ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT

DATED AS OF OCTOBER 10, 2006

BY AND AMONG

BEAR STEARNS RESIDENTIAL MORTGAGE CORPORATION

ENCORE CREDIT CORP.

AND

ECC CAPITAL CORPORATION

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TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

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ASSET PURCHASE AGREEMENT , dated as of October 10, 2006 (this “ Agreement ”), by and among Bear Stearns Residential Mortgage Corporation (“ Acquirer ”), Encore Credit Corp. (“ Seller ”) and ECC Capital Corporation (“ ECC ”).

RECITALS

A.  Seller . Seller is a California corporation that originates and purchases nonconforming residential mortgage loans, primarily on a wholesale basis, through a network of independent mortgage brokers and mortgage lenders (the “ Business ”).

B.  ECC . ECC is a Maryland corporation which has elected to be treated for United States federal (and applicable state and local) income tax purposes as a real estate investment trust, or REIT, having its principal place of business in Irvine, California. ECC owns all of the outstanding capital stock of Seller.

C.  Acquirer . Acquirer is a Delaware corporation that develops and underwrites home loan programs that enable professional mortgage brokers and bankers to sell loans directly to Wall Street.

D.  The Acquisition . In accordance with the terms and subject to the conditions set forth in this Agreement, Seller desires to sell, assign and transfer to Acquirer, and Acquirer desires to purchase and acquire from Seller, all of the Transferred Assets (the “ Acquisition ”).

E.  Non-Solicit Agreement . Concurrently with the execution and delivery of this Agreement, Steven G. Holder has entered into an agreement with Acquirer, dated as of the date hereof, pursuant to which, among other things, subject to the terms and conditions set forth therein, Mr. Holder has agreed not to solicit or hire certain employees of Acquirer and not to solicit certain clients of the Business following the Closing.

F.  Employment Agreement . Concurrently with the execution and delivery of this Agreement, Shabi S. Asghar has entered into an employment agreement with Acquirer, dated as of the date hereof, setting forth the terms of his employment with Acquirer following the Closing.

NOW, THEREFORE , in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1.

CERTAIN DEFINITIONS

1.01 Certain Definitions . The following terms are used in this Agreement with the meanings set forth below:

“ Acquirer ” has the meaning set forth in the preamble to this Agreement.

“ Acquirer Indemnified Parties ” has the meaning set forth in Section 10.02(a) .

“ Acquirer Plans ” means those plans, policies and programs of Acquirer set forth on Schedule 6.05(c) .

“ Acquisition ” has the meaning set forth in the recitals to this Agreement.

“ Acquisition Proposal ” has the meaning set forth in Section 6.02(b) .

“ Action ” means any claim, action, suit, proceeding, arbitration, mediation or other investigation, including, without limitation, any investigation by any Governmental Authority.

“ Additional MLPA ” means the Mortgage Loan Purchase Agreement between Seller and EMC Mortgage Corporation, dated as of February 1, 2004, for Residential Fixed and Adjustable Rate Mortgage Loans (performing and non-performing).

“ Affiliate ” means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of the immediately preceding sentence, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

“ Agency ” means HUD or a state banking department, state attorney general or other state agency, as applicable.

“ Agreement ” means this Agreement, as amended or modified from time to time in accordance with Section 11.03 .

“ Allocation Schedule ” has the meaning set forth in Section 2.03(b) .

“ Applicable Permits ” has the meaning set forth in Section 5.02(d)(i) .

“ Approved Applications ” has the meaning set forth in Section 8.02(e) .

“ Asset Price ” has the meaning set forth in Section 2.03(a) .

“ Assumed Contracts ” means those contracts (and only those contracts) specified on Schedule 1.01A to this Agreement.

“ Assumed Liabilities ” has the meaning set forth in Section 2.02(a) .

“ Average Pull-Through Factor ” has the meaning set forth in Section 8.02(e) .

“ Benefit Plans ” has the meaning set forth in Section 5.02(i)(i) .

“ Bill of Sale, Assignment and Assumption Agreement ” has the meaning set forth in Section 3.02(a) .

“ Business ” has the meaning set forth in the recitals to this Agreement.

“ Business Day ” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of New York are authorized or obligated to close.

“ Business Records ” means all books, records, files and paper related to the Business.

“ BSMCC ” has the meaning set forth in Section 7.02 .

“ Cap ” has the meaning set forth in Section 10.02(c) .

“ Closed Loans ” has the meaning set forth in Section 8.02(e) .

“ Closing ” and “ Closing Date ” have the meanings set forth in Section 3.01 .

“ Closing Date Pre-Paid Fees Amount ” means the aggregate amount of all accrued revenue, income, pre-paid fees, third-party fees and expenses relating to the Assumed Contracts estimated as of the Closing Date by Acquirer and Seller and set forth on Schedule 1.01B to this Agreement, which schedule will be updated by Seller and delivered by Seller to Acquirer at the Closing.

“ COBRA ” has the meaning set forth in Section 5.02(i)(iv) .

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

“ Comparable Servicer ” means a servicer of residential subprime mortgage Loans that has a servicing rating by Moody’s Investors Service, Inc. and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., equal to or higher than EMC Mortgage Corporation.

“ Confidentiality Agreement ” has the meaning set forth in Section 6.01(d) .

“ Competitive Business Activity ” has the meaning set forth in Section 6.08(a) .

“ Deferred Compensation Plan ” has the meaning set forth in Section 5.02(i)(v) .

“ Disclosure Letter ” has the meaning set forth in Section 5.01 .

“ ECC ” has the meaning set forth in the preamble to this Agreement.

“ ECC Charter ” means the charter of ECC as in effect on the date hereof.

“ ECC Board ” means the Board of Directors of ECC.

“ ECC Common Stock ” means the common stock, $0.001 par value per share, of ECC.

“ ECC Special Committee ” means the committee of the ECC Board comprised of the four non-employee members of the ECC Board.

“ Employee Retention Agreements ” has the meaning set forth in Section 6.05(i) .

“ Environmental Laws ” means any United States federal, state or local Laws in existence on the date hereof relating to pollution or protection of the environment.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“ Excluded Assets ” means all of the assets of Seller other than the Transferred Assets, including, without limitation, those set forth on Schedule 1.01C to this Agreement.

“ Exclusivity Letter ” has the meaning set forth in Section 6.02(a) .

“ GAAP ” means accounting principles generally accepted in the United States of America.

“ Governmental Authority ” means any federal, state or local court, administrative agency or commission or other governmental authority or instrumentality or Agency.

“ Grant Thornton ” means Grant Thornton LLP.

“ Hazardous Substance ” means (i) those substances defined in or regulated under the following federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder: the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) polychlorinated biphenyls, friable asbestos and radon; and (iv) any substance, material, or waste regulated by any Governmental Authority pursuant to any Environmental Law.

“ HMDA ” means the Home Mortgage Disclosure Act, as amended.

“ HUD ” means the United States Department of Housing and Urban Development or any successor thereto.

“ Indemnified Party ” has the meaning set forth in Section 10.04(a) .

“ Indemnifying Party ” has the meaning set forth in Section 10.04(a) .

“ Insurance Policies ” has the meaning set forth in Section 5.02(p) .

“ Intellectual Property ” means patents (including any continuations, divisionals, continuations-in-part, renewals and reissues), trademarks, trade names, service marks, domain names and other indicators of source or origin, database rights, copyrights, mask works, technology, know-how, trade secrets, inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), tangible or intangible proprietary information or material and all other intellectual property or proprietary rights, together with all goodwill symbolized by any of the foregoing, registrations and applications for the foregoing, and rights to sue for past infringement thereof.

“ IRS ” has the meaning set forth in Section 5.02(i)(i) .

“ knowledge of ECC ” or “ to ECC’s knowledge ” means the actual knowledge of Steven Holder, Shabi Asghar, Roque Santi, Alanna Darling, Greg Lubushkin, Troy Gotschall, Larry Moretti, Steven Szyptek, Margaret Payne or Robyn Zieper.

“ knowledge of Seller ” or “ to Seller’s knowledge ” means the actual knowledge of Steven Holder, Shabi Asghar, Roque Santi, Alanna Darling, Greg Lubushkin, Troy Gotschall, Larry Moretti, Steven Szyptek, Margaret Payne or Robyn Zieper.

“ Law ” has the meaning set forth in Section 5.02(c)(i) .

“ Liens ” means any lien, charge, encumbrance or security interest of any kind and nature whatsoever.

“ Loan Property ” means any property in which Seller holds a security interest and, where required by the context, said term means the owner or operator of such property.

“ Loans ” means any loan, including any mortgage loan, loan agreement, note, borrowing arrangement or extension of credit, including, without limitation, letters of credit, leases, credit enhancements, guarantees and similar interest-bearing assets, as well as commitments to extend any of the same.

“ Losses ” means any and all claims, losses, liabilities, costs, penalties, fines, amounts paid in settlement, expenses (including, without limitation, attorneys’, accountants’, consultants’ and experts’ reasonable fees and expenses), damages, obligations to third parties, expenditures, proceedings, judgments, awards or demands, including, without limitation, any of the foregoing relating to enforcement of any party’s rights to indemnification hereunder.

“ Master MLPA ” means the Mortgage Loan Purchase and Interim Servicing Agreement, dated as of October 1, 2003, by and between EMC Mortgage Corporation and Seller, as amended.

“ Material Adverse Effect ” means any event, circumstance, change or effect that is, or with the passage of time will be, materially adverse to the Business, the financial condition or results of operations of the Business or the Transferred Assets; provided , however , that none of the following shall be deemed to constitute or shall be taken into account in determining whether there has been a “Material Adverse Effect”: (i) any event, circumstance, change or effect arising out of or attributable to (a) any decrease in the market price of ECC Common Stock (but not any event, circumstance, change or effect underlying such decrease), (b) any events, circumstances, changes or effects that affect the mortgage lending business generally, except to the extent any such event, circumstance, change or effect adversely affects the Business to a materially greater degree than other companies engaged in the mortgage lending business, (c) any changes in the United States or global economy or capital, financial or securities markets generally, including changes in interest or exchange rates, except to the extent any such change adversely affects the Business to a materially greater degree than other companies engaged in the mortgage lending business, (d) any changes in general economic, legal, regulatory or political conditions in the geographic regions in which ECC and its Subsidiaries operate, except to the extent any such change adversely affects the Business to a materially greater degree than other companies engaged in the mortgage lending business in such geographic regions, (e) any events, circumstances, changes or effects arising from the consummation or anticipation of the Acquisition or the announcement of the execution of this Agreement, (f) any events, circumstances, changes or effects arising from the compliance with the terms of, or the taking of any action required by, this Agreement, (g) changes in Law or GAAP, except to the extent any such change adversely affects the Business to a materially greater degree than other companies engaged in the mortgage lending business, or (h) a failure by ECC to report earnings or revenue results in any quarter ending on or after the date hereof consistent with ECC’s historic earnings or revenue results in any previous fiscal quarter or any continuation of an adverse trend or condition, except for any such failure or continuation attributable to an event, circumstance, change or effect that has materially adversely affected (or through the passage of time will materially adversely affect) the Business or the Transferred Assets, or (ii) any existing event, circumstance, change or effect with respect to which Acquirer has knowledge as of the date hereof.

“ MGCL ” means the Maryland General Corporation Law.

“ Mortgage Loans ” means each Loan sold, assigned and transferred to Acquirer or its Affiliates pursuant to this Agreement and the Other Agreements, which Mortgage Loans include all rights, benefits, proceeds and obligations arising from or in connection with such Loans.

“ Net Equity ” has the meaning set forth in Section 6.11(a) .

“ Notice of Superior Proposal ” has the meaning set forth in Section 6.02(c) .

“ Offer ” has the meaning set forth in Section 7.03(a) .

“ Other Agreements ” means the Master MLPA, the Additional MLPA and the Repo Agreement.

“ Outside Date ” has the meaning set forth in Section 9.01(b)(ii) .

“ Payroll Taxes ” has the meaning set forth in Section 6.05(d) .

“ Permitted Liens ” means (i) Liens for Taxes not yet due; (ii) inchoate mechanics’ and materialmen’s Liens for construction in progress; and (iii) inchoate workmen’s, repairmen’s, warehousemen’s and carriers’ Liens arising in the ordinary course of the Business.

“ Person ” means any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company or unincorporated organization.

“ Property Restrictions ” has the meaning set forth in Section 5.02(k)(ii) .

“ Pro Rata Portion ” has the meaning set forth in Section 6.05(i) .

“ Pull-Through Factor ” has the meaning set forth in Section 8.02(e) .

“ REIT ” means a real estate investment trust within the meaning of Section 856-860 of the Code.

“ Representatives ” has the meaning set forth in Section 6.02(a) .

“ Repo Agreement ” has the meaning set forth in Section 7.02 .

“ Requisite Regulatory Approvals ” means those approvals and consents set forth on Schedule 1.01D to this Agreement.

“ Retained Liabilities ” has the meaning set forth in Section 2.02(b) .

“ Retention Period ” has the meaning set forth in Section 6.05(i) .

“ SEC ” means the Securities and Exchange Commission.

“ SEC Reports ” has the meaning set forth in Section 5.03(e)(i) .

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“ Seller ” has the meaning set forth in the Preamble to this Agreement.

“ Seller Indemnified Parties ” has the meaning set forth in Section 10.03(a) .

“ Seller Financial Statements ” means (a) the consolidated balance sheet of the Business as of December 31 for each of the fiscal years 2003, 2004, and 2005, together with consolidated statements of income, shareholders’ equity and cash flows for each of the years then ended, and (b) the consolidated balance sheet of the Business as of the most recently completed fiscal quarter, together with consolidated statements of income, shareholders’ equity and cash flows from the end of the prior fiscal year to the end of the quarterly period then ended.

“ Seller Property ” or “ Seller Properties ” has the meaning set forth in Section 5.02(k)(ii) .

“ Seller’s Assumed December Volume ” has the meaning set forth in Section 8.02(e) .

“ Subsidiary ” and “ Significant Subsidiary ” have the meanings ascribed to those terms in Rule l-02 of Regulation S-X promulgated by the SEC.

“ Superior Proposal ” has the meaning set forth in Section 6.02(b) .

“ Tax ” or “ Taxes ” shall mean any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

“ Tax Certificates ” shall mean affidavits, in form and substance reasonably satisfactory to Acquirer, to the effect that Acquirer is not required to withhold from the Asset Price under Section 1445 of the Code.

“ Tax Returns ” shall mean any return, declaration, report, claim for refund, transfer pricing report or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“ Technology Upgrades ” has the meaning set forth on Schedule 1.01E to this Agreement.

“ Termination Date ” has the meaning set forth in Section 9.01 .

“ Termination Fee ” has the meaning set forth in Section 9.03(b) .

“ Third Party Claim ” has the meaning set forth in Section 10.04(a) .

“ Threshold Amount ” has the meaning set forth in Section 10.02(c) .

“ Transferred Assets ” has the meaning set forth in Section 2.01(a) .

“ Transferred Employee ” has the meaning set forth in Section 6.05(a) .

“ Transferred IP ” means all Intellectual Property included in the Transferred Assets.

“ Transferred Properties ” has the meaning set forth in Section 5.02(k)(iv) .

“ Volume Requirement ” has the meaning set forth in Section 8.02(e) .

“ Waiver Agreement ” has the meaning set forth in Section 5.02(i)(v) .

“ WARN ” has the meaning set forth in Section 5.02(i)(iv) .

ARTICLE 2.

PURCHASE AND SALE OF ASSETS

2.01 Purchase and Sale of Assets; Additional Assets .

(a)  Purchase and Sale of Assets . On the terms and subject to the conditions set forth herein, at the Closing (as defined below), Seller shall sell and convey, and Acquirer shall purchase and accept, all of Seller’s right, title and interest in and to all of the assets, rights, privileges, claims and properties of every kind, nature, character and description, real, personal and mixed, tangible and intangible, absolute or contingent, wherever located, used in or relating to the operation of the Business, including, without limitation, those assets identified on Schedule 2.01(a) to this Agreement and the Assumed Contracts (collectively, the “ Transferred Assets ”), free and clear of all Liens, other than Permitted Liens. Notwithstanding any provision of this Agreement to the contrary, Seller shall not sell and deliver to Acquirer its right, title and interest in and to the Excluded Assets.

(b)  Additional Assets . From the date hereof until the Closing, Acquirer may designate for purchase additional assets of ECC and its Subsidiaries as mutually agreed by the parties hereto, and such assets shall constitute Transferred Assets hereunder.

2.02 Assumption of Liabilities .

(a) On the terms and subject to the conditions set forth herein, at the Closing, Acquirer shall assume from Seller and thereafter pay, perform or otherwise discharge in accordance with their terms, and shall hold Seller and its Affiliates harmless from, those liabilities (and only those liabilities) of Seller specified on Schedule 2.02(a) to this Agreement (the “ Assumed Liabilities ”).

(b) Seller shall retain, and shall be responsible for paying, performing and discharging when due, and shall hold Acquirer and its Affiliates harmless from, all liabilities of Seller other than the Assumed Liabilities, including, without limitation, (i) any liabilities relating to the Benefit Plans, (ii) any liabilities, including, without limitation, any liabilities arising under WARN, COBRA or any other Law pertaining to employees generally, and any employee severance liabilities, relating to the employment or termination of employment by Seller up to and through the Closing Date of any Transferred Employee, (iii) any liabilities, including, without limitation, any liabilities arising under WARN, COBRA or any other Law pertaining to employees generally, and any employee severance liabilities, relating to the employment or termination of employment by Seller, whether on, prior to or after the Closing Date, of any employee of Seller or any of its Affiliates who does not become a Transferred Employee, (iv) any liabilities relating to any Liens on the Transferred Assets, including, without limitation, any Permitted Liens, and (v) those liabilities and obligations, including, without limitation, liabilities and obligations arising under (A) contracts between Seller and third parties that are not Assumed Contracts and (B) the Deferred Compensation Plan, set forth on Schedule 2.02(b) to this Agreement (the “ Retained Liabilities ”).

2.03 Consideration .

(a)  Asset Price . In consideration for the Transferred Assets, at the Closing, Acquirer shall pay to Seller an amount in cash (the “ Asset Price ”) equal to the sum of (i) $26,000,000 (of which $2,000,000 is expected to be allocated to the fixed assets included in the Transferred Assets) and (ii) the Closing Date Pre-Paid Fees Amount.

(b)  Allocation of Asset Price; Tax Filings . The Asset Price shall be allocated among the Transferred Assets as set forth in a schedule to be delivered by Seller to Acquirer at the Closing (the “ Allocation Schedule ”), which will have been arrived at by arm’s length negotiation and be mutually acceptable to Seller and Acquirer, in compliance with Section 1060 of the Code and the regulations promulgated thereunder. Each of Acquirer and Seller shall (i) timely file all forms (including Internal Revenue Service Form 8594) and Tax Returns required to be filed in connection with such allocation, (ii) be bound by such allocation for purposes of determining Taxes, (iii) prepare and file, and cause its Affiliates to prepare and file, its Tax Returns on a basis consistent with such allocation and (iv) take no position, and cause its Affiliates to take no position, inconsistent with such allocation on any applicable Tax Return, in any audit or proceeding before any taxing authority, in any report made for Tax, financial accounting or any other purposes, or otherwise, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. Each of Acquirer, on the one hand, and Seller, on the other hand, will provide the other with copies of Internal Revenue Service Form 8594 and any required exhibits thereto, consistent with the allocation determined pursuant to this Section 2.03(b) upon request. In the event that the allocation set forth on the Allocation Schedule is disputed by any taxing authority, the party receiving notice of such dispute shall promptly notify the other party hereto concerning the existence of, material developments regarding, and resolution of such dispute.

(c)  Adjustments to Asset Price .

(i)  Pre-Closing Adjustments .

(1) If, upon mutual agreement of the parties, any asset that would otherwise be a Transferred Asset purchased by Acquirer at the Closing is not so purchased at the Closing, then the Asset Price shall be reduced by the amount of such Transferred Asset, as mutually agreed by the parties. In the event that any fixed asset that the parties intended to be included in the Transferred Assets is not purchased by Acquirer at Closing, then the Asset Price shall be reduced by the dollar amount of such fixed asset retained by Seller, such amount to be mutually agreed by the parties, it being understood and agreed that in determining such amount the parties shall assume for this purpose that the total value of all fixed assets included in the Transferred Assets is $2,000,000.

(2) If, upon mutual agreement of the parties, any Retained Liability is assumed by Acquirer at the Closing, then the Asset Price shall be reduced by the amount of such Retained Liability, as mutually agreed by the parties.

(3) If, upon mutual agreement of the parties, any Excluded Asset is transferred by Seller to Acquirer at the Closing, then the Asset Price shall be increased by the amount of such Excluded Asset, as mutually agreed by the parties.

(ii)  Post-Closing Adjustment . On or prior to the date that is ninety days following the Closing Date, unless sooner agreed by Acquirer and Seller, Acquirer shall prepare and deliver to Seller a schedule showing the aggregate amount of all accrued revenue, income, pre-paid fees, third-party fees and expenses relating to the Assumed Contracts of which it received the full benefit. If the amount set forth on such schedule exceeds the Closing Date Pre-Paid Fees Amount, then Acquirer promptly and in no event later than five Business Days following delivery to Seller of such schedule shall remit such excess to Seller. If the Closing Date Pre-Paid Fees Amount exceeds the amount set forth on such schedule, then Seller promptly and in no event later than five Business Days following receipt of such schedule shall remit such excess to Acquirer.

ARTICLE 3.

CLOSING

3.01 Closing . Subject to this Section 3.01 , each of the parties hereto shall use reasonable best efforts to cause the Closing to occur on December 1, 2006. Subject to the terms and conditions contained in this Agreement (including the satisfaction, or waiver where permissible, of the conditions set forth in Article VIII ), the closing of the Acquisition (the “ Closing ”) shall take place within three Business Days after the day on which the condition set forth in Section 8.02(f) shall have been satisfied (or waived) or on such other date as the parties hereto shall mutually agree, at 10:00 a.m., Eastern Time, at a location in New York, New York to be mutually agreed upon by the parties hereto, or at such other place, at such other time, or on such other date as the parties may mutually agree upon (such date, or the date determined pursuant to the proviso in this Section 3.01 , the “ Closing Date ”); provided, however, that in the event that the condition set forth in Section 8.02(f) shall have been satisfied on or prior to December 25, 2006 and, in the sole judgment of Acquirer, the Technology Upgrades shall not have been completed as of the date such condition shall have been satisfied, Acquirer shall have the right to extend the Closing Date to a date that is three Business Days after the date on which the Technology Upgrades shall have been completed (as determined by Acquirer in its sole judgment), but in no event beyond December 29, 2006, it being understood and agreed, however, that if the condition set forth in Section 8.02(f) shall be satisfied on or after December 26, 2006, then the Closing shall take place within three Business Days after the satisfaction of such condition (subject to the satisfaction, or waiver where permissible, of the other conditions set forth in Article VIII ) regardless of whether or not the Technology Upgrades shall have been completed at such time.

3.02 ECC’s and Seller’s Closing Deliveries . At or prior to the Closing, ECC or Seller, as applicable, shall deliver to Acquirer the following items:

(a) a bill of sale, assignment and assumption agreement duly executed by Seller (the “ Bill of Sale, Assignment and Assumption Agreement ”), substantially in the form of Exhibit A hereto, transferring the Transferred Assets and the Assumed Liabilities to Acquirer;

(b) assignments of all Transferred IP;

(c) all Business Records; provided , however , that in the event Seller is required by Law to keep originals of any Business Records, Seller will provide copies of such materials to Acquirer and to the extent any Business Records are in a computer format, Seller either will provide hard copies or file transfers of such materials to Acquirer;

(d) the officer’s certificate referred to in Section 8.02(d) ;

(e) all Tax Certificates;

(f) a schedule of the estimated Closing Date Pre-Paid Fees Amount;

(g) the Allocation Schedule pursuant to Section 2.03(b) of this Agreement;

(h) a balance sheet of Seller, prepared in accordance with GAAP, as of the latest practicable date ; and

(i) all other documents, certificates, instruments or writings reasonably requested by Acquirer in connection herewith.

3.03 Acquirer’s Closing Deliveries . At or prior to the Closing, Acquirer shall deliver to Seller the following items:

(a) the Asset Price by wire transfer of immediately available funds to an account or accounts designated no later than three Business Days prior to the Closing by Seller;

(b) the Bill of Sale, Assignment and Assumption Agreement duly executed by Acquirer;

(c) the officer’s certificate referenced in Section 8.03(d) ; and

(d) all other documents, certificates, instruments or writings reasonably requested by Seller in connection herewith.

ARTICLE 4.

CONDUCT OF THE PARTIES PENDING CLOSING

4.01 Conduct of Business by Seller . From the date hereof until the earlier of the Closing and the termination of this Agreement pursuant to and in accordance with Article IX, except as expressly contemplated or permitted by this Agreement or as disclosed in the Disclosure Letter, without the prior written consent of Acquirer, not to be unreasonably withheld, Seller will not:

(a)  Ordinary Course . Conduct the Business other than in the ordinary and usual course consistent with past practice or fail to use reasonable efforts to (i) preserve its business organization, (ii) maintain its current regulatory authorizations, permits and licenses, (iii) preserve its current relationships with suppliers, business partners and other Persons with which it has material business relations and (iv) keep available the present services of its employees; provided that the parties acknowledge and agree that various occurrences outside of Seller’s control, including without limitation, changes in Seller’s relationships with its suppliers, business partners and employees, may occur as a result of the announcement of the execution of this Agreement or in anticipation of the Acquisition, and the fact that such occurrences have taken place shall not affect the determination of whether Seller has used reasonable efforts to comply with its obligations under this Section 4.01(a) .

(b)  Assets of Seller . Transfer, sell, lease or otherwise mortgage, pledge, dispose of or subject to any Lien (other than Permitted Liens) any of the Transferred Assets.

(c)  Compensation; Employment Agreements; Etc . Except as may be required by contractual commitments or corporate policies in existence on the date of this Agreement or by applicable Law, materially increase the compensation or benefits payable or to become payable to its directors, executive officers or employees (except for increases in the ordinary course of business consistent with past practices).

(d)  Indebtedness . (i) Incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person for borrowed money, except (1) indebtedness for borrowed money incurred in the ordinary course of business pursuant to the existing credit facilities of ECC or its Subsidiaries, or new credit facilities that do not require commitment fees or non-usage fees in excess of $1,000,000 in the aggregate and are for aggregate borrowings not in excess of $75,000,000, provided that ECC gives five days prior written notice to Acquirer prior to entry into any such new credit facility, (2) indebtedness for borrowed money incurred in connection with the amendment, extension, modification, refunding, renewal, refinancing or replacement of existing indebtedness after the date of this Agreement, but only if the aggregate principal amount thereof is not increased thereby, the term thereof is not extended thereby (or, in the case of replacement indebtedness, the term of such indebtedness is not for a longer period of time than the period of time applicable to the indebtedness so replaced), or (ii) enter into or amend any contract, agreement, commitment or arrangement that, if fully performed, would not be permitted under this Section 4.01(d) .

(e)  Governing Documents . Amend its articles of incorporation or bylaws (or equivalent documents) except as may be required by this Agreement.

(f)  Accounting Methods . Change in any material respect any of the accounting principles or practices used by it (except as required by GAAP or change in Law, or as recommended by ECC’s independent auditors, or pursuant to written instructions, comments or orders from the SEC).

(g)  Loans . Except at the request of Acquirer or as required by changes in GAAP or any applicable Law, make any material change in its practices and policies relating to the pricing, credit policies, monitoring or collection procedures with respect to Loans; provided , however , that Seller shall continue to comply in all material respects with all federal, state, and local Laws to which it is subject, including, but not limited to, Laws pertaining to usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity, disclosure and unfair and deceptive practices, and shall change its practices and policies as may be required from time to time in order to comply with any changes in the requirements of such Laws.

(h)  Contracts . Except in the ordinary course of business consistent with past practice or as otherwise permitted under this Section 4.01 , (i) terminate any Assumed Contract or amend or modify in any material respect any of the Assumed Contracts or (ii) enter into any contract that would materially affect the Business or the Transferred Assets.

(i)  Claims . Except as disclosed on the Disclosure Letter, settle or compromise any claim or litigation related to the Business, the Transferred Assets or the Assumed Liabilities, in each case, material to Seller, the Business, the Transferred Assets or the Assumed Liabilities, other than (i) the settlement or compromise in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the consolidated balance sheet of ECC as of June 30, 2006 included in ECC’s SEC Reports, or (ii) settlements involving payments that are not in excess of $500,000 individually or $2,000,000 in the aggregate.

(j)  Dividends . Declare or pay any dividends on or make other distributions (whether in cash, stock or property) in respect of its capital stock; provided , however , that Seller shall be permitted to make distributions in respect of its capital stock solely to the extent necessary to permit ECC to maintain its qualification as a REIT under the Code, in which case, at least five Business Days prior to making any such distribution, Seller shall explain in writing to Acquirer, in reasonable detail, the reasons why such distributions must be made.

(k)  Insurance . Cancel or terminate any material insurance policy naming Seller as a beneficiary or loss payee, except those that expire according to their terms.

(l)  Employee Communications . Provide any information, whether written or oral, to any employee of Seller regarding Acquirer employee benefit plans or arrangements or other employment-related matters, including, without limitation, the right to participate in Acquirer’s employee benefit plans or receive service or vesting credit under such plans, employment opportunities with Acquirer or the terms and conditions of employment with Acquirer.

(m)  Interference or Delay . Take, or cause to be taken, any action that would interfere with the consummation of Acquisition and the other transactions contemplated by this Agreement, or delay the consummation of such transactions.

(n)  Adverse Actions . Take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Closing or (ii) any of the conditions set forth in Article VIII not being satisfied.

(o)  Other Actions . Authorize or enter into any agreement or otherwise make any commitment to do any of the foregoing.

4.02 Conduct of ECC . From the date hereof until the earlier of the Closing and the termination of this Agreement pursuant to and in accordance with Article IX , except as expressly contemplated or permitted by this Agreement, without the prior written consent of Acquirer, not to be unreasonably withheld, ECC will not:

(a)  Dividends . Declare or pay any dividends on or make other distributions (whether in cash, stock or property) in respect of its capital stock; provided , however , that ECC shall be permitted to make distributions in respect of its capital stock solely to the extent necessary to permit it to maintain its qualification as a REIT under the Code, in which case, at least five Business Days prior to making any such distribution, ECC shall explain in writing to Acquirer, in reasonable detail, the reasons why such distributions must be made.

(b)  Employee Communications . Provide any information, whether written or oral, to any employee of Seller regarding Acquirer employee benefit plans or arrangements or other employment-related matters, including, without limitation, the right to participate in Acquirer’s employee benefit plans or receive service or vesting credit under such plans, employment opportunities with Acquirer or the terms and conditions of employment with Acquirer.

(c)  Interference or Delay . Take, or cause to be taken, any action that would interfere with the consummation of Acquisition and the other transactions contemplated by this Agreement, or delay the consummation of such transactions.

(d)  Adverse Actions . Take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Closing or (ii) any of the conditions set forth in Article VIII not being satisfied.

(e)  Other Actions . Authorize or enter into any agreement or otherwise make any commitment to do any of the foregoing.

4.03 Conduct of Acquirer . From the date hereof until the earlier of the Closing and the termination of this Agreement pursuant to and in accordance with Article IX, except as expressly contemplated or permitted by this Agreement, without the prior written consent of Seller, not to be unreasonably withheld, Acquirer will not:

(a)  Interference or Delay . Take, or cause to be taken, any action that would interfere with the consummation of the Acquisition and the other transactions contemplated by this Agreement, or delay the consummation of such transactions.

(b)  Adverse Actions . Take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Closing or (ii) any of the conditions set forth in Article VIII not being satisfied.

(c)  Commitments . Enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

ARTICLE 5.

REPRESENTATIONS AND WARRANTIES

5.01 Disclosure Letter . Prior to the execution and delivery of this Agreement, Seller has delivered to Acquirer a Disclosure Letter with numbered sections corresponding to the relevant sections in this Agreement (the “ Disclosure Letter” ). Any exception, qualification, limitation, document or other item described in any provision, subprovision, section or subsection of any Section of the Disclosure Letter with respect to a particular representation or warranty contained in Section 5.02 herein shall be deemed to be an exception or qualification with respect to all other representations or warranties contained in Section 5.02 herein to which the relevance of such item is reasonably apparent. Nothing in the Disclosure Letter is intended to broaden the scope of any representation or warranty contained in Section 5.02 herein.

5.02 Representations and Warranties of Seller . Subject to the exceptions and qualifications set forth in the Disclosure Letter, Seller hereby represents and warrants to Acquirer, as of the date of this Agreement and as of the Closing Date (except for those representations and warranties made as of a specific date, which representations and warranties are made as of such date), that:

(a)  Existence; Good Standing; Authority; Compliance with Law .

(i) Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. The articles of incorporation of Seller are in full force an effect. Seller is duly qualified or licensed to do business as a foreign entity and is in good standing under the laws of any other jurisdiction in which the character of the properties owned, leased or operated by it therein or in which the transaction of its business makes such qualification or licensing necessary. Seller has all requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted.

(ii) Seller has previously made available to Acquirer true and complete copies of its articles of incorporation and bylaws, each as amended through the date hereof.

(b)  Authority Relative to this Agreement .

(i) Seller has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the Acquisition and the other transactions contemplated hereby. No other corporate proceedings on the part of Seller are necessary to authorize this Agreement or to consummate the Acquisition and the other transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Seller and, assuming due authorization, execution and delivery hereof by Acquirer, constitutes a valid, legal and binding agreement of Seller, enforceable against Seller in accordance with and subject to its terms and conditions, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles.

(ii) Each of the board of directors and the sole stockholder of Seller has duly and validly authorized the execution and delivery of this Agreement, declared the Acquisition and the other transactions contemplated hereby advisable and approved, and no other actions are required to be taken by the board of directors or the sole stockholder of Seller for the consummation of the Acquisition or the other transactions contemplated hereby.

(c)  No Conflict; Required Filings and Consents .

(i) Except as set forth in Section 5.02(c)(i) of the Disclosure Letter, the execution and delivery by Seller of this Agreement does not, and the performance of its obligations hereunder will not, (1) conflict with or violate the organizational documents of Seller, (2) assuming that all consents, approvals, authorizations and other actions described in subsection (ii) have been obtained and all filings and obligations described in subsection (ii) have been made, conflict with or violate any foreign or domestic statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order (“ Law ”) applicable to Seller or by which any property or asset of Seller is bound or affected, or (3) result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien or other encumbrance on any property or asset of Seller pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation.

(ii) The execution and delivery by Seller of this Agreement and does not, and the performance of its obligations hereunder will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority except for such consents, approvals, authorizations, permits, filings or notifications as may be required under the Laws of any state in respect of the Business.

(d)  Permits; Compliance; Privacy .

(i) Seller is in possession of all franchises, grants, authorizations, licenses, permits, consents, certificates, approvals and orders of any Governmental Authority necessary for Seller to own, lease and operate the Transferred Assets and to carry on the Business as it is now being conducted (the “ Applicable Permits ”). As of the date hereof, no suspension or cancellation of any of the Applicable Permits is pending or, to the knowledge of Seller, threatened. Seller is not in conflict with, or in default, breach or violation of, (1) any Law applicable to Seller or by which any of its properties or assets, including, without limitation, the Transferred Assets, is bound or affected, or (2) any note, bond, mortgage, indenture, contract, agreement, lease, license, Applicable Permit, franchise or other instrument or obligation to which Seller is a party or by which Seller or any of its properties or assets, including, without limitation, the Transferred Assets, is bound.

(ii) To the knowledge of Seller, Seller has at all times complied with applicable Laws relating to privacy, data protection and the collection and use of personal information and user information gathered or accessed in the course of the operations of Seller. Except as set forth in Section 5.02(d)(ii) of the Disclosure Letter, no claims have been asserted against Seller, or to Seller’s knowledge, otherwise threatened, by any Governmental Authority or any Person alleging a violation of any such Laws by Seller. To the knowledge of Seller, Seller has at all times complied with all rules, policies and procedures established by it from time to time with respect to privacy, data protection or collection and use of personal information and user information gathered or accessed in the course of its operations. Except as set forth in Section 5.02(d)(ii) of the Disclosure Letter, no claims have been asserted against Seller, or to Seller’s knowledge, otherwise threatened, by any Person alleging a violation of such Person’s privacy, personal or confidentiality rights under any such rules, policies or procedures. The consummation of the transactions contemplated hereby will not breach or otherwise cause any violation of any Law related to privacy, data protection or the collection and use of personal information and user information gathered or accessed from then current users (at the time of consummation of the transactions contemplated hereby) in the course of the operations of Seller. Seller maintains systems and procedures reasonably intended to respond to complaints received alleging violations of third-party content rights.

(iii) With respect to all personal and user information described in Section 5.02(d)(ii) above, Seller has, except as set forth in Section 5.02(d)(iii) of the Disclosure Letter, taken reasonable steps (including, without limitation, implementing and monitoring compliance with measures it deems adequate with respect to technical and physical security) to ensure that such information is protected against loss and against unauthorized access, use, modification, disclosure or other misuse. To Seller’s knowledge, there has been no unauthorized access to or other misuse of that information.

(iv) To the knowledge of Seller, Seller is in compliance with all applicable federal, state and local Laws, including, but not limited to, the Truth-in-Lending Act and Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Real Estate Settlement Procedures Act and Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Housing Act, all Agency and other investor and mortgage insurance company requirements relating to the origination, sale and servicing of Loans, and Laws which prohibit unfair and deceptive practices.

(e)  Seller Financial Statements . True and complete copies of the Seller Financial Statements, together with the related auditors reports, are included in Section 5.02(e) of the Disclosure Letter. The Seller Financial Statements were prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and each fairly presents, in all material respects, the financial position, results of operations and cash flows of Seller as of the respective dates thereof and for the respective periods indicated therein (subject, in the case of unaudited statements, to normal and recurring year end adjustments). The books and records of Seller have been, and are being, maintained in accordance with applicable legal and accounting requirements and reflect only actual transactions.

(f)  No Undisclosed Liabilities . Except (i) as disclosed in the Seller Financial Statements and (ii) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since the date thereof, Seller has no liabilities or obligations relating to the Business or the Transferred Assets, whether or not accrued, contingent or otherwise.

(g)  Absence of Certain Changes or Events . Except as set forth in Section 5.02(g) of the Disclosure Letter or in the SEC Reports referenced therein, since January 1, 2006, Seller has conducted its business in the ordinary course and, to Seller’s knowledge, there have not occurred any changes, effects or circumstances that would, individually or in the aggregate, have a Material Adverse Effect.

(h)  Litigation; Enforcement .

(i) Except as listed in Section 5.02(h)(i) of the Disclosure Letter, there are no Actions pending or, to Seller’s knowledge, threatened against, involving or affecting Seller or any of its properties or assets, including, without limitation, the Transferred Assets, (1) brought by or otherwise involving, affecting or relating to any present or former employee or employees of Seller or any of its Affiliates, (2) as to which there is a reasonable probability of an adverse determination, and which, if adversely determined, would have, individually or in the aggregate, a Material Adverse Effect, or (3) that questions the validity of this Agreement or any action to be taken by Seller in connection with the consummation of the Acquisition or the other transactions contemplated hereby. Seller is not subject to any order, judgment, writ, injunction or decree, except as would not, individually or in the aggregate, have a Material Adverse Effect.

(ii) Except as set forth in Section 5.02(h)(ii) of the Disclosure Letter, Seller is not now nor has it ever been since December 31, 2002 subject to any fine, suspension, settlement or other agreement or other administrative agreement or sanction by, or any reduction in any Loan purchase commitment from, any Agency or any other federal or state agency relating to the origination, sale or servicing of Loans. Seller has not received any notice, nor does it have any reason to believe, that any Agency proposes to limit or terminate the underwriting authority of Seller or to increase the guarantee fees payable to any such agency. There is no Action pending, or to the knowledge of Seller, threatened or likely to be asserted with respect to Loans against or affecting Seller before or by any Governmental Authority.

(i)  Employee Matters .

(i)  Section 5.02(i)(i) of the Disclosure Letter lists (1) all employee benefit plans (as defined in Section 3(3) of ERISA) and all material bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental executive retirement plans, severance or other benefit plans, programs, trusts or arrangements, and all material employment, termination, severance, compensation or other contracts or agreements, to which Seller is a party, or which are sponsored by ECC or any of its Subsidiaries for the benefit of any employee, officer or director of Seller, and (2) any material contracts, arrangements or understandings between ECC or any of its Affiliates and any employee of Seller, including, without limitation, any contracts, arrangements or understandings or change in control arrangements relating to a sale of ECC (collectively, the “ Benefit Plans ”). ECC and Seller have made available to Acquirer a true and correct copy of (A) each written Benefit Plan, (B) the most recent annual report (Form 5500) filed with the Internal Revenue Service (the “ IRS ”), if any, (C) the most recent summary plan description for each Benefit Plan for which a summary plan description is required by applicable Law, and (D) the most recent determination letter, if any, issued by the IRS with respect to any Benefit Plan that is intended to qualify under Section 401(a) of the Code.

(ii) Each Benefit Plan has been operated in all material respects in accordance with its terms and the requirements of all applicable Laws, including, without limitation, ERISA and the Code, except where such failure to operate such Benefit Plan in accordance with its terms and applicable Laws would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in Section 5.02(i)(ii) of the Disclosure Letter, no Action, claim or proceeding is pending or, to the knowledge of Seller, threatened with respect to any Benefit Plan (other than claims for benefits in the ordinary course) that would, individually or in the aggregate, have a Material Adverse Effect and, to the knowledge of Seller, no fact or event exists that would give rise to any such Action, claim or proceeding.

(iii) Except as set forth in Section 5.02(i)(iii) of the Disclosure Letter, (1) the terms of employment or engagement of all employees, agents and consultants of Seller with respect to the Business are such that their employment or engagement may be terminated at any time and without liability for payment of compensation or damages, (2) there are no severance payments which are or could become payable by Seller to any employee, agent, or consultant of Seller under the terms of any oral or written agreement or commitment or any custom, trade or practice, and (3) there are no contracts between Seller and any employee, consultant or independent contractor.

(iv) Seller and each of its Affiliates are and have been in compliance in all respects with the Worker Adjustment and Retraining Notification Act (“ WARN ”) and any similar state Law respecting plant closings and layoffs and all applicable Laws respecting employment and employment practices, terms and conditions of employment, and wages and hours, including any such Laws regarding employment discrimination; disability rights and benefits; minimum wage, hours and overtime; workers’ compensation; family and medical leave; equal employment opportunity; occupational safety and health; severance or termination of employment; the payment of social security, wage, payroll and other Taxes; the Immigration Reform and Control Act, as amended; ERISA; and the Consolidated Omnibus Budget Reconciliation Act, as amended (“ COBRA ”). All persons classified by Seller or any of its Affiliates as independent contractors do satisfy and have satisfied the requirements of Law to be so classified, and Seller and each of its Affiliates has fully and accurately reported their compensation on IRS Forms 1099 when required to do so.

(v)  Section 5.02(i)(v)(A) of the Disclosure Letter sets forth a true and correct list of each participant in Seller’s Executive Nonqualified “Excess” Plan (the “ Deferred Compensation Plan ”) and all liabilities existing as of the date hereof with respect to the Deferred Compensation Plan (per participant and in the aggregate). Each of the individuals listed on Section 5.02(i)(v)(B) of the Disclosure Letter has executed a waiver agreement, in a form approved by Acquirer, with respect to the effect of the Acquisition on their rights under the Deferred Compensation Plan (a “ Waiver Agreement ”).

(j)  Labor Matters . Neither Seller nor any of its Affiliates is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by Seller or any of its Affiliates, and to the knowledge of Seller, there are no union organizing activities, requests for union representation or proceedings by any labor union to organize with respect to any employees of Seller or any of its Affiliates. Except as would not, individually or in the aggregate, have a Material Adverse Effect, (i) there are no pending grievance or arbitration proceedings arising out of collective bargaining agreements, or other agreements with any unions, to which Seller or any of its Affiliates is a party, (ii) there is no labor strike, dispute, slowdown, work stoppage or lockout by or with respect to any employees of Seller or any of its Affiliates, and (iii) there are no unfair labor practice complaints by persons employed by Seller or any of its Affiliates pending or to Seller’s knowledge, threatened against Seller or any of its Affiliates, nor, to the knowledge of Seller, does there exist any basis for any such complaint. To the knowledge of Seller, neither Seller nor any of its Affiliates has engaged in any unfair labor practices within the meaning of the National Labor Relations Act.

(k)  Property and Leases .

(i) Seller owns no real property.

(ii)  Section 5.02(k)(ii) of the Disclosure Letter sets forth a correct and complete list and address of all real property leased by Seller as of the date of this Agreement (all such real property, together with all buildings, structures and other improvements and fixtures located on or under such real property and all easements, rights and other appurtenances to such real property, are individually referred to herein as “ Seller Property ” and collectively referred to herein as the “ Seller Properties ”). As of the date hereof, Seller leases or has the right to use all Seller Properties, as indicated in Section 5.02(k)(ii) of the Disclosure Letter. As of the date hereof, Seller leases each of the Seller Properties, in each case, free and clear of any Liens, title defects, covenants or reservations of interests in title (collectively, “ Property Restrictions ”), except for (1) Permitted Liens, (2) Property Restrictions imposed or promulgated by Law or by any Governmental Authority which are customary and typical for similar properties, and (3) Property Restrictions which do not interfere with the current use of such property.

(iii) No improvement located on or being part of any Loan Property is in material violation of any applicable zoning law or regulation, subdivision law or ordinance. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of each Loan Property and, with respect to the use and occupancy of the same, including, without limitation, certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities, except for such inspections, licenses and certificates, which the failure to make or obtain would not have a Material Adverse Effect.

(iv) At the Closing, Seller will sell, transfer and assign to Acquirer a valid leasehold interest with respect to each of the property leases included in the Assumed Contracts or otherwise included in the Transferred Assets (the “ Transferred Properties ”), free and clear of all Property Restrictions, except for (i) Permitted Liens, (ii) Property Restrictions imposed or promulgated by Law or by any Governmental Authority which are customary and typical for similar properties and (iii) Property Restrictions which do not interfere with the current use of such property.

(l)  Transferred IP . Except as set forth in Section 5.02(l) of the Disclosure Letter, Seller owns, or is licensed or otherwise possesses legally enforceable rights to use, the Transferred IP, and the consummation of the Acquisition and the other transactions contemplated hereby will not alter or impair such ability in any respect. To the knowledge of Seller, there are no oppositions, cancellations, invalidity proceedings, interferences or re-examination proceedings presently pending with respect to the Transferred IP. To the knowledge of Seller, the conduct of the Business does not infringe any Intellectual Property rights or any other proprietary right of any Person, and Seller has not received any written notice from any other Person pertaining to or challenging the right of Seller to use any of the Transferred IP. Seller has not made any claim of a violation or infringement by others of its rights to or in connection with the Transferred IP that is still pending.

(m)  Taxes .

(i) Seller has (1) timely filed (or there have been filed on its behalf) all material Tax Returns required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Authority having authority to do so), and such Tax Returns are true, correct and complete in all material respects, and (2) paid all Taxes shown as due on such Tax Returns, except where (x) such payments are being contested in good faith by appropriate proceedings or (y) where failure to pay such Taxes would not, individually or in the aggregate, have a Material Adverse Effect.

(ii) No audit or other proceeding with respect to any Taxes due from or with respect to Seller or any Tax Return filed by Seller is being conducted by any Tax authority or other Governmental Authority, and Seller has not received written notice that any such audit or other proceeding with respect to Taxes or any Tax Return is pending. No extension of the statute of limitations on the assessment of any material Taxes has been granted by Seller.

(iii) No claim has been made in writing by a taxing authority or other Governmental Authority in a jurisdiction where Seller does not file Tax Returns that Seller is or may be subject to material taxation by that jurisdiction.

(iv) To the knowledge of Seller, there are no Liens for Taxes upon any assets of Seller, except for Permitted Liens.

(v) The unpaid Taxes of Seller (1) did not, as of the most recent fiscal month-end, exceed by any material amount the reserve for Taxes set forth in the most recent fiscal month-end balance sheet, and (2) will not exceed by any material amount that reserve as adjusted for operations and transactions through the Closing Date consistent with past practice of Seller in filing its Tax Returns.

(n)  Environmental Matters . Except as would not, individually or in the aggregate, have a Material Adverse Effect:

(i) Seller and, to the knowledge of Seller, each of the Loan Properties, are and have been in compliance with all Environmental Laws;

(ii) There is no Action pending, or, to the knowledge of Seller, threatened, before any Governmental Authority or other forum in which Seller, and, to the knowledge of Seller, any Loan Property, has been or, with respect to threatened proceedings, is reasonably likely to be, named as a defendant (1) for alleged noncompliance (including by any predecessor) with any Environmental Laws or (2) relating to the release, threatened release or exposure of any Hazardous Substances whether or not occurring at or on a site owned, leased or operated by Seller, or any Loan Property; and

(iii) To the knowledge of Seller, during the period of (1) Seller’s ownership or operation of any of its current or former properties or (2) Seller’s interest in a Loan Property, there has been no release of Hazardous Substances in, on, under or affecting any such property, which could reasonably be expected to require remediation pursuant to any Environmental Law. To the knowledge of Seller, prior to the period of (x) Seller’s ownership or operation of any of its current or former properties, (y) Seller’s interest in a Loan Property, there was no release or threatened release of Hazardous Substances in, on, under or affecting any such property or Loan Property, which could reasonably be expected to require remediation pursuant to any Environmental Law.

(o)  Assumed Contracts . True and complete copies of all Assumed Contracts have been delivered to Acquirer. Each of the Assumed Contracts is valid, binding and enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of general applicability relating to or affecting creditors’ rights or by general equity principles) on Seller and the other parties thereto and is in full force and effect. Neither Seller, nor, to the knowledge of Seller, any other party thereto is in default in any material respect under any Assumed Contract (and no condition exists that, with notice or lapse of time or both, would become such a default by Seller or, to the knowledge of Seller, any such other party). None of the Assumed Contracts currently is being renegotiated. No party to any of the Assumed Contracts has made, asserted or, to the knowledge of Seller, has any defense, setoff or counterclaim under its Assumed Contract or has exercised any option granted to it to cancel, terminate or shorten the term of its Assumed Contract. Other than as set forth in Section 5.02(o) of the Disclosure Letter, there are no prepaid items under any of the Assumed Contracts.

(p)  Insurance