, Test Fixtures or Test Fixture Software or other items which it
      owns or may acquire hereunder, which shall be given at a time reasonably
      in advance of acquisition or relocation to allow Supplier to complete
      production of Items affected by the cancellation or termination and for
      which an Authorized Demand Signal has been issued, provided that notice
      given at least eight (8) weeks (or a period equal to such lesser product
      cycle time as may be applicable to the affected Items at the time) prior
      to the repossession, removal or purchase shall be deemed reasonable.

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CONFIDENTIAL TREATMENT REQUESTED

4.3.  Design Changes and Resolution.

(a) Supplier will not make changes to the Specifications, form, fit, function or
manufacturing process of Item(s), without having first complied with the
applicable requirements of Sections 4.1, 4.3, 4.4, and 4.5 of this Agreement.

(b) Supplier shall not subcontract any Design Service or Development Service
except as permitted by and in compliance with the IPA and shall not utilize in
any Services any consultant, contractor, or employee for whom an executed
joinder in the confidentiality provisions of the IPA has not been delivered to
Applied. Supplier shall implement changes affecting Items and resulting from
Design Services or Development Services only upon obtaining prior written
approval required under applicable ECO, Applied Product Definition Form, and
other procedures from Applied's Supplier Engineer designated for Supplier and,
as applicable, as required by the DSA or DVA.

4.4.  Process Changes and Resolution.

Supplier shall be responsible for its compliance and compliance by its sub-tier
suppliers, subcontractors, providers and special process suppliers with
manufacturing requirements, Specifications and provisions of the QRD and Quality
Framework and shall inform Applied of any special process or other sub-tier
supplier, provider or subcontractor changes to Items, including any changes in
the manufacturing process of Supplier or of a sub-tier supplier, special process
supplier, subcontractor or provider, even when Specifications are being met
(excluding changes in physical layout of Supplier's manufacturing plant or in
Supplier's manufacturing line design). Supplier must receive approval in writing
from Applied with respect to the implementation of each such change. As required
by the QRD, Supplier must use special process suppliers from the list set forth
in Attachment 14.

4.5.  QRD and Special Process Requirements.

      4.5.1 Critical and Source Specific Materials.

      The manufacture, processes, Specifications, manufacturing processes and
      requirements of and for, and the providers of, Piece Parts, Modules,
      assemblies or Subassemblies designated as "Critical" or "Source Specific"
      pursuant to the QRD, and any Subassemblies transitioned to a sub-tier
      supplier or subcontractor (the "Critical and Source Specific Materials")
      shall comply with Applied's QRD, Quality Framework, and Special Process
      Supplier requirements in or pursuant to Attachments 14, 15 and 20 to this
      Agreement and documents or procedures referred to therein, all as revised
      from time to time. Supplier shall not make or authorize any change in any
      of the foregoing without prior written approval by Applied pursuant to the
      Quality Framework, QRD and Special Process Supplier requirements and
      related documents and procedures.

      4.5.2 Supplier's Subcontractors.

      Supplier will ensure that all sub-tier suppliers, providers and
      subcontractors of Supplier who have access (directly or indirectly) to
      Applied's Specifications or Internal Applied Data or other Confidential
      Information sign and are governed by a confidentiality

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CONFIDENTIAL TREATMENT REQUESTED

      agreement with Supplier that is similar in form and substance to the
      confidentiality provisions of the IPA applicable to Supplier, and Sections
      2.9.1 and 2.9.2 of this Agreement. Approval by Applied of a sub-tier
      supplier, provider, or subcontractor selected by Supplier shall not alter
      Supplier's obligations to Applied.

      4.5.3. Costs of Supplier Change.

      The party initiating a change in a subcontractor, provider or sub-tier
      supplier to Supplier for Source Specific Parts shall bear the costs of
      qualifying the new sub-tier supplier, provider or subcontractor for the
      affected Piece Part, material or other element.

      4.5.4. Waivers.

      In addition to the provisions of Section 9.4 of this Agreement, if Applied
      waives any drawing, Specification or other requirement for one or more of
      the Items, it will not constitute a waiver as to remaining Items to be
      delivered, unless stated by Applied in writing.

4.6.  First Articles and Source Inspections.

First Article and Source Inspections shall be conducted in compliance with the
QRD and Quality Framework and the documents and procedures referred to therein.

4.7.  Applied's Right to Subcontract.

Applied may at its discretion elect to contract with a manufacturer, integrator
or outsource provider of Subassemblies (a "Subassembler"), which Subassemblies
will incorporate or include Item(s) Applied may purchase under this Agreement.
Applied will advise Supplier of the new Subassembler and of the Items affected.
Supplier understands that the selection and sourcing of any Items to be
incorporated or included in Subassemblies to be provided by the Subassembler
will be made by the Subassembler, and that, pursuant to Article 17 of Exhibit 1,
Applied may assign this Agreement, in whole or in part, in connection with its
contract with the Subassembler.

4.8.  Product Support

      4.8.1. Global Technical Support and Product Support.

      (a) Technical Support. Supplier shall provide a telephone support system
      for global technical assistance to Applied, seven days a week, 24 hours a
      day, at no additional charge. Supplier shall include as part of its
      technical support hot pager contact for access at times outside Supplier's
      normal operating periods. Supplier is expected to use commercially
      reasonable efforts to provide a resolution to Applied's requests for
      technical assistance.

      (b) Product Support. In addition to support, repair and replacement
      services covered by other provisions of this Agreement and in addition to
      the above technical support, Supplier will, upon request by Applied,
      provide support globally to Applied (and at the direction of Applied, to
      Applied's customers) for all Items that Supplier provides to

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CONFIDENTIAL TREATMENT REQUESTED

      Applied, to include repair, replacement or correction of Items. Supplier
      agrees to have an established and, at Applied's request, deployable global
      product support service capability. Supplier may utilize one or more
      affiliates of Supplier, Supplier distributor(s) or other qualified
      entities designated by Supplier and acceptable to Applied to meet this
      requirement. If support services provided by Supplier are not covered as
      warranty obligations to be provided pursuant to Section 7 of this
      Agreement, Supplier will be compensated for the services so provided as
      agreed by the parties on a case by case basis or under standard pricing as
      agreed. Except as required for those requests, if any, for global support
      covered by Section 2.4, when Applied has not been able to resolve a
      defect, failure or problem affecting an Item through the above technical
      support process, Kinetics shall respond to each request for global support
      from Applied and propose a plan for the correction, solution, repair or
      replacement within forty-eight (48) hours (as to requests initiated by
      Applied's Customer Engineer), and as to all other requests from Applied,
      within a period that is prompt under commercially reasonable standards
      considering the nature and urgency of the request.

      4.8.2. Product Support Period.

      Supplier agrees to maintain the capability to provide Items and to provide
      the same types and level of global product service and technical support
      to Applied described in Section 4.8.1 above, for all of the Items, for a
      minimum of ten years from the date of the last shipment of an Item to
      Applied under this Agreement to Applied for its manufacturing operations
      (the "Post Term Support"), in addition to meeting Supplier's warranty
      obligations. Upon Applied's request, Supplier shall provide Post Term
      Support on a time and materials basis, at rates and cost determined as set
      out in Section 4.8.1 above.

      4.8.3. Product Post Term Support Options.

      (a) If Supplier desires to modify or reduce its Post Term Support
      obligation, Supplier agrees, as a condition of such a reduction or
      modification, that Supplier shall have prepared a transition and support
      plan for Post Term Support and shall have obtained Applied's approval, not
      to be unreasonably withheld, of such plan. As part of such plan, Supplier
      shall have negotiated (and obtained such approval from Applied of) a
      contract for Post Term Support (including capability to provide Items and
      the provision of global product support and technical support) to be
      provided by a financially responsible entity with established capability
      and expertise and a license to such third party of IP Rights to meet the
      requirements for Post Term Support, to the extent Supplier desires to
      reduce or modify its obligations for Post Term Support.

      (b) If, after the use of commercially reasonable efforts, Supplier has not
      located a third party to provide Items as required for modification or
      reduction of Post Term Support obligations of Supplier or to negotiate a
      contract for the provision of Items under Post Term Support as described
      in Section 4.8.3(a), then Supplier shall provide in good faith all
      assistance reasonably required by Applied for Applied to provide or obtain
      the Items for which Supplier has Post Term Support obligations and, for
      such purpose, Applied shall have and may exercise the license in respect
      of cover pursuant to Section 3.13 of the IPA. If Supplier fails in any
      respect (other than as to arrangements for the provision of Items) to
      provide Post Term Support, or to have obtained approval of a

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CONFIDENTIAL TREATMENT REQUESTED

      transition and support plan under Section 4.8.3(a), then Supplier shall
      provide in good faith all assistance reasonably required by Applied for
      Applied to provide or obtain the affected Post Term Support and, for such
      purpose, Applied shall have and may exercise the license in respect of
      cover pursuant to Section 3.13 of the IPA.

4.9.  Periodic Business Review.

Applied and Supplier shall periodically review their activities and agreements
through a formal business review process. As part of such business review
process during any Wind Down Period, the parties shall determine if Supplier
holds any documentation of a Future Modification (as defined in the IPA) in
which Applied holds any rights as owner or licensee pursuant to the IPA or any
DSA or DVA, which documentation Supplier is required to deliver to Applied
pursuant to the IPA, but which documentation has not been delivered to Applied
(the "Deliverable Documentation"). Supplier shall promptly deliver to Applied,
upon identification of same, upon subsequent request by Applied, any Deliverable
Documentation.

4.10. [Omitted].

4.11. Wind Down Provisions.

(a) The "Wind Down Period" is the period preceding expiration or termination of
this Agreement that is applicable under the following provisions:

      (i) With respect to the expiration of this Agreement, a period of up to *
      that is designated by Applied as the Wind Down Period, which period shall
      commence on the date specified in a notice by Applied (given under Section
      1.2.2) that a Wind Down Period shall apply in connection with the
      expiration of this Agreement. If the otherwise applicable term of this
      Agreement would expire prior to the end of such designated Wind Down
      Period, Applied shall extend the term of this Agreement to the last day of
      the Wind Down Period by an extension pursuant to Section 1.5, so that the
      term of the Agreement shall automatically be extended to and expire upon
      the last day of the designated Wind Down Period.

      (ii) If Applied terminates this Agreement pursuant to Article 25 of
      Exhibit 1 to this Agreement or Article 26 of Exhibit 1 to this Agreement,
      the Wind Down Period shall be a period of up to * that is designated by
      Applied in its notice (given under Section 1.2.2) exercising such right of
      termination, which period commences on the date the notice of termination
      is issued and ends on the date termination is effective, which effective
      date of termination shall be set out in the notice of termination and
      shall comply with the requirements of this Section 4.11 and of Article 25
      or 26 (as applicable) of Exhibit 1. If Supplier * the Wind Down Period
      shall be a period of at least * that is designated by Supplier in its
      notice *, which period commences on the date the notice * is issued and
      ends on the date * is effective, which effective date * shall be set out
      in the notice * and shall comply with the requirements of this Section
      4.11 and of *.

* Material has been omitted and filed separately with the Commission.

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If termination is in part and not in whole, the Wind Down Period shall apply
with respect to that portion of the Agreement affected by the termination.
During the Wind Down Period, Supplier shall continue to supply all Items for
which an Authorized Demand Signal is issued and accepted or deemed accepted
under this Agreement. The parties shall use commercially reasonable efforts and
cooperate so that Items for which Authorized Demand Signals are issued and
accepted during or prior to commencement of the Wind Down Period will have
Committed Delivery Dates on or before the end of the Wind Down Period. Supplier
and Applied each shall perform its agreements and obligations regarding the Wind
Down Period under the IPA and this Agreement. The Wind Down Period continues
from the date it commences until the date termination or expiration is
effective.

(b) The provisions of Section 4.8 shall apply during, and continue in effect
after, the Wind Down Period, without limitation of other survival provisions of
this Agreement.

(c) No later than the conclusion of the Wind Down Period (and, when applicable
for a partial termination, then as to the portion affected):

      (i) Supplier shall convey its title, if any, to, and shall deliver to
      Applied, *. In the event of Termination for Default or an expiration of
      the term of this Agreement, Applied shall have the option, but not an
      obligation, to purchase from Supplier the Remaining Consumable Materials.
      *. Prices for partially completed Items shall be determined by applying
      the cost model (Attachment 1) to actual materials consumed or installed in
      the partially completed Item, and by a charge for actual Services
      performed and actual manufacturing labor (at the rate for work in
      Supplier's facility). The price payable by Applied for Remaining
      Consumable Materials shall be determined under Section 4.11(d) below.
      Supplier shall not charge for documentation of or relating to, Applied IP.

      (ii) Supplier and Applied shall have performed and discharged their
      respective obligations under the IPA and this Agreement.

      (iii) Supplier will return all Tooling, capital or other equipment
      (including any Tooling and capital equipment that Applied has acquired
      ownership rights in as a result of exercising its rights under this
      Agreement) and material owned by Applied. Supplier will be responsible for
      the packaging and transportation costs associated with the return of these
      items if the termination is for default; Applied shall be responsible for
      such packaging and transportation costs in all other events.

      (iv) Applied and Supplier shall each have paid the other all amounts then
      due and payable under this Agreement and any Related Agreement, except for
      amounts in bona fide dispute.

* Material has been omitted and filed separately with the Commission.

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(d) "Remaining Consumable Materials" shall be determined as follows: Supplier
shall record and report to Applied, within 10 days after the date notice of
termination is given, * following the date on which notification is given, *
affected by the notification over the following *. The "Remaining Consumable
Materials" is the quantity of * that were actually on hand, or for which
Supplier had issued noncancellable purchaser orders, that were not used or
consumed in the course of operations under the Agreement. The charge or price
for Remaining Consumable Materials is determined * for the * at the date of
notification.

(e) During the period after notification and prior to termination, Applied and
Supplier shall negotiate the terms of and charges for Restock or Reconfigure
Items, and the formula provisions of Sections 2.14.4 and 2.14.6 shall not apply.
Supplier shall not be required, during a Wind Down Period relating to
termination, to accept Restock Items or Reconfigure Items that are first
designated as such during such a Wind Down Period. The provisions of this
Agreement as to cancellation of Items and as to *s, however, are not modified
during a Wind Down Period.

5.    NONCONFORMANCE.

5.1.  Nonconformance and Corrective Action.

      5.1.1. [Omitted.]

      5.1.2. Supplier Corrective Action Request.

      Applied will complete a "Supplier Corrective Action Request" (Attachment
      10) pursuant to ISO 9000 processes to record and request corrective action
      for recurring nonconformities. Upon receipt of a Supplier Corrective
      Action Request, Supplier will promptly respond as appropriate and use best
      industry practices to cure the nonconformities and the cause of
      nonconformity. A corrective action process to resolve nonconformance will
      be documented and used by the parties. In addition, Supplier will
      participate in continuous improvement plans and programs as defined by
      Applied and Supplier.

5.2.  Applied Nonconformance and Corrective Action.

      5.2.1. Items Affected.

      Applied will, at its option, return Items at Applied's expense that do not
      conform to Applied's requirements due to Applied's errors or damage caused
      by Applied. These Items will be returned to Supplier for repair or
      potential rework. Applied may, at its option, require Supplier to repair a
      Subassembly at Applied's facility. If Applied returns an Item to Supplier
      under this Section 5.2.1, Applied shall deliver to Supplier with such
      Item, when returned, certification of decontamination and preparation for
      safe handling if the Item has been exposed to toxic or corrosive gases or
      chemicals, in compliance with Section 2.14.7.D.

* Material has been omitted and filed separately with the Commission.

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      5.2.2. Standard Repair Costs.

      Except for instances for which the parties have established "standard"
      repair costs (labor, Items and freight) for Items not covered under
      warranty, Supplier shall charge, and Applied shall pay, for non-warranty
      repair or correction of Items on a time and materials basis. Materials
      shall be charged at the *; Supplier's labor charges for repairs performed
      at Supplier's facilities shall not exceed *. If Supplier is required to
      provide labor at Applied facilities to meet repair times for Production
      Issue Items, the labor cost will not exceed *.

      Supplier will assess repair and rework costs and timing and quote same to
      Applied before work is performed. Upon approval of Supplier's quote,
      Applied will issue its Purchase Order for such costs. Applied may at its
      option elect (a) to have the Item repaired or reworked, or (b) to purchase
      a new Item at pricing determined under Attachment 1. Supplier shall
      prepare its quotation based on the completion terms of Section 5.2.3 and
      shall advise Applied as part of its quotation if more than five (5)
      Business Days will be required.

      5.2.3. Time for Repair.

      Supplier shall repair, replace, or correct defects or defective Items
      resulting from Applied's error or damage within * after Applied notifies
      Supplier of the defect or damage (unless a longer period is required in
      the use of best professional practices), or at such other time as is
      agreed by the parties as part of the issuance of Applied's Purchase Order,
      except for Items Applied identifies as a Production Issue in its initial
      notice under Section 2.4, as to which Supplier shall respond and act in
      accordance with Section 2.4.2. Costs and pricing for repair of damages or
      defects caused by Applied error will be established under Section 5.2.2
      above.

      5.2.4. Return of Items.

      Items repaired or reworked by Supplier will be shipped in accordance with
      generally applicable transportation and packaging requirements. Supplier
      will deliver such Items to Applied at the times determined under Section
      5.2.3 above. Prior to Supplier's return of a repaired or reworked Item to
      Applied, Supplier will mark such Item with Applied's part number, serial
      number, range and gas (if applicable). Applied shall pay costs of
      transportation and bear the risk of loss or damage during transit of
      repaired or reworked Items, whether or not such Items meet warranty or
      other requirements.

6.    SUPPLIER PERFORMANCE PLAN.

As part of this Agreement, Applied and Supplier have prepared a Supplier
Performance Plan, which is Attachment 16 to this Agreement. Supplier's
performance and compliance with the applicable Supplier Performance Plan shall
be reviewed in periodic business review meetings

* Material has been omitted and filed separately with the Commission.

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conducted by Applied's SPM. A recurring failure of Supplier to perform at (or to
achieve) the standards set, or to comply with terms of, the Supplier Performance
Plan will be deemed a Dispute for purposes of Section 7.2.5, as to which either
party may initiate the Business Review Process and, if such recurring failure is
material, may be the basis of an action by Applied under Article 25(a)(iii) of
Exhibit 1. A recurring failure for purposes of this Section 6 and of the
Supplier Performance Plan is a failure that occurs in at least *.

7.    WARRANTIES AND REMEDIES.

7.1.  Supplier Warranty.

      7.1.1. Basic Warranty.

      Subject to the limitations set out in Section 7.1.4 below, Supplier
      warrants to Applied, for the warranty period set out in Section 7.1.3
      below, that each Item delivered to Applied (excluding Services separately
      warranted under Section 7.1.2 below):

            (a) will be free from defects in materials, workmanship and
            manufacture, and will be of good title;

            (b) will conform to (i) all Specifications, and (ii) those
            requirements of (or made applicable through) the following documents
            and Sections of this Agreement applicable to such Item: the Quality
            Requirements Document (Attachment 20); the Process Qualification
            Program in effect at the time of manufacture under the QRD and
            applicable to the Item; the Quality Framework (Attachment 15);
            Special Process Suppliers (Attachment 14); and Sections 4.4 and 4.5
            of this Agreement;

            (c) will have been manufactured in compliance with those provisions
            of the Quality Requirements Document (Attachment 20), Process
            Qualification Program in effect at the time of manufacture under the
            QRD and applicable to the Item, Quality Framework (Attachment 15),
            the Supplier Performance Plan (Attachment 16), and Sections 4.4 and
            4.5 of this Agreement, applicable to the manufacture of such Item
            and with manufacturing standards suitable for the manufacture of
            high quality, process sensitive components of Applied Systems
            ("Suitable Manufacturing Standards"); and will consist of new
            materials and Piece Parts;

            (d) will be of merchantable quality and fit for the intended purpose
            of use with or incorporation in Applied Systems for semiconductor
            wafer fabrication, flat panel display fabrication, thin film
            application processes or manufacturing, toxics abatement or
            recycling, or wafer inspection and metrology, as applicable; and

* Material has been omitted and filed separately with the Commission.

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            (e) will, to the extent of Configuration Engineering Services, CES
            Services, CCR Services, NPT Services and Design Services or
            Development Services, provided by Supplier, be free from defect in
            such Services excluding, however, any defects caused by error in the
            applicable product design that was not itself caused by Supplier or
            its Services.

      7.1.2. Services.

      As to Services, for the warranty period set out in Section 7.1.3 below and
      subject to the limitations set out in Section 7.1.4 below, Supplier
      warrants to Applied that its Services have been performed in a competent,
      professional and workmanlike manner, and are free from defect and in
      accordance with the best professional practices of the industry.

      7.1.3. Warranty Period.

      The warranty period applicable under this Agreement commences on the date
      of delivery to Applied of the Item (and, as to Services, commences upon
      completion of the Service and delivery of the completed work product and
      any other deliverables to Applied) and extends for a period of * after
      such date *; subject, however, to applicable limitations under Section
      7.1.4(iii), and provided that Supplier's warranty period as to a Third
      Party OEM Component (as defined in Section 7.1.5. below) extends *. If
      Applied's warranty to the Applied customer by whom the Item is used or
      purchased expires during Supplier's stated 24 month warranty period, *. If
      Applied's warranty to the Applied customer by whom the Item is used or
      purchased does not have a stated period or term, *.

      7.1.4. Limitations on Warranty.

      Supplier's warranties under this Agreement are subject to the following
      limitations:

            (i) Supplier makes NO WARRANTIES under this Agreement, whether
            express, implied, statutory or otherwise, except those warranties
            provided in this Agreement. The remedies provided for in or through
            this Agreement (and as to Services, where applicable, provided for
            in or through the IPA, DSAs, or DVAs) constitute the sole and
            exclusive remedies of Applied with respect to Items that fail to
            conform to such warranties. EXCEPT FOR THE WARRANTIES EXPRESSLY SET
            FORTH IN THIS SECTION 7.1 AND THOSE EXPRESSLY PROVIDED IN THE IPA
            AND ANY DSAs OR DVAs, (a) SUPPLIER DISCLAIMS ALL OTHER WARRANTIES,
            EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE WITH RESPECT TO ITEMS
            (INCLUDING SERVICES) INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES
            OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A
            PARTICULAR PURPOSE, AND (b) THE ITEMS ARE PROVIDED "AS IS."

* Material has been omitted and filed separately with the Commission.

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            (ii) In determining whether an Item is of a quality that is
            merchantable (Section 7.1.1(d) above), an Item must be of a quality
            at least equal to the standards of minimum acceptability for the
            same or like Items that are employed by Applied at the time of its
            manufacture; however, such standards shall not limit application of,
            or excuse compliance with, specific warranty requirements of Section
            7.1.1 above applicable to the specific Item. In determining whether
            an Item is of a quality that is merchantable, the standards for
            merchantable quality of the Item shall be those that are currently
            applied at the time of its manufacture. In determining whether an
            Item is fit for its intended purpose, such warranty shall extend to
            use or incorporation in semiconductor wafer fabrication, flat panel
            display fabrication, thin film application processes or
            manufacturing, toxics abatement or recycling, or wafer inspection
            and metrology systems, as applicable, employed in processes (a) that
            are customary or generally contemplated within the industries using
            such systems, or (b) that are specifically identified by Applied to
            Supplier, in writing (including e-mail, facsimile and posting of
            information on the Applied website designated for Supplier's access)
            as an intended use.

            (iii) Supplier's warranties do not extend to defects, failure or
            malfunction of an Item to the extent such failure, defect or
            malfunction (a) results from conformance by Supplier with
            Specifications prepared by Applied, provided that this exclusion
            shall not alter or limit Supplier's warranties of its Services; (b)
            is caused by accident, negligence, misuse, alteration, modification
            or tampering of or caused by any person other than Supplier, or (c)
            is caused by use or operation in environments or for processes that
            are not customary or generally contemplated in those industries
            using semiconductor wafer fabrication, flat panel display
            fabrication, thin film application processes or manufacturing,
            toxics abatement or recycling, or wafer inspection and metrology
            systems, as applicable, or not specifically identified by Applied to
            Supplier as intended uses or environments.

      7.1.5. Third Party OEM Components.

            (a) A "Third Party OEM Component" is any product (i) that is
            identified by an Applied Commodity Code (under Applied's Commodity
            Code Document 0250-10856) with an initial designator equal to or
            greater than "0500" and (ii) for which the original manufacturer's
            warranty is for a period of at least thirteen (13) months from the
            date of Supplier's purchase and expressly runs to Applied or has
            been validly assigned to Applied by Supplier. The foregoing
            provision as to products with an initial Commodity Code designator
            equal to or greater than "0500" includes products: (i) that are
            identified by Applied Commodity Codes with initial designators
            between "0220" and "0229" but that would otherwise be assigned
            Applied Commodity Codes with an initial designator greater than
            "0500"; and also, (ii) that are new products to which a Commodity
            Code initial designator greater than "0500" would be assigned under
            the terms of Applied Document Commodity Code Document 0250-10856 as
            in effect on the Effective Date.

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            (b) *

            (c) Effective on the shipment by Applied to its customer of the Item
            or Applied System containing a Third Party OEM Component, Supplier
            assigns to Applied, to the fullest extent permitted by applicable
            law and agreements, all of Supplier's warranties, warranty rights
            and recoveries from or against each manufacturer and supplier of
            each Third Party OEM Component installed or incorporated in the Item
            or Applied System that may not be enforced by Applied, unless so
            assigned. Supplier will cooperate with Applied in Applied's
            enforcement of and recovery under such assigned or available
            warranties of Third Party OEM Components, including the execution
            and delivery of such further instruments as Applied may reasonably
            request to perfect and protect the foregoing assignment or rights of
            Applied, provided that Supplier shall not be required to bear costs
            and expenses of such cooperation that are not reasonable under the
            circumstances. If, following the date of assignment to Applied of
            the warranty and warranty rights and recoveries, Supplier is sued
            and such warranty and warranty rights or recoveries are reasonably
            required for Supplier's defense of, or for the assertion of
            counterclaim against, the claims against Supplier, Applied will
            cooperate with Supplier with respect to such warranty and warranty
            rights and recoveries and, upon reasonable terms and
            indemnification, assign back to Supplier, to the extent so required,
            the warranty and warranty rights or recoveries.

      7.1.6. Debit Recoveries.

            (a) Prior to Applied's initiation of a debit or other offset under
            Section 2.11.3 to effect a recovery for a warranty claim of Applied
            against Supplier, Applied shall advise Supplier, to the attention of
            Supplier's Customer Service Manager - Warranty Claims (in addition
            to the notice to Supplier's Finance Manager as provided by Section
            2.11.3) of the expected debit or offset amount and shall ship to
            Supplier for inspection the Item for which Applied proposes to
            effect a debit or offset based on its warranty claim (the "Warranted
            Part"). Supplier shall cooperate in arranging for delivery and shall
            provide, promptly upon request by Applied and without prejudice to
            Supplier as to warranty coverage, Supplier's Return Materials
            Authorization ("RMA") for the return of the Warranted Part under
            this Section 7.1.6. Applied shall not use debits or offsets to
            recover amounts for warranty claims as to Services only.

            (b) If a Warranted Part has been destroyed or is not available to
            Applied for delivery for purposes of the debit process under this
            Section, Applied will not initiate a debit process for the warranty
            claim. If Applied fails to effect delivery of the Warranted Part to
            Supplier under Section 7.1.6 (a), the debit or offset shall be
            recredited in full. If Applied does not proceed under this Section,
            Applied

* Material has been omitted and filed separately with the Commission.

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            retains and may pursue all its other remedies. Applied is not
            required to proceed under this Section to assert or recover for its
            warranty claims against Supplier; this Section only applies to
            debits or offsets relating to warranty claims.

            (c) If, after Supplier's examination of a Warranted Part, Supplier
            disputes the debit, offset or warranty coverage, Supplier shall
            notify its assigned Supplier Quality Engineer ("SQE") at Applied and
            shall specify the amount Supplier requests to be re-credited
            ("Disputed Amount"). This notification and specification of the
            Disputed Amount must in any event be given to Applied within thirty
            (30) days after the RMA delivery of the Warranted Part to Supplier.
            If the SQE approves the Supplier's request, the Disputed Amount
            shall be recredited.

            (d) If the SQE and Supplier do not agree on the amount to be
            re-credited, or on the disposition of the claim, Supplier may (i)
            accept the determination of the SQE or (ii) initiate the Business
            Review Process for resolution of the dispute as described in Section
            7.2.5.

      7.1.7. Survival of Warranties.

      Supplier's warranties shall survive any delivery, acceptance, inspection,
      or payment by Applied, except as expressly provided otherwise in this
      Section 7.1. Applied's approval of Supplier's material or design will not
      relieve Supplier of the warranties established in this Agreement.

7.2.  Applied's Remedies.

This Section 7.2 sets out obligations of Supplier and provides remedies of
Applied for Supplier's failure to make timely delivery of Item(s) and for breach
of Supplier's warranties as to Items. In addition to the remedies for such
failure of delivery and for breach of warranty provided for in this Section 7.2,
Applied has the remedies and rights provided under Articles 22 and 25 of Exhibit
1 (subject to the limitations and requirements of such Articles and of Article
21 of Exhibit 1). Provisions for recovery of damages by Applied in this Section
7.2 or in Article 25 are subject to applicable limitations under Article 21 of
Exhibit 1.

      7.2.1. Failure to Deliver.

      If Supplier fails to deliver one or more Items (or to provide Services
      with completed work product and deliverables) on the Committed Delivery
      Date or otherwise at the times provided by the applicable Authorized
      Demand Signal or as agreed by the parties:

            (a) Supplier shall initiate all actions necessary to complete and
            deliver the Items (or provide Services, work product and
            deliverables) promptly, without notice or demand by Applied. All
            increased costs and expenses for completion and delivery that result
            from Supplier's failure to timely deliver Items (or provide
            Services, work product and deliverables) shall be paid by Supplier.
            Supplier shall use the most expeditious manner commercially
            available to effect completion and delivery of Item(s), Services,
            work product and deliverables.

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            (b) If the failure constitutes or results in a Production Issue
            under Section 2.4, Supplier shall comply with that Section of this
            Agreement.

            (c) If Supplier fails to comply with Section 2.4, where applicable,
            or if Supplier otherwise fails to cure the late delivery promptly
            after the applicable Committed Delivery Date or repudiates, Applied
            may recover its damages resulting from the failure to comply or
            deliver, from late delivery or from repudiation and may exercise all
            remedies available pursuant to the UCC and, as to Services and
            related deliverables, may recover its damages and exercise all
            remedies provided by law or equity. Where applicable, the procedures
            and limitations of (or, provided for through) Section 7.1.6,
            7.2.1(d), or 7.2.1(e) and of Article 21 of Exhibit 1 will apply to
            exercise, enforcement and recovery by Applied.

            (d) Prior to effecting cover under the preceding paragraph (c),
            Applied shall give notice of its intent to cover, which notice shall
            be given to Supplier's Customer Service Manager in Austin or
            Milpitas, as applicable by e-mail or facsimile transmission and by
            voice message (telephone, pager, or voice mail). The notice of
            intent to cover shall identify the Item(s) for which cover is
            intended, and shall specify the Cover Period (defined below). Within
            24 hours (measured during Business Days and under prevailing Pacific
            Time) from the time notice is so given, Supplier shall notify
            Applied (in the same manner as provided for the notice to Supplier)
            by e-mail or facsimile notice to the Supply Account Team Lead
            specified in Section 1.2.1 if Supplier will provide to Applied the
            Item(s) within the Cover Period or if Supplier declines to proceed.
            If Supplier elects to provide such Item(s), Supplier shall provide
            such Item(s) on or before the expiration of the Cover Period at the
            original Contract Price. The "Cover Period" is that period which is
            reasonable under the circumstances for the Item(s), or
            equivalent(s), to be completed and delivered (but not to exceed the
            period within which the Item(s), or equivalent(s), can be obtained
            from a source other than Supplier).

            (e) (i) Prior to effecting cancellation through termination for
            default, in part, with respect to the particular affected Item(s),
            as a remedy pursuant to clause (c) above, Applied shall give notice
            of intent to cancel to Supplier's Customer Service Manager in Austin
            or Milpitas, as appropriate, and may (but shall not be required to)
            initiate the Business Review Process under Section 7.2.5. This
            cancellation through termination for default as to particular
            Item(s) shall not be limited by or conducted under Article 25 of
            Exhibit 1, but Applied may proceed to exercise such right by notice
            to Supplier. If Applied does elect to utilize the Business Review
            Process and the failure is not resolved by the Business Review
            Process, when applicable, or if Supplier fails to perform in a
            material respect under a resolution developed by the Business Review
            Process, Applied may give notice of default and cancel this
            Agreement as to the particular Item(s) without compliance with
            Article 25 of Exhibit 1.

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                  (ii) If Applied intends to effect cancellation as to more than
            the particular affected Item(s) through termination for default
            (which may be in part or in whole), Applied shall proceed in
            accordance with Article 25 of Exhibit 1 and the Business Review
            Process.

      7.2.2 Defective Items.

      If Supplier delivers Items (or provides Services) that do not conform to
      the warranty terms applicable to the Item(s) or Service(s) (a "Defective
      Item"), Applied shall give written notice (including notice by e-mail,
      facsimile or other electronic record) to Supplier's Customer Service
      Manager in Austin or Milpitas, as appropriate, of the Defective Item, and
      thereafter:

            (a) Supplier shall promptly correct, repair or replace, at
            Supplier's cost and expense, the Defective Item(s) without further
            notice from or demand by Applied. As to Services, Supplier's
            obligations include the prompt correction or re-performance of the
            Services and any work product or other deliverables. Supplier shall
            use the most expeditious commercially available means to effect
            repair, replacement or correction, including the provision of a new
            Item in lieu of repair. Applied may require repair, replacement or
            correction at Applied's facility.

            (b) If the failure constitutes or results in a Production Issue
            under Section 2.4, Supplier shall comply with that Section. If the
            failure is subject to Section 5.1.2, as applicable under this
            Agreement, Supplier shall comply with that Section of this
            Agreement.

            (c) If Supplier fails to comply with Section 2.4, where applicable,
            or if Supplier otherwise fails to promptly repair, replace or
            correct any Defective Item(s) or if Supplier repudiates, Applied may
            recover its damages resulting from such failure and may exercise all
            remedies available pursuant to the UCC (to include revocation of
            acceptance) and, as to Services and related deliverables, may
            recover its damages and exercise all remedies provided by law or
            equity. Applied may, as part of its recovery, include premium costs
            for expedited delivery. Where applicable, the procedures and
            limitations of (or, provided for through) Section 7.1.6, 7.2.2(e)
            and (f), and Article 21 of Exhibit 1 will apply to exercise,
            enforcement and recovery by Applied.

            (d) (i) Applied will utilize the procedures of this Section 7.2.2(d)
            to make repair, replacement or correction of a Defective Item in
            those instances in which (a) Supplier fails to comply with Section
            2.4, if applicable, (b) Supplier fails to correct, repair or replace
            the Defective Item within the period requested by Applied or
            otherwise established by the parties or this Agreement, or (c) the
            Defective Item has been shipped to or is installed at an Applied
            customer location.

                  (ii) When Applied effects repair, replacement or correction of
            a Defective Item under this Section 7.2.2(d), Applied shall be
            entitled to recover, and Supplier shall pay to Applied each of the
            following that applies:

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                  1. The cost of goods obtained or used by Applied to make the
                  repair, replacement or correction of the Defective Item, and
                  of any necessary engineering or similar services relating to
                  such goods.

                  2. The cost of freight or shipping and of taxes for the goods
                  obtained for the repair, replacement or correction, and for
                  the return of any Defective Item(s).

                  3. The cost of labor required to remove, repair, replace and
                  reinstall a Defective Item (if repaired) and remove and
                  reinstall other Piece Parts necessary to the repair,
                  correction or replacement.

            Costs of labor shall be determined at Applied's then standard labor
            rates; if labor is provided at facilities of Applied's customers or
            through the Applied CPS organization, the labor charge by Applied to
            Supplier shall be equal to the field service labor charge calculated
            at Applied's CPS rates (not to exceed *). Costs of engineering
            services shall be determined by Applied at its customary rates, then
            in effect, not to exceed *. This Section 7.2.2(d) shall not limit
            Applied's other remedies or recoveries provided for in (but subject
            to the limitations of) other provisions of this Agreement.

            (e) Prior to effecting replacement under paragraph (d) above of a
            Defective Item that is an FDS, Applied shall give notice of its
            intent to make such a replacement, which notice shall be given to
            Supplier's Customer Service Manager in Austin or Milpitas, as
            appropriate, by e-mail or facsimile transmission and by voice
            message (telephone, pager, or voice mail). The notice of intent to
            replace shall identify the Item(s) for which such replacement is
            intended, and shall specify the Replacement Period (defined below).
            Within 24 hours (measured during Business Days and under prevailing
            Pacific Time) from the time notice is so given, Supplier shall
            notify Applied (in the same manner as provided for the notice to
            Supplier) by e-mail or facsimile notice to the Supply Account Team
            Lead specified in Section 1.2.1 if Supplier will replace the Item(s)
            within the Replacement Period or if Supplier declines to proceed. If
            Supplier elects to replace such Item(s), Supplier shall replace such
            Item(s) on or before the expiration of the Replacement Period. The
            "Replacement Period" is that period which is reasonable under the
            circumstances for the Item(s), or equivalent(s), to be replaced (but
            not to exceed the period within which the Item(s), or equivalent(s),
            can be obtained from a source other than Supplier).

            (f) If Applied intends to cancel the Agreement as to more than the
            particular affected Item(s) through termination for default (which
            may be in part or in whole) as a result of Supplier's breach or
            default under this Section, Applied shall proceed in accordance with
            Article 25 of Exhibit 1 and the Business Review Process.

* Material has been omitted and filed separately with the Commission.

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            (g) If Applied makes a warranty claim with respect to an Item that
            has been modified or repaired, Applied shall include as part of the
            documentation of such claim the maintenance and service record
            relating to the modification or repair.

      7.2.3. Cumulative Remedies.

      The remedies of Applied and Supplier shall be cumulative, and no election
      of remedies shall occur.

      7.2.4. Remedies for Other Breach or Default.

            7.2.4.1. Subject to the exclusions provided in this Section 7.2.4 or
            provided in Article 25 of Exhibit 1 to this Agreement, if Supplier
            or Applied fails to comply with, observe or perform any term,
            provision or condition of this Agreement, or otherwise defaults
            under or breaches any term, provision or condition of this
            Agreement, the other party shall initiate the Business Review
            Process prior to proceeding to enforce or exercise its rights,
            remedies and actions available to it under this Agreement or under
            applicable law.

            7.2.4.2. The requirement in Section 7.2.4.1 of initiation of the
            Business Review Process shall not apply: (a) to the enforcement or
            exercise of equitable rights or remedies, and actions seeking
            equitable relief; or (b) to claims, matters, remedies, and actions
            that are provided for in Section 7.2.1 or Section 7.2.2 with respect
            to particular Item(s).

            7.2.4.3. If Supplier or Applied has failed to comply with, observe
            or perform, or otherwise has defaulted under or breached, any term,
            provision or condition of this Agreement, then (after any applicable
            period of notice or consultation applicable under this Agreement and
            after conclusion of the Business Review Process, where applicable)
            the other party may proceed to enforce or exercise its rights and
            remedies as provided under this Agreement or as provided by law or
            equity (subject to procedural requirements of this Agreement and,
            where applicable, to the limitations of Article 21 of Exhibit 1 to
            this Agreement), all as it may elect, concurrently and in the
            alternative, without waiver or election by the pursuit of any one or
            more right, remedy or action.

            7.2.4.4. In this Agreement, the phrase "term, provision or
            condition" shall include any term, provision, condition, covenant,
            agreement, representation, warranty, obligation, indemnity,
            undertaking, requirement, or other part of this Agreement or of
            another indicated agreement, and such phrase shall be so construed
            unless the context clearly requires otherwise.

      7.2.5 Business Review Process.

            7.2.5.1. With respect to any dispute, issue, controversy or claim of
            breach arising under this Agreement (a "Dispute"), either party may
            initiate the process described in this Section 7.2.5 (the "Business
            Review Process") to seek resolution of the Dispute. Except as
            specifically provided to the contrary in this Agreement,

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CONFIDENTIAL TREATMENT REQUESTED

            compliance with the Business Review Process is not a condition or
            requirement to the exercise of any legal remedies or proceedings, to
            the exercise of rights or remedies provided by or under this
            Agreement, or to other action by a person.

            7.2.5.2. The Business Review Process is initiated by a Notice from
            Applied or Kinetics to the other of a Dispute, which notice shall be
            given under Section 1.2.2, and a request for review of the Dispute
            under the Business Review Process. Upon such Notice and request,
            Applied shall designate a representative at its director level or
            higher, and Kinetics shall designate a representative at its
            director level or higher, to constitute their representatives for
            this Business Review Process. These representatives shall promptly
            confer and use commercially reasonable efforts in good faith to
            resolve the Dispute. The Business Review Process shall continue for
            twenty (20) Business Days after the date on which the party
            initiating the process designates its representative, unless
            otherwise agreed by the two representatives. If the Dispute is not
            resolved through the Business Review Process or a party fails to
            comply with, perform or observe the terms for cure, correction or
            waiver of the breach, default or Dispute established through the
            Business Review Process, then all parties shall be free to pursue
            all rights, remedies and relief as may be available, without further
            application of the Business Review Process or other provision for
            cure or correction.

8.    AMENDMENTS AND MODIFICATIONS; CAPTIONS AND CONSTRUCTION; INTERPRETATION.

8.1   Amendments and Modifications.

Subject to Section 1.3 above, amendments or modifications to this Agreement must
be in writing, signed by a duly authorized representative for each of Supplier
and Applied, traced by revision or amendment numbers and attached to this
original Agreement. The master copy of this Agreement and any revisions are to
be maintained by Applied.

8.2   Captions and Construction.

Headings and captions in this Agreement are for the convenience of the parties
only and shall not affect the interpretation or construction of this Agreement.
The provisions of this Agreement (including Exhibits and Attachments) shall be
construed as a whole, each supplementing the other, except for instances of
conflict which shall be governed by Section 1.3.2.2 as to precedence. This
Agreement, including also any Purchase Order issued for Items, shall control
over any invoice, delivery ticket, or other document issued by Supplier.
References to a party's internal business organization shall refer to such
organization and successor organizations performing similar functions.

8.3   Interpretation.

Supplier and Applied have each participated fully in the negotiation and
preparation of this Agreement. Each party has engaged its own legal counsel and
has relied upon its own representatives, employees and counsel, and not the
other party or its counsel, in the negotiation and preparation of this
Agreement. The rule that a contract shall be construed against the party

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CONFIDENTIAL TREATMENT REQUESTED

drafting the agreement and statutes of like effect, including California Civil
Code Section 1654, shall not apply to the construction or interpretation of this
Agreement.

9.    PROVISIONS OF GENERAL APPLICATION.

9.1.  Independent Contractor.

Throughout the term of this Agreement, the relationship between Applied and
Supplier shall be that of independent contractors. Nothing set forth herein or
in any Related Agreement shall be deemed or construed to render the parties
joint venturers, partners, or employer and employee, and under no circumstances
may either party hold itself out to be a partner, employee, franchisee,
representative, servant or agent of the other party. Neither party is authorized
to make any commitment or representation on the other's behalf. Neither party
may create any obligations or responsibilities on behalf of or in the name of
the other party. Throughout the term of this Agreement, if the term
"partnership," "partner," or "development partner" or the like is used to
describe the parties' relationship, Applied and Supplier agree to make it clear
to third parties that these terms refer only to the spirit of cooperation
between them and neither describe, nor expressly or implicitly create, the legal
status of partners or joint venturers. Each party also agrees not to make false
or misleading statements, claims or representations about the other party, its
products or the relationship of the parties.

9.2.  No Third Party Beneficiary.

Each and all of the agreements, covenants, obligations, duties, conditions,
terms, warranties, representations and benefits in or arising under this
Agreement, whether express or implied by law, are and shall be solely for the
benefit of the parties to this Agreement and the respective permitted
successors, assigns, and legal representatives of each party hereto. It is the
express intention and agreement of Applied and Supplier that no entity not a
party to this Agreement (including any customer of Applied) shall be or shall be
deemed a third-party beneficiary of this Agreement, or of any of its agreements,
covenants, obligations, duties, conditions, terms, warranties, representations
and benefits.

9.3.  Severability.

Any provision or provisions of this Agreement or of any Related Agreement that
are determined by a final judgment or order of a court of competent jurisdiction
to be invalid or unenforceable in any jurisdiction or as to any person or
circumstance shall be reformed, as permitted by law, so as to be valid and
enforceable, and, if (or to the extent) not so reformed, shall be severed, and
the remainder of the affected agreement or agreements shall continue in effect
and be enforced, construed and applied without such severed provision(s).

9.4   Waiver.

Any provision, right, remedy or requirement of this Agreement may be waived by
the party entitled to the benefit thereof by written waiver, signed by such
party. A waiver so made or given shall extend only to the specific matter or
event, and shall be effective only to the extent, specifically provided for in
such waiver. A waiver of any breach or default under this Agreement shall not be
construed as a continued waiver of other breaches of the same, or of any

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CONFIDENTIAL TREATMENT REQUESTED

other, provision of this Agreement, nor as a bar to, or waiver of, any right or
remedy as to any subsequent event, occurrence, default or breach. Except as
provided above as to written waivers, no act, omission, or course of conduct or
of performance shall be deemed to constitute a waiver hereunder. In furtherance
of the preceding provision, if Applied or Supplier delays or fails to insist on
strict performance of any of the terms, conditions, provisions, requirements,
covenants or obligations set forth in this Agreement, such delay or failure
shall not constitute a waiver.

9.5.  Successors and Assigns.

This Agreement shall be binding upon, and shall inure to the benefit of, each
party and its respective permitted successors and assigns.

9.6.  Execution.

This Agreement may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed an original, and such counterparts
shall constitute one and the same instrument. Each Party shall receive a
duplicate original of the counterpart copy or copies executed by it. For
purposes hereof, a facsimile copy of this Agreement, including the signature
pages hereto, shall be deemed to be an original. Notwithstanding the foregoing,
the Parties shall deliver original execution copies of this Agreement to one
another as soon as practicable following execution thereof.

10.   REPRESENTATIONS AND WARRANTIES OF THE PARTIES.

Each party (the "Warranting Party") warrants and represents to the other party
that:

      (a) the Warranting Party is a corporation duly incorporated, validly
      existing and in good standing under the laws of the jurisdiction in which
      it is organized, with full corporate power and authority to carry on its
      business as it is now being conducted;

      (b) the Warranting Party has full power and corporate authority to enter
      into this Agreement;

      (c) the execution, delivery and performance of this Agreement has been
      duly authorized by the Warranting Party, and does not and will not violate
      any other agreement, any provision of the charter or organizational
      documents of the Warranting Party or any applicable law, regulation,
      decree, judgment or order of any regulatory government agency or any court
      of competent jurisdiction, which violation would have a material adverse
      effect on the Warranting Party;

      (d) except as provided herein, the Warranting Party will not enter into
      any agreement, the execution and/or performance of which violates any term
      of this Agreement;

      (e) the Warranting Party is not a party to any agreement calling for the
      payment to, or receipt from, any third party by the Warranting Party of
      any commission, gratuity, or other similar thing or amount in
      consideration of the other party's entry into this Agreement;

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CONFIDENTIAL TREATMENT REQUESTED

      (f) this Agreement has been duly executed and delivered by the Warranting
      Party and constitutes a valid and binding obligation of the Warranting
      Party, enforceable against the Warranting Party in accordance with its
      terms, except that such enforceability may be subject to bankruptcy,
      insolvency, reorganization, moratorium, or similar laws now or hereafter
      in effect relating to creditors' rights and to general equitable
      principles (whether enforcement is sought through legal or equitable
      proceedings).

11.   ACCEPTANCE AND EXECUTION.

This Agreement is executed and delivered by each of the undersigned parties,
acting through its officer or other representatives, duly authorized to act for
and on behalf of the indicated party, and is effective on and as of the
Effective Date.

Accepted:

Applied Materials, Inc.                      Kinetics Fluid Systems, Inc.

BY:    /s/ Paul Hohlstein                    BY:    /s/ Dan Rubin
   ------------------------------               ------------------------------

       Name:   Paul Hohlstein                       Name:   Dan Rubin
             --------------------                         --------------------

       Title:  Vice President                       Title:  President
             --------------------                         --------------------

       Date:   5/21/02                              Date:   5/21/02
             --------------------                         --------------------

                                       83
<PAGE>

                        LIST OF EXHIBITS AND ATTACHMENTS

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------
                                                     EXHIBITS
      -------------------------------------------------------------------------------------------------------
      Exhibit 1:  Applied's Standard Terms & Conditions
      -------------------------------------------------------------------------------------------------------
                                                                                            * INDICATES
                                                                                            ATTACHMENTS
                                                                                             THAT HAVE
                                        ATTACHMENTS                                         NOTIFICATION
                                                                                              REVISION
                                                                                             PROCESS ON
                                                                                              WEB SITE
<S>                                                                                         <C>
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
</TABLE>

* Material has been omitted and filed separately with the Commission.

                                       84
<PAGE>

<TABLE>
<S>                                                                                              <C>
      -------------------------------------------------------------------------------------------------------
      *                                                                                          *
      -------------------------------------------------------------------------------------------------------
      18. On-site Representative Agreement                                                       *
      -------------------------------------------------------------------------------------------------------
      19. Tooling Loan Agreement
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
      *
      -------------------------------------------------------------------------------------------------------
</TABLE>

      * UPDATES AND CURRENT VERSIONS OF THESE ATTACHMENTS ARE POSTED ON
      APPLIED'S WEBSITE WHICH IS AVAILABLE TO SUPPLIER FOR PURPOSES OF SECTION
      1.3.

* Material has been omitted and filed separately with the Commission.

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                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                             <C>
DEFINITIONS..................................................................................................... 1

1.       SCOPE.................................................................................................. 8

         1.1.     Description of Agreement...................................................................... 8

         1.2.     Addresses and Contact Persons; Notices........................................................ 8

                  1.2.1.   Contact Persons...................................................................... 8

                  1.2.2.   Notices..............................................................................10

         1.3.     Entire Agreement; Related Agreements; Modification; Prior Transactions........................11

                  1.3.1.   Certain Related Agreements...........................................................11

                  1.3.2.   Entire Agreement.....................................................................12

                  1.3.3.   Provisions Continuing in Effect......................................................13

                  1.3.4.   Modification.........................................................................14

         1.4.     Items Covered.................................................................................14

         1.5.     Duration of Agreement.........................................................................15

2.       LOGISTICS, ORDERING AND OPERATIONAL FRAMEWORK..........................................................15

         2.1.     Operation and Management of Orders............................................................15

                  2.1.1.   Operating Calendar & Holidays........................................................15

                  2.1.2.   Monthly Volume Summaries.............................................................15

                  2.1.3.   Manufacture and Delivery.............................................................16

                  2.1.4.   Change in Delivery Date..............................................................16

                  2.1.5.   Orders for Items.....................................................................17

                  2.1.6.   Electronic Commerce..................................................................26

                  2.1.7.   Pro Forma............................................................................27

         2.2.     Definition of Terms for Certain Provisions Affecting Prices or Charges........................28

         2.3.     Cancellation of Items.........................................................................30

                  2.3.1.   Items Subject to Cancellation........................................................30

                  2.3.2.   Deferral.............................................................................30

                  2.3.3.   Cancellation.........................................................................30

                  2.3.4.   Applicability; Payment...............................................................31

                  2.3.5.   Other Rights.........................................................................31

                  2.3.6.   Services.............................................................................31

         2.4.     Response Time, Turnaround and Implementation Time.............................................31

                  2.4.1.   Production Issues....................................................................31

                  2.4.2.   Turnaround and Implementation Time...................................................32

         2.5.     Capacity Planning and Flexibility Requirements................................................32
</TABLE>

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CONFIDENTIAL TREATMENT REQUESTED

<TABLE>
<S>                                                                                                             <C>
                  2.5.1.   Capacity Planning....................................................................32

                  2.5.2.   Flexibility..........................................................................33

                  2.5.3.   Acceptance; Delivery.................................................................33

         2.6.     On-Site Support Requirements..................................................................34

         2.7.     [Omitted].....................................................................................34

         2.8.     *.............................................................................................34

                  2.8.1.   Modifications and *s.................................................................34

                  2.8.2.   Scope of *s..........................................................................34

                  2.8.3.   Charges for *s.......................................................................35

         2.9.     Information...................................................................................35

                  2.9.1.   Applied Internal Databases...........................................................35

                  2.9.2.   Applied New Product Plans............................................................39

                  2.9.3.   Compliance with Securities Laws......................................................39

         2.10.    Packaging and Transportation..................................................................40

                  2.10.1.  Packaging and Shipment...............................................................40

                  2.10.2.  Bar Coding...........................................................................40

                  2.10.3.  Transportation Requirements..........................................................40

         2.11.    Payment.......................................................................................41

                  2.11.1.  Invoices; Certain Acceptance Terms...................................................41

                  2.11.2.  *....................................................................................43

                  2.11.3.  Offsets, Debits......................................................................44

                  2.11.4.  Effect of Payment....................................................................44

                  2.11.5.  Reconciliation of Payment Discrepancies..............................................44

         2.12.    Disaster Recovery Plan........................................................................44

         2.13.    Performance Constraints.......................................................................45

                  2.13.1.  Constraints..........................................................................45

         2.14.    Provisions for Reconfiguration or Restocking..................................................45

                  2.14.1.  "Affected Items."....................................................................45

                  2.14.2.  Categories...........................................................................45

                  2.14.3.  "Relabel Items.".....................................................................46

                  2.14.4.  "Reconfigure Items.".................................................................46

                  2.14.5.  "Restock Items.".....................................................................49

                  2.14.6.  Restocking Process and Charges.......................................................49

                  2.14.7.  Provisions as to Restocked or Removed Parts..........................................50

                  2.14.8.  Processing and Payments..............................................................51
</TABLE>

* Material has been omitted and filed separately with the Commission.

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<TABLE>
<S>                                                                                                             <C>
3.       PRICING FRAMEWORK......................................................................................51

         3.1.     Contract Prices...............................................................................51

                  3.1.1.   Pricing and Cost Model of Attachment 1...............................................51

                  3.1.2.   Application of Prices................................................................52

                  3.1.3.   Pricing Model........................................................................52

                  3.1.4.   Further Agreements as to Pricing.....................................................53

                  3.1.5.   * Terms..............................................................................53

                  3.1.6.   Adjustment for *.....................................................................57

         3.2.     Volume........................................................................................58

         3.3.     Export........................................................................................58

         3.4.     Currency......................................................................................58

4.       TECHNICAL FRAMEWORK....................................................................................59

         4.1.     Engineering Change Orders.....................................................................59

                  4.1.1.   ECO Procedures.......................................................................59

         4.2.     Tooling.......................................................................................60

                  4.2.1.   General Tooling Provisions...........................................................60

                  4.2.2.   Current FDS Test Fixtures............................................................61

                  4.2.3.   Future FDS Test Fixtures.............................................................62

                  4.2.4.   General Application..................................................................64

         4.3.     Design Changes and Resolution.................................................................65

         4.4.     Process Changes and Resolution................................................................65

         4.5.     QRD and Special Process Requirements..........................................................65

                  4.5.1    Critical and Source Specific Materials...............................................65

                  4.5.2    Supplier's Subcontractors............................................................65

                  4.5.3.   Costs of Supplier Change.............................................................66

                  4.5.4.   Waivers..............................................................................66

         4.6.     First Articles and Source Inspections.........................................................66

         4.7.     Applied's Right to Subcontract................................................................66

         4.8.     Product Support...............................................................................66

                  4.8.1.   Global Technical Support and Product Support.........................................66

                  4.8.2.   Product Support Period...............................................................67

                  4.8.3.   Product Post Term Support Options....................................................67

         4.9.     Periodic Business Review......................................................................68

         4.10.    [Omitted].....................................................................................68

         4.11.    Wind Down Provisions..........................................................................68
</TABLE>

* Material has been omitted and filed separately with the Commission.

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<TABLE>
<S>                                                                                                             <C>
5.       NONCONFORMANCE.........................................................................................70

         5.1.     Nonconformance and Corrective Action..........................................................70

                  5.1.1.   [Omitted.]...........................................................................70

                  5.1.2.   Supplier Corrective Action Request...................................................70

         5.2.     Applied Nonconformance and Corrective Action..................................................70

                  5.2.1.   Items Affected.......................................................................70

                  5.2.2.   Standard Repair Costs................................................................71

                  5.2.3.   Time for Repair......................................................................71

                  5.2.4.   Return of Items......................................................................71

6.       SUPPLIER PERFORMANCE PLAN..............................................................................71

7.       WARRANTIES AND REMEDIES................................................................................72

         7.1.     Supplier Warranty.............................................................................72

                  7.1.1.   Basic Warranty.......................................................................72

                  7.1.2.   Services.............................................................................73

                  7.1.3.   Warranty Period......................................................................73

                  7.1.4.   Limitations on Warranty..............................................................73

                  7.1.5.   Third Party OEM Components...........................................................74

                  7.1.6.   Debit Recoveries.....................................................................75

                  7.1.7.   Survival of Warranties...............................................................76

         7.2.     Applied's Remedies............................................................................76

                  7.2.1.   Failure to Deliver...................................................................76

                  7.2.2    Defective Items......................................................................77

                  7.2.3.   Cumulative Remedies..................................................................79

                  7.2.4.   Remedies for Other Breach or Default.................................................80

                  7.2.5    Business Review Process..............................................................80

8.       AMENDMENTS AND MODIFICATIONS; CAPTIONS AND CONSTRUCTION; INTERPRETATION................................81

         8.1      Amendments and Modifications..................................................................81

         8.2      Captions and Construction.....................................................................81

         8.3      Interpretation................................................................................81

9.       PROVISIONS OF GENERAL APPLICATION......................................................................81

         9.1.     Independent Contractor........................................................................81

         9.2.     No Third Party Beneficiary....................................................................82

         9.3.     Severability..................................................................................82

         9.4      Waiver........................................................................................82

         9.5.     Successors and Assigns........................................................................83

         9.6.     Execution.....................................................................................83
</TABLE>

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<TABLE>
<S>                                                                                                             <C>
10.      REPRESENTATIONS AND WARRANTIES OF THE PARTIES..........................................................83

11.      ACCEPTANCE AND EXECUTION...............................................................................84
</TABLE>

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CONFIDENTIAL TREATMENT REQUESTED

APPLIED MATERIALS CONFIDENTIAL

EXHIBIT 1
APPLIED MATERIALS STANDARD TERMS AND CONDITIONS OF PURCHASE
Table of Contents

<TABLE>
<S>                                                                                                             <C>
1.       ACCEPTANCE............................................................................................. 1

2.       CONFIDENTIAL INFORMATION............................................................................... 1

3.       INTELLECTUAL PROPERTY RIGHTS AND OWNERSHIP THEREOF..................................................... 1

4.       [OMITTED].............................................................................................. 1

5.       PRESS RELEASES/PUBLIC DISCLOSURE NOT AUTHORIZED........................................................ 1

6.       PRICING................................................................................................ 2

7.       DUTY DRAWBACK AND COUNTRY OF MANUFACTURE............................................................... 3

8.       OZONE DEPLETING CHEMICAL ("ODC")....................................................................... 3

9.       COMPLIANCE WITH LAWS................................................................................... 4

10.      EQUAL EMPLOYMENT OPPORTUNITY........................................................................... 4

11.      APPLICABLE LAW, CONSENT TO JURISDICTION AND VENUE...................................................... 4

12.      NOTICE OF LABOR DISPUTES............................................................................... 5

13.      TAXES.................................................................................................. 5

14.      [OMITTED].............................................................................................. 5

15.      INSURANCE.............................................................................................. 5

16.      CERTAIN EVENTS AND NOTICES; FINANCIAL INFORMATION...................................................... 6

17.      ASSIGNMENT AND SUCCESSION..............................................................................11

18.      GRATUITIES.............................................................................................14

19.      [OMITTED]..............................................................................................14

20.      [OMITTED]..............................................................................................14

21.      DISCLAIMERS AND LIMITATIONS OF LIABILITY AS TO EXCLUDED DAMAGES........................................14

22.      INDEMNITY..............................................................................................15

23.      FORCE MAJEURE..........................................................................................18

24.      CHANGES................................................................................................18

25.      TERMINATION FOR DEFAULT; OTHER REMEDIES................................................................19

26.      TERMINATION FOR CONVENIENCE............................................................................22

27.      POST-TERMINATION OBLIGATIONS...........................................................................24
</TABLE>

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Exhibit 1

APPLIED MATERIALS STANDARD TERMS AND CONDITIONS OF PURCHASE

1.    Acceptance.

      The terms and conditions stated in these Applied Materials Standard Terms
and Conditions of Purchase are an integral part of the Global Supply Agreement
between the parties to which this Exhibit 1 is attached ("Agreement") and which
covers the purchase of Items, as defined in such Agreement. Defined terms used
herein shall have the meanings ascribed to them in other provisions of the
Agreement unless otherwise defined in this Exhibit 1. Additional or different
terms or conditions of purchase will not be applicable unless accepted in
writing by a duly authorized representative of each of Supplier and Applied.

2.    Confidential Information.

      (a) Supplier and Applied, respectively, will comply with each NDA executed
by Supplier or Applied, as applicable, with or for the benefit of the other,
whether now or hereafter in effect; subject, however, to the provisions of the
Agreement as to priority among conflicting agreements.

      (b) The obligations of the parties with respect to Confidential
Information under and for purposes of the Agreement are governed by the IPA.
Such obligations include those arising pursuant to Sections 2.9.1.1.D and 2.9.2
of the Agreement and Article 5(a) of this Exhibit 1.

3.    Intellectual Property Rights and Ownership Thereof.

      Rights of the parties in, ownership of, and other matters relating to
intellectual property under and for purposes of the Agreement shall be governed
by the IPA.

4.    [Omitted]

5.    Press Releases/Public Disclosure Not Authorized.

      (a) The Agreement and Related Agreements contain Confidential Information
of Applied and Supplier, and such Confidential Information is protected as set
out in the IPA. As part of their respective obligations under the IPA as to
Confidential Information, neither Supplier nor Applied shall disclose to any
third party, including any governmental authority, or publicly release the terms
of the Agreement or of any Related Agreement without the prior written approval
of the other party; provided, however, that subject to its compliance with this
Article 5(a), either party may make any public disclosure (which shall include
disclosure in the course of litigation, as well as under other applicable law,
rule or regulation) it believes in good faith that it is required to make by
applicable law, rule or regulation. The disclosing party: shall notify the other
party in advance of such a disclosure or release; shall take commercially
reasonable efforts (at least equal to the efforts such party takes to protect
the confidentiality of its own information) to protect the confidentiality of
the Confidential Information of the other party in the Agreement, which shall
include deleting the financial terms and other Confidential Information of the
other party in the Agreement from (or requesting such deletion or equivalent
protection or confidential

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treatment where approval by a court or governmental authority is required)
disclosure or public release when permitted by applicable law, rule or
regulation. Section 4.1(v) of the IPA may also apply in regard to disclosures.

      (b) Further, and without limiting the foregoing provision, Supplier and
Applied, respectively, will not, without the prior written approval of the
other, issue any press release, advertising, publicity or public statement or in
any way engage in any other form of public disclosure that indicates the
relationship of the parties (except for disclosures as may be made under, and in
compliance with, requirements applicable under Article 5(a) and disclosure of
the existence of the Agreement), or implies any endorsement by Applied of
Supplier or Supplier's products or services.

      (c) Any requests or notices under this Article 5 must be made in writing
and submitted to the person(s) designated to receive notices under Section 1.2.2
of the Agreement.

6.    Pricing.

      (a) *

      (b) In no event shall Supplier quote, or shall Applied receive, prices
that would be unlawfully discriminatory under any applicable law. *

      (c) A "Covered Product" is a good sold by Supplier (i) that is not an *
form, fit and function to an Item under this Agreement.

7.    Duty Drawback and Country of Manufacture.

      (a) Duty Drawback

      Supplier will provide Applied, or any agent designated by Applied for this
purpose, with all U.S. Customs entry and shipment data concerning applicable
Items that Applied determines is necessary for Applied to qualify for duty
drawback ("Duty Drawback Information"). Such data shall include information and
receipts for duties paid, directly or indirectly, on all Items that are either
imported or contain imported Piece Parts. Such data shall further include serial
numbers, unique part numbers, lot numbers and any other data that will assist
Applied in identifying imported Items sold to Applied. This data will be
provided to Applied within thirty (30) days after the end of each calendar
quarter and shall be accompanied by a completed Certificate of Delivery of
Imported Merchandise or Certificate of Manufacture and Delivery of Imported
Merchandise (Customs Form 331) as promulgated pursuant to U. S. 19 CFR 191.

      (b) Country of Manufacture

      Supplier shall provide Applied with country of manufacture data for each
Item Supplier provides to Applied. This data shall identify each Item by Applied
part number and shall list the corresponding country of manufacture for the
Item. This data shall be provided to Applied

* Material has been omitted and filed separately with the Commission.

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within fifteen (15) days after the end of each month and as requested by
Applied. If Supplier is a United States manufacturer of any Item supplied to
Applied, as defined by United States Customs regulations, Supplier shall, on an
annual basis and in accordance with Applied's written instructions, provide
Applied with a signed manufacturer's affidavit.

      (c) All information to be provided to Applied under this Article 7 shall
be sent to the attention of:

            Manager, Customs Compliance
            Applied Materials
            2881 Scott Blvd.
            M/S 2041
            Santa Clara, CA  95050

            or any agent designated by Applied in writing to Supplier.

8.    Ozone Depleting Chemical ("ODC").

      In the event that the Items are manufactured with or contain Class I ODCs,
as defined under Section 602 of the Federal Clean Air Act (42 USC Section 7671a)
and implementing regulations, or if Supplier believes that such a condition
exists with respect to any one or more Items, Supplier shall notify Applied
prior to performing any further work with respect to such Items pursuant to the
Agreement. Applied shall have the right to: (a) terminate the Agreement as to
such Items, upon notice and without penalty, and without application of the
termination procedures of Articles 25 and 26; and, in addition, (b) return any
and all Items delivered that are found to contain or have been manufactured with
Class I ODCs. Supplier shall pay (or if already paid by Applied, then reimburse
Applied for) all costs of shipping, special handling, and returning, for labor
to remove and replace, and for the purchase price paid by Applied as to such
Items.

9.    Compliance With Laws.

      Supplier represents and warrants that no law, rule or ordinance of the
United States, any state, any other governmental agency, or any country has been
or will be violated in manufacturing or supplying the Items purchased, or to be
purchased, under the Agreement.

10.   Equal Employment Opportunity.

      Supplier represents and warrants that it is in compliance with Executive
Order 11246, any amending or supplementing Executive Orders and implementing
regulations, unless exempted.

11.   Applicable Law, Consent to Jurisdiction and Venue.

      (a) THE AGREEMENT SHALL BE GOVERNED BY, SUBJECT TO, AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, EXCLUDING
CONFLICTS OF LAW RULES. THE PARTIES AGREE THAT ANY SUIT ARISING OUT OF THE
AGREEMENT FOR ANY CLAIM OR CAUSE OF ACTION, WHETHER IN CONTRACT, IN TORT,
STATUTORY, AT LAW OR IN EQUITY, SHALL EXCLUSIVELY BE

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BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA, THE SUPERIOR COURTS OF SANTA CLARA COUNTY, CALIFORNIA, THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS, AUSTIN DIVISION, OR THE
TEXAS STATE DISTRICT COURTS OF TRAVIS COUNTY, TEXAS, PROVIDED THAT SUCH COURT
HAS JURISDICTION OVER THE SUBJECT MATTER OF THE ACTION. EACH PARTY AGREES THAT
EACH OF THE NAMED COURTS SHALL HAVE PERSONAL JURISDICTION OVER IT AND CONSENTS
TO SUCH JURISDICTION. EACH PARTY FURTHER AGREES THAT VENUE OF ANY SUIT ARISING
OUT OF THE AGREEMENT IS PROPER AND APPROPRIATE IN ANY OF THE COURTS IDENTIFIED
ABOVE.

      (b) WITH RESPECT TO TRANSACTIONS TO WHICH THE 1980 UNITED NATIONS
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS WOULD OTHERWISE
APPLY, THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT, INCLUDING
THESE TERMS AND CONDITIONS, SHALL NOT BE GOVERNED BY THE PROVISIONS OF THE 1980
UNITED NATIONS CONVENTION OF CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
APPLICABLE LAWS OF THE STATE OF CALIFORNIA, INCLUDING THE UNIFORM COMMERCIAL
CODE AS ADOPTED THEREIN (BUT EXCLUSIVE OF SUCH 1980 UNITED NATIONS CONVENTION),
SHALL GOVERN THE AGREEMENT AND ALL TRANSACTIONS RELATED TO THE AGREEMENT (EXCEPT
TO THE EXTENT THE PROVISIONS OF SUCH APPLICABLE LAWS HAVE BEEN MODIFIED OR
SUPERSEDED BY EXPRESS PROVISIONS OF THIS AGREEMENT).

12.   Notice of Labor Disputes.

      Whenever an actual or potential labor dispute, or any government embargo
or regulatory or tribunal proceedings relating thereto, is delaying or threatens
to delay the timely performance of the Agreement, Supplier will immediately
notify Applied of such dispute and furnish all relevant details, regardless of
whether said dispute arose directly or indirectly as a result of an actual or
potential dispute within the Supplier's sub-tier supply base or Supplier's own
operations.

13.   Taxes.

      (a) Supplier shall not charge or collect sales or use tax for Items for
which an applicable sales and use tax exemption or resale certificate is
provided by Applied. For all other Items, Supplier will include all applicable
federal, state, and local taxes, where applicable, on Supplier's invoices, or
(when payment is made under Applied's ERS Program) in Pro Formas, stated as a
separate item.

      (b) Supplier may request from Applied information or documentation of
facts relating to Supplier's periodic application for property tax abatement or
tax reduction under rules regarding a "Texas Freeport Exemption"; Applied will
provide reasonable cooperation and assistance to Supplier in responding to
requests by Supplier for this purpose through provision of information or
completion of documentation to support Supplier's application(s) for such tax
benefits.

14.   [Omitted]

15.   Insurance.

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CONFIDENTIAL TREATMENT REQUESTED

      (a) Supplier shall maintain (i) comprehensive general liability insurance
covering bodily injury, property damage, contractual liability, products
liability and completed operations, (ii) Worker's Compensation and employer's
liability insurance, and (iii) auto insurance, all in such amounts as are
necessary to insure against the risks to Supplier's operations.

      (b) *, Supplier will obtain and keep in force, insurance of the types
and in the amounts set forth below:

        Insurance                                     *

        Worker's Compensation                         *
        Employer's Liability                          *
        Automobile Liability                          *  per occurrence
        Comprehensive General Liability
        (including Products Liability)                *  per occurrence
        Umbrella/Excess Liability                     *  per occurrence

      All policies must be primary and non-contributing and shall include
Applied as an additional insured. Supplier will require, and will use
commercially reasonable efforts to verify, that each of its subcontractors
carries at least the same insurance coverage and minimum limits of insurance as
Supplier is required to carry pursuant to the Agreement. Supplier shall notify
Applied at least thirty (30) days prior to the cancellation or implementation of
any material change in the foregoing policy coverage that would affect Applied's
interests. Upon request, Supplier shall furnish to Applied as evidence of
insurance a certificate of insurance stating that the coverage would not be
canceled or materially altered without thirty (30) days prior notice to Applied
or, as to cancellation for failure to pay premiums, without ten (10) days prior
notice to Applied.

16.   Certain Events and Notices; Financial Information.

      16.1  Certain Events and Notices.

      (a) As used in this Exhibit 1, a "Notice Event" means any of the
following: (i) a change in the person or persons with power to direct, or to
cause the direction of, management or policies of Supplier or of any Guarantor;
(ii) a change, however such occurs (including, by way of example, sale,
purchase, merger, or business combination), in the ownership of capital stock of
Supplier or of any Guarantor for which notice is to be given under Article
16.1(b) below; (iii) a sale or disposition of all or substantially all of the
assets of Supplier, or sale or disposition of a line of business of Supplier or
of all or substantially all of the assets of Supplier relating to or used in a
line of business, whether or not the Agreement is assigned; or (iv) a sale or
disposition of all or substantially all of the assets of a Guarantor, or a sale
or disposition of a line of business of a Guarantor or of all or substantially
all the assets of a Guarantor relating to or used in a line

* Material has been omitted and filed separately with the Commission.

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of business, which sale or disposition results in (or will result in) a material
change in the nature of the business of such Guarantor or in a material adverse
change in the financial condition of the Guarantors as a whole.

      (1)   A Notice Event may result from a single transaction or from a series
            of related transactions. Transactions with a single person, with a
            group of persons covered by Section 13(d)(3) of the Securities
            Exchange Act of 1934 (the "Exchange Act"), or with persons under
            common control shall be considered a single transaction.

      (2)   A "Public Offering Event" is the issuance by Supplier or any
            Guarantor of capital stock to the public in an underwritten public
            offering of capital stock registered pursuant to a registration
            statement on Form S-1 with the federal Securities and Exchange
            Commission.

      (b) Supplier shall provide (and shall cause an affected Guarantor to
provide) notice to Applied in accordance with Section 1.2.2 of the Agreement as
to matters provided for by this Section 16.1(b).

      (1)   If a Notice Event will result from a transaction to which Supplier
            or any Guarantor is a party, Supplier shall give (and shall cause
            the affected Guarantor to give) notice to Applied, in accordance
            with Section 1.2.2 of the Agreement, (i) except when such notice
            would violate applicable securities laws or regulations or another
            obligation of confidentiality, (x) at least five (5) Business Days
            prior to the date of actual public disclosure of the transaction or,
            if earlier, the date such public disclosure should have been made if
            Supplier or the affected Guarantor, as applicable, were a company
            with publicly traded securities, but (y) in any event no later than
            twenty-one (21) calendar days prior to the closing or consummation
            of such transaction, and (ii) of the consummation or closing of such
            transaction, at the time of such closing or consummation. The Notice
            Event shall not occur, however, until the closing or consummation of
            the transaction(s) or event(s) that cause or will result in the
            Notice Event. If the giving of notice to Applied under this Article
            16.1(b)(1) is restricted by an obligation of confidentiality,
            Supplier (or such Guarantor) shall make a good faith effort to
            obtain approval or consent to give the notice provided for in this
            Article 16.1(b)(1).

      (2)   If securities of Supplier or any Guarantor are or are to be the
            subject of a Public Offering Event, Supplier shall give (and shall
            cause an affected Guarantor to give) Applied notice of (and
            concurrently with) each of the following: the filing of a
            registration statement with respect to any such securities; and a
            registration statement becoming effective as to any securities of
            Supplier or any Guarantor.

      (3)   Supplier shall, in addition to notices provided for in Article
            16.1(b)(1) and (2), give (and shall cause an affected Guarantor to
            give) notice to Applied in accordance with Section 1.2.2 of the
            Agreement of each of the following events, occurrences or
            transactions, each of which is a Notice Event:

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CONFIDENTIAL TREATMENT REQUESTED

                  (i) Notice shall be given promptly upon the occurrence of any
            Notice Event of a type covered by Article 16.1(a)(i), (iii) or (iv)
            above.

                  (ii) If Supplier or a Guarantor does not have capital stock
            registered with the federal Securities and Exchange Commission, a
            Notice Event occurs upon, and the affected company shall give
            Applied notice promptly upon (a) the acquisition of ownership of ten
            percent (10%) or more of the outstanding capital stock of such
            company by any person that is a Competitor (as defined below) of
            Applied, and also promptly upon (b) the acquisition of ownership of
            twenty-five percent (25%) or more of the outstanding capital stock
            of such company by any person, whether or not a Competitor of
            Applied.

                  (iii) If any class of capital stock of Supplier or any
            Guarantor is registered with the federal Securities and Exchange
            Commission, a Notice Event occurs (with respect to the company
            having registered stock) upon, and the affected company shall give
            Applied notice promptly upon, (a) the acquisition of ownership of
            five percent (5%) or more of the outstanding capital stock of each
            such a class by a person that is a Competitor of Applied in a
            transaction to which Supplier, any Guarantor, or any Affiliate of
            Supplier or a Guarantor is a party, and (b) (x) receipt of a
            Schedule 13D pursuant to the Exchange Act, or (y) Supplier or any
            Guarantor having actual knowledge of, any acquisition of ownership
            of five percent (5%) or more of the outstanding capital stock of
            such a registered class. Notice under this clause (b) shall be given
            (where notice is received by Supplier or the affected Guarantor
            through the receipt of a Schedule 13D) by forwarding a copy of such
            schedule to Applied.

                  (iv) If any capital stock of any class of Supplier or any
            Guarantor is registered with the federal Securities and Exchange
            Commission, the affected company shall give Applied notice of the
            occurrence of any event reportable pursuant to Item 1 of Form 8-K as
            in effect pursuant to the Exchange Act by notice given concurrently
            with filing of the report or announcement of such event.

      (c)   The following provisions and definitions are part of this Article
            16.1:

      (1)   In addition to notices provided for above, Supplier shall give (and
            shall cause each Guarantor to give) to Applied, on the 15th day of
            each January and July during the term of this Agreement, a schedule
            showing the name of each owner of five percent (5%) or more of the
            ownership of capital stock of Supplier or any Guarantor as of
            January 1 and July 1 of such year. This requirement shall apply only
            to those companies that do not have publicly traded securities.

      (2)   In compliance with the confidentiality obligations of the IPA,
            Supplier shall not provide Confidential Information of, or received
            from, Applied to any third party in connection with a Notice Event
            or the negotiation or evaluation of same, without Applied's prior
            written consent (and upon such conditions as Applied may require).
            Information received by Applied from Supplier or a Guarantor
            pursuant to Article 16.1(b) and Article 16.1(c)(1) shall be deemed
            Confidential

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CONFIDENTIAL TREATMENT REQUESTED

            Information of Supplier under Article 4 of the IPA, subject to the
            exclusions of Section 4.1 of the IPA.

      (3)   References to "capital stock" shall include any equity interest,
            ownership interest or like right or interest, such as interests of
            members in a limited liability company. References to "ownership"
            shall include legal or beneficial ownership or the right to vote.

      (4)   A "Competitor" of Applied means (I) any person identified to
            Supplier by Applied as a competitor in any of the Fields of Use (as
            specified below) through written notice given in accordance with
            Section 1.2.2 of the Agreement, if Applied elects to provide such a
            notice or (II) any person that an executive officer of Supplier
            knows is a competitor of Applied in any Field of Use. The
            information in a notice from Applied under this Article
            16.1(c)(4)(I) is Confidential Information of Applied, subject to the
            exclusions of Section 4.1 of the IPA. The "Fields of Use" applicable
            to this definition of Competitor are the design, manufacturing and
            marketing of: (a) semiconductor wafer fabrication equipment, (b)
            wafer inspection and metrology equipment, (c) flat panel display
            fabrication equipment, (d) wafer fabrication factory control
            software, (e) toxics abatement or recycling equipment, or (f) thin
            film application processes.

      (5)   "Affiliate" means any person that directly or indirectly controls,
            is under common control with, or is controlled by, Supplier or any
            Guarantor.

      (6)   "Promptly" means, for purposes of this Article 16.1 only, not later
            than the third Business Day after the occurrence of the event or
            transaction for which notice is to be given.

      (7)   The following are excluded from "Notice Event":

      a)    The acquisition of ownership of capital stock by a person that, on
            the Effective Date, owns 5% or more of the outstanding capital stock
            of any class of Supplier or of the affected Guarantor, unless such
            acquisition constitutes or results in another Notice Event.

      b)    A change in corporate form of Supplier or a Guarantor that does not
            alter the ownership, management or control of the Supplier or
            Guarantor, such as conversion from a corporation to a limited
            liability company through a transaction in which ownership and
            control are maintained as such existed in a corporate form prior to
            the conversion.

      c)    A distribution of all outstanding capital stock of Supplier or KGI
            to the shareholders of KHC in proportion to their ownership in KHC.

      d)    A merger, consolidation or business combination of Supplier with or
            into, or a sale of all outstanding stock of Supplier to, another

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CONFIDENTIAL TREATMENT REQUESTED

            entity that is wholly owned (directly or indirectly) by KHC that
            does not cause or result in a material change in the nature of the
            business conducted by Supplier prior to such event or in a material
            adverse change in the management or operations of Supplier.

      e)    A merger, consolidation or business combination of KGI with or into,
            or a sale of all outstanding stock of KGI to, another entity that is
            wholly owned (directly or indirectly) by KHC that does not cause or
            result in a material change in the nature of the business conducted
            by KGI prior to such event or in a material adverse change in the
            financial condition of the Guarantors as a whole.

      16.2  Financial Information of Supplier and Guarantors.

      (a) Supplier will provide Applied with financial information, and shall
cause KHC to provide to Applied financial information, as follows: (i) within 90
days after the end of each fiscal year, and within 45 days after the end of each
fiscal quarter, financial statements for such year or period as to KHC, to
include the balance sheet, statement of income, and statement of cash flow (on a
consolidated basis with its subsidiaries) of KHC, such annual (but not
quarterly) financial statements to have been audited by independent certified
public accountants of recognized national standing; and (ii) from time to time
such additional financial information as Applied may reasonably request. All
financial statements of KHC shall be prepared on the basis of generally accepted
accounting principles in effect in the United States of America ("GAAP"),
consistently applied. Applied's request for financial information from Supplier
or from KHC to be provided through Applied's Form F-15 shall be deemed a
reasonable request under clause (ii) of this Article 16.2(a) when Applied has
determined that it requires information in addition to that contained in the KHC
financial statements referred to in Article 16.2(a)(i). Information on Form F-15
is not required to be presented in compliance with GAAP.

      (b) Supplier agrees to keep true, complete and accurate books and records,
of Supplier's costs and other information relevant to price and cost reduction
provisions of the Agreement and billings by Supplier to Applied under the
Agreement. Supplier will provide:

      (1)   upon request by Applied's Supply Chain Management organization or
            successor organization of Applied performing the functions of such
            organization ("SCM"), made on a case by case basis, a complete
            costed bill of materials for those FDS(s) delivered to Applied that
            are specified in the applicable request(s), to include detailed
            Piece Part costs at Supplier's Standard Cost of Materials, Current
            Average Cost of Materials, or other Piece Part price, in each case
            as applicable to the Piece Parts in such bill of materials, to be
            provided to Applied's SCM organization or to such other recipient at
            Applied as specifically identified in instructions given to Supplier
            by Applied's SCM through the Supply Account Team Lead;

      (2)   upon request by Applied's SCM, access to Supplier's books and
            records (at Supplier's facilities and during regular business hours)
            to determine the accuracy of Supplier's Piece Part prices charged to
            Applied and, as applicable, Supplier's

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            adjustments thereto under cost reduction provisions of the Agreement
            (including Sections 3.1.5 and 3.1.6); and

      (3)   copies of its books and records (or access to its books and
            records), upon request and upon reasonable notice, for review or
            audit during regular business hours (to include access to original
            records or data) to reconcile differences between the parties as to
            billings and payments. At the conclusion of a review or audit as to
            billing and payment differences, Applied shall provide to Supplier a
            report with reasonably detailed supporting information from
            Applied's books and records to support the conclusions reached with
            respect to such differences.

      (c) Upon mutual agreement of the parties after request by Applied, Applied
(or independent nationally recognized accountants designated by Applied and
reasonably acceptable to Supplier) shall have the right, at Applied's expense
and upon reasonable notice, to conduct audits of all of Supplier's books and
records and of any financial statements or other information provided by
Supplier. This Article 16.2(c) does not limit Applied's rights under Article
16.2(b).

17.   Assignment and Succession.

      (a) The Agreement shall be binding upon, and inure to the benefit of, each
of the parties and its respective successors and permitted assigns. Neither
Supplier nor Applied shall assign, transfer to or permit to vest in another
person the Agreement, or its rights, interests and obligations under the
Agreement, in whole or in part, whether voluntarily or by operation of law, (i)
without the express, prior written consent of the other party, or (ii) except as
permitted by the following provisions of this Article 17, as applicable.

      (b) Applied may assign the Agreement in whole or in part to any other
person(s), as follows:

      (i)   Assignment in whole or in part is permitted if Applied remains
            obligated, either primarily or equally with the assignee, for
            performance of the obligations assigned by Applied;

      (ii)  Assignment in whole or in part is permitted in connection with, or
            to effect, a change in manufacturing operations resulting from an
            agreement between Applied and a Subassembler under Section 4.7 of
            the Agreement, or to accomplish a change in manufacturing of any
            Applied Systems relating to such an agreement;

      (iii) Assignment in whole or in part is permitted in connection with, or
            to effect, a sale or transfer of assets used in manufacturing
            operations of Applied Systems, where such occurs to facilitate or as
            part of any bona fide change in the organization or structure of the
            manufacturing or integration of Applied Systems, which may include
            manufacture or integration by a third party, and which may be
            related to changes as to any product line(s), type(s) or model(s) of
            Applied System(s), line(s) of business of Applied, or geographic or
            other reorganization; or

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      (iv)  Assignment in whole or in part is permitted in connection with, or
            to effect, arrangements or agreements for outsourcing, contract,
            turnkey or similar manufacturing, or for modular build, of Applied
            Systems or assemblies or subassemblies, where such occurs to
            facilitate (or as part of) any bona fide change in the organization
            or structure of the manufacturing or integration of Applied Systems,
            which may include manufacture or integration by a third party, and
            which may be related to changes as to any product line(s), type(s)
            or model(s) of Applied System(s), line(s) of business of Applied, or
            geographic or other reorganization.

An assignee from Applied under an assignment made by Applied pursuant to this
Article 17(b) may not further assign, either in whole or in part, the Agreement
(or the portion of the Agreement assigned to the assignee) without the prior
written consent of Supplier to such subsequent assignment.

      (c) A transfer or vesting of the Agreement, and rights and obligations
hereunder, in whole but not in part, in another person in the event of or
incident to a merger, consolidation or business combination to which Applied is
a party shall be permitted.

      (d) Supplier may assign the Agreement, in whole or in part, to any other
person, and the Agreement may be transferred to, or vest in, another person, in
whole but not in part, by reason of a merger, consolidation or business
combination to which Supplier is a party, as follows:

      (i)   Assignment, in whole or in part, is permitted if, after notice from
            Supplier under Article 17(f), Applied (x) has determined, in the
            reasonable discretion of Applied, that: (A) such person is
            reasonably likely to qualify, or is then qualified, as a "preferred"
            supplier under the then-current standards of Applied, without
            prejudice to subsequent assessments during the term of the
            Agreement; (B) such person and the terms of the assignment do not
            present an adverse risk to Applied with respect to: manufacturing
            process, delivery cycle time, product pricing, quality, or financial
            responsibility or condition; (C) such person and the terms of the
            assignment do not present an adverse risk to Applied with respect to
            protection, confidentiality, misuse or misappropriation of, access
            to, or control over confidential or proprietary information, trade
            secrets and like property of Applied (or in which it has an
            interest); (D) such person and the terms of the Assignment do not
            present an adverse risk to Applied that a Competitor of Applied (or
            an Affiliate of such a Competitor (as the terms Competitor and
            Affiliate are defined in Article 16.1(c)) would be or become a party
            to, or in control of a party to, the Agreement or the Related
            Agreements; and (y) has issued its written consent based on such
            determination. In its assessment as to financial responsibility and
            condition under Clause B above, Applied may consider whether the
            Performance Guaranty Agreement will continue in effect as to the
            Agreement (or portion assigned).

      (ii)  Transfer or vesting, in whole but not in part, is permitted in the
            event of a merger, consolidation or business combination of Supplier
            with or into, or a sale of all

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CONFIDENTIAL TREATMENT REQUESTED

            outstanding stock of Supplier to, another entity that is wholly
            owned (directly or indirectly) by KHC, or as part of a transfer of a
            substantial part of the assets of Supplier to a third party that is
            wholly owned (directly or indirectly) by KHC, provided that a
            transaction under this Article 17(d)(ii) does not cause or result in
            a material change in the nature of the business conducted by
            Supplier prior to such transaction or a material adverse change in
            the management or operations of Supplier.

      (e) Any assignee or successor of Applied or Supplier shall also assume, be
bound by and be (or become) a party to and obligated under this Agreement, the
IPA and other Related Agreements (as such agreements are then in effect), either
in whole (if the permitted assignment or other transaction is as to the
Agreement in whole), or in part (if in part).

      (f) Each party shall endeavor to provide the other with prior written
notice and, if applicable, a request for consent with respect to a transaction
to which this Article 17 applies, and a brief description of the transaction and
of the assignee or transferee at least seventy-five (75) days before the closing
of such transaction. Further, each party shall give the other party, at least
fifteen (15) days prior to the closing of such a transaction, written notice of,
and, if applicable, a request for consent as to, any proposed or permitted
transaction to which this Article 17 applies and a brief description of the
transaction and of the assignee or transferee of such transaction, if not
previously provided. Failure to give such notice shall not, by itself, affect
the validity of such assignment or transfer as between the parties thereto.

      (g) In the event of, and to the extent of, an assignment, merger or other
transaction to which Supplier is a party with respect to the Agreement of a type
described in Article 17(d), Supplier shall maintain during the period prior to
the assignment, merger or such other transaction becoming effective the supply
of Item(s) without interruption or delay and without breach of other provision
of the Agreement. An assignment or transfer of this Agreement, or of obligations
hereunder, shall not apply to, or relieve an assigning or transferring party of,
the obligations, liabilities and debts accrued, incurred or existing at the date
of assignment or transfer or subsequently accruing, arising, or existing under
or in connection with transactions between the parties prior to such date, but
the assigning or transferring party shall remain primarily and directly
obligated and liable for such obligations, liabilities and debts.

      (h) Any assignment, merger or other transaction subject to this Article 17
that is not made in compliance with this Article 17, shall, at the option of the
party (Applied or Supplier, as the case may be) that is not a party to such
assignment, merger or other transaction, be deemed a breach of and a default
under the Agreement and not be binding upon that party. The party, Applied or
Supplier, exercising such option to declare breach and default shall give
written notice of such exercise to the other party, and shall not be required to
proceed with any period of review or cure under Article 25, however, the party
so in breach shall continue to be bound by, and shall perform and observe all
its obligations applicable under this Agreement through the conclusion of a Wind
Down Period, if applicable, and thereafter under provisions that survive.

      (i) Assignment of this Agreement in part shall mean that all rights,
interests and obligations of the party assigning and all terms, provisions and
conditions of the Agreement shall be assigned to and assumed by (or apply to)
the assignee with respect to the Item(s), product

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CONFIDENTIAL TREATMENT REQUESTED

line(s), type(s) or model(s) of Applied System(s) or FDSs, or line(s) of
business to which the assignment applies (the "Assigned Products").
Notwithstanding the foregoing, (i) only those pricing provisions (whether set
forth in Attachment 1 or elsewhere in the Agreement) applicable to Assigned
Products affected by the assignment shall be assigned to the assignee and (ii)
the liability of Supplier to Applied and any assignee(s) of Applied * below
shall be apportioned pursuant to the assignment among Applied and each assignee
* liability of Supplier to Applied and such assignee(s) *. In the event of
an assignment, the parties shall cooperate in the implementation of operational
processes and procedures to effect the assignment.

18.   Gratuities.

      Supplier represents and warrants that it has not offered or given and will
not offer or give any gratuity to induce any person or entity to enter into,
execute or perform the Agreement or any other agreement between Supplier and
Applied. Upon Applied's written request, an officer of Supplier shall certify in
writing that Supplier has complied with and continues to comply with this
Article. Any breach of this representation and warranty shall be a material
breach of the Agreement and any other agreement between Applied and Supplier.

19.   [Omitted]

20.   [Omitted]

21.   Disclaimers and Limitations of Liability as to Excluded Damages.

      (a) As used in this Article 21, "Excluded Damages" means all special,
indirect, punitive, consequential or contingent damages that arise from or
relate to the Agreement.

      (b) The exclusions and limitations of this Article 21 as to the
liabilities of Applied * for Excluded Damages are expressly made a part of the
Agreement and are accepted by each party.

      (c) Subject to the exceptions provided in Article 21(e), Applied EXCLUDES
all liability to Supplier for Excluded Damages, whether or not Applied has been
advised of the possibility of such Excluded Damages.

      (d) *:

      (e) An exclusion or limitation, as applicable, that is provided by this
Article 21 shall only apply to Excluded Damages and further shall not apply to
damages of any type, obligations of a party, or claims or liabilities against a
party that:

      (i)   arise from or relate to matters covered by an indemnity under
            Article 22 of this Exhibit 1;

      (ii)  arise from or relate to the IPA, or matters covered by an indemnity
            under the IPA; or

* Material has been omitted and filed separately with the Commission.

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CONFIDENTIAL TREATMENT REQUESTED

      (iii) arise from or relate to, or are for, personal injury, death, or
            damage to or loss of tangible property.

22.   Indemnity.

      (a) Supplier's Indemnity Obligation. In the event a third party brings a
claim or asserts liability against Applied alleging that Items or the work
product of Services ("Work Product"), as provided by Supplier under this
Agreement, or the manufacture, use, sale or offer for sale of such Items or Work
Product by Applied or the use of same by Applied's customers infringes,
misappropriates or otherwise violates third party IP Rights (an "Applied Third
Party Claim"), SUPPLIER SHALL DEFEND, INDEMNIFY AND OTHERWISE HOLD HARMLESS
APPLIED against such Applied Third Party Claim, including the payment of
reasonable fees and expenses of any attorneys and other professionals employed
by Applied in accordance with Article 22(f) in defending the Applied Third Party
Claim and the payment of any judgment finally awarded against Applied or the
payment of any settlement amount agreed to by Supplier to settle such Applied
Third Party Claim. Supplier will not be liable for any settlement of an Applied
Third Party Claim made by Applied without Supplier's consent, except as provided
in Article 22(h) below.

      (b) Exceptions to Supplier's Indemnity Obligation. Supplier's obligations
pursuant to Article 22(a) will not apply to any claims or assertions of
liabilities if: (x) Supplier would not otherwise be liable for inducing or
contributing to infringement, misappropriation or other violation; and (y) the
infringement, misappropriation or other violation: (1) was unavoidably caused by
Supplier's compliance with specifications or designs furnished and required by
Applied or by Applied's non-compliance with Supplier's prior written advice or
warning of a possible and likely infringement, misappropriation or other
violation relating to such compliance, or (2) arises from a combination not
performed by Supplier of Items and/or Work Product with other equipment,
hardware, software, materials or components not provided by Supplier and any
such claim or assertion of infringement, misappropriation or other violation
would not arise but for such combination, or (3) is a direct result of
Supplier's combination of components mandated by Applied.

      (c) *

      (d) Reduction of Indemnification Amounts. The amount that any party is or
may be required to pay to or on behalf of any other person pursuant to an
indemnity under this Article 22 shall be reduced (including retroactive
reduction or reimbursement) by (i) any amounts received by an indemnified party
from an insurance carrier or paid and resolved by an insurance carrier on behalf
of the insured indemnified party (in a manner that results in no further
liability to the indemnified person), in either case net of any applicable
premium adjustment, retrospectively rated premium, deductible, retention, cost
or reserve paid or held by or for the benefit of the insured, or (ii) any other
amounts or tax benefits actually recovered by or on behalf of such indemnified
person in reduction of such payment. If an indemnified person shall have
received the payment required by this Article 22 from an indemnifying party and
shall subsequently actually receive insurance proceeds or other amounts or tax
benefits in respect of such payment

* Material has been omitted and filed separately with the Commission.

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as specified above, then such indemnified person shall pay to such indemnifying
party a sum equal to the amount of any such double recovery actually received.
This provision shall not, however, operate to relieve a party of liability to an
insurer subrogated to the rights of the insured.

      (e) Indemnified Party's Obligations. A party seeking indemnification (i)
shall give the other party prompt written notice of any Applied Third Party
Claim or Supplier Third Party Claim, as applicable (each a "Third Party Claim"),
that may give rise to any indemnification obligation under this Article 22,
together with the estimated amount (if reasonably available) of such Third Party
Claim, and (ii) shall provide reasonable cooperation and assistance to the
indemnifying party in the defense and/or settlement of such claim, including, to
the extent reasonably requested, the retention, and the provision to the
indemnifying party (which shall pay the reasonable costs incurred in providing
or collecting such records) of records and information reasonably relevant to
such Third Party Claim. Failure to give such notice or to provide the
cooperation provided for herein shall not affect the indemnification obligations
hereunder in the absence of material prejudice to the indemnifying party. Except
for the foregoing obligation to pay the reasonable costs incurred in providing
or collecting records, the indemnifying party shall not be liable under this
Article 22 for any internal personnel costs or expenses (including opportunity
costs) suffered or incurred by the indemnified party in connection with a Third
Party Claim.

      (f) Selection of Counsel. The indemnifying party shall have the right to
conduct and control the defense and, as herein provided, settlement (at its own
expense) of any such Third Party Claim through counsel of its own choosing by so
notifying the party seeking indemnification within thirty (30) calendar days of
the indemnifying party's first receipt of notice of the Third Party Claim;
provided, however, that any such counsel shall be reasonably satisfactory to the
party seeking indemnification. If the indemnifying party assumes such defense,
the party seeking indemnification shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party. If, under applicable standards of
professional conduct, a conflict with respect to any significant issue between
any indemnified party and the indemnifying party exists in respect of such Third
Party Claim, the indemnifying party shall also pay the reasonable fees and
expense of such additional counsel as may be required to be retained by reason
of such conflict.

      (g) Indemnified Party's Consent to Settlement. The indemnifying party
shall not, without the prior written consent of the indemnified party: (i) agree
to the settlement, compromise or discharge of such Third Party Claim unless, by
its terms, such settlement, compromise or discharge actually, fully and finally
discharges the indemnified party from the full amount of liability in connection
with such Third Party Claim; nor (ii) agree to the entry of any judgment or
enter into any settlement that: (1) provides for injunctive or other
non-monetary relief adversely affecting the indemnified party, or (2) does not
include as an unconditional term thereof the giving of a release for all
liability with respect to such claim by each claimant or plaintiff to each
indemnified party that is the subject of such Third Party Claim.

      (h) Consequences of Breach by Indemnifying Party. In the event that the
indemnifying party does not assume and conduct the defense of a Third Party
Claim in

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CONFIDENTIAL TREATMENT REQUESTED

accordance with this Article 22, or fails to perform any of its other
obligations under Article 22(a), (c), (f) or (g), and therefore is in breach of
its obligations under this Article 22: (i) the indemnified party may defend such
Third Party Claim in any manner it reasonably may deem appropriate (and the
indemnified party need not consult with, or obtain any consent from, the
indemnifying party in connection therewith); (ii) the indemnified party may
consent to the entry of any judgment or enter into any settlement with respect
to such Third Party Claim, provided that, before so consenting to entry of
judgment or entering into a settlement : (1) the indemnified party gives the
indemnifying party written notice of the terms of the proposed consent judgment
or settlement, and (2) the indemnifying party does not thereafter comply with
its obligations under this Article 22 in respect of the Third Party Claim and,
within three Business Days after receipt of such notice, give to the indemnified
party a signed written statement acknowledging that the indemnifying party is
liable under this Article 22 in respect of the Third Party Claim and undertakes
to comply promptly with its obligations under this Article 22; and (iii) subject
to compliance by the indemnified party with the foregoing obligations, as
applicable, the indemnifying party will remain liable to the fullest extent
provided in this Article 22.

      (i) IPA Indemnity Obligations. The indemnities and related obligations
under this Article 22 are in addition to the indemnities and related obligations
provided in the IPA; however, this Article 22 shall not apply to any Third Party
Claim that is also subject to an indemnity provided in the IPA. Accordingly, the
indemnity provisions in the IPA shall supersede the provisions of this Article
22 in respect of any Third Party Claim to which the IPA indemnity applies, to
avoid any double indemnity liability or conflicting indemnity liability. The
parties' indemnity obligations as to matters covered by the IPA shall be as
provided in the IPA, except as to Excluded Damages that are limited by Article
21(d).

      (j) Relation to Warranty Terms. Limitations or disclaimers of warranties
shall not be construed or applied to alter or affect the obligations and
liabilities of Applied or Supplier, as the case may be, that arise under or are
provided for by the indemnity provisions of this Article 22 or of the IPA.

23.   Force Majeure.

      (a) A failure by either party to perform its obligations under the
Agreement due to causes, events or conditions beyond its control and without the
fault or negligence of the party shall be deemed excusable during the period in
which the cause of the failure persists. Such causes may include, but not be
limited to, acts of God or the public enemy, acts of the government in either
sovereign or contractual capacity, fires, floods, epidemics, strikes, freight
embargoes and unusually severe weather. If the failure to perform by Supplier is
caused by the default of a sub-tier supplier of Supplier, and such default
arises out of causes beyond the control of both Supplier and sub-tier supplier,
and without the fault or negligence of either of them, Supplier will not be
liable for any excess cost for failure to perform, unless the supplies or
services to be furnished by the sub-tier supplier were obtainable from other
sources in sufficient time to permit Supplier to meet the required delivery
releases of Items. When Supplier or Applied becomes aware of any potential force
majeure condition as described above, that party shall immediately notify the
other of the condition and provide relevant details.

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      (b) A failure by Supplier to perform its obligations under this Agreement
will be deemed excused to the extent caused by Applied's failure to timely
perform its obligations under the FUAs or under the IS&T Agreement (as such is
modified by the Agreement), each as in effect from time to time, including but
not limited to, an interruption in services or failure to provide or maintain
services that Applied is obligated to provide under an FUA or such IS&T
Agreement, which interruption or failure is not timely cured by Applied,
adversely affects Supplier's ability to perform under the Agreement, and
Supplier is unable to perform through use of available alternative services.

24.   Changes.

      Applied may at any time, by a written order and without notice to
Guarantors, make changes within the general scope of the Agreement to any one or
more of the following:

      (a) Specifications;

      (b) method of shipment or packing;

      (c) place and date of delivery; or

      (d) place and date of inspection or acceptance.

      Changes in costs, pricing or other terms resulting from changes made
pursuant to this Article shall be determined pursuant to the Agreement. If any
such change not otherwise provided for under the Agreement causes an increase or
decrease in the cost of or time required for performance of the Agreement, an
equitable adjustment shall be made in the Contract Price or delivery schedule,
or both, and the Agreement shall be modified in writing accordingly. No claim by
Supplier for adjustment under this Article 24 shall be valid unless in writing
and received by Applied within sixty (60) days from the date of receipt by
Supplier of the notification of change, provided, however, such period may be
extended upon the written approval of Applied. However, nothing in this Article
shall excuse Supplier from proceeding with the Agreement as changed or amended.

25.   Termination for Default; Other Remedies.

      (a) Any of the following events, failures, occurrences or breaches and,
when applicable with respect to an event, failure, occurrence or breach to which
Article 25(a)(i) or (a)(iii) applies, the failure of Supplier, after notice by
Applied under Article 25(b), to cure or correct same, if curable, during the
Business Review Process under Section 7.2.5 of the Agreement (or such period as
is established by the Business Review Process) shall constitute a "Default"
under the Agreement:

      (i)   the recurring material failure by Supplier to deliver Items on time
            and in compliance with the warranty provisions of the Agreement;

      (ii)  Supplier's becoming insolvent; the filing by Supplier of a voluntary
            petition under any bankruptcy, insolvency or like law; the filing
            against Supplier of an

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            involuntary petition under any bankruptcy, insolvency or like law
            (which is not dismissed within 45 days after its filing); the making
            of an assignment by Supplier for the benefit of creditors; and/or
            any material adverse change in the business, properties, operation
            or condition (financial or otherwise) of Supplier;

      (iii) other than those failures to which Article 25(a)(i) applies, the
            material failure by Supplier to perform, observe, or comply with any
            term, provision, or condition of the Agreement, including recurring
            failures that together constitute a material failure, or the
            occurrence of any event or condition constituting a default or
            breach in a material respect under any term, provision or condition
            of the Agreement; or

      (iv)  (a) the occurrence of any event or condition constituting a material
            default under or breach of any provision of (i) the Performance
            Guaranty Agreement, as in effect from time to time, or (ii) the APA
            or an FUA, as in effect from time to time, without cure or
            correction after notice pursuant to the APA or an FUA, as
            applicable, or (b) the exercise by Applied of a right of termination
            of the IPA in accordance with its terms pursuant to Section 5.2 of
            the IPA.

Upon the occurrence of a Default, Applied shall have the right, at its option,
to terminate the Agreement, either in whole or in part. A termination in part
for Default shall apply to the Items, product line(s), type(s) or model(s) of
Applied Systems or FDSs, or line(s) of business affected by the Default and as
to which Applied exercises its right to terminate for Default (the "Terminated
Products").

A termination of the Agreement in part for a default or the exercise of other
rights and remedies pursuant to Section 7.2.1 or Section 7.2.2 with respect to
the particular Item(s) affected shall not be subject to the procedural
requirements of this Article 25. A default as to which Section 7.2.1 or Section
7.2.2 applies may, however, also become an element of a Default under this
Article 25. In addition to its rights of termination for Default as to the
Agreement under this Article 25, Applied shall have the rights provided by the
UCC as to transactions governed by such statute (and by other law of the State
of California where the UCC does not apply) to terminate for default (or cancel)
or revoke acceptance with respect to any particular Item(s) and to recover its
damages in connection with such Item(s), without the application of the
procedures of this Article 25 or the Business Review Process.

      (b) Following the occurrence of an event, failure, occurrence or breach
that constitutes or may constitute a Default under Article 25(a), Applied may,
at its sole option, initiate and proceed with termination of the Agreement, as
follows:

            (i) Applied shall give initial notice to Supplier, in accordance
            with Section 1.2.2 of the Agreement, which shall include the
            following: notice of the Default or potential Default and of
            Applied's intent to terminate the Agreement; notice that the parties
            shall proceed with the Business Review Process as referred to in
            Article 25(a) with respect to an event, failure, occurrence or
            breach to which Article 25(a)(i) or 25(a)(iii) applies, (except that
            a breach as to the 15 day notice under Article 17(f) shall not be
            subject to the Business Review Process); notice of

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            any event, occurrence, failure or breach which is determined by
            Applied to be an incurable or uncorrectable Default; and notice of
            the period of cure or correction for any event, occurrence, failure
            or breach (that is curable or correctable but not otherwise subject
            to the Business Review Process) established by Applied in such
            notice (such a period to be not less than ten (10) days).

            (ii) If (x) the event, occurrence, failure, or breach has not been
            cured to Applied's reasonable satisfaction at or before the
            expiration of the Business Review Process (where applicable) or of
            such period for cure or correction as is established by such
            process, or at the expiration of such other period (of not less than
            ten (10) days) established by Applied for matters not otherwise
            subject to the Business Review Process, or (y) the event,
            occurrence, failure or breach is incurable, Applied may at such time
            or at any time thereafter issue a written or electronic notice of
            termination (a "Notice of Termination for Default"), and the
            Agreement shall terminate on and as of the date for termination
            specified in the Notice of Termination for Default.

      (c) *

      (d) *

      (e)   (i) The rights and remedies of each party pursuant to this Article
25 or any other provision of the Agreement for any purpose are in addition to
and shall not limit or preclude resort to any other rights and remedies provided
by agreement, by law (subject to procedural requirements of the Agreement) or in
equity. With respect to equitable relief, a party may proceed to seek and obtain
such relief, where authorized under applicable law, without the declaration of a
Default * or compliance with other procedural requirements of the Agreement.

            (ii) In the event of a Default *, the non-defaulting party shall
retain, and may exercise, all rights and remedies provided for by this Agreement
or other applicable law for the recovery of damages and/or other relief or
remedies with respect to the failure, breach, default or other event (subject,
however, to applicable limitations of the Agreement as to damages and to
procedural requirements of the Agreement). Termination of the Agreement for
Default * shall constitute "cancellation" under the UCC.

      (f) Damages shall not be recoverable with respect to Items for which no
Authorized Demand Signal has been accepted by Supplier prior to the effective
date of termination.

26.   Termination for Convenience.

      (a) Applied may terminate the Agreement with respect to some or all of the
Items at any time for Applied's convenience (to "terminate for convenience" or a
"Termination for Convenience"), by giving Supplier written or electronic notice
of such Termination for Convenience in accordance with Section 1.2.2 of the
Agreement, which notice shall state the extent of the termination and the
conduct requested of Supplier in connection therewith as to

* Material has been omitted and filed separately with the Commission.

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matters described in Article 27 below, but excluding Article 27(v) (a "Notice of
Termination for Convenience"). Upon the effective date of the Notice of
Termination for Convenience, the Agreement shall terminate to the extent
indicated in the Notice of Termination for Convenience, and Applied shall pay to
Supplier the Termination Charges as determined in accordance with paragraphs (c)
and (d) below.

      (b) Each Notice of Termination for Convenience shall:

      (i)   Specify the Item(s), product lines, types of Applied Systems, or
            other method by which the Item(s) or scope of the Termination for
            Convenience will be determined, if less than all.

      (ii)  Specify the effective date of the Termination for Convenience, which
            shall be at least three (3) months after the date of issuance of the
            Notice of Termination for Convenience.

      (iii) Provide such instructions or procedures as shall in Applied's
            commercially reasonable judgment be appropriate to implement Section
            4.11 of the Agreement as to the Termination for Convenience.

Upon a Termination for Convenience of the Agreement in whole or in part by
Applied, Supplier shall promptly follow Applied's directions as set forth on the
Notice of Termination for Convenience, and the parties shall implement the Wind
Down Procedures of Section 4.11, as applicable.

      (c) Within ninety (90) days from the effective date of termination
pursuant to a Notice of Termination for Convenience, Supplier shall deliver to
Applied a written statement setting forth all of Supplier's claims in connection
with the Termination of Convenience (the "Termination Charges"), in the form and
containing such documentation as required by Applied. Failure by Supplier to
deliver such claim for Termination Charges within said ninety (90) day period
shall constitute a waiver by Supplier of all claims against Applied for such
Termination for Convenience and a release of all Applied's liability arising out
of such Termination for Convenience.

      (d) If Applied does not agree with the amount specified in Supplier's
claim for Termination Charges, Applied and Supplier will attempt to agree upon a
reasonable amount for Termination Charges. If Applied and Supplier fail to agree
upon such an amount within * after receipt by Applied of the claim for
Termination Charges from Supplier, then the Termination Charges will be
conclusively presumed to be the sum of the following (provided that no costs
shall be duplicated):

*

* Material has been omitted and filed separately with the Commission.

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      (c) The provisions of this Article 26 apply solely to a Termination for
Convenience by Applied and shall not affect or impair any right of Applied to
terminate the Agreement due to the default or breach of Supplier as provided in
Article 25 or to seek any remedies in the event of such breach or default of
Supplier as otherwise permitted.

      (d) Applied shall have the right to initiate Termination for Convenience,
in whole or in part, based on the occurrence of a Notice Event. Such right to
terminate for convenience shall not limit Applied's right to terminate for
convenience, in whole or in part, at any other time.

27.   Post-termination Obligations.

On the date termination of the Agreement becomes effective as specified in the
applicable Notice of Termination for Default or for Convenience, Supplier shall
(i) stop work being performed by Supplier pursuant to the Agreement, (ii) cancel
orders for parts and/or materials with Supplier's sub-tier suppliers and cease
ordering any such parts and/or materials, (iii) cancel work being performed by
Supplier's sub-tier suppliers for Supplier for the Agreement, (iv) assign to
Applied Supplier's interests in contracts with Supplier's sub-tier suppliers (to
the extent such contracts are assignable, are for goods used in the manufacture
of Items, and any required consents to assignment are obtained), (v) (except in
the case of Termination for Convenience) make commercially reasonable efforts to
furnish Applied with releases of claims from Supplier's sub-tier suppliers
resulting from orders and/or work canceled by Supplier, (vi) protect all
property in which Applied has or may acquire an interest, and (vii) comply with
the provisions of this Agreement, and of the TLA as to Tooling, Test Fixtures
and Wind Down.

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                                  ATTACHMENT 18

                                     FORM OF

                        ON-SITE REPRESENTATIVE AGREEMENT

This On-Site Representative Agreement ("Agreement") is made this day of ____, by
and between Applied Materials, Inc. ("Applied") and Kinetics Fluid Systems, Inc.
("Supplier") (collectively referred to as the "Parties").

Whereas, Supplier provides parts or services to Applied or desires to sell parts
or services to Applied under the terms of, and pursuant to, a Global Supply
Agreement effective as of June 1, 2002 ("GSA"); and

Whereas, the Parties agree that if certain duties and functions were to be
performed by an employee of Supplier on Applied's premises or at an Applied
facility it would facilitate Supplier's performance and benefit both Supplier
and Applied;

Now, therefore the Parties agree as follows:

1.    Statement of Work

      Supplier will assign, at no cost to Applied, an individual on-site
      representative ("OSR") to perform, on Applied's premises, functions ("OSR
      Functions") described in the Statement of Work attached hereto as Exhibit
      No. 1 (the "SOW").

      Supplier agrees to notify Applied immediately of any changes in its
      staffing assignments involving the OSR, or in the OSR Functions, whereby
      access to Applied's facilities or IS&T systems may no longer be essential
      to performing the OSR Functions.

2.    Status of OSR

      The OSR is an employee of Supplier, subject to its right of direction,
      control and discipline. The OSR is not an employee of Applied, nor shall
      he or she be entitled to any rights, benefits, or privileges of an Applied
      employee. Prior to the commencement by the OSR of an assignment at
      Applied, Supplier represents that it will review this Agreement with the
      OSR, inform the OSR of the obligations under this Agreement and the
      "Joinder" required under this Agreement, and have the OSR enter into a
      "Kinetics Employee Joinder" in the form set out in Schedule 4.4
      ("Joinder") to the Restated and Amended Intellectual Property Agreement
      between Applied and Supplier of even date with the GSA (the "IPA").

3.    Confidentiality and Performance

      Applied shall inform the OSR of hours of access to Applied's premises,
      pertinent safety regulations, and all other requirements which Applied
      deems necessary. The OSR shall comply with any applicable policies and
      regulations of Applied. Compliance with all policies and regulations of
      Applied is mandatory and is the responsibility of both the

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CONFIDENTIAL TREATMENT REQUESTED

      OSR and Supplier; failure to comply with these policies and regulations
      will be cause for immediate removal of the OSR from the premises.

      Supplier agrees that the OSR Functions to be performed by the OSR will
      comply with this Agreement, including Attachments 1 and 2 to this OSR
      Agreement, and will also comply with any purchase, confidentiality,
      supplier-planner access, nondisclosure, intellectual property, joint
      design, joint development or other agreements that may be in effect
      between Supplier and Applied and including the Amended and Restated
      Intellectual Property Agreement with an Effective Date of June 1, 2002
      (the "Related Agreements") at the time this Agreement is executed by the
      Parties or that is subsequently in effect.

4.    OSR Associated Expenses

      All salary, benefits, and travel and business expenses for OSR will be the
      sole responsibility of Supplier.

5.    Access

      Subject to Applied's approval and the completion of the security
      background check, the OSR may be granted access to the following:

            -     Only those specific Applied facilities to which the OSR
                  requires access in order to perform the tasks stated in the
                  SOW

            -     Telephone and fax lines (for matters related to Applied only)

            -     Computer/modem and/or database or system information access as
                  deemed necessary by Applied in order for the OSR to perform
                  the tasks stated in the SOW.

      If a Joinder is attached to this Agreement and executed by the OSR, then
      such Joinder shall apply to all "Confidential Information" (as therein
      defined), and all Applied databases, applications and servers, that the
      OSR obtains, accesses or is exposed to as a result of the OSR Functions
      under this Agreement. If a Joinder is not attached and executed by the
      OSR, the OSR shall not have access to any information that is
      confidential, proprietary, or sensitive or to any Applied databases,
      applications or servers.

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CONFIDENTIAL TREATMENT REQUESTED

6.    Termination of Agreement

      This Agreement may be terminated immediately by either Party at any time
      without penalty; if not earlier terminated, this Agreement shall terminate
      upon completion of the tasks identified in the SOW.

7.    Entire Agreement

      This Agreement, including its Attachments, and together with all Related
      Agreements constitutes the entire agreement between Supplier and Applied
      Materials with respect to OSR Functions, and with respect to OSR Functions
      it supersedes all preexisting agreements or arrangements, except for (a)
      the GSA and any Facilities Use Agreement as in effect for Applied
      facilities which the OSR may access, (b) any Supplier-Planner Access
      Agreement now or hereafter in effect, (c) any claims or causes of action
      of Applied relating to breach of a pre-existing OSR agreement or
      arrangement, and (d) any ongoing duty or obligation(s) of Supplier under a
      pre-existing OSR agreement or arrangement. In the event of any conflict
      between the terms of this Agreement and the terms of a Related Agreement,
      the GSA or any Facilities Use Agreement as in effect for Applied
      facilities which the OSR may access, precedence shall be given in
      accordance with Section 1.3.2.2 of the GSA.

Kinetics Fluid Systems, Inc.                 Applied Materials, Inc.
("Supplier")                                 ("Applied")

By:                                          By:
    ------------------------------                -----------------------------

Its:                                         Its:
     -----------------------------                -----------------------------

Date:                                        Date:
      ----------------------------                  ---------------------------

                                      115
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

Exhibit 1 - Statement of Work

(On-site Representative Agreement)

This Attachment describes the activities and services included in the OSR
Functions of the Supplier's OSR. Changes in the OSR Functions may be made by
agreement of Applied and Supplier. The OSR Functions include

      -     Daily consultation with Applied's representatives concerning
            Supplier performance, production or project scheduling, and
            resolution of problems or errors.

      -     Evaluation and reporting of problems or errors, and of anticipated
            problems, and constraints or delays.

      -     Consultation with Applied's engineering and production
            representatives concerning product quality, product delivery, and
            product technical problems and revisions.

      -     [To be added and revised by Applied's representatives.]

      -     [To be added and revised by Applied's representatives.]

                                       i
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

                                    EXHIBIT 2

                        On-Site Representative Agreement

            The "Joinder" required by this On-Site Representative Agreement is
            the "Kinetics Employee Joinder" set out in Schedule 4.4 to the
            Amended and Restated Intellectual Property Agreement of the Parties
            identified in this On-Site Representative Agreement.

                                       i
<PAGE>

                                  ATTACHMENT 19

                             TOOLING LOAN AGREEMENT

      This Tooling Loan Agreement, is dated as of June 1, 2002 (the "Effective
Date"), and made by and between Applied Materials, Inc., a Delaware corporation
("Applied"), and Kinetics Fluid Systems, Inc., a California corporation
("Supplier"). This Tooling Loan Agreement, together with all Attachments hereto,
is referred to herein as the "Agreement." This Agreement is entered into in
connection with the Global Supplier Agreement between Applied and Supplier,
which itself has an effective date of June 1, 2002 ("GSA"), and is the Tooling
Loan Agreement referred to in Sections 4.2.1 through 4.2.4 of the GSA.

      Solely for Supplier's use in fulfilling its obligations to Applied under
the GSA, under Design Services Agreements and Development Services Agreements
entered into from time to time as contemplated by the GSA (the terms "Design
Services Agreement" and "Development Services Agreement" being used herein as
defined in the GSA), and under the Amended and Restated Intellectual Property
Agreement of even date ("IPA"), Applied has agreed to loan to Supplier, on the
terms and conditions contained herein, the property identified in the
Attachments to this Agreement (collectively, the "Tooling"), which Attachments
will be updated from time to time. The Tooling includes * identified in Schedule
4.2.2.(c) to the GSA, the * provided under the "IS&T Agreement" identified in
Section 2.9.1.1 of the GSA, and * in or used in the operation of *. The GSA,
Design Services Agreements, Development Services Agreements, and the IPA, all as
amended from time to time, are collectively called the "Operational Agreements."

      In consideration of the premises, the agreements of the parties set forth
herein and in the Operational Agreements, and Applied's lending the Tooling to
Supplier, Applied and Supplier agree as follows:

1.0   Ownership.

      (a) Title to and ownership of the Tooling (other than * "Third Party
Applications", as such term is defined in the IPA) shall remain exclusively in
Applied at all times, and Supplier shall have no ownership or beneficial
interest therein, except as provided in Section 1.3 (b) as to Supplier Provided
Improvements. Title to and ownership of * Third Party Applications shall remain
exclusively in the owner of same, and Supplier shall have no ownership or
beneficial interest therein. Supplier shall affix and maintain prominently on
each item of Tooling a label indicating that the Tooling is owned by Applied or
the other owner thereof. All additions, attachments, alterations, and
modifications to the Tooling (except for *) shall become part of the Tooling and
the exclusive property of Applied or the other owner thereof.

* Material has been omitted and filed separately with the Commission.

                                       1
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      (b) Supplier authorizes Applied to file this Agreement or any copy hereof,
as well as to make any other filings, in any jurisdiction as Applied may deem
appropriate to protect its interests or those of any other owner of Tooling.
Upon Applied's request, Supplier shall execute or obtain from third parties and
deliver to Applied such statements or other instruments as Applied deems
necessary or advisable to confirm or perfect the interests of Applied or other
owner in the Tooling, including filings under the Uniform Commercial Code and
landlord or mortgagee waivers, and Supplier hereby grants to Applied the right
to execute Supplier's name thereon where permitted by law.

      (c) Supplier shall, at its expense, protect and defend title to the
Tooling of Applied or other owner against all persons claiming against or
through Supplier, at all times keeping the Tooling free from any legal process
or encumbrance whatsoever including but not limited to liens, attachments,
levies, executions and other claims by third parties, and shall give Applied
immediate written notice of any such third party claim and shall indemnify
Applied against any cost, liability or loss caused thereby.

      (d) The Tooling is, and shall at all times be and remain, personal
property notwithstanding that the Tooling or any part thereof may now be, or
hereafter become, in any manner affixed or attached to real property or any
improvements thereon.

1.1   Delivery.

      Applied shall package the Tooling for shipment to Supplier to provide for
handling and protection of the Tooling sufficient to comply with the carrier's
requirements and consistent with the manner in which Applied packages shipments
of a like nature for its own use. Absent Applied's agreeing otherwise in
writing, Applied shall arrange shipping as it deems appropriate to the
applicable destination specified in the Attachment applicable to the item of
Tooling. Upon delivery of the Tooling to Supplier, Supplier shall inspect the
Tooling. If Supplier believes the Tooling is not in good working order and
repair, it shall notify Applied promptly in writing. If such notice is not
received by Applied within five business days after installation of the Tooling
by Supplier, then Supplier shall be deemed to have accepted the Tooling, and the
Tooling shall be deemed in good working order and repair.

1.2   Risk of Loss.

      Supplier shall bear all risks of loss, damage or destruction to the
Tooling from and after the date the Tooling is delivered to Supplier until
Applied accepts return of the Tooling. During such period, Supplier shall
maintain, in addition to any other insurance required under its other contracts
with Applied, all risk insurance with respect to the Tooling, comprehensive
general liability insurance covering bodily injury, property damage, contractual
liability, products liability and completed operations and workers compensation
and employer's liability insurance with financially sound and reputable insurers
in amounts and on terms customarily insured against in similar circumstances (or
in such greater amounts or on such different terms as may be requested by
Applied). Supplier shall furnish evidence of such insurance to Applied prior to
execution of this Agreement, and such insurance shall require the insurer to
give at least 30 days' advance notice to Applied of any material alteration or
cancellation thereof (at least 10 days' prior notice as to cancellation for
nonpayment of premiums). In the event of any loss or damage

                                       2
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

to the Tooling, Supplier shall pay Applied within 45 days following the event of
loss or damage the amount of loss or damage to the Tooling, which, in the event
of a total loss shall be the value of the item of Tooling. Applied shall have
the discretion to determine whether to replace any item of Tooling that is lost,
damaged or destroyed.

1.3   Use, Maintenance and Alteration.

      (a) Supplier shall cause each item of Tooling to be installed and used at
the applicable location set forth in the Attachment applicable to the item, and
shall not copy, remove, reinstall or modify any software, and shall not relocate
any Tooling to any other location (except as provided in Section 4.2.2 (a) of
the GSA) without Applied's prior written permission. Except as otherwise agreed
in writing by Applied, Supplier shall use the Tooling solely to fulfill its
obligations to Applied under one or more of the Operational Agreements, all in
compliance with this Agreement and the Operational Agreements. Supplier shall
operate, protect, maintain and calibrate the Tooling in compliance with all
applicable laws, rules and regulations (including those relating to safety), the
conditions of all applicable insurance policies and best industry practices
(including any maintenance schedules delivered by Applied or furnished by the
Tooling manufacturer or distributor). Supplier shall obtain training for the
Supplier personnel who will operate the Tooling, and Supplier shall operate the
Tooling in compliance with such training. Under no circumstances shall Supplier
operate the Tooling in a manner which could cause injury or death to any person
or damage or injury to any property, including the Tooling. If Applied or the
Tooling manufacturer or distributor specifies certain parties who are authorized
to service the Tooling or special equipment required to maintain or calibrate
the Tooling, Supplier shall use such authorized parties and/or special
equipment. Supplier shall maintain logs and reports of the maintenance and
operation of the Tooling and permit Applied, on reasonable prior notice, to
inspect the Tooling to determine whether the Tooling is being used, protected,
maintained and calibrated in accordance with this Agreement and to make copies
of such logs and reports. Supplier shall correct immediately any deficiencies
disclosed by such inspection upon notice from Applied. No such inspection or
lack of inspection by Applied shall in any way diminish the sole responsibility
of Supplier for the proper use, protection, maintenance and calibration of all
Tooling. If an item of Tooling becomes inoperable, Supplier shall (subject to
the limitations of Section 1.3(b) below) make immediate reasonable attempts to
restore it to operating condition before requesting assistance from Applied's *
Department.

      (b) Without the prior written consent of Applied, Supplier shall not make
any alterations, modifications or additions to the Tooling except as provided in
this Section 1.3(b). Further, Supplier shall comply with the IPA, as such
applies to all Tooling or to the use of or rights in Tooling. Modifications or
improvements to Tooling that constitute Capacity FDS Hardware or Product Change
Hardware provided or purchased by Applied pursuant to Section 4.2.3 of the GSA
shall be owned by Applied as part of the Tooling. Supplier may acquire and
install on the Tooling, * those alternations, modifications, improvements or
additions to Tooling that are items of Capacity FDS Hardware or Product Change
Hardware that have been proposed by Supplier and Applied does not provide or
procure under the procedures of Section 4.2.3 of the GSA and * (the "Supplier
Provided Improvements").

* Material has been omitted and filed separately with the Commission.

                                       3
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      (c) Costs associated with Applied approved or directed alterations,
modifications, improvements or additions, as well as any third-party calibration
services required to keep the Tooling within specified dimensional or sampling
tolerances, shall be borne by Applied. Supplier shall not undertake, or incur
any costs associated with, such activity until an authorizing purchase order has
been received from the Applied organization ordering the Items that require
usage of the Tooling.

      (d) Routine care, maintenance, and calibration performed by Supplier as
part of normal operations shall be done at no cost to Applied.

      (e) Supplier shall comply with the requirements of the * Support Work
Instruction (Form *) which can be found at http:// *.

1.4   Reserved Rights; Return of Tooling.

      (a) Applied may at its discretion, which discretion is to be reasonably
exercised, access, inspect, modify, upgrade, replace, or remove from use any
Tooling. Applied may also direct Supplier to allow Applied or its
representatives to use Tooling at Supplier's location on a temporary basis as
part of Applied's efforts to review and develop its products and processes.
Supplier agrees to accept, subject to the terms of this Agreement, and
incorporate into its manufacturing, testing and other processes any item of
Tooling designated and furnished by Applied.

      (b) To the extent practicable, Applied will give Supplier reasonable
advance notice of any action by Applied under the preceding Section 1.4 (a) or
that would otherwise make the Tooling unavailable for use by Supplier on a
temporary or permanent basis. If Applied requires a temporary or permanent
cessation of use of any Tooling and such results in delays in Supplier's testing
or delivery of Items under the GSA, then the extension period provided to
Supplier under Section 4.2.4(b) of the GSA shall apply until Tooling required
for testing or completion of Items is returned to use or replaced by Applied,
unless otherwise agreed at the time.

      (c) At the time of termination or expiration of the GSA, in whole or in
part, and also as provided in Section 4.2.4 of the GSA, Applied may exercise
rights to purchase, repossess or remove Tooling in accordance with the GSA and
this Agreement and the procedures of Section 4.2.4 of the GSA. In the event of
Termination for Default pursuant to the GSA, Applied may require that Supplier
return any or all items of Tooling to Applied, and in that event Supplier shall
return such item(s) of Tooling, labeled and shipped in accordance with Applied's
then current policies and specifications, which Supplier shall obtain from
Applied. Supplier shall deliver each such item of Tooling at the appropriate
location (which may be Supplier's facility in those instances in which Applied
is proceeding under Section 4.2.4 of the GSA) in proper operating order, free
from any legal process or encumbrance whatsoever. As to items of Tooling to
which the IPA applies, Supplier shall also comply with Section 5.3 of the IPA
upon

* Material has been omitted and filed separately with the Commission.

                                       4
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

termination or expiration of the IPA. If Supplier shall fail to deliver, as
required, any item of Tooling in good working order and condition (reasonable
wear and tear excepted), Supplier shall be responsible for all costs and
expenses incurred by Applied in replacing the Tooling or in returning the
Tooling to such required condition or any reduction in the value as a result
thereof.

      (d) Upon receipt of notice from Applied that Applied will purchase,
repossess or remove Tooling, Supplier shall remove from the affected Tooling all
Supplier Provided Improvements. If Supplier has not removed such Supplier
Provided Improvements at the time Applied takes possession of the Tooling
pursuant to the notice, Applied shall be entitled to remove such improvements,
using commercially reasonable procedures, and shall tender possession of such
removed Supplier Provided Improvements to Supplier.

2.0   Exclusions of Warranties.

      SUPPLIER ACCEPTS EACH ITEM OF TOOLING "AS IS" AND "WITH ALL FAULTS."
SUPPLIER ACKNOWLEDGES THAT IT HAS HAD AN OPPORTUNITY TO INSPECT THE TOOLING, AND
THAT SUPPLIER IS EXPERIENCED IN THE OPERATION AND MAINTENANCE OF SUCH TOOLING.
APPLIED MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE TOOLING OR ANY PART THEREOF. APPLIED HEREBY DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF TITLE,
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES OF
NONINFRINGEMENT; PROVIDED, THAT THE EXCLUSION AND DISCLAIMERS OF THIS AGREEMENT
ARE, HOWEVER, SUBJECT TO, AND SHALL NOT ALTER, IMPAIR OR MODIFY, ANY WARRANTIES
MADE BY APPLIED IN THE IPA OR GSA THAT ARE APPLICABLE TO TOOLING.

2.1   Exclusion of Certain Damages.

      IN NO EVENT SHALL APPLIED BE LIABLE FOR ANY SPECIAL, INDIRECT, PUNITIVE,
CONSEQUENTIAL OR CONTINGENT DAMAGES ("EXCLUDED DAMAGES") THAT ARISE FROM OR
RELATE TO THIS AGREEMENT FOR ANY REASON, WHETHER OR NOT APPLIED HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, AND APPLIED EXCLUDES AND SUPPLIER WAIVES ANY
LIABILITY OF APPLIED FOR ANY SUCH EXCLUDED DAMAGES; PROVIDED, THAT THIS
EXCLUSION AS TO EXCLUDED DAMAGES IS, HOWEVER, SUBJECT TO AND SHALL NOT ALTER,
IMPAIR OR MODIFY ANY INDEMNITY OBLIGATION OF APPLIED PURSUANT TO THE IPA OR GSA
THAT IS APPLICABLE TO TOOLING OR THIS AGREEMENT.

3.0   [Omitted.]

3.1   Intellectual Property.

      (a) Nothing in this Agreement shall be deemed to grant to Supplier any
license or other right under any of Applied's intellectual property (including,
without limitation, Applied's patents, copyrights, trade and service marks,
trade secrets and Confidential Information, such

                                       5
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

latter term being used as defined in the IPA) for Supplier's own benefit or to
provide or offer Items or other products or services to any party other than
Applied.

      (b) The IPA shall apply to and govern the rights and obligations of
Applied and of Supplier with respect to "IP Rights" and "Confidential
Information" (as such terms are defined in the IPA) in or relating to Tooling,
including *, *, and * in or used in the operation of * or *.

3.2   Injunctive Relief; Reports.

      Supplier acknowledges and agrees that Applied would suffer immediate and
irreparable harm for which monetary damages would be an inadequate remedy if
Supplier were to breach its obligations under Sections 1.4 or 3.1. Supplier
further acknowledges and agrees that equitable relief would be appropriate to
protect Applied's rights and interests if such a breach were to arise, or were
threatened, or were asserted.

4.0   Entire Agreement; Amendments.

      (a) This Agreement (including the Attachments hereto and provisions
incorporated herein by reference), provisions of the GSA applicable to Tooling
(including Section 4.2 of the GSA), those provisions of the IPA applicable to
Tooling (including related software) and the IS&T Agreement (such term being
used as defined in the GSA), all as amended, set forth the entire understanding
and agreement of the parties as to the loan of the Tooling and supersede all
prior agreements, understandings, negotiations and discussions between the
parties as to such subject matter. The parties may be, or may become, parties to
other agreements relating to the manufacture or sale of products to Applied or
the provision of services to Applied, which other agreements shall govern their
respective subject matters.

      (b) No amendment to, modification of or waiver of any provision of this
Agreement will be binding unless in writing and signed by a duly authorized
representative of the party sought to be bound.

* Material has been omitted and filed separately with the Commission.

                                       6
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

4.1   Notices.

      Revisions, updates or other amendments or modifications to this Agreement
(including Attachments) shall be effective only if in set out in a writing (or
other record) executed (or authenticated) by each of Applied and Supplier, and
communications hereunder may be given by mail, fax or e-mail to the individuals
listed below.

   Supplier:

<TABLE>
<S>                     <C>
      ----------------------------------------------------------------
      (Name)            Joe Foster, Senior Vice President
      ----------------------------------------------------------------
      (Address 1)       2805 Mission College Blvd.
      ----------------------------------------------------------------
      (Address 2)       Santa Clara, California  95054
      ----------------------------------------------------------------
      (Phone)           (408) 935-4570
      ----------------------------------------------------------------
      (FAX)             (408) 934-6302
      ----------------------------------------------------------------
      (E-mail)          jfoster@kineticsgroup.com
      ----------------------------------------------------------------
</TABLE>

Applied:

Applied Materials, Inc.

9700 U.S. Hwy 290 East M/S 3300

Austin, Texas  78724

Phone: 512-272-2535

Fax:   512-272-3908

Attn:  Mr. Craig Romick (email address is: Craig_A_Romick@AMAT.com)

Each party shall advise the other in writing of any change to such party's
contact persons.

4.2   Applicable Law; Consent to Jurisdiction; Venue.

      This Agreement shall be governed by, subject to and construed in
accordance with the internal laws of the State of California, excluding
conflicts of law rules. The parties incorporate by reference Article 11 of
Exhibit 1 of the GSA and agree that the provisions of such Article apply to this
Agreement.

4.3   Assignments.

                                       7
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

      The parties incorporate by reference Article 17 of Exhibit 1 of the GSA
and agree that the provisions of such Article apply to this Agreement.

4.4   Waiver.

      In the event Applied delays or fails to insist on performance of any of
the terms and conditions set forth herein or delays or fails to exercise any of
its rights or privileges under this Agreement, such delay or failure shall not
constitute a waiver of such terms, conditions, rights or privileges.

4.5   Indemnity by Supplier.

      SUPPLIER SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS APPLIED FROM AND
AGAINST, AND SHALL SOLELY AND EXCLUSIVELY BEAR AND PAY, ANY AND ALL CLAIMS,
SUITS, LOSSES, PENALTIES, DAMAGES (WHETHER ACTUAL, PUNITIVE, CONSEQUENTIAL OR
OTHERWISE) AND ALL LIABILITIES AND THE ASSOCIATED COSTS AND EXPENSES, INCLUDING
ATTORNEY'S FEES, EXPERT'S FEES, AND COSTS OF INVESTIGATION (ALL OF THE FOREGOING
BEING COLLECTIVELY CALLED "INDEMNIFIED LIABILITIES"), WHICH ARISE FROM OR RELATE
TO, OR ARE FOR, PERSONAL INJURY, DEATH, OR DAMAGE TO OR LOSS OF TANGIBLE
PROPERTY RESULTING (IN WHOLE OR IN PART) FROM THE USE OR OPERATION OF THE
TOOLING BY SUPPLIER, OTHER THAN (a) AS A RESULT OF DEFECTS IN THE TOOLING
EXISTING AT THE TIME OF DELIVERY TO SUPPLIER OR (b) FOR INFRINGEMENT OR OTHER
MATTERS AS TO WHICH APPLIED HAS WARRANTY OR INDEMNITY OBLIGATIONS TO SUPPLIER.
THIS INDEMNITY IS SUBJECT TO, AND SHALL NOT ALTER, IMPAIR OR MODIFY, ANY
WARRANTY OR INDEMNITY BY APPLIED OR SUPPLIER TO OR FOR THE BENEFIT OF THE OTHER
UNDER THE IPA OR GSA.

4.6   Supplier's Expense and Risk; Taxes.

      Supplier shall perform all of its obligations hereunder at its own expense
and risk, including without limitation those specified herein as being at
Supplier's expense. Supplier shall be responsible for paying any use tax
assessed in connection with the loan of Tooling contemplated by this Agreement.

4.7   Captions and Severability.

      Captions in this Agreement are for the convenience of the parties only and
shall not affect the interpretation or construction of this Agreement. In the
event any provision of this Agreement is held to be invalid or unenforceable,
such provision shall be severed from the remainder of this Agreement, and such
remainder will remain in force and effect.

4.8   Counterparts and Attachments.

      This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Particular items of Tooling subject to this Agreement may be added or deleted by
the parties from time to time; as items are added or deleted, a new Attachment
(or an amendment to a current Attachment) to this Agreement shall be executed by
the parties to identify changes in Tooling.

                                       8
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       9
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

IN WITNESS WHEREOF, the parties hereto have caused their names to be signed
hereto by their respective duly authorized officers, all as of the Effective
Date.

APPLIED:                                SUPPLIER:

APPLIED MATERIALS, INC.                 KINETICS FLUID SYSTEMS, INC.

By:    /s/ Paul Hohlstein               By:    /s/ Dan Rubin
   -------------------------------         -------------------------------

Name:  Paul Hohlstein                   Name:  Dan Rubin
     -----------------------------           -----------------------------

Title: Vice President                   Title: President
      ----------------------------            ----------------------------

                                       10
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

               ATTACHMENT 1

The * Attachment 1 consists of:

      (a) Schedule 4.2.2(c) to the GSA as of the Effective Date;

      (b) The Test Fixture Software (as defined in Section 4.2.3(c) of the GSA,
      and which is not required to be scheduled);

      (c) The * identified on Addendum * to the * Agreement and all * the Third
      Party Applications set out on Schedule 2.3.8 to the IPA and the *
      identified under * in Schedule 2.8 to the IPA; and

      (d) The * identified under * in Schedule 2.8 to the IPA.

* Material has been omitted and filed separately with the Commission.

                                       11
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

As to Tooling delivered *, the following form shall be used:

                           Supplement to Attachment 1

Applied Materials, Inc. ("Applied") and the below named Supplier ("Supplier")
agree that the property described below to Supplier has been delivered to
Supplier as "Tooling" under, and is subject to, that certain Tooling Loan
Agreement dated as of _________ __, _____ between Applied and the Supplier:

Place of Delivery for Tooling and any Packaging or Shipping Instructions:

[Enter "Deliver To" Address]

<TABLE>
<CAPTION>
Detailed Description of Each Item of Tooling         Identification Number              Agreed Value
<S>                                                  <C>                                <C>

--------------------------------------------         ---------------------              ------------

--------------------------------------------         ---------------------              ------------

--------------------------------------------         ---------------------              ------------
</TABLE>

TOTAL VALUE OF TOOLING
                   $ TBD

Dated:
      ---------------------

* Material has been omitted and filed separately with the Commission.

                                       12
<PAGE>

CONFIDENTIAL TREATMENT REQUESTED

APPLIED MATERIALS, INC.                      KINETICS FLUID SYSTEMS, INC.

By:                                          By:
   --------------------------------             --------------------------------

Name:                                        Name:
     ------------------------------               ------------------------------

Title:                                       Title:
      -----------------------------                -----------------------------

                                       13

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