10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number: 0-4408

RESOURCE AMERICA, INC.

(Exact name of registrant as specified in its charter)

Delaware	72-0654145
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
One Crescent Drive, Suite 203
Navy Yard Corporate Center
Philadelphia, PA	19112
(Address of principal executive offices)	(Zip code)

Registrant's telephone number, including area code: (215) 546-5005

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes x No

The number of outstanding shares of the registrant’s common stock on August 1, 2007 was 17,499,199.

RESOURCE AMERICA, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets – June 30, 2007 (unaudited) and September 30, 2006	3
	Consolidated Statements of Income Three Months and Nine Months Ended June 30, 2007 and 2006 (unaudited)	4
	Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income − Nine Months Ended June 30, 2007 (unaudited)	5
	Consolidated Statements of Cash Flows Nine Months Ended June 30, 2007 and 2006 (unaudited)	6
	Notes to Consolidated Financial Statements – June 30, 2007 (unaudited)	7 – 27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28 − 48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	50
PART II	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 4.	Submission of Matters to a Vote of Security Holders	51
Item 6.	Exhibits	52
SIGNATURES		53

PART I.                      FINANCIAL INFORMATION

Item 1.                 Financial Statements

RESOURCE AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30, 2007			September 30, 2006
	(unaudited)
ASSETS
Cash	$	17,169		$	37,622
Restricted cash		15,906			8,103
Receivables		15,671			2,312
Receivables from managed entities		22,579			8,795
Investments in commercial finance		313,900			108,850
Loans held for investment		414,290			69,314
Investments in real estate		47,097			50,104
Investment securities available-for-sale		67,487			64,857
Investments in unconsolidated entities		35,039			26,626
Property and equipment, net		11,725			9,525
Deferred income taxes		18,577			6,408
Goodwill		12,692			−
Other assets		27,599			24,237
Total assets	$	1,019,731		$	416,753
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses and other liabilities	$	59,142		$	29,526
Payables to managed entities		950			1,579
Borrowings		748,631			172,238
Deferred income tax liabilities		3,246			10,746
Minority interests		8,750			9,602
Total liabilities		820,719			223,691
Commitments and contingencies		−			−
Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding		-			-
Common stock, $.01 par value, 49,000,000 shares authorized; 26,702,748 and 26,401,708 shares issued, respectively		267			264
Additional paid-in capital		264,461			259,882
Retained earnings		36,268			25,464
Treasury stock, at cost; 9,207,618 and 9,110,290 shares, respectively		(99,522	)		(96,960	)
ESOP loan receivable		(446	)		(465	)
Accumulated other comprehensive (loss) income		(2,016	)		4,877
Total stockholders’ equity		199,012			193,062
	$	1,019,731		$	416,753

See accompanying notes to consolidated financial statements

3

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
REVENUES
Financial fund management	$	19,094		$	7,376		$	47,511		$	20,669
Real estate		7,008			4,500			18,580			18,360
Commercial finance		12,808			5,885			28,461			16,483
		38,910			17,761			94,552			55,512
COSTS AND EXPENSES
Financial fund management		5,925			2,700			15,878			7,764
Real estate		3,971			3,286			10,179			8,265
Commercial finance		5,416			3,911			13,607			10,382
General and administrative		3,526			2,127			9,114			7,588
Depreciation and amortization		728			681			2,156			2,355
		19,566			12,705			50,934			36,354
OPERATING INCOME		19,344			5,056			43,618			19,158
OTHER INCOME (EXPENSE)
Interest expense		(10,176	)		(1,894	)		(22,461	)		(5,559	)
Minority interests		(980	)		(465	)		(2,255	)		(1,236	)
Other income, net		2,079			809			6,418			3,644
		(9,077	)		(1,550	)		(18,298	)		(3,151	)
Income from continuing operations before income taxes and cumulative effect of a change in accounting principle		10,267			3,506			25,320			16,007
Provision for income taxes		4,312			393			9,477			2,579
Income from continuing operations before cumulative effect of a change in accounting principle		5,955			3,113			15,843			13,428
(Loss) income from discontinued operations, net of tax		(1,450	)		(113	)		(1,506	)		977
Cumulative effect of a change in accounting principle, net of tax		−			−			−			1,357
NET INCOME	$	4,505		$	3,000		$	14,337		$	15,762
Basic earnings per common share:
Continuing operations	$	0.34		$	0.18		$	0.91		$	0.76
Discontinued operations		(0.08	)		(0.01	)		(0.09	)		0.05
Cumulative effect of accounting change		−			−			−			0.08
Net income	$	0.26		$	0.17		$	0.82		$	0.89
Weighted average shares outstanding		17,569			17,536			17,463			17,727
Diluted earnings per common share:
Continuing operations	$	0.31		$	0.16		$	0.83		$	0.70
Discontinued operations		(0.07	)		−			(0.08	)		0.05
Cumulative effect of accounting change		−			−			−			0.07
Net income	$	0.24		$	0.16		$	0.75		$	0.82
Weighted average shares outstanding		19,210			19,107			19,215			19,191
Dividends declared per common share	$	0.07		$	0.06		$	0.20		$	0.18

See accompanying notes to consolidated financial statements

4

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

NINE MONTHS ENDED JUNE 30, 2007

(in thousands)

(unaudited)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			ESOP Loan Receivable			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Comprehensive Income
Balance, October 1, 2006	$	264	$	259,882	$	25,464		$	(96,960	)	$	(465	)	$	4,877		$	193,062
Net income		-		-		14,337			-			-			-			14,337		$	14,337
Treasury shares issued		-		394		-			215			-			-			609			−
Stock-based compensation		-		685		-			-			-			-			685			−
Restricted stock awards		-		689		-			-			-			-			689			−
Issuance of common shares		3		924		-			-			-			-			927			−
Tax benefit from employee stock options		−		1,887		−			−			−			−			1,887			−
Purchase of treasury shares		-		-		-			(2,777	)		-			−			(2,777	)		−
Other comprehensive loss, net		-		-		-			−			-			(6,893	)		(6,893	)		(6,893	)
Cash dividends		-		-		(3,533	)		-			-			-			(3,533	)		−
Repayment of ESOP loan		-		-		-			-			19			-			19			−
Balance, June 30, 2007	$	267	$	264,461	$	36,268		$	(99,522	)	$	(446	)	$	(2,016	)	$	199,012		$	7,444

See accompanying notes to consolidated financial statements

5

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,337		$	15,762
Adjustments to reconcile net income to net cash used in operating activities:
Cumulative effect of a change in accounting principle, net of tax		−			(1,357	)
Depreciation and amortization		2,712			2,355
Discount on receivables from managed entities		344			−
Equity in earnings of unconsolidated entities		(11,637	)		(6,497	)
Minority interests		2,255			1,236
Distributions from unconsolidated entities		12,995			9,824
Loss (income) from discontinued operations		1,506			(977	)
Gain on sale of assets		(6,783	)		(6,971	)
Deferred income tax (benefit) provision		(6,884	)		1,981
Non-cash compensation on long-term incentive plans		1,983			1,346
Non-cash compensation issued		1,630			1,614
Non-cash compensation received		(1,550	)		(1,259	)
Increase in commercial finance investments		(137,620	)		(49,444	)
Changes in operating assets and liabilities		(1,734	)		(15,999	)
Net cash used in operating activities of continuing operations		(128,446	)		(48,386	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(3,406	)		(3,674	)
Payments received on real estate loans and real estate		15,703			30,623
Investments in real estate		(16,245	)		(32,531	)
Purchase of investments		(19,821	)		(34,380	)
Proceeds from sale of investments		6,158			5,415
Increase in restricted cash		(7,166	)		−
Net cash paid for acquisition		(20,708	)		−
Increase in other assets		(3,423	)		(1,676	)
Net cash used in investing activities of continuing operations		(48,908	)		(36,223	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings		559,278			397,187
Principal payments on borrowings		(395,169	)		(336,925	)
Dividends paid		(3,533	)		(3,206	)
Distributions paid to minority interest holders		(2,040	)		(1,274	)
Proceeds from issuance of stock		927			125
Purchase of treasury stock		(2,777	)		(13,458	)
Tax benefit from the exercise of stock options		1,887			−
Net cash provided by financing activities of continuing operations		158,573			42,449
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities		(527	)		13
Investing activities		−			39,842
Financing activities		(1,145	)		−
Net cash (used in) provided by discontinued operations		(1,672	)		39,855
Net cash retained by entities previously consolidated		−			(3,825	)
Decrease in cash		(20,453	)		(6,130	)
Cash at beginning of period		37,622			30,353
Cash at end of period	$	17,169		$	24,223

See accompanying notes to consolidated financial statements

6

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(unaudited)

NOTE 1 – MANAGEMENT’S OPINION REGARDING INTERIM FINANCIAL STATEMENTS

Resource America, Inc. (the "Company" or “RAI”) is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for the Company and for outside investors in the financial fund management, real estate and commercial finance sectors.  As a specialized asset manager, the Company seeks to develop investment vehicles in which outside investors invest along with the Company and for which the Company manages the assets acquired pursuant to long-term management and operating agreements.  The Company limits its investment vehicles to investment areas where it owns existing operating companies or has specific expertise.

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned except for certain financial fund management entities and LEAF Financial Corporation (“LEAF”) in which the senior executives of LEAF hold a 14.9% interest.

In addition, in accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 46-R, “Consolidation of Variable Interest Entities,” the Company consolidated certain variable interest entities (“VIEs”) as to which it has determined that it is the primary beneficiary.  Due to the timing of the receipt of financial information from third parties, the Company accounts for these entities’ activities on a one quarter lag, except when adjusting for the impact of significant events such as a refinance or sale.  The assets, liabilities, revenues and costs and expenses of the VIEs that are included in the consolidated financial statements are not those of the Company.  The liabilities of the VIEs will be satisfied from the cash flows of the VIE, not from assets of the Company which has no legal obligation to satisfy those liabilities.

The consolidated financial statements and the information and tables contained in the accompanying notes as of June 30, 2007 and for the three and nine months ended June 30, 2007 and 2006 are unaudited.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.  However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented.  The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 (“fiscal 2006”).  The results of operations for the three and nine months ended June 30, 2007 may not necessarily be indicative of the results of operations for the full fiscal year ending September 30, 2007 (“fiscal 2007”).

Certain reclassifications have been made to the fiscal 2006 consolidated financial statements to conform to the fiscal 2007 presentation.

7

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Supplemental Cash Flow Information

Supplemental disclosure of cash flow information (in thousands):

	Nine Months Ended June 30,
	2007		2006
Cash paid during the period for:
Interest	$	14,161	$	7,610
Income taxes	$	1,614	$	3,053
Non-cash activities include the following:
Conversion of notes (see Note 4):
Increase in minority interest	$	−	$	259
Net reduction of equity	$	−	$	250
Transfer of loans held for investment (see Note 10):
Reduction of loans held for investment	$	418,809	$	219,448
Termination of associated secured warehouse credit facilities	$	418,292	$	219,474
Activity on secured warehouse facilities related to loans held for investment:
Purchase of loans	$	881,126	$	317,597
Borrowings to fund purchases	$	763,226	$	289,747
Proceeds from sale of loans	$	78,576	$	18,821
Principal payments on loans	$	49,608	$	6,702
Use of funds held in escrow for purchases of loans	$	−	$	2,608
Gain on sale of loans	$	−	$	281
Receipt of a note upon resolution of a real estate investment and a FIN 46-R asset	$	−	$	5,000

Recently Issued Financial Accounting Standards

In June 2007, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of the Audit and Accounting Guide “Investment Companies” and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.”  This SOP provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Guide”).  Additionally, it provides guidance as to whether a parent company or an equity method investor can apply the specialized industry accounting principles of the Guide (referred to as investment company accounting).  This SOP is effective for fiscal years beginning on or after December 15, 2007, with early application encouraged (for the Company, its fiscal year beginning October 1, 2008).  The Company is currently evaluating the impact, if any, the adoption of SOP 07-1 may have on its financial statements.

In May 2007, the FASB issued Staff Position (“FSP”) FIN 46-R(7), “Application of FASB Interpretation 46-R to Investment Companies.”  FSP FIN 46-R(7) amends the scope of the exception to FIN 46-R to state that investments accounted for at fair value in accordance with investment company accounting are not subject to consolidation under FIN 46-R.  This interpretation is effective for fiscal years beginning on or after December 15, 2007 (for the Company, its fiscal year beginning October 1, 2008).  Certain consolidated subsidiaries currently apply the investment company accounting.  The Company is currently evaluating the impact, if any, the adoption of this interpretation will have on its financial statements.

8

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Recently Issued Financial Accounting Standards − (Continued)

In March 2007, the FASB ratified Emerging Issues Task Force (“EITF”) Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”  EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital.  EITF 06-11 is effective for fiscal years beginning after September 15, 2007 (for the Company, its fiscal year beginning October 1, 2007).  The Company does not expect EITF 06-11 will have a material impact on its financial position, results of operations or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of SFAS 115," which permits entities to choose to measure many financial instruments and certain other items at fair value.  The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates.  Entities choosing the fair value option would be required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  Adoption is required for fiscal years beginning after November 15, 2007 (for the Company, its fiscal year beginning October 1, 2008).  The Company is currently evaluating the expected effect of SFAS 159 on its consolidated financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which provides guidance on measuring the fair value of assets and liabilities.  SFAS 157 will apply to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances.  This standard will also require additional disclosures in both annual and quarterly reports.  SFAS 157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007 and will be adopted by the Company in the first quarter of its fiscal year 2009.  The Company is currently determining the effect, if any, the adoption of SFAS 157 will have on its financial statements.

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”  SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.  It establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company's financial statements and the related financial statement disclosures.  SAB 108 is effective for the Company’s current fiscal year ending September 30, 2007.  The Company does not believe adoption of SAB 108 will have a material impact on the its consolidated financial statements.

On July 13, 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS 109.”  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109, “Accounting for Income Taxes.”  FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The new accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The provisions of FIN 48 are effective as of the beginning of the first fiscal year beginning after December 15, 2006 with early adoption permitted if no interim financial statements have been issued.  The Company will not elect early adoption of FIN 48; accordingly, the provisions of FIN 48 will be implemented in the Company’s fiscal quarter ending December 31, 2007.  The Company is currently determining the effect, if any, the adoption of FIN 48 will have on its financial statements.

9

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of periodic temporary investments of cash and cash equivalents.  The Company places its temporary cash investments in high-quality, short-term money market instruments and deposits with high-quality financial institutions and brokerage firms.  At June 30, 2007, the Company had $24.0 million in deposits at various banks, of which $20.9 million was over the insurance limit of the Federal Deposit Insurance Corporation.  No losses have been experienced on such investments.

NOTE 3 − COMPREHENSIVE INCOME

Comprehensive income includes net income and all other changes in the equity of a business from transactions and other events and circumstances from non-owner sources.  These changes, other than net income, are referred to as “other comprehensive income” and for the Company include changes in the fair value, net of reclassification adjustments for realized gains/losses and taxes, of its investment securities available-for-sale and derivative instruments that qualify as cash flow hedges.

Assets and liabilities in foreign currencies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date.  Revenues and expenses are translated at the average rate of exchange for the period.  The resulting translation adjustment is also included in comprehensive income.

The following table reflects the changes in comprehensive income (in thousands):

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Net income	$	4,505		$	3,000		$	14,337		$	15,762
Other comprehensive income:
Unrealized (losses) gains on investment securities available-for-sale, net of tax (1) of $(3,137), $(700), $(3,571) and $370		(4,332	)		(831	)		(5,505	)		349
Less:  reclassification for gains  realized in net income, net of tax of $363, $5, $1,269 and $5		(501	)		(8	)		(1,753	)		(8	)
		(4,833	)		(839	)		(7,258	)		341
Unrealized gains on hedging contracts, net of tax (1) of $383, $0, $199 and $0		530			−			275			−
Foreign currency translation (loss) gain		(133	)		−			90			−
Comprehensive income	$	69		$	2,161		$	7,444		$	16,103

(1) Reflects the cumulative adjustment for changes in the Company’s effective tax rate through the respective periods presented.

10

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 3 − COMPREHENSIVE INCOME − (Continued)

The Company had no cash flow hedge activity in fiscal 2006.  During fiscal 2007, the changes in accumulated other comprehensive income associated with cash flow hedge activities (see Note 11) were as follows (in thousands):

	Three Months Ended June 30, 2007			Nine Months Ended June 30, 2007
Balance at beginning of period	$	(255	)	$	−
Current period changes in fair value, net of tax of $383 and $199		530			275
Balance at June 30, 2007	$	275		$	275

NOTE 4 − EARNINGS PER SHARE

Basic earnings per share (“Basic EPS”) is determined by dividing net income by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share (“Diluted EPS”) is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding after giving effect to the potential dilution from the exercise of securities, such as stock options, into shares of common stock as if those securities were exercised as well as the dilutive effect of other award plans, including restricted stock and director units.

Diluted income from continuing operations and diluted net income for the nine months ended June 30, 2006 includes $35,000 of minority interest, net of tax, related to the assumed conversion of notes into LEAF common stock.  These notes were converted on February 1, 2006 and, accordingly, minority interest for subsequent periods has been reflected in reported operating results.

The following table presents a reconciliation of the shares used in the computation of Basic EPS and Diluted EPS (in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,
	2007		2006		2007		2006
Shares(1)
Basic shares outstanding		17,569		17,536		17,463		17,727
Dilutive effect of stock options and other equity awards		1,641		1,571		1,752		1,464
Dilutive shares outstanding		19,210		19,107		19,215		19,191

(1) As of June 30, 2007, options to purchase 57,500 shares were outstanding but were excluded from the computation of Diluted EPS as their effect would have been antidilutive.  The exercise prices on those options ranged from $24.28 to $27.84 per share.  As of June 30, 2006, options to purchase 20,000 shares at an exercise price of $20.19 per share were determined to be antidilutive.

NOTE 5 − INVESTMENTS IN COMMERCIAL FINANCE

The Company’s investments in commercial finance include the following (in thousands):

	June 30,		September 30,
	2007		2006
Notes receivable, net	$	187,306	$	74,864
Direct financing leases, net		125,805		32,275
Assets subject to operating leases, net of accumulated depreciation of $19 and $46		789		1,711
Investments in commercial finance	$	313,900	$	108,850

11

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 5 − INVESTMENTS IN COMMERCIAL FINANCE − (Continued)

The components of direct financing leases are as follows (in thousands):

	June 30,			September 30,
	2007			2006
Total future minimum lease payments receivable	$	139,431		$	37,398
Initial direct costs, net of amortization		1,578			598
Unguaranteed residual		1,040			362
Unearned income		(16,244	)		(6,083	)
Investments in direct financing leases	$	125,805		$	32,275

Although the terms of the leases and notes extend over many years, the Company routinely sells without recourse the leases and notes it acquires or originates to investment entities it manages shortly after their acquisition or origination in accordance with agreements with each party.  As a result of these routine sales of leases and notes as well as the Company’s credit evaluations, management concluded that no allowance for loan and lease losses was deemed necessary at June 30, 2007.

Acquisition of Leasing Division of Pacific Capital Bank

On June 19, 2007, LEAF acquired the leasing division of Pacific Capital Bank, N.A. (“PCB”) based in Santa Barbara, CA.  The acquisition included a portfolio of small ticket leases and loans, customer lists, a lease origination team (20 persons), business platform and other intangibles and significantly expanded LEAF’s third-party lease origination capability and assets under management.  LEAF will continue to operate the third-party business from Santa Barbara, CA to originate lease assets for the investment partnerships it sponsors.

In conjunction with the PCB acquisition, LEAF assigned to its investment partnerships the rights to acquire $201.7 million of PCB’s leases and notes.  The total purchase price for PCB of $282.2 million has been allocated based on the estimated fair value of the assets and liabilities acquired at the date of the acquisition.  Management is in the process of evaluating the deferred income tax consequences of the acquisition and the allocation of the acquired goodwill and other intangibles.  This acquisition did not trigger the requirements of furnishing pro-forma financial information as governed by Securities and Exchange Commission Regulation S-X.

LEAF funded its $80.5 million portion of the acquisition with $59.8 million of borrowings under a new $100.0 million short-term revolving credit facility (see Note 10) and with $20.7 million of cash.  The following table summarizes the preliminary allocation of estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):

	Amount
Leases and notes	$	67,816
Goodwill, customer lists, business platform and other intangibles		12,692
Acquired by LEAF		80,508
Leases and notes acquired by LEAF’s investment partnerships		201,665
Total purchase price, including acquisition costs	$	282,173

12

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 6 − LOANS HELD FOR INVESTMENT

The Company typically funds the initial acquisition of portfolio assets for issuers of collateralized debt obligations (“CDOs”) it sponsors through a secured warehouse credit facility prior to closing the offering of the CDO.  In those transactions in which the Company is deemed to be the primary beneficiary (as defined by FIN 46-R), the assets and liabilities of the CDO issuer are consolidated.  Upon the execution of the CDO, the warehouse facility is refinanced (see Notes 10 and 16) through the issuance of CDOs and the CDO issuer is no longer consolidated with the Company.

The following is a summary of the secured bank loans held for investment by CDO issuers that the Company consolidates in accordance with FIN 46-R (in thousands):

	June 30,			September 30,
	2007			2006
Principal	$	412,604		$	69,312
Unamortized premium		1,829			18
Unamortized discount		(143	)		(16	)
Loans held for investment (see Notes 10 and 16)	$	414,290		$	69,314

At June 30, 2007, the portfolio of secured bank loans consisted of floating rate loans at various London Inter-Bank Offered Rates (“LIBOR”), including European LIBOR rates, plus 1.38% to 8.50%, with maturity dates ranging from December 2007 to June 2022.  At September 30, 2006, the portfolio consisted of floating rate loans at various LIBOR rates plus 1.75% to 4.25%, with maturity dates ranging from October 2012 to March 2016.  There were no fixed rate loans at June 30, 2007 or September 30, 2006.

All of the loans held for investment were current with respect to their scheduled payments of principal and interest.  In reviewing the portfolio of loans and the observable secondary market prices, the Company did not identify any loans with characteristics indicating that impairment had occurred.  Accordingly, as of June 30, 2007, management of the Company determined that no allowance for possible loan losses was needed.

NOTE 7 – INVESTMENTS IN REAL ESTATE

The following is a summary of the changes in the carrying value of the Company’s investments in real estate (in thousands):

	June 30,						September 30,
	2007			2006			2006
Real estate loans:
Balance, beginning of period	$	28,739		$	25,923		$	25,923
New loans		−			5,000			5,109
Additions to existing loans		42			2,338			2,310
Collection of principal		(3,374	)		(2,846	)		(5,068	)
Other		576			382			465
Balance, end of period		25,983			30,797			28,739
Real estate:
Ventures		9,681			9,643			9,519
Owned, net of accumulated depreciation of $2,028, $1,638 and $1,736		12,203			12,512			12,616
Total real estate		21,884			22,155			22,135
		47,867			52,952			50,874
Allowance for loan losses		(770	)		(770	)		(770	)
Investments in real estate	$	47,097		$	52,182		$	50,104

13

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 8 − INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The Company’s investment securities available-for-sale are carried at fair value based on market quotes.  Unrealized gains or losses, net of tax, are included in accumulated other comprehensive income (loss) in stockholders’ equity.

The Company has invested in two affiliated publicly-traded companies, Resource Capital Corp. (“RCC”) (NYSE: RSO), and The Bancorp, Inc. (“TBBK”) (Nasdaq: TBBK), in addition to its investments in CDO securities, as follows (in thousands):

	June 30,		September 30,
	2007		2006
Investment in RCC, including net unrealized losses of $1,959 and net unrealized gains of $879	$	27,071	$	29,588
Investment in TBBK, including net unrealized gains of $2,089 and $5,696		3,763		9,132
Investments in CDO securities, including net unrealized losses of $7,908 and $1,471		36,653		26,137
Investment securities available-for-sale	$	67,487	$	64,857

RCC is a specialty finance real estate investment trust (“REIT”) that the Company sponsored in fiscal 2005.  The Company, through its indirect wholly-owned subsidiary, Resource Capital Manager, Inc. (“RCM”), provides investment management and administrative services to RCC under a management agreement between RCM and RCC.

The Company held approximately 1.9 million shares of RCC at June 30, 2007 and September 30, 2006.  In addition, the Company held options to acquire 2,166 shares (at an average price per share of $15.00) and warrants to acquire an additional 100,088 shares (at $15.00 per share) of RCC common stock at June 30, 2007 and September 30, 2006.

The Company held 168,290 and 358,290 shares of TBBK at June 30, 2007 and September 30, 2006, respectively.  During the three and nine months ended June 30, 2007, the Company sold 60,000 and 190,000 its shares of its TBBK stock for $1.5 million and $4.8 million, respectively, and realized gains of $864,000 and $3.0 million, respectively (see Note 15).  Included in other assets are an additional 123,719 shares of TBBK that are held in a supplemental employment retirement plan for the Company’s former Chief Executive Officer.

Investments in CDO securities represent investments in the CDO issuers that the Company has sponsored and manages.  Investments in 17 and 10 CDOs at June 30, 2007 and September 30, 2006, respectively, were held directly through the Company’s financial fund management entities and indirectly through the consolidation of the Structured Finance Fund partnerships (“SFF Funds”), which held investments in four of the CDOs totaling $9.7 million as of June 30, 2007.  Interests owned by third parties of the SFF Funds are reflected as a minority interest holding on the consolidated balance sheet and totaled $7.6 million as of June 30, 2007.

Certain of these investment securities available-for-sale collateralize the Company’s revolving credit facility with Commerce Bank, N.A. (see Note 10).

14

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 9 − INVESTMENTS IN UNCONSOLIDATED ENTITIES

As a specialized asset manager, the Company develops various types of investment vehicles, including partnerships and tenant-in-common (“TIC”) programs, which it manages under long-term management agreements or similar arrangements.  These investments are accounted for using the equity method because of the Company’s ability to exercise significant influence over their operating and financial decisions.  The following table details the Company’s investments in these vehicles, including the range of partnership interests owned (in thousands, except percentages):

	June 30,		September 30,		Range of Combined
	2007		2006		Partnership Interests
Trapeza entities	$	15,729	$	15,007	13% to 50%
Financial fund management partnerships		6,673		5,772		10%
Real estate investment partnerships		5,103		3,927	5% to 10%
Commercial finance investment partnerships		2,177		1,353	1% to 5%
TIC property interests (1)		5,357		567	N/A
Investments in unconsolidated entities	$	35,039	$	26,626

(1) As of June 30, 2007, the Company held an interest in one TIC property.

Trapeza entities

Historically, the Company had presented its equity in the earnings and losses of the Trapeza entities on a one-quarter delay as permitted under GAAP.  Improvements in the timeliness and availability of financial data from the Trapeza entities allowed the Company to report its share in those earnings on a current basis as of October 1, 2005.  As a result of this change, the Company’s equity in the earnings of the Trapeza entities of $1.4 million, net of tax of $983,000, for the three months ended September 30, 2005 was reported as a cumulative change in accounting principle as of October 1, 2005.

The Company has equity interests of 50% and 33.33% in the managers of the Trapeza CDO entities, Trapeza Capital Management, LLC and Trapeza Management Group, LLC, respectively.  The Company does not consolidate these entities since it does not have control over them.  The following summarizes the operating data for these entities (in thousands):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Trapeza Capital Management, LLC
Management fees	$	2,648		$	1,709		$	10,322		$	5,004
Operating expenses		(585	)		(514	)		(2,256	)		(1,183	)
Other expense		(69	)		(13	)		(57	)		(113	)
Net income	$	1,994		$	1,182		$	8,009		$	3,708

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Trapeza Management Group, LLC
Management fees	$	679		$	680		$	2,039		$	2,044
Operating expenses		(51	)		(51	)		(168	)		(201	)
Other expense		(1	)		(20	)		(18	)		(54	)
Net income	$	627		$	609		$	1,853		$	1,789

15

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 10 – BORROWINGS

The credit facilities of the Company, as well as those of the financial fund management CDO issuers that the Company consolidates under FIN 46-R, and related borrowings outstanding are as follows:

	As of June 30, 2007				Balance at
	Amount of Facility		Balance		September 30, 2006
	(in millions)		(in thousands)		(in thousands)
Financial fund management - Secured warehouse credit facilities consolidated under FIN 46-R	$	539.0	$	209,855	$	−
		400.0		204,376		2,900
		−		−		66,397
	$	939.0		414,231		69,297
Commercial finance - Secured revolving credit facilities	$	100.0		66,500		−
		33.0		−		−
		250.0		117,192		−
		150.0		97,300		86,400
	$	533.0		280,992		86,400
Corporate– Secured revolving credit facilities	$	50.0		28,500		−
		14.0		7,500		−
	$	64.0		36,000		−
Other debt				17,408		16,541
Total borrowings outstanding			$	748,631	$	172,238

Financial fund management - Secured warehouse credit facilities

The Company is a party to various warehouse credit agreements for facilities which provide funding for the purchase of bank loans in the U.S. and Europe.  Borrowings under these facilities are consolidated by the Company in accordance with FIN 46-R while the assets accumulate on the CDO.  Upon the closing of the CDO, the facility is terminated and the interest is paid.  The following facilities were in place as of at June 30, 2007:

 In January 2007, a EUR 400.0 million (approximately $539.0 million at June 30, 2007) facility was opened with affiliates of Morgan Stanley Bank (“Morgan Stanley”).  The associated CDO is anticipated to close in fiscal 2008.  The interest rate is European LIBOR plus 75 basis points.  The facility provides for a guarantee by the Company as well as an escrow deposit (see Note 16).  Average borrowings for the three and nine months ended June 30, 2007 were $141.6 million and $58.5 million, respectively, at average interest rates of 4.98% and 4.94%, respectively.

 In August 2006, a facility was opened with affiliates of Credit Suisse Securities (USA) LLC (“Credit Suisse”) for up to $400.0 million.  The associated CDO is anticipated to close in fiscal 2008.  The interest rate is LIBOR plus 62.5 basis points.  The facility provides for a guarantee by the Company as well as an escrow deposit (see Note 16).  Average borrowings for the three and nine months ended June 30, 2007 were $167.1 million and $125.0 million, respectively, at an average interest rate of 5.98%.

16

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 10 – BORROWINGS − (Continued)

Commercial finance - Secured revolving credit facilities

In June 2007, LEAF entered into a $100.0 million short-term revolving credit facility with a commercial bank that will be repaid by the August 31, 2007 expiration date.  Interest is charged at one of three rates:  (i) LIBOR plus 1.75%, (ii) one-month LIBOR divided by the sum of 1 minus the LIBOR reserve percent, plus 1.75%; and (iii) the higher of the lender’s base rate or the federal funds rate plus 50 basis points.  Weighted average borrowings were $6.0 million and $2.0 million for the three and nine months ended June 30, 2007, respectively, at an effective interest rate of 7.34%.

In March 2007, a $33.0 million credit facility was opened with a financial institution to fund advances on business credit card receipts in connection with a new subsidiary formed by LEAF, Merit Capital Advance, LLC (“Merit”).  Interest is charged at a rate of LIBOR plus 8.5%.  The facility terminates in September 2008 with an option to extend for additional one-year periods at the discretion of the lender.  The assets of a newly-formed subsidiary of LEAF collateralize the borrowings (see “Other debt–subordinated note”).

 In December 2006, LEAF assumed an unused $250.0 million line of credit with Morgan Stanley from RCC.  As part of the agreement, LEAF reimbursed RCC $125,000 for the commitment fees it had paid and assumed a liability for an additional $725,000 of commitment fees and other costs.  The facility is non-recourse to the Company and expires in October 2009.  The underlying equipment being leased or financed collateralizes the borrowings.  Interest is charged at one of two rates based on the utilization of the facility:  (i) one-month LIBOR plus 60 basis points on borrowings up to $100.0 million and (ii) one-month LIBOR plus 75 basis points on borrowings in excess of $100.0 million.  Interest and principal payments are due monthly.  The Company utilizes interest rate swap agreements to mitigate fluctuations in LIBOR (see Note 11).  The swap agreements terminate at various dates ranging from November 2011 to November 2020.  Weighted average borrowings were $117.1 million and $66.1 million for the three and nine months ended June 30, 2007, respectively, at effective interest rates of 5.98% and 5.94%, respectively.

In July 2006, LEAF entered into a $150.0 million revolving warehouse credit facility with a group of banks led by National City Bank that expires on July 31, 2009.  Interest is charged at one of two rates: (i) LIBOR plus 150 basis points, or (ii) the prime rate.  The underlying equipment being leased or financed collateralizes the borrowings.  Weighted average borrowings were $68.4 million and $82.8 million for the three and nine months ended June 30, 2007, respectively, at effective interest rates of 7.41% and 7.47%, respectively.  For the three and nine months ended June 30, 2006, weighted average borrowings were $37.6 million and $47.4 million, respectively, at effective interest rates of 7.56% and 7.01%, respectively.

Corporate – Secured revolving credit facilities

 Commerce Bank, N.A.  In May 2007, the Company entered into a $75.0 million revolving credit facility with Commerce Bank, N.A. expiring on May 23, 2012 which replaced an existing $25.0 million facility.  Up to $7.5 million of borrowings may be in the form of standby letters of credit.  Borrowings are secured by a first priority security interest in certain assets of the Company and certain subsidiary guarantors, including (i) the present and future fees and investment income earned in connection with the management of, and investments in, sponsored CDOs, (ii) a pledge of 153,758 shares of TBBK, and (iii) the pledge of an aggregate of 1,224,036 shares of RCC.  Availability under the facility is limited to the lesser value of (a) 75% of the net present value of future management fees to be earned plus 70% of the market value of the listed stock pledged or (b) $75.0 million.  Borrowing base availability was limited to $50.0 million until July 17, 2007, when it was increased to $75.0 million with the addition of U.S. Bank, N.A. as a participating lender.

17

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 10 – BORROWINGS − (Continued)

Corporate – Secured revolving credit facilities − (Continued)

Borrowings bear interest at one of two rates at the Company’s election: (i) the prime rate, as published in the Wall Street Journal, plus 1%; or (ii) LIBOR plus 2.25%.  Average borrowings were $3.0 million and $1.0 million for the three and nine months ended June 30, 2007, respectively, at an average rate of 9.25%.  Additionally, the Company is required to pay an unused facility fee of 25 basis points per annum, payable quarterly in arrears.  As of June 30, 2007, availability on this line was $21.3 million.

Sovereign Bank.  The Company has a $14.0 million revolving line of credit with Sovereign Bank that expires in July 2009.  The facility is secured by certain real estate collateral and certain investment securities available-for-sale.  Availability, limited based on the value of the collateral, was $3.8 million and $11.4 million, respectively, as of June 30, 2007 and September 30, 2006.

Interest is charged at one of two rates elected at the Company’s option:  (i) LIBOR plus 200 basis points, or (ii) the prime rate.  Weighted average borrowings were $6.8 million and $3.4 million for the three and nine months ended June 30, 2007, respectively, at effective interest rates of 7.47% and 7.64%, respectively.

Other debt

Subordinated note.  In March 2007, LEAF borrowed $1.5 million from a financial institution in the form of a subordinated convertible note.  Interest at a rate of 15% will be added to the outstanding principal balance.  The note matures in September 2008 and is convertible on or after September 15, 2007 into a 50% ownership interest in a newly-formed subsidiary of LEAF.

Annual principal payments on the Company’s aggregate borrowings over the next five years ending June 30 and thereafter are as follows (in thousands):

2008	$	215,697	(1)
2009		46,941
2010		58,561
2011		573
2012		12,099
Thereafter		529
	$	334,400

(1) Excludes $414.2 million related to borrowings under financial fund management secured warehouse credit facilities that will be transferred to the CDO issuer upon the closing of the associated CDO and will not have to be repaid by the Company.

Financial fund management − terminated warehouse credit facilities

A EUR 300.0 million facility with affiliates of Credit Suisse International was terminated in May 2007.  The interest rate was at European LIBOR plus 65 basis points.  Weighted average borrowings were $162.0 million and $153.1 million, at effective interest rates of 4.65% and 4.44% for the three and nine months ended June 30, 2007, respectively.

In January 2007, a $350.0 million facility with affiliates of Credit Suisse, which had outstanding borrowings of $149.3 million, was transferred to and assumed by RCC; accordingly, the escrow deposit was returned with interest to the Company.

18

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 10 – BORROWINGS − (Continued)

Covenants

At June 30, 2007, the Company was in compliance with all of the financial covenants under its various debt agreements.  These financial covenants are customary for the type and size of the related debt facilities and include minimum equity requirements as well as specified debt service coverage and leverage ratios.

NOTE 11 – DERIVATIVE INSTRUMENTS

The Company has implemented a hedging strategy using derivative financial instruments including interest rate swaps designated as a cash flow hedge for the LEAF facility with Morgan Stanley.  The Company does not use derivative financial instruments for trading or speculative purposes.  The Company manages the default credit risk in these derivative transactions by dealing exclusively with investment-grade rated counterparties.

Before entering into a derivative transaction for hedging purposes, the Company determines whether a high degree of effectiveness exists such that a change in the value of the derivative will be effectively offset by the change in the value of the hedged asset or liability.  The effectiveness of each hedge is measured throughout the hedge period.  Any hedge ineffectiveness, as defined by GAAP, will be recognized in the consolidated statements of operations.  No gain or loss was recognized during the three and nine months ended June 30, 2007 for hedge ineffectiveness.  There can be no assurance that the Company’s hedging strategies or techniques will be effective, that profitability will not be adversely affected during any period of change in interest rates, or that the costs of hedging will not exceed the benefits.

 At June 30, 2007, the notional amount of the interest rate swaps was $115.6 million.  Assuming market rates remain constant with the rates at June 30, 2007, $178,000 of net gains in accumulated other comprehensive income are projected to be recognized in earnings over the next 12 months.

NOTE 12 – STOCK-BASED COMPENSATION

Employee stock options

The Company follows SFAS 123R, “Accounting for Stock-Based Compensation” as revised.  Accordingly, employee stock option grants are being expensed over their respective vesting periods, based on the estimated fair value of each award as determined on the date of grant.  The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions:

	Nine Months Ended June 30,
	2007			2006
Fair value of stock options granted	$	10.59		$	14.72
Expected life (years)		6.25			6.25
Expected stock volatility		31.49	%		27.75	%
Risk-free interest rate		4.72	%		3.97	%
Dividend yield		1.31	%		1.26	%

19

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 12 – STOCK-BASED COMPENSATION − (Continued)

Transactions involving employee stock options and restricted stock for the nine months ended June 30, 2007 are summarized as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Stock Options Outstanding
Outstanding – October 1, 2006		3,641,096		$	7.77
Granted		57,500		$	25.33
Exercised		(279,316	)	$	3.31
Forfeited		(1,000	)	$	20.19
Outstanding - end of period		3,418,280		$	8.43		5.01	$	41,917,948
Exercisable - end of period		3,095,723		$	7.41		4.71	$	40,857,664
Stock Options and Restricted Stock Available for Grant
Available for grant – October 1, 2006		705,853
Options −
Granted		(57,500	)
Forfeited		1,000
Restricted stock −
Issued		(129,446	)
Forfeited		−
Available for grant − end of period		519,907

The following table summarizes the activity for unvested employee stock options and restricted stock during the nine months ended June 30, 2007:

	Shares			Weighted Average Grant Date Fair Value
Unvested Stock Options
Outstanding – October 1, 2006		374,554		$	7.37
Granted		57,500		$	10.28
Vested		(108,497	)	$	7.55
Forfeited		(1,000	)	$	14.72
Outstanding – end of period		322,557		$	7.80

	Shares
Unvested Restricted Stock
Outstanding – October 1, 2006		83,519
Issued		129,446
Vested		(20,873	)
Forfeited		−
Outstanding – end of period		192,092

The $2.2 million of unamortized compensation cost at June 30, 2007, related to unvested stock options awards, is expected to be amortized over a weighted average period of 1.5 years.  The Company recorded option compensation expense for the three and nine months ended June 30, 2007 of $235,000 and $685,000, respectively.  Compensation expense was $284,000 and $831,000 for the three and nine months ended June 30, 2006, respectively.

20

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 12 – STOCK-BASED COMPENSATION − (Continued)

Restricted stock

The Company values the restricted stock it issues based on the closing price of the underlying stock on the date of the grant.  In January 2007, the Company issued 129,446 shares of restricted stock valued at $3.4 million, which vest 25% on January 3, 2008 and 6.25% on a quarterly basis thereafter through January 3, 2011.  In January 2006, the Company had issued 83,519 shares of restricted stock valued at $1.4 million, which vest 25% per year commencing on January 3, 2007.  For the three and nine months ended June 30, 2007, the Company recorded compensation expense related to restricted stock of $303,000 and $690,000, respectively.

In April 2007, LEAF issued 135,000 shares of its restricted stock valued at $39,000, which vest 25% per year commencing on April 1, 2007.  In February 2006, LEAF issued 300,000 shares of its restricted stock valued at $69,000, which vest at 50% per year commencing on February 1, 2007.  In December 2006, 100,000 of these shares were forfeited.  In March 2007, a majority-owned subsidiary of LEAF issued 8% of its units valued at $53,000.  These units vest immediately, except for those issued to one holder whose units vest 25% per year commencing March 1, 2007.  The Company recorded compensation expense related to the LEAF restricted stock and subsidiary units of $45,000 and $62,000, for the three and nine months ended June 30, 2007, respectively, and $13,000 and $22,000 for the three and nine months ended June 30, 2006, respectively.

NOTE 13 – INCOME TAXES

The Company recorded the following provision for income taxes, as follows (in thousands):

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2007		2006			2007			2006
Provision for income taxes, at estimated effective rate	$	4,312	$	1,346		$	10,634		$	6,723
Deferred tax benefit		−		(1,024	)		(58	)		(1,024	)
Net increase (decrease) in valuation allowance		−		71			(1,099	)		(3,120	)
Provision for income taxes	$	4,312	$	393		$	9,477		$	2,579

Net Operating Loss Carryforwards and Valuation Allowances.  The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the differences are expected to reverse.  Based on its evaluation of all available information, the Company recognizes future tax benefits, such as net operating loss carryforwards (“NOLs”), to the extent that realizing these benefits is considered more likely than not.  The Company continually evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carryback years (if permitted) and the availability of tax planning strategies.  A valuation allowance is required to be established unless management determines that it is more likely than not that the Company will ultimately realize the tax benefit associated with a deferred tax asset.

During the nine months ended June 30, 2007, the Company estimated it would be able to utilize $13.0 million of its state and local NOLs prior to their expiration, and accordingly, reversed $1.1 million of the previously recorded valuation allowance associated with those NOLs.

21

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 13 – INCOME TAXES − (Continued)

During the nine months ended June 30, 2006, the Company reversed a net of $3.1 million of the valuation allowance relating to approximately $34.0 million of other state and local NOLs.  In addition, the Company recorded a $1.0 million deferred tax asset associated with approximately $15.5 million of state and local NOLs which management had previously believed were unrealizable prior to their expiration.

Management will continue to assess its estimate of the amount of NOLs that the Company will be able to utilize.  Furthermore, its estimate of the required valuation allowance could be adjusted in the future if estimates of taxable income are revised.

The Company is under examination by the Internal Revenue Service (“IRS”) for its 2004 and 2005 tax years.  At June 30, 2007, the Company recorded $970,000 of interest expense to discontinued operations associated with the 2004 tax assessment as a result of disallowed bad debt deductions taken on loans in its legacy portfolio.  In July 2007, the Company settled the 2004 examination and paid the tax assessment and interest.  The Company expects to file an NOL carryback claim for the 2004 tax year and anticipates recovering 100% of the tax assessment plus approximately $250,000 of interest as certain of the loans were resolved within the 2006 tax year.  The Company further anticipates that the 2005 examination will be concluded in fiscal 2008 and has recorded a liability and corresponding deferred tax asset for the proposed examination adjustments relating to similarly disallowed bad debt deductions taken in the 2005 tax year, including a $920,000 charge to discontinued operations for estimated interest expense (see Note 17).

NOTE 14 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has ongoing relationships with several related entities.  The following table details the receivables and payables with these related parties (in thousands):

	June 30,		September 30,
	2007		2006
Receivables from managed entities and related parties:
Real estate investment partnerships and TIC property interests	$	8,983	$	952
Commercial finance investment partnerships		6,628		3,938
Financial fund management entities		4,486		2,064
RCC		2,117		1,409
Other		365		432
Receivables from managed entities and related parties	$	22,579	$	8,795
Payables due to managed entities and related parties:
Real estate investment partnerships and TIC property interests	$	950	$	1,325
Other		−		254
Payables to managed entities and related parties	$	950	$	1,579

22

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 14 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS − (Continued)

The Company receives fees and expense reimbursements from several related/managed entities.  In addition, the Company reimburses another related entity for certain of its operating expenses.  The following table details these activities (in thousands):

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Financial fund management- fees from managed entities	$	2,844		$	2,395		$	9,663		$	6,639
Real estate– fees from investment partnerships and     TIC property interests		3,089			2,213			6,911			8,133
Commercial finance− fees from investment partnerships		6,509			2,383			11,283			4,408
RCC:
Management, incentive and servicing fees		2,179			1,815			7,549			5,929
Reimbursement of expenses from RCC		(11	)		559			1,263			1,087
Dividend income		794			687			2,368			2,013
Atlas America− reimbursement of net costs and expenses		225			281			868			958
Anthem Securities:
Payment of operating expenses		−			(287	)		−			(620	)
Reimbursement of costs and expenses		−			938			−			1,893
1845 Walnut Associates Ltd (1) - payment of rent and operating expenses		(76	)		(112	)		(347	)		(351	)
9 Henmar LLC– payment of broker/consulting fees		(176	)		(175	)		(392	)		(419	)
Ledgewood P.C. (2)– payment of legal services		(249	)		(119	)		(395	)		(365	)

⁽¹⁾Relationship with 1845 Walnut Associates Ltd.  In March 2007, the Company sold 15% of its remaining 30% interest in a real estate partnership that owns the building, in which it also leases office space.  The Company received $2.9 million and recorded a gain of $2.7 million on the transaction.  In March 2006, the Company received $4.0 million plus a $200,000 note receivable from the sale of 20% of its interest in the same property, resulting in a $4.2 million gain.

⁽²⁾Relationship with Ledgewood P.C.  Jeffrey F. Brotman was the managing member of Ledgewood, which provides legal services to the Company, until March 2006.  Mr. Brotman remained of counsel to Ledgewood through June 2007, at which time he became an Executive Vice President of the Company.  In connection with his separation, Mr. Brotman will be receiving payments from Ledgewood through 2013.

Relationship with RAIT Financial Trust.  On March 30, 2007, the Company purchased a trust preferred security issued by an unrelated third party from RAIT Financial Trust (“RAIT”) (NYSE: RAS), a related party (see Note 15 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for fiscal 2006), for $19.7 million and sold the security to a warehouse facility for $20.0 million, thereby recognizing a gain of $300,000.  The Company is the collateral manager for this warehouse facility.

Transactions between LEAF and RCC.  LEAF originates and manages commercial finance assets on behalf of RCC.  The leases and notes are sold to RCC at book value plus an origination fee not to exceed 1%.  LEAF sold $2.4 million and $10.6 million of leases and notes to RCC during the three and nine months ended June 30, 2007, respectively.  For the three and nine months ended June 30, 2006, LEAF sold RCC $4.7 million and $62.0 million in leases and notes, respectively.

23

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 14 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS − (Continued)

Transactions between LEAF and TBBK.  On June 15, 2007, Merit (a subsidiary of LEAF) entered into an agreement with TBBK under which TBBK provides banking and operational services to Merit.  As of June 30, 2007, no fees had been paid to TBBK.  In conjunction with this agreement, Merit has $2.3 million in cash on deposit at TBBK at June 30, 2007.

NOTE 15 − OTHER INCOME, NET

The following table details the Company’s other income, net (in thousands):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Gain on sale of TBBK stock	$	864	$	−	$	3,016	$	−
RCC dividends		794		687		2,368		2,013
Litigation settlement		−		−		−		1,188
Interest, dividends and other income		421		122		1,034		443
Other income, net	$	2,079	$	809	$	6,418	$	3,644

In fiscal 2002, the Company had charged operations $1.0 million for its maximum exposure relating to the settlement of a lawsuit.  One of the insurance carriers refused to participate in the settlement.  The Company thereafter filed an action seeking recovery on its policy with that carrier.  In the second quarter of fiscal 2006, the Company prevailed in its action against the carrier, received a $200,000 reimbursement and reversed the $1.0 million accrual.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Senior lien financing obtained with respect to certain acquired properties, TIC investment programs and real estate loans are with recourse only to the properties securing them, subject to certain standard exceptions.  The Company has provided guarantees on these senior liens, TIC programs, and loans totaling $549.3 million which expire as the related indebtedness is paid down over the next ten years.

The Company, through its financial fund management subsidiary, has commitments to purchase equity in all of the CDOs which are currently in their warehouse stage.  The estimated equity commitments, approximately $17.6 million in the aggregate as of June 30, 2007, are contingent upon the successful completion of the respective CDOs which are anticipated over the next twelve months.  The amount of equity the Company actually purchases may be less than the originally estimated commitment.

A May 2007 engagement letter, in connection with a warehouse agreement with Morgan Stanley, provides for a guarantee by the Company of $6.0 million of potential losses on a portfolio of bank loans.  There were no borrowings outstanding under this facility as of June 30, 2007.  Outstanding borrowings were approximately $117.0 million at July 31, 2007.

The January 2007 warehouse agreement with Morgan Stanley provides for a guarantee by the Company of $14.3 million of potential losses on a portfolio of bank loans.  This guarantee, secured by a $4.0 million escrow deposit, expires upon the closing of the associated CDO which is anticipated in fiscal 2008 (see Note 10).

The August 2006 warehouse agreement with Credit Suisse provides for a guarantee by the Company of $10.0 million of potential losses on a portfolio of bank loans.  This guarantee, secured by a $5.0 million escrow deposit, expires upon the closing of the associated CDO which is anticipated in fiscal 2008 (see Note 10).

24

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 16 - COMMITMENTS AND CONTINGENCIES − (Continued)

A subsidiary of LEAF has a $33.0 million non-recourse line of credit with a financial institution that expires on September 15, 2008.  LEAF has committed to a 9.1% participation in the borrowings on this line of credit, to a maximum of $3.0 million.  As of June 30, 2007, there were no outstanding borrowings on this facility.

The Company is a party to various routine legal proceedings arising out of the ordinary course of its business.  Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition or operations.

NOTE 17 − DISCONTINUED OPERATIONS

Based on the Company’s intent to sell its interests in certain entities, the respective operations of these entities have been classified as discontinued and the related assets and liabilities have been classified as held for sale.  Included in other assets is a held for sale property valued at $931,000 million at June 30, 2007.

Losses from discontinued operations for the three and nine months ended June 30, 2007 primarily reflect the $1.9 million of interest assessments related to the 2004 and 2005 IRS tax examinations.  Loss on disposal for the three and nine months ended June 30, 2007 includes a $374,000 write-down to market value of the property held for sale.

Summarized discontinued operating results are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
(Loss) income from discontinued operations before taxes	$	(1,945	)	$	297		$	(2,031	)	$	2,822
Loss on disposal		(286	)		(443	)		(286	)		(1,267	)
Benefit (provision) for income taxes		781			33			811			(578	)
(Loss) income from discontinued operations, net of tax	$	(1,450	)	$	(113	)	$	(1,506	)	$	977

25

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 18 − OPERATING SEGMENTS

The Company’s operations include three reportable operating segments that reflect the way the Company manages its operations and makes business decisions.  In addition to its reporting operating segments, certain other activities are reported in the “All other” category.  Summarized operating segment data are as follows (in thousands):

Three Months Ended June 30, 2007	Financial fund management			Real estate			Commercial finance			All other (1)			Total
Revenues from external customers	$	15,418		$	6,974		$	12,807		$	−		$	35,199
Equity in earnings of unconsolidated entities		3,676			34			1			−			3,711
Total revenues		19,094			7,008			12,808			−			38,910
Segment operating expenses		(5,925	)		(3,971	)		(5,416	)		−			(15,312	)
Depreciation and amortization		(16	)		(186	)		(286	)		(240	)		(728	)
Interest expense		(6,256	)		(252	)		(3,395	)		(273	)		(10,176	)
Other expense, net		(211	)		(6	)		(103	)		(1,127	)		(1,447	)
Minority interests		(664	)		−			(316	)		−			(980	)
Income (loss) before intercompany interest expense     and income taxes		6,022			2,593			3,292			(1,640	)		10,267
Intercompany interest expense		(1,554	)		−			(690	)		2,244			−
Income from continuing operations before        income taxes	$	4,468		$	2,593		$	2,602		$	604		$	10,267

Three Months Ended June 30, 2006
Revenues from external customers	$	4,385		$	5,276		$	5,891		$	−		$	15,552
Equity in earnings (losses) of unconsolidated entities		2,991			(776	)		(6	)		−			2,209
Total revenues		7,376			4,500			5,885			−			17,761
Segment operating expenses		(2,700	)		(3,286	)		(3,911	)		−			(9,897	)
Depreciation and amortization		−			(151	)		(364	)		(166	)		(681	)
Interest expense		(882	)		(64	)		(915	)		(33	)		(1,894	)
Other expense, net		(273	)		(25	)		(131	)		(889	)		(1,318	)
Minority interests		(429	)		−			(36	)		−			(465	)
Income (loss) before intercompany interest expense     and income taxes		3,092			974			528			(1,088	)		3,506
Intercompany interest expense		(2,543	)		(59	)		(397	)		2,999			−
Income from continuing operations before        income taxes	$	549		$	915		$	131		$	1,911		$	3,506

26

RESOURCE AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

June 30, 2007

(unaudited)

NOTE 18 − OPERATING SEGMENTS − (Continued)

Nine Months Ended June 30, 2007	Financial fund management			Real estate			Commercial finance			All other (1)			Total
Revenues from external customers	$	35,770		$	18,662		$	28,483		$	−		$	82,915
Equity in earnings (losses) of unconsolidated entities		11,741			(82	)		(22	)		−			11,637
Total revenues		47,511			18,580			28,461			−			94,552
Segment operating expenses		(15,878	)		(10,179	)		(13,607	)		−			(39,664	)
Depreciation and amortization		(44	)		(549	)		(920	)		(643	)		(2,156	)
Interest expense		(13,184	)		(774	)		(8,076	)		(427	)		(22,461	)
Other expense, net		(830	)		87			(211	)		(1,742	)		(2,696	)
Minority interests		(1,833	)		−			(422	)		−			(2,255	)
Income (loss) before intercompany interest expense     and income taxes		15,742			7,165			5,225			(2,812	)		25,320
Intercompany interest expense		(4,500	)		−			(1,739	)		6,239			−
Income from continuing operations before         income taxes	$	11,242		$	7,165		$	3,486		$	3,427		$	25,320

Nine Months Ended June 30, 2006
Revenues from external customers	$	12,113		$	20,412		$	16,490		$	−		$	49,015
Equity in earnings (losses) of unconsolidated entities		8,556			(2,052	)		(7	)		−			6,497
Total revenues		20,669			18,360			16,483			−			55,512
Segment operating expenses		(7,764	)		(8,265	)		(10,382	)		−			(26,411	)
Depreciation and amortization		(15	)		(453	)		(1,406	)		(481	)		(2,355	)
Interest expense		(2,363	)		(198	)		(2,913	)		(85	)		(5,559	)
Other expense, net		(1,285	)		(260	)		(294	)		(2,105	)		(3,944	)
Minority interests		(1,215	)		−			(21	)		−			(1,236	)
Income (loss) before intercompany interest expense     and income taxes		8,027			9,184			1,467			(2,671	)		16,007
Intercompany interest expense		(2,543	)		(453	)		(1,112	)		4,108			−
Income from continuing operations before         income taxes	$	5,484		$	8,731		$	355		$	1,437		$	16,007

Segment assets
June 30, 2007	$	539,722	$	144,622	$	355,166	$	(19,779	)	$	1,019,731
June 30, 2006	$	257,663	$	145,400	$	109,344	$	(14,476	)	$	497,931

(1) Includes general corporate expenses and assets not allocable to any particular segment.

Geographic Information.  Revenues generated from the Company’s European operations totaled $5.6 million and $11.2 million for the three and nine months ended June 30, 2007.  The Company, through the CDO issuers it sponsors and consolidates pursuant to FIN 46-R, began to acquire European bank loans in the fourth quarter of fiscal 2006.  Included in segment assets as of June 30, 2007 and 2006 were $229.2 million and $813,000, respectively, of European assets, primarily loans held for investment.

27

ITEM 2.                      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

                                    RESULTS OF OPERATIONS  (unaudited)

This report contains certain forward-looking statements.  Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.  Such statements are subject to the risks and uncertainties more particularly described in Item 1A, under the caption “Risk Factors,” in our Annual Report on Form 10-K for the period ended September 30, 2006.  These risks and uncertainties could cause actual results to differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as may be required under applicable law.

Overview of the Three and Nine Months Ended June 30, 2007 and 2006

We are a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for our own account and for outside investors in the financial fund management, real estate and commercial finance sectors.  As a specialized asset manager, we develop investment funds in each sector in which outside investors invest along with us and for which we provide asset management services.  As of June 30, 2007, we managed $16.8 billion of assets.

We limit our fund development and asset management services to asset classes in which we have specific expertise.  We believe this strategy enhances the return on investment we can achieve for ourselves and for the investors in our funds.  In our financial fund management operations, the asset classes on which we concentrate are trust preferred securities of banks, bank holding companies, insurance companies, real estate investment trusts, or REITs, and other financial companies, bank loans, asset-backed securities, known as ABS (principally residential and commercial mortgage-backed securities), and structured finance securities.  In our real estate operations, we concentrate on investments in multi-family and commercial real estate and real estate mortgage loans including whole loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, and mezzanine loans.  In our commercial finance operations, we focus on originating small and middle-ticket equipment leases and commercial notes secured by business-essential equipment, including technology, commercial and industrial equipment and medical equipment.

We have continued to develop our existing operations with the sponsorship of new investment funds and tenant-in-common, or TIC, property programs.  Additionally, we have undertaken several initiatives to further expand the scope of our asset management operations, in particular through the sponsorship of a follow-on offering for Resource Capital Corp, or RCC, and through Resource Europe Management, Ltd., or Resource Europe, in the origination and management of international debt assets.

     Recently, the credit markets in the United States and elsewhere have been subject to substantial volatility and reduction in liquidity, principally as a result of conditions in the residential mortgage sector, particularly in the sub-prime sector.  As of the date of this report, we have not been materially effected by this situation.  We discuss funding availability in Note 10 to the notes to our consolidated financial statements included in this report.

28

Assets Under Management

We increased our assets under management by $6.3 billion to $16.8 billion at June 30, 2007 from $10.5 billion at June 30, 2006.  The growth in our assets under management was the result of:

· an increase in the financial fund management assets we manage on behalf of individual and institutional investors and RCC, both in the United States and in Europe;

· an increase in real estate assets managed on behalf of RCC and limited partnerships and TIC property interests that we sponsor; and

· an increase in commercial finance assets managed on behalf of the limited partnerships we sponsor, and RCC.

The following table sets forth information relating to our assets under management by operating segment and their growth from June 30, 2006 to June 30, 2007 (in millions):

	As of June 30,				Increase
	2007		2006		Amount		Percentage
Financial fund management	$	14,211	$	9,215	$	4,996		54%
Real estate		1,497		707		790		112%
Commercial finance		1,069		549		520		95%
	$	16,777	$	10,471	$	6,306		60%

Included in these assets at June 30, 2007 and 2006 were $13.5 billion and $7.6 billion of assets held through 30 and 18 issuers of collateralized debt obligations, or CDOs, we have sponsored, including $2.1 billion and $1.0 billion in six and three CDOs sponsored for RCC, respectively, and $1.4 billion held on warehouse facilities for CDOs which had not closed as of June 30, 2007 for which we have been engaged as the collateral manager.

Our assets under management are primarily managed through various investment vehicles including CDOs, public and private limited partnerships, TIC property interests, a REIT, and other investment funds.  All of our operating segments manage assets on behalf of RCC.  The following table sets forth the number of entities we manage by operating segment:

	CDOs		Limited Partnerships (1)		TIC Property Interests		Other Investment Funds
As of June 30, 2007
Financial fund management		28		12		−		−
Real estate		2		6		7		−
Commercial finance		−		3		−		1
		30		21		7		1
As of June 30, 2006
Financial fund management		18		11		−		−
Real estate		−		5		4		−
Commercial finance		−		2		−		2
		18		18		4		2

(1) Includes one real estate investment program structured as a limited liability company.

29

The assets we manage are classified as follows (in millions):

	As of June 30, 2007
	Assets Held by Resource America		Institutional and Individual Investors		RCC		Assets Held on Warehouse Facilities			Total
Asset-backed securities	$	−	$	5,048	$	391	$	−		$	5,439
Trust preferred securities		−		4,497		−		617			5,114
REIT trust preferred securities		−		−		−		267			267
Bank loans		−		1,858		938		509	(1)		3,305
Real properties		−		499		−		−			499
Mortgage and other real estate-related loans		99		−		899		−			998
Commercial finance assets		314		672		83		−			1,069
Private equity and hedge fund assets		−		86		−		−			86
	$	413	$	12,660	$	2,311	$	1,393		$	16,777

(1) Includes $414.3 million of bank loans which were reflected on our consolidated balance sheet at June 30, 2007, of which $209.9 million were European bank loans.

	As of June 30, 2006
	Assets Held by Resource America		Institutional and Individual Investors		RCC		Assets Held on Warehouse Facilities		Total
Asset-backed securities	$	−	$	2,642	$	1,209	$	325	$	4,176
Trust preferred securities		−		3,537		−		279		3,816
Bank loans		−		389		605		171		1,165
Real properties		−		314		−		−		314
Mortgage and other real estate-related loans		100		−		293		−		393
Commercial finance assets		90		381		78		−		549
Private equity and hedge fund assets		−		58		−		−		58
	$	190	$	7,321	$	2,185	$	775	$	10,471

Employees

As of June 30, 2007, we employed 391 persons full-time, an increase of 172, or 79%, from 219 employees at June 30, 2006.  The following table summarizes our employees by operating segment:

	Total		Financial Fund Management		Real Estate		Commercial Finance		Corporate/ Other
June 30, 2007
Investment professionals		129		43		31		53		2
Other		262		24		16		184		38
Total		391		67		47		237		40
June 30, 2006
Investment professionals		65		22		18		24		1
Other		154		17		9		99		29
Total		219		39		27		123		30

30

Revenues

We generate revenues in each of our business segments from the fees we earn for structuring and managing the investment vehicles we sponsor on behalf of individual and institutional investors and RCC and from the income produced by the assets and investments we manage for our own account.  The following table sets forth the revenues we have recognized in each of these revenue categories (in thousands):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Fund management revenues (1)	$	21,553	$	10,647	$	47,982	$	29,274
RCC management fees		2,016		1,223		5,749		3,389
Finance and rental revenues (2)		14,450		4,920		33,790		14,373
Gains on resolution of loans and other property interests (3)		280		135		2,991		4,584
Net gains on sale of TIC property interests (4)		229		199		315		795
Other (5)		382		637		3,725		3,097
	$	38,910	$	17,761	$	94,552	$	55,512

(1)   Includes fees earned from each of our financial fund management, real estate and commercial finance operations and our share of the income or loss from limited and general partnership interests we own in our financial fund management, real estate and commercial finance operations.

(2)Includes interest income on bank loans from our financial fund management operations, interest and accreted discount income from our real estate operations, interest and rental income from our commercial finance operations and revenues from certain real estate assets.

(3)Includes the resolution of loans we hold in our real estate segment.

(4)Reflects net gains (losses) recognized by our real estate segment on the sale of TIC property interests to outside investors.

(5)Includes the equity compensation we earned in connection with the formation of RCC and income realized from the disposition of leases and loans as well as other charges generated by our commercial finance operations.

A detailed discussion of the revenues generated by each of our business segments can be found under “Results of Operations:  Financial Fund Management”, “Real Estate” and “Commercial Finance.”

Results of Operations:  Financial Fund Management

We conduct our financial fund management operations through six principal subsidiaries:

· Apidos Capital Management, LLC, or Apidos, which invests in, finances, structures and manages investments in bank loans.

· Ischus Capital Management, LLC, or Ischus, which invests in, finances, structures and manages investments in asset-backed securities or ABS, including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS.

· Trapeza Capital Management, LLC, or Trapeza, a joint venture between us and an unrelated third party, which originates, structures, finances and manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies.

· Resource Europe, which invests in, finances, structures and manages investments in international bank loans.

· Coredo Capital Management, LLC, or Coredo, which originates, structures, finances and manages trust preferred securities and other debt investments in real estate-related companies, including REITs, real estate operating companies and other companies.

· Resource Financial Institutions Group, Inc., or RFIG, which serves as the general partner for four company-sponsored affiliated partnerships which invest in financial institutions.

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   It is possible that due to volatility in the credit markets, our ability to obtain long-term CDO financing may be more difficult than it has been in the past and the terms may be less favorable.  This may effect our ability to sustain our historical growth in assets under management or in fee income.

    The following table sets forth information relating to assets managed by each of our principal financial fund management subsidiaries on behalf of institutional and individual investors and RCC (in millions):

	As of June 30, 2007
	Institutional and Individual Investors		RCC		Assets Held on Warehouse Facilities		Total by Type
Apidos	$	1,507	$	938	$	243	$	2,688
Ischus		5,048		391		−		5,439
Trapeza		4,497		−		617		5,114
Resource Europe		351		−		266		617
Coredo		−		−		267		267
Other company-sponsored partnerships		86		−		−		86
	$	11,489	$	1,329	$	1,393	$	14,211

	As of June 30, 2006
	Institutional and Individual Investors		RCC		Assets Held on Warehouse Facilities		Total by Type
Apidos	$	389	$	605	$	171	$	1,165
Ischus		2,642		1,209		325		4,176
Trapeza		3,537		−		279		3,816
Other company-sponsored partnerships		58		−		−		58
	$	6,626	$	1,814	$	775	$	9,215

In our financial fund management segment, we earn fees on assets managed on behalf of institutional and individual investors as follows:

· Collateral management fees− We receive fees for managing the assets held by CDOs we sponsor.  These fees vary by CDO, with our annual fee ranging between 0.08% and 0.75% of the aggregate principal balance of the collateral securities owned by the CDO issuers; and

· Administration fees − We receive fees for managing the assets held by partnerships sponsored by us and for managing their general operations.  These fees vary by limited partnership, with our annual fee ranging between 0.75% and 2.00% of the partnership capital balance.

We also receive distributions on our investments in the entities we manage which vary depending on our investment and, with respect to particular limited partnerships, with the terms of our general partner interest.  We discuss the basis for our fees and revenues for each area in more detail in the following sections.

Apidos

We sponsored, structured and currently manage seven CDO issuers for institutional and individual investors and RCC which hold approximately $2.4 billion in bank loans at June 30, 2007, of which $938.1 million are managed on behalf of RCC through three CDOs.  In addition, at June 30, 2007, we managed $242.6 million of bank loans for one CDO currently in its accumulation stage, which we anticipate to close in fiscal 2008.

We derive revenues from our Apidos operations through base and incentive management fees of up to 0.75% of the aggregate principal balance of the collateral held by the CDO issuers, of which a portion is subordinated to debt service payments on the CDOs, and interest income earned on the assets of certain issuers during the warehousing period prior to execution of a CDO.

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Ischus

We sponsored, structured and currently manage eight CDO issuers for institutional and individual investors and RCC, which hold approximately $5.4 billion in primarily real estate ABS including RMBS, CMBS and credit default swaps, of which $390.6 million is managed on behalf of RCC.

We own a 50% interest in the general partner and manager of Structured Finance Fund, L.P. and Structured Finance Fund II, L.P., collectively referred to as the SFF partnerships.  These partnerships own a portion of the equity interests of three Trapeza CDO issuers and Ischus CDO I.  We also have invested as a limited partner in each of these limited partnerships.

We derive revenues from our Ischus operations through management and administration fees.  We also receive distributions on amounts we invest in the limited partnerships.  Management fees vary by CDO issuer, ranging from between 0.08% and 0.40% of the aggregate principal balance of the collateral held by the CDO issuer of which a portion is subordinated to debt service payments on the CDOs.

Trapeza

We have co-sponsored, structured and currently co-manage 12 CDO issuers holding approximately $4.5 billion in trust preferred securities of banks, bank holding companies, insurance companies and other financial companies.  In addition, at June 30, 2007, we managed $617.3 million in trust preferred securities for three CDOs, one of which we anticipate to close in fiscal 2007 and two of which we anticipate to close in fiscal 2008.

We own a 50% interest in an entity that manages 10 Trapeza CDO issuers and a 33.33% interest in another entity that manages two Trapeza CDO issuers.  We also own a 50% interest in the general partners of the limited partnerships that own the equity interests of five Trapeza CDO issuers.  We also have invested as a limited partner in each of these limited partnerships.

We derive revenues from our Trapeza operations through base and incentive management and administration fees.  We also receive distributions on amounts we have invested in limited partnerships.  Management fees, including incentive fees, vary by CDO issuer, but have ranged from between 0.25% and 0.60% of the aggregate principal balance of the collateral held by the CDO issuers of which a portion is subordinated.  These fees are also shared with our co-sponsors.  We are also entitled to incentive distributions in four of the partnerships we manage.

Resource Europe

In April 2006, we commenced our European bank loan operations based in London, England.  We sponsored, structured and currently manage one CDO issuer holding $351.2 million in bank loans at June 30, 2007.  In addition, at June 30, 2007, we managed $265.9 million of bank loans for one CDO currently in its accumulation stage, which we anticipate to close in fiscal 2008.

Coredo

In February 2007, we commenced our REIT preferred security operations.  At June 30, 2007, we managed $267.1 million of real estate trust preferred securities for two CDOs currently in their accumulation stage, both of which we anticipate to close in fiscal 2008.

We derive revenues from our Coredo operations through due diligence and placement fees associated with the origination of certain REIT preferred security transactions.  Due diligence and placement fees may vary by transaction and may cause significant variations in revenues during the warehouse period.  Upon the successful completion of a CDO, we will receive base and incentive management fees, which will vary by CDO issuer.

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Other Company-Sponsored Partnerships

We sponsored, structured and currently manage four affiliated partnerships for individual and institutional investors that invest in financial institutions.  We derive revenues from these operations through an annual management fee, based on 2.0% of equity.  We also have invested as the general partner of these partnerships and may receive a carried interest of up to 20% upon meeting specific investor return rates.

We have also sponsored, structured and currently manage another affiliated partnership organized as a hedge fund.  We derive revenues from this partnership through base and incentive management fees.  Base management fees are calculated monthly at 1/12^th of 2% of the partnership’s net assets.  Incentive management fees are calculated annually at 20% of cumulative annual net profits.  We also have invested as a limited partner in this partnership.

The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our financial fund management operations (in thousands):

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2007		2006			2007		2006
Revenues:
Fund management fees	$	5,865	$	2,631		$	16,471	$	5,844
Interest income on loans		8,358		1,139			18,304		3,480
Due diligence and placement fees		1,863		−			1,901		−
Limited and general partner interests		1,234		1,530			3,800		4,469
Earnings on unconsolidated CDOs		729		177			1,753		310
RCC management fees and equity compensation		385		1,145			2,505		4,136
Earnings of Structured Finance Fund partnerships		507		571			1,567		1,662
Other		153		183			1,210		768
	$	19,094	$	7,376		$	47,511	$	20,669
Costs and expenses:
General and administrative expenses	$	5,505	$	2,345		$	14,266	$	6,691
Equity compensation expense		415		364			1,589		1,069
Expenses (reimbursements) of Structured Finance Fund partnerships		5		(9	)		23		4
	$	5,925	$	2,700		$	15,878	$	7,764

Fees and/or reimbursements that we receive vary by transaction and, accordingly, there may be significant variations in the revenues we recognize from our financial fund management operations from period to period.

Revenues - Three Months Ended June 30, 2007 as Compared to the Three Months Ended June 30, 2006

Revenues increased $11.7 million (159%) for the three months ended June 30, 2007.  We attribute the increase to the following:

· a $3.2 million increase in fund management fees principally as a result of the completion of nine new CDOs coupled with a full quarter of collateral management fees for two previously completed CDOs;

· a $7.2 million increase in interest income on loans held for investment resulting from the consolidation of one Apidos and two Resource Europe CDO issuers during the three months ended June 30, 2007 as compared to three Apidos CDO issuers during the three months ended June 30, 2006 in our financial statements while they accumulate assets through separate warehouse facilities.  In May 2007, we closed our first European CDO, Resource Europe I, and repaid all outstanding borrowings under the warehouse facility.  The weighted average loan balances of CDO issuers we consolidate for the three months ended June 30, 2007 and 2006 were $471.3 million and $62.7 million, respectively, (weighted average interest rates of 6.88% and 7.26%, respectively);

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· a $1.9 million increase in due diligence and placement fees, resulting primarily from the following:

- $1.3 million earned in due diligence and placement fees in connection with the origination of $310.0 million of REIT trust preferred securities for six Coredo transactions; and

- $538,000 earned in placement fees in connection with the origination of $215.0 million for four Trapeza trust preferred security transactions.

· a $296,000 decrease in revenues from our limited and general partner interests, primarily from a $202,000 decrease in net unrealized appreciation in the book value of the partnerships’ securities and swap agreements to reflect their current market value;

· a $552,000 increase in our earnings in unconsolidated CDOs as a result of our investment in one new CDO issuer and an increase in earnings from investments in eight previously sponsored CDO issuers; and

· a $760,000 decrease in RCC management fees and equity compensation, primarily due to a $465,000 decrease in management fees as a result of the sale of RCC’s agency RMBS portfolio in the fourth quarter of fiscal 2006.

Costs and Expenses – Three Months Ended June 30, 2007 as Compared to the Three Months Ended June 30, 2006

Costs and expenses increased $3.2 million (119%) for the three months ended June 30, 2007.  We attribute the increase to the following:

· a $3.2 million increase in general and administrative expenses, primarily from the following:

- a $1.6 million increase in wages and benefits as a result of the addition of personnel in response to our growing assets under management;

- a $535,000 increase in professional fees primarily due to an increase in consulting fees related to our European operations;

- a $459,000 decrease in reimbursed expenses from our Trapeza, Ischus and Apidos operations which vary based on the terms of each transaction;

- a $276,000 increase in other operating expenses, primarily from insurance costs, rent and other general and administrative expenses related to the addition of personnel; and

- a $192,000 decrease in reimbursed RCC operating expenses.

Revenues - Nine Months Ended June 30, 2007 as Compared to the Nine Months Ended June 30, 2006

Revenues increased $26.8 million (130%) for the nine months ended June 30, 2007.  We attribute the increase to the following:

· a $10.6 million increase in fund management fees, primarily from the following:

- a $9.0 million increase in collateral management fees principally as a result of the completion of nine new CDOs coupled with a full nine months of collateral management fees for six previously completed CDOs;

- a $1.7 million increase in portfolio management fees received in connection with the formation of Trapeza CDO XI and Trapeza CDO XII during the nine months ended June 30, 2007.  No such fees were received during the nine months ended June 30, 2006; and

- a $367,000 increase in management fees from our five company-sponsored unconsolidated partnerships, principally as a result of a full nine months of management fees for two of the partnerships;

These increases were partially offset by:

- a $550,000 increase in our share of the expenses for Trapeza Capital Management, LLC and Trapeza Management Group LLC.

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· a $14.8 million increase in interest income on loans held for investment resulting from the consolidation in our financial statements of two Apidos and two Resource Europe CDO issuers during the nine months ended June 30, 2007 as compared to three Apidos CDO issuers during the nine months ended June 30, 2006 while they accumulate assets through separate warehouse facilities.  In May 2007, we closed Apidos Cinco CDO and our first European CDO, Resource Europe I, and repaid all outstanding borrowings under their respective warehouse facilities.  The weighted average loan balances of CDO issuers we consolidate for the nine months ended June 30, 2007 and 2006 were $348.0 million and $68.4 million, respectively, (effective interest rates of 6.88% and 6.77%, respectively);

· a $1.9 million increase in due diligence and placement fees, primarily from the following:

- $1.3 million earned in due diligence and placement fees in connection with the origination of $310.0 million for six Coredo REIT trust preferred security transactions; and

- $575,000 earned in placement fees in connection with the origination of $225.0 million for five Trapeza trust preferred security transactions.

· a $669,000 decrease in revenues from our limited and general partner interests, primarily from the following:

- a $1.5 million decrease in net unrealized appreciation in the book value of the partnership securities and swap agreements to reflect current market value; offset in part by

- a $891,000 increase from our share of the operating results of unconsolidated partnerships we have sponsored.

· a $1.4 million increase in our earnings in unconsolidated CDOs as a result of our investments in six new CDO issuers and an increase in earnings from investments in five previously sponsored CDO issuers;

· a $1.6 million decrease in RCC management fees and equity compensation, reflecting a $981,000 decrease in management fees as a result of the sale of RCC’s agency RMBS portfolio; and

· a $442,000 increase in other revenue, primarily from a $300,000 gain on the sale of a security during the nine months ended June 30, 2007.  No such gain occurred during the nine months ended June 30, 2006.

Costs and Expenses − Nine Months Ended June 30, 2007 as Compared to the Nine Months Ended June 30, 2006

Costs and expenses increased $8.1 million (105%) for the nine months ended June 30, 2007.  We attribute the increase primarily to the following:

· a $7.6 million increase in general and administrative expenses, including the following:

- a $4.8 million increase in wages and benefits as a result of the addition of personnel in response to growth in our assets under management;

- a $1.1 million increase in other operating expenses, primarily from insurance costs, rent and other general and administrative expenses related to the addition of personnel; and

- a $691,000 decrease in reimbursed expenses from our Trapeza, Ischus and Apidos operations, which vary depending on the terms of the transaction;

- a $555,000 increase in professional fees primarily due to an increase in consulting fees related to our European operations; and

- a $407,000 decrease in reimbursed RCC operating expenses; and

· a $520,000 increase in equity compensation expense related to restricted shares and options of RCC that were held by RCM which have been transferred to members of management.

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Results of Operations: Real Estate

In our real estate segment, we manage three classes of assets:

· commercial real estate debt, principally A notes, whole loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities;

· real estate investment limited partnerships, limited liability company and TIC property interests; and

· real estate loans, owned assets and ventures, known collectively as our legacy portfolio.

	As of June 30,
	2007		2006
	(in millions)
Assets under management:
Commercial real estate debt	$	899	$	293
Real estate investment entities		499		314
Legacy portfolio		99		100
	$	1,497	$	707

During the three and nine months ended June 30, 2007, our real estate operations continued to be affected by two principal trends or events:

· the continued development of our commercial real estate debt platform; and

· growth in our real estate business through the sponsorship of real estate investment partnerships and the sponsorship of TIC property interests.

We support our real estate investment partnerships by making long-term limited partnership investments.  In addition, from time-to-time, we make bridge investments in the underlying partnerships and TIC property interests to facilitate acquisitions.  We record losses on these equity method investments primarily as a result of depreciation and amortization expense recorded by the partnerships and TIC property interests.  As additional investors are admitted to the partnerships and TIC programs, we transfer our bridge investment to new investors at our original cost and recognize a gain approximately equal to the previously recognized loss.

Gains on resolution of loans, FIN 46-R assets and other real estate assets (if any) and the amount of fees received (if any) vary from transaction to transaction.  There have been in the past, and we expect that in the future there will be, significant period-to-period variations in our gains on resolution and fee income.  Moreover, it is anticipated that gains on resolution will likely decrease in the future as we complete the resolution of our legacy portfolio.

In the twelve months ended June 30, 2007, we resolved loans with a combined book value of $4.9 million, realizing $5.2 million in net proceeds.  We reduced the number of loans in our portfolio from nine at June 30, 2006 to eight at June 30, 2007 through the repayment of one loan and sale of one loan, offset by the addition of one loan in conjunction with the resolution of one venture.  In addition, we sold a partial interest in a real estate venture and received net proceeds of $2.9 million.  As a result, the face value of the loans receivable that we manage in our legacy portfolio decreased from $77.0 million at June 30, 2006 to $76.0 million at June 30, 2007.

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The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our real estate operations (in thousands):

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2007		2006			2007		2006
Revenues:
Fee income from sponsorship of  partnerships and TIC  property interests	$	2,555	$	1,592		$	5,258	$	6,676
REIT management fees from RCC		1,540		266			4,125		761
FIN 46 revenues and rental property income		1,444		1,469			3,659		3,549
Property management fees		144		645			997		1,698
Interest, including accreted loan discount		367		312			824		826
Gains on resolutions of loans and other property interests		280		135			2,991		4,584
Equity in income (losses) of unconsolidated entities		449		(118	)		411		(529	)
Net gain on sales of TIC property interests		229		199			315		795
	$	7,008	$	4,500		$	18,580	$	18,360
Costs and expenses:
General and administrative	$	3,102	$	2,483		$	7,816	$	6,110
FIN 46 operating and rental property expenses		869		803			2,363		2,155
	$	3,971	$	3,286		$	10,179	$	8,265

Revenues - Three Months Ended June 30, 2007 as Compared to the Three Months Ended June 30, 2006

Revenues increased $2.5 million (56%) for the three months ended June 30, 2007.  We attribute the increase to the following:

· a $1.0 million increase in fee income related to the purchase and third-party financing of three properties by two real estate investment partnerships and a TIC property interest that we sponsor.  We closed $7.7 million in TIC investments during the three months ended June 30, 2007 compared to $12.0 million in the three months ended June 30, 2006.  No properties were acquired during the three months ended June 30, 2006;

· a $1.3 million increase in REIT management fees due to an increase of $606.0 million to $899.0 million at June 30, 2007 from $293.0 million at June 30, 2006 in commercial real estate debt managed; and

· a $567,000 increase in our equity share of the operating results of unconsolidated real estate investments due to a reallocation of partnership income in a real estate venture.

These increases were partially offset by a $344,000 discount recorded in connection with property management fees we expect to receive in the future.

Costs and Expenses – Three Months Ended June 30, 2007 as Compared to the Three Months Ended June 30, 2006

Costs and expenses of our real estate operations increased by $685,000 (21%) for the three months ended June 30, 2007.  General and administrative expenses increased by $619,000 primarily due to increased wages and benefits as a result of the addition of personnel to manage our expanded real estate operations.

Revenues - Nine Months Ended June 30, 2007 as Compared to the Nine Months Ended June 30, 2006

Revenues increased $220,000 (1%) to $18.6 million for the nine months ended June 30, 2007.  We attribute the increase to the following:

· a $3.4 million increase in REIT management fees reflecting the increase of $606.0 million in commercial real estate debt managed to $899.0 million at June 30, 2007; and

· a $940,000 increase in our equity share of the operating results of unconsolidated real estate investments due to a reallocation of partnership income in a real estate venture.

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These increases were partially offset by:

· a $1.6 million decrease in gains on resolution of loans, FIN 46 assets and ventures.  During the nine months ended June 30, 2007, we received $2.9 million from the sale of a 15% interest in a real estate venture resulting in a gain of $2.7 million; for the nine months ended June 30, 2006, we received $4.0 million plus a $200,000 note receivable from the sale of a 20% interest in the same real estate venture, resulting in a gain of $4.2 million;

· a $1.4 million decrease in fee income related to the purchase and third-party financing of property through the sponsorship of real estate investment partnerships and TIC property interests.  We closed $14.0 million in TIC investments in the nine months ended June 30, 2007 compared to $21.9 million in the nine months ended June 30, 2006;

· a $480,000 decrease in net gains on sale of our real estate investment partnerships and TIC property interests; and

· a $344,000 discount recorded in connection with property management fees we expect to receive in the future.

Costs and Expenses − Nine Months Ended June 30, 2007 as Compared to the Nine Months Ended June 30, 2006

Costs and expenses increased by $1.9 million (23%) for the nine months ended June 30, 2007.  General and administrative expenses increased by $1.7 million, primarily due to increased wages and benefits corresponding to our expanded real estate operations.

Results of Operations: Commercial Finance

In June 2007, we acquired along with our investment partnerships, substantially all of the assets of the leasing division of Pacific Capital, N.A., or PCB, which included a portfolio of small ticket leases and loans, customer lists, lease origination team and business platform and other intangibles.  The total purchase price of $282.2 million included $269.5 million of equipment leases and notes, of which $201.7 million were acquired directly by our investment partnerships.

During the three and nine months ended June 30, 2007, we continued to expand our commercial finance operations by increasing our assets under management to $1.1 billion as of June 30, 2007 from $549.4 million as of June 30, 2006, an increase of $519.4 million (95%).  During the three and nine months ended June 30, 2007, we originated $396.9 million and $655.9 million in new equipment financing as compared to $117.7 million and $315.7 million for the three and nine months ended June 30, 2006, an increase of $279.2 million (237%) and $340.2 million (108%), respectively.  Our growth in commercial finance originations was driven by the PCB acquisition, our continued growth in new and existing vendor programs, the introduction of new commercial finance products and the expansion of our sales staff.

During the three and nine months ended June 30, 2007, we earned acquisition fees on $261.9 million and $401.5 million in commercial financing assets acquired by our investment entities as compared to $96.8 million and $276.9 million for the three and nine months ended June 30, 2006, an increase of $165.1 million (171%) and $124.6 million (45%), respectively.  The acquisition fees earned on the leases and notes sold to the funds in the PCB acquisition were $4.0 million for the three and nine months ended June 30, 2007.

In December 2006, LEAF Equipment Leasing Income Fund III, or LEAF III, an equipment leasing partnership we sponsor, began a public offering of up to $120.0 million of limited partnership interests.

In March 2007, we entered a new line of business, Merit Capital Advance, LLC, or Merit, to provide capital to small businesses through a credit card receipt advance program.  Merit’s capital needs are supported by a loan in the form of a $1.5 million subordinated convertible note and a $33.0 million line of credit with an international financial institution.  The subordinated convertible debt is convertible into a 50% ownership interest in Merit on or after September 15, 2007.  A subsidiary of LEAF has committed to a 9.1% (up to $3.0 million) participation in the $33.0 million credit facility.  We expect Merit to begin generating revenues in the fourth quarter of fiscal 2007.

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The following table sets forth information related to the assets our commercial finance operations manage (in millions):

	As of June 30,
	2007		2006
LEAF Financial	$	314	$	90
LEAF I		89		83
LEAF II		350		93
LEAF III		222		−
RCC		83		78
Merrill Lynch		11		205
	$	1,069	$	549

As of June 30, 2007, we managed approximately 26,187 leases and notes that have an average original finance value of $52,000 with an average lease term of 51 months.  The following table sets forth certain information related to the types of businesses in which our commercial finance assets are used and the concentration by asset type of our portfolio under management as of June 30, 2007:

Lessee business			Equipment under management
Services	40	%	Industrial	35	%
Finance/Insurance	12	%	Medical	19	%
Manufacturing services	10	%	Asset based lending	11	%
Transportation/Communication	10	%	Computers	11	%
Retail trade services	9	%	Restaurant equipment	5	%
Construction	7	%	Office equipment	4	%
Wholesaler trade	4	%	Garment care	3	%
Agriculture	4	%	Communication	3	%
Other	4	%	Software	2	%
	100	%	Other	7	%
				100	%

The revenues from our commercial finance operations consist primarily of finance revenues from leases and notes held by us prior to being sold, asset acquisition fees which we earn when we sell commercial finance assets to one of our investment partnerships and asset management fees we earn over the life of the lease or loan after it is sold.  The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our commercial finance operations (in thousands):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Revenues (1):
Finance revenues	$	4,281	$	2,000	$	11,003	$	6,518
Acquisition fees		5,019		1,585		7,252		4,768
Fund management fees		3,209		2,071		8,656		4,481
Other		299		229		1,550		716
	$	12,808	$	5,885	$	28,461	$	16,483
Costs and expenses:
LEAF costs and expenses	$	4,696	$	3,911	$	12,650	$	10,382
Merit costs and expenses		720		−		957		−
	$	5,416	$	3,911	$	13,607	$	10,382

(1) Total revenues include (i) RCC servicing and origination fees of $254,000 and $919,000 and for the three and nine months ended June 30, 2007, respectively, and $404,000 and $1.0 million for the three and nine months ended June 30, 2006, respectively; and (ii) Merit revenues of $12,000 for the three and nine months ended June 30, 2007.

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Revenues – Three and Nine Months Ended June 30, 2007 as Compared to the Three and Nine Months Ended June 30, 2006

Revenues increased $6.9 million (118%) and $12.0 million (73%) for the three and nine months ended June 30, 2007, respectively, as compared to the prior year period.  We attribute these increases to the following:

· a $2.3 million (114%) and $4.5 million (69%) increase, respectively, in commercial finance revenues due to the growth in lease originations and our decision to hold more direct financing leases and notes on our balance sheet.  We had $313.9 million in commercial finance assets at June 30, 2007 an increase of $205.1 million from June 30, 2006.  Our lease originations increased by $279.2 million (237%) and $340.2 million (108%) to $396.9 million and $655.9 million, for the three and nine months periods, respectively  The PCB acquisition accounted for $268.0 million of this increase;

· a $3.4 million (217%) and $2.5 million (52%), respectively, increase in asset acquisition fees resulting from the increase in leases sold.  We have sold $261.9 million and $ 401.5 million leases, respectively, for the three months ended June 30, 2007 as compared to $96.8 million and $276.9 million, respectively, for the three and nine months ended June 30, 2006, respectively.  We earned acquisition fees on the $201.7 million of PCB leases and notes acquired by our investment partnerships.

· a $1.1 million (55%) and $4.2 million (93%), respectively, increase in fund management fees resulting from an increase in assets under management to $1.1 billion at June 30, 2007 from $549.4 million at June 30, 2006; and

· a $70,000 (31%) and $834,000 (117%), respectively, increase in other income primarily resulting from gains on dispositions and document fee income, which may vary significantly from period to period.

Costs and Expenses – Three and Nine Months Ended June 30, 2007 as Compared to the Three and Nine Months Ended June 30, 2006

LEAF costs and expenses increased $785,000 (20%) and $2.3 million (22%), respectively, for the three and nine months ended June 30, 2007, primarily related to increased wages and benefits of $613,000 and $1.7 million, respectively, to support its expanded operations.  The number of LEAF employees increased by 114 (93%) to 237 at June 30, 2007, of which 35 were related to the new Merit operations, 20 were hired in conjunction with the PCB acquisition, 44 of additional sales personnel, and 15 of credit, operations and servicing staff.

Merit costs and expenses incurred in connection with the start-up of that operation were $720,000 and $957,000 for the three and nine months ended June 30, 2007, respectively, of which $384,000 and $544,000, related to wages and benefits.  There were no costs incurred in fiscal 2006.

Results of Operations: Other Costs and Expenses and Other Income (Expense)

General and administrative costs were $3.5 million and $9.1 million for the three and nine months ended June 30, 2007, respectively, an increase of $1.4 million (66%) and $1.5 million (20%) as compared to $2.1 million and $7.6 million for the three and nine months ended June 30, 2006, respectively.  Payroll and related benefit costs increased by $881,000 and $1.0 million for the three and nine months ended June 30, 2007, respectively, in conjunction with the growth in our asset management operations.

Depreciation and amortization expense was $728,000 and $2.2 million for the three and nine months ended June 30, 2007, an increase of $47,000 (7%) and a decrease of $199,000 (8%) as compared to $681,000 and $2.4 million for the three and nine months ended June 30, 2006, respectively.  Depreciation on capital expenditures increased by $163,000 and $41,000 for the three and nine months ended June 30, 2007, respectively, offset by a decrease in depreciation of $116,000 and $240,000 for the three and nine months ended June 30, 2007, respectively, due to a reduction in the average balance of operating leases held.

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Interest expense increased by $8.3 million (437%) and $16.9 million (304%) for the three and nine months ended June 30, 2007, respectively.  The following table reflects interest expense (exclusive of intercompany interest charges), as reported by segment (in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,
	2007		2006		2007		2006
Financial fund management	$	6,256	$	882	$	13,184	$	2,363
Real estate		252		64		774		198
Commercial finance		3,395		915		8,076		2,913
Other		273		33		427		85
	$	10,176	$	1,894	$	22,461	$	5,559

The increase in interest expense primarily reflects the increased borrowings by our financial fund management and commercial finance businesses to fund their expanded operations.  Facility utilization (in millions) and interest rates for our financial fund management and commercial finance operations are as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Financial fund management
Average borrowings	$	470.6		$	58.6		$	339.8		$	67.1
Average interest rates		5.2	%		6.0	%		5.1	%		4.6	%
Commercial finance
Average borrowings	$	191.5		$	47.3		$	150.9		$	53.6
Average interest rates		6.5	%		7.5	%		6.8	%		7.1	%

Interest expense for our financial fund management business increased by $5.4 million and $10.8 million, respectively, for the three and nine months ended June 30, 2007.  Increased borrowings were principally used to fund the purchase of loans held for investment, as reflected by the increase in average borrowings of $412.0 million and $272.7 million for the three and nine months ended June 30, 2007, respectively.  These loans, and their associated debt, are held by CDO issuers which we consolidate while the assets accumulate on the warehouse facilities.

Interest expense for our commercial finance operations increased by $2.5 million and $5.2 million, respectively, for the three and nine months ended June 30, 2007 due primarily to an increase in borrowings, offset in part, by a decrease in interest rates.  LEAF increased its borrowings to fund its growth in commercial note and loan originations, the assets acquired from PCB, and its entry into new lines of business, primarily asset-backed lending and credit card advances.  Accordingly, LEAF’s average borrowings increased by $144.2 million and $97.3 million for the three and nine months ended June 30, 2007, respectively.

For the three and nine months ended June 30, 2007, our operations reflected a charge to earnings of $980,000 and $2.3 million, respectively, for minority interests comprised of the following (in thousands):

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
SFF partnerships	$	378	$	429	$	1,150	$	1,215
Commercial finance minority ownership		316		36		422		21
Warehouse providers		286		−		683		−
	$	980	$	465	$	2,255	$	1,236

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At June 30, 2007, we owned a 15% and 36% limited partner interest in SFF I and SFF II, respectively, which invest in the equity of certain of the CDO issuers we have formed.  In addition, certain warehouse providers are entitled to receive 10% to 15% of the interest spread earned on their respective warehouse facilities which hold Apidos and Resource Europe bank loan assets during their accumulation stage.  The 14.9% minority interest in LEAF at June 30, 2007 includes the LEAF stock issued upon the conversion of a note in fiscal 2006 and the issuance by LEAF of its restricted stock in fiscal 2006 and 2007.

Other income, net, was $2.1 million and $6.4 million for the three and nine months ended June 30, 2007, respectively, an increase of $1.3 million (157%) and $2.8 million (76%) as compared to $809,000 and $3.6 million for the three and nine months ended June 30, 2006, respectively.  The principal components of other income, net, are as follows:

· during the three and nine months ended June 30, 2007, we recorded gains of $864,000 and $3.0 million, respectively, from the sale of 60,000 and 190,000 shares, respectively, of The Bancorp, Inc. common stock.  No shares were sold in the prior year periods;

· an increase of $107,000 and $355,000 in dividends earned on our shares of RCC; and

· in fiscal 2002, we charged operations $1.0 million, which was the amount of our maximum exposure relating to the settlement of a lawsuit.  One of the insurance carriers refused to participate in the settlement.  In the second quarter of fiscal 2006, we prevailed in our action against the carrier, received a $200,000 reimbursement and reversed the $1.0 million accrual.

Our effective tax rate (income taxes as a percentage of income from continuing operations before taxes) increased to 42% for the three months ended June 30, 2007 from 11% for the three months ended June 30, 2006.  In the three months ended June 30, 2006, the lower tax rate reflects having recorded a $1.0 million net deferred tax asset.

Our effective tax rate for the nine months ended June 30, 2007 was 37% reflecting the reversal of $1.1 million of valuation allowance, as compared to 16% for the nine months ended June 30, 2006, reflecting the reversal of $3.1 million of valuation allowance having recorded the $1.0 million deferred tax asset.

We project our effective tax rate for our fourth fiscal quarter ended September 30, 2007 to be 42%, resulting in a 39% projected annual effective tax rate for fiscal 2007.

We are under examination by the Internal Revenue Service, or IRS, for our 2004 and 2005 tax years.  At June 30, 2007, we recorded $970,000 of interest expense to discontinued operations associated with the 2004 tax assessment as a result of disallowed bad debt deductions taken on loans in our legacy portfolio.  In July 2007, we settled the 2004 examination and paid tax assessment and interest.  We expect to file an net operating loss, or NOL, carryback claim for the 2004 tax year and anticipate recovering 100% of the tax assessment plus approximately $250,000 of interest as certain loans were resolved within the 2006 tax year.  We further anticipate the 2005 examination will be concluded in fiscal 2008 and have recorded a liability and corresponding deferred tax asset for the proposed examination adjustments relating to similarly disallowed bad debt deductions taken in the 2005 tax year, including a $920,000 charge to discontinued operations for estimated interest expense.

Discontinued Operations

In accordance with Statement of Financial Accounting Standards, or SFAS, 144, "Accounting for the Impairment or Disposal of Long Lived Assets," our decision to dispose of certain entities has resulted in the presentation of these operations as discontinued.

Losses from discontinued operations for the three and nine months ended June 30, 2007 primarily reflect the $1.9 million of interest assessments related to the 2004 and 2005 IRS tax examinations.  Loss on disposal for the three and nine months ended June 30, 2007 includes a $374,000 write-down to market value of a property held for sale.

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Discontinued operations, principally from our real estate segment, were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Operating (loss) income (period prior to disposition)	$	(1,945	)	$	297		$	(2,031	)	$	2,822
Loss on disposal		(286	)		(443	)		(286	)		(1,267	)
Benefit (provision) for income taxes		781			33			811			(578	)
Discontinued (loss) income, net of tax	$	(1,450	)	$	(113	)	$	(1,506	)	$	977

The activity in the number of real estate investments held for sale, including FIN 46-R entities and owned properties, was as follows:

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2007		2006			2007		2006
Balance, beginning of period	$	1	$	3		$	1	$	6
Net additions		−		−			−		1
Resolved		−		(2	)		−		(6	)
Balance, end of period	$	1	$	1		$	1	$	1

Cumulative Effect of Change in Accounting Principle

Historically, we presented our equity in the earnings and losses of the Trapeza entities on a one-quarter lag as permitted under generally accepted accounting principles.  Improvements in the timeliness and availability of financial data from the Trapeza entities allowed us to report our share in the earnings of these entities on a current basis as of October 1, 2005.  As a result of this change, our equity in the earnings of the Trapeza entities of $1.4 million, net of tax of $983,000 for the three months ended September 30, 2005 has been reflected in the consolidated statements of income as a cumulative change in accounting principle as of October 1, 2005.

Liquidity and Capital Resources

General.  Our major sources of liquidity have been from borrowings under our existing credit facilities, the resolution of our real estate legacy portfolio, and proceeds from the sale of the shares of The Bancorp, Inc. we hold.  We have employed these funds principally to expand our specialized asset management operations, including our sponsorship and investment in RCC and the repurchase of our common stock.  We expect to fund our asset management businesses from a combination of cash to be generated by operations, continued resolution of our legacy portfolio and expanded borrowings under our existing credit facilities.  The following table sets forth our sources and uses of cash for the periods presented (in thousands):

	Nine Months Ended
	June 30,
	2007			2006
Used in operating activities of continuing operations	$	(128,446	)	$	(48,386	)
Used in investing activities of continuing operations		(48,908	)		(36,223	)
Provided by financing activities of continuing operations		158,573			42,449
(Used in) provided by discontinued operations		(1,672	)		39,855
Cash retained by entities previously consolidated		−			(3,825	)
Decrease in cash	$	(20,453	)	$	(6,130	)

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We had $17.2 million in cash and cash equivalents at June 30, 2007, a decrease of $20.4 million (54%) from $37.6 million at September 30, 2006.  Our ratio of earnings from continuing operations before income taxes, minority interest and interest expense to fixed charges was 2.3 to 1.0 for the nine months ended June 30, 2007 as compared to 4.7 to 1.0 for the nine months ended June 30, 2006.  The decrease in this ratio reflects primarily the increase in interest expense associated with the increased utilization of secured warehouse credit facilities to purchase loans held for sale as well as increased borrowings under our commercial finance secured credit facilities to support the expanded operations of that segment.  This increase in debt is further reflected in the increase in our ratio of debt to equity to 376% at June 30, 2007 from 89% at September 30, 2006.

Cash Flows from Operating Activities. Net cash used in operating activities of continuing operations increased by $80.1 million for the nine months ended June 30, 2007, substantially as a result of an $88.2 million increase in investments in commercial finance in connection with the expanded operations of that segment.

Cash Flows from Investing Activities. Net cash used by the investing activities of our continuing operations increased by $12.7 million for the nine months ended June 30, 2007, primarily reflecting the following:

· $20.7 million paid to acquire the leasing assets of PCB in June 2007;

· a $14.9 million decrease in proceeds received from the sale of real estate properties, principally a $10.9 million decrease in proceeds from the sale of TIC property interests to investors; and

· a $7.2 million increase in restricted cash balances related to escrow deposits maintained on CDO and commercial finance warehouse facilities; and

· a $1.5 million use of cash related to an increase in other assets.

These increases in cash used by investing activities were offset, in part by:

· a $31.6 million decrease in purchases of investments, reflecting a $16.3 million decrease in investments in real estate, primarily TIC properties, and the prior year purchase of $13.5 million worth of RCC stock (900,000 shares at $15.00 per share).

Cash Flows from Financing Activities.  Net cash provided by the financing activities of our continuing operations increased by $116.1 million for the nine months ended June 30, 2007, principally due to the following:

· a $103.8 million increase in our borrowings, net of repayments, reflecting the additional net borrowings to fund the expanded operations of our commercial finance business in addition to its acquisition of the commercial finance assets acquired from PCB;

· a $10.7 million increase in cash as a result of the reduced number of our shares repurchased.  We repurchased 117,500 shares of treasury stock at a cost of $2.8 million in the nine months ended June 30, 2007 as compared to 277,414 shares at a cost of $13.5 million during the nine months ended June 30, 2006; and

· a $1.8 million tax benefit from the exercise of employee stock options in the nine months ended June 30, 2007; no benefit was recorded in the prior year period.

Cash Retained by Entities Previously Consolidated.  As of June 30, 2006, we ceased to consolidate two affiliated partnerships that invest in regional banks due to a change in the rights of the limited partners to remove us as the general partner.  Accordingly, the statement of cash flows for the nine months ended June 30, 2006 reflects the $3.8 million decrease in cash from these entities that had been previously consolidated.

Cash Flows from Discontinued Operations.  Net cash provided by discontinued operations decreased by $41.5 million, principally reflecting $36.0 million from the sale of four FIN 46-R assets during the nine months ended June 30, 2006.  There were no corresponding sales in the nine months ended June 30, 2007.  Additionally, the nine months ended June 30, 2007 includes $1.9 million in interest assessments from the 2004 and 2005 IRS tax examinations.

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Capital Requirements

The amount of funds we must commit to investments in our financial fund management, real estate and commercial finance operations depends upon the level of funds raised through financial fund management, real estate and commercial finance programs.  We believe cash flows from operations, cash and other working capital and amounts available under our credit facilities will be adequate to fund our contribution to these programs.  However, the amount of funds we raise and the level of our investments will vary in the future depending on market conditions.

Contractual Obligations and Other Commercial Commitments

The following tables summarize our contractual obligations and other commercial commitments at June 30, 2007 (in thousands):

			Payments Due By Period
Contractual obligations:	Total		Less than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
Long-term debt (1)	$	17,279	$	825	$	3,253	$	12,672	$	529
Secured credit facilities (1)		316,992		214,834		102,158		−		−
Capital lease obligations (1)		129		38		91		−		−
Operating lease obligations		14,552		2,834		4,313		1,990		5,415
Purchase obligations		-		-		-		-		-
Other long-term liabilities		515		281		234		-		-
Total contractual obligations	$	349,467	$	218,812	$	110,049	$	14,662	$	5,944

(1) Not included in the table above are estimated interest payments calculated at rates in effect at June 30, 2007 as follows:  less than 1 year:  $29.3 million; 1-3 years:  $10.2 million; 4-5 years:  $3.4 million; and after 5 years: $43,000.

			Amount of Commitment Expiration Per Period
Other commercial commitments:	Total		Less than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
Guarantees	$	34,962	$	34,962	$	−	$	−	$	−
Standby letters of credit		246		246		−		−		−
Standby replacement commitments		−		−		−		−		−
Other commercial commitments		569,956		23,068		168,867		7,281		370,740
Total commercial commitments	$	605,164	$	58,276	$	168,867	$	7,281	$	370,740

Senior lien financing obtained with respect to certain acquired properties, TIC investment programs and real estate loans are with recourse only to the properties securing them, subject to certain standard exceptions.  We provide guarantees on these senior liens, TIC programs, and loans totaling $549.3 million which expire as the related indebtedness is paid down over the next ten years.

Through our financial fund management subsidiary, we have commitments to purchase an equity interest in all of the CDOs currently in their warehouse stage.  These equity commitments, which total approximately $17.6 million as of June 30, 2007, are contingent upon the successful completion of the respective CDOs over the next twelve months.  Upon the close of each CDO, the amount of equity we actually purchase may be less than the originally estimated commitment.

The January 2007 warehouse agreement with Morgan Stanley provides for a guarantee by us of $14.3 million of potential losses on a portfolio of bank loans.  This guarantee, secured by a $4.0 million cash deposit, expires upon the closing of the associated CDO which we anticipate in fiscal 2008.

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The August 2006 warehouse agreement with Credit Suisse provides for a guarantee by us of $10.0 million of potential losses on a portfolio of bank loans.  This guarantee, secured by a $5.0 million cash deposit, expires upon the closing of the associated CDO which we anticipate in fiscal 2008.

A May 2007 engagement letter (in connection with a warehouse agreement) with Morgan Stanley provides a guarantee by us of $6.0 million of potential losses on a portfolio of bank loans.  As of June 30, 2007, there were no borrowings on this facility.  As of July 31, 2007, outstanding borrowings were approximately $117.0 million.

A subsidiary of LEAF has a $33.0 million non-recourse line of credit with a financial institution that expires on September 15, 2008.  LEAF has committed to a 9.1% participation in the borrowings on this line of credit, to a maximum of $3.0 million.  As of June 30, 2007, there were no outstanding borrowings under this line.

Critical Accounting Policies

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.  In preparing these statements, we must make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates, including those related to the provision for possible losses, deferred tax assets and liabilities and certain accrued liabilities.  We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

For a detailed discussion on the application of policies critical to our business operations and other accounting policies, see our Annual Report on Form 10-K for fiscal 2006, at Note 2 of the “Notes to Consolidated Financial Statements.”

Recently Issued Financial Accounting Standards

In June 2007, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants, or AICPA, issued Statement of Position, or SOP, 07-1, “Clarification of the Scope of the Audit and Accounting Guide “Investment Companies” and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.”  This SOP provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Guide”).  Additionally, it provides guidance as to whether a parent company or an equity method investor can apply the specialized industry accounting principles of the Guide (referred to as investment company accounting).  This SOP is effective for fiscal years beginning on or after December 15, 2007, with early application encouraged (our fiscal year beginning October 1, 2008).  We are currently evaluating the impact, if any, the adoption of SOP 07-1 may have on our financial statements.

In May 2007, the Financial Accounting Standards Board, or FASB, issued a Staff Position, or FSP, FIN 46-R(7), “Application of FASB Interpretation 46-R to Investment Companies.”  FSP FIN 46-R(7) amends the scope of the exception to FIN 46-R to state that investments accounted for at fair value in accordance with investment company accounting are not subject to consolidation under FIN 46-R.  This interpretation is effective for fiscal years beginning on or after December 15, 2007 (our fiscal year beginning October 1, 2008).  Certain of our consolidated subsidiaries currently apply the investment company accounting.  We are currently evaluating the impact, if any, the adoption of this interpretation will have on our financial statements.

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In March 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”  EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital.  EITF 06-11 is effective for fiscal years beginning after September 15, 2007 (our fiscal year beginning October 1, 2007).  We do not expect EITF 06-11 will have a material impact on our financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of SFAS 115," which permits entities to choose to measure many financial instruments and certain other items at fair value.  The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates.  Entities choosing the fair value option would be required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  Adoption is required for fiscal years beginning after November 15, 2007.  We are currently evaluating the expected effect of SFAS 159 on our consolidated financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which provides guidance on measuring the fair value of assets and liabilities.  SFAS 157 will apply to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances.  This standard will also require additional disclosures in both annual and quarterly reports.  SFAS 157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007 and will be adopted by us in the first quarter of our fiscal year 2009.  We are currently determining the effect, if any, the adoption of SFAS 157 will have on our financial statements.

In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin, or SAB, 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”  SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement.  It establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company's financial statements and the related financial statement disclosures.  SAB 108 is effective for our current fiscal year ending September 30, 2007.  Management does not believe adoption of SAB 108 will have a material impact on our consolidated financial statements.

On July 13, 2006, the FASB issued Interpretation, or FIN, 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS 109.”  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109, “Accounting for Income Taxes.”  FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The new accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The provisions of FIN 48 are effective as of the beginning of the first fiscal year beginning after December 15, 2006 with early adoption permitted if no interim financial statements have been issued.  We will not elect for early adoption of FIN 48; accordingly, the provisions of FIN 48 will be implemented in the quarter ending December 31, 2007.  We are currently determining the effect, if any, the adoption of FIN 48 will have on our financial statements.

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ITEM 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks.  The following discussion is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonable possible losses.  This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.  All of our market risk-sensitive instruments were entered into for purposes other than trading.

General

We are exposed to various market risks, principally fluctuating interest rates.  These risks can impact our results of operations, cash flows and financial position.  We manage these risks through regular operating and financing activities.

The following analysis presents the effect on our earnings, cash flows and financial position as if hypothetical changes in market risk factors occurred at June 30, 2007.  We analyze only the potential impacts of hypothetical assumptions.  Our analysis does not consider other possible effects that could impact our business.

Financial Fund Management

At June 30, 2007, we had two outstanding secured warehouse facilities to purchase bank loans with balances of $204.4 million and $209.9 million at interest rates of 5.99% and 4.58%, respectively.  A hypothetical 10% change in the interest rates on these facilities would change our annual interest expense by a total of approximately $712,000 based on projected CDO execution dates.

Real Estate

Portfolio Loans and Related Senior Liens.  As of June 30, 2007, we believe that none of the three loans held in our portfolio that have senior liens are sensitive to changes in interest rates since:

· the loans are subject to forbearance or other agreements that require all of the operating cash flow from the properties underlying the loans, after debt service on senior lien interests, to be paid to us and therefore are not currently being paid based on the stated interest rates of the loans;

· the senior lien interests ahead of our interests are at fixed rates and are not subject to interest rate fluctuation that would affect payments to us; and

· each loan has significant accrued and unpaid interest and other charges outstanding to which cash flow from the underlying property would be applied even if cash flows were to exceed the interest due, as originally underwritten.

FIN 46-R Loan.  A mortgage that we consolidate at June 30, 2007 as a result of FIN 46-R is at a fixed interest rate and, therefore, not subject to interest rate fluctuations.

Commercial Finance

At June 30, 2007, we had weighted average borrowings of $84.8 million under two secured revolving credit facility at an effective interest rate of 7.47%.  A hypothetical 10% change in the interest rate on these facilities would change our annual interest expense by $442,000.  In addition, we had weighted average borrowings of $66.1 million under a secured revolving credit facility with Morgan Stanley at June 30, 2007.  This facility is not subject to fluctuation in the interest rates because we have entered into interest rate swap agreements which in effect create a fixed interest rate.

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ITEM 4.                      CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our disclosure committee, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

During the three months ended June 30, 2007, there were no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION

ITEM 2.                      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases by us during the three months ended June 30, 2007 of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934:

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 to April 30, 2007		−	$	−		−	$	30,213,569
May 1 to May 31, 2007		50,000	$	23.47		50,000	$	29,042,828
June 1 to June 30, 2007		67,500	$	23.74		67,500	$	27,442,356
Total		117,500				117,500

(1) On September 21, 2004, the Board of Directors approved a share repurchase program under which we may repurchase our common stock up to an aggregate purchase price of $50.0 million.

In July 2007, the Board of Directors authorized a new share repurchase plan under which we may repurchase up to $50.0 million of our outstanding common stock.  The new plan replaces the plan authorized in September 2004.  These purchases may be made at any time in the open market or through privately-negotiated transactions.

(2) Through June 30, 2007, we have repurchased an aggregate of 1,221,139 shares at a total cost of approximately $22.6 million pursuant to our stock repurchase program, at an average cost of $18.52 per share.

ITEM 4.                      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our Annual Meeting of Stockholders held on May 21, 2007, our stockholders re-elected two directors, Messrs. Michael J. Bradley and Andrew M. Lubin, to serve three-year terms expiring at the annual meeting of stockholders in 2010.  The voting results were 16,284,841 shares for and 274,313 shares withheld for Mr. Bradley and 16,151,700 shares for and 407,454 shares withheld for Mr. Lubin.  Messrs. Edward E. Cohen, Jonathan Z. Cohen, Carlos C. Campbell, Kenneth A. Kind, Hersh Kozlov and John S. White continue to serve their terms as directors of the Company.

Additionally, our stockholders approved other matters voted on at the meeting, specifically (a) the Annual Incentive Plan for Senior Executives (13,271,229 for, 300,745 against and 12,481 abstain) and (b) the Amended and Restated Omnibus Equity Compensation Plan (11,366,929 for, 2,653,444 against and 14,082 abstain).  There were 2,524,699 broker non-votes for each of the Annual Incentive Plan for Senior Executives and the Amended and Restated Omnibus Equity Compensation Plan.

51

ITEM 6.                      EXHIBITS

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of Resource America. (1)
3.2	Amended and Restated Bylaws of Resource America. (1)
10.1	Loan and Security Agreement, dated May 24, 2007, between Resource America, Inc. and Commerce Bank, N.A. (5)
10.14	Form of Stock Award Agreement (2)
10.16	U.S. $250,000,000 Receivables Loan and Security Agreement, dated as of October 31, 2006, among Resource Capital Funding II, LLC, as the Borrower, and LEAF Financial Corporation, as the Servicer, and Morgan Stanley Bank, as a Lender and Collateral Agent, and U.S. Bank National Association, as the Custodian and the Lender’s Bank and Lyon Financial Services, Inc. (D/B/A U.S. Bank Portfolio Services), as the Backup Servicer. (3)
10.16(a)	First Amendment to Receivables Loan and Security Agreement, dated as of October 31, 2006. (3)
10.16(b)	Purchase and Sale Agreement, dated as of October 31, 2006. (3)
10.16(c)	First amendment to Purchase and Sale Agreement, dated as of December 21, 2006. (3)
10.16(d)	Morgan Stanley Bank, Fee Letter, dated October 31, 2006 (3)
10.17	Second Amendment to Credit Agreement, dated December 2006, between LEAF Financial Corporation, LEAF Funding, Inc. and National City Bank. (3)
10.17(c)	Third Amendment to Credit Agreement, dated March 14, 2007, between LEAF Financial Corporation, LEAF Funding, Inc. and National City Bank. (4)
10.17 (d)	Credit Agreement, dated June 22, 2007, between LEAF Commercial Finance Co., LLC, Various Financial Institutions and Other Persons from Time to Time Parties thereto, and National City Bank.
10.18	Limited Liability Company Agreement of LEAF Ventures, LLC, dated March 2007, between LEAF Financial Corporation and Crit DeMent, Miles Herman, Robert Moskovitz, David English, Matthew Goldenberg and Nicholas Capparelli. (4)
10.19	Credit Agreement, dated March 15, 2007, between Merit Capital Advance, LLC and Deutsche Bank AG Cayman Islands (4)
10.19(a)	Limited Liability Company Agreement of Merit Capital Advance, LLC, dated March 15, 2007. (4)
10.19(b)	Merit Capital Advance, LLC 15% Subordinated Convertible PIK Note, dated March 15, 2007. (4)
10.20	Asset Purchase Agreement, dated June 19, 2007, between LEAF Funding, Inc., LEAF Financial Corporation and LEAF Commercial Finance Co., LLC and Pacific Capital Bank, N.A.
10.21	Loan and Security Agreement dated May 24, 2007 by and among Resource America, Inc., Commerce Bank, N.A. as Agent, Commerce bank, N.A. as issuing bank, and each of the financial institutions identified as lenders on Schedule A to the Loan and Security Agreement. (5)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and by this reference incorporated herein.

(2) Filed previously as an exhibit to our Report on Form 8-K filed on February 15, 2005 and by this reference incorporated herein.

(3) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006 and by this reference incorporated herein.

(4) File previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 and by this reference incorporated herein.

(5) Filed previously as an exhibit to our Report on Form 8-K filed on May 31, 2007 and by this reference incorporated herein.

52

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	RESOURCE AMERICA, INC.
	(Registrant)
Date: August 9, 2007	By:           /s/ Steven J. Kessler
	STEVEN J. KESSLER
	Executive Vice President and Chief Financial Officer

Date: August 9, 2007	By:           /s/ Arthur J. Miller
	ARTHUR J. MILLER
	Vice President and Chief Accounting Officer

53

EX-10.17

(Back to Main Document)

CREDIT AGREEMENT

Dated June 22, 2007,

by and among

LEAF COMMERCIAL FINANCE CO., LLC

as the Borrower,

VARIOUS FINANCIAL INSTITUTIONS AND OTHER PERSONS FROM TIME TO TIME

PARTIES HERETO,

as the Lenders,

and

NATIONAL CITY BANK,

as the Agent for the Lenders

Table of Contents

			Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS			1
	Section 1.1	Defined Terms	1
	Section 1.2	Use of Defined Terms.	20
	Section 1.3	Cross-References.	20
	Section 1.4	Accounting and Financial Determinations.	20
ARTICLE II REVOLVING CREDIT FACILITY			21
	Section 2.1	Loans	21
	Section 2.2	Reduction of Aggregate Commitment Amount	21
	Section 2.3	Borrowing Procedures	21
	Section 2.4	Continuation and Conversion Elections	22
	Section 2.5	Funding	22
	Section 2.6	Notes.	22
ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES			23
	Section 3.1	Repayments and Prepayments; Application	23
	Section 3.2	Interest Provisions	23
	Section 3.3	Fees	25
ARTICLE IV CERTAIN LIBOR AND OTHER PROVISIONS			25
	Section 4.1	LIBOR Lending Unlawful	25
	Section 4.2	Deposits Unavailable	25
	Section 4.3	Increased LIBOR Loan Costs, etc.	26
	Section 4.4	Funding Losses	26
	Section 4.5	Increased Capital Costs	26
	Section 4.6	Taxes	27
	Section 4.7	Payments, Computations, etc	29
	Section 4.8	Sharing of Payments	30
	Section 4.9	Setoff	30
	Section 4.10	Mitigation; Time Limitation	30
	Section 4.11	Replacement of Lenders	31
ARTICLE V CONDITIONS TO CREDIT EXTENSIONS			32
	Section 5.1	Initial Loan	32
	Section 5.2	All Loans	34
ARTICLE VI REPRESENTATIONS AND WARRANTIES			35
	Section 6.1	Organization, etc.	35
	Section 6.2	Due Authorization, Non-Contravention, etc.	35
	Section 6.3	Government Approval, Regulation, etc.	36
	Section 6.4	Validity, etc.	36

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	Section 6.5	Financial Information	36
	Section 6.6	No Material Adverse Effect; Compliance with Laws	36
	Section 6.7	Litigation.	37
	Section 6.8	Subsidiaries	37
	Section 6.9	Ownership of Properties	37
	Section 6.10	Taxes	37
	Section 6.11	Pension and Welfare Plans	37
	Section 6.12	Environmental Warranties	38
	Section 6.13	Accuracy of Information	38
	Section 6.14	Margin Stock	39
	Section 6.15	Foreign Assets Control Regulations	39
	Section 6.16	Labor Relations; Management Agreements	39
	Section 6.17	Insurance	39
	Section 6.18	Collateral Documents	39
	Section 6.19	Compliance with OFAC Rules and Regulations.	40
ARTICLE VII FINANCIAL INFORMATION AND NOTICES			40
	Section 7.1	Financial Statements and Projections.	40
	Section 7.2	Certificates.	41
	Section 7.3	Other Reports.	41
	Section 7.4	Notice of Litigation and Other Matters	41
	Section 7.5	Accuracy of Information	43
ARTICLE VIII AFFIRMATIVE COVENANTS			43
	Section 8.1	Maintenance of Existence; Compliance with Laws, etc.	43
	Section 8.2	Maintenance of Properties	43
	Section 8.3	Insurance	43
	Section 8.4	Visitations, Books and Records, Field Audits	44
	Section 8.5	Environmental Law Covenant	45
	Section 8.6	Use of Proceeds	45
	Section 8.7	Future Subsidiaries, Security, etc.	45
	Section 8.8	Procedures to Ensure Information Dissemination	45
	Section 8.9	Further Assurances	45
	Section 8.10	Maintenance of Assets	46
ARTICLE IX [INTENTIONALLY OMITTED]			47
ARTICLE X NEGATIVE COVENANTS			48
	Section 10.1	Business Activities	48
	Section 10.2	Indebtedness	48
	Section 10.3	Liens	48
	Section 10.4	Investments	50
	Section 10.5	Restricted Payments	50
	Section 10.6	Issuance of Capital Securities	50
	Section 10.7	Consolidation, Merger, etc	51
	Section 10.8	Sale of Assets	51

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	Section 10.9	Transactions with Affiliates	51
	Section 10.10	Restrictive Agreements	51
	Section 10.11	Sale and Leaseback	51
	Section 10.12	Amendment to Material Documents	52
	Section 10.13	Hedging Obligations	52
	Section 10.14	Accounting Changes	52
	Section 10.15	Upstream Limitations	52
ARTICLE XI EVENTS OF DEFAULTS AND REMEDIES			52
	Section 11.1	Events of Default	52
	Section 11.2	Action if Bankruptcy	55
	Section 11.3	Action if Other Event of Default	55
	Section 11.4	Application of Proceeds	55
ARTICLE XII THE AGENT			56
	Section 12.1	Actions	56
	Section 12.2	Funding Reliance, etc.	56
	Section 12.3	Exculpation	57
	Section 12.4	Successor	57
	Section 12.5	Loans by Agent	57
	Section 12.6	Credit Decisions	58
	Section 12.7	Reliance by Agent	58
	Section 12.8	Defaults	58
ARTICLE XIII MISCELLANEOUS			58
	Section 13.1	Waivers, Amendments, etc.	58
	Section 13.2	Notices; Time	60
	Section 13.3	Payment of Costs and Expenses	61
	Section 13.4	Indemnification	61
	Section 13.5	Survival	63
	Section 13.6	Severability	63
	Section 13.7	Headings	63
	Section 13.8	Execution in Counterparts, Effectiveness, etc.	63
	Section 13.9	Governing Law; Entire Agreement	63
	Section 13.10	Successors and Assigns	63
	Section 13.11	Assignments and Participations in Loans; Register	63
	Section 13.12	Other Transactions	66
	Section 13.13	Forum Selection and Consent to Jurisdiction	67
	Section 13.14	Waiver of Jury Trial	67
	Section 13.15	USA Patriot Act	67

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SCHEDULES AND EXHIBITS

Schedule I                                    -           Initial Commitments

Schedule 1.1                                -           Form of Assignment Agreement

Schedule 6.7                                -           Litigation

Schedule 6.9                                -           Real Property

Schedule 6.11                              -           Pension and Welfare Plans

Schedule 6.12                              -           Environmental Disclosures

Schedule 10.2                              -           Existing Indebtedness

Schedule 10.3                              -           Existing Liens

Schedule 10.4                              -           Existing Investments

Schedule 10.9                              -           Transactions with Affiliates

Exhibit A                                     - -           Form of Note

Exhibit B                                     -           Form of Borrowing Request

Exhibit C                                     - -           Form of Borrowing Base Certificate

Exhibit D                                     - -           Form of Continuation/Conversion Notice

Exhibit E                                     - -           Form of Compliance Certificate

Exhibit F                                     - -           Form of Lender Assignment Acceptance

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT, dated June 22, 2007, is by and among LEAF COMMERCIAL FINANCE CO., LLC, a Delaware limited liability company (the “Borrower”), the various financial institutions and other Persons from time to time parties hereto (the “Lenders”), and NATIONAL CITY BANK, a national banking association (“National City”), as administrative agent and collateral agent for the Lenders (in such capacity, the “Agent”).

BACKGROUND

A.           The Borrower is purchasing from Pacific Capital Bank, N.A., a national banking association (the “Seller”) certain assets (“Purchased Assets”) pursuant to that certain Asset Purchase Agreement dated as of June 19, 2007 (the “Purchase Agreement”), by and among the Seller and the Borrower, LEAF Funding and LEAF Financial, as buyers (the “Acquisition”).

B.           The Borrower has requested a short term revolving credit facility, which the Lenders have agreed to extend to the Borrower on the terms and conditions of this Agreement for use by the Borrower to finance the purchase of (i) the Purchased Assets from the Seller and (ii) any other Eligible Contracts (as defined below).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, and intending to be legally bound hereby, such parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

Section 1.1                                Defined Terms

.  The following terms, when used in this Agreement, including its preamble and background, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural thereof):

“Adjusted Base Rate” means, on any date and with respect to all Base Rate Loans, a fluctuating rate of interest per annum (rounded upward, if necessary, to the next highest 1/100 of 1%) equal to the higher of (a) the Base Rate in effect on such day, and (b) the sum of the Federal Funds Rate in effect on such day plus ½ of 1%.  Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Adjusted Base Rate.  The Agent will give notice promptly to the Borrower and the Lenders of changes in the Adjusted Base Rate; provided that the failure to give such notice shall not affect the Adjusted Base Rate in effect after such change.

“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Agent to a Lender.

“Affected Lender” is defined in Section 4.11(a).

“Affiliate” of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding however, any trustee under, or any committee with responsibility for administering, any Plan).  “Control” of a Person means the power, directly or indirectly, (a) to vote 5% or more of the Capital Securities (on a fully diluted basis) of such Person having ordinary voting power for the election of directors, managing members or general partners (as applicable), or (b) to direct or cause the direction of the management and policies of such Person (whether by contract or otherwise).

“Agent” is defined in the preamble and includes each other Person appointed as the successor Agent pursuant to Section 12.4.

“Aggregate Commitment”  means the aggregate amount of the Lenders’ Commitments hereunder, as such amount may be reduced or modified at any time or from time to time pursuant to the terms hereof.  On the Closing Date, the Aggregate Commitment is One Hundred Million Dollars ($100,000,000).

“Aggregate Original Net Equipment Cost” means, as of any date of determination, an amount equal to the sum of the Original Net Equipment Costs of all Equipment then subject to an Eligible Contract.

“Aggregate Net Present Value” means, as of any date of determination, an amount equal to the sum of the Net Present Values of all Eligible Contracts.

 “Agreement” means, on any date, this Credit Agreement as originally in effect on the Closing Date and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified from time to time and in effect on such date.

“Applicable Margin” means, (a) as to any Base Rate Loan, 0.0%, and (b) as to any LIBOR Loan or LIBOR Flex Rate Loan, 1.75%.

“Assignee Lender” is defined in Section 13.11(a).

“Assignment Agreement” means (a) the Purchase Agreement and (b) any Assignment Agreement in the form set forth as Schedule 1.1 hereto pursuant to which the Borrower purchases Contracts from LEAF Funding.

 “Authorized Officer” means any of the president, the chief executive officer, the chief operating officer, the chief financial officer or the treasurer of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Agent, such consent not to be unreasonably withheld; and, with respect to financial statements, financial covenants and borrowing base calculations, the chief financial officer, chief executive officer, chief operating officer or the treasurer of the Borrower.

“Base Rate” means, at any time, the rate of interest then most recently established by the Agent in Cleveland, Ohio, as its base rate for U.S. dollars loaned in the United States.  The Base Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit.

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“Base Rate Loan” means a Loan bearing interest at a fluctuating rate determined by reference to the Adjusted Base Rate.

“Board” means the Board of Governors of the Federal Reserve System or any successor thereto.

“Borrower” means LEAF Commercial Finance Co., LLC, a Delaware limited liability company, together with its successors and permitted assigns.

“Borrowing” means the Loans of the same type and, in the case of LIBOR Loans, having the same Interest Period made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request.

“Borrowing Base” means at any time the lesser of (a) ninety percent (90%) of the then Aggregate Net Present Value, and (b) one hundred percent (100%) of the Aggregate Original Net Equipment Cost; provided that, in performing such calculation, the Aggregate Net Present Value and Aggregate Original Net Equipment Cost shall be reduced by such amount as may be necessary in order that: (i) no more than an amount equal to five percent (5%) of the Aggregate Commitment is attributable to any single Lessee; (ii) no more than an amount equal to ten percent (10%) of the Aggregate Commitment is attributable to progress payments; (iii) none of either such amount is attributable to any Contract or Equipment the value of which has been used in six months or more of previous calculations of the Borrowing Base, except with respect to any Contract (and any related Equipment) with a payment period of not greater than 12 months from the date of the first scheduled payment thereunder, as to which, no more than an amount equal to twenty percent (20%) of the Aggregate Commitment is attributable to such Contracts (and any related Equipment); (iv) no more than an amount equal to five percent (5%) of the Aggregate Commitment is attributable to Contracts whereby the related lessee is an Affiliate of the Borrower; and (v) no more than an amount equal to twenty percent (20%) of the Aggregate Commitment is attributable to Contracts with initial stated terms of greater than 120 months.

“Borrowing Base Certificate” means a certificate duly completed and executed by an Authorized Officer, substantially in the form of Exhibit C hereto.

“Borrowing Request” means a Loan request and certificate duly executed by an Authorized Officer, substantially in the form of Exhibit B hereto.

“Business Day” means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Cleveland, Ohio, and (b) relative to the making, continuing, prepaying or repaying of any LIBOR Loans, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollars are carried on in the London interbank eurodollar market.

“Capital Expenditures” means, with respect to any Person, for any period, the aggregate amount of all expenditures of such Person for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures.

- 3 -

“Capital Securities” means, with respect to any Person, any and all shares, interests (including partnership interests or limited liability company interests), participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital, whether now outstanding or issued after the Closing Date.

“Capitalized Lease Liabilities” means, which respect to any Person, all monetary obligations of such Person under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capital leases, and the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a premium or a penalty.

“Cash Equivalent Investment” means, at any time: (a) any direct obligation of (or unconditionally guaranteed by) the United States or a State thereof (or any agency or political subdivision thereof, to the extent such obligations are supported by the full faith and credit of the United States or a State thereof) maturing not more than one year after such time; (b) commercial paper maturing not more than 270 days from the date of issue, which is issued by (i) a corporation (other than an Affiliate of the Borrower) organized under the laws of any State of the United States or of the District of Columbia and rated A-1 or higher by S&P or P-1 or higher by Moody’s, or (ii) any Lender (or its holding company) rated A-1 or higher by S&P or P-1 or higher by Moody’s; (c) any certificate of deposit, time deposit or bankers acceptance, maturing not more than one year after its date of issuance and overnight bank deposits, which is issued by either (i) any bank organized under the laws of the United States (or any State thereof) and which has (x) a credit rating of A2 or higher from Moody’s or A or higher from S&P and (y) a combined capital and surplus greater than $500,000,000, or (ii) any Lender; (d) any repurchase agreement having a term of 30 days or less entered into with any Lender or any commercial banking institution satisfying the criteria set forth in clause (c)(i) which (i) is secured by a fully perfected security interest in any obligation of the type described in clause (a), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder; or (e) any money market fund, 90% of the assets of which are comprised of any of the items specified in clauses (b) and (c) above and as to which withdrawals are permitted at least every 90 days and which do not have restrictions on liquidation rights.

“Casualty Payment” means, as to any Contract, any payment under such Contract, made in connection with an Event of Loss with respect to any Equipment subject to such Contract, that terminates all or a portion of the related Lessee’s obligation to make subsequent Lease Payments pursuant to the terms of such Contract.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

“Change in Control” means the Borrower shall cease to be a wholly owned Subsidiary of LEAF Financial.

- 4 -

“Closing Date” means the date this Agreement becomes effective pursuant to Section 5.1.

“Code” means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, supplemented, reformed or otherwise modified from time to time.

“Collateral” shall mean all tangible and intangible property, real and personal, of the Borrower that is the subject of a Lien granted pursuant to a Credit Document to the Agent to secure the whole or any part of the Obligations or any guarantee thereof, and shall include all casualty insurance proceeds and condemnation awards with respect to any of the foregoing.

“Commitment” means, as to any Lender, the obligation of such Lender to make Loans to the Borrower hereunder in an aggregate principal or face amount at any time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule I hereto, as the same may be increased, reduced or modified at any time or from time to time pursuant to the terms hereof.

 “Compliance Certificate” means a certificate duly completed and executed by an Authorized Officer, substantially in the form of Exhibit E hereto, together with such changes thereto as the Agent may from time to time reasonably request for the purpose of monitoring the Borrower’s compliance with the financial covenants contained herein.

“Contingent Liability” means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is surety for or contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) any Indebtedness of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person.  The amount of any Person’s obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the maximum amount of the debt, obligation or other liability guaranteed thereby.

“Continuation/Conversion Notice” means a notice of continuation or conversion and certificate duly executed by an Authorized Officer, substantially in the form of Exhibit D hereto.

“Contract” means (i) a lease, loan or contract for use, hire or purchase of equipment, (ii) a practice acquisition loan, (iii) an ultimate net loss loan, (iv) other commercial contracts such as service and maintenance agreements, or (v) receivable financings secured by non-equipment collateral such as real estate, together with any assignments thereof and any delivery and acceptance certificate therefor, any guaranties and amendments, addendums and other modifications thereto.

“Contract File” means, with respect to any item of Equipment (or Contract):

(a)           if subject to a Contract secured by such Equipment, the original (or a certified copy of the original) counterpart thereof that constitutes “chattel paper” for purposes of the UCC, if the Original Price for such Equipment is $250,000 or greater, or, for any Contract

- 5 -

which does not constitute “chattel paper” (or for which the Original Price is an amount less than $250,000), a true and complete copy of the originally executed Contract; provided, however, for any Contract executed after the date of this Agreement, the Contract File shall contain an original counterpart or complete copy, as applicable, no later than ten (10) days after such Contract is executed;

(b)           with respect to any Contract in excess of $100,000, evidence or verification of an insurance policy covering such risks and amounts and otherwise complying with the requirements of the Servicing Standard and the related Contract for any related Equipment (except where the related Lessee is self-insured in accordance with the terms of this Agreement);

(c)           any loan or security agreement relating to such Equipment (or Contract) or any Contract related thereto, together with originals of any notes, instruments or documents relating thereto;

(d)           each receipt of acceptance by the applicable Lessee of such Equipment (or Contract), if any;

(e)           with respect to such Equipment (or Contract), each guaranty of any related Contract, if any;

(f)           each UCC financing statement, as filed, which relates to such Equipment (or Contract) or any related Contract, if any;

(g)           each amendment of any related Contract, if any; and

(h)           each assignment of any related Contract, if any.

“Contract Payment” means, with respect to any Contract, the minimum monthly or other periodic contractual rental or loan payment required to be made thereunder.

 “Control Agreement” means an agreement in form and substance satisfactory to the Agent which provides for the Agent to have “control” (as defined in Section 8-106(c) and (d) of the UCC, as such term relates to an uncertificated security or a security entitlement (as such terms are defined therein) or as used in Section 9-104 of the UCC, as such term relates to Deposit Accounts).

“Controlled Group” means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with any Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.

“CP Facility” means any commercial paper conduit facility, securitization facility, warehouse line or similar credit facility maintained by any LEAF SPE.

“Credit Documents” collectively means this Agreement, the Notes, the Security Agreement, the Intercreditor Agreement, the Lockbox Agreement, any Control Agreement and

- 6 -

each other agreement pursuant to which the Agent is granted a Lien to secure the Obligations, and each other agreement, certificate, document or instrument delivered in connection with any Credit Document, whether or not specifically mentioned herein or therein; provided that such term shall not include any Secured Hedging Agreement.

“Default” means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default.

“Defaulted Contract” means any Contract for which: (a) any Contract Payment (or portion thereof) owing thereunder is more than 61 days delinquent (measured from its contractual due date); (b) the related Lessee is in default under any other provision of such Contract not dealt with in clause (a) and any applicable grace and/or cure period set forth in such Contract has expired and the Borrower has in accordance with its normal procedures declared such Contract to be in default; or (c) the Borrower has otherwise determined that the remaining amounts owing by the Lessee under such Contract are expected to be uncollectible.

“Defaulting Lender” is defined in Section 4.11(a).

“Deposit Accounts” means any and all demand, time, savings, passbook, lockbox or other accounts with a bank or other financial institution, including general deposit and cash concentration accounts, in which any cash, payments or receipts of or for the benefit of any Borrower are or are to be deposited, and all deposits therein and investments thereof, whether now or at any time hereafter existing.

“Disposition” means any (a) sale, transfer, lease or other conveyance (including by way of merger, condemnation, casualty loss or sale/leaseback) of, (b) the granting of options or other rights to sell, transfer, lease or otherwise convey, any, or (c) the receipt of any condemnation, insurance or similar proceeds with respect to any casualty loss of, the Borrower’s assets (including the sale of Contracts or accounts receivables and the sale of Capital Securities, but not including an issuance of Capital Securities) to any other Person in a single transaction or event or series of related transactions or events.

“Dollar” and the sign “$” mean lawful money of the United States.

“Eligible Contract” means a Contract owned by the Borrower that, as of any date of determination, complies with the covenants set forth in this Agreement and each of the following requirements:

(a)           Such Contract originated in the ordinary course of the Borrower’s business and is not a Defaulted Contract;

(b)           Such Contract is a legal, valid and binding full recourse payment obligation of the related Lessee enforceable in accordance with its terms (except as may be limited by applicable insolvency, bankruptcy, moratorium, reorganization, or other similar laws affecting enforceability of creditors’ rights generally and the availability of equitable remedies) and is in full force and effect, is not subject to any defense, counterclaim or right of setoff, and has not been satisfied, subordinated or rescinded;

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(c)           The initial stated term of such Contract is not greater than 180 months;

(d)           With the exception of any Contracts with a Governmental Authority required by law to have provisions to the contrary, the Lessee’s obligations under such Contract are “hell or high water” obligations that are, among other characteristics, non-cancelable, unconditional and not subject to any right of set-off, rescission, counterclaim, offset, reduction or recoupment except that, upon making of a Casualty Payment under such Contract, the obligation of the related Lessee to make Lease Payments thereunder may be reduced accordingly;

(e)           Such Contract contains provisions requiring the Lessee to pay all sales, use, excise, rental, property or similar taxes imposed on or with respect to any related Equipment and to assume all risk of loss, damage, or destruction of such Equipment, and such Contract requires the Lessee to maintain any related Equipment in good and workable order and to obtain and maintain liability insurance, physical damage insurance and liability insurance on such Equipment subject thereto and to name the lessor (including any private label lessor) or lender under the Contract as a loss payee and an additional insured with respect thereto;

(f)           The pledge by the Borrower to the Agent of a security interest in such Contract and the related Equipment will not violate the terms or provisions of such Contract or any other agreement to which any Borrower is a party or by which it is bound;

(g)           Such Contract has not been rewritten or amended, other than in accordance with the written policies and procedures of Borrowers and consistent with their past practice, such that the amount of any Contract Payment owing pursuant to the terms of such Contract has been decreased, or any other obligations of the Lessee under such Contract have been diminished, due to any payment default or delinquency or the related Lessee’s financial inability to make such payments;

(h)           The related Lessee is not subject to any action in bankruptcy, receivership, reorganization, insolvency or other material adverse change in its condition (since entering into the Contract);

(i)           All payments owing under such Contract are required to be made in Dollars;

(j)           Such Contract provides for the acceleration of all Lease Payments thereunder upon default by the Lessee;

(k)           Such Contract requires that, if an Event of Loss occurs, the related Lessee must take one of the following actions:  (i) either (A) restore or repair the affected Equipment to good repair, condition and working order or (B) replace the Equipment with like equipment of the same or later model in good repair, condition and working order, and, in either case, continue to make Contract Payments on its regularly scheduled basis despite the occurrence of such Event of Loss; or (ii) make a lump sum payment in an amount that is not less than the then Net Present Value;

(l)           Such Contract and the Equipment subject to such Contract are not subject to any Liens other than Permitted Liens;

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(m)           The Agent has a first priority perfected security interest in such Contract (subject only to Permitted Liens), and a complete Contract File for such Contract is maintained either (i) with a custodian who holds such Contract Files for the benefit of the Agent, or (ii) in the chief executive office of the Borrowers (or such other location as is owned or, to the extent subject to a satisfactory landlord waiver in favor of the Agent, leased by the Borrower), in a secure and fireproof filing cabinet clearly identifying the contents thereof as Collateral hereunder, pledged to the Agent.

(n)           The Agent (directly or through the Borrower) has a first priority perfected security interest in any Equipment subject to a finance lease (to the extent such Equipment has, in the aggregate, an Original Net Equipment Cost of $25,000 or more);

(o)           The Lessee and each item of Equipment subject to such Contract are domiciled or located within the United States and Puerto Rico, as applicable; and

(p)           Such Contract is eligible for financing under a CP Facility.

provided that, compliance with paragraph (m) above is hereby waived for the first three (3) Business Days following acquisition of such Contract pursuant to a Financed Acquisition.

“Environmental Laws” means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment.

“Equipment” means inventory of the Borrower or equipment of a Lessee which is subject to a Contract or inventory of the Borrower held for the purpose of leasing or contracting for use, hire or purchase with clients of the Borrower.

 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto of similar import, together with the regulations thereunder, in each case as in effect from time to time.  References to Sections of ERISA also refer to any successor Sections thereto.

“Event of Default” is defined in Section 11.1.

“Event of Loss” means, with respect to any Equipment as of any date of determination, any of the following events or conditions:

(a)           total loss or destruction thereof;

(b)           theft or disappearance thereof without recovery within sixty (60) days after such theft or disappearance first becomes known to the Borrower;

(c)           damage rendering such Equipment unfit for normal use and, in the judgment of the Borrower, beyond repair at reasonable cost; and

(d)           any condemnation, seizure, forced sale or other taking of title to or use of any such Equipment,

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provided, however, no Equipment shall be deemed to be subject to an Event of Loss for so long as the Lessee continues to pay any Lease Payments with respect to such Equipment without reduction or offset.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exemption Certificate” is defined in Section 4.6(e).

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it.

“Financed Acquisition” means an acquisition of Contracts or of a division or line of business of another Person, by the Borrower from any Person in which the following conditions are satisfied:

(a)           immediately before and immediately after giving effect to such acquisition, no Default or Event of Default shall have occurred and be continuing or would result therefrom;

(b)           all transactions related thereto are consummated in accordance with applicable law; and

(c)           the Borrower shall have delivered to the Agent a Borrowing Base Certificate evidencing compliance immediately following such acquisition, giving pro forma effect to the consummation of such acquisition and all Loans made in connection therewith.

“Fiscal Quarter” means a fiscal quarter of the Borrower.

“Fiscal Year” means the fiscal year of the Borrower (ending each December 31).

“GAAP” means generally accepted accounting principles in effect in the United States of America applied on a consistent basis.

“Governmental Authority” means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Hazardous Material” means (a) any “hazardous substance”, as defined by CERCLA, (b) any “hazardous waste”, as defined by the Resource Conservation and Recovery Act, as amended, or (c) any pollutant or contaminant or hazardous, dangerous or toxic chemical,

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material or substance (including any petroleum product) within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended.

“Hedging Agreements” means, with respect to any Person, any currency exchange agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates.

“Hedging Obligations” means, with respect to any Person, all liabilities of such Person under Hedging Agreements.

“Indebtedness” of any Person means all debts, liabilities and obligations of such Person including, without limitation:

(a)           all obligations of such Person for borrowed money;

(b)           all obligations of such Person evidenced by bonds, debentures, notes or similar instruments;

(c)           all obligations, contingent or otherwise, relative to the face amount of all letters of credit, banker’s acceptances and similar extensions of credit, whether or not drawn, issued for the account of such Person;

(d)           all Capitalized Lease Liabilities of such Person;

(e)           net liabilities of such Person under all Hedging Obligations;

(f)           whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of equity interests, property or services, and indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on property owned or being acquired by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(g)           Off-Balance Sheet Liabilities of such Person;

(h)           all Contingent Liabilities of such Person in respect of any of the foregoing (including any partial recourse obligation or liability to the maximum extent of such recourse, but excluding from any such amount, any fully non-recourse obligation or liability); and

(i)           all accounts payable, income taxes payable and other accrued liabilities.

The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship

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with such other Person, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Liabilities” is defined in Section 13.4.

“Indemnified Parties” is defined in Section 13.4.

“Intercreditor Agreement” means that certain Amended and Restated Intercreditor Agreement, dated as of April 18, 2005, as amended, restated, supplemented or otherwise modified from time to time, by and among the LEAF Agent, LEAF Financial, Leaf Funding, Sovereign Bank, OFC Capital, a division of ALFA Financial Corporation, National City Commercial Capital Corporation f/k/a Information Leasing Corporation, National City Bank, WestLB AG, New York Branch, Commerce Bank, National Association, Merrill Lynch Equipment Finance LLC, Merrill Lynch Commercial Finance Corp., LEAF Institutional Direct Management, LLC, Lease Equity Appreciation Fund I, L.P., Lease Equity Appreciation Fund II, L.P., LEAF Fund I, LLC, LEAF Fund II, LLC, RCC Commercial, Inc., Resource Capital Funding, LLC, Black Forest Funding Corporation, Bayerische Hypo-Und Vereinsbank AG, New York Branch, U.S. Bank National Association, and any additional Persons who become parties thereto in accordance with the terms thereof.

“Interest Period” means, relative to any LIBOR Loan, the period beginning on (and including) the date on which such LIBOR Loan is made or continued as, or converted into, a LIBOR Loan and shall end on (but exclude) the day which numerically corresponds to such date one, two, or three months thereafter provided, however, that:

(a)           the Interest Period shall commence on the date of advance of or conversion to any LIBOR Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the next preceding Interest Period expires;

(b)           if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, that if any Interest Period with respect to a LIBOR Loan would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;

(c)           any Interest Period with respect to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period;

(d)           no Interest Period shall extend beyond the Termination Date; and

(e)           there shall be no more than six (6) different Interest Periods applicable to LIBOR Loans outstanding at any time.

“Investment” means, relative to any Person, (a) any loan, advance or extension of credit made by such Person to any other Person, including the purchase by such Person of any

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bonds, notes, debentures or other debt securities of any other Person (excluding, however, commission, travel, petty cash and similar advances to officers, employees, consultants and agents in the ordinary course of business), and (b) any Capital Securities held by such Person in any other Person.  The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment, provided however that any purchases of Contracts shall not be deemed to be Investments.

“LEAF Agent” means National City, in its capacity as administrative agent under the LEAF Credit Agreement, or any successor thereto as administrative agent.

“LEAF Credit Agreement” means that certain Credit Agreement, dated July 31, 2006, among the LEAF Financial and LEAF Funding, as Borrowers, the lenders thereunder, and the LEAF Agent, as amended, supplemented, amended and restated or otherwise modified from time to time.

 “LEAF Financial” means LEAF Financial Corporation, a Delaware corporation.

“LEAF Funding” means LEAF Funding, Inc., a Delaware corporation.

“LEAF SPE” means any special purpose entity or similar bankruptcy remote entity, whether or not an Affiliate of the Borrower, for which LEAF Financial provides servicing under a Servicing Agreement.

“Lease Payment” means, with respect to any Contract, any Contract Payment or other payment required to be paid by the related Lessee under such Contract.

“Lender Assignment Agreement” means an assignment agreement substantially in the form of Exhibit F hereto.

“Lenders” is defined in the preamble (including any Person that becomes a Lender pursuant to Section 13.11(a)).

 “Lessee” means a Person that is contractually obligated to make rental or loan and other payments under a Contract (whether or not a lease), including any guarantor of such obligations.

“LIBOR” means, relative to any Interest Period for any LIBOR Loan, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/100 of 1%) of the rates per annum at which Dollar deposits in immediately available funds are offered to Agent in the London interbank market at or about 11:00 a.m. London, England time two (2) Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of such LIBOR Loan and for a period approximately equal to such Interest Period.

“LIBOR (Reserve Adjusted)” means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBOR Loan for any Interest Period, a rate per annum

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(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula:

LIBOR (Reserve Adjusted)                                                                =           LIBOR

1.00 - LIBOR Reserve Percentage

“LIBOR Flex Rate” means the quotient of (a) a fluctuating rate per annum which is designated or published from time to time by the Agent as being its “One Month LIBOR Rate” (which, unless Agent otherwise notifies the Borrower, shall be equal to the rate of interest (rounded upwards, if necessary, to the nearest 1/100^th of 1%), at or about 11:00 a.m. London, England time, two (2) Business Days prior to the applicable Change Date (as defined below), as listed on the British Bankers Association Interest LIBOR 01 or 02 as provided by Reuters (or another similar service if Reuters is unavailable), as the rate at which Dollar deposits with a maturity of one month are offered to Agent in the London interbank market) (it being acknowledged that the LIBOR Flex Rate is not necessarily (i) the lowest rate of interest or the only “LIBOR” denominated interest rate then available from the Agent on fluctuating rate loans or (ii) calculated in the same manner as any other “LIBOR” denominated interest rate offered by the Agent) divided by (b) a number equal to 1.00 minus the LIBOR Reserve Percentage.  It is further acknowledged that the LIBOR Flex Rate is not necessarily calculated in the same manner as any other “LIBOR” denominated interest rate offered by any other bank or published by any publication.  The Agent will inform the Borrower of the current LIBOR Flex Rate upon their request.  The interest rate change will not occur more often than once each month and shall be based on the LIBOR Flex Rate effective as of the last business day of each month (the “Change Date”) and apply thereafter until the next Change Date.  If the LIBOR Flex Rate becomes unavailable during the term of any Loan, the Agent may designate a substitute index after notice to the Borrowers.  The Borrower understands that Agent may make loans based on other indexes or rates as well.

“LIBOR Flex Rate Loan” means a Loan bearing interest at a fluctuating rate determined by reference to the LIBOR Flex Rate.

 “LIBOR Loan” means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a rate of interest determined by reference to LIBOR (Reserve Adjusted).

“LIBOR Reserve Percentage” means, relative to any Interest Period for LIBOR Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the Board and then applicable to assets or liabilities consisting of or including “Eurocurrency Liabilities”, as currently defined in Regulation D of the Board, having a term approximately equal or comparable to such Interest Period.

“Lien” means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in

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property, or other priority or preferential arrangement of any kind or nature whatsoever, to secure payment of a debt or performance of an obligation.

“Loan” means a loan made pursuant to Section 2.1(a).

“Lockbox Agreement” means that certain Lockbox Agency and Control Agreement dated as of July 31, 2006, as amended, restated, supplemented or otherwise modified from time to time, among LEAF Financial, LEAF Funding, LEAF Institutional Direct Management, LLC, a Delaware limited liability company, Lease Equity Appreciation Fund I, L.P., a Delaware limited partnership, U.S. Bank National Association, in its capacity as Lockbox Agent and as Lockbox Bank thereunder, LEAF Agent, and any additional Persons who become parties thereto in accordance with the terms thereof.

“Management Agreements” shall mean any agreements or arrangements among the shareholders and employment (including any phantom equity arrangements) and non-compete agreements or arrangements between the Borrower and any of its directors, officers or employees.

“Material Adverse Effect” means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (a) the business, results of operations, condition (financial or otherwise), assets, liabilities or prospects of the Borrower, (b) the ability of the Borrower to perform any of its obligations under any of the Credit Documents, (c) the rights and remedies of any Secured Party under any of the Credit Documents or (d) the legality, validity or enforceability of any of the Credit Documents.

“Monthly Payment Date” means the first (1^st) day of each month, or, if any such day is not a Business Day, the next succeeding Business Day.

“Moody’s” means Moody’s Investors Service, Inc. or any successor.

“National City” is defined in the preamble.

“Net Disposition Proceeds” means with respect to any Disposition, the excess of:

(a)           the gross cash proceeds received by the Borrower, from any such Disposition and any cash payments in immediately available funds received in respect of promissory notes (or other non-cash consideration) delivered to the Borrower in respect thereof; over

(b)           the sum of (i) all reasonable and customary commissions, legal, and other professional fees, sales commissions and other reasonable and customary costs and disbursements, in each case actually incurred in connection with such Disposition, and (ii) payments made by the Borrower to retire any Indebtedness of the Borrower where payment of such Indebtedness is required in connection with such Disposition.

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“Non-Excluded Taxes” means any Taxes other than net income, net profit and franchise taxes, and property (other than Taxes attributable to the Loan transactions), business privilege or capital stock (other than Taxes attributable to the Loan transactions), employment related or similar Taxes imposed with respect to the Agent or any Lender by any Governmental Authority under the laws of which the Agent or such Lender is organized, in which it maintains its applicable lending office or in which it is engaged in business activity through the presence of any office, employees, agent or other representative.

“Non-U.S. Lender” means any Lender or Participant that is not a “United States person”, as defined under Section 7701(a)(30) of the Code.

“Note” means a promissory note of the Borrower payable to a Lender, in the form of Exhibit A hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof.

 “Obligations” means, in each case, whether now in existence or hereafter arising: (a) the principal of and interest on (including, without limitation, any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans; (b) all other obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of the Borrower arising under or in connection with a Credit Document or a Secured Hedging Agreement; and (c) all other fees, expenses and commissions (including, without limitation, attorney’s fees), charges, indebtedness, loans, liabilities, financial accommodations, obligations, covenants and duties owing by the Borrower to any Secured Party, of every kind, nature and description, direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, that relate to any Credit Document or Secured Hedging Agreement.

“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

“Off-Balance Sheet Liabilities” of any Person means (a) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (b) any liability of such Person under any sale and leaseback transactions which do not create a liability on the balance sheet of such Person, (c) any obligation of such Person under any Synthetic Lease or (d) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person.

“Organizational Document” means, relative to any Person, as applicable, its certificate of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, limited liability agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Person’s partnership interests, limited liability company interests or authorized shares of Capital Securities.

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“Original Net Equipment Cost” means, with respect to any Equipment subject to an Eligible Contract, an amount equal to (a) the Borrower’s cost in accordance with GAAP, less (b) the amount of any advance, security deposit or other up-front payment made by the applicable Lessee to such Borrower with respect to such Equipment or the related Contract.

“Original Price” means, with respect to any Equipment subject to a Contract (a) which is originated by LEAF Financial or LEAF Funding, the original invoice price of any related Equipment subject to such Contract, and, (b) any other such Equipment, the amount paid by the Borrower to purchase the related Contract.

“Other Taxes” means any and all stamp, documentary or similar taxes, or any other excise or property taxes or similar levies that arise on account of any payment made or required to be made under any Credit Document or from the execution, delivery, registration, recording or enforcement of any Credit Document.

“Participant” is defined in Section 13.11(b).

“PBGC” means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

“Pension Plan” means a “pension plan”, as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

“Percentage” means, relative to any Lender, the percentage opposite its name on Schedule I hereto under the Commitment column or set forth in a Lender Assignment Agreement under the Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 13.11(a).

“Person” means any natural person, corporation, limited liability company, partnership, joint venture, association, trust or unincorporated organization, Governmental Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity.

“Plan” means any Pension Plan or Welfare Plan.

“Register” is defined in Section 13.11(c).

“Related Fund” means, with respect to any Lender, any fund that invests in loans and whose decisions relating to such loans is controlled (by contract or otherwise) by such Lender or, in the case of a Lender that is a fund, by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Release” means a “release”, as such term is defined in CERCLA.

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“Required Lenders” means Lenders holding more than fifty percent (50%) of the Total Exposure Amount.

“Resource Conservation and Recovery Act” means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended.

“Restricted Payment” means (a) the declaration or payment of any dividend (other than dividends payable solely in Capital Securities of the Borrower) on, or the making of any payment (including, without limitation, principal, interest, fees or expenses) or distribution on account of, or setting apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any class of Capital Securities of the Borrower or any options, warrants, or other rights to purchase any such Capital Securities, whether now or hereafter outstanding, or the making of any other distribution in respect thereof, either directly or indirectly, whether in cash or property, obligations of the Borrower or otherwise, or (b) any payment by the Borrower of any management or consulting fee to any Person or of any salary, bonus or other form of compensation to any Person who is an Affiliate or executive officer of any such Person, but excluding any such salary, bonus or other form of compensation to the extent approved by Parent.

“S&P” means Standard & Poor’s Rating Services, a division of McGraw-Hill, Inc., or any successor.

“Sanctioned Country” means a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treas.gov/offices/enforcement /ofac/sanctions/index.html, or as otherwise published from time to time.

“Sanctioned Person” means (a) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC available at http://www.treas.gov/offices/enforcement/ofac/sdn/index.html, or as otherwise published from time to time, or (b) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by OFAC.

“SEC” means the Securities and Exchange Commission.

“Secured Hedging Agreement” means, collectively, any Hedging Agreement entered into by the Borrower under which the counterparty of such agreement is (or at the time such agreement was entered into, was) a Lender or an Affiliate of a Lender.

“Secured Hedging Obligations” means any Obligations with respect to Secured Hedging Agreements.

“Secured Parties” means, collectively, the Lenders, the Agent, each counterparty to a Secured Hedging Agreement, and (in each case) each of their permitted respective successors, transferees and assigns.

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“Security Agreement” means the Security Agreement executed and delivered by the Borrower pursuant to this Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time.

“Servicer Default” means any default by LEAF Financial under any Servicing Agreement, in connection with which, (a) the Borrower has received notice and which is not cured within the period allowed under such Servicing Agreement and (b) the result of which is to permit the removal of the Borrower as servicer.

“Servicing Agreement” means (a) the Interim Servicing Agreement (as such term is defined in the Purchase Agreement) and (b) any agreement pursuant to which LEAF Financial agrees to service Contracts owned by the Borrower or an Affiliate of the Borrower or a LEAF SPE.

“Servicing Standard” means the degree of diligence, prudence, skill and care with which the Borrower customarily service Contracts held for their own account and, in any event, in a manner consistent with the customary and usual practices of other servicers of comparable contracts and equipment.

“SFAS 133/138” means, Statement of Financial Accounting Standards No. 133 – “Accounting for Derivative Instruments and Hedging Activities” and Statement of Financial Accounting Standards No. 138 – “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to FASB Statement No. 133” issued by the Financial Accounting Standard Board, as such pronouncement may be amended from time to time in accordance with its terms.

“Subsidiary” means, with respect to any Person, any other Person of which more than 50% of the Voting Securities of such other Person (irrespective of whether at the time Capital Securities of any other class or classes of such other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person.  Unless the context otherwise specifically requires, the term “Subsidiary” shall be a reference to a Subsidiary of the Borrower.

“Synthetic Lease” means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) if both (a) the lease is not a capital lease in accordance with GAAP and (b) the lessee is claiming ownership of the property so leased for federal income tax purposes, other than any such lease under which that Person is the lessor.

“Taxes” means any and all income, stamp or other taxes, duties, levies, imposts, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto.

“Termination Date” means the earliest of (a) August 31, 2007, and (b) the date on which the Commitments are terminated in full or permanently reduced to zero pursuant to the terms of this Agreement.

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“Total Exposure Amount” means, on any date of determination, the outstanding principal amount of all Loans and the unfunded amount of the Commitments.

“Total Liabilities” means, on any date, without duplication, the outstanding principal (or equivalent)  amount of all Indebtedness of the Borrower described in paragraphs “(a)”, “(b)” or “(c)” of the definition of “Indebtedness”, as of such date.

“Type” means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan, a LIBOR Loan or a LIBOR Flex Rate Loan.

“UCC” means the Uniform Commercial Code as in effect from time to time in the Commonwealth of Pennsylvania; provided, that if, with respect to any financing statement or by reason of any provisions of law, the perfection or the effect of perfection or non-perfection of the security interests granted to the Agent pursuant to the applicable Credit Document is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than Pennsylvania, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of each Credit Document and any financing statement relating to such perfection or effect of perfection or non-perfection.

“United States” or “U.S.” means the United States of America, its fifty states and the District of Columbia.

“Voting Securities” means, with respect to any Person, Capital Securities of any class or kind ordinarily having the power to vote for the election of directors, managers, managing general partners or other voting members of the governing body of such Person.

“Welfare Plan” means a “welfare plan”, as such term is defined in Section 3(1) of ERISA.

Section 1.2                                Use of Defined Terms.  Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each other Credit Document, and each notice and other communication delivered from time to time in connection with this Agreement or any other Credit Document.

Section 1.3                                Cross-References.  Unless otherwise specified, references in a Credit Document to any Article or Section are references to such Article or Section of such Credit Document, and references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition.

Section 1.4                                Accounting and Financial Determinations.  Unless otherwise specified, all accounting terms used in each Credit Document shall be interpreted, and all accounting determinations and computations thereunder shall be made, in accordance with GAAP applied in the preparation of the most recent financial statements referred to in Section 5.1(e).  If any preparation in the financial statements referred to in Section 7.1 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) results in a change in any results, amounts, calculations, ratios, standards or terms found in this Agreement from

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those which would be derived or be applicable absent such changes, the Borrower may reflect such changes in the financial statements required to be delivered pursuant to Section 7.1.  Upon the request of the Borrower or any Secured Party, the parties hereto agree to enter into negotiations in order to amend the financial covenants and other terms of this Agreement if there occur any changes in GAAP that have a material effect on the financial statements of the Borrower, so as to equitably reflect such changes with the desired result that the criteria for evaluating the financial condition of the Borrower and such other terms shall be the same in all material respects after such changes as if the changes had not been made.  Unless otherwise expressly provided, all financial covenants and defined financial terms shall be computed on a consolidated basis for the Borrower, in each case without duplication.

ARTICLE II

REVOLVING CREDIT FACILITY

Section 2.1                                Loans.  Subject to the terms and conditions of this Agreement, from time to time on any Business Day occurring from and after the Closing Date but prior to the Termination Date, each Lender agrees, severally but not jointly, that it will make Loans to the Borrower equal to such Lender’s Percentage of the aggregate amount of each Borrowing of Loans requested by the Borrower; provided, that (a) the aggregate principal amount of all outstanding Loans (after giving effect to any amount requested) shall not exceed the lower of (i) the Borrowing Base and (ii) the Aggregate Commitment; and (b) the principal amount of outstanding Loans (after giving effect to any amount requested) from any Lender to the Borrower shall not at any time exceed such Lender’s Commitment as set forth on Schedule I hereto.  Each Loan by a Lender shall be in a principal amount equal to such Lender’s Percentage of the aggregate principal amount of Loans requested on such occasion.  Subject to the terms and conditions hereof, the Borrower may borrow, repay and reborrow Loans hereunder prior to the Termination Date.

Section 2.2                                Reduction of Aggregate Commitment Amount.  The Borrower may (without premium or penalty), from time to time on any Business Day occurring after the Closing Date, voluntarily reduce the amount of the Aggregate Commitment on the Business Day so specified by the Borrower; provided, however, that all such reductions shall require at least three (3) Business Days’ prior notice to the Agent and be permanent, and any partial reduction of the Aggregate Commitment shall be in a minimum amount of $5,000,000 and in any integral multiple of $1,000,000 in excess thereof.  Each Lender’s Commitment shall be reduced by its Percentage of the reduction of the Aggregate Commitment.

Section 2.3                                Borrowing Procedures.  The Borrower shall give the Agent irrevocable prior written notice in the form of a Borrowing Request (a) not later than 1:00 p.m. on the day a Borrowing of a Base Rate Loan or LIBOR Flex Rate Loan is to be made and (b) at least three (3) Business Days prior to the date that a LIBOR Loan is to be made.  Each Borrowing Request shall be (i) in the case of Base Rate Loans or LIBOR Flex Rate Loans, in a minimum amount of $100,000 and any integral multiple of $100,000 in excess thereof, and (ii) in the case of LIBOR Loans, in a minimum amount of $1,000,000 and any integral multiple of $500,000 in excess thereof, or, in either case, in the unused amount of the Commitment.  On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the Type of Loans, and shall be made on the Business Day, specified in such Borrowing Request.  

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Promptly upon receipt, the Agent will notify all Lenders of the receipt of the Borrowing Request.  By 4:00 p.m. on the date of such Borrowing, each Lender shall deposit with the Agent same day funds in an amount equal to such Lender’s Percentage of the requested Borrowing.  Such deposit will be made to an account which the Agent shall specify from time to time by written notice to the Lenders.  To the extent funds are received from the Lenders, the Agent shall make such funds available to the Borrower by wire transfer to the account the Borrower shall have specified in their Borrowing Request.  No Lender’s obligation to make any Loan shall be affected by any other Lender’s failure to make any Loan.

Section 2.4                                Continuation and Conversion Elections.  By delivering a Continuation/Conversion Notice to the Agent on or before 12:00 noon on a Business Day, the Borrower may from time to time irrevocably elect, on not less three (3) Business Days’ (but not more than five (5) Business Days) notice, that all, or any portion of any Borrowing of one Type of Loan may be converted into the other Type of Loan (or continued, as to any LIBOR Loan), in minimum amounts of $1,000,000 and any integral multiple of $500,000 in excess thereof; provided that, in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBOR Loan at least three (3) Business Days before the last day of the then current Interest Period with respect thereto, such LIBOR Loan shall, on such last day, automatically convert to a Base Rate Loan; provided further, that, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders that have made such Loans, and (y) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBOR Loans when any Default or Event of Default has occurred and is continuing.

Section 2.5                                Funding.  Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBOR Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBOR Loan; provided, however, that such LIBOR Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBOR Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility.  In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBOR Loans by purchasing Dollar deposits in the interbank eurodollar market.

Section 2.6                                Notes. The Borrower agrees that, upon the request to the Agent by any Lender, the Borrower will execute and deliver to such Lender a Note evidencing the Loans made by, and payable to the order of, such Lender in a maximum principal amount equal to such Lender’s Commitment.  The Borrower hereby irrevocably authorize each Lender to make (or cause to be made) appropriate notations on any grid attached to such Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby.  Such notations shall, to the extent not inconsistent with notations made by the Agent in the Register, be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations or any error in any such notation shall not limit or otherwise affect any Obligations of the Borrower.

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ARTICLE III

REPAYMENTS, PREPAYMENTS, INTEREST AND FEES

Section 3.1                                Repayments and Prepayments; Application.  The Borrower shall repay in full all principal, interest and Obligations on the Termination Date.  Prior thereto, prepayments of Loans shall or may be made as set forth below.

(a)           Voluntary Prepayments.  From time to time on any Business Day, the Borrower may make a voluntary prepayment, in whole or in part, without premium or penalty, of the outstanding principal amount of any Loan; provided, however, that: (i) any such prepayment shall be applied, first, to any Base Rate Loans, second, to any LIBOR Flex Rate Loans, and, third, pro rata among LIBOR Loans having the same Interest Period, in the direct order of maturity of such Interest Periods; (ii) any such voluntary prepayment of any Loan made in part, and not in whole, shall be in a minimum amount of $500,000 and any integral multiple of $100,000 in excess thereof; and (iii) the Borrower shall comply with Section 4.4 in the event any LIBOR Loan is prepaid on any day other than the last day of the Interest Period for such LIBOR Loan.

(b)           Mandatory Prepayments.

(i)           Loan Prepayments.  On any date when the sum of the aggregate outstanding principal amount of all Loans exceeds the lesser of (A) the Aggregate Commitment (as it may be reduced from time to time pursuant to this Agreement), and (B) the Borrowing Base, the Borrower shall make a mandatory prepayment of Loans in an aggregate amount equal to such excess.

(ii)           Prepayments of Net Disposition Proceeds.  Immediately upon the receipt by the Borrower of any Net Disposition Proceeds, the Borrower shall make a mandatory prepayment of the Loans in an amount equal to 100% of such Net Disposition Proceeds, to the extent necessary to comply with paragraph (i) above.

(iii)           Prepayments upon Acceleration.  Immediately upon any acceleration of any Loans pursuant to Section 11.2 or Section 11.3, the Borrower shall repay all the Loans, unless, pursuant to Section 11.3, only a portion of all the Loans is so accelerated (in which case the portion so accelerated shall be so repaid).  Such amounts shall be applied in accordance with Section 11.4.

Section 3.2                                Interest Provisions.  Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with the terms set forth below.

(a)           Rates.  Subject to Sections 2.3 and 2.4, pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum:

         (i)           on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Adjusted Base Rate from time to time in effect plus the Applicable Margin;

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(ii)           on that portion maintained as a LIBOR Loan, during each Interest Period applicable thereto, equal to the sum of LIBOR (Reserve Adjusted) for such Interest Period plus the Applicable Margin; and

(iii)           on that portion maintained from time to time as a LIBOR Flex Rate Loan, equal to the sum of the LIBOR Flex Rate from time to time in effect plus the Applicable Margin;

All LIBOR Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBOR Loan.

(b)           Default Rate.  Notwithstanding the foregoing, the Borrower will pay to the Agent, for the account of the party entitled thereto, interest, at a rate per annum (the “Default Rate”) equal to the Adjusted Base Rate from time to time in effect (or, as to any LIBOR Loan then outstanding, the LIBOR (Reserve Adjusted) rate applicable to such LIBOR Loan during the remainder of the related Interest Period prior to conversion thereof pursuant to Section 2.4), plus the sum of (i) the Applicable Margin applicable thereto and (ii) an additional margin of 3% per annum, to the fullest extent permitted by law, on any amount payable by the Borrower under any Credit Document to or for the account of the Agent or any Lender that is not paid in full when due (whether at stated maturity, by acceleration, or otherwise) or that is outstanding after the Agent has notified the Borrower that any other Event of Default exists and that the Default Rate will apply, for the period from and including the due date thereof, or in the case of other Events of Default, the date the Agent has notified the Borrower that the Default Rate will begin to accrue, to but excluding the date the same is paid in full (or in the case of any other Event of Default, until the Event of Default no longer exists). Interest payable at the Default Rate shall be payable from time to time on demand or, if not earlier demanded, on each Monthly Payment Date.

(c)           Payment Dates.  Interest accrued on each Loan shall be payable, without duplication:

(i)           on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan on the principal amount so paid or prepaid;

(ii)           with respect to Base Rate Loans or LIBOR Flex Rate Loans, on each Monthly Payment Date;

(iii)           with respect to LIBOR Loans, on the last Business Day of each applicable Interest Period;

(iv)           with respect to any Base Rate Loans or LIBOR Flex Rate Loans converted into LIBOR Loans on a day when interest would not otherwise have been payable pursuant to clause (iii) above, on the date of such conversion; and

(v)           on that portion of any Loan which is accelerated pursuant to Section 11.2 or Section 11.3, immediately upon such acceleration.

Interest accrued on Loans or other monetary Obligations after the date such amount is due and payable (whether upon maturity, upon acceleration or otherwise) shall be payable upon demand.

(d)           Maximum Rate.  Notwithstanding anything to the contrary contained in any Credit Document, the interest paid or agreed to be paid under the Credit Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable law (the “Maximum Rate”).  If the Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower.  In determining whether the interest contracted for, charged, or received by the Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

Section 3.3                                Fees.  The Borrower agrees to pay the Agent a structuring and arrangement  fee of $25,000, which fee shall be non-refundable.

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ARTICLE IV

CERTAIN LIBOR AND OTHER PROVISIONS

Section 4.1                                LIBOR Lending Unlawful.  If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Agent, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any Governmental Authority asserts that it is unlawful, for such Lender to make or continue any Loan as, or to convert any Loan into, a LIBOR Loan, the obligations of such Lender to make, continue or convert any such LIBOR Loan shall, upon such determination, forthwith be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist, and all outstanding LIBOR Loans payable to such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion.

Section 4.2                                Deposits Unavailable.  If the Agent shall have determined that:

(a)           Dollar deposits in the relevant amount and for the relevant Interest Period are not available to it in the relevant market; or

(b)           by reason of circumstances affecting its relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBOR Loans;

then, upon notice from the Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.1 to make or continue any Loans as, or to convert any Loans into, LIBOR Loans shall forthwith be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

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Section 4.3                                Increased LIBOR Loan Costs, etc.  The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, such Lender’s Commitment and the making of Loans hereunder (including the making, continuing or maintaining (or of its obligation to make or continue) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBOR Loans) that arise in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the date hereof of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority, except for such changes with respect to increased capital costs and Taxes which are governed by Sections 4.5 and 4.6, respectively.  Each affected Secured Party shall promptly notify the Agent and the Borrower in writing of the occurrence of any such event, such notice stating in reasonable detail the reasons therefor and the additional amount required fully to compensate such Secured Party for such increased cost or reduced amount.  Such additional amounts shall be payable by the Borrower directly to such Secured Party within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower.

Section 4.4                                Funding Losses.  In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make or continue any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBOR Loan) as a result of:

(a)           any conversion or repayment or prepayment of the principal amount of any LIBOR Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Article III or otherwise;

(b)           any Loans not being made as LIBOR Loans in accordance with the Borrowing Request therefor; or

(c)           any Loans not being continued as, or converted into, LIBOR Loans in accordance with the Continuation/Conversion Notice therefor;

then, upon the written notice of such Lender to the Borrower (with a copy to the Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense.  Such written notice shall, in the absence of manifest error, be conclusive and binding on the Borrower.

Section 4.5                                Increased Capital Costs.  If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority (other than any law, regulation, directive, guideline, decision or request relating to Taxes which are governed by Section 4.6) affects or would affect the amount of capital required or expected to be maintained by any Secured Party or any Person controlling such Secured Party, as a consequence of this Agreement, and such Secured Party determines (in good faith but in its sole and absolute discretion) that the rate of return on its or such controlling

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Person’s capital as a consequence of the Commitments or the Loans made by such Secured Party is reduced to a level below that which such Secured Party or such controlling Person could have achieved but for the occurrence of any such circumstance, then upon notice from time to time by such Secured Party to the Borrower, the Borrower shall within five (5) days following receipt of such notice pay directly to such Secured Party additional amounts sufficient to compensate such Secured Party or such controlling Person for such reduction in rate of return.  A statement of such Secured Party as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower.  In determining such amount, such Secured Party may use any method of averaging and attribution that it (reasonably determined in good faith in its sole and absolute discretion) shall deem applicable.

Section 4.6                                Taxes  The Borrower covenants and agrees as follows with respect to Taxes:

(a)           Except as otherwise provided herein, any and all payments by the Borrower under any Credit Document shall be made without setoff, counterclaim or other defense, and free and clear of, and without deduction or withholding for or on account of, any Taxes.  In the event that any Taxes are required by law to be deducted or withheld from any payment required to be made by the Borrower to or on behalf of the Agent or any Lender under any Credit Document, then:

(i)           subject to clause (f), only if such Taxes are Non-Excluded Taxes, the amount of such payment shall be increased as may be necessary such that such payment is made, after withholding or deduction for or on account of such Taxes, in an amount that is not less than the amount provided for in this Agreement or such Credit Document; and

(ii)           the Borrower shall withhold the full amount of such Taxes from such payment (as increased pursuant to clause (a)(i)) and shall pay such amount to the Governmental Authority imposing such Taxes in accordance with applicable law.

(b)           In addition, the Borrower shall pay any and all Other Taxes imposed to the relevant Governmental Authority imposing such Other Taxes in accordance with applicable law.

(c)           As promptly as practicable after the payment of any Taxes or Other Taxes, and in any event within 30 days of any such payment being due, the Borrower shall furnish to the Agent a copy of an official receipt (or a certified copy thereof) or other applicable documentation evidencing the payment of such Taxes or Other Taxes.  The Agent shall make copies thereof available to any Lender upon request therefor.

(d)           Subject to clause (f), the Borrower shall indemnify the Agent and each Lender for any Non-Excluded Taxes and Other Taxes levied, imposed or assessed on (and whether or not paid directly by) the Agent or such Lender (whether or not such Non-Excluded Taxes or Other Taxes are correctly or legally asserted by the relevant Governmental Authority).  Promptly upon receiving written notice from the Agent or any Lender or otherwise upon having knowledge that any such Non-Excluded Taxes or Other Taxes have been levied, imposed or

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assessed, the Borrower shall pay such Non-Excluded Taxes or Other Taxes directly to the relevant Governmental Authority.  In addition, the Borrower shall indemnify the Agent and each Lender for any incremental Taxes that may become payable by the Agent or such Lender as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to the Agent, pursuant to clause (c), documentation evidencing the payment of Taxes or Other Taxes.  With respect to indemnification for Non-Excluded Taxes and Other Taxes actually paid by the Agent or any Lender or the indemnification provided in the immediately preceding sentence, such indemnification shall be made within 30 days after the date the Agent or such Lender makes written demand therefor, which demand shall include a certificate setting forth in reasonable detail the amount of such indemnification and the determination thereof.  Such a certificate shall be presumed to be correct in the absence of demonstrable error.  The Borrower acknowledges that any payment made to the Agent or any Lender or to any Governmental Authority in respect of the indemnification obligations of the Borrower provided in this clause shall constitute a payment in respect of which the provisions of clause (a) above and this clause shall apply.

(e)           Each Non-U.S. Lender, on or prior to the date on which such non-U.S. Lender becomes a Lender hereunder (and from time to time thereafter upon the request of the Borrower or the Agent or as otherwise required by law, but only for so long thereafter as such non-U.S. Lender is legally entitled to do so), shall deliver to the Borrower and the Agent, but only to the extent that it is permitted to do so under applicable tax law, either:

(i)           two duly completed copies of either (x) Internal Revenue Service Form W-8BEN or (y) Internal Revenue Service Form W-8 ECI, or in either case an applicable successor form; or

(ii)           in the case of a Non-U.S. Lender that is not legally entitled to deliver either form listed in clause (e)(i) above, (x) a certificate of a duly authorized officer of such Non-U.S. Lender to the effect that such Non-U.S. Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code (such certificate, an “Exemption Certificate”) and (y) two duly completed copies of  Internal Revenue Service Form W-8BEN or applicable successor form to establish an exemption from United States backup withholding tax.

(f)           In addition, each Non-U.S. Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances unique to the situation of such Lender renders the form or forms and/or Exemption Certificate provided under clause (e) above obsolete or inaccurate in any material respect, it will deliver to the Borrower a new, accurate form or forms and/or Exemption Certificate, as applicable to such Non-U.S. Lender, and such other forms as may be prescribed by law in order to confirm or establish the entitlement of such Non-U.S. Lender to an exemption from or reduction in United States federal withholding tax with respect to payments by the Borrower under the applicable Credit Document, but only to the extent that it is permitted to do under applicable tax law.

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(g)           The Borrower shall not be obligated to gross up any payments to any Lender pursuant to clause (a)(i) above, or to indemnify any Lender pursuant to clause (d) above, in respect of United States federal withholding taxes to the extent that such taxes are imposed as a result of (x) the failure of such Lender to deliver to the Borrower the form or forms and/or an Exemption Certificate, as applicable to such Lender, pursuant to clause (e) above, or, (y) such form or forms and/or Exemption Certificate not establishing a complete exemption from United States federal withholding tax or the information or certifications made therein by the Lender being untrue or inaccurate on the date delivered in any material respect; provided, however, that the Borrower shall be obligated to gross up any payments to any such Lender pursuant to clause (a)(i) above, and to indemnify any such Lender pursuant to clause (d), in respect of United States federal withholding taxes if any such failure to deliver a form or forms or an Exemption Certificate or the failure of such form or forms or Exemption Certificate to establish a complete exemption from United States federal withholding tax or inaccuracy or untruth contained therein resulted from a change in any applicable statute, treaty, regulation or other applicable law or any interpretation of any of the foregoing occurring after the date hereof, which change rendered such Lender no longer legally entitled to deliver such form or forms or Exemption Certificate or otherwise ineligible for a complete exemption from United States federal withholding tax, or rendered the information or certifications made in such form or forms or Exemption Certificate untrue or inaccurate in any material respect.

(h)           If the Agent or any Lender receives a refund in respect of Taxes as to which it has been grossed up by the Borrower pursuant to clause (a)(i) above or indemnified by the Borrower pursuant to clause (d) above and the Agent or Lender, as applicable determines in its sole, good faith judgment that such refund is attributable to such gross up or indemnification, then the Lender or the Agent, as the case may be, shall pay such amount to the Borrower as the Lender or Agent determines to be the proportion of the refund as will leave it, after such payment, in no better or worse financial position with respect to Tax liabilities and related expenses than it would have been in absent such payment.  Neither the Lenders nor the Agent shall be obligated to disclose information regarding its tax affairs or computations to the Borrower in connection with this clause (g) or any other provision of this Section 4.6.

Section 4.7                                Payments, Computations, etc  Unless otherwise expressly provided in a Credit Document, all payments by the Borrower pursuant to each Credit Document shall be made by the Borrower to the Agent for the pro rata account of the Secured Parties entitled to receive such payment.  All payments shall be made without setoff, deduction or counterclaim not later than 12:00 noon on the date due in same day or immediately available funds to such account as the Agent shall specify from time to time by notice to the Borrower.  Funds received after that time but before 5:00 p.m. on such date shall be deemed to have been received by the Agent on such date for purposes of Section 11.1(a), but for all other purposes shall be deemed to have been received by the Agent on the next succeeding Business Day.  The Agent shall promptly remit in same day funds to each Secured Party its share, if any, of such payments received by the Agent for the account of such Secured Party.  Interest payable hereunder with respect to Base Rate Loans shall be calculated on the basis of a year of 365 days (or 366 days, as applicable) for the actual days elapsed.  All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360 day year for the actual days elapsed.  Payments due on a day other than a Business Day shall (except as otherwise required by the definition of the term “Interest Period”) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees in connection with that payment.

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Section 4.8                                Sharing of Payments.  If any Secured Party shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan (other than pursuant to the terms of Sections 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata share of payments obtained by all Secured Parties, such Secured Party shall purchase from the other Secured Parties such participations in Loans made by them as shall be necessary to cause such purchasing Secured Party to share the excess payment or other recovery ratably (to the extent such other Secured Parties were entitled to receive a portion of such payment or recovery) with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Secured Party, the purchase shall be rescinded and each Secured Party which has sold a participation to the purchasing Secured Party shall repay to the purchasing Secured Party the purchase price to the ratable extent of such recovery together with an amount equal to such selling Secured Party’s ratable share (according to the proportion of (a) the amount of such selling Secured Party’s required repayment to the purchasing Secured Party to (b) total amount so recovered from the purchasing Secured Party) of any interest or other amount paid or payable by the purchasing Secured Party in respect of the total amount so recovered.  The Borrower agrees that any Secured Party purchasing a participation from another Secured Party pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Secured Party were the direct creditor of the Borrower in the amount of such participation.  If under any applicable bankruptcy, insolvency or other similar law any Secured Party receives a secured claim in lieu of a setoff to which this Section applies, such Secured Party shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Secured Parties entitled under this Section to share in the benefits of any recovery on such secured claim.

Section 4.9                                Setoff.  Each Secured Party shall, upon the occurrence and during the continuance of any Event of Default described in Section 11.1(i) or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Secured Party a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Secured Party; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8.  Each Secured Party agrees promptly to notify the Borrower and the Agent after any such setoff and application made by such Secured Party; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application.  The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have.

Section 4.10                                Mitigation; Time Limitation.

(a)           Each Lender agrees that if any demand for payment under Sections 4.3, 4.4, 4.5, or 4.6, or if any adoption or change of the type described in Section 4.1 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and

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regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its reasonable discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrower to make payments under Sections 4.3, 4.4, 4.5 or 4.6, or would eliminate or reduce the effect of any adoption or change described in Section 4.1.

(b)           Failure or delay on the part of any Secured Party to demand compensation pursuant to Sections 4.3, 4.4, 4.5 or 4.6 shall not constitute a waiver of such Secured Party’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Secured Party pursuant to the Sections 4.3, 4.4, 4.5 or 4.6 for any increased costs incurred or reductions suffered more than six months prior to the date that such Secured Party notifies the Borrower of the change giving rise to such increased costs or reductions and of such Secured Party’s intention to claim compensation therefor (except that, if the change giving rise to such increased costs or reductions is retroactive, then the six month period referred to above shall be extended to include the period of retroactive effect thereof).

Section 4.11                                Replacement of Lenders.  Each Lender hereby severally agrees as set forth in this Section.

(a)           If any Lender (an “Affected Lender”) makes demand upon the Borrower for (or if the Borrower is otherwise required to pay to such Lender) amounts pursuant to Sections 4.3, 4.4, 4.5 or 4.6 and the payment of such additional amounts are, and are likely to continue to be, materially more onerous in the reasonable judgment of the Borrower with respect to the other Lenders or any Lender defaults under the terms hereunder (a “Defaulting Lender”), the Borrower may, within 30 days of receipt by the Borrower of such demand or notice (or the occurrence of such other event causing the Borrower to be required to pay such compensation) or from the date that such Lender becomes a Defaulting Lender, as the case may be, give notice in writing to the Agent and such Affected Lender or such Defaulting Lender, as the case may be, of its intention to replace such Affected Lender or Defaulting Lender, as the case may be, with a financial institution designated in such notice, subject to the other terms of this Agreement.  If the Agent shall, in the exercise of its reasonable discretion and within 30 days of its receipt of such notice, notify the Borrower and such Affected Lender or such Defaulting Lender, as the case may be, in writing that the designated financial institution is satisfactory to the Agent (such consent not being required where such financial institution is already a Lender), then such Affected Lender or such Defaulting Lender, as the case may be, shall, subject to the payment of any amounts due pursuant to Section 4.4 by the Borrower, assign, in accordance with Section 13.11(a), all of its Commitments, Loans, Notes, and other rights and obligations under this Agreement and all other Credit Documents to such designated financial institution; provided, however, that (i) such assignment shall be without recourse, representation or warranty (except, with respect to representations and warranties, as to (A) such Affected Lender’s or such Defaulting Lender’s, as the case may be, then existing Commitment Amount(s) and the outstanding principal amount of Loans held by such Affected Lender or such Defaulting Lender, as the case may be, and (B) the absence of Liens arising by, through and under the Affected Lender or Defaulting Lender, as the case may be) and shall be on terms and conditions reasonably satisfactory to such Affected Lender and such designated financial institution, (ii) the purchase price paid by such designated financial institution shall be in the amount of such Affected Lender’s or such Defaulting Lender’s Loans, together with all accrued and unpaid

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interest and fees in respect thereof, plus all other amounts (including the amounts demanded and unreimbursed under Section 4.3, 4.4, 4.5, 4.6, 13.3, and 13.4), owing to such Affected Lender or such Defaulting Lender, as the case may be, hereunder and (iii) the Borrower shall pay to such Affected Lender or Defaulting Lender, as the case may be, and the Agent all reasonable out-of-pocket expenses incurred by such Affected Lender or such Defaulting Lender, as the case may be, and the Agent in connection with such assignment and assumption (including the processing fees described in Section 13.11(a)).

(b)           Upon the effective date of an assignment described in clause (a) above, the Borrower shall issue a replacement Note to such replacement Lender (but only if such replacement Lender requests such Note) and such institution shall become a “Lender” for all purposes under this Agreement and the other Credit Documents.  Upon any such termination or assignment, such replaced Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of any provisions of this Agreement which by their terms survive the termination of this Agreement.

ARTICLE V

CONDITIONS TO CREDIT EXTENSIONS

Section 5.1                                Initial Loan.  The obligations of the Lenders to fund the initial Loan shall be subject to the prior or concurrent satisfaction, each in the Agent’s reasonable discretion, or waiver of each of the conditions precedent set forth in this Article.

(a)           Certificates, Resolutions, etc.  The Agent shall have received from the Borrower:

(i)           [Intentionally Omitted]; and

(ii)           a certificate, dated the Closing Date, duly executed and delivered by the Borrower’s secretary as to:

(A)           resolutions approved by the board of directors of LEAF Financial, the sole member of the Borrower, then in full force and effect authorizing the execution, delivery and performance by the Borrower of each Credit Document to be executed by the Borrower, and the transactions contemplated hereby and thereby;

(B)           the incumbency and signatures of its Authorized Officers, authorized to act with respect to each Credit Document to be executed by the Borrower;

(C)           the full force and validity of each Organizational Document of such Person and copies thereof; and

(D)           any Management Agreement or shareholder or similar agreement to which the Borrower is a party.

(b)           Delivery of Notes.  The Agent shall have received, for the account of each Lender that has requested a Note, such Lender’s Note duly executed and delivered by an Authorized Officer of the Borrower.

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(c)           Payment of Outstanding Indebtedness, etc.  All Indebtedness other than that identified in Schedule 10.2 hereto, together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full and the commitments in respect of such repaid Indebtedness shall have been terminated, and all Liens securing payment of any such Indebtedness shall have been released and the Agent shall have received any Uniform Commercial Code termination statements (Form UCC-3) or other executed instruments as may be required in connection therewith.  After giving effect to the foregoing, the Borrower shall have no Indebtedness other than Indebtedness permitted by this Agreement.

(d)           Closing Fees, Expenses, etc. The Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Section 3.3 and, if then invoiced, Section 13.3.

(e)           Financial Information; Material Adverse Effect.  The Agent shall have received a pro forma (1) consolidated balance sheet of the Borrower and (2) Compliance Certificate, each as of the Closing Date and giving effect to the initial Loans, certified by an Authorized Officer, in form and substance satisfactory to Agent.

(f)           Opinion of Counsel.  The Agent shall have received opinions, dated the Closing Date and addressed to the Agent and all Lenders, from Ledgewood, counsel to the Borrower, in form and substance reasonably satisfactory to the Agent.

(g)           Financing Statements.  All Uniform Commercial Code financing statements (Form UCC-1) or other similar financing statements and Uniform Commercial Code termination statements (Form UCC-3) required pursuant to the Credit Documents shall have been filed by or delivered to a filing service company acceptable to the Agent.

(h)           Credit Documents and Collateral Agreements.  The Agent shall have received fully executed copies of this Agreement, each other Credit Document and each document relating to the Acquisition, including, without limitation:

(i)           the Security Agreement, dated as of the Closing Date, duly executed and delivered by the Borrower, and a  UCC financing statement (Form UCC-1) naming the Borrower as a debtor and the Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the security interests of the Agent pursuant to the Security Agreement;

(ii)           the Agent and its counsel shall be satisfied that the Lien granted to the Agent, for the benefit of the Secured Parties in the collateral described above is a first priority (or local equivalent thereof) security interest (except for Liens permitted by Section 10.3 hereof); and no Lien exists on any of the collateral described above other than the Lien created in favor of the Agent, for the benefit of the Secured Parties, pursuant to a Credit Document (except for Liens permitted by Section 10.3 hereof) and shall have received:

(A)           copies of UCC termination statements (Form UCC-3), if any, necessary to release all Liens and other rights of any Person  in any collateral securing the Obligations, together with such other UCC termination statements (Form UCC-3) as the Agent may reasonably request from the Borrower; and

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(B)           copies of lien, tax, judgment and bankruptcy search reports, listing any liens and all effective financing statements which name the Borrower (under its present name and any previous names) as a debtor, together with copies any such financing statements;

(iii)           the Intercreditor Agreement and the Lockbox Agreement shall be in full force and effect and no default shall exist thereunder;

(iv)           a joinder and an acknowledgement to the Intercreditor Agreement and the Lockbox Agreement, shall have been duly authorized, executed and delivered to the lockbox agent under the Lockbox Agreement; and

(v)           the executed Purchase Agreement and related documents.

(i)           Real Property.  The Borrower shall have used its commercially reasonable efforts to obtain a landlord waiver for each of its leased real property locations, if any, each in form and substance satisfactory to the Agent.

(j)           Consummation of Transaction, etc.  The Agent shall have received evidence satisfactory to it that:

(i)           There shall exist at and as of the Closing Date (after giving effect to Acquisition and the initial Loans hereunder) no conditions that would constitute a Default or an Event of Default;

(ii)           The Acquisition shall have been completed pursuant to the Purchase Agreement, and all required waiting periods (under the Hart-Scott-Rodino Act or otherwise) shall have elapsed and all other required consents (under the LEAF Credit Agreement or otherwise) shall have been delivered; and

(iii)           There shall exist no litigation or proceedings which could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and all approvals of Governmental Authorities, if any, required in connection with the Credit Documents shall have been obtained and be in full force and effect.

Section 5.2                                All Loans.  The obligation of each Lender to make any Loan (including the initial Loan) shall be subject to and the satisfaction of each of the conditions precedent set forth below.

(a)           Compliance with Warranties, No Default, etc.  Both before and after giving effect to any Loan the following statements shall be true and correct as of the date of such Loan:

(i)           the representations and warranties set forth in each Credit Document shall, in each case, be true and correct in all material respects with the same effect as

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if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date or, unless no longer true and correct as a direct result of the consummation of an acquisition or transaction permitted hereunder or consented to in writing by the Required Lenders);

(ii)           no Material Adverse Effect has occurred and is continuing; and

(iii)           no Default or Event of Default has occurred and is continuing.

(b)           Loan Request, etc.   The Agent shall have received a Borrowing Request if any Loan has been requested hereunder.  Each of the delivery of a Borrowing Request and the acceptance by the Borrower of the proceeds of such Loan shall constitute a representation and warranty by the Borrower that on the date of such Loan (both immediately before and after giving effect to such Loan and the application of the proceeds thereof) the statements made in Section 5.2(a) are true and correct.

(c)           Satisfactory Legal Form.  All documents executed or submitted pursuant hereto by or on behalf of the Borrower shall be reasonably satisfactory in form and substance to the Agent and its counsel and the Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Agent or its counsel may reasonably request.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

In order to induce the Secured Parties to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants on the date of each Loan (unless stated to relate to an earlier date) to each Secured Party as set forth in this Article.

Section 6.1                                Organization, etc.  The Borrower is (i) validly organized and existing and in good standing under the laws of the State of Delaware, (ii) except where such failure to be so qualified could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, is duly qualified to do business and is in good standing as a foreign entity in each jurisdiction where the nature of its business requires such qualification, and (iii) has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under each Credit Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it.

Section 6.2                                Due Authorization, Non-Contravention, etc.  The execution, delivery and performance by the Borrower of each Credit Document and its participation in the consummation of all aspects of the Credit Documents, are in each case within the Borrower’s powers, have been duly authorized by all necessary action, and do not:

(a)           contravene any (i) of the Borrower’s Organizational Documents, (ii) material contractual restriction binding on or affecting the Borrower, (iii) court decree or order binding on or affecting the Borrower or (iv) law or governmental regulation binding on or affecting the Borrower; or

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(b)           result in, or require the creation or imposition of, any Lien on the Borrower’s properties (except as permitted by this Agreement).

Section 6.3                                Government Approval, Regulation, etc.  No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority, other than those that have been, or on the Closing Date will be, duly obtained or made and which are, or on the Closing Date will be, in full force and effect and except for filings and registrations of any UCC financing statement, mortgages or intellectual property filings, all of which have been duly executed, where applicable, and delivered to the Agent on the Closing Date by the Borrower, as the case may be, is required for the due execution, delivery or performance by the Borrower of any Credit Document to which it is a party.  The Borrower is not subject to registration under the Investment Company Act of 1940, as amended, or is otherwise subject to any other regulatory scheme limiting its ability to incur debt.

Section 6.4                                Validity, etc.  The Credit Documents will, on the due execution and delivery thereof by the Borrower, constitute, the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by principles of equity).

Section 6.5                                Financial Information.  The financial statements (other than projections) of the Borrower furnished to the Agent and each Lender pursuant to Section 5.1(e) have been prepared in accordance with GAAP as applied pursuant to the terms of this Agreement, and present fairly the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended, subject, in the case of financial statements, to normal recurring year-end adjustments and the absence of notes.  The projections furnished to Agent and each Lender pursuant to Section 5.1(e) are based on reasonable assumptions and such assumptions are believed by the Borrower to be fair in light of business conditions as they exist on the date of this Agreement.  All balance sheets, all statements of operations, shareholders’ equity and cash flow and all other financial information the Borrower furnished or to be furnished pursuant to Section 7.1 have been and will for periods following the Closing Date (except for the aging reports referred to in Section 7.1(c) and the budget referred to in Section 7.1(d)) be prepared in accordance with GAAP as applied pursuant to the terms of this Agreement, and do or will present fairly the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended, subject, in the case of interim financial statements, to normal recurring year-end adjustments and the absence of notes.

Section 6.6                                No Material Adverse Effect; Compliance with Laws.

(a)           No Material Adverse Effect has occurred since the date of delivery of the most recent audited financial statements delivered pursuant to Section 5.1(e) or Section 7.1(b).

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(b)           The Borrower is in material compliance with the requirements of all applicable laws, rules and regulations (including, without limitation, all Environmental Laws, ERISA, and the provisions of the Occupational Safety and Health Act, the Fair Credit Reporting Act and the Fair Labor Standards Act, each as amended, and the rules and regulations promulgated thereunder).

Section 6.7                                Litigation.  There is no pending or, to the knowledge of the Borrower, threatened litigation, action or proceeding (a) except as disclosed in Schedule 6.7 hereto, affecting the Borrower or any of its properties, businesses, assets or revenues, which could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, or (b) which purports to affect the legality, validity or enforceability of any Credit Document.

Section 6.8                                Subsidiaries.  The Borrower has no Subsidiaries.

Section 6.9                                Ownership of Properties.  Schedule 6.9 hereto sets forth the address of each real property location which the Borrower owns or leases, or on which any property of the Borrower is maintained, together with a description of any lease or bailment or warehouse arrangement, including the term of such arrangement and the contact information for the landlord, bailee or warehouseman.  The Borrower owns (i) in the case of owned real property, good and marketable fee title to, and (ii) in the case of any owned personal property, good and valid title to, or, in the case of leased or licensed real or personal property, valid and enforceable leasehold or license interests (as the case may be) in, all of its material properties and assets, real and personal, tangible and intangible, of any nature whatsoever, free and clear in each case of all Liens or claims, except for Liens permitted pursuant to Section 10.3.

Section 6.10                                Taxes.  The Borrower and each Subsidiary of the Borrower has filed all federal and state income tax returns, state and local sales, use and personal property tax returns, and all other material Tax returns and reports required by law to have been filed by it and has paid all federal and state income taxes, state and local sales, use and personal property taxes, and other material Taxes thereby shown to be due and owing, except any such Taxes which are not delinquent or are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books.

Section 6.11                                Pension and Welfare Plans.  During the twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Loan hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.  No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty.  Except as disclosed in Schedule 6.11 hereto, neither the Borrower nor any member of the Controlled Group has any Contingent Liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA.  Schedule 6.11 sets forth each Pension Plan and Welfare Plan to which the Borrower is a party.

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Section 6.12                                Environmental Warranties.  Except for the matters set forth on Schedule 6.12 hereto, and only to the extent the Borrower’s failure to comply in any case, individually or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect:

(a)           at all facilities and property (including underlying groundwater) owned, occupied, or leased by the Borrower, except with respect to matters that have been fully resolved, the Borrower is, and continues to be, in compliance with all Environmental Laws;

(b)           there have been no past (which have not been resolved), and there are no pending or, to the knowledge of the Borrower, threatened (i) claims, complaints, notices or requests for information received by the Borrower with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to the Borrower regarding potential liability under any Environmental Law;

(c)           there have been no Releases or threatened Releases of Hazardous Materials at, on or under any property now or to the knowledge of any Authorized Officer previously owned, occupied, or leased by any Borrower;

(d)           the Borrower has been issued and is in compliance with, and to the extent required by applicable Environmental Laws have timely applied to renew, all permits, certificates, approvals, licenses and other authorizations required by Environmental Laws;

(e)           no property now or previously owned, occupied or leased by the Borrower is listed or, to the knowledge of any Authorized Officer, proposed for listing on any federal or state list of sites requiring any investigation, monitoring, remediation, or clean-up;

(f)           there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by the Borrower;

(g)           the Borrower has not directly transported or directly arranged for the transportation of any Hazardous Material to any location which is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against the Borrower for any remedial work, damage to natural resources or personal injury;

(h)           there are no polychlorinated biphenyls or friable asbestos present at any property now owned or leased by the Borrower or, to the knowledge of any Borrower (after due inquiry) previously owned or leased by the Borrower; and

(i)           no conditions exist at, on or under any property now owned or leased by the Borrower or, to the knowledge of the Borrower (after due inquiry) previously owned or leased by the Borrower, which, with the passage of time, or the giving of notice or both, would give rise to any liability under any Environmental Law.

Section 6.13                                Accuracy of Information.  None of the factual information heretofore or contemporaneously furnished (other than projections and forward looking information) in writing to any Secured Party by or on behalf of the Borrower by its

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representatives, directors, officers, agents or employees in connection with any Credit Document or any transaction contemplated hereby contains any untrue statement of a material fact, or omits to state any material fact necessary to make such information not materially misleading, and no other factual information hereafter furnished in connection with any Credit Document by or on behalf of the Borrower to any Secured Party will contain any untrue statement of a material fact or will omit to state any material fact necessary to make any information not materially misleading, in each case on the date as of which such information is dated or certified.

Section 6.14                                Margin Stock.  No proceeds of any Loans will be used to purchase or carry margin stock or otherwise for a purpose which violates, or would be inconsistent with, Board Regulation T, U or X.

Section 6.15                                Foreign Assets Control Regulations.  None of the requesting or borrowing of any Loans or the use of the proceeds thereof of such will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the “Trading With the Enemy Act”) or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)) (the “Patriot Act”).  Furthermore, the Borrower (a) is not and will not become a “blocked person” as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations and (b) does not knowingly engages and will not knowingly engage in any dealings or transactions, or be otherwise associated, with any such “blocked person”.

Section 6.16                                Labor Relations; Management Agreements.  There are no strikes, lockouts or other material labor disputes or grievances against the Borrower, or, to the Borrower’s knowledge, threatened against or affecting the Borrower, and no significant unfair labor practice, charges or grievances are pending against the Borrower, or to the Borrower’s knowledge, threatened against any of them before any Governmental Authority.  The Borrower is party to any collective bargaining agreement.  There are no Management Agreements.

Section 6.17                                Insurance.  All premiums in respect of insurance maintained by or on behalf of the Borrower have been paid.  The Borrower reasonably believes that the insurance maintained by or on behalf of the Borrower is adequate and conforms to the requirements set forth in Section 8.3.

Section 6.18                                Collateral Documents.

(a)           The Security Agreement is effective to create, in favor of the Agent, a legal, valid and enforceable security interest in the Collateral described in the Security Agreement and, upon the filings of financing statements pursuant to the UCC, constitutes a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral which may be perfected by filing, in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by Section 10.3.

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(b)           Any Control Agreement is effective to create, in favor of the Agent, a legal, valid and enforceable Lien on all of the Borrower’s right, title and interest in and to the Deposit Accounts described therein and the proceeds thereof, and constitute a Lien on, and security interest in, all right, title and interest of the Borrower in such Deposit Accounts and the proceeds thereof, in each case prior and superior in right to any other Person, other than with respect to the rights of Persons expressly permitted by Section 10.3.

(c)           The Borrower hereby covenants to perform all of its obligations under the Lockbox Agreement and the Intercreditor Agreement and direct all Lessees to make all Contract Payments to the “Lockbox” and the “Lockbox Account” (as such terms are defined in the Lockbox Agreement).

Section 6.19                                Compliance with OFAC Rules and Regulations.

The Borrower (a) is not a Sanctioned Person, (b) does not have any of its assets in Sanctioned Countries, and (c) does not derive any of its operating income from investments in, or transactions with Sanctioned Persons or Sanctioned Countries.  No part of the proceeds of any Loan will be used directly or indirectly to fund any operations in, finance any investments or activities in or make any payments to, a Sanctioned Person or a Sanctioned Country.

ARTICLE VII

FINANCIAL INFORMATION AND NOTICES

The Borrower will furnish, or cause to be furnished, to the Agent and the Lenders, each of the following:

Section 7.1                                Financial Statements and Projections.

(a)           Quarterly Financial Statements.  As soon as available and in any event within sixty (60) days after the end of each of the first three (3) Fiscal Quarters of each Fiscal Year, unaudited consolidated balance sheets of the Borrower and its consolidated Subsidiaries, as of the close of such fiscal quarter and unaudited consolidated statements of income, retained earnings and cash flows for the fiscal quarter then ended and that portion of the Fiscal Year then ended for the Borrower and its consolidated Subsidiaries, including, without limitation, the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures for the preceding Fiscal Year and prepared by the Borrower in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the period, and certified by an Authorized Officer to present fairly in all material respects the financial condition of  the Borrower and its consolidated Subsidiaries, and the results of operations of the Borrower and its consolidated Subsidiaries, for the periods then ended, subject to normal year end adjustments.

(b)           Annual Financial Statements.  As soon as available and in any event within one hundred twenty (120) days after the end of each Fiscal Year, audited

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consolidated balance sheets of the Borrower and its consolidated Subsidiaries, as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows of the Borrower and its consolidated Subsidiaries, for the Fiscal Year then ended, including, without limitation, the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures for the preceding Fiscal Year and prepared by an independent certified public accounting firm acceptable to the Agent in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operation of any change in the application of accounting principles and practices during the year, and accompanied by a report thereon by such certified public accountants that is not qualified with respect to scope limitations imposed by the Borrower and its consolidated Subsidiaries, or with respect to accounting principles followed by the Borrower and its consolidated Subsidiaries not in accordance with GAAP.

(c)           Aging Reports.  Monthly, on the twentieth (20^th) day of each month, a monthly aging report for the prior month of (i) the total portfolio of Contracts serviced by the Borrower, in summary form, and of (ii) Contracts which are Collateral.

Section 7.2                                Certificates.

(a)           Compliance Certificate.  At each time financial statements are delivered pursuant to Section 7.1(a) or Section 7.1(b) hereof, a Compliance Certificate dated as of the date of the related financial statements.

(b)           Borrowing Base Certificate.  Monthly, on the twentieth (20^th) day of each month, a Borrowing Base Certificate as of the last date of the immediately preceding month.

Section 7.3                                Other Reports.

(a)           Promptly upon receipt thereof, copies of all reports, if any, submitted to the Borrower or its board of directors by its independent public accountants in connection with their auditing function, including, without limitation, any management letters or reports and any management responses thereto;

(b)           promptly upon their becoming available, copies of such other financial statements, reports, notices, prospectuses and registration statements, if any, as any Borrower may be required to publicly file with the IRS, the SEC, any national securities exchange or any similar or corresponding governmental commission, department or agency substituted therefor, or any similar or corresponding governmental commission, department, board, bureau, or agency, federal or state; and

(c)           tax returns and such other information regarding the operations, business affairs and financial condition of the Borrower or the Collateral as the Agent or any Lender may reasonably request.

Section 7.4                                Notice of Litigation and Other Matters. Promptly (but in no event later than five (5) Business Days after the Borrower obtains knowledge thereof) telephonic and written notice of:

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(a)           the commencement of any proceedings and investigations by or before any Governmental Authority, and all actions and proceedings in any court or before any arbitrator against or involving the Borrower or any of its properties, assets or businesses, which could reasonably be believed to create a potential liability or judgment in excess of $1,000,000;

(b)           any notice of any violation received by the Borrower from any Governmental Authority including, without limitation, any notice of violation of any Environmental Law;

(c)           any labor controversy that has resulted in, or threatens to result in, a strike or other work action against the Borrower;

(d)           any attachment, judgment, lien, levy or order exceeding $1,000,000 that may be assessed against or threatened against the Borrower;

(e)           (i) the institution of any steps by any Person to terminate any Pension Plan, (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, (iii) the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or (iv) the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, notice thereof and copies of all documentation relating thereto;

(f)           any change (i) in the Borrower’s corporate name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) in the location of the Borrower’s chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in the Borrower’s identity or corporate structure, (iv) in the Borrower’s Federal Taxpayer Identification Number or (v) in the Borrower’s jurisdiction of organization (and the Borrower agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the UCC or otherwise that are required in order for the Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral);

(g)           if any material portion of the Collateral is damaged or destroyed;

(h)           any change of any Authorized Officer;

(i)           any condition or event that constitutes a Default or Event of Default, written notice thereof specifying the nature and duration thereof and the action being or proposed to be taken with respect thereto;

(j)           any Disposition;

(k)           any default under a Servicing Agreement; and

(l)           any Material Adverse Effect.

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Section 7.5                                Accuracy of Information.  All written information, reports, statements and other papers and data furnished by or on behalf of the Borrower or any of its Subsidiaries to the Agent or any Lender (other than financial forecasts) whether pursuant to this Article VII or any other provision of this Agreement shall be, at the time the same is so furnished, complete and correct in all material respects to the extent necessary to give the Agent or any Lender complete, true and accurate knowledge of the subject matter based on the Borrower’s knowledge thereof.

ARTICLE VIII

AFFIRMATIVE COVENANTS

The Borrower agrees with each Lender and the Agent that it will, and, where required, will cause its consolidated Subsidiaries to, perform or cause to be performed the obligations set forth below.

Section 8.1                                Maintenance of Existence; Compliance with Laws, etc.  The Borrower will:

(a)           except as otherwise permitted by Section 10.7, preserve and maintain its legal existence; and

(b)           comply in all material respects with all applicable laws, rules, regulations and orders, including the payment (before the same become delinquent), of all federal, state and other material Taxes and assessments imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on the books of the Borrower.

Section 8.2                                Maintenance of Properties.  The Borrower will maintain, preserve, protect and keep its properties in good repair, working order and condition (ordinary wear and tear excepted), and make necessary repairs, renewals and replacements so that the business carried on by the Borrower may be properly conducted at all times, unless the Borrower determines in good faith that the continued maintenance of such property is no longer economically desirable.

Section 8.3                                Insurance.  The Borrower will:

    (a)           maintain with financially sound and reputable insurance companies, insurance, with respect to its properties and business, against loss or damage by fire and other insurance hazards (including extended coverage, property damage, worker’s compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) of the kind and in such amount customarily insured against by companies in the same or similar businesses operating in the same or similar locations, and all insurance required to be maintained under any other Credit Document;

(b)           if any portion of the Borrower’s property that is subject to a mortgage in favor of the Agent is located in an area identified by the Federal Emergency Management Agency or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act, maintain with financially sound and reputable insurance companies, flood insurance with policy limits and deductibles in such amounts as are typically insured against in the same general area, by Persons of comparable size engaged in the same or similar business; and

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(c)           maintain all other insurance as may be required under the laws of any state or jurisdiction in which it or they may be engaged in business

(d)           deliver (i) not later than seven (7) days after the Closing Date and annually thereafter an original certificate of insurance signed by the Borrower’s independent insurance broker describing and certifying as to the existence of the insurance on the properties and assets of the Borrower and its consolidated Subsidiaries required to be maintained by this Agreement and (ii) at the reasonable request of the Agent from time to time (A) a summary schedule indicating all insurance then in force with respect to the Borrower or (B) copies of the policies evidencing such insurance coverage.  Each insurance policy shall provide for at least thirty (30) days’ prior written notice to the Agent of any termination of or proposed cancellation, nonrenewal or material modification of such policy.  All policies delivered pursuant to this Section shall be in addition to any requirements to maintain specific types of insurance contained in any other Credit Document.

Section 8.4                                Visitations, Books and Records, Field Audits.  The Borrower will, and will cause each of its consolidated Subsidiaries to:

(a)           keep true books and records in which full, true and correct entries will be made in accordance with GAAP and maintain adequate accounts and reserves for all taxes (including income taxes), all depreciation, depletion, obsolescence and amortization of its properties, all contingencies, and all other reserves, and maintain computerized systems capable of (i) tracking the Eligible Contracts, enabling the Borrower at all times to identify the same by Lessee and (ii) enabling the Borrower to calculate the Net Present Value and Original Net Equipment Cost;

(b)           permit the Agent, any Lender or any of their respective representatives, at reasonable times and intervals upon reasonable notice to the Borrower, to visit the Borrower’s offices, to discuss the Borrower’s financial matters with its officers and employees, and its independent public accountants (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower’s financial matters with the Agent, any Lender or any of their respective representatives) and to examine (and photocopy extracts from) any of its books and records provided that no more than one such visit shall occur during any Fiscal Year if no Event of Default has occurred and is continuing;

(c)           shall assist in any collateral field audit performed (by any accounting firm reasonably acceptable to the Agent) at the request of the Agent, which audit shall be in form and substance reasonably satisfactory to Agent, the cost of which shall be paid by the Borrower; provided that the Borrower shall be responsible for the cost of no more than one such audit performed during any Fiscal Year if no Event of Default has occurred and is continuing; and

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(d)           pay any fees of such independent public accountant or auditor incurred in connection with the Agent’s and the Lenders’ exercise of its rights pursuant to this Section, and reimburse all reasonable out-of-pocket costs of such visits of the Agent.

Section 8.5                                Environmental Law Covenant.  The Borrower will, except in each case where the failure to do so could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect:

(a)           occupy, use and operate all of its and their facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations required by Environmental Laws in effect and remain in material compliance therewith, and handle all Hazardous Materials in compliance with, all applicable Environmental Laws; and

(b)           promptly notify the Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of its facilities and properties in respect of, or as to compliance with, Environmental Laws and promptly resolve any non-compliance with Environmental Laws and keep its property free of any Lien imposed by any Environmental Law.

Section 8.6                                Use of Proceeds.  The Borrower will apply the proceeds of the Loans to finance the purchase of Eligible Contracts.

Section 8.7                                Future Subsidiaries, Security, etc.  The Borrower will not create or acquire any Subsidiaries or enter into any joint-ventures.  From time to time, the Borrower will, at their cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties as the Agent or the Required Lenders shall designate pursuant to the terms of this Agreement (it being understood that it is the intent of the parties that the Obligations shall be secured by all of the issued and outstanding Capital Securities of any Subsidiaries of the Borrower and substantially all the assets of the Borrower, including real and personal property acquired subsequent to the Closing Date).  Such Liens will be created under the Credit Documents in form and substance reasonably satisfactory to the Agent, and the Borrower shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Agent shall reasonably request to evidence compliance with this Section.

Section 8.8                                Procedures to Ensure Information Dissemination.  The Borrower will, and will cause each of its consolidated Subsidiaries to, establish and maintain adequate policies and procedures to ensure that at least one Authorized Officer is promptly informed of all matters referenced in this Agreement for which the Secured Parties are relying on such Authorized Officer’s knowledge with respect to the obligations set forth in Sections 6.13 and Article VII.

Section 8.9                                Further Assurances. 

(a)           The Borrower will, and will cause each Subsidiary which becomes a party hereto, to execute any and all further documents, financing statements, agreements and

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instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents), which may be required under any applicable law, or which the Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Credit Documents or to grant, preserve, protect or perfect the Liens created by the Credit Documents or the validity or priority of any such Lien, all at the expense of the Borrower.  The Borrower also agrees to provide the Agent, from time to time upon request, evidence reasonably satisfactory to the Agent as to the perfection and priority of the Liens created or intended to be created by the Credit Documents.

(b)           If any assets (including any real property or improvements thereto or any interest therein) are acquired by the Borrower after the Closing Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien of the Security Agreement upon acquisition thereof), the Borrower will notify the Agent thereof, and, if requested by the Agent or the Required Lenders, the Borrower will cause such assets to be subjected to a Lien securing the Obligations applicable, and will take such actions as shall be necessary or reasonably requested by the Agent to grant and perfect such Liens, including actions described in clause (a) of this Section, all at the expense of the Borrower.

(c)           If any Borrower opens or establishes any Deposit Account with any Person (other than with respect to any Deposit Account with the Agent), such Borrower shall subject such Deposit Account to a Control Agreement to the extent required by the Security Agreement.

(d)           Each Contract acquired by the Borrower shall be acquired pursuant to an Assignment Agreement.

(e)           The Borrower shall enter into and maintain a Servicing Agreement, in form and substance reasonably satisfactory to the Agent, with respect to the Contracts.

Section 8.10                                Maintenance of Assets.  With respect to the Contracts and related assets owned or serviced by the Borrower, the Borrower shall:

(a)           invoice and collect from each Lessee all Lease Payments required to be paid by such Lessee in such manner and to the same extent as the Borrower does with respect to similar contracts held for their own account;

(b)           fulfill all of the obligations of the Borrower and any of the ongoing responsibilities (if any) of the lessor or lender under a Contract and exercise all rights of the Borrower with respect to the Contracts and the Equipment;

(c)           maintain with respect to each Contract and each piece of Equipment, and with respect to each payment by each Lessee and compliance by each Lessee with the provisions of each Contract, complete and accurate records in such manner and to the same extent as the Borrower does with respect to similar contracts held for their own accounts;

(d)           execute, deliver, report and file any and all tax returns with respect to sales, use, personal property and other taxes (other than corporate income tax returns) and any and all notices, reports, licensing applications or other required filings required to be filed in any jurisdiction with respect to any Equipment and any and all filings required with respect to such Equipment;

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(e)           apply for and maintain (or cause to be applied for and maintained) all licenses, permits, registrations, authorizations and other governmental items necessary for the Borrower to acquire, hold, manage and sell the Equipment, or enforce or collect Contracts, in each jurisdiction where the failure to maintain such licenses, permits, registrations, authorizations or governmental items could, individually or in the aggregate, reasonably be expected to cause a Material Adverse Effect;

(f)           pay or cause to be paid all applicable taxes properly due and owing in connection with the Contracts and Equipment;

(g)            enforce and negotiate the terms of any Contract in accordance with the terms of the Servicing Standard;

(h)           repossess and remarket any Equipment in accordance with the terms of the Servicing Standard;

(i)           negotiate and maintain any insurance required by the Servicing Standard;

(j)            investigate, consistent with its past practices and policies and at its own expense, the facts and circumstances surrounding each casualty or Event of Loss with respect to any Equipment, collect or arrange for payment from the appropriate Lessee or third party and process all payment requests under the insurance policies with respect to such Equipment;

(k)           in connection with its performance of the responsibilities and obligations, and exercise of rights, under a Contract as lender, minimize any abatement, reduction, recoupment, setoff, defense or counterclaim by the related Lessee;

(l)           fully perform all obligations under the Contracts for which the nonperformance of such obligations would create a setoff or counterclaim right by the applicable Lessee; and

(m)           maintain, in the custody of LEAF Financial, a Contract File with respect to each Contract.

ARTICLE IX

[INTENTIONALLY OMITTED]

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ARTICLE X

NEGATIVE COVENANTS

The Borrower covenants and agrees with each Lender and the Agent that the Borrower will, and will cause its consolidated Subsidiaries to, perform or cause to be performed the obligations set forth below.

Section 10.1                                Business Activities.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, engage in any business activity except for equipment leasing or lending and those related business activities engaged in on the date of this Agreement (and activities reasonably incidental, complementary or substantially similar thereto).

Section 10.2                                Indebtedness.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, other than:

(a)           Indebtedness in respect of the Obligations;

(b)           Indebtedness existing as of the Closing Date which is identified in Schedule 10.2 hereto, together with refinancings, renewals or replacements of any such Indebtedness in the manner permitted under Section 10.5 hereof;

(c)           unsecured Indebtedness (i) for trade payables incurred in the ordinary course of business of the Borrower and their Subsidiaries and (ii) in respect of performance, surety or appeal bonds provided in the ordinary course of business, but excluding (in each case), Indebtedness incurred through the borrowing of money or Contingent Liabilities in respect thereof;

(d)           Indebtedness of the Borrower comprised of Hedging Obligations permitted pursuant to Section 10.13;

(e)           Capitalized Lease Liabilities in an aggregate amount at any time outstanding not to exceed $100,000;

(f)           Purchase money obligations in an aggregate amount at any time not to exceed $100,000; and

(g)           any other unsecured Indebtedness in an aggregate amount at any time not to exceed $100,000.

provided, however, that no Indebtedness otherwise permitted by clause (c), (e) or (f) above shall be assumed or otherwise incurred if a Default has occurred and is then continuing or would result therefrom.

Section 10.3                                Liens.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, create, incur, assume or permit to exist any Lien upon any of its property (including Capital Securities of any Person), revenues, assets or other Collateral, whether now owned or hereafter acquired, except:

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(a)           Liens securing payment of the Obligations;

(b)           Liens existing as of the Closing Date and disclosed in Schedule 10.3 hereto securing Indebtedness described in Section 10.2(c); provided, that no such Lien shall encumber any additional property (other than proceeds, products or replacements of such property) not already securing such Indebtedness on the Closing Date;

(c)           Liens securing Indebtedness permitted to be incurred under Sections 10.2(e) and (f); provided, that (i) such Lien is granted within 60 days after such Indebtedness is incurred, (ii) the Indebtedness secured thereby does not exceed the lesser of the cost or the fair market value of the applicable property, improvements or equipment at the time of such acquisition (or construction) or lease and (iii) such Lien secures only the assets and the proceeds, products or replacements of such assets that are the subject of the Indebtedness referred to in such clause;

(d)           Liens in favor of carriers, warehousemen, suppliers, repairmen, mechanics, materialmen, landlords and other similar liens granted in the ordinary course of business for amounts not overdue for a period of more than 60 days or being diligently contested in good faith by appropriate proceedings and for which adequate reserves or other appropriate provision in accordance with GAAP shall have been made therefor;

(e)           Liens incurred or pledges or deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, bids, trade contracts, leases, statutory bonds, performance bonds or other similar obligations (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety and appeal bonds or performance bonds;

(f)           judgment Liens which do not otherwise result in an Event of Default;

(g)           easements, rights-of-way, zoning restrictions, minor defects or irregularities in title and other similar charges or encumbrances, in each case, not interfering in any material respect with the ordinary course of business of the Borrower;

(h)           Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves or other appropriate provisions in accordance with GAAP shall have been made;

(i)           Liens arising from precautionary UCC financing statements regarding operating leases, provided that such Lien is limited to the equipment leased;

(j)           Liens of a collecting bank under UCC 4-210 on items in the course of collection;

(k)           statutory liens under UCC Article 2; and

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(l)           bank set-off rights against Deposit Accounts.

Section 10.4                                Investments.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, purchase, make, incur, assume or permit to exist any Investment in any other Person, except:

(a)           Investments existing on the Closing Date and identified in Schedule 10.4 hereto;

(b)           Cash Equivalent Investments;

(c)           Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(d)           Investments constituting (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price of goods or services, in each case in the ordinary course of business;

(e)           Investments consisting of any deferred portion of the sales price received by the Borrower or any Subsidiary in connection with any Disposition permitted under Section 10.8;

(f)           without duplication, Investments to the extent permitted as Indebtedness pursuant to Section 10.2(e); and

(g)           Investments by way of the acquisition of assets pursuant to Financed Acquisitions.

Section 10.5                                Restricted Payments.

The Borrower will not, and will not permit any of its consolidated Subsidiaries to, declare, make or permit, or agree to pay or make, directly or indirectly, any Restricted Payment, except for dividends (i) payable to the Borrower, and (ii) payable by the Borrower solely in shares of any class of its common stock.

Section 10.6                                Issuance of Capital Securities.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, (a) issue any Capital Securities that, by their terms (or by the terms of any securities into which they are convertible or for which they are exchangeable), or upon the happening of any event, mature or are subject to mandatory redemption, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is six months after the Termination Date (whether for value or otherwise) or (b) become liable in respect of any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or make any other payment prior to at least six months after the Termination Date in respect of any Capital Securities of the Borrower or any option, warrant or other right to acquire any such Capital Securities.

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Section 10.7                                Consolidation, Merger, etc.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other Person, or purchase or otherwise acquire all or substantially all of the assets or Capital Securities of any Person (or any division thereof).

Section 10.8                                Sale of Assets.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, convey, sell, lease, assign, transfer or otherwise dispose of, more than ten percent (10%) of their assets, business or property (whether now owned or hereafter acquired, including, without limitation, Contracts and accounts receivable) during any consecutive twelve (12) month period, or issue or sell any shares of any such Person’s Subsidiary’s common stock to any Person other than the Borrower, except: (a)  a discount of or an adjustment to any account receivable in accordance with past practices; (b) the sale or other disposition for fair market value, and in the ordinary course of business, of obsolete or worn out property, or other property not necessary for operations, and (c) sales of Contracts and the related Equipment, for fair market value, but only to the extent that such sales are without any recourse, direct or indirect, to the Borrower or any consolidated Subsidiary thereof.

Section 10.9                                Transactions with Affiliates.  Except as set forth on Schedule 10.9 and excluding transactions, payments or distributions otherwise expressly permitted hereunder, the Borrower will not and will not permit any of its consolidated Subsidiaries to, enter into or cause or permit to exist any arrangement, transaction or contract (including for the purchase, lease or exchange of property or the rendering of services) with any Affiliate of the Borrower, unless such arrangement, transaction or contract is (a) on fair and reasonable terms no less favorable to the Borrower or such Subsidiary than it could obtain in an arm’s-length transaction with a Person that is not an Affiliate and (b) of the kind which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person that is not one of its Affiliates, and the Agent receives prompt written notice of such transaction.

Section 10.10                                Restrictive Agreements.  The Borrower will not, and will not permit any of its consolidated Subsidiaries to, enter into or permit to exist any agreement prohibiting:

(a)           the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired to the extent any such negative pledge would prohibit the creation or first priority perfection of any Liens securing payment of the Obligations;

(b)           the ability of the Borrower to amend or otherwise modify any Credit Document; or

(c)           the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower, including by way of dividends, advances, repayments of loans, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments.

Section 10.11                                Sale and Leaseback.  The Borrower will not directly or indirectly enter into any agreement or arrangement, as a lessee, providing for the sale or transfer by it of any property (now owned or hereafter acquired) to a Person and the subsequent lease or rental of such property or other similar property from such Person.

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Section 10.12                                Amendment to Material Documents.

(a)           The Borrower will not, and will not permit any of its consolidated Subsidiaries to, amend, supplement or otherwise modify any: (i) Organizational Document; (ii) Assignment Agreement; or (iii) Servicing Agreement, in any manner materially adverse to the interests, rights or obligations of any Secured Party.

(b)           The Borrower will not, and will not permit any of their consolidated Subsidiaries to, agree to or permit any amendment, modification or waiver of any provision of any agreement, document, instrument or note governing or evidencing the Subordinated Debt if the effect of such amendment, modification or waiver is to: (i) increase the interest rate on such Subordinated Debt or change (to earlier dates) the dates upon which principal and interest are due thereon; (ii) alter the redemption, prepayment or subordination provisions thereof; (iii) create any covenant thereunder or grant any collateral therefor; or (iv) otherwise confer additional rights upon the holders thereof which individually or in the aggregate would be adverse to the Borrower or any such consolidated Subsidiary or to the any Secured Parties.

Section 10.13                                Hedging Obligations.  The Borrower will not enter into any Hedging Obligations other than Hedging Obligations entered into in the ordinary course of business to manage interest rate risk of the Borrower and not for speculative purposes.

Section 10.14                                Accounting Changes.  The Borrower will not make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change their Fiscal Year.

Section 10.15                                Upstream Limitations.The Borrower will not, and will not permit any of its consolidated Subsidiaries, to enter into any agreement, contract, or arrangement (other than the Credit Documents) restricting the ability of any of its Subsidiaries to pay or make dividends or distributions in cash or kind, to make loans, advances, or other payments of whatsoever nature or to make transfers or distributions of all or any part of their assets to the Borrower or to any Subsidiary of the Borrower.

ARTICLE XI

EVENTS OF DEFAULTS AND REMEDIES

Section 11.1                                Events of Default.  Each of the following events or occurrences described in this Article shall constitute an “Event of Default”:

(a)           Non-Payment of Obligations.  The Borrower shall fail to make any payment or prepayment of any principal of any Loan when due or any payment of interest on any Loan or any fee described in Article III or any other monetary Obligation, within three (3) Business Days of when due.

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(b)           Breach of Warranty.  Any representation or warranty of the Borrower made or deemed to be made in any Credit Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made or deemed to have been made in any material respect.

(c)           Non-Performance of Certain Covenants and Obligations.  The Borrower shall default in the due performance or observance of any of its obligations under Article VII, Section 8.1, Section 8.7, Section 8.11 or Article X.

(d)           Non-Performance of Other Covenants and Obligations.  The Borrower shall default in the due performance and observance of any agreement, covenant or obligation contained in any Credit Document executed by it (other than those described in Section 11.1(a)-(c) above), and, to the extent susceptible to remedy, such default shall continue unremedied for a period of 30 days after the earlier of (i) the date the Borrower is required pursuant to the Credit Documents or otherwise to give notice thereof to the Agent (whether or not such notice is actually given), or (ii) the date notice thereof shall have been given to the Borrower by the Agent or any Lender.

(e)           Default on Other Indebtedness.  A default shall occur in the payment of an amount when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 11.1(a)) of the Borrower or any of its Subsidiaries, having an outstanding principal amount, individually or in the aggregate, in excess of $1,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause or declare such Indebtedness to become due and payable or to require such Indebtedness to be prepaid, redeemed, purchased or defeased, or require an offer to purchase or defease such Indebtedness to be made, prior to its expressed maturity, in each case, regardless of whether such default is waived, or such right is exercised, by such holder (or trustee or agent), unless the effect of such waiver is to terminate permanently the right of such holder (or trustee or agent) to accelerate the maturity thereof or demand cash collateral in respect thereof on account of such default.

(f)           Judgments.  Any judgment or order for the payment of money individually or in the aggregate in excess of $1,000,000 (exclusive of any amounts to the extent covered by insurance (less any applicable deductible) and as to which the insurer has acknowledged its responsibility to cover such judgment or order) shall be rendered against the Borrower or any of its Subsidiaries and such judgment shall not have been vacated or discharged or stayed or bonded pending appeal within 30 days (or such longer period during which execution of the same shall have been stayed) after the entry thereof or enforcement proceedings shall have been commenced by any creditor upon such judgment or order.

(g)           Pension Plans.  Any of the following events shall occur with respect to any Pension Plan:

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(i)           the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, any Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $1,000,000; or

(ii)           a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA.

(h)           Change in Control.  Any Change in Control shall occur.

(i)           Bankruptcy, Insolvency, etc.  The Borrower shall:

(i)           become  “insolvent” as defined by Section 101(32) of the United States Bankruptcy Code, 11 U.S.C. §101(32)or generally fail to pay, or admit in writing its inability or unwillingness generally to pay, debts as they become due;

(ii)           apply for, consent to, or acquiesce in the appointment of a trustee, receiver, sequestrator or other custodian for any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors;

(iii)           in the absence of such application, consent or acquiescence in or permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; provided, that the Borrower hereby expressly authorizes each Secured Party to appear in any court conducting any relevant proceeding during such 60 day period to preserve, protect and defend their rights under the Credit Documents;

(iv)           permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law or any dissolution, winding up or liquidation proceeding, in respect thereof, and, if any such case or proceeding is not commenced by the Borrower, such case or proceeding shall be consented to or acquiesced in by the Borrower, or shall result in the entry of an order for relief or shall remain for 60 days undismissed; provided, that the Borrower hereby expressly authorizes each Secured Party to appear in any court conducting any such case or proceeding during such 60 day period to preserve, protect and defend their rights under the Credit Documents; or

(v)           take any action authorizing, or in furtherance of, any of the foregoing.

(j)           Impairment of Security, etc.  Any Credit Document or any Lien granted thereunder (except Liens released in accordance with the terms of the Credit Documents) shall, in whole or in part, terminate, cease to be in effect or cease to be the legally valid, binding and enforceable obligation of the Borrower; the Borrower shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or, except as permitted under any Credit Document, any Lien on collateral with a value singly or in the aggregate

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in excess of $1,000,000 securing any Obligation shall, in whole or in part, cease to be a perfected Lien subject only to Liens permitted under Section 10.3.

(k)           Uninsured Damage

.  The occurrence of any uninsured damage to or loss, theft or destruction of, any assets of the Borrower or any of its Subsidiaries and such damage, loss, theft or destruction shall exceed $1,000,000 in the aggregate at any time.

(l)           Servicer Default. The occurrence of any Servicer Default.

Section 11.2                                Action if Bankruptcy.  If any Event of Default described in Section 11.1(i) shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations (other than Secured Hedging Obligations) shall automatically be and become immediately due and payable, without notice or demand to any Person.

Section 11.3                                Action if Other Event of Default.  If any Event of Default (other than any Event of Default described in Section 11.1(i)) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations (other than Secured Hedging Obligations) to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate.

Section 11.4                                Application of Proceeds.  Following an Event of Default and acceleration of the Obligations, the Agent shall apply proceeds of Collateral as follows:

First, to payment of that portion of the Obligations constituting fees, expenses (including, without limitation, expenses relating to attorneys’ fees and other professionals’ fees), indemnities and other amounts due to the Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting accrued and unpaid interest and accrued and unpaid commitment fees or other fees, ratably amongst the Secured Parties in proportion to the respective amounts described in this clause “Second” due to them;

Third, to payment of that portion of the Obligations constituting unpaid principal of any Loans, ratably amongst the Lenders in proportion to the respective amounts described in this clause “Third” due to them;

Fourth, to payment of all other Obligations, ratably amongst the Secured Parties in proportion to the respective amounts described in this clause “Fourth” due to them; and

Finally, the balance, if any, after all of the Obligations have been satisfied, to the Borrower or as otherwise required by law.

For purposes of this Section 11.4, if there are Obligations arising out of Secured Hedging Agreements, the Agent shall determine whether such obligations are most appropriately

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characterized as interest, principal, fees or other and shall add those obligations to the appropriate category above.  Any determination of the Agent in this regard shall be conclusive absent manifest error, provided, however, that the characterization of such obligations shall be the same with respect to all Secured Parties.

ARTICLE XII

THE AGENT

Section 12.1                                Actions.  Each Lender hereby irrevocably appoints National City as its Agent.  Each Lender authorizes the Agent to act on behalf of such Lender under each Credit Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Agent (with respect to which the Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel in order to avoid  contravention of applicable law), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto.  Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Agent, pro rata according to such Lender’s proportionate Total Exposure Amount, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Agent in any way relating to or arising out of any Credit Document, including reasonable attorneys’ fees, and as to which the Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Agent’s gross negligence or willful misconduct.  The Agent shall not be required to take any action under any Credit Document, or to prosecute or defend any suit in respect of any Credit Document, unless it is indemnified hereunder to its satisfaction.  If any indemnity in favor of the Agent shall be or become, in the Agent’s determination, inadequate, the Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given.

Section 12.2                                Funding Reliance, etc.  Unless the Agent shall have been notified in writing by any Lender by 5:00 p.m. on the Business Day prior to the date of any Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount.  If and to the extent that such Lender shall not have made such amount available to the Agent, when all conditions to borrowing have been satisfied such Lender and the Borrower severally agree to repay the Agent forthwith within three (3) Business Days of demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Borrower to the date such amount is repaid to the Agent, at the interest rate applicable at the time to Loans comprising such Borrowing (in the case of the Borrower) and (in the case of a Lender), at the Federal Funds Rate for the first two (2) Business Days after which such amount has not been repaid, and thereafter at the interest rate applicable to Loans comprising such Borrowing.

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Section 12.3                                Exculpation.  Neither the Agent nor any of its respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under any Credit Document, or in connection herewith or therewith, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of any Credit Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Credit Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its Obligations, except, in each case, to the extent determined by a court of competent jurisdiction in a final proceeding to have resulted from their own gross negligence or willful misconduct.  Any such inquiry which may be made by the Agent shall not obligate it to make any further inquiry or to take any action.  The Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Agent believes to be genuine and to have been presented by a proper Person.

Section 12.4                                Successor.  The Agent may resign as such at any time upon at least 10 days’ prior notice to the Borrower and the Lenders.  If the Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor Agent (with, so long as no Default or Event of Default has occurred and is continuing, the consent of the Borrower, provided that the resignation of the Agent is not contingent upon such consent), which Lender, upon such appointment (and all applicable consents), thereupon shall become the Agent hereunder.  If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent’s giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the United States (or any State thereof) or a United States branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $250,000,000; provided, however, that if, such retiring Agent is unable to find a commercial banking institution which is willing to accept such appointment and which meets the qualifications set forth above, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Agent hereunder until such time, if any, as the Required Lenders appoint a successor as provided for above.  Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Credit Documents.  After any retiring Agent’s resignation hereunder as the Agent, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under the Credit Documents, and Section 13.3 and Section 13.4 shall continue to inure to its benefit.

Section 12.5                                Loans by Agent.  Agent shall have the same rights and powers with respect to (x) the Loans made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not Agent.  Agent and each of its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if Agent were not Agent hereunder.

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Section 12.6                                Credit Decisions.  Each Lender acknowledges that it has, independently of the Agent and each other Lender, and based on such Lender’s review of the financial information of the Borrower, the Credit Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitment.  Each Lender also acknowledges that it will, independently of the Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under the Credit Documents.

Section 12.7                                Reliance by Agent.  The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent.  As to any matters not expressly provided for by the Credit Documents, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Secured Parties.  For purposes of applying amounts in accordance with this Section, the Agent shall be entitled to rely upon any Secured Party that has entered into a Secured Hedging Agreement for a determination (which such Secured Party agrees to provide or cause to be provided upon request of each Agent) of the outstanding Obligations owed to such Secured Party under any Secured Hedging Agreement.  Unless it has actual knowledge evidenced by way of written notice from any such Secured Party and the Borrower to the contrary, the Agent, in acting in such capacity under the Credit Documents, shall be entitled to assume that no Secured Hedging Agreements or Obligations in respect thereof are in existence or outstanding.

Section 12.8                                Defaults.  The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Agent has received a written notice from a Lender or the Borrower specifying such Default and stating that such notice is a “Notice of Default”.  In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders.  The Agent shall (subject to Section 13.1) take such action with respect to such Default as shall be directed by the Required Lenders; provided, that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Lenders or all Lenders.

ARTICLE XIII

MISCELLANEOUS

Section 13.1                                Waivers, Amendments, etc.

(a)           Waivers and Amendments.  The provisions of each Credit Document may from time to time be amended, modified or waived, if such amendment,

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modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver shall:

(i)           modify this Section without the consent of all Lenders;

(ii)           increase the aggregate amount of any Loans required to be made by a Lender pursuant to its Commitment, extend the maturity date of any Loan made (or participated in) by any Lender or reduce any fees described in Article III payable to any Lender without the consent of such Lender or change the date or the amount of any principal repayment described in Section 3.1(a), without the consent of each Lender to be adversely affected by such amendment, modification or waiver;

(iii)           forgive, or otherwise reduce, the principal amount of or reduce the rate of interest on any Lender’s Loan or extend the date on which interest or fees are payable in respect of any Lender’s Loans, in each case, without the consent of such Lender (it being understood and agreed, however, that any vote to rescind any acceleration made pursuant to Section 11.2 and Section 11.3 of amounts owing with respect to the Loans and other Obligations shall only require the vote of the Required Lenders);

(iv)           reduce the percentage set forth in the definition of “Required Lenders” or modify any requirement hereunder that any particular action be taken by all Lenders without the consent of all Lenders;

(v)           except as otherwise expressly provided in a Credit Document, release the Borrower from its Obligations under any Credit Documents, or all or substantially all of the Collateral under the Credit Documents, in each case without the consent of all Lenders (and each counterparty under any Secured Hedging Agreement, if not then a Lender); or

(vi)           affect adversely the interests, rights or obligations of the Agent (in its capacity as the Agent), unless consented to by the Agent.

(b)           Secured Hedging Agreements.  In addition to the foregoing, no amendment shall be made to any Credit Document without the consent of each counterparty to a Secured Hedging Agreement affected thereby if the effect thereof would be to exclude the Obligations evidenced by a Secured Hedging Agreement from the collateral security and other benefits of such Credit Document (it being understood that any release of Liens shall be permitted to be effectuated by Agent, Required Lenders or all Lenders (together with the consent of any counterparty to a Secured Hedging Agreement, if required), as applicable, in accordance with the terms of this Agreement).

(c)           No Waiver.  No failure or delay on the part of the Agent or any Lender in exercising any power or right under any Credit Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right.  No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances.  No waiver or approval by the Agent or any Lender under any Credit Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions.  

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No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder.

(d)           Replacement of Lender.  In the event that any Lender or Lenders refuse to approve any waiver or amendment the Agent deems advisable, then the Agent may or, so long as no Event of Default has occurred and is continuing, the Borrower may (but shall not be obligated to), upon notice to such Lender (and the Agent, if applicable), require such Lender to assign and delegate without recourse (in accordance with and subject to the restrictions contained in Section 13.11), all of its interests, rights, duties and obligations under this Agreement and the Credit Documents to an Assignee Lender that shall assume such obligations (which assignee may be a Lender, if a Lender accepts such assignment); provided that (i) if it is an assignment at the request of the Borrower, the Borrower shall have received the prior written consent of the Agent, which consent shall not unreasonably be withheld or delayed, (ii) if it is an assignment at the request of the Agent and no Event of Default has occurred and is continuing, the Borrower shall have consented to such assignment which consents shall not be unreasonably withheld or delayed and (iii) such assigning Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Credit Documents, from the assignee (to the extent of such outstanding principal, accrued interest and accrued fees) or Borrower (in the case of all other amounts).

Section 13.2                                Notices; Time.

(a)           Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

(i)           if to the Borrower, to it c/o LEAF Financial at 1818 Market Street, 9th Floor, Philadelphia, PA 19103, Attention of Miles Herman (Facsimile No. 215.640.6363);

(ii)           if to the Agent, to National City Bank, One South Broad Street, 14th Floor, Philadelphia, Pennsylvania  19107, Attention of Michael Labrum, Senior Vice President (Facsimile No. (267.256.4002); and

(iii)           if to any other Lender, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.

(b)           Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Agent and the applicable Lender.  The Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

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(c)           Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.  All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

(d)           Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when the confirmation of transmission thereof is received by the transmitter.

(e)           Unless otherwise indicated, all references to the time of a day in a Credit Document shall refer to the time of day in Cleveland, Ohio.

Section 13.3                                Payment of Costs and Expenses

.  The Borrower agrees to pay on demand all reasonable out-of-pocket expenses of the Agent (including the reasonable fees and out-of-pocket expenses of any counsel to the Agent and of local counsel, if any, who may be retained by or on behalf of the Agent) in connection with:

(a)           the negotiation, preparation, execution and delivery of each Credit Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to any Credit Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated;

(b)           the filing, recording, refiling or rerecording of any Credit Document and/or any financing statements relating thereto and all amendments, supplements, amendments and restatements and other modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms of any Credit Document; and

(c)           the preparation and review of the form of any document or instrument relevant to any Credit Document.

The Borrower further agrees to pay, and to save each Secured Party harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of each Credit Document, the Loans or the issuance of the Notes.  The Borrower also agrees to reimburse each Secured Party upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys’ fees and legal expenses of counsel to each Secured Party) incurred by such Secured Party in connection with (x) the negotiation of any restructuring or “work-out” with the Borrower, whether or not consummated, of any Obligations and (y) the enforcement of any Obligations.

Section 13.4                                Indemnification.  In consideration of the execution and delivery of this Agreement by each Secured Party, the Borrower hereby indemnifies, exonerates and holds each Secured Party, and each of their respective affiliates, officers, directors, employees and agents (collectively, the “Indemnified Parties”) free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys’ fees and

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disbursements, whether incurred in connection with actions between or among the parties hereto and third parties (collectively, the “Indemnified Liabilities”), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to:

(a)           any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan;

(b)           the entering into and performance of any Credit Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Loan, provided that any such action is resolved in favor of such Indemnified Party);

(c)           any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any Subsidiary thereof of all or any portion of the Capital Securities or assets of any Person, whether or not an Indemnified Party is party thereto;

(d)           any investigation, litigation, action or proceeding (including any threatened investigation, litigation or proceeding) respectively made, filed, or instituted and related to any environmental cleanup, audit, compliance or other matter relating to either the protection human health or the environment or the Release by the Borrower or any Subsidiary thereof of any Hazardous Material; or

the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or Subsidiary;

except for Indemnified Liabilities arising for the account of a particular Indemnified Party which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the such Indemnified Party’s gross negligence or willful misconduct.  Except as otherwise provided in this paragraph, the Borrower and its successors and assigns hereby waive, release and agree not to make any claim or bring any cost recovery action against, any Indemnified Party under CERCLA or any state equivalent, or any similar law now existing or hereafter enacted.  Except as otherwise provided in this paragraph, it is expressly understood and agreed that to the extent that any Indemnified Party is strictly liable under any Environmental Laws, the Borrower’s obligation to such Indemnified Party under this indemnity shall likewise be without regard to fault on the part of the Borrower with respect to the violation or condition which results in liability of an Indemnified Party.  If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

Notwithstanding anything to the contrary in this Agreement, no Indemnified Party shall effect the settlement or compromise of any litigation, investigation or proceeding (including

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any threatened litigation, investigation or proceeding) in respect of which indemnification may be sought, without the Borrower’s prior written consent (not to be unreasonably withheld).

Section 13.5                                Survival.  The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.6, 13.3 and 13.4, and the obligations of the Lenders under Section 13.1, shall in each case survive any assignment from one Lender to another (in the case of Sections 13.3 and 13.4) and the occurrence of the date on which all Obligations have been paid in full in cash, all Secured Hedging Agreements have been terminated and all Commitments shall have terminated.  The representations and warranties made by the Borrower in each Credit Document shall survive the execution and delivery of such Credit Document.

Section 13.6                                Severability.  Any provision of any Credit Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Credit Document or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 13.7                                Headings.  The various headings of each Credit Document are inserted for convenience only and shall not affect the meaning or interpretation of such Credit Document or any provisions thereof.

Section 13.8                                Execution in Counterparts, Effectiveness, etc.  This Agreement may be executed by the parties hereto in several counterparts, each of which shall be an original and all of which shall constitute together but one and the same agreement.  This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower, the Agent and each Lender (or notice thereof satisfactory to the Agent), shall have been received by the Agent.

Section 13.9                                Governing Law; Entire Agreement.  EACH CREDIT DOCUMENT (EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN A CREDIT DOCUMENT) WILL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.  The Credit Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto.

Section 13.10                                 Successors and Assigns.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the consent of all Lenders (except as otherwise expressly permitted by the Credit Documents).

Section 13.11                                Assignments and Participations in Loans; Register.  Each Lender may assign, or sell participations in, its Loans and Commitment to one or more other Persons in accordance with this the terms set forth below.

(a)           Assignments.  Any Lender, pursuant to a Lender Assignment Agreement, with the consent (which consent shall not be unreasonably delayed or withheld) of (i) the Borrower, to the extent no Default or Event of Default has occurred and is continuing, and

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(ii) the Agent, may at any time assign and delegate to any one or more commercial banks, funds or other financial institutions, and upon notice to the Borrower and the Agent, upon the Agent’s acknowledgment on a Lender Assignment Agreement, may assign and delegate to any of its Affiliates or to any other Lender or to a Related Fund of any Lender (pursuant to applicable law) (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an “Assignee Lender”), all or any fraction of such Lender’s Loans and Commitment in a minimum aggregate amount of $500,000 (or, if less, the entire remaining amount of such Lender’s Loans and Commitment).   The Borrower and the Agent shall be entitled to continue to deal solely and directly with a Lender in connection with the interests so assigned and delegated to an Assignee Lender until:

(i)           notice of such assignment and delegation, together with (A) payment instructions, (B) the Internal Revenue Service forms or other statements contemplated or required to be delivered pursuant to Section 4.6, if applicable, and (C) addresses and related information with respect to such Assignee Lender, shall have been delivered to the Borrower and the Agent by such assignor Lender and such Assignee Lender;

(ii)           such Assignee Lender shall have executed and delivered to (A) the Borrower and the Agent a Lender Assignment Agreement, accepted by the Agent, and (B), if it shall not be a Lender, shall deliver to the Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Subsidiaries and Affiliates or their respective securities) will be made available and who may receive such information in accordance with the such Assignee Lender’s compliance procedures and applicable laws, including Federal and state securities laws; and

(iii)           the processing fees described below shall have been paid.

From and after the date that the Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender under the Credit Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Credit Documents.

Within five (5) Business Days after its receipt of notice that the Agent has received and accepted an executed Lender Assignment Agreement, if requested by the Assignee Lender, the Borrower shall execute and deliver to the Agent (for delivery to the relevant Assignee Lender) a new Note evidencing such Assignee Lender’s assigned Commitment and, if the assignor Lender has retained a Commitment hereunder, if requested by such Lender, a replacement Note in the principal amount of the Commitment retained by the assignor Lender hereunder (such Note to be in exchange for, but not in payment of, the Note then held by such assignor Lender).  Each such Note shall be dated the date of the predecessor Note.  The assignor Lender shall mark each predecessor Note “exchanged” and deliver each of them to the Borrower.  Accrued interest on that part of each predecessor Note evidenced by a new Note, and accrued

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fees, shall be paid as provided in the Lender Assignment Agreement.  Accrued interest on that part of each predecessor Note evidenced by a replacement Note shall be paid to the assignor Lender.  Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Note and in this Agreement.

Such assignor Lender or such Assignee Lender must also pay a processing fee in the amount of $3,500 to the Agent upon delivery of any Lender Assignment Agreement; provided, however, that no such fee shall be payable in the case of an assignment to an Affiliate of the assignor Lender or a Related Fund with respect to such assignor Lender; and provided, further that, in the case of contemporaneous assignments by a Lender to more than one fund managed by the same investment advisor (which funds are not then Lenders hereunder), only a single such processing fee shall be payable for all such contemporaneous assignments.

Notwithstanding anything to the contrary set forth above, (A) any Lender may (without requesting the consent of the Borrower or the Agent) pledge its Loans and all or any portion of its rights in connection with this Agreement and the Credit Documents to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and (B) any Lender that is a fund that invests in bank loans may (without the consent of the Borrower or the Agent) pledge its Loans and all or any portion of its rights in connection with this Agreement and the Credit Documents to the holders (or to the trustees for such holders) of obligations owed, or securities issued, by such fund as security for such obligations or securities, provided, that any foreclosure or other exercise of remedies by such holder (or such trustee) shall be subject to the provisions of this Section regarding assignments in all respects.  No pledge described in the immediately preceding clause (ii) shall release such Lender from its obligations hereunder.

(b)           Participations

.  Any Lender may sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a “Participant”) participating interests in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that:

(i)           no participation contemplated in this Section shall relieve such Lender from its Commitment or its other obligations under any Credit Document;

(ii)           such Lender shall remain solely responsible for the performance of its Commitment and such other obligations;

(iii)           the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under each Credit Document;

(iv)           no Participant, unless such Participant is an Affiliate of such Lender or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action under any Credit Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant’s consent, take any actions of the type described in clauses (a), (b), or (f) or, to the extent requiring the consent of such Lender, clause (c) of Section 13.1 with respect to Obligations participated in by such Participant; and

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(v)           the Borrower shall not be required to pay any amount under this Agreement that is greater than the amount which it would have been required to pay had no participating interest been sold.

Subject to clause (v) of this Section 13.11(b), the Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, and 4.9, shall be considered a Lender.  Each Participant shall be entitled to all information regarding the Borrower that has been provided to the Lender selling the participation.  Each Participant shall only be indemnified for increased costs pursuant to Section 4.3, 4.5 or 4.6 if and to the extent that the Lender which sold such participating interest to such Participant concurrently is entitled to make, and does make, a claim on the Borrower for such increased costs.  Any Lender that sells a participating interest in any Loan, Commitment or other interest to a Participant under this Section shall indemnify and hold harmless the Borrower and the Agent from and against any taxes, penalties, additions, interest or other costs or losses (including reasonable attorneys’ fees and expenses) incurred or payable by the Borrower or the Agent as a result of the failure of the Borrower or the Agent to comply with its obligations to deduct or withhold any Taxes from any payments made pursuant to this Agreement or the relevant Credit Documents to such Lender or the Agent, as the case may be, which Taxes would not have been incurred or payable if such Participant had been a Non-U.S. Lender that was entitled to deliver to the Borrower, the Agent or such Lender, and did in fact so deliver, a duly completed and valid Form 1001 or 4224 (or applicable successor form) or Exemption Certificate entitling such Participant to receive payments under this Agreement or the relevant Credit Documents without deduction or withholding of any United States federal taxes.

(c)           Register

.  The Borrower hereby designates the Agent to serve as the Borrower’s agent, solely for the purpose of this Section, to maintain a register (the “Register”) on which the Agent will record each Lender’s Commitment, the Loans made by each Lender and the Notes evidencing such Loans, and each repayment in respect of the principal amount of the Loans of each Lender and annexed to which the Agent shall retain a copy of each Lender Assignment Agreement delivered to the Agent pursuant to this Section.  Failure to make any recordation, or any error in such recordation, shall not affect the Borrower’s obligations in respect of such Loans or Notes.  The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Lenders shall treat each Person in whose name a Loan and related Note is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary.  A Lender’s Commitment and the Loans made pursuant thereto and the Notes evidencing such Loans may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer in the Register.  Any assignment or transfer of a Lender’s Commitment or the Loans or the Notes evidencing such Loans made pursuant thereto shall be registered in the Register only upon delivery to the Agent of a Lender Assignment Agreement duly executed by the assignor thereof.  No assignment or transfer of a Lender’s Commitment or the Loans made pursuant thereto or the Notes evidencing such Loans shall be effective unless such assignment or transfer shall have been recorded in the Register by the Agent as provided in this Section.

Section 13.12                                Other Transactions.  Nothing contained herein shall preclude the Agent or any other Lender from engaging in any transaction, in addition to those contemplated by the Credit Documents, with the Borrower or any of their Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person.

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Section 13.13                                Forum Selection and Consent to Jurisdiction.  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA OR IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE COMMONWEALTH OF PENNSYLVANIA AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 13.2.  THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE CREDIT DOCUMENTS.

Section 13.14                                Waiver of Jury Trial.  THE AGENT, EACH LENDER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, ANY LENDER OR THE BORROWER IN CONNECTION THEREWITH.  THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT, EACH LENDER ENTERING INTO THE CREDIT DOCUMENTS.

Section 13.15                                USA Patriot Act.  Each Lender that is subject to the requirements of the Patriot Act hereby notifies the Borrower that pursuant to the requirements of the Patriot

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Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Patriot Act, and the Borrower, hereby agrees to deliver such information to the Lenders as may be requested.

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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be executed under seal by their duly authorized officers, all as of the day and year first written above.

LEAF COMMERCIAL FINANCE CO., LLC

By: ________________________________

       Name:

       Title:

NATIONAL CITY BANK,

as Agent, and as a Lender

By: ________________________________

       Name:

       Title:

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SCHEDULE I

INITIAL COMMITMENTS

Lender Name	Loan Commitment	Loan Percentages
National City Bank	$100,000,000	100%
Total	$100,000,000	100%

      

                  Schedule I               

    

EX-10.20

(Back to Main Document)

ASSET PURCHASE AGREEMENT

 THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is made as of June 19, 2007, by and among LEAF FUNDING, INC., a Delaware corporation, LEAF FINANCIAL CORPORATION, a Delaware corporation, and LEAF COMMERCIAL FINANCE CO., LLC, a Delaware limited liability company (collectively, the “Buyer,” and whose obligations hereunder shall be joint and several); and PACIFIC CAPITAL BANK, N.A., a national banking association (“Seller”).  Capitalized terms used, but not defined, in this Agreement shall have the meaning ascribed thereto in Appendix A attached hereto.

 WHEREAS, Seller, among other business activities, is engaged in the Business;

 WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, certain of the assets of Seller relating to the Business, on the terms set forth herein; and

 WHEREAS, Buyer has agreed to assume certain specific liabilities related to such assets.

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

1.           Purchase and Sale.  Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Seller shall irrevocably sell, assign, transfer and deliver to Buyer, and Buyer shall purchase, all of Seller’s right, title and interest in and to all of the following (collectively, the “Assets”):

(a)           all lease agreements or other contracts for use, conditional sale, loan or financing entered into or acquired by Seller as part of the Business, as a lessor, lender or financier, that, are set forth on Schedule 1(a) (which schedule shall be provided in the form of a read-only computer disc containing a file identifying all such leases, and a separate file identifying the Performing Leases) (each a “Lease” and collectively, the “Leases”);

(b)           all right, title and interest that Seller has in the Subject Equipment, collateral, Related Property or Residual Value with respect to each Lease (subject, however, to the possessory rights of lessee therein) and any other collateral that secures the obligation of a lessee under each Lease;

(c)           all Contract Files pertaining to each Lease;

(d)           the rights of Seller with respect to all lease transactions that have been approved, but for which no lease has been finally executed as of the Record Date, as set forth on Schedule 1(d) (which shall be in the form of a read-only computer disc, and need not be updated as of the Closing Date) (the “Backlog”);

(e)           all of Seller’s rights under any existing Customer agreement relating to any Leases or the Backlog;

(f)           all of Seller’s intangible rights and property associated exclusively with the Business (but excluding anything that is also used in any part of the Seller’s business, other than the Business), including but not limited to, all trademarks, patents, copyrights, other intellectual property used exclusively in the Business, going concern value, goodwill, telephone numbers, facsimile numbers, processes, business and product names (if any), trade secrets (if any), industrial models, designs, methodologies, technical information, and know-how relating to the origination and servicing of the Leases, but excluding (i) trade names, logos, slogans, (ii) licenses to software that are not by their terms transferable and (iii) telephone numbers, facsimile numbers and post office boxes other than those listed on Schedule 1(f);

(g)           all rights of Seller in guaranties, collateral accounts, security deposits and other collateral posted by any person in connection with the Leases;

(h)           those items of equipment, furniture, computer hardware and software, leasehold improvements, fixtures and other tangible personal property listed on Schedule 1(h);

(i)           all books, records and other documents and information related to the Business or the Assets, including all Customer, prospect, third party originator and distributor lists, sales literature, price lists, quotes and bids, promotional programs, product catalogs and brochures, inventory records, product data, purchase orders and invoices, sales orders and sales order log books, commission records, Customer information, correspondence (but excluding any such items that relate to the business of Seller other than the Business, and excluding any internal analyses by Seller with respect to its decision to sell the Business) and all personnel records and other records of Seller related to its employees set forth on Schedule 1(i) to the extent their transfer is permitted by law;

(j)           all insurance benefits related to the Leases and the Subject Equipment, including rights and proceeds, arising from or relating to the Assets or Assumed Liabilities prior to the Closing Date, unless expended in accordance with this Agreement; and

(k)           all claims of Seller against third parties relating to the Business or the Assets, whether choate or inchoate, known or unknown, contingent or noncontingent, including equipment warranties and those claims set forth on Schedule 1(k), but excluding any claims for reimbursement of taxes advanced or tax refunds that relate to periods before the Closing and claims relating to Excluded Assets and Retained Liabilities.

Any other assets not set forth in this Section 1 shall remain the property of Seller (the “Excluded Assets”).

2.           Assumed Liabilities.  Upon the terms and subject to the conditions set forth herein, Buyer hereby assumes and agrees to pay, perform, discharge or otherwise satisfy in accordance with their respective terms, all of the Assumed Liabilities.  Buyer shall not assume the Retained Liabilities.

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3.           Purchase Price.  The purchase price of the Assets shall be an amount equal to the sum of (i) 104.7643% of the Net Investment in the Performing Leases, as of the Record Date, which will be reflected on the Closing Date Report, (ii) 104.7643% of the Net Investment in any Leases that are originated between the Record Date and the Closing Date and (iii) accrued interest on the amounts in (i) and (ii), calculated at the weighted average effective yield of the Performing Leases from the Record Date to the date of payment, and (iv) $2,000,000 (the “Purchase Price”).

4.           Closing.  The Closing will take place at the offices of Seller’s counsel at 11355 West Olympic Boulevard, Los Angeles, California, commencing at 10:00 a.m. (local time) on the later of (a) June 22, 2007 or (b) the date that is five (5) Business Days following the termination of the applicable waiting period under the HSR Act, unless Buyer and Seller otherwise agree (the “Closing Date”).

5.           Closing Obligations.

(a)           Deliveries by Seller.  In addition to any other documents to be delivered under other provisions of this Agreement, at the Closing (unless otherwise specified below, and except to the extent waived by Buyer), Seller shall deliver to Buyer:

(i)           the Closing Date Report, to be delivered at least three business days prior to the Closing Date;

(ii)           a Bill of Sale executed by a duly authorized officer of Seller;

(iii)           an Interim Servicing Agreement executed by a duly authorized officer of Seller;

(iv)           a bailment agreement (the “Bailment Agreement”) with respect to the Contract Files, in form acceptable to both parties, executed by a duly authorized officer of Seller;

(v)           a legal opinion of Seller’s counsel in form and substance reasonably acceptable to Buyer, in the form attached hereto as Exhibit A;

(vi)           a good standing certificate for Seller, issued by the United States Office of the Comptroller of the Currency, dated not more than thirty (30) days prior to the Closing Date;

(vii)           a certificate of the Secretary of Seller certifying, as complete and accurate as of the Closing Date, attached copies of its Governing Documents and certifying and attaching all requisite resolutions or actions of Seller approving the execution and delivery of the Transaction Documents and the consummation of the Contemplated Transactions and certifying to the incumbency and signatures of the officers of Seller executing each of the Transaction Documents;

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(viii)                 a certificate executed by Seller as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing Date in accordance with Section 6 and as to its compliance with and performance of its covenants and obligations to be performed or complied with on or before the Closing Date in accordance with Section 8; and

(ix)           such other deeds, bills of sale, assignments, certificates of title, other instruments of transfer and conveyance and other documents or certificates as may reasonably be requested by Buyer, each in form and substance satisfactory to Buyer and its legal counsel and executed by a duly authorized officer of Seller.

(b)           Deliveries by Buyer.  At the Closing, Buyer shall deliver to Seller (except to the extent waived by Seller):

(i)           an amount in cash equal to (A) the portion of the Purchase Price described in clauses (i) and (iv) of Section 3(a) and the interest thereon pursuant to clause (iii) of Section 3(a), plus (B) all property taxes on the Leases or Subject Equipment that have been advanced by Seller and not yet collected from the lessees as of the Record Date, less (C) security deposits, and less (D) any booked but undisbursed lease fundings, and less (E) property taxes on the Leases or Subject Equipment that have been received from lessees (or former lessees) as of the Record Date, and not yet remitted, as reflected in a closing schedule, in the form of Schedule 5(b), and less (F) $62,500, in payment of Seller’s share of the Hart-Scott-Rodino Act filing fee, as agreed by the parties, which amount shall be payable by wire transfer to the account that is identified by Seller to Buyer at least two (2) Business Days prior to the Closing Date;

(ii)           a certificate of the Secretary of each Buyer certifying, as complete and accurate as of the date hereof, attached copies of the Certificate of Incorporation and Bylaws of such Buyer and certifying and attaching all requisite resolutions or actions of such Buyer’s boards of directors approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder and certifying to the incumbency and signatures of the officers of such Buyer executing this Agreement and any other document required to be delivered by such Buyer hereunder;

(iii)           a duly executed copy of the Interim Servicing Agreement;

(iv)           the Bailment Agreement, executed by a duly authorized officer of Buyer;

(v)           a good standing certificate for each Buyer, issued by the state in which each Buyer is incorporated, dated not more than thirty (30) days prior to the Closing Date; and

(vi)           such other documents and instruments as may reasonably be requested by Seller, each in form and substance satisfactory to Seller and its legal counsel and executed by a duly authorized officer of Buyer.

(c)           Post-Closing Payments.  In addition, if and to the extent that any Leases are originated between the Record Date and the Closing Date, then no later than fifteen (15) days after the Closing Date, Buyer shall pay to Seller an amount in cash equal to the portion of the Purchase Price described in clause (ii) of Section 3(a) and the interest thereon pursuant to clause (iii) of Section 3(a).

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6.           Representations and Warranties of Seller.  Seller makes the representations and warranties to Buyer set forth in this Section 6.  Except as set forth in the next sentence, these representations and warranties are true and correct as of the date hereof and shall be true and correct as of the Closing Date.  Notwithstanding the foregoing, representations and warranties with respect to the Leases are true and correct as of the date hereof and shall be true and correct as of (i) the Record Date and (ii) except for such changes as shall be set forth in amended Schedules to this Agreement (which will be delivered to the Buyer not later than three (3) Business Days following the Closing Date) and which will not in the aggregate materially adversely affect the Assets as a whole or the financial condition, results of operation or business of the Business, as of the Closing Date.

(a)           Organization.  Seller is a national banking association duly organized, validly existing and in good standing under the laws of the United States, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under the Leases.  Seller is not required to be qualified to do business as a foreign corporation under the laws of any state or other jurisdiction in order to conduct its business.

(b)           Authority.  Seller has taken all action necessary to approve the Transaction Documents and the transactions contemplated thereby.  Seller has all requisite corporate power and authority and has taken all action necessary in order to execute, deliver and perform its obligations under the Transaction Documents.  This Agreement has been duly authorized, executed and delivered and, prior to the Closing, the other Transaction Documents will have been, duly authorized and at Closing will be duly executed and delivered by Seller and, assuming due execution and delivery by Buyer, constitute or (with respect to the Transaction Documents other than this Agreement) will at Closing constitute, the legal, valid and binding obligations of Seller, enforceable in accordance their terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally.

(c)           No Conflict.  Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated in the Transaction Documents will, directly or indirectly (with or without notice or lapse of time):

(i)          breach (A) any provision of any of the Governing Documents of Seller or (B) any resolution adopted by the board of directors or the shareholders of Seller;

(ii)          give any Governmental Authority or other Person the right to prevent any of the Contemplated Transactions or to exercise any remedy or obtain any relief under any Legal Requirement or any order of any Governmental Authority to which Seller, or any of the Assets, may be subject;

(iii)          contravene, conflict with or result in a violation or breach of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Seller or that otherwise relates to the Assets or to the Business, it being understood that no representation is being made as to the licensing requirements that may apply to Buyer as owner and operator of the Business after the Closing;

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(iv)          breach any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Lease or any of the Backlog; or

(v)          result in the imposition or creation of any Lien upon or with respect to any of the Assets, other than such equitable Lien as may run in favor of Buyer as a result of this Agreement.

(d)           Title.  Seller owns good and transferable title to all of the Assets free and clear of any Liens other than those described on Schedule 6(d).  Seller warrants to Buyer that, at the time of Closing, all Assets shall be free and clear of all Liens, other than, in the case of Subject Equipment, the Lien of the Leases themselves, and also subject to those other Liens described on Schedule 6(d).

(e)           Financial Information.  The Closing Date Report will be in accordance with Seller’s records and will accurately present the net book value of the Leases as of the Record Date.  In preparing the Closing Date Report, Seller will not change its accounting practices or methodologies from those used in the preparation of any previous reports provided to Buyer.  Since May 1, 2007, there has been no material adverse change to the Assets or the Business as a whole, or the financial conditions or operations of the Business, except (a) as of the date hereof, as set forth on Schedule 6(e), and (b) as of the Closing Date, as set forth on an updated Schedule 6(e) delivered at the Closing.

(f)           Taxes.  Other than as set forth on Schedule 6(f), Seller has filed all United States federal income tax returns and all other tax returns (including, but not limited to, profits, premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment, and property taxes) which are required as of the date hereof to be filed by them, or otherwise obtained appropriate extensions to file, and has paid all Taxes due pursuant to such returns or pursuant to any assessment received by Seller, except such Taxes that are (i) being contested in good faith by appropriate proceedings and (ii) are set forth on Schedule 6(f) attached hereto.  Seller will file all such tax returns when due, and pay all Taxes due pursuant to such returns, for all periods that include the date hereof.  No Tax lien has been filed and, to the knowledge of Seller, no claim is being asserted with respect to any such Tax, fee or other charge.

(g)           Approvals.  Other than as set forth on Schedule 6(g), no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any other Person are necessary for the execution, delivery or performance by Seller of the Transaction Documents or for the validity or enforceability hereof or thereof.

(h)           Leases.

(i)           No Performing Lease as of the date hereof is, nor as of the Record Date will be a Past Due Lease, a Suspended Lease, or a Lease that is subject to any pending repossession action or as to which Seller has received a notice of an event that is, or with notice and/or lapse of time is likely to constitute, a material default or of any claim by a lessee or guarantor of a right of offset or counterclaim (as referenced in Section 6(h)(x) and identified on Schedule 6(h)(x)).

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(ii)           Each Lease (other than a Charged-Off Lease) is evidenced by a written agreement, and there are no material understandings, agreements, undertakings or arrangements between any of Seller and the lessees or transferees under any Lease which are not set forth therein or in a written agreement included in the Contract File relating to such Lease.  The entries made on Seller’s system and on the Closing Date Report with respect to each Lease (other than a Charged-Off Lease) are consistent with the Contract Files relating thereto.  Each such Lease and any Contract Files pertaining thereto shall be supplied by Seller to Buyer as promptly as possible but in any event at the Closing Date.

(iii)           No payments required to be made under any Lease have been paid in advance of the due dates thereof except for payments reflected in the amount of the related Lease receivable as shown in the Records.

(iv)           Seller has not acted, or failed to act, in a manner which would materially alter or reduce any of its rights or benefits under any manufacturers’ or vendors’ warranties or guarantees relating to property covered by any Performing Lease.

(v)           Seller has properly prepared and filed Financing Statements for each Lease (other than a Charged-Off Lease) that was over $25,000 at the time of origination, and each such Financing Statement is current.

(vi)           Each Lease (and any related guarantees) is and will continue to be after the date hereof a valid, binding and enforceable, non-cancelable obligation of the lessee thereunder (and guarantors thereof, if any) in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally.  Each of such lessees and any guarantor is a bona fide party thereto and, to the knowledge of Seller, had the requisite legal capacity to enter into the respective agreements to which it is a party as of the time it entered into those agreements.

(vii)           The property that is the subject of each Performing Lease has been delivered to the lessee thereunder, and accepted by such lessee.

(viii)                 Seller has absolute, complete and indefeasible title to the property subject to each Performing Lease (or a duly perfected first-lien security interest in the property subject to such Performing Lease) and all sums due thereunder, free and clear of any and all Liens or claims of any Person (other than the lessee under the Performing Lease itself).  The supplier or vendor of said property has received payment in full for said property.

(ix)           Seller is not in material breach of any obligation under any of the Performing Leases.

(x)           Other than as set forth on Schedule 6(h)(x), Seller has received no notice of any event which is, or with notice and/or lapse of time is likely to constitute, a material default under any Performing Lease or of any claim by a lessee or guarantor of a right of offset or counterclaim.

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(xi)           None of the Performing Leases is a Past Due Lease or has a lessee who is or has been subject to an Insolvency Event.  No Performing Lease that would otherwise be a Past Due Lease has been restructured, and no agreements to defer, or change the schedule of, any payments due under any Performing Lease have been made within such time period.

(xii)           Each Performing Lease has a corresponding Contract File, and each Contract File includes proof of payment (either by copies of canceled checks or confirmations of wire transfers or by such other evidence, all as shall be satisfactory to Buyer in its sole discretion) for the Subject Equipment underlying each Performing Lease.

(xiii)                 The descriptions of each Performing Lease set forth on Schedule 1(a) are, and on the Closing Date Report will be, properly coded with respect to each of the following items of data: (a) the number of payments remaining, (b) the periodic payment amount, (c) the security deposit amount, (d) the end of lease disposition, (e) the Residual Value or the Final Contractual Payment.

(xiv)                 Except as set forth on Schedule 6(h)(xiv), the final payment on each Performing Lease is a contractual obligation and not an optional payment.

(xv)           All payment obligations by any lessee pursuant to each Performing Lease are due to the Seller, and no payments are due to any third party originator.  No Performing Lease requires any current or future payment to a third party originator.

It is understood that Buyer’s acquisition of the Charged-Off Leases is on an as-is, where-is basis.  It is further understood that the sole remedy for any breach of the representations and warranties with respect to any Lease other than a Performing Lease shall be monetary damages, and that the aggregate amount of all such damages shall be limited to a maximum of $200,000 for all such breaches.

(i)           Compliance.  Seller operates the Business in compliance with all applicable federal and state statutes and all governmental regulations.  There are no existing violations, orders, claims, citations, penalty assessments, orders, investigations or proceedings affecting the Assets or the Business.

(j)           Litigation.  Except as set forth on Schedule 6(j), there is no action, suit or proceeding pending or, to the knowledge of any Seller, threatened against or affecting the Business or all or any portion of the Assets, in any court or before or by any Governmental Authority.  To the knowledge of Seller, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any action, suit or proceeding affecting the Business.  Seller is not in default with respect to any order of any court, Governmental Authority or agency or arbitration board or tribunal pertaining to the Business.

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(k)           Assignability of Relationships.  Except as set forth on Schedule 6(k), all of Seller’s written Customer relationships with respect to the Performing Leases are assignable to Buyer without notice to or consent of any Person.  Seller shall use its Best Efforts to, as promptly as practicable but in no event later than the Closing Date, obtain consents and give notices, to the extent that any are required, in order to assign all such Customer relationships to Buyer at the Closing.

(l)           Brokers.  Except for The Alta Group, LLC, whose fee will be paid by Seller out of the proceeds of the Contemplated Transactions, no Person is entitled to any finder’s fee, brokerage commission or similar payment by Seller in connection with or arising out of the Contemplated Transactions.

(m)           No Misstatements or Omissions.  These representations and warranties, the information disclosed in the schedules and exhibits hereto and the certificates and other documents delivered by Seller pursuant to this Agreement, when considered together and in light of one another, do not contain any untrue statement of material fact with respect to the Assets or the Assumed Liabilities or omit to state a material fact necessary to make the statements contained herein not misleading.  There is no fact of which Seller is aware with respect to the Assets or the Assumed Liabilities or the Business that Seller has not disclosed in writing to Buyer, the existence of which would have a material adverse effect on the Assets, considered as a whole.

(n)           Bulk Sales Compliance.  The sale of the Assets by Seller to Buyer pursuant to this Agreement will not violate any bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction.

7.           Representations and Warranties of Buyer.  Buyer represents and warrants to Seller as follows:

(a)           Organization.  Each Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Each Buyer has full corporate power and authority to execute and deliver the Transaction Documents and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.

(b)           Authority.  Buyer has taken all action necessary to approve the Transaction Documents and the transactions contemplated thereby.  Buyer has all requisite corporate power and authority and has taken all action necessary in order to execute, deliver and perform its obligations under the Transaction Documents.  This Agreement has been duly authorized, executed and delivered and, prior to the Closing, the other Transaction Documents will have been, duly authorized and at Closing will be duly executed and delivered by Buyer and, assuming due execution and delivery by Seller, constitute or (with respect to the Transaction Documents other than this Agreement) will at Closing constitute, the legal, valid and binding obligations of Buyer, enforceable in accordance their terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally.

(c)           No Breach.  Except as set forth on Schedule 7(c), neither the execution and delivery of the Transaction Documents, nor compliance with the terms and provisions thereof, will conflict with or result in a breach of, or require any consent which has not been obtained as of the date hereof under the charter or by-laws of either Buyer, or any governmental requirement, or any agreement or instrument to which either Buyer is a party or by which it is bound, or constitute a default under any such agreement or instrument.

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(d)           Approvals.  Other than as set forth on Schedule 7(d), no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any other Person are necessary for the execution, delivery or performance by either Buyer of the Transaction Documents or for the validity or enforceability thereof.

(e)           Previously Approved Agreements.  Buyer shall enter into agreements with lessees of the Backlog provided such lessees continue to meet all requirements set forth in the applicable approval letter and such agreement or lease was approved by Seller in accordance with the Policies and Procedures.

(f)           Payment of Purchase Price.  Buyer has access to sufficient funds with which to pay the Purchase Price on the Closing Date.

8.           Covenants of Seller Prior to Closing.

(a)           Access and Information.  Between the date of this Agreement and the Closing Date, and upon reasonable advance notice received from Buyer, Seller shall (a) afford Buyer reasonable access, during regular business hours, to Seller’s personnel, properties, and Records for the purpose of preparing for the transfer, and understanding the Business, and  (b) afford Buyer access to the InfoLease and Shaw System Data Disks for the purpose of confirming data ascertained by Buyer during its due diligence; such rights of access to be exercised in a manner that does not unreasonably interfere with the operations of Seller and does not violate applicable labor and employment laws; and (c) otherwise cooperate and assist, to the extent reasonably requested by Buyer, with Buyer’s understanding of the Business and the Assets.

(b)           Operation of the Business of Seller.  Between the date of this Agreement and the Closing, Seller shall, except as otherwise directed by Buyer in writing:

(i)           conduct the Business only in the Ordinary Course of Business consistent with the Policies and Procedures;

(ii)           use its Best Efforts to preserve intact the current business organization of the Business, keep available the services of the officers, employees and agents of the Business and maintain the relations and good will of the Business with suppliers, Customers, landlords, creditors, employees, agents and others having business relationships with it (it being understood, however, that the Seller has heretofore informed some employees of the availability of positions in other parts of Seller’s business, and to the extent that such opportunities were communicated prior to May 24, 2007);

(iii)           confer with Buyer prior to implementing operational changes of a material nature with respect to the Business;

(iv)           otherwise report periodically to Buyer concerning the status of the business, operations and finances of the Business;

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(v)           keep in full force and effect, without amendment, all material rights relating to the Business;

(vi)           comply in all material respects with all Legal Requirements and contractual obligations applicable to the operations of the Business;

(vii)           continue in full force and effect all material insurance coverage pertaining to the Business under its existing policies or substantially equivalent policies;

(viii)                 upon request from time to time, execute and deliver all documents, make all truthful oaths, testify in any Proceedings and do all other acts that may be reasonably necessary or desirable in the opinion of Buyer to consummate the Contemplated Transactions, all without further consideration;

(ix)           maintain all books and Records of Seller relating to the Business in the Ordinary Course of Business; and

(x)           notify Buyer prior to initiating any new Lease pertaining to equipment having a purchase price in excess of $500,000.

(c)           Negative Covenant.  Except as otherwise expressly permitted herein, between the date of this Agreement and the Closing Date, Seller shall not without the prior written consent of Buyer, (a) take any affirmative action, or fail to take any reasonable action within its control, as a result of which any material adverse change, or any event or development which, individually or together with other such events, could reasonably be expected to result in a material adverse change in the Assets or the Business; (b) make any modification to any Lease except in the ordinary course of business, or in any Governmental Authorization; (c) initiate any new Lease that (i) does not have a credit-risk rating of five or better pursuant to the Policies and Procedures, or (ii) does not have an interest yield of seven percent or higher, calculated based on the cost to originate such Lease and acquire the Subject Equipment; or (d) enter into any compromise or settlement of any litigation, proceeding or governmental investigation relating to the Assets, the Business or the Assumed Liabilities.

(d)           Required Approvals.  Seller has made, or as promptly as practicable after the date of this Agreement, Seller shall make all filings required by Legal Requirements to be made by it in order to consummate the Contemplated Transactions (including all filings under the HSR Act).  Seller and Buyer shall cooperate with respect to all filings that Buyer elects to make or, pursuant to Legal Requirements, shall be required to make in connection with the Contemplated Transactions, provided, however, that Seller shall not be required to dispose of or make any change to its business, expend any material funds or incur any other unreasonable burden in order to comply with this Section 8(d).  Seller also shall cooperate with Buyer in obtaining all necessary consents (including taking all actions requested by Buyer to cause early termination of any applicable waiting period under the HSR Act).

(e)           Notification.  Between the date of this Agreement and the Closing, Seller shall promptly notify Buyer in writing if it becomes aware of (a) any fact or condition that causes or constitutes a breach of any of Seller’s representations and warranties made as of the date of this Agreement or (b) the occurrence after the date of this Agreement of any fact or condition that would or be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had that representation or warranty been made as of the time of the occurrence of, or Seller’s discovery of, such fact or condition.  During the same period, Seller also shall promptly notify Buyer of the occurrence of any breach of any covenant of Seller in this Section 8 or of the occurrence of any event that may make the satisfaction of the conditions in Section 10 impossible or unlikely.

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(f)           No Negotiation.  Until such time as this Agreement shall be terminated pursuant to Section 12, the Seller shall not directly or indirectly solicit, initiate, encourage or entertain any inquiries or proposals from, discuss or negotiate with, provide any nonpublic information to or consider the merits of any inquiries or proposals from any Person (other than Buyer) relating to any sale, disposition, merger, business combination or other similar transaction with respect to the Business or the Assets.  Seller shall notify Buyer of any such inquiry or proposal within twenty-four (24) hours of receipt or awareness.  It is understood, however, that this Section 8(f) shall not prohibit Seller or The Alta Group, LLC from communicating with entities that have executed confidentiality agreements with Seller prior to May 23, 2007 that the Contemplated Transactions are in process and that they preclude negotiation with any other potential purchaser.

(g)           Best Efforts.  Seller shall use its Best Efforts to cause the conditions in Sections 10 and 11(c) to be satisfied.

9.           Covenants of Buyer Prior to Closing.

(a)           Required Approvals.  Buyer has made or, as promptly as practicable after the date of this Agreement, shall make, or cause to be made, all filings required by Legal Requirements (including all filings under the HSR Act) to be made by it to consummate the Contemplated Transactions.  Buyer also shall cooperate with Seller with respect to all filings Seller shall be required by Legal Requirements to make, provided, however, that Buyer shall not be required to dispose of or make any change to its business, expend any material funds or incur any other unreasonable burden in order to comply with this Section 9(a).

(b)           Best Efforts.  Buyer shall use its Best Efforts to cause the conditions in Sections 11 and 10(c) to be satisfied.

10.           Conditions Precedent of Buyer’s Obligation to Close Transaction.  Buyer’s obligation to purchase the Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

(a)           Accuracy of Representations

(i)           Each of Seller’s representations and warranties in this Agreement that does not contain an express materiality qualification shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the time of the Closing as if then made (subject, however, to updates in the case of scheduled items).

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(ii)           Each of Seller’s representations and warranties in this Agreement that contains an express materiality qualification, shall have been accurate in all respects as of the date of this Agreement, and shall be accurate in all respects as of the time of the Closing as if then made (subject, however, to updates in the case of scheduled items).

(b)           Seller’s Performance.  All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been duly performed and complied with in all material respects.

(c)           Consents.  Each of the consents identified on Schedule 10(c) attached hereto shall have been obtained and shall be in full force and effect.

(d)           Additional Documents.  Seller shall have caused the documents and instruments required by Section 5(a) and the following documents to be delivered (or tendered subject only to Closing) to Buyer:

(i)           The articles of association and all amendments thereto of Seller, duly certified as of a recent date by the United States Office of the Comptroller of the Currency;

(ii)           A Contract File for each Lease (which may be held by Seller for Buyer pursuant to the Bailment Agreement);

(iii)           Releases of all Liens on the Assets in favor of any Person other than Seller, and assignments of all Liens in favor of Seller to Buyer, including without limitation, all necessary amendments to Financing Statements and transfer of title in motor vehicles;

(iv)           Certificates dated as of a date not earlier than the 30^th business day prior to the Closing as to the good standing of Seller; and

(v)           Such other documents as Buyer may reasonably request for the purpose of: (w) evidencing the accuracy of any of Seller’s representations and warranties; (x) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by Seller; (y) evidencing the satisfaction of any condition referred to in this Section 10; or (z) otherwise facilitating the consummation or performance of any of the Contemplated Transactions.

(e)           No Proceedings.  Since the date of this Agreement, there shall not have been commenced or threatened against Seller or Buyer any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions.

11.           Conditions Precedent of Seller’s Obligation to Close Transaction.  Seller’s obligation to sell the Assets and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller in whole or in part):

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 (a)           Accuracy of Representations.  All of Buyer’s representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the time of the Closing as if then made.

(b)           Buyer’s Performance.  All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been performed and complied with in all material respects.

(c)           Consents.  Each of the consents identified in Schedule 11(c) shall have been obtained and shall be in full force and effect.

(d)           Additional Documents.  Buyer shall have caused to be delivered (or tendered subject only to Closing) to Seller such documents as Seller may reasonably request for the purpose of: (w) evidencing the accuracy of any of Buyer’s representations and warranties; (x) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer; (y) evidencing the satisfaction of any condition referred to in this Section 11; or (z) otherwise facilitating the consummation or performance of any of the Contemplated Transactions.

(e)           No Proceedings.  Since the date of this Agreement, there shall not have been commenced or threatened against Seller or Buyer any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions or (ii) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions.

12.           Termination.

(a)           Termination Events.  By notice given prior to or at the Closing, subject to Section 12(b), this Agreement may be terminated as follows:

(i)           by Buyer if a material breach of any provision of this Agreement has been committed by Seller and such breach has not been waived by Buyer or, prior to notice of termination from Buyer, been cured by Seller;

(ii)           by Seller if a material breach of any provision of this Agreement has been committed by Buyer and such breach has not been waived by Seller or, prior to notice of termination from Seller, been cured by Buyer;

(iii)           by Buyer if any condition in Section 10 has not been satisfied as of the date specified for Closing in the first sentence of Section 4 or if satisfaction of such a condition by such date is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement), and Buyer has not waived such condition on or before such date;

(iv)           by Seller if any condition in Section 11 has not been satisfied as of the date specified for Closing in the first sentence of Section 4 or if satisfaction of such a condition by such date is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement), and Seller has not waived such condition on or before such date;

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(v)           by mutual consent of Buyer and Seller;

(vi)           by Buyer if the Closing has not occurred on or before July 31, 2007 (or August 31, 2007 in the event the applicable waiting period under the HSR Act has not expired or been terminated by July 24, 2007), or such later date as the parties may agree upon, unless the Buyer is in material breach of this Agreement; or

(vii)           by Seller if the Closing has not occurred on or before July 31, 2007 (or August 31, 2007 in the event the applicable waiting period under the HSR Act has not expired or been terminated by July 24, 2007), or such later date as the parties may agree upon, unless the Seller is in material breach of this Agreement.

(b)           Effect of Termination.  Each party’s right of termination under Section 12(a) is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies.  If this Agreement is terminated pursuant to Section 12(a), all obligations of the parties under this Agreement will terminate, except that the obligations of the parties in this Section 12(b) and Section 18 (except for those in Section 18(k)) will survive; provided, however, that, if this Agreement is terminated because of a breach of this Agreement by the nonterminating party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

13.           Additional Covenants.

(a)           Payment of All Taxes Resulting From Sale of Assets by Parties.  Each party hereto shall pay in a timely manner all Taxes resulting from or payable in connection with the sale of the Assets pursuant to this Agreement, to the extent that such Taxes are imposed on such party by Legal Requirements.

(b)           Payment of Other Retained Liabilities.  If the failure to make any payments with respect to the Retained Liabilities will impair Buyer’s use or enjoyment of or title to the Assets or conduct of the Business, Buyer may, at any time after the Closing Date, elect to make all such payments directly (but shall have no obligation to do so) and Seller shall reimburse Buyer for such amounts.

(c)           Reports and Returns.  Each party hereto shall timely prepare and file such reports and returns required by Legal Requirements relating to the Business, with respect to the period of time during which that party owned the Business.

(d)           Assistance in Proceedings.  The parties will cooperate with each other and their respective counsel in the contest or defense of, and make available its personnel and provide any testimony and access to its books and Records in connection with, any Proceeding involving or relating to (a) any Contemplated Transaction or (b) any action, activity, circumstance, condition, conduct, event, fact, failure to act, incident, occurrence, plan, practice, situation, status or transaction involving the Business.

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(e)           Noncompetition, Non-solicitation and Non-disparagement.

(i)           Noncompetition.  For a period of five (5) years after the Closing Date, Seller shall not, other than through an entity with which Seller engages in a merger or acquisition transaction and that already includes such a business at the time of the merger or acquisition, anywhere in the United States, directly or indirectly invest in, own, manage, operate, finance, control, advise, render services to or guarantee the obligations of any Person engaged in or planning to become engaged in the third party origination business of equipment leases or financings of the size and for the equipment of the types for which Seller, as part of the Business, currently extends leases or financings (“Competing Business”).  Notwithstanding the foregoing, nothing herein shall prevent Seller from acquiring, being acquired by or merging with another business that includes equipment leasing as part of its larger business.

(ii)           Nonsolicitation.  For a period of five (5) years after the Closing Date, Seller shall not:

a. solicit the equipment leasing or equipment financing business of any Person who is a third-party vendor or broker of such business;

b. cause, induce or attempt to cause or induce a third-party vendor or broker of equipment leasing business to cease doing business with Buyer, or in any way interfere with its relationship with Buyer;

c. cause, induce or attempt to cause or induce a third-party vendor or broker of equipment leasing business who has referred to Seller such business that is on the books of the Business on the Closing Date, or was on the books of the Business within the year preceding the Closing Date, to cease doing business with Buyer, or in any way interfere with its relationship with Buyer; or

d. solicit for employment any employee of Buyer, or any Person set forth on Schedule 1(i), or in any way interfere with the relationship between Buyer and any of its employees, or any Person set forth on Schedule 1(i).

(iii)           Nondisparagement.  After the Closing Date, Seller will not disparage the Business, Buyer, Buyer’s business or any of Buyer’s shareholders, directors, officers, employees or agents.  After the Closing Date, Buyer will not disparage Seller, Seller’s business or any of Seller’s shareholders, directors, officers, employees or agents.

(iv)           Modification of Covenant.  If a final judgment of a court or tribunal of competent jurisdiction determines that any term or provision contained in Section 13(e) is invalid or unenforceable, then the parties agree that the court or tribunal will have the power to reduce the scope, duration or geographic area of the term or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.  This Section 13(e)(iv) will be enforceable as so modified after the expiration of the time within which the judgment may be appealed.  This Section 13(e)(iv) is reasonable and necessary to protect and preserve Buyer’s legitimate business interests and the value of the Assets and to prevent any unfair advantage conferred on Seller.  The parties hereto acknowledge and agree that any remedy at law for any breach of the provisions of this Section 13(e)(iv) would be inadequate, and Seller hereby consents to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained.

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(f)           Customer and Other Business Relationships.  After the Closing, Seller will cooperate with Buyer in its efforts to continue and maintain for the benefit of Buyer those business relationships of Seller existing prior to the Closing and relating to the Business, including relationships with Customers, employees, licensors, suppliers and others, and Seller will satisfy the Retained Liabilities in a manner that is not detrimental to any of such relationships.  Seller will refer to Buyer all inquiries relating to the Leases.  Neither Seller nor any of its officers, employees, agents or shareholders shall take any action that would tend to diminish the value of the Assets after the Closing or that would interfere with the business of Buyer to be engaged in after the Closing.  Except for any third party equipment leasing or equipment financing origination business in the nature of the Business, nothing in this section shall require Seller to refer business to Buyer or preclude Seller from doing business with, or referring business to, other leasing companies.

(g)           Retention and Access to Records.  After the Closing Date, Buyer shall retain for a period of not less than five (5) years, or such longer period as is consistent with Buyer’s record-retention policies and practices those Records of Seller delivered to Buyer.  Buyer also shall provide Seller reasonable access thereto, during normal business hours and on at least five days’ prior written notice, to enable them to prepare financial statements or tax returns or deal with tax audits.  After the Closing Date, Seller shall provide Buyer reasonable access to Records that are Excluded Assets and pertain to the Business, if any, during normal business hours and on at least five days’ prior written notice, for any reasonable business purpose specified by Buyer in such notice.

(h)           Access to Premises.  Until the termination of the Interim Servicing Agreement, Seller shall permit Buyer to access the premises of Seller to the extent necessary for Buyer to exercise its rights and discharge its obligations under the Interim Servicing Agreement, subject to the limitations and restrictions stated in the Interim Servicing Agreement.

(i)           Amendments of Financing Statements; Transfer of Motor Vehicle Title.  Seller shall cooperate reasonably and provide assistance to Buyer to amend any Financing Statements and transfer title in any motor vehicles that are the subject of a Lease.

(j)           Transfer of Electronic Files.  Seller shall cooperate with Buyer in the export of any electronic records and data files pertaining to any Leases from the Seller’s systems to the Buyer’s systems.

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(k)           Further Assurances.  Subject to the proviso in Sections 8(d) and 9(a), the parties shall cooperate reasonably with each other in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information; (b) execute and deliver to each other such other documents; and (c) do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the Contemplated Transactions.  If Seller receives any payments on, with respect to or arising out of the Leases, Seller shall forward such payments to Buyer promptly and no less frequently than weekly, either by endorsing and delivering the check or by depositing the check and delivering a bank check or wire transfer in an equivalent amount.   If Buyer or an Affiliate of Buyer determines that it is required to prepare audited financial statements with respect to the Business pursuant to Regulation S-X of the Securities and Exchange Commission, then Seller shall cooperate with Buyer and provide Buyer with such information as Buyer shall reasonably request to enable Buyer to prepare such financial statements.  The cost of preparing such financial statements shall be borne entirely by Buyer, and Buyer shall reimburse to Seller all out-of-pocket expenses and such internal costs as Seller reasonably allocates for its employees’ time and overhead incurred by Seller in providing such cooperation and information, but as to such internal costs only to the extent that they exceed $5,000 in the aggregate.

(l)           Taxes with Respect to Leases.  Following the Closing, if Buyer receives any notice of unpaid property, sales or use taxes that were due prior to the Closing, but are alleged to be unpaid, Buyer shall promptly notify Seller, and Seller shall have the right and obligation of dealing with the taxing authority with respect to such allegations, and the obligation to pay such taxes (including any interest or penalties) if and to the extent that funds were collected from the lessee to cover such taxes.  If and to the extent such taxes are owing, but Seller did not collect funds from the lessee to cover such taxes, Buyer shall cooperate with Seller in collecting such taxes (including any interest or penalties) from the lessee or causing the lessee to pay such amounts directly to the taxing authority.  Notwithstanding the foregoing sentence, in the event the lessee does not pay such amounts to the taxing authority, Seller shall be liable for the payment of all such amounts owed to such taxing authority, and Seller shall thereupon be subrogated to the rights of Buyer to collect such amounts from the lessee.

(m)           Notice to Third Parties.  As soon as practicable following the Closing, Buyer shall file notices in all applicable governmental jurisdictions in which financing statements or titles are of record with respect to the Leases or Subject Equipment, as to the change in ownership of such Assets.  It is understood however, that in some instances this is the date on which the next tax filings are required to be filed in such jurisdictions.

(n)           Assignment of Additional Leases.  If any leases or loans are funded by Seller in the time period from the day after the Record Date until the Closing Date, and such leases or loans otherwise meet all of the requirements set forth in this Agreement for a Lease, then Buyer shall pay Seller 104.7643% of the Net Investment in such Lease, and immediately upon receipt of such payment, Seller shall assign such lease or loan to Buyer and such lease or loan shall become a “Lease” for purposes of this Agreement as if it had been listed on Schedule 1(a).

(o)           Allocation of Purchase Price.  Within thirty (30) days from the Closing Date, Seller and Buyer shall agree in writing on the allocation of the Assets and Assumed Liabilities (the “Allocation”).  Buyer and Seller agree to file Internal Revenue Service Form 8594 in accordance with the agreed upon Allocation and that no position inconsistent with the Allocation shall be taken by any party hereto before any Governmental Authority.

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               14.           Survival of Representations, Warranties, Covenants and Agreements.  The representations, warranties, covenants and agreements of Seller and Buyer contained in this Agreement will survive (a) until the fifth anniversary of the Closing Date with respect to the representations and warranties contained in Sections 6 and 7, except for any representations and warranties related to Taxes, which shall survive until the expiration of the relevant statute of limitations; (b) until the fifth anniversary of the Closing Date with respect to Section 13(e); and (c) in the case of all other representations and warranties and any covenant or agreement to be performed in whole or in part after the date hereof until the fourth anniversary hereof, except that any representation, warranty, covenant or agreement that would otherwise terminate in accordance with clause (c) will continue to survive if a Claim Notice shall have been timely given on or prior to such termination date, until the related claim for indemnification has been satisfied or otherwise resolved.

15.           Indemnification.  Seller shall indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents and Affiliates, and Buyer shall indemnify, defend and hold harmless Seller and its officers, directors, employees, agents and Affiliates, from any Loss or Losses arising out of or by reason of any breach of any of Seller’s, on the one hand, and Buyer’s, on the other hand, covenants, representations and warranties set forth herein.  In addition, Seller shall indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents and Affiliates from any Losses arising out of the Retained Liabilities or the Excluded Assets.  Buyer shall indemnify, defend and hold harmless Seller and its officers, directors, employees, agents and Affiliates from any Losses arising out of the Assumed Liabilities or Assets, arising out of events occurring after the date hereof.

16.           Method of Asserting Claims.  All claims for indemnification by any indemnified party hereunder will be asserted and resolved as follows:

(a)             In the event of any Third Party Claim, the indemnified party shall deliver written notification thereof to the indemnifying party with reasonable promptness, enclosing a copy of all papers served, if any, and specifying the nature of the Third Party Claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of the Third Party Claim (a “Claim Notice”).  The indemnifying party will notify the indemnified party as soon as practicable, but in any case within 30 days of receipt of a Claim Notice (the “Dispute Period”), whether the indemnifying party disputes its liability to the indemnified party and whether the indemnifying party desires, at its sole cost and expense, to defend the indemnified party against such Third Party Claim.

(b)             If the indemnifying party notifies the indemnified party within the Dispute Period that the indemnifying party desires to defend the indemnified party with respect to the Third Party Claim, then the indemnifying party will have the right to defend, with counsel reasonably satisfactory to the indemnified party, at the sole cost and expense of the indemnifying party, such Third Party Claim by all appropriate proceedings, which proceedings will be vigorously and diligently prosecuted by the indemnifying party to a final conclusion or will be settled at the discretion of the indemnifying party (but only with the consent of the indemnified party in the case of any settlement that provides for any relief other than the payment of monetary damages).

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(c)             If the indemnifying party fails to notify the indemnified party within the Dispute Period that the indemnifying party desires to defend the Third Party Claim, or if the indemnifying party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, or if the indemnifying party fails to give any notice whatsoever within the Dispute Period, then the indemnified party will have the right to defend, at the sole cost and expense of the indemnifying party, the Third Party Claim by all appropriate proceedings, which proceedings will be prosecuted by the indemnified party in a reasonable manner and in good faith or will be settled at the discretion of the indemnified party.

(d)             If the indemnifying party notifies the indemnified party that it does not dispute its liability to the indemnified party with respect to the Third Party Claim, the Loss in the amount specified in the Claim Notice will be conclusively deemed a liability of the indemnifying party and the indemnifying party shall pay the amount of such Loss to the indemnified party on demand.  If the indemnifying party has timely disputed its liability with respect to such claim, the indemnifying party and the indemnified party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within a reasonable period of time, such dispute shall be resolved by litigation in a court of competent jurisdiction.

(e)             In the event any indemnified party has a claim against any indemnifying party that does not involve a Third Party Claim, the indemnified party shall deliver a Claim Notice with reasonable promptness to the indemnifying party.  If the indemnifying party notifies the indemnified party that it does not dispute the claim described in such Claim Notice or fails to notify the indemnified party within the Dispute Period whether the indemnifying party disputes the claim, the Loss in the amount specified in the Claim Notice will be conclusively deemed a liability of the indemnifying party and the indemnifying party shall pay the amount of such Loss to the indemnified party on demand.  If the indemnifying party has timely disputed its liability with respect to such claim, the indemnifying party and the indemnified party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within a reasonable period of time, such dispute shall be resolved by litigation in a court of competent jurisdiction.

17.           Notices.                      All notices and other communications hereunder shall be in writing, hand delivered or sent by express mail service or via facsimile, to the addresses or facsimile numbers set forth below (or at such other address as a party may hereafter designate for itself by notice to the other party as required hereby):

If to Buyer:

LEAF Financial Corporation

1818 Market Street

Philadelphia, Pennsylvania 19103

Attn:  Crit DeMent

Fax No.: (215) 640-6363

and  Attn:  Miles Herman

Fax No.: (215) 640-6330

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with a copy to:

Ledgewood

1900 Market Street

Philadelphia, Pennsylvania  19103

Attn:  J. Baur Whittlesey, Esquire

Fax No.: (215) 735-2513

If to Seller:

Pacific Capital Bank, N.A.

1 South Los Carneros Road

Goleta, California 93117

Attn:  Frederick W. Clough, General Counsel

Fax No.:  (805) 882-3856

with a copy to:

Manatt, Phelps & Phillips, LLP

695 Town Center Drive

Costa Mesa, California 92626

Attn:  Ellen R. Marshall, Esquire

Fax No.:  (714) 371-2550

18.           Miscellaneous.

(a)           Governing Law.  This Agreement shall be governed by the law of the State of California, and shall bind and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, assigns and personal representatives.

(b)           Entire Agreement; Amendments.  This Agreement, and the Transaction Agreements set forth all of the promises, covenants, agreements, conditions and undertakings between the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as contained herein.  This Agreement may not be changed orally but only by an agreement in writing, duly executed by or on behalf of the party or parties against whom enforcement of any waiver, change, modification, consent or discharge is sought.

(c)           Binding Effect.  All of the terms and provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties and their legal representatives, heirs, successors and permitted assigns, whether so expressed or not.

(d)           Severability.  If any provision of this Agreement or any other agreement entered into pursuant hereto is contrary to, prohibited by or deemed invalid under applicable law or regulation, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given full force and effect so far as possible.  If any provision of this Agreement may be construed in two or more ways, one of which would render the provision invalid or otherwise voidable or unenforceable another of which would render the provision valid and enforceable, such provision shall have the meaning which renders it valid and enforceable.

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(e)           Captions.  The captions used in this Agreement are for convenience of reference only and shall not be considered in the interpretation of the provisions hereof.

(f)           No Construction Against Draftsmen.  The parties acknowledge that this is a negotiated agreement, and that in no event shall the terms hereof be construed against either party on the basis that such party, or its counsel, drafted this Agreement.

(g)           Expenses.  Except as otherwise provided in this Agreement, each party hereto shall pay the expenses incurred by or on behalf of such party in connection with the transactions contemplated by this Agreement, including but not limited to, expenses in connection with the preparation, authorization, execution and performance of this Agreement and all fees and expenses of such party’s brokers, finders, agents, representatives, counsel and accountants.  Notwithstanding the foregoing, Buyer and Seller will each pay one-half of the HSR Act filing fee.

(h)           Knowledge.  Certain of the representations and warranties in this Agreement are made “to the knowledge” of Seller.  Such phrase shall mean either (i) the actual knowledge of any individual set forth on Schedule 18(h); or (ii) any knowledge which such persons should have known had they acted in the ordinary course of business.

(i)           Assignment.  Neither this Agreement nor any right, remedy, obligation or liability arising hereunder may be assigned by any party without the consent of the other parties; provided, however, that Buyer may (a) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (b) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Buyer nonetheless will remain responsible for the performance of all of its obligations hereunder), and (c) make a collateral assignment of its rights hereunder to its lender(s).  In the event of an assignment or designation pursuant to clauses (a) or (b) of the prior sentence prior to the Closing Date, any documents to be delivered by Seller or Buyer pursuant hereto shall be appropriately modified to give effect to such assignment or designation.

(j)           Waiver of Jury Trial.  THE PARTIES HERETO WAIVE EACH OF THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY FOR ANY CAUSE OF ACTION ARISING UNDER OR RELATED TO THIS AGREEMENT TO THE EXTENT THAT SUCH A WAIVER IS PERMITTED BY LAW.

(k)           Counterparts.  This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Confirmation of execution by electronic transmission of a facsimile signature page shall be binding upon any party so confirming.

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IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have executed and delivered this Asset Purchase Agreement as of the date first above written.

SELLER:

PACIFIC CAPITAL BANK, N.A.

By:

Its:

BUYER:

LEAF FINANCIAL CORPORATION

By:

Its:

LEAF FUNDING, INC.

By:

Its:

LEAF COMMERCIAL FINANCE CO., LLC

By:

Its:

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Appendix A

DEFINITIONS AND RULES OF CONSTRUCTION

I.           General.

These definitional provisions are intended for use in connection with the Transaction Documents (as defined herein) and are attached to and made a part of the Agreement (as defined herein).

II.           Defined Terms.

Unless the context requires a different meaning, capitalized terms are used in this Appendix A and in each of the other Transaction Documents (as defined herein) as follows:

“Affiliate” means, with respect to any specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.  For purposes of this definition, “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; and “controlled” and “controlling” have meanings correlative to the foregoing.

“Agreement” means the Asset Purchase Agreement, dated as of June 20, 2007, between Buyer and Seller, as amended, supplemented or otherwise modified from time to time.

“Assets” shall have the meaning set forth in Section 1 of the Agreement.

“Assumed Liabilities” means the obligations of lessor (or lender, as applicable) pertaining to the Performing Leases, including without limitation all security deposits and lessee deposits associated with the Leases appearing on the Closing Date Report, the obligation to pay property taxes (except as set forth in Section 13(l) of the Agreement) and to refund any overpayments of taxes, the obligation to fund the Backlog and the obligation to fund unfunded disbursements on Leases.

“Backlog” shall have the meaning set forth in Section 1(d) of the Agreement.

“Bailment Agreement” shall have the meaning set forth in Section 5(a)(iv) of the Agreement.

“Bankruptcy Code” means The Bankruptcy Reform Act of 1978, as amended from time to time, and as codified as 11 U.S.C. Section 101 et seq.

“Best Efforts” means the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible, provided, however, that a Person required to use Best Efforts under the Agreement will not be thereby required to take actions that would result in a material adverse change in the benefits to such Person of the Agreement and the Contemplated Transactions or to dispose of or make any change to its business, expend any material funds or incur any other material burden.

“Bill of Sale” means a bill of sale for all of the Assets in the form of Exhibit B hereto.

“Business” means Seller’s program of equipment leasing and financing in which transactions are originated through brokers and other third-parties that is conducted under the trade name “Pacific Capital Bank” or the predecessor trade name “Santa Barbara Bank & Trust.”

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of California are authorized or required to close.

“Charged-Off Leases” means those Leases that have been charged-off on Seller’s Records prior to the Record Date in accordance with the Policies and Procedures.

“Claim Notice” shall have the meaning set forth in Section 16(a) of the Agreement.

“Closing” means the purchase and sale provided for in the Agreement.

“Closing Date” shall have the meaning set forth in Section 4 of the Agreement.

“Closing Date Report” means the net investment trial balance report (which schedule shall be provided in the form of a read-only computer disc) prepared in accordance with Seller’s reporting systems (or other financial report mutually agreed upon by Seller and Buyer) containing information as of the Record Date.  The information on the Closing Date Report shall include information regarding each Lease for each category that is provided on Schedule 1(a) of the Agreement.

“Consent” means any approval, consent, ratification, waiver or other authorization.

“Contemplated Transactions” means all of the transactions contemplated by the Agreement and the other Transaction Documents.

“Contract File” means a file containing each of the following:

I.

(a)           the sole original signed Lease (which may be in the form of an equipment finance agreement) and, if applicable, Lease schedule;

(b)           an original or copy of a delivery and acceptance for leases (which may be part of the Contract) for Leases with an original cost greater than $50,000;

(c)           original or copy of an invoice relating to the Subject Equipment;

(d)           evidence of insurance for those Leases that are secured by (i) vehicles, (ii) Subject Equipment with an original cost greater than $100,000 or (iii) logging equipment;

(e)           copies of all UCC financing statements, as filed (together with evidence of filing with the appropriate Governmental Authority) for the Subject Equipment with an original cost greater than $25,000 for finance leases and loans and in excess of $50,000 on all fair market value leases, as determined by the information found in the Contract File, or if the equipment is titled, an original title is present that has the lessee as registered owner and Seller listed as lienholder; and

(f)           in the case of a third party origination Lease, proof of issuance of payment by the third party originator for the Subject Equipment.

II.           In addition, with respect to any Lease, each of the following may be present in the Contract File, provided, however, that the absence of any item listed in (a) through (e) below shall not be reported as an exception on any Contract File schedule:

(a)           an original or copy of a personal, corporate or other guaranty (which may be part of the Lease) as required in the original credit approval;

(b)           an original or copy of a corporate resolution and secretary’s certificate, as appropriate for the transaction;

(c)           an original or copy of a bill of sale, in the case of a sale lease back transaction;

(d)           copies of photo identification; and

(e)           an original or copy of a landlord or mortgagee waiver.

III.           Provided, with respect to any Lease identified as a loan transaction, the term “Contract File”, unless the document quality checklist otherwise indicates (by an asterisk or other mark) that additional items shall be required, means the following:

(a)           an original or certified copy of a loan contract or master loan contract;

(b)           an original (if not part of the loan contract) of a term note;

(c)           an original or certified copy of a security agreement;

(d)           an original or copy of a sale agreement between seller and buyer, if there is such an agreement with respect to the Lease;

(e)           original or copy of an invoice relating to the Subject Equipment;

(f)           evidence of insurance for contracts with an original cost of greater than $100,000;

(g)           copies of UCC filings for loans with an original principal balance greater than $25,000;

(h)           original or copies of titles for all titled equipment with the user of the titled equipment listed as owner and Seller listed as the secured party; and

(i)           in the case of a third party origination contract, proof of issuance of payment by the third party originator for the Subject Equipment.

IV.           In addition, with respect to any loan, the file may contain each of the following, which may be noted on the document quality checklist, provided, however, that the absence of any item listed in (a) through (m) below shall not be reported as an exception on any Contract File schedule:

(a)           an original or faxed copy of a personal, corporate or other guaranty (which may be part of the Lease) as required in the original credit approval;

(b)           an original or faxed copy of a corporate resolution and secretary certificate as appropriate for the transaction;

(c)           an original or faxed copy of a bill of sale;

(d)           an original or faxed copy of an escrow agreement;

(e)           copies of photo identification;

(f)           copies of lien searches and applicable releases;

(g)           an original or copy of a landlord or mortgagee waiver;

(h)           a copy of an office lease or sublease;

(i)           evidence of insurance coverage with respect to (a) liability insurance and (b) malpractice insurance;

(j)           copies of licenses;

(k)           a copy of wire instructions for funding proceeds of the loan;

(l)           an original or certified copy of the assignment of office lease; and

(m)           a copy of the site inspection report.

“Customer” means any lessee, obligor, third party originator, client, customer, vendor or supplier, as applicable, in connection with the Assets.

“Dispute Period” shall have the meaning set forth in Section 16(a) of the Agreement.

“Dollar” and the symbol “$” each means lawful money of the United States.

“Equipment” means “equipment” as such term is defined in the UCC.

“Excluded Assets” shall have the meaning set forth in Section 1 of the Agreement.

“Final Contractual Payment” means a final payment which is a firm, mandatory payment made by the obligor under such Lease, and such payment is not the Residual Value.

“Financing Statements” means the financing statements covering all property subject to the Leases necessary to duly perfect a first lien security interest therein.

“Governing Documents” means the certificate of incorporation or articles of association and bylaws.

“Governmental Authority” means any nation or government, any state, city, town, municipality, county, local or other political subdivision thereof and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Governmental Authorization” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“Insolvency Event” means, as to any Person:

(a)           (i) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed, or any other similar relief shall be granted under any applicable federal or state law, (ii) an involuntary case is commenced against such Person under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect which remains undismissed, undischarged or unbonded for a period of forty-five (45) days or (iii) such Person shall have a decree or an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or

(b)           such Person shall consent 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 all or substantially all of its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or 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, shall have been entered against such Person; or such Person shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make a general assignment for the benefit of its creditors or voluntarily suspend payment of its obligations.

“Interim Servicing Agreement” means a servicing agreement in the form annexed to the Agreement as Exhibit C, pursuant to which, for a period not in excess of 90 days, Seller will service the Leases.

“Lease” shall have the meaning set forth in Section 1(a) of the Agreement.

“Lease Receivable” means, with respect to any Lease, (i) all “accounts” (as such term is defined in the UCC, together with all proceeds thereon) created by or that otherwise arise under such Lease and (ii) all Related Property with respect to accounts.

“Legal Requirements” means, with respect to any Person the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person and any law, treaty, rule or regulation, or determination of any arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, whether federal, state, local, municipal, foreign, international, multinational or other constitution, law, ordinance, principle of common law, code, regulation, statute or treaty.

“Lien” means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, lease, easement, title defect, restriction, levy, execution, seizure, attachment, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.

“Loss” or “Losses” shall mean a claim, action, cause of action, liability, obligation or expense, including reasonable attorney fees and expenses.

“Net Investment” with respect to a Lease as of any date shall mean the Unamortized Cost of such Lease as recorded in the accounting records of Seller and listed on Seller’s report entitled “ls-net-invest” for that date.

“Ordinary Course of Business” means action that (i) is generally consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; (ii) does not require authorization by the board of directors or shareholders of such Person (or by any Person or group of Persons exercising similar authority), other than the standing authority that has been delegated to the officers or employees for the conduct of the business, and does not require any other separate or special authorization of any nature; and (iii) is similar in nature, scope and magnitude to actions customarily taken, without any separate or special authorization, in the ordinary course of the normal, day-to-day operations.

“Past Due Lease” means any lease as to which any required payment thereunder is more than sixty (60) days past due, as of the Record Date.

“Performing Lease” means a Lease that is not (i) a Past Due Lease, (ii) a Suspended Lease, or (iii) a Lease that is subject to any pending repossession action or that is subject to any pending repossession action or as to which Seller has received a notice of an event that is, or with notice and/or lapse of time is likely to constitute, a material default or of any claim by a lessee or guarantor of a right of offset or counterclaim (as referenced in Section 6(h)(x) and identified on Schedule 6(h)(x)).

“Person” means any natural person, corporation, division, business trust, joint venture, association, limited liability company, partnership, joint stock company, association, estate, trust, unincorporated organization or Governmental Authority.

“Policies and Procedures” means those policies and procedures of Seller with respect to the origination, collection and administration of Leases and as set forth in Seller’s Policies and Procedures Manual on May 4, 2007.

“Proceeding” means any suit in equity, action or law or other judicial or administrative proceeding.

“Purchase Price”  has the meaning set forth in Section 3(a) of the Agreement.

“Record Date” means the close of business on the date, four Business Days prior to the Closing Date, unless such other date is mutually agreed upon by Buyer and Seller.

“Records” means the Leases and all other documents, books, records and other writings and information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights, but excluding any credit profiles and rights in any personally identifiable data of any lessee) maintained with respect to Leases and the related lessees.

“Related Property” means, with respect to any Lease:

(a)           all “instruments”, “chattel paper”, “accounts”, “general intangibles”, “commercial tort claims”, “investment property” and “letter of credit rights” (as each such term is defined in the UCC) evidencing or arising under such Lease;

(b)           all security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Lease;

(c)           all guarantees, indemnities, warranties, insurance (and proceeds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Lease;

(d)           all Records related to such Lease;

(e)           all service contracts and other contracts and agreements associated with such Lease; and

(f)           all proceeds of any of the foregoing.

“Residual Value” means, with respect to any Lease, the value of the Subject Equipment to the lessor thereunder at the end of such Lease, as estimated by Seller at the origination of such Lease in accordance with the Policies and Procedures.

“Retained Liabilities” means any other liabilities of Seller whatsoever not included in the Assumed Liabilities.

“Subject Equipment” means, with respect to any Lease, the Equipment subject to such Lease.

“Subsidiary” means, with respect to any Person (herein referred to as the “parent”), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the parent or (b) that is, at the time any determination is being made, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“Suspended Lease” means a Lease which is classified as “income non-accrual” on the records of Seller as of the Record Date, applying the Seller’s Policies and Procedures.

“Tax” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided, “Tax on the overall net income” of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person’s applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).

“Third Party Claim” means any claim or demand in respect of which an indemnifying party might seek indemnity is asserted against or sought to be collected from such indemnified party by a third party.

“Transaction Documents” means, collectively, the Agreement, including this Appendix A, the Bill of Sale and the Interim Servicing Agreement.

“UCC” means the Uniform Commercial Code as in effect from time to time in the relevant jurisdiction.

“Unamortized Cost” means an amount equal to the contract balance remaining on a Lease less the unearned income on such Lease.

“United States” means the United States of America, its fifty States and the District of Columbia.

“written” or “in writing” means any form of written communication, including, without limitation, by means of telex, telecopier device, telegraph, electronic mail or messaging systems, the Internet or cable.

III.           Rules of Construction.

Except as otherwise expressly provided herein or in any of the Transaction Documents or unless the context otherwise clearly requires:

(a)           defined terms include, as appropriate, all genders and the plural as well as the singular;

(b)           references to designated articles, Sections and other subdivisions of a Transaction Document refer to the designated article, Section, or other subdivision of such Transaction Document as a whole and to all subdivisions of the designated article, Section or other subdivision;

(c)           references to schedules in a particular Transaction Document refer to the schedules attached to or delivered together with such Transaction Document;

(d)           the words “herein,” “hereof,” “hereto,” “hereunder” and other words of similar import refer to the Transaction Document in which such reference is made as a whole and not to any particular article, Section or other subdivision of such Transaction Document;

(e)           any term that relates to a document, statute, rule or regulation includes any amendments, modifications, supplements or any other changes that may have occurred since the document, statute, rule or regulation came into being, including changes that occur after the date of the Transaction Document in which such reference is made;

(f)           the term “including” and all its variations mean “including but not limited to.” Except when used in conjunction with the word “either,” the word “or” is always used inclusively (for example, the phrase “A or B” means “A or B or both,” not “either A or B but not both”); and

(g)           in the computation of a period of time from a specified date to a later specified date or an open-ended period, the word “from” means “from and including” and the words “to” or “until” mean “to but excluding, and in setting deadlines or other periods, “by” means “on or before,” and “after” means “from and after”.

EX-31.1

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EXHIBIT 31.1

CERTIFICATION

I, Jonathan Z. Cohen, certify that:

1)   I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2007 of Resource America, Inc.;

2)   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5)   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	/s/ Jonathan Z. Cohen
Date:  August 9, 2007	Jonathan Z. Cohen
	Chief Executive Officer

EX-31.2

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EXHIBIT 31.2

CERTIFICATION

I, Steven J. Kessler, certify that:

1)   I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2007 of Resource America, Inc.;

2)   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5)   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	/s/ Steven J. Kessler
Date:  August 9, 2007	Steven J. Kessler
	Executive Vice President and Chief Financial Officer

EX-32.1

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Resource America, Inc. (the "Company") on Form 10-Q for the quarterly period ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jonathan Z. Cohen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Jonathan Z. Cohen
Date:  August 9, 2007	Jonathan Z. Cohen
	Chief Executive Officer

EX-32.2

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EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Resource America, Inc. (the "Company") on Form 10-Q for the quarterly period ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven J. Kessler, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Steven J. Kessler
Date:  August 9, 2007	Steven J. Kessler
	Executive Vice President and Chief Financial Officer