-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UurWqHeGBfU4OH6Hwbj0803Zf0g3WHI1rW6kVIxMhCVcNBSTfeLCPoBeP1LmfouK i5gMpH+wocYDJMy4znkzpA== 0000950134-02-014745.txt : 20021119 0000950134-02-014745.hdr.sgml : 20021119 20021119170610 ACCESSION NUMBER: 0000950134-02-014745 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20021119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVERLEAF RESORTS INC CENTRAL INDEX KEY: 0001033032 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 752259890 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13003 FILM NUMBER: 02833580 BUSINESS ADDRESS: STREET 1: 1221 RIVERBEND DR STREET 2: SUITE 120 CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146311166 MAIL ADDRESS: STREET 1: 1221 RIVERBEND DR STREET 2: SUITE 120 CITY: DALLAS STATE: TX ZIP: 75247 10-Q 1 d00253e10vq.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002 ================================================================================ 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, 2002 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: 001-13003 SILVERLEAF RESORTS, INC. (Exact name of registrant as specified in its charter) TEXAS 75-2259890 (State of incorporation) (I.R.S. Employer Identification No.) 1221 RIVER BEND DRIVE, SUITE 120 DALLAS, TEXAS 75247 (Address of principal executive offices, including zip code) 214-631-1166 (Registrant's telephone number, including area code) 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. Yes [ ] No [X] Number of shares of common stock outstanding of the issuer's Common Stock, par value $0.01 per share, as of November 13, 2002: 36,826,906 ================================================================================ EXPLANATORY NOTE On November 19, 2002, the Company simultaneously filed the following delinquent and/or amended reports with the Securities and Exchange Commission: (i) Forms 10-Q for the quarterly periods ended June 30, 2002 and March 31, 2002; (ii) Forms 10-K for the years ended December 31, 2001 and December 31, 2000; (iii) Forms 10-Q for the quarterly periods ended September 30, 2001, June 30, 2001, and March 31, 2001; and (iv) Forms 10-Q/A for the quarterly periods ended September 30, 2000, June 30, 2000, and March 31, 2000. The disclosures contained in this Form 10-Q for the quarter ended June 30, 2002 should be read in conjunction with the other SEC reports described above also filed on November 19, 2002. CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q UNDER ITEMS 1 AND 2, IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS 10-Q, INCLUDING STATEMENTS QUALIFIED BY THE WORDS "BELIEVE," "INTEND," "ANTICIPATE," "EXPECTS" AND WORDS OF SIMILAR IMPORT, ARE "FORWARD-LOOKING STATEMENTS" AND ARE THUS PROSPECTIVE. THESE STATEMENTS REFLECT THE CURRENT EXPECTATIONS OF THE COMPANY REGARDING THE COMPANY'S FUTURE PROFITABILITY, PROSPECTS AND RESULTS OF OPERATIONS. ALL SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "CAUTIONARY STATEMENTS" BEGINNING ON PAGE 28 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000. ALL FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS REPORT ON FORM 10-Q AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS WHY ACTUAL RESULTS COULD DIFFER FROM THE PROJECTIONS IN THE FORWARD-LOOKING STATEMENTS. 1 SILVERLEAF RESORTS, INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION (Unaudited) Item 1. Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2002 and 2001 ......................... 3 Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 ................................................... 4 Condensed Consolidated Statement of Shareholders' Equity for the six months ended June 30, 2002 ...................................... 5 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 ................................. 6 Notes to the Condensed Consolidated Financial Statements ............ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................... 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk .......... 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................... 21 Item 2. Changes in Securities and Use of Proceeds ........................... 21 Item 3. Defaults Upon Senior Securities ..................................... 22 Item 4. Submission of Matters to a Vote of Security Holders ................. 22 Item 6. Exhibits and Reports on Form 8-K .................................... 22 Signatures .......................................................... 23
2 PART I: FINANCIAL INFORMATION (UNAUDITED) ITEM 1. FINANCIAL STATEMENTS SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ REVENUES: Vacation Interval sales $ 30,148 $ 36,302 $ 59,587 $ 86,132 Sampler sales 875 896 2,198 1,938 ------------ ------------ ------------ ------------ Total sales 31,023 37,198 61,785 88,070 Interest income 9,182 10,092 19,567 20,147 Management fee income 783 193 948 234 Other income 1,280 1,128 2,051 1,988 Gain on sale of notes receivable 4,484 -- 4,484 -- ------------ ------------ ------------ ------------ Total revenues 46,752 48,611 88,835 110,439 COSTS AND OPERATING EXPENSES: Cost of Vacation Interval sales 5,485 6,966 11,005 16,415 Sales and marketing 16,793 19,912 32,548 48,721 Provision for uncollectible notes 6,028 7,896 11,916 18,735 Operating, general and administrative 8,819 9,375 17,602 17,442 Depreciation and amortization 1,281 1,624 2,549 3,527 Interest expense and lender fees 6,114 10,720 13,082 19,112 Impairment loss of long-lived assets -- 98 -- 2,883 ------------ ------------ ------------ ------------ Total costs and operating expenses 44,520 56,591 88,702 126,835 Income (loss) before (provision) benefit for income taxes and extraordinary item 2,232 (7,980) 133 (16,396) (Provision) benefit for income taxes (40) 50 (41) 99 ------------ ------------ ------------ ------------ Income (loss) before extraordinary item 2,192 (7,930) 92 (16,297) Extraordinary gain on extinguishment of debt (net of income tax of $0) 17,885 -- 17,885 -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 20,077 $ (7,930) $ 17,977 $ (16,297) ============ ============ ============ ============ BASIC AND DILUTED EARNINGS PER SHARE: Income (loss) before extraordinary item $ 0.08 $ (0.62) $ 0.01 $ (1.26) Extraordinary item 0.63 -- 0.86 -- ------------ ------------ ------------ ------------ Net income (loss) $ 0.71 $ (0.62) $ 0.87 $ (1.26) ============ ============ ============ ============ WEIGHTED AVERAGE BASIC SHARES OUTSTANDING: 28,409,327 12,889,417 20,692,245 12,889,417 ============ ============ ============ ============ WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING: 28,445,156 12,889,417 20,692,245 12,899,417 ============ ============ ============ ============
See notes to condensed consolidated financial statements. 3 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited)
June 30, December 31, ASSETS 2002 2001 ------------ ------------ Cash and cash equivalents $ 2,535 $ 6,204 Restricted cash 3,097 4,721 Notes receivable, net of allowance for uncollectible notes of $39,504 and $54,744, respectively 236,637 278,592 Accrued interest receivable 2,189 2,572 Investment in Special Purpose Entity 9,275 4,793 Amounts due from affiliates 1,087 2,234 Inventories 102,516 105,275 Land, equipment, buildings, and utilities, net 35,092 37,331 Income taxes receivable 164 164 Land held for sale 5,161 5,161 Prepaid and other assets 9,837 11,053 ------------ ------------ TOTAL ASSETS $ 407,590 $ 458,100 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable and accrued expenses $ 6,434 $ 9,203 Accrued interest payable 1,234 10,749 Amounts due to affiliates 677 565 Unearned revenues 4,392 5,500 Notes payable and capital lease obligations 251,089 294,456 Senior subordinated notes 46,961 66,700 ------------ ------------ Total Liabilities 310,787 387,173 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, par value $0.01 per share, 100,000,000 shares authorized, 37,249,006 and 13,311,517 shares issued, respectively, and 36,826,906 and 12,889,417 shares outstanding, respectively 373 133 Additional paid-in capital 116,998 109,339 Retained deficit (15,569) (33,546) Treasury stock, at cost (422,100 shares) (4,999) (4,999) ------------ ------------ Total Shareholders' Equity 96,803 70,927 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 407,590 $ 458,100 ============ ============
See notes to condensed consolidated financial statements. 4 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands, except share and per share amounts) (Unaudited)
Common Stock ----------------------- Number of $0.01 Additional Treasury Stock Shares Par Paid-in Retained ------------------------ Issued Value Capital Deficit Shares Cost Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- January 1, 2002 13,311,517 $ 133 $ 109,339 $ (33,546) (422,100) $ (4,999) $ 70,927 Issuance of common stock 23,937,489 240 7,659 -- -- -- 7,899 Net income -- -- -- 17,977 -- -- 17,977 ---------- ---------- ---------- ---------- ---------- ---------- ---------- June 30, 2002 37,249,006 $ 373 $ 116,998 $ (15,569) (422,100) $ (4,999) $ 96,803 ========== ========== ========== ========== ========== ========== ==========
See notes to condensed consolidated financial statements. 5 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended June 30, -------------------- 2002 2001 -------- -------- OPERATING ACTIVITIES: Net income (loss) $ 17,977 $(16,297) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for uncollectible notes 11,916 18,735 Gain on sale of notes receivable (4,484) -- Depreciation and amortization 2,549 3,527 Proceeds from sales of notes receivable 48,389 -- Extraordinary gain on extinguishment of debt (17,885) -- Deferred income taxes -- (99) Impairment loss of long-lived assets -- 2,883 Increase (decrease) in cash from changes in assets and liabilities: Restricted cash 1,624 (1,203) Notes receivable (12,810) (39,079) Accrued interest receivable 383 (441) Investment in Special Purpose Entity (4,482) 918 Amounts due from affiliates 1,259 (2,528) Inventories 1,703 3,143 Land held for sale -- 95 Prepaid and other assets (1,150) (1,112) Income tax receivable -- 6,928 Accounts payable and accrued expenses (2,769) (4,828) Accrued interest payable 1,141 3,520 Unearned revenues (1,108) (1,737) -------- -------- Net cash provided by (used in) operating activities 42,253 (27,575) -------- -------- INVESTING ACTIVITIES: Purchases of land, equipment, buildings, and utilities (832) (715) -------- -------- Net cash used in investing activities (832) (715) -------- -------- FINANCING ACTIVITIES: Proceeds from borrowings from unaffiliated entities 45,374 60,218 Payments on borrowings to unaffiliated entities (90,464) (32,968) -------- -------- Net cash provided by (used in) financing activities (45,090) 27,250 -------- -------- Net change in cash and cash equivalents (3,669) (1,040) CASH AND CASH EQUIVALENTS: Beginning of period 6,204 6,800 -------- -------- End of period $ 2,535 $ 5,760 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid, net of amounts capitalized $ 9,794 $ 12,507 Income taxes paid (refunds received) $ -- $ (6,927) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Land and equipment acquired under capital leases $ -- $ 171 Issuance of common stock $ 7,899 $ -- Issuance of senior subordinated debt $ 28,467 $ -- Retirement of senior subordinated debt $ 56,934 $ --
See notes to consolidated condensed financial statements. 6 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BACKGROUND These condensed consolidated financial statements of Silverleaf Resorts, Inc. and subsidiaries ("the Company") presented herein do not include certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Form 10-K for the year ended December 31, 2001 as filed with the Securities and Exchange Commission. The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in such Form 10-K. SFAS No. 140 - In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"), which replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140 revises SFAS No. 125's standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the SFAS No. 125's provisions without reconsideration. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. SFAS No. 140 is to be applied prospectively with certain exceptions. The Company adopted the new disclosures required under SFAS No. 140 as of December 31, 2000. The adoption of SFAS No. 140 in 2001 did not have a material impact on the Company's results of operations, financial position, or cash flows. SFAS No. 144 - In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 establishes a single accounting method for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and extends the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 also requires that an impairment loss be recognized for assets held-for-use when the carrying amount of an asset (group) is not recoverable. The carrying amount of an asset (group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (group), excluding interest charges. Estimates of future cash flows used to test the recoverability of a long-lived asset (group) must incorporate the entity's own assumptions about its use of the asset (group) and must factor in all available evidence. SFAS No. 144 was effective for the Company for the quarter ending March 31, 2002. The adoption of SFAS No. 144 in 2002 did not have a material impact on the Company's results of operations, financial position, or cash flows. SFAS No. 145 - In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment to FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145 eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS No. 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. SFAS No. 145 also contains other non-substantive corrections to authoritative accounting literature. The changes related to debt extinguishment 7 will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. The adoption of SFAS No. 145 will require the Company to reclassify its extraordinary gains to ordinary. SFAS No. 146 - In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. SFAS No. 146 is effective after fiscal years beginning after December 31, 2002. The adoption of SFAS No. 146 will not have any immediate effect on the Company's results of operations, financial position, or cash flows. NOTE 2 - DEBT RESTRUCTURING Since February 2001, when the Company disclosed significant liquidity issues arising primarily from the failure to close a credit facility with its largest secured creditor, management and its financial advisors have been attempting to develop and implement a plan to return the Company to sound financial condition. During this period, the Company negotiated and closed short-term secured financing arrangements with three lenders, which allowed it to operate at reduced sales levels as compared to original plans and prior years. With the exception of the Company's inability to pay interest due on the Senior Subordinated Notes, these short-term arrangements were adequate to keep the Company's unsecured creditors current on amounts owed. Under the Exchange Offer that was closed on May 2, 2002, $56,934,000 in principal amount of the Company's 10 1/2% senior subordinated notes were exchanged for a combination of $28,467,000 in principal amount of the Company's new class of 6.0% senior subordinated notes due 2007 and 23,937,489 shares of the Company's common stock, representing approximately 65% of the common stock outstanding after the Exchange Offer. As a result of the exchange, the Company recorded a pre-tax extraordinary gain of $17.9 million in the second quarter of 2002. Under the terms of the Exchange Offer, tendering holders collectively received cash payments of $1,335,545 on May 16, 2002, and a further payment of $334,455 on October 1, 2002. A total of $9,766,000 in principal amount of the Company's 10 1/2% notes were not tendered and remain outstanding. As a condition of the Exchange Offer, the Company has paid all past due interest to non-tendering holders of its 10 1/2% notes. Under the terms of the Exchange Offer, the acceleration of the maturity date on the 10 1/2% notes which occurred in May 2001 has been rescinded, and the original maturity date in 2008 for the 10 1/2% notes has been reinstated. Past due interest paid to non-tendering holders of the 10 1/2% notes was $1,827,806. The indenture under which the 10 1/2% notes were issued was also consensually amended as a part of the Exchange Offer. Management has also negotiated two-year revolving, three-year term out arrangements for $214 million with its three principal secured lenders, which were closed at the same time as of the Exchange Offer. In addition, the Company amended its $100 million off-balance-sheet credit facility through the Company's SPE. Under these revised credit arrangements, two of the three creditors converted $42.1 million of existing debt to a subordinated Tranche B. Tranche A is secured by a first lien on currently pledged notes receivable. Tranche B is secured by a second lien on the notes, a lien on resort assets, an assignment of the Company's management contracts with the Clubs, a portfolio of unpledged receivables currently ineligible for pledge under the existing facility, and a security interest in the stock of Silverleaf Finance I, Inc., the Company's SPE. Among other aspects of these revised arrangements, the Company will be required to operate within certain parameters of a revised business model and satisfy the financial covenants set forth in the Amended Senior Credit Facilities, including maintaining a minimum tangible net worth of $100 million or greater, as defined, sales and marketing expenses as a percentage of sales below 55.0% for the last three quarters of 2002 and below 52.5% thereafter, notes receivable delinquency rate below 25%, a minimum interest coverage ratio of 1.1 to 1.0 (increasing to 1.25 to 1 in 2003), and a positive net income. At June 30, 2002, the Company was compliant with each of these covenants. However, continued compliance in future periods cannot be assured. Based upon current projections, the Company believes it will be in compliance with all financial covenants with its senior lenders during the third and fourth quarters of 2002, except for the covenant requiring it to restrict quarterly sales and marketing expenses as a percentage of quarterly sales to below 55.0%. 8 Due to the seasonality of its sales and the fixed nature of its sales and marketing expenses, the Company currently believes that its fourth quarter 2002 sales and marketing expenses will exceed 55.0% of fourth quarter sales. If the Company is unable to reduce to below 55% its fourth quarter ratio of sales and marketing expenses to sales, the Company will be noncompliant with this financial covenant at the end of the fourth quarter. In that event, it would be necessary for the Company to negotiate a waiver or amendment of this covenant with its senior lenders. Compliance with these covenants will require that improvements be made in several areas of the Company's operations. The principal changes in operations that management believes will be necessary to satisfy the financial covenants are to reduce sales and marketing expense as a percentage of sales, to improve profitability, and to improve customer credit quality, which the Company believes will result in reduced credit losses. During the second and third quarters of 2001, the Company closed three outside sales offices, closed three telemarketing centers, and reduced headcount in sales, marketing, and general and administrative functions. These changes resulted in $2.7 million of asset write-offs, including $1.4 million of prepaid booth rentals and marketing supplies and $1.3 million of fixed assets related to the closed sales offices and closed telemarketing centers. As a result of these actions, management believes that the necessary operating changes needed to reduce sales and marketing expense to an appropriate level are being implemented. Due to the high level of defaults experienced in customer receivables during 2000, which continued throughout 2001, the Company's provision for uncollectible notes was relatively high as a percentage of Vacation Interval sales during 2000 and 2001. Management believes the high level of defaults experienced in 2000 was due to the deterioration of the economy in the United States, which began to have a significant impact on the Company's existing customers and on consumer confidence in general in late 2000, and a substantial reduction by the Company in two programs that were previously used to remedy defaulted notes receivable. Management believes the high level of defaults in 2001 was also attributable to the fact that customers concerned about the Company's liquidity issues began defaulting on their notes after the Company's liquidity announcement in February 2001, in addition to continuing economic concerns. Since the third quarter of 2001, the Company has been operating under new sales practices whereby no sales are permitted unless the touring customer has a minimum income level beyond that previously required and has a valid major credit card. Further, the marketing division is employing a best practices program, which management believes should facilitate marketing to customers who are more likely to be a good credit risk. However, should there be further deterioration in the economy, and if enhanced sales practices do not result in sufficiently improved collections, the Company may not be able to realize improvements in the overall credit quality of its notes receivable portfolio that these actions are designed to achieve. While the Company announced the completion of its restructuring and refinancing transactions on May 2, 2002, the Company's ability to continue as a going concern is dependent on other factors as well, including the achievement of the improvements to the Company's operations described above. In addition, the Amended Senior Credit Facilities require the Company to satisfy certain financial covenants. Management believes that if the improvements to its operations are successful, the Company will be able to improve its operating results to achieve compliance with the financial covenants during the term of the Amended Senior Credit Facilities. However, the Company's plan to utilize certain of its assets, predominantly inventory, extends for periods of up to fifteen years. Accordingly, the Company will need to either extend the Amended Senior Credit Facilities or obtain new sources of financing through the issuance of other debt, equity, or collateralized mortgage-backed securities, the proceeds of which would be used to refinance the debt under the Amended Senior Credit Facilities, finance mortgages receivable, or for other purposes. The Company may not have these additional sources of financing available to it at the times when such financings are necessary. Due to the uncertainties mentioned above, the independent auditors report on the Company's financial statements for the period ended December 31, 2001 contains an explanatory paragraph concerning the Company's ability to continue as a going concern. 9 NOTE 3 - EARNINGS PER SHARE The following table illustrates the reconciliation between basic and diluted weighted average shares outstanding for the three and six months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended June 30, June 30, -------------------------- ------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Weighted average shares outstanding - basic 28,409,327 12,889,417 20,692,245 12,889,417 Issuance of shares from stock options exercisable 230,000 -- -- -- Repurchase of shares from stock options proceeds (194,171) -- -- -- ----------- ----------- ----------- ----------- Weighted average shares outstanding - diluted 28,445,156 12,889,417 20,692,245 12,889,417 =========== =========== =========== ===========
For the six months ended June 30, 2002, and for the three and six months ended June 30, 2001, the weighted average shares outstanding assuming dilution was anti-dilutive. Outstanding stock options totaling approximately $1.4 million options were potentially dilutive securities that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the six month period ended June 30, 2002. For the six months ended June 30, 2002, and for the three and six months ended June 30, 2001, the weighted average shares outstanding assuming dilution was non-dilutive. Outstanding stock options totaling approximately 1.4 million options were potentially dilutive securities that were not included in the computation of diluted EPS because to do so would have been non-dilutive for the six month period ended June 30, 2002. NOTE 4 - NOTES RECEIVABLE The Company provides financing to the purchasers of Vacation Intervals, which are collateralized by their interest in such Vacation Intervals. The notes receivable generally have initial terms of seven to ten years. The average yield on outstanding notes receivable at June 30, 2002 was approximately 14.0%. In connection with the sampler program, the Company routinely enters into notes receivable with terms of 10 months. Notes receivable from sampler sales were $2.5 million and $1.4 million at June 30, 2001 and 2002, respectively, and are non-interest bearing. Management considers both pledged and sold-with-recourse notes receivable in the Company's allowance for uncollectible notes. The Company considers accounts over 60 days past due to be delinquent. As of June 30, 2002, $4.1 million of notes receivable, net of accounts charged off, were considered delinquent. An additional $63.1 million of notes would have been considered to be delinquent had the Company not granted payment concessions to the customers. The activity in the allowance for uncollectible notes is as follows for the three and six months ended June 30, 2001 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Balance, beginning of period ..... $ 47,062 $ 79,239 $ 54,744 $ 74,778 Provision for credit losses ...... 6,028 7,896 11,916 18,735 Receivables charged off .......... (3,722) (7,099) (17,292) (13,477) Allowance related to notes sold .. (9,864) -- (9,864) -- -------- -------- -------- -------- Balance, end of period ........... $ 39,504 $ 80,036 $ 39,504 $ 80,036 ======== ======== ======== ========
NOTE 5 - DEBT Notes payable, capital lease obligations, and senior subordinated notes as of June 30, 2002 and December 31, 2001 (in thousands):
JUNE 30, DECEMBER 31, 2002 2001 -------- ----------- $60 million loan agreement, which contains certain financial covenants, due August 2002, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 3.55% (additional draws are no longer available under this facility; upon the completion of the debt restructuring described in Note 2, maturity was extended to August 2003) ................................... $ 12,825 $ 15,969 $70 million loan agreement, capacity reduced by amounts outstanding under the $10 million inventory loan agreement (and the $10 million supplemental revolving loan agreement as of December 31, 2001), which contains certain financial covenants, due August 2004, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.65% (operating under forbearance at December 31, 2001; additional draws are no longer available under this facility) ........................................................................ 30,066 35,614
10
JUNE 30, DECEMBER 31, 2002 2001 -------- ----------- $10 million supplemental revolving loan agreement, which contains certain financial covenants, due August 2002 (extended to March 2007 upon completion of the debt restructuring described in Note 2), principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.67% (revolving under forbearance at December 31, 2001) .......................................... 9,564 9,468 $75 million revolving loan agreement, which contains certain financial covenants, due April 2005, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 3.00% (revolving under forbearance at December 31, 2001; upon completion of the debt restructuring described in Note 2, the revolving loan agreement was amended to limit the outstanding balance to $72 million, consisting of $56.9 million revolver with an interest rate of LIBOR plus 3% with a 6% floor and a $15.1 million term loan with an interest rate of 8%; both facilities mature March 2007) ........................................ 46,034 71,072 $15.1 million term loan with an interest rate of 8%, maturing in March 2007 ........ 15,043 -- $75 million revolving loan agreement, which contains certain financial covenants, due November 2005, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.67% (revolving under forbearance at December 31, 2001; upon completion of the debt restructuring described in Note 2, the revolving loan agreement was amended to limit the outstanding balance to $71 million, consisting of $56.1 million revolver with an interest rate of LIBOR plus 3% with a 6% floor and a $14.9 million term loan with an interest rate of 8%; both facilities mature March 2007) .......................... 43,809 69,734 $14.9 million term loan with an interest rate of 8%, maturing in March 2007 ........ 14,834 -- $10.2 million revolving loan agreement, which contains certain financial covenants, due April 2006, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of Prime plus 2.00% (revolving under forbearance at December 31, 2001; upon completion of the debt restructuring described in Note 2, the revolving loan agreement was amended to form a $8.1 million revolver with an interest rate of Prime plus 3% with a 6% floor and a $2.1 million term loan with an interest rate of 8%; both facilities mature March 2007) .................. 7,152 10,200 $2.1 million term loan with an interest rate of 8%, maturing in March 2007 ......... 2,131 -- $45 million revolving loan agreement ($55 million as of December 31, 2001), which contains certain financial covenants, due August 2005, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of Prime (Prime plus 2.00% as of December 31, 2001) (revolving under forbearance at December 31, 2001; upon completion of the debt restructuring described in Note 2, the revolving loan agreement was amended to limit the outstanding balance to $48 million, consisting of $38 million revolver with an interest rate of Federal Funds plus 2.75% with a 6% floor and a $10 million term loan with an interest rate of 8%; both facilities mature March 2007) .......................... 33,835 54,641 $11.5 million term loan with an interest rate of 8%, maturing in March 2007 ........ 9,958 -- $10 million inventory loan agreement, which contains certain financial covenants, due August 2002 (extended to March 2007 upon completion of the debt restructuring described in Note 2), interest payable monthly, at an interest rate of LIBOR plus 3.50% (revolving under forbearance at December 31, 2001) ............................................................... 9,936 9,936 $10 million inventory loan agreement, which contains certain financial covenants, due March 31, 2002 (extended to March 2007 upon completion of the debt restructuring described in Note 2), interest payable monthly, at an interest rate of LIBOR plus 3.25% (revolving under forbearance at December 31, 2001) .............................................................. 9,375 9,375 Various notes, due from January 2002 through November 2009, collateralized by various assets with interest rates ranging from 0.9% to 17.0% ................ 2,732 3,227 -------- -------- Total notes payable .......................................................... 247,294 289,236 Capital lease obligations .......................................................... 3,795 5,220 -------- -------- Total notes payable and capital lease obligations ............................ 251,089 294,456 6.0% senior subordinated notes, due 2007, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company's present and future domestic restricted subsidiaries (see debt restructuring described in Note 2) .... 28,467 -- 10 1/2% senior subordinated notes, subordinate to the 6.0% senior subordinated notes above, due 2008, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company's present and future domestic restricted subsidiaries (in default at December 31, 2001; see debt restructuring described in Note 2) ............................................................. 9,766 66,700 Interest on the 6.0% senior subordinated notes, due 2007, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company's present and future domestic restricted subsidiaries (see debt restructuring described in Note 2) ............................................................. 8,728 -- -------- -------- Total senior subordinated notes............................................... 46,961 66,700 -------- -------- Total......................................................................... $298,050 $361,156 ======== ========
At June 30, 2002, LIBOR rates were from 1.84% to 2.03%, and the Prime rate was 4.75%. At December 31, 2001, LIBOR rates were from 1.86% to 1.90%, and the Prime rate was 5.00%. In May 2002, the Company sold $58.7 million of notes receivable to the SPE and recognized pre-tax gains of $4.5 million. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In 11 conjunction with this sale, the Company received cash consideration of $48.4 million, which was used to pay down borrowings under its revolving loan facilities. NOTE 6 - SUBSIDIARY GUARANTEES As of June 30, 2002, all subsidiaries of the Company have guaranteed the $47.0 million of senior subordinated notes. The separate financial statements and other disclosures concerning each guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not presented herein because the Company's management has determined that such information is not material to investors. The guarantee of each Guarantor Subsidiary is full and unconditional and joint and several. Each Guarantor Subsidiary is a wholly-owned subsidiary of the Company, and together comprise all direct and indirect subsidiaries of the Company. Combined summarized operating results of the Guarantor Subsidiaries for the six months ended June 30, 2002 and 2001, are as follows (in thousands):
June 30, -------------- 2002 2001 ------ ------ Revenues $ -- $ -- ------ ------ Expenses -- -- ------ ------ Net loss $ -- $ -- ====== ======
Combined summarized balance sheet information as of June 30, 2002 for the Guarantor Subsidiaries is as follows (in thousands):
June 30, 2002 -------- Other assets $ 1 ------ Total assets $ 1 ====== Investment by parent (includes equity and amounts due to parent) $ 1 ------ Total liabilities and equity $ 1 ======
NOTE 7 - COMMITMENTS AND CONTINGENCIES In February 2002, a class action was filed against the Company by a couple who purchased a Vacation Interval from the Company. The plaintiffs allege that the Company violated the Texas Government Code by charging a document preparation fee in regard to instruments affecting title to real estate, and that such fee constituted a partial prepayment that should have been credited against their note. The petition seeks recovery of the $275 document preparation fee, $825 of treble damages, and injunctions preventing the Company from engaging in such practices. The Company has not yet fully assessed the claims and has not recorded an accrual for this case. NOTE 8 - SUBSEQUENT EVENTS In the third quarter of 2002, the Company sold $10.6 million of notes receivable to the SPE and recognized pre-tax gains of $897,000. The SPE funded these purchases through advances under a credit agreement arranged for this 12 purpose. In conjunction with this sale, the Company received cash consideration of $8.8 million, which was used to pay down borrowings under its revolving loan facilities. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain matters discussed throughout this Form 10-Q filing are forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, those discussed in the Company's Form 10-K for the year ended December 31, 2001. The Company currently owns and/or operates 19 resorts in various stages of development. These resorts offer a wide array of country club-like amenities, such as golf, swimming, horseback riding, boating, and many organized activities for children and adults. The Company represents an owner base of over 123,000. The condensed consolidated financial statements of the Company include the accounts of Silverleaf Resorts, Inc. and its subsidiaries, all of which are wholly-owned. RESULTS OF OPERATIONS The following table sets forth certain operating information for the Company.
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2002 2001 2002 2001 ------ ------ ------ ------ As a percentage of total revenues: Vacation Interval sales 64.5% 74.7% 67.1% 78.0% Sampler sales 1.9% 1.8% 2.5% 1.8% ----- ----- ----- ----- Total sales 66.4% 76.5% 69.6% 79.8% Interest income 19.6% 20.8% 22.0% 18.2% Management fee income 1.7% 0.4% 1.1% 0.2% Other income 2.7% 2.3% 2.3% 1.8% Gain on sale of notes receivable 9.6% 0.0% 5.0% 0.0% ----- ----- ----- ----- Total revenues 100.0% 100.0% 100.0% 100.0% As a percentage of Vacation Interval sales: Cost of Vacation Interval sales 18.2% 19.2% 18.5% 19.1% Provision for uncollectible notes 20.0% 21.8% 20.0% 21.8% As a percentage of total sales: Sales and marketing 54.1% 53.5% 52.7% 55.3% As a percentage of total revenues: Operating, general and administrative 18.9% 19.3% 19.8% 15.8% Depreciation and amortization 2.7% 3.3% 2.9% 3.2% As a percentage of interest income: Interest expense and lender fees 66.6% 106.2% 66.9% 94.9%
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001 Revenues Revenues for the second quarter of 2002 were $46.8 million, representing a $1.9 million or 3.8% decrease from revenues of $48.6 million for the same period of 2001. In February 2001, the Company failed to secure a new credit facility with its largest secured creditor, which created significant liquidity concerns. In addition, the Company's 13 three primary secured lenders have only provided the Company sufficient short-term secured financing to sell at rates substantially reduced from 1999 and 2000 sales levels. As a result, the number of Vacation Intervals sold, exclusive of in-house Vacation Intervals, decreased 26.6% to 1,825 in the second quarter of 2002 from 2,485 in the same period of 2001. The average price per interval increased 12.8% to $11,031 in the second quarter of 2002 versus $9,780 for the same period of 2001. Total interval sales for the three months ended June 30, 2002 included 250 biennial intervals (counted as 125 Vacation Intervals) compared to 746 (373 Vacation Intervals) in the three months ended June 30, 2001. During the second quarter of 2002, 2,045 in-house Vacation Intervals were sold at an average price of $4,898, compared to 2,783 in-house Vacation Intervals sold at an average price of $4,311 during the comparable 2001 period. Sampler sales remained fairly constant at $875,000 for the three months ended June 30, 2002, compared to $896,000 for the same period in 2001. Consistent with the overall decrease in Company operations, fewer samplers were sold in 2002 compared to 2001. However, sampler sales are not recognized as revenue until the Company's obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Hence, a significant portion of sampler sales recognized in the second quarter of 2002 relate to 2000 sales. Interest income decreased 9.0% to $9.2 million for the quarter ended June 30, 2002, from $10.1 million for the same period of 2001. This decrease primarily resulted from a decrease in notes receivable, net of allowance for doubtful accounts, in 2002 compared to 2001. Management fee income, which consists of management fees collected from the resorts' management clubs, can not exceed the management clubs' net income. Management fee income increased $590,000 to $783,000 for the second quarter of 2002, versus $193,000 for the second quarter of 2001, due to decreased operating expenses at the management clubs in 2002 versus 2001. Other income consists of water and utilities income, condominium rental income, marina income, golf course and pro shop income, and other miscellaneous items. Other income increased $152,000 to $1.3 million for the quarter ended June 30, 2002, compared to $1.1 million for the same period of 2001. The increase primarily relates to increased golf course and pro shop income in 2002. Gain on sale of notes receivable was $4.5 million for the second quarter of 2002, compared to $0 in the same period of 2001. This gain resulted from the sale of $58.7 million of notes receivable to the SPE in the second quarter of 2002. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. Cost of Sales Cost of sales as a percentage of Vacation Interval sales decreased to 18.2% for the second quarter of 2002 compared to 19.2% for the same period of 2001. The decrease primarily resulted from an increase in sales prices in 2002 compared to 2001. The $1.5 million decrease in cost of sales in the second quarter of 2002 compared to the same period of 2001 was due to the decrease in Vacation Interval sales. Sales and Marketing Sales and marketing costs as a percentage of total sales increased to 54.1% for the quarter ended June 30, 2002, from 53.5% for the same period of 2001. As a result of the aforementioned liquidity issues, the Company made several changes during 2001, including the closure of three outside sales offices, closing three telemarketing centers, discontinuing certain lead generation programs, and reducing headcount in both sales and marketing functions. Despite these cost saving measures, sales and marketing costs as a percentage of total sales increased due to the substantial decrease in sales. Since the third quarter of 2001, the Company has been operating under new sales practices whereby no sales are permitted unless the touring customer has a minimum income level beyond that previously required and has a valid major credit card. Further, the marketing division is employing a best practices program, which should facilitate marketing to customers who management believes are more likely to be a good credit risk. 14 Based upon current projections, the Company believes it will be in compliance with all financial covenants with its senior lenders during the third and fourth quarters of 2002, except for the covenant requiring it to restrict quarterly sales and marketing expenses as a percentage of quarterly sales to below 55.0%. Due to the seasonality of its sales and the fixed nature of its sales and marketing expenses, the Company currently believes that its fourth quarter 2002 sales and marketing expenses will exceed 55.0% of fourth quarter sales. If the Company is unable to reduce to below 55% its fourth quarter ratio of sales and marketing expenses to sales, the Company will be noncompliant with this financial covenant at the end of the fourth quarter. In that event, it would be necessary for the Company to negotiate a waiver or amendment of this covenant with its senior lenders. Provision for Uncollectible Notes The provision for uncollectible notes as a percentage of Vacation Interval sales remained fairly constant at 20.0% for the second quarter of 2002 compared to 21.8% for the same period of 2001. Due to the high level of defaults experienced in customer receivables throughout 2001, the provision for uncollectible notes remained relatively high during 2001 and 2002. Management believes the high provision percentage remained necessary in 2002 because of continuing economic concerns and customers concerned about the Company's liquidity issues began defaulting on their notes after the Company's liquidity announcement in February 2001. Management will continue its current collection programs and seek new programs to reduce note defaults. However, there can be no assurance that these efforts will be successful. Operating, General and Administrative Operating, general and administrative expenses as a percentage of total revenues decreased to 18.9% for the second quarter of 2002, from 19.3% for the same period of 2001. The Company substantially reduced its corporate headcount in 2001 to align overhead with the reduced sales levels. Professional fees incurred in the second quarter of 2002 related to the restructuring of the Company were $1.3 million compared to $1.4 million of similar charges in the same 2001 period. Depreciation and Amortization Depreciation and amortization expense as a percentage of total revenues decreased to 2.7% for the three months ended June 30, 2002 versus 3.3% for the same period of 2001. Overall, depreciation and amortization expense decreased $343,000 for the second quarter of 2002, as compared to 2001, primarily due to a general reduction in capital expenditures since 2000. Impairment Loss of Long-Lived Assets The Company recognized an impairment loss of long-lived assets of $98,000 in the second quarter of 2001, which consisted of a $54,000 write-down of land held for sale to its estimated sales price less estimated disposal costs and a $44,000 write-down of land to its estimated fair value. There was no impairment loss of long-lived assets during the second quarter of 2002. Interest Expense Interest expense as a percentage of interest income decreased to 66.6% for the three months ended June 30, 2002, from 106.2% for the same period of 2001. This decrease is primarily the result of decreased borrowings against pledged notes receivable, a decrease in the Company's weighted average cost of borrowing to 6.5% in the second quarter of 2002 from 8.4% in the second quarter of 2001, and $2.5 million of costs related to the restructuring of the Company's debt incurred in the second quarter of 2001. 15 Income (Loss) before (Provision) Benefit for Income Taxes and Extraordinary Item Income (loss) before (provision) benefit for income taxes and extraordinary item increased to income of $2.2 million for the second quarter of 2002, as compared to a loss of $8.0 million for the second quarter of 2001, as a result of the above mentioned operating results. (Provision) Benefit for Income Taxes (Provision) benefit for income taxes as a percentage of income (loss) before (provision) benefit for income taxes was a provision of 1.8% in the second quarter of 2002, as compared to a benefit of 0.6% for the same period of 2001. The effective income tax rate is the result of the 2001 and 2002 projected income tax benefits being reduced by the effect of a valuation allowance, which reduces the projected net deferred tax assets to zero due to the unpredictability of recovery. Extraordinary Item In connection with the restructuring of the Company's debt, completed in May 2002, the Company recognized an extraordinary gain of $17.9 million related to the early extinguishment of $56.9 million of 10 1/2% senior subordinated notes. There were no extraordinary items in the second quarter of 2001. Net Income (Loss) Net income (loss) increased to income of $20.1 million for the three months ended June 30, 2002, as compared to a loss of $7.9 million for the same period of 2001, as a result of the above mentioned operating results. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 Revenues Revenues for the six months ended June 30, 2002 were $88.8 million, representing a $21.6 million or 19.6% decrease from revenues of $110.4 million for the six months ended June 30, 2001. In February 2001, the Company failed to secure a new credit facility with its largest secured creditor, which created significant liquidity concerns. In addition, the Company's three primary secured lenders have only provided the Company sufficient short-term secured financing to sell at rates substantially reduced from 1999 and 2000 sales levels. As a result, the number of Vacation Intervals sold, exclusive of in-house Vacation Intervals, decreased 37.9% to 3,729 in the first half of 2002 from 6,002 in the same period of 2001. The average price per interval increased 8.7% to $10,542 for the first half of 2002 versus $9,697 for the first half of 2001. Total interval sales for the first six months of 2002 included 762 biennial intervals (counted as 381 Vacation Intervals) compared to 1,925 (963 Vacation Intervals) in the first six months of 2001. During the first half of 2002, 4,231 in-house Vacation Intervals were sold at an average price of $4,792, compared to 6,709 in-house Vacation Intervals sold at an average price of $4,163 during the comparable 2001 period. Sampler sales increased $260,000 to $2.2 million for the six months ended June 30, 2002, compared to $1.9 million for the same period in 2001. Consistent with the overall decrease in Company operations, fewer samplers were sold in 2002 compared to 2001. However, sampler sales are not recognized as revenue until the Company's obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Hence, a significant portion of sampler sales recognized in the first six months of 2002 relate to 2000 sales. Interest income decreased 2.9% to $19.6 million for the six months ended June 30, 2002, from $20.1 million for the same period of 2001. This decrease primarily resulted from a decrease in notes receivable, net of allowance for doubtful accounts, in 2002 compared to 2001. Management fee income, which consists of management fees collected from the resorts' management clubs, can not exceed the management clubs' net income. Management fee income increased $714,000 to $948,000 for the first 16 half of 2002, versus $234,000 for the first half of 2001, due to decreased operating expenses at the management clubs in 2002 versus 2001. Other income consists of water and utilities income, condominium rental income, marina income, golf course and pro shop income, and other miscellaneous items. Other income increased $63,000 to $2.1 million for the first six months of 2002 compared to $2.0 million for the same period of 2001. The increase primarily relates to increased golf course and pro shop income in 2002 partially offset by a $147,000 gain associated with the sale of land recognized in the first quarter of 2001. Gain on sale of notes receivable was $4.5 million for the six months ended June 30, 2002, compared to $0 in the same period of 2001. This gain resulted from the sale of $58.7 million of notes receivable to the SPE in the second quarter of 2002. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. Cost of Sales Cost of sales as a percentage of Vacation Interval sales decreased to 18.5% for the first six months of 2002 compared to 19.1% for the same period of 2001. The decrease primarily resulted from an increase in sales prices in 2002 compared to 2001. The $5.4 million decrease in cost of sales in the first six months of 2002 compared to the same period of 2001 was due to the decrease in Vacation Interval sales. Sales and Marketing Sales and marketing costs as a percentage of total sales decreased to 52.7% for the six months ended June 30, 2002, from 55.3% for the same period of 2001. The decrease is primarily attributable to the following cost saving measures implemented in 2001 as a result of the aforementioned liquidity issues: the closure of three outside sales offices, closing three telemarketing centers, discontinuing certain lead generation programs, and reducing headcount in both sales and marketing functions. Since the third quarter of 2001, the Company has been operating under new sales practices whereby no sales are permitted unless the touring customer has a minimum income level beyond that previously required and has a valid major credit card. Further, the marketing division is employing a best practices program, which should facilitate marketing to customers who management believes are more likely to be a good credit risk. Based upon current projections, the Company believes it will be in compliance with all financial covenants with its senior lenders during the third and fourth quarters of 2002, except for the covenant requiring it to restrict quarterly sales and marketing expenses as a percentage of quarterly sales to below 55.0%. Due to the seasonality of its sales and the fixed nature of its sales and marketing expenses, the Company currently believes that its fourth quarter 2002 sales and marketing expenses will exceed 55.0% of fourth quarter sales. If the Company is unable to reduce to below 55% its fourth quarter ratio of sales and marketing expenses to sales, the Company will be noncompliant with this financial covenant at the end of the fourth quarter. In that event, it would be necessary for the Company to negotiate a waiver or amendment of this covenant with its senior lenders. Provision for Uncollectible Notes The provision for uncollectible notes as a percentage of Vacation Interval sales remained fairly constant at 20.0% for the first half of 2002 versus 21.8% for the same period of 2001. Due to the high level of defaults experienced in customer receivables throughout 2001, the provision for uncollectible notes remained relatively high during 2001 and 2002. Management believes the high provision percentage remained necessary in 2002 because of continuing economic concerns and customers concerned about the Company's liquidity issues began defaulting on their notes after the Company's liquidity announcement in February 2001. Management will continue its current collection programs and seek new programs to reduce note defaults. However, there can be no assurance that these efforts will be successful. 17 Operating, General and Administrative Operating, general and administrative expenses as a percentage of total revenues increased to 19.8% for the first six months of 2002, from 15.8% for the same period of 2001. Although the Company substantially reduced its corporate headcount in 2001 to align overhead with the reduced sales levels, operating, general and administrative expense remained fairly constant at $17.6 million during the first half of 2002 compared to $17.4 million for the same period of 2001. This was primarily due to $2.0 million of professional fees incurred in the first half of 2002 associated with the restructuring of the Company compared to $1.7 million of such costs incurred in the comparable 2001 period. In addition, the Company incurred $1.0 million in audit fees in the first quarter of 2002 related to the completion of the 2000 audit. Depreciation and Amortization Depreciation and amortization expense as a percentage of total revenues was 2.9% for the six months ended June 30, 2002 compared to 3.2% for the same period of 2001. Overall, depreciation and amortization expense decreased $978,000 for the first half of 2002, as compared to 2001, primarily due to the write-off of $1.3 million of fixed assets previously used in the sales and marketing functions in the first quarter of 2001 and a general reduction in capital expenditures since 2000. Impairment Loss of Long-Lived Assets The Company recognized an impairment loss of long-lived assets of $2.9 million in the first half of 2001, which primarily consisted of a $1.3 million write-off of fixed assets related to the closure of three outside sales offices and three telemarketing centers and a $1.4 million write-off of prepaid marketing costs related to the discontinuance of certain lead generation programs. There was no impairment loss of long-lived assets during the first half of 2002. Interest Expense Interest expense as a percentage of interest income decreased to 66.9% for the first six months of 2002, from 94.9% for the same period of 2001. This decrease is primarily the result of decreased interest expense related to decreased borrowings against pledged notes receivable. Also, the Company's weighted average cost of borrowing decreased to 6.5% in the first half of 2002 compared to 8.9% in the first half of 2001. Income (Loss) before (Provision) Benefit for Income Taxes and Extraordinary Item Income (loss) before (provision) benefit for income taxes and extraordinary item increased to income of $133,000 for the first six months of 2002, as compared to a loss of $16.4 million for the first six months of 2001, as a result of the above mentioned operating results. (Provision) Benefit for Income Taxes (Provision) benefit for income taxes as a percentage of income (loss) before (provision) benefit for income taxes was a provision of 30.8% in the first half of 2002, as compared to a benefit of 0.6% for the first half of 2001. The effective income tax rate is the result of the 2001 and 2002 projected income tax benefits being reduced by the effect of a valuation allowance, which reduces the projected net deferred tax assets to zero due to the unpredictability of recovery. Extraordinary Item In connection with the restructuring of the Company's debt, completed in May 2002, the Company recognized an extraordinary gain of $17.9 million related to the early extinguishment of $56.9 million of 10 1/2% senior subordinated notes. There were no extraordinary items during the first six months of 2001. 18 Net Income (Loss) Net income (loss) increased to income of $18.0 million for the first half of 2002, as compared to a loss of $16.3 million for the first half of 2001, as a result of the above mentioned operating results. LIQUIDITY AND CAPITAL RESOURCES SOURCES OF CASH. The Company generates cash primarily from the cash received on the sale of Vacation Intervals, the financing of customer notes receivable from Silverleaf Owners, management fees, sampler sales, and resort and utility operations. The Company typically receives a 10% down payment on sales of Vacation Intervals and finances the remainder by receipt of a seven-year to ten-year customer promissory note. The Company generates cash from the financing of customer notes receivable by (i) borrowing at an advance rate of up to 85% of eligible customer notes receivable and (ii) from the spread between interest received on customer notes receivable and interest paid on related borrowings. Because the Company uses significant amounts of cash in the development and marketing of Vacation Intervals, but collects cash on customer notes receivable over a seven-year to ten-year period, borrowing against receivables has historically been a necessary part of normal operations. During the six months ended June 30, 2002, the Company's operating activities reflected cash provided by operating activities of $42.3 million. During the same period of 2001, the Company's operating activities reflected cash used in operating activities of $27.6 million. The increase in cash provided by operating activities was the result of a decrease in new customer notes receivable due to a reduction in sales in 2002 and $48.4 million in proceeds from sales of notes receivable in 2002. USES OF CASH. Investing activities reflect a net use of cash due to capital additions. Net cash used in investing activities for the six months ended June 30, 2002 and 2001 was $832,000 and $715,000, respectively. The increase in net cash used in investing activities relates to an increase in equipment purchases in 2002. The Company evaluates sites for additional new resorts or acquisitions on an ongoing basis. Certain debt agreements include restrictions on the Company's ability to pay dividends based on minimum levels of net income and cash flow. During the six months ended June 30, 2002, net cash used in financing activities was $45.1 million compared to net cash provided by financing activities of $27.3 million in the same 2001 period. The decrease in cash provided by financing activities was the result of reduced borrowings against pledged notes receivable and increased payments on borrowings against pledged notes receivable in 2002. At June 30, 2002, the Company's revolving credit facilities provided for loans of up to $274.1 million of which approximately $245.6 million of principal and interest related to advances under the credit facilities was outstanding. For the six months ended June 30, 2002, the weighted average cost of funds for all borrowings, including the senior subordinated debt, was 6.5%. Customer defaults have a significant impact on cash available to the Company from financing customer notes receivable in that notes more than 60 days past due are not eligible as collateral. As a result, the Company must repay borrowings against such delinquent notes. Effective October 30, 2000, the Company entered into a $100 million revolving credit agreement to finance Vacation Interval notes receivable through an off-balance-sheet SPE, formed on October 16, 2000. The agreement presently has a term of 5 years. During 2001, the Company made no sales of notes receivable to the SPE. In May 2002, the Company sold $58.7 million of notes receivable to the SPE and recognized pre-tax gains of $4.5 million. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In conjunction with this sale, the Company received cash consideration of $48.4 million, which was used to pay down borrowings under its revolving loan facilities. At June 30, 2002, the SPE held notes receivable totaling $93.7 million, with related borrowings of $86.3 million. Except for the repurchase of notes that fail to meet initial eligibility requirements, the Company is not obligated to repurchase defaulted or any other contracts sold to the SPE. It is anticipated, however, that the Company will place bids in accordance with the terms of the conduit agreement to repurchase some defaulted contracts in public auctions to facilitate the re-marketing of the underlying collateral. In the third quarter of 2002, the Company sold $10.6 million of notes receivable to the SPE and recognized pre-tax gains of $897,000. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In conjunction with this sale, the Company received cash consideration of $8.8 million, which was used to pay down borrowings under its revolving loan facilities. 19 For regular federal income tax purposes, the Company reports substantially all of the Vacation Interval sales it finances under the installment method. Under this method, income on sales of Vacation Intervals is not recognized until cash is received, either in the form of a down payment or as installment payments on customer notes receivable. The deferral of income tax liability conserves cash resources on a current basis. Interest is imposed, however, on the amount of tax attributable to the installment payments for the period beginning on the date of sale and ending on the date the related tax is paid. If the Company is otherwise not subject to tax in a particular year, no interest is imposed since the interest is based on the amount of tax paid in that year. The consolidated financial statements do not contain an accrual for any interest expense that would be paid on the deferred taxes related to the installment method as the interest expense is not estimable. In addition, the Company is subject to current alternative minimum tax ("AMT") as a result of the deferred income that results from the installment sales treatment. Payment of AMT reduces the future regular tax liability attributable to Vacation Interval sales, and creates a deferred tax asset. In 1998, the Internal Revenue Service approved a change in the method of accounting for installment sales effective as of January 1, 1997. As a result, the Company's alternative minimum taxable income for 1997 through 1999 was increased each year by approximately $9.0 million for the pre-1997 adjustment, which resulted in the Company paying substantial additional federal and state taxes in those years. The Company's AMT loss for 2000 was decreased by such amount. Subsequent to December 31, 2000, the Company applied for and received refunds of $8.3 million during 2001 and $1.6 million during 2002 as the result of the carryback of its 2000 AMT loss to 1999, 1998, and 1997. The net operating losses ("NOL") expire between 2007 through 2021. Realization of the deferred tax assets arising from NOL is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Management currently does not believe that it will be able to utilize its NOL from normal operations. At present, future NOL utilization is expected to be limited to the temporary differences creating deferred tax liabilities. If necessary, management could implement a strategy to accelerate income recognition for federal income tax purposes to utilize the existing NOL. The amount of the deferred tax asset considered realizable could be decreased if estimates of future taxable income during the carryforward period are reduced. Due to the Exchange Offer described in Note 2 of the financial statements, an ownership change within the meaning of Section 382(g) of the Internal Revenue Code ("the Code") has occurred. As a result, a portion of the Company's NOL is subject to an annual limitation for taxable years beginning after the date of the exchange ("change date"), and a portion of the taxable year which includes the change date. The annual limitation will be equal to the value of the stock of the Company immediately before the ownership change, multiplied by the long-term tax-exempt rate (i.e., the highest of the adjusted Federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the change date occurs). This annual limitation may be increased for any recognized built-in gain to the extent allowed in Section 382(h) of the Code. The ownership change may also limit the use of the Company's minimum tax credit, described above, as provided in Section 383 of the Code. Given its current economic condition, the Company's access to capital and other financial markets is anticipated to be limited. However, to finance the Company's growth, development, and any future expansion plans, the Company may at some time be required to consider the issuance of other debt, equity, or collateralized mortgage-backed securities, the proceeds of which would be used to finance future acquisitions, refinance debt, finance mortgage receivables, or for other purposes. Any debt incurred or issued by the Company may be secured or unsecured, have fixed or variable rate interest, and may be subject to such terms as management deems prudent. Due to the uncertainties mentioned above, the independent auditors report on the Company's financial statements for the period ended December 31, 2001 contains an explanatory paragraph concerning the Company's ability to continue as a going concern. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of and for the six months ended June 30, 2002, the Company had no significant derivative financial instruments or foreign operations. Interest on the Company's notes receivable portfolio, senior subordinated debt, capital leases, and miscellaneous notes is fixed, whereas interest on the Company's primary loan agreements, which totaled $245 million at June 30, 2002, is variable. The impact of a one-point interest rate change on the outstanding balance of variable-rate financial instruments at June 30, 2002, on the Company's results of operations for the first six months 20 of 2002 would be approximately $1.2 million. In addition, if interest rates increase, the fair market value of the Company's fixed rate notes will decline, which may negatively impact the Company's ability to sell new notes. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is currently subject to litigation arising in the normal course of its business. From time to time, such litigation includes claims regarding employment, tort, contract, truth-in-lending, the marketing and sale of Vacation Intervals, and other consumer protection matters. Litigation has been initiated from time to time by persons seeking individual recoveries for themselves, as well as, in some instances, persons seeking recoveries on behalf of an alleged class. In the judgement of the Company, none of these lawsuits or claims against the Company, either individually or in the aggregate, is likely to have a material adverse effect on the Company, its business, results of operations, or financial condition. In October 2001, a class action was filed against the Company by plaintiffs who purchased Vacation Intervals from the Company. The plaintiffs allege that the Company failed to deliver them complete copies of the contracts for the purchase of Vacation Intervals as they did not receive a complete legal description of the resort. The plaintiffs further claim that the Company violated various provisions of the Texas Deceptive Trade Practices Act with respect to maintenance fees charged by the Company to its Vacation Interval owners. The petition alleges actual damages of $34.5 million plus consequential damages of an unspecified amount, as well as all attorneys' fees, expenses, and costs. The Company intends to vigorously defend against the claims and believes it has several defenses. The Company has not yet fully assessed the claims and has not recorded an accrual for this case. In February 2002, a class action was filed against the Company by a couple who purchased a Vacation Interval from the Company. The plaintiffs allege that the Company violated the Texas Government Code by charging a document preparation fee in regard to instruments affecting title to real estate, and that such fee constituted a partial prepayment that should have been credited against their note. The petition seeks recovery of the $275 document preparation fee, $825 of treble damages, and injunctions preventing the Company from engaging in such practices. The Company has not yet fully assessed the claims and has not recorded an accrual for this case. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 2, 2002, the Indenture (the "Old Indenture") for the Company's 10 1/2% Senior Subordinated Notes due 2008 (the "Old Notes") was amended and restated with the consent of the holders of approximately 85.36% of the outstanding principal balance of the Old Notes. These consensual amendments to the Old Indenture eliminated substantially all of the restrictive covenants and modified certain other provisions of the Old Indenture, including an amendment to permit the Exchange Notes to rank senior in right of payment to the Old Notes. The holders of the Old Notes also (i) consented to a rescission of the notice of acceleration of the maturity date of the Old Notes that occurred on May 22, 2001 and (ii) waived all events of default that had occurred under the Old Indenture prior to May 2, 2002. On May 2, 2002, the Company issued $28,467,000 of its 6% Senior Subordinated Notes due 2007 ("Exchange Notes") and 23,937,489 shares of its common stock ("Exchange Shares") to holders of the Old Notes who tendered their Old Notes pursuant to the Exchange Offer dated March 15, 2002. The Exchange Notes and the Exchange Shares were issued by the Company in a transaction exclusively with existing security holders in accordance with the terms of the exemption from registration afforded by Section 3(a)(9) of the Securities Act of 1933, as amended. The Exchange Notes are senior in right of payment to the Old Notes. For additional information about the effect of the Exchange Offer on the rights of holders of the Old Notes, see Part I, Item 1--Notes to Consolidated Condensed Financial Statements (Unaudited) at Note 2--Debt Restructuring beginning on page 7. 21 ITEM 3. DEFAULTS UPON SENIOR SECURITIES On April 1, 2001, the Company was unable to make the regularly scheduled interest payment on its 10 1/2% Senior Subordinated Notes due 2008 ( the "Old Notes"). The Company's payment default on the Old Notes was a direct result of covenant defaults which had occurred under one or more of its senior credit facilities. As it was required to do under the Old Indenture, the Company issued a payment blockage notice to the trustee for the Old Notes (the " Old Indenture Trustee") advising that the payment due April 1, 2001 could not be made. The Old Indenture Trustee delivered a notice of default to the Company on May 1, 2001 when the Company failed to cure the April 1, 2001 interest payment default within 30 days. The Old Indenture Trustee further notified the Company on May 21, 2001 that it had been instructed by holders of more than 25% of the principal amount of the Old Notes outstanding to accelerate payment of the principal, interest, and other charges due under the Old Notes. On May 2, 2002, the Company completed an exchange offer (the "Exchange Offer") commenced on March 15, 2002 regarding the Old Notes. A total of $56,934,000 in principal amount of the Company's Old Notes (representing 85.36% of all Old Notes outstanding) were exchanged for a combination of $28,467,000 in principal amount of the Company's new class of 6.0% senior subordinated notes due 2007 ("Exchange Notes") and 23,937,489 shares of the Company's common stock representing approximately 65% of the common stock outstanding immediately following the Exchange Offer. Under the terms of the Exchange Offer, tendering holders collectively received cash payments of $1,335,545 on May 16, 2002, and a further payment of $334,455 on October 1, 2002. A total of $9,766,000 in principal amount of the Company's Old Notes were not tendered and remained outstanding at June 30, 2002. As a condition of the Exchange Offer, the Company paid all past due interest to non-tendering holders of its Old Notes on May 2, 2002. Under the terms of the Exchange Offer, the acceleration of the maturity date on the Old Notes which occurred in May 2001 was rescinded, and the original maturity date in 2008 for the Old Notes was reinstated effective as of May 2, 2002. Past due interest paid to nontendering holders of the Old Notes was $1,827,806. The indenture under which the Old Notes were issued (the "Old Indenture") was also consensually amended effective as of May 2, 2002 as a part of the Exchange Offer. As a result of the Exchange Offer, the number of issued and outstanding shares of the Company's common stock increased from 12,889,417 on December 31, 2001 to 36,826,906 on May 2, 2002. At June 30, 2002, there were 36,826,906 shares of common stock outstanding. As a condition of the Exchange Offer, the Company also completed amendments to its credit facilities with its principal senior lenders as well as amendments to a $100 million conduit facility through one of its unconsolidated subsidiaries. Finalization of the Exchange Offer and the amendment of its principal credit facilities effective as of May 2, 2002, marks the completion of the Company's debt restructuring plan announced on March 15, 2002, which was necessitated by severe liquidity problems first announced by the Company on February 27, 2001. As a part of the debt restructuring, the holders of the Company's Old Notes consented to a waiver by the Old Indenture Trustee of all events of default that existed under the Old Notes or the Old Indenture on or before May 2, 2002. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 2, 2002, the Company consummated an exchange offer ("Exchange Offer") with the holders of its 10 1/2% senior subordinated notes due 2008 ("Old Notes"). In connection with the Exchange Offer, the Company solicited consents from the holders of the Old Notes concerning, among other things, proposed amendments to the indenture dated April 1, 1998 under which the Old Notes were issued. The information required by this Item 4 regarding the consents sought by the Company from the holders of the Old Notes is incorporated by reference to the information concerning the Exchange Offer provided in Part II, Items 2 and 3 of this quarterly report on Form 10-Q. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits *4.1 -- Amended and Restated Indenture dated May 2, 2002, between the Company, Wells Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary Guarantors for the Company's 10 1/2% Senior Subordinated Notes due 2008. *4.2 -- Indenture dated May 2, 2002, between the Company, Wells Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary Guarantors for the Company's 6 % Senior Subordinated Notes due 2007.
22 *4.3 -- Certificate No. 001 of 6% Senior Subordinated Notes due 2007 in the amount of $28,467,000. *4.4 -- Subsidiary Guarantee dated May 2, 2002 by Awards Verification Center, Inc., Silverleaf Travel, Inc., Silverleaf Resort Acquisitions, Inc., Bull's Eye Marketing, Inc., Silverleaf Berkshires, Inc., and eStarCommunications, Inc. *10.1 -- Second Amendment to Amended and Restated Receivables Loan and Security Agreement dated April 30, 20002 between the Company and Heller Financial, Inc. *10.2 -- Fourth Amendment to Second Amended and Restated Inventory Loan and Security Agreement dated April 30, 2002. and Heller Financial, Inc. *10.3 -- Amended and Restated Revolving Credit Agreement dated as of April 30, 2002 between the Company and Sovereign Bank, as Agent, and Liberty Bank. *10.4 -- Amended And Restated Loan, Security And Agency Agreement (Tranche A), dated as of April 30, 2002, by and among the Company, Textron Financial Corporation, as a Lender and as facility agent and collateral agent. *10.5 -- Amended And Restated Loan, Security And Agency Agreement (Tranche B), dated as of April 30, 2002, by and among the Company, Textron Financial Corporation and Bank of Scotland, as Lenders and Textron Financial Corporation, as and collateral agent ("Agent"). *10.6 -- First Amendment To Loan And Security Agreement (Tranche C), dated as of April 30, 2002, entered into by and between the Company and Textron Financial Corporation *10.7 -- This Second Amendment To Loan And Security Agreement dated as of April 30, 2002 by and between the Company and Textron Financial Corporation. *10.8 -- Amended And Restated Receivables Loan and Security Agreement Dated as of April 30, 2002 among Silverleaf Finance I, Inc., as the Borrower, the Company, as the Servicer, Autobahn Funding Company LLC, as a Lender, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, as the Agent, U.S. Bank Trust National Association, as the Agent's Bank, and Wells Fargo Bank Minnesota, National Association, as the Backup Servicer. *10.9 -- Amendment Agreement No. 1, dated as of April 30, 2002 Purchase And Contribution Agreement dated as of October 30, 2000 between the Company and Silverleaf Finance I, Inc. *10.10 -- Employment Agreement dated April 18, 2002 between the Company and Sharon K. Brayfield 16.1 -- Letter from Deloitte & Touche, LLP to the Securities and Exchange Commission dated June 25, 2002 (incorporated by reference to Exhibit 16.1 of the Registrant's Form 8-K filed on June 26, 2002). *99.1 -- Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *99.2 -- Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith - --------- (b) Reports on Form 8-K The Company filed the following Current Reports on Form 10-Q for the quarter ending June 30, 2002: Current Report on Form 8-K filed with the SEC on May 3, 2002 announcing the consumption of the Company's debt restructuring plan, including its exchange offer with the holders of its 10 1/2% senior subordinated notes. Current Report on Form 8-K filed with the SEC on June 26, 2002 announcing a change in auditors. 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. Dated: November 19, 2002 By: /s/ ROBERT E. MEAD ----------------------- Robert E. Mead Chairman of the Board and Chief Executive Officer Dated: November 19, 2002 By: /s/ HARRY J. WHITE, JR. ----------------------- Harry J. White, Jr. Chief Financial Officer 23 CERTIFICATION I, Robert E. Mead, Chairman and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Silverleaf Resorts, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report. Date: November 19, 2002 /s/ ROBERT E. MEAD ------------------------------------ Robert E. Mead Chairman and Chief Executive Officer CERTIFICATION I, Harry J. White, Jr., Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Silverleaf Resorts, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report. Date: Novemmber 19, 2002 /s/ HARRY J. WHITE, JR. ------------------------------------ Harry J. White, Jr. Chief Financial Officer 24 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.1 Amended and Restated Indenture dated May 2, 2002, between the Company, Wells Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary Guarantors for the Company's 10 1/2% Senior Subordinated Notes due 2008. 4.2 Indenture dated May 2, 2002, between the Company, Wells Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary Guarantors for the Company's 6% Senior Subordinated Notes due 2007. 4.3 Certificate No. 001 of 6% Senior Subordinated Notes due 2007 in the amount of $28,467,000. 4.4 Subsidiary Guarantee dated May 2, 2002 by Awards Verification Center, Inc., Silverleaf Travel, Inc., Silverleaf Resort Acquisitions, Inc., Bull's Eye Marketing, Inc., Silverleaf Berkshires, Inc., and eStarCommunications, Inc. 10.1 Second Amendment to Amended and Restated Receivables Loan and Security Agreement dated April 30, 20002 between the Company and Heller Financial, Inc. 10.2 Fourth Amendment to Second Amended and Restated Inventory Loan and Security Agreement dated April 30, 2002. and Heller Financial, Inc. 10.3 Amended and Restated Revolving Credit Agreement dated as of April 30, 2002 between the Company and Sovereign Bank, as Agent, and Liberty Bank. 10.4 Amended And Restated Loan, Security And Agency Agreement (Tranche A), dated as of April 30, 2002, by and among the Company, Textron Financial Corporation, as a Lender and as facility agent and collateral agent. 10.5 Amended And Restated Loan, Security And Agency Agreement (Tranche B), dated as of April 30, 2002, by and among the Company, Textron Financial Corporation and Bank of Scotland, as Lenders and Textron Financial Corporation, as and collateral agent ("Agent"). 10.6 First Amendment To Loan And Security Agreement (Tranche C), dated as of April 30, 2002, entered into by and between the Company and Textron Financial Corporation. 10.7 This Second Amendment To Loan And Security Agreement dated as of April 30, 2002 by and between the Company and Textron Financial Corporation. 10.8 Amended And Restated Receivables Loan and Security Agreement Dated as of April 30, 2002 among Silverleaf Finance I, Inc., as the Borrower, the Company, as the Servicer, Autobahn Funding Company LLC, as a Lender, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, as the Agent, U.S. Bank Trust National Association, as the Agent's Bank, and Wells Fargo Bank Minnesota, National Association, as the Backup Servicer. 10.9 Amendment Agreement No. 1, dated as of April 30, 2002 Purchase And Contribution Agreement dated as of October 30, 2000 between the Company and Silverleaf Finance I, Inc. 10.10 Employment Agreement dated April 18, 2002 between the Company and Sharon K. Brayfield.
EXHIBIT NO. DESCRIPTION - ----------- ----------- 16.1 Letter from Deloitte & Touche, LLP to the Securities and Exchange Commission dated June 25, 2002 (incorporated by reference to Exhibit 16.1 of the Registrant's Form 8-K filed on June 26, 2002). 99.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-4.1 3 d00253exv4w1.txt AMENDED AND RESTATED INDENTURE EXHIBIT 4.1 ---------- SILVERLEAF RESORTS, INC. 10 1/2% SENIOR SUBORDINATED NOTES DUE 2008 AMENDED AND RESTATED INDENTURE Dated as of May 2, 2002 ---------- WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION Trustee ---------- TABLE OF CONTENTS
Page RECITALS..........................................................................................................1 ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE............................................................2 Section 1.01. Definitions.............................................................................2 Section 1.02. Other Definitions.......................................................................9 Section 1.03. Incorporation by Reference of Trust Indenture Act.......................................9 Section 1.04. Rules of Construction...................................................................9 ARTICLE 2. THE NOTES............................................................................................10 Section 2.01. Form and Dating........................................................................10 Section 2.02. Execution and Authentication...........................................................11 Section 2.03. Registrar and Paying Agent.............................................................11 Section 2.04. Paying Agent to Hold Money in Trust....................................................12 Section 2.05. Holder Lists...........................................................................12 Section 2.06. Transfer and Exchange..................................................................12 Section 2.07. Replacement Notes......................................................................14 Section 2.08. Outstanding Notes......................................................................14 Section 2.09. Treasury Notes.........................................................................15 Section 2.10. Temporary Notes........................................................................15 Section 2.11. Cancellation...........................................................................15 Section 2.12. Defaulted Interest.....................................................................15 ARTICLE 3. REDEMPTION AND PREPAYMENT............................................................................16 Section 3.01. Notices to Trustee.....................................................................16 Section 3.02. Selection of Notes to Be Redeemed......................................................16 Section 3.03. Notice of Redemption...................................................................16 Section 3.04. Effect of Notice of Redemption.........................................................17 Section 3.05. Deposit of Redemption Price............................................................17 Section 3.06. Notes Redeemed in Part.................................................................18 Section 3.07. Optional Redemption....................................................................18 Section 3.08. Mandatory Redemption...................................................................18 Section 3.09. [Intentionally omitted]................................................................18 ARTICLE 4. COVENANTS............................................................................................18 Section 4.01. Payment of Notes.......................................................................18 Section 4.02. Maintenance of Office or Agency........................................................19 Section 4.03. Reports................................................................................19 Section 4.04. Compliance Certificate.................................................................20 Section 4.05. [Intentionally omitted]................................................................21 Section 4.06. [Intentionally omitted]................................................................21 Section 4.07. [intentionally omitted]................................................................21
Page Section 4.08. [intentionally omitted]...............................................................21 Section 4.09. [intentionally omitted]...............................................................21 Section 4.10. [intentionally omitted]...............................................................21 Section 4.11. [intentionally omitted]...............................................................21 Section 4.12. [intentionally omitted]...............................................................21 Section 4.13. Business Activities...................................................................21 Section 4.14. Corporate Existence...................................................................21 Section 4.15. [intentionally omitted]...............................................................22 Section 4.16. [intentionally omitted]...............................................................22 Section 4.17. [intentionally omitted]...............................................................22 Section 4.18. [intentionally omitted]...............................................................22 Section 4.19. [intentionally omitted]...............................................................22 Section 4.20. [intentionally omitted]...............................................................22 Section 4.21. [intentionally omitted]...............................................................22 Section 4.22. [intentionally omitted]...............................................................22 ARTICLE 5. SUCCESSORS..........................................................................................22 Section 5.01. [intentionally omitted]...............................................................22 Section 5.02. Successor Corporation Substituted.....................................................22 ARTICLE 6. DEFAULTS AND REMEDIES...............................................................................22 Section 6.01. Events of Default.....................................................................22 Section 6.02. Acceleration..........................................................................24 Section 6.03. Other Remedies........................................................................24 Section 6.04. Waiver of Past Defaults...............................................................25 Section 6.05. Control by Majority...................................................................25 Section 6.06. Limitation on Suits...................................................................25 Section 6.07. Rights of Holders of Notes to Receive Payment.........................................26 Section 6.08. Collection Suit by Trustee............................................................26 Section 6.09. Trustee May File Proofs of Claim......................................................26 Section 6.10. Priorities............................................................................27 Section 6.11. Undertaking for Costs.................................................................27 ARTICLE 7. TRUSTEE.............................................................................................27 Section 7.01. Duties of Trustee.....................................................................27 Section 7.02. Rights of Trustee.....................................................................29 Section 7.03. Individual Rights of Trustee..........................................................30 Section 7.04. Trustee's Disclaimer..................................................................30 Section 7.05. Notice of Defaults....................................................................30 Section 7.06. Reports by Trustee to Holders of the Notes............................................30 Section 7.07. Compensation and Indemnity............................................................30 Section 7.08. Replacement of Trustee................................................................31 Section 7.09. Successor Trustee by Merger, etc......................................................32 Section 7.10. Eligibility; Disqualification.........................................................32 Section 7.11. Preferential Collection of Claims Against Company.....................................33
Page ARTICLE 8. LEGAL DEFEASANCE.....................................................................................33 Section 8.01. Option to Effect Legal Defeasance......................................................33 Section 8.02. Legal Defeasance and Discharge.........................................................33 Section 8.03. [intentionally omitted]................................................................33 Section 8.04. Conditions to Legal Defeasance.........................................................33 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions...............................................................35 Section 8.06. Repayment to Company...................................................................35 Section 8.07. Reinstatement..........................................................................36 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.....................................................................36 Section 9.01. Without Consent of Holders of Notes....................................................36 Section 9.02. With Consent of Holders of Notes.......................................................37 Section 9.03. Compliance with Trust Indenture Act....................................................38 Section 9.04. Revocation and Effect of Consents......................................................38 Section 9.05. Notation on or Exchange of Notes.......................................................38 Section 9.06. Trustee to Sign Amendments, etc........................................................39 ARTICLE 10. SUBORDINATION.......................................................................................39 Section 10.01. Agreement to Subordinate...............................................................39 Section 10.02. Certain Definitions....................................................................39 Section 10.03. Liquidation; Dissolution; Bankruptcy...................................................40 Section 10.04. Default on Designated Senior Debt......................................................40 Section 10.05. Acceleration of Notes..................................................................40 Section 10.06. When Distribution Must Be Paid Over....................................................41 Section 10.07. Notice by Company......................................................................41 Section 10.08. Subrogation............................................................................41 Section 10.09. Relative Rights........................................................................42 Section 10.10. Subordination May Not Be Impaired by Company...........................................42 Section 10.11. Distribution or Notice to Representative...............................................42 Section 10.12. Rights of Trustee and Paying Agent.....................................................42 Section 10.13. Authorization to Effect Subordination..................................................43 ARTICLE 11. GUARANTEES..........................................................................................43 Section 11.01. Unconditional Guarantee................................................................43 Section 11.02. Subordination of Note Guarantee........................................................44 Section 11.03. Severability...........................................................................44 Section 11.04. Release of a Guarantor.................................................................45 Section 11.05. Limitation of Guarantor's Liability....................................................45 Section 11.06. Guarantors May Consolidate, etc., on Certain Terms.....................................45 Section 11.07. Waiver of Subrogation..................................................................46 Section 11.08. Execution of Guarantee.................................................................46 Section 11.09. Additional Subsidiary Guarantees.......................................................47 ARTICLE 12. MISCELLANEOUS.......................................................................................47 Section 12.01. Trust Indenture Act Controls...........................................................47
Page Section 12.02. Notices..............................................................................47 Section 12.03. Communication by Holders of Notes with Other Holders of Notes........................48 Section 12.04. Certificate and Opinion as to Conditions Precedent...................................49 Section 12.05. Statements Required in Certificate or Opinion........................................49 Section 12.06. Rules by Trustee and Agents..........................................................49 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders.............49 Section 12.08. Governing Law........................................................................50 Section 12.09. No Adverse Interpretation of Other Agreements........................................50 Section 12.10. Successors...........................................................................50 Section 12.11. Severability.........................................................................50 Section 12.12. Counterpart Originals................................................................50 Section 12.13. Table of Contents, Headings, etc.....................................................50
EXHIBITS Exhibit A FORM OF NOTE Exhibit A-1 FORM OF SUBSIDIARY GUARANTEE Exhibit B FORM OF SUPPLEMENTAL INDENTURE THIS AMENDED AND RESTATED INDENTURE (this "Amended Indenture") dated as of May 2, 2002 is made by and among Silverleaf Resorts, Inc., a Texas corporation (the "Company"), and, as guarantors, Bull's Eye Marketing, Inc., a Delaware corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, eStarCommunications, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, and Silverleaf Travel, Inc., a Texas corporation, (each a "Guarantor" and collectively, the "Guarantors"), and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). RECITALS A. WHEREAS, the Company, the Guarantors, the Trustee and (i) Villages Land, Inc., a Texas corporation, (ii) Bull's Eye Marketing, Inc., a California corporation, (iii) Condominium Builders, Inc., a Texas corporation, and (iv) Silverleaf Hotels, Inc., a Texas corporation (collectively, (i), (ii), (iii), and (iv) above are hereafter referred to as the "Dissolved Guarantors") entered into that certain Indenture dated as of April 1, 1998 ("Indenture") pursuant to which the Company issued its 10 1/2% Senior Subordinated Notes due 2008 (the "Notes") and the Guarantors and the Dissolved Guarantors guaranteed the Company's obligations thereunder; B. WHEREAS, following the execution of the Indenture, the Company organized eStarCommunications, Inc. as a wholly-owned Restricted Subsidiary of the Company and eStarCommunications, Inc. executed a Supplemental Indenture and a Subsidiary Guarantee; C. WHEREAS, the Dissolved Guarantors have been liquidated and the assets of each have been transferred to the Company pursuant to a plan of liquidation adopted by the board of directors and the Company, as the sole shareholder of each of the Dissolved Guarantors; D. WHEREAS, Holders of 85.36% percent of the principal amount of the Notes outstanding as of the date hereof have consented to the modification of the Indenture and the adoption of this Amended Indenture as an amendment and restatement of the Indenture and have delivered to the Trustee evidence of such consent in a form satisfactory to the Trustee; E. WHEREAS, Holders of 85.36% of the principal amount of the Notes have also consented to rescind the acceleration of the Notes and waive all Defaults and Events of Default existing as of this date upon payment to the Trustee of all past due interest on the Notes; F. WHEREAS, the Trustee hereby acknowledges receipt of all past due interest on the $1,827,805.62 in principal amount of the Notes which remain outstanding as of the date hereof; G. WHEREAS, the Trustee also hereby acknowledges rescission of the acceleration of the principal, interest and other charges due under the Notes which occurred on May 22, 2001 and waiver of all Defaults and Events of Default existing as of this date; 1 H. WHEREAS, the Board of Directors of the Company has authorized the execution of this Amended Indenture by the Company; and I. WHEREAS, the Trustee has received the documents described in Section 7.02 of the Indenture. NOW, THEREFORE, in consideration of the foregoing premises and the agreements, provisions and covenants herein contained, the Company, the Guarantors and the Trustee hereby adopt the following terms and conditions for the Amended Indenture: ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Amended Indenture" means this Amended Indenture dated as of May 2, 2002. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. 2 "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Company" means Silverleaf Resorts, Inc., a Texas corporation, and any and all successors thereto. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means those certain credit facilities at the date hereof between the Company and certain lenders providing for revolving credit on the security of Mortgages Receivable, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, modified, restated, renewed, increased, supplemented, refunded, replaced or refinanced from time to time, whether with the same or different lenders and in the same or different amounts. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Notes" means certificated Notes registered in the name of the Holder thereof and issued in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Amended Indenture. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facilities and (ii) any other Senior Debt permitted under this Indenture, and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, 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 on which the Notes mature. "Domestic Restricted Subsidiary" means a Restricted Subsidiary that is not formed, incorporated or organized in a jurisdiction outside the United States. 3 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the 6.0% Senior Subordinated Notes due 2007 in an aggregate principal amount of $28,467,000 issued by the Company pursuant to that certain indenture dated as May 2, 2002 among the Company, the Guarantors and Wells Fargo Bank Minnesota, National Association, as Trustee for the Exchange Notes. The Exchange Notes shall be junior in right of payment to Senior Debt, but senior in right of payment to the Notes. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date hereof. "Global Note" means a Note in the form of Exhibit A bearing the Global Note Legend and with the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Global Note Legend" means the legend contained in footnote 1 of Exhibit A which is to be placed on Global Notes. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) Silverleaf Travel, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, eStarCommunications, Inc., a Texas Corporation, and Bull's Eye Marketing, Inc., a Delaware corporation and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Amended Indenture, and their respective successors and assigns. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred 4 and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means the Indenture dated April 1, 1998, which was amended and restated by this Amended Indenture. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Mortgages Receivable" means the (i) gross principal amount of notes receivable of the Company and its Restricted Subsidiaries secured by Liens on Vacation Intervals (including notes receivable secured by Vacation Intervals or other comparable timeshare interests acquired by the Company and its Restricted Subsidiaries), determined as based on the books and records of the Company, and (ii) all related customer files, instruments or other assets. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. 5 "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Notes" means the 10 1/2% Senior Subordinated Notes due 2008, dated effective as of April 1, 1998, which for all purposes of this Amended Indenture (including without limitation waivers, amendments, redemptions and offers to purchase), shall be treated as a single class. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering and sale of the Notes by the Company pursuant to a prospectus dated as of April 2, 1998, contained in the Registration Statement. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Receivables Subsidiary" of any Person means a Subsidiary which (i) is established and continues to operate for the limited purpose of acquiring, selling and financing Mortgages Receivable and related assets in connection with receivables securitization or financing transactions and (ii) all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Registration Statement" means the Registration Statement No. 333-47427 on Form S-1 relating to the Notes initially filed with the Commission on March 6, 1998 and all exhibits, schedules and amendments thereto. "Related Business" means, at any time, any business related, ancillary or complementary (as determined in good faith by the Board of Directors) to the business conducted by the Company and its Restricted Subsidiaries on the date hereof. 6 "Responsible Officer," when used with respect to the Trustee, means any Officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other Officer of the Trustee customarily performing functions similar to those performed by any of the above designated Officers and also means, with respect to a particular corporate trust matter, any other Officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities, (ii) any other Indebtedness permitted to be incurred by the Company or a Restricted Subsidiary under the terms of this Amended Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or Subsidiary Guarantees, as applicable, and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company or any Guarantor to the Company or any of their respective Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Amended Indenture. "Significant Restricted Subsidiary" of a Person means any Significant Subsidiary that is a Restricted Subsidiary. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Amended Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). 7 "Subsidiary Guarantees" means, individually and collectively, the Guarantees given by the Guarantors pursuant to Article 11 hereof, including a notation in the Notes substantially in the form attached hereto as Exhibit A-1. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Amended Indenture is qualified under the TIA. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Amended Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries; or (ii) any Receivables Subsidiary. "Vacation Interval" means an interest entitling the holder to use, for a limited period on an annual or other recurrent basis, a lodging unit, together with associated privileges and rights, at a Company resort, including, without limitation, a fee interest, a leasehold, a vendee's interest under a contract of deed, or other interest based on a floating period or points based system. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 8 SECTION 1.02. OTHER DEFINITIONS.
Defined in Term Section "Authentication Order"....................................... 2.02 "Event of Default"........................................... 6.01 "Legal Defeasance"........................................... 8.02 "Paying Agent"............................................... 2.03 "Registrar".................................................. 2.03
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Amended Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Subsidiary Guarantees; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Amended Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Amended Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and 9 (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. (a) General. The Notes and the Trustee's certificate of authentication in respect thereof shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made part of this Amended Indenture. The Subsidiary Guarantees shall be substantially in the form of Exhibit A-1, the terms of which are incorporated in and made part of this Amended Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Amended Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Amended Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note or Subsidiary Guarantee conflicts with the express provisions of this Amended Indenture, the provisions of this Amended Indenture shall govern and be controlling. (b) Global Notes. Notes shall be issued initially in the form of one or more Global Notes in definitive, fully registered form without interest coupons, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at the Corporate Trust Office of the Trustee, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of Cede & Co., as nominee of the Depositary, duly executed by the Company and authenticated and delivered by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of the outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee. 10 (c) Certificated Securities. Except as provided in Section 2.06(a), owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of Definitive Notes in certificated form. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Amended Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Amended Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company or any of their respective Subsidiaries. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Amended Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent in connection with the Notes and to act as Note Custodian with respect to the Global Notes. 11 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, and premium, if any, or interest on the Notes, and will notify the Trustee of any default by the Company or any Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any assets distributed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company, a Guarantor or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders or the Trustee all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company or any Guarantor, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors shall cause the Registrar to furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. Global Notes may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. Global Notes may be exchanged for Definitive Notes only if (i) the Depositary (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, in its sole discretion, determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above, (x) the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes, and (y) Definitive Notes shall be issued in such names and issued in any approved denominations as the Depositary shall instruct the Trustee. At such time as all beneficial interests in Global Notes have been exchanged for Definitive Notes pursuant to this Section 2.06(a), redeemed, repurchased or cancelled, all Global 12 Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. A Global Note may not be exchanged for another Note except as provided in this Section 2.06(a). (b) Transfer and Exchange of Beneficial Interests in the Global Notes. Nothing in this Amended Indenture precludes the transfer and exchange of beneficial interests in the Global Notes by lawful means and in accordance with any applicable provisions of this Amended Indenture and any applicable procedures of the Depositary. (c) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, subject to this Section 2.06, the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's or the Registrar's request. (ii) No service charge shall be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, and 9.05 hereof). (iii) The Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid Obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Amended Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection or (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 13 (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. SECTION 2.07. REPLACEMENT NOTES If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Amended Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, 14 then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Amended Indenture. SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the 15 expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date (unless a shorter notice shall be satisfactory to the Trustee), an Officers' Certificate setting forth (a) the clause of this Amended Indenture pursuant to which the redemption shall occur, (b) the redemption date, (c) the principal amount of Notes to be redeemed and (d) the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such 16 Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Amended Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any 17 interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003................................................ 105.250% 2004................................................ 103.500% 2005................................................ 101.750% 2006 and thereafter................................. 100.000%
(b) [INTENTIONALLY OMITTED] (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption payments with respect to the Notes. SECTION 3.09. [INTENTIONALLY OMITTED] ARTICLE 4. COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money 18 deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York (or at such other location where the Trustee maintains an office), an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Amended Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York (or at such other location where the Trustee maintains an office) for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 4.03. REPORTS. Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company and the Guarantors shall furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K on behalf of the Company and the Guarantors were such Forms required to be filed in consequence of the Notes, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition 19 and results of operations of the Unrestricted Subsidiaries of the Company), and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants, and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information with the Commission for public availability within the time periods specified in the SEC's rules and regulations. The Company and the Guarantors shall at all times comply with TIA Section 314(a). SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Amended Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Amended Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Amended Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. 20 SECTION 4.05. [INTENTIONALLY OMITTED] SECTION 4.06. [INTENTIONALLY OMITTED] SECTION 4.07. [INTENTIONALLY OMITTED] SECTION 4.08. [INTENTIONALLY OMITTED] SECTION 4.09. [INTENTIONALLY OMITTED] SECTION 4.10. [INTENTIONALLY OMITTED] SECTION 4.11. [INTENTIONALLY OMITTED] SECTION 4.12. [INTENTIONALLY OMITTED] SECTION 4.13. BUSINESS ACTIVITIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business other than the same line of business in which the Company and its Restricted Subsidiaries are engaged on the date hereof or a Related Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. SECTION 4.14. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. 21 SECTION 4.15. [INTENTIONALLY OMITTED] SECTION 4.16. [INTENTIONALLY OMITTED] SECTION 4.17. [INTENTIONALLY OMITTED] SECTION 4.18. [INTENTIONALLY OMITTED] SECTION 4.19. [INTENTIONALLY OMITTED] SECTION 4.20. [INTENTIONALLY OMITTED] SECTION 4.21. [INTENTIONALLY OMITTED] SECTION 4.22. [INTENTIONALLY OMITTED] ARTICLE 5. SUCCESSORS SECTION 5.01. [INTENTIONALLY OMITTED] SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Amended Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Amended Indenture with the same effect as if such successor Person had been named as the Company herein. ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions hereof) and such default continues for a period of 30 days; 22 (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions hereof) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) [INTENTIONALLY OMITTED] (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Amended Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes, provided however, that no Event of Default may occur prior to December 31, 2002 if the Company fails to observe or fully perform the covenants imposed by Sections 4.03, 4.04(a), or 4.04(b); (e) [INTENTIONALLY OMITTED] (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; (g) except as permitted by this Amended Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (h) the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 23 (i) is for relief against the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, in an involuntary case; (ii) appoints a Custodian of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, or for all or substantially all of the property of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary; or (iii) orders the liquidation of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof) occurs and is continuing, the Trustee or the Holders of at least a majority in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, no such acceleration shall be effective until five business days after the giving of written notice of such acceleration to the Company and the Representatives (as defined in Section 10.02) under the Designated Senior Debt at addresses (if any) previously reported to the Trustee by the Company. Upon any such declaration (and such period after notice, if applicable), the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission of such acceleration would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Amended Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not 24 impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, and premium, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Amended Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Amended Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Amended Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least a majority in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. 25 A Holder of a Note may not use this Amended Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Amended Indenture, the right of any Holder of a Note to receive payment of principal, and premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Guarantor for the whole amount of principal of, and premium, if any, and interest remaining unpaid on the Notes and, to the extent lawful, interest on overdue principal and interest as provided in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 26 SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, and premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, and premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Amended Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Amended Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Amended Indenture and the Trustee need perform only those duties that are specifically set forth in this Amended Indenture and no others, and no implied 27 covenants or obligations shall be read into this Amended Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein.) (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Amended Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Amended Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Amended Indenture at the request of any Holders, unless such Holders shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. 28 SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Amended Indenture. (e) Unless otherwise specifically provided in this Amended Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Amended Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by the agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (h) The Trustee shall not be charged with knowledge of any Event of Default with respect to the Notes for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee shall have actual knowledge of the Event of Default or (2) written notice of such Event of Default shall have been given to a Responsible Officer of the Trustee by the Company, any other obligor on such Notes or by any Holder of such Notes. 29 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Amended Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Amended Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Amended Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Amended Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Amended Indenture and services hereunder. The Trustee's compensation shall 30 not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Amended Indenture, including the costs and expenses of enforcing this Amended Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Amended Indenture. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Amended Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; 31 (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Amended Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. 32 This Amended Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have Section 8.02 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Amended Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Amended Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, and premium, if any, and interest on such Notes when such payments are due, (b) the Company's and the Guarantors' obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article 8. SECTION 8.03. [INTENTIONALLY OMITTED] SECTION 8.04. CONDITIONS TO LEGAL DEFEASANCE. The following shall be the conditions to the application of Section 8.02 hereof to the outstanding Notes: 33 In order to exercise Legal Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Amended Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) [INTENTIONALLY OMITTED] (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence) or insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Amended Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and 34 (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Amended Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, and premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. 35 SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 hereof by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Amended Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 hereof; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Amended Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Amended Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Guarantor pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of a Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Amended Indenture under the TIA; (f) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Amended Indenture as of the date hereof; or (g) to allow any Guarantor to execute a supplemental indenture and/or Subsidiary Guarantee with respect to the Notes. 36 Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Amended Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Amended Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, and premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Amended Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer, or purchase of, the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Amended Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. Notwithstanding anything to the contrary herein, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): 37 (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Amended Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest on the Notes; (g) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (h) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Amended Indenture, except in accordance with the terms of this Amended Indenture. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Amended Indenture or the Notes shall be set forth in a amended or supplemental Amended Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder of a Note and every subsequent Holder of a Note. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue 38 and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. Neither the Trustee nor the Company may sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Amended Indenture. ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed) and the Exchange Notes, and that the subordination is for the benefit of the holders of Senior Debt and the Exchange Notes. SECTION 10.02. CERTAIN DEFINITIONS. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt and the Exchange Notes (and any debt securities issued in exchange for Senior Debt or the Exchange Notes) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt and the Exchange Notes pursuant to the Amended Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. A distribution may consist of cash, securities or other property, by set-off or otherwise. 39 SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) holders of Senior Debt and holders of the Exchange Notes shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt and Exchange Notes (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt or Exchange Notes) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes; and (2) until all Obligations with respect to Senior Debt and the Exchange Notes (as provided in subsection (1) above) are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.04 hereof), as their interests may appear. SECTION 10.04 DEFAULT ON DESIGNATED SENIOR DEBT. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations (other than (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.04 hereof) until all principal and other Obligations with respect to the Senior Debt and the Exchange Notes have been paid in full if: (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt or the Exchange Notes occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt or the Exchange Notes; or (ii) a default, other than a payment default, on Designated Senior Debt or the Exchange Notes occurs and is continuing that then permits holders of the Designated Senior Debt or the Exchange Notes to accelerate their maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt or the Exchange Notes. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the date upon which the default is cured or waived. SECTION 10.05. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt and the Exchange Notes of the acceleration. 40 SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, first, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt; then second to the Trustee for the benefit of the holders of the Exchange Notes for application to the payment of all Obligations with respect to Exchange Notes remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of the Exchange Notes. With respect to the holders of Senior Debt or Exchange Notes, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt or Exchange Notes shall be read into this Amended Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt or the Exchange Notes, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt or the Exchange Notes shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt and the Exchange Notes as provided in this Article 10. SECTION 10.08. SUBROGATION. After all Senior Debt and Exchange Notes are paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt and the Exchange Notes to receive distributions applicable to Senior Debt and Exchange Notes to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt or the Exchange Notes. A distribution made under this Article 10 to holders of Senior Debt or the Exchange Notes that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. 41 SECTION 10.09. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes in regard to the holders of Senior Debt and the Exchange Notes. Nothing in this Amended Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt and the Exchange Notes; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt and Exchange Notes to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt or Exchange Notes to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Amended Indenture. SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt or Exchange Notes, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt, the Exchange Notes, and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Amended Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such 42 payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt or the Exchange Notes with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. ARTICLE 11. GUARANTEES SECTION 11.01. UNCONDITIONAL GUARANTEE. Subject to the provisions of this Article 11, each Guarantor hereby unconditionally, jointly and severally, on a senior subordinated basis, guarantees (each such Guarantee being a "Subsidiary Guarantee" and all such Guarantees being the "Subsidiary Guarantees") to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Notes or this Amended Indenture, that: (i) the principal of and interest and premium, if any, on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal of, and interest on, to the extent lawful, the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05 hereof. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, subject to Section 11.05 hereof, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Amended Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the 43 Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Subsidiary Guarantees will not be discharged except by complete performance of the obligations contained in the Notes, this Amended Indenture and in the Subsidiary Guarantees. If any Holder of Notes or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder of Notes, the Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that they shall not be entitled to any right of subrogation in relation to the Holders of the Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of the Subsidiary Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of the Subsidiary Guarantees. The Guarantors shall have the right to contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under this Guarantee. The Notes will not be guaranteed by any present or future Subsidiary that is not a Domestic Restricted Subsidiary or any Unrestricted Subsidiary. SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE. The Obligations of each Guarantor under its Note Guarantee pursuant to this Article 10 shall be junior and subordinated in right of payment to the rights of holders of the Senior Debt of such Guarantor and the guaranty of the Exchange Notes on the same basis as the Notes are junior and subordinated to Senior Debt and the Exchange Notes of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Amended Indenture, including Article 10 hereof. SECTION 11.03. SEVERABILITY. In case any provision of a Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 44 SECTION 11.04. RELEASE OF A GUARANTOR. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, in each case to a corporation, Person or entity which is not, and giving effect to the transaction will not be, the Company or a Restricted Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of any obligations under its Subsidiary Guarantee. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.04. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article 11. SECTION 11.05. LIMITATION OF GUARANTOR'S LIABILITY. Each Guarantor and by its acceptance of a Note each Holder confirms that it is the intention of all such parties that the Subsidiary Guarantee by such Guarantor pursuant to its Subsidiary Guarantee does not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under the Subsidiary Guarantees not constituting a fraudulent transfer or conveyance. SECTION 11.06. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. Subject to the provisions of Section 11.04, no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor, or sell or otherwise dispose of all or substantially all of its assets to or liquidate into any such corporation, other than the Company or another Restricted Subsidiary, Person or entity, unless: (i) subject to the provisions of Section 11.05, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee under the Notes, the Amended Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; and 45 (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. SECTION 11.07. WAIVER OF SUBROGATION. Each Guarantor hereby irrevocably waives, until and unless all of the Obligations guaranteed hereby are indefeasibly discharged, any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Subsidiary Guarantees and this Amended Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Amended Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Amended Indenture and that the waiver set forth in this Section 11.07 is knowingly made in contemplation of such benefits. SECTION 11.08. EXECUTION OF GUARANTEE. To evidence its Subsidiary Guarantee to the Holder of Notes specified in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee in the form set forth in Exhibit A-1 hereto shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantees. Each such Subsidiary Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Subsidiary Guarantee prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Subsidiary Guarantee on behalf of such Guarantor. Such signatures upon the Subsidiary Guarantees may be by manual or facsimile signature of such Officers and may be imprinted or otherwise reproduced on the Subsidiary Guarantees, and in case any such Officer who shall have signed the Subsidiary Guarantees shall cease to be such Officer before the Note on which such Subsidiary Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the person who signed the Subsidiary Guarantees had not ceased to be such Officer of the Guarantor. 46 SECTION 11.09. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Subsidiaries shall acquire or create another Restricted Subsidiary after the date of the Amended Indenture, then such newly acquired or created Restricted Subsidiary shall become a Guarantor, on a senior subordinated basis, of the Company's obligations under the Notes and this Amended Indenture by (i) executing a supplemental indenture to this Amended Indenture in the form set forth in Exhibit B hereto, (ii) executing a Subsidiary Guarantee in the form set forth in Exhibit A-1 hereto and (iii) delivering to the Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that the Subsidiary Guarantee and supplemental indenture have been duly authorized, executed and delivered by such Restricted Subsidiary and constitute the valid and binding obligations of such Restricted Subsidiary and enforceable against such Restricted Subsidiary in accordance with their respective terms, subject to customary exceptions for bankruptcy and equitable principles; provided, however, that this Section 11.09 shall not apply to any Subsidiary during such period as such Subsidiary (y) would not be a Domestic Restricted Subsidiary or (z) has been properly designated as an Unrestricted Subsidiary in accordance with this Amended Indenture for so long as it continues to constitute an Unrestricted Subsidiary. ARTICLE 12. MISCELLANEOUS SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Amended Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 12.02. NOTICES. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Guarantor: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Robert E. Mead 47 With a copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. 901 Main Street, Suite 3700 Dallas, Texas 75202-3792 Telecopier No.: (214) 747-3732 Attention: David N. Reed If to the Trustee: Wells Fargo Bank Minnesota, National Association Corporate Trust Department 6th and Marquette Minneapolis, Minnesota 55479-0069 Telecopier No.: (612) 667-9825 Attention: Corporate Trust Department The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Amended Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). 48 SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company and/or any Guarantor to the Trustee to take any action under this Amended Indenture, the Company and/or such Guarantor, as the case may be, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Amended Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Amended Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 12.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, Officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or 49 any Guarantor under the Notes, the Subsidiary Guarantees, this Amended Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUESTED THEREBY. SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Amended Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Amended Indenture, the Notes, or the Subsidiary Guarantees. SECTION 12.10. SUCCESSORS. All agreements of the Company and the Guarantors in this Amended Indenture, the Notes or the Subsidiary Guarantees shall bind the respective successors of the Company and the Guarantors. All agreements of the Trustee in this Amended Indenture shall bind its successors. SECTION 12.11. SEVERABILITY. In case any provision in this Amended Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Amended Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Amended Indenture have been inserted for convenience of reference only, are not to be considered a part of this Amended Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 50 SIGNATURES Dated as of May 2, 2002 SILVERLEAF RESORTS, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer Dated as of May 2, 2002 AWARDS VERIFICATION CENTER, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 SILVERLEAF TRAVEL, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer 51 Dated as of May 2, 2002 SILVERLEAF RESORT ACQUISITIONS, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 BULL'S EYE MARKETING, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. Title: Treasurer Dated as of May 2, 2002 SILVERLEAF BERKSHIRES, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Sandra G. Cearley -------------------------------------- Name: Sandra G. Cearley Title: Secretary Dated as of May 2, 2002 ESTARCOMMUNICATIONS, INC. By: /s/ Robert E. Mead -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. Title: Treasurer 52 Dated as of May 2, 2002 WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ Jane Y. Schweiger -------------------------------------- Name: Jane Y. Schweiger Title: Assistant Vice President 53 - -------------------------------------------------------------------------------- EXHIBIT A (Face of Note) Amended and Restated 10 1/2% Senior Subordinated Notes due 2008 No. 001 $75,000,000.00 SILVERLEAF RESORTS, INC. promises to pay to Cede & Co. CUSIP No. 828395-AA-1 or registered assigns, the principal sum of Seventy-Five Million Dollars on April 1, 2008. Interest Payment Dates: April 1, and October 1 Record Dates: March 15, and September 15 Dated: April 8, 1998 By: --------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: --------------------------------- Name: Harry J. White, Jr. Title: Chief Financial Officer (SEAL) This is one of the [Global] Notes referred to in the within-mentioned Amended Indenture: Wells Fargo Bank Minnesota, National Association, as Trustee By: ----------------------------------------- - -------------------------------------------------------------------------------- (Back of Note) 10 1/2% Senior Subordinated Notes due 2008 [Insert the Global Note Legend for Global Notes](1) Capitalized terms used herein shall have the meanings assigned to them in the Amended Indenture referred to below unless otherwise indicated. 1. INTEREST. Silverleaf Resorts, Inc., a Texas corporation (the "Company"), promises to pay interest on the principal amount of this Note at 10 1/2% per annum until maturity. The Company will pay such interest semi-annually on April 1 and October 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid on the Notes, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. - ---------- (1) "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER EXCHANGE OR PAYMENT, AND ANY CERTICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF." 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Amended Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, and premium, if any, on the Global Note and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Wells Fargo Bank Minnesota, National Association, the Trustee under the Amended Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. AMENDED INDENTURE. The Company issued the Notes under an Indenture dated as of April 1, 1998 ("Indenture") between the Company, its Subsidiaries and the Trustee. The Indenture was amended and restated pursuant to the Amended and Restated Indenture dated as of , 2002 (the "Amended Indenture"). The terms of the Notes include those stated in the Amended Indenture and those made part of the Amended Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Amended Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Amended Indenture, the provisions of the Amended Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company limited to $66.7 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- 2003......................................................... 105.250% 2004......................................................... 103.500% 2005......................................................... 101.750% 2006 and thereafter.......................................... 100.000%
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 7. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Amended Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Amended Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 8. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 9. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Amended Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Amended Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Amended Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions regarding payment and exchange of Notes in a manner that does not materially adversely affect any Holder, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Amended Indenture of any such Holder, to allow any Guarantor to execute a supplemental indenture to the Amended Indenture and/or a Subsidiary Guarantee with respect to the Notes, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Amended Indenture under the Trust Indenture Act or to allow any Guarantor to execute a supplemental indenture to the Amended Indenture and/or Subsidiary Guarantee with respect to the Notes. 10. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Amended Indenture); (ii) default in payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Amended Indenture) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least a majority in principal amount of then outstanding Notes to comply with certain other agreements in the Amended Indenture or the Notes; (iv) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (v) except as permitted by the Amended Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; and (vi) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least a majority in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Amended Indenture or the Notes except as provided in the Amended Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Amended Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Amended Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 11. SUBSIDIARY GUARANTEES. Payment of principal and interest (including interest on overdue principal and overdue interest, if lawful) is unconditionally guaranteed on a senior subordinated basis by certain subsidiaries of the Company. 12. SUBORDINATION. The payment of principal, premium, if any, and interest on the Notes is subordinated to the prior payment of Senior Debt and Exchange Notes on the terms provided in the Amended Indenture. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 16. NO RECOURSE AGAINST OTHERS. A director, Officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Amended Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Amended Indenture. Requests may be made to: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Sandra Cearley EXHIBIT A-1 [FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE Silverleaf Berkshires, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, Silverleaf Resort Acquisitions, a Texas corporation, Silverleaf Travel, Inc., a Texas corporation, Silverleaf Hotels, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, eStarCommunications, Inc., a Texas corporation (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Amended Indenture referred to in the Note upon which this notation is endorsed), on terms and conditions provided in the Amended Indenture, (i) has unconditionally guaranteed (a) the due and punctual payment of the principal of and interest, if any, on the Notes, whether at maturity or interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and (if lawful) interest on the Notes, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Amended Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. Capitalized terms used herein have the meanings assigned to them in the Amended Indenture unless otherwise indicated. No stockholder, Officer, director or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, Officer, director or incorporator. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Amended Indenture by the manual signature of one of its authorized Officers. Dated as of _______, 2002 AWARDS VERIFICATION CENTER, INC. By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of _______, 2002 SILVERLEAF TRAVEL, INC. By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: --------------------------------- Title: -------------------------------- Dated as of _______, 2O02 SILVERLEAF RESORT ACQUISITIONS, INC. By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of _______, 2002 BULL'S EYE MARKETING, INC. By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: Harry J. White, Jr. Title: Treasurer Dated as of _______, 2002 SILVERLEAF BERKSHIRES, INC. By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: Sandra G. Cearley Title: Secretary Dated as of _______, 2002 ESTARCOMMUNICATIONS, INC. By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: Harry J. White, Jr. Title: Treasurer ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: ----------------------------- Your Signature: -------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee. [INSERT FOR GLOBAL NOTE] SCHEDULE OF EXCHANGES OF INTERESTS IN THE AMENDED AND RESTATED GLOBAL NOTE The following exchanges of a part of this Amended and Restated Global Note for and interest in another Global Note or for a Definitive Note have been made:
Principal Amount at maturity of this Amount of decrease in Amount of increase in Amended and Restated Signature of Principal Amount of Principal Amount of Global Note following authorized Officer of this Amended and this Amended and such decrease Trustee or Note Date of Exchange Restated Global Note Restated Global Note (or increase) Custodian - ---------------- ---------------------- --------------------- --------------------- ---------------------
EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Silverleaf Resorts, Inc. (or its permitted successor), a Texas corporation (the "Company"), the Company, the other Guarantors (as defined in the Amended Indenture referred to herein) and Wells Fargo Bank Minnesota, N. A., as trustee under the Amended Indenture referred to below (the "Trustee"). WITNESSETH WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of April 1, 1998 providing for the issuance of an aggregate principal amount of up to $200.0 million of 10 1/2% Senior Subordinated Notes due 2008 (the "Notes"); WHEREAS, the Company, the Trustee, and each of the Guaranteeing Subsidiaries identified therein have entered into the Amended and Restated Indenture ("Amended Indenture") as of __________, 2002; WHEREAS, the Amended Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Amended Indenture on the terms and conditions set forth herein (the "New Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01(g) of the Amended Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Amended Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Amended Indenture, to jointly and severally guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and B-1 enforceability of the Amended Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Amended Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. (c) The following is hereby waived: the benefit or advantage of any stay, extension or usury law wherever enacted, now or at any time hereafter in force, diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This New Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Amended Indenture, and the Guaranteeing Subsidiary accepts all of the obligations of a Guarantor under the Amended Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any Custodian, trustee, liquidator or other similar official acting in relation to either the Company or any Guarantor, any amount paid by the Company or any Guarantor either to the Trustee or such Holder, this New Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. B-2 (g) As between the Guaranteeing Subsidiary, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Amended Indenture for the purposes of this New Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Amended Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guaranteeing Subsidiary for the purpose of this New Subsidiary Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) After giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Amended Indenture, this New Subsidiary Guarantee shall be limited to the maximum amount as shall result in the obligations of such Guarantor under its New Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. 3. Execution and Delivery. The Guaranteeing Subsidiary agrees that this New Subsidiary Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of this New Subsidiary Guarantee. 4. Guaranteeing Subsidiary may Consolidate, Etc., On Certain Terms. (a) Subject to Section 11.06 of the Amended Indenture and Section 5 hereof, the Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guaranteeing Subsidiary is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guaranteeing Subsidiary or sell or otherwise dispose of all or substantially all of its assets to or liquidate into any such corporation, Person or entity, unless: (i) subject to Section 2(i) hereof, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guaranteeing Subsidiary, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Amended Indenture, the Subsidiary Guarantees and this New Subsidiary Guarantee on the terms set forth herein or therein; and B-3 (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the New Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Amended Indenture to be performed by the Guaranteeing Subsidiary, such successor corporation shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the New Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the New Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Amended Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Amended Indenture as though all of such New Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4, 5 and 11 of the Amended Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Amended Indenture or in any of the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of the Guaranteeing Subsidiary as an entirety or substantially as an entirety to the Company or another Guarantor. 5. Releases. (a) In the event of a sale or other disposition of all of the assets of the Guaranteeing Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of the Guaranteeing Subsidiary, in each case to a corporation, Person or entity which is not, and giving effect to the transaction will not be, the Company or a Restricted Subsidiary of the Company, then such Guaranteeing Subsidiary (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guaranteeing Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guaranteeing Subsidiary) will be released and relieved of any obligations under this New Subsidiary Guarantee (b) Any Guarantor (including the Guaranteeing Subsidiary) not released from its obligations under its Subsidiary Guarantee or New Subsidiary Guarantee, as the case may be, shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Amended Indenture as provided in Article 11 of the Amended Indenture. 6. No Recourse Against Others. No past, present or future director, Officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Amended Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by B-4 accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. B-5 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: , --------------- ---- [GUARANTEEING SUBSIDIARY] By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: SILVERLEAF RESORTS, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: AWARDS VERIFICATIONS CENTER, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: B-6 SILVERLEAF TRAVEL, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: SILVERLEAF RESORT ACQUISITIONS, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: SILVERLEAF BERKSHIRES, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: BULL'S EYE MARKETING, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: B-7 Dated as of ESTARCOMMUNICATIONS, INC. --------------- By: -------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: -------------------------------------- Name: Harry J. White, Jr. Title: Chief Financial Officer WELLS FARGO BANK MINNESOTA, N.A. as Trustee By: -------------------------------------- Name: Title: B-8 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Amended Indenture Section 310 (a)(1).................................................................................. 7.10 (a)(2).................................................................................. 7.10 (a)(3).................................................................................. N.A. (a)(4).................................................................................. N.A. (a)(5).................................................................................. 7.10 (b)..................................................................................... 7.10 (c)..................................................................................... N.A. 311 (a)..................................................................................... 7.11 (b)..................................................................................... 7.11 (c)..................................................................................... N.A. 312 (a)..................................................................................... 2.05 (b)..................................................................................... 12.03 (c)..................................................................................... 12.03 313 (a)..................................................................................... 7.06 (b)(1).................................................................................. N.A. (b)(2).................................................................................. 7.07 (c)..................................................................................... 7.06;12.02 (d)..................................................................................... 7.06 314 (a)..................................................................................... 4.03;12.02 (b)..................................................................................... N.A. (c)(1).................................................................................. 12.04 (c)(2).................................................................................. 12.04 (c)(3).................................................................................. N.A. (d)..................................................................................... N.A. (e)..................................................................................... 12.05 (f)..................................................................................... N.A. 315 (a)..................................................................................... 7.01 (b)..................................................................................... 7.05;12.02 (c)..................................................................................... 7.01 (d)..................................................................................... 7.01 (e)..................................................................................... 6.11 316 (a)(last sentence)...................................................................... 2.09 (a)(1)(A)............................................................................... 6.05 (a)(1)(B)............................................................................... 6.04 (a)(2).................................................................................. N.A. (b)..................................................................................... 6.07 (c)..................................................................................... 2.12 317 (a)(1).................................................................................. 6.08 (a)(2).................................................................................. 6.09 (b)..................................................................................... 2.04
318 (a)..................................................................................... 12.01 (b)..................................................................................... N.A. (c)..................................................................................... 12.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Amended Indenture. EX-4.2 4 d00253exv4w2.txt INDENTURE EXHIBIT 4.2 ---------- SILVERLEAF RESORTS, INC. 6.0% SENIOR SUBORDINATED NOTES DUE 2007 INDENTURE Dated as of May 2, 2002 ---------- WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION Trustee ---------- TABLE OF CONTENTS
Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE............................................................1 Section 1.01. Definitions........................................................................1 Section 1.02. Other Definitions.................................................................16 Section 1.03. Incorporation by Reference of Trust Indenture Act.................................16 Section 1.04. Rules of Construction.............................................................17 ARTICLE 2. THE NOTES............................................................................................17 Section 2.01. Form and Dating...................................................................17 Section 2.02. Execution and Authentication......................................................18 Section 2.03. Registrar and Paying Agent........................................................19 Section 2.04. Paying Agent to Hold Money in Trust...............................................19 Section 2.05. Holder Lists......................................................................19 Section 2.06. Transfer and Exchange.............................................................20 Section 2.07. Replacement Notes.................................................................21 Section 2.08. Outstanding Notes.................................................................22 Section 2.09. Treasury Notes....................................................................22 Section 2.10. Temporary Notes...................................................................22 Section 2.11. Cancellation......................................................................23 Section 2.12. Defaulted Interest................................................................23 ARTICLE 3. REDEMPTION AND PREPAYMENT............................................................................23 Section 3.01. Notices to Trustee................................................................23 Section 3.02. Selection of Notes to Be Redeemed.................................................24 Section 3.03. Notice of Redemption..............................................................24 Section 3.04. Effect of Notice of Redemption....................................................25 Section 3.05. Deposit of Redemption Price.......................................................25 Section 3.06. Notes Redeemed in Part............................................................25 Section 3.07. Optional Redemption...............................................................25 Section 3.08. Mandatory Redemption..............................................................26 Section 3.09. Offer to Purchase by Application of Excess Proceeds...............................26 ARTICLE 4. COVENANTS............................................................................................28 Section 4.01. Payment of Notes..................................................................28 Section 4.02. Maintenance of Office or Agency...................................................28 Section 4.03. Reports...........................................................................28 Section 4.04. Compliance Certificate............................................................29 Section 4.05. Taxes.............................................................................30 Section 4.06. Stay, Extension and Usury Laws....................................................30 Section 4.07. Restricted Payments...............................................................30
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries......................................................................32 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock........................33 Section 4.10. Asset Sales.......................................................................36 Section 4.11. Transactions with Affiliates......................................................37 Section 4.12. Liens.............................................................................38 Section 4.13. Business Activities...............................................................38 Section 4.14. Corporate Existence...............................................................38 Section 4.15. Offer to Repurchase Upon Change of Control........................................39 Section 4.16. Sale and Leaseback Transactions...................................................40 Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted Subsidiaries...........................................................41 Section 4.18. Designation of a Subsidiary as an Unrestricted Subsidiary.........................41 Section 4.19. Limitation on Status as Investment Company........................................42 Section 4.20. No Senior Subordinated Debt.......................................................42 Section 4.21. No Amendment of Subordination Provisions..........................................42 Section 4.22. Payments for Consent..............................................................42 Section 4.23. Listings of Company Common Stock on Exchanges....................................43 Section 4.24 Directors and Officers Insurance..................................................43 Section 4.25 Miscellaneous Reports And Financial Forecast......................................43 Section 4.26 Management Equity Based Compensation..............................................43 ARTICLE 5. SUCCESSORS...........................................................................................44 Section 5.01. Merger, Consolidation, or Sale of Assets..........................................44 Section 5.02. Successor Corporation Substituted.................................................44 ARTICLE 6. DEFAULTS AND REMEDIES................................................................................45 Section 6.01. Events of Default.................................................................45 Section 6.02. Acceleration......................................................................47 Section 6.03. Other Remedies....................................................................47 Section 6.04. Waiver of Past Defaults...........................................................47 Section 6.05. Control by Majority...............................................................48 Section 6.06. Limitation on Suits...............................................................48 Section 6.07. Rights of Holders of Notes to Receive Payment.....................................48 Section 6.08. Collection Suit by Trustee........................................................49 Section 6.09. Trustee May File Proofs of Claim..................................................49 Section 6.10. Priorities........................................................................49 Section 6.11. Undertaking for Costs.............................................................50 Section 6.12 Acknowledgments and Agreements of Holders With Respect to DZ Bank Facility..........................................................................50 ARTICLE 7. TRUSTEE..............................................................................................51 Section 7.01. Duties of Trustee.................................................................51 Section 7.02. Rights of Trustee.................................................................52 Section 7.03. Individual Rights of Trustee......................................................53 Section 7.04. Trustee's Disclaimer..............................................................53
Section 7.05. Notice of Defaults................................................................54 Section 7.06. Reports by Trustee to Holders of the Notes........................................54 Section 7.07. Compensation and Indemnity........................................................54 Section 7.08. Replacement of Trustee............................................................55 Section 7.09. Successor Trustee by Merger, etc..................................................56 Section 7.10. Eligibility; Disqualification.....................................................56 Section 7.11. Preferential Collection of Claims Against Company.................................56 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.............................................................56 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance..........................56 Section 8.02. Legal Defeasance and Discharge....................................................57 Section 8.03. Covenant Defeasance...............................................................57 Section 8.04. Conditions to Legal or Covenant Defeasance........................................58 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions..........................................................59 Section 8.06. Repayment to Company..............................................................60 Section 8.07. Reinstatement.....................................................................60 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.....................................................................60 Section 9.01. Without Consent of Holders of Notes...............................................60 Section 9.02. With Consent of Holders of Notes..................................................61 Section 9.03. Compliance with Trust Indenture Act...............................................63 Section 9.04. Revocation and Effect of Consents.................................................63 Section 9.05. Notation on or Exchange of Notes..................................................63 Section 9.06. Trustee to Sign Amendments, etc...................................................63 ARTICLE 10. SUBORDINATION.......................................................................................64 Section 10.01. Agreement to Subordinate..........................................................64 Section 10.02. Certain Definitions...............................................................64 Section 10.03. Liquidation; Dissolution; Bankruptcy..............................................64 Section 10.04. Default on Designated Senior Debt.................................................64 Section 10.05. Acceleration of Notes.............................................................65 Section 10.06. When Distribution Must Be Paid Over...............................................65 Section 10.07. Notice by Company.................................................................66 Section 10.08. Subrogation.......................................................................66 Section 10.09. Relative Rights...................................................................66 Section 10.10. Subordination May Not Be Impaired by Company......................................66 Section 10.11. Distribution or Notice to Representative..........................................67 Section 10.12. Rights of Trustee and Paying Agent................................................67 Section 10.13. Authorization to Effect Subordination.............................................67 ARTICLE 11. GUARANTEES..........................................................................................67 Section 11.01. Unconditional Guarantee...........................................................67 Section 11.02. Subordination of Note Guarantee...................................................69 Section 11.03. Severability......................................................................69 Section 11.04. Release of a Guarantor............................................................69
Section 11.05. Limitation of Guarantor's Liability...............................................69 Section 11.06. Guarantors May Consolidate, etc., on Certain Terms................................70 Section 11.07. Waiver of Subrogation.............................................................70 Section 11.08. Execution of Guarantee............................................................71 Section 11.09. Additional Subsidiary Guarantees..................................................71 ARTICLE 12. MISCELLANEOUS.......................................................................................72 Section 12.01. Trust Indenture Act Controls......................................................72 Section 12.02. Notices...........................................................................72 Section 12.03. Communication by Holders of Notes with Other Holders of Notes.....................73 Section 12.04. Certificate and Opinion as to Conditions Precedent................................73 Section 12.05. Statements Required in Certificate or Opinion.....................................73 Section 12.06. Rules by Trustee and Agents.......................................................74 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders......................................................................74 Section 12.08. Governing Law.....................................................................74 Section 12.09. No Adverse Interpretation of Other Agreements.....................................74 Section 12.10. Successors........................................................................75 Section 12.11. Severability......................................................................75 Section 12.12. Counterpart Originals.............................................................75 Section 12.13. Table of Contents, Headings, etc..................................................75
EXHIBITS Exhibit A FORM OF NOTE Exhibit A-1 FORM OF SUBSIDIARY GUARANTEE Exhibit B FORM OF SUPPLEMENTAL INDENTURE INDENTURE dated as of May 2, 2002 among Silverleaf Resorts, Inc., a Texas corporation (the "Company"), and, as guarantors, Silverleaf Travel, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, and eStarCommunications, Inc., a Texas corporation (each a "Guarantor" and collectively, the "Guarantors"), and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, National Association), as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 6.0% Senior Subordinated Notes due 2007 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of Section 4.15 hereof and/or the provisions of Section 5.01 hereof and not by the provisions of Section 4.10 hereof), and (ii) the 1 issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary that is a Guarantor or by a Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary that is a Guarantor, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary that is a Guarantor, (iii) a Restricted Payment that is permitted by Section 4.07 hereof (iv) sales of Mortgages Receivable to a Receivables Subsidiary, and (v) sales, leases or contracts for deed in the ordinary course of business of Vacation Intervals or Mortgages Receivable, will not be deemed to be Asset Sales. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the full faith and credit of the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying 2 securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), or (iv) the Company consolidates with, or merges with or into, any Person, or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Club" means the owners' associations for any of the Company's resorts or developments, or of nearby residential or condominium tracts developed by the Company or its predecessors, and the Silverleaf Club. "Company" means Silverleaf Resorts, Inc., a Texas corporation, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, 3 commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period (excluding any such non-cash items to the extent they represent a reversal of amounts that were accrued in prior periods and were then excluded from Consolidated Cash Flow as a result of the second parenthetical in clause (iv)), plus, (vi) non-cash items increasing Consolidated Net Income for a prior period which were excluded from Consolidated Cash Flow in such period due to the application of clause (v), to the extent such non-cash item is collected in cash in a subsequent period, in each case, on a consolidated basis and determined in accordance with GAAP. The recognition of revenue on the accrual basis in accordance with GAAP upon the sale, lease, or sale by contract for deed of Vacation Intervals shall not be deemed a non-cash item increasing Consolidated Net Income. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Person was included in calculating Consolidated Net Income. "Consolidated Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, issues Guarantees, repays, redeems, retires, repurchases or defeases any Indebtedness or Disqualified Stock (other than revolving credit borrowings) subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, issuance, Guarantee, repayment, redemption, retirement, repurchase, or defeasance of Indebtedness or Disqualified Stock (and in the case of incurrence or issuance, the pro forma application of the net proceeds thereof) as if the same had occurred at the beginning of the applicable reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, 4 and (iii) the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. For purposes of this definition, whenever pro forma effect is given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith shall be determined in good faith by a responsible financial or accounting officer of the Company. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash by the referent Person to the Company or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. 5 "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means those certain credit facilities at the date hereof between the Company and certain lenders providing for revolving credit on the security of Mortgages Receivable in an aggregate amount up to $286.9 million, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, modified, restated, renewed, increased, supplemented, refunded, replaced or refinanced from time to time, whether with the same or different lenders and in the same or different amounts. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Notes" means certificated Notes registered in the name of the Holder thereof and issued in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facilities and (ii) any other Senior Debt permitted under this Indenture, the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Senior Debt." 6 "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, 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 360 days after the date on which the Notes mature. "Domestic Restricted Subsidiary" means a Restricted Subsidiary that is not formed, incorporated or organized in a jurisdiction outside the United States. "DZ Bank Facility" means that certain Receivables Loan and Security Agreement dated as of October 30, 2000, together with all amendments, restatements and/or extensions thereto, by and among the Company, Silverleaf Finance I, Inc., a Delaware corporation, Autobahn Funding Company LLC, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main (formerly known as DG Bank Deutsche Genossenschaftsbank AG), U.S. Bank Trust National Association, and Wells Fargo Bank Minnesota, National Association, and related documents thereto. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means up to $7,787,000 in aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Facilities) in existence on the date hereof, until such amounts are repaid. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date hereof. "Global Note" means a Note in the form of Exhibit A bearing the Global Note Legend and with the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Global Note Legend" means the legend contained in footnote 1 of Exhibit A which is to be placed on Global Notes. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without 7 limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) Silverleaf Travel, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, eStarCommunications, Inc., a Texas corporation, and Bull's Eye Marketing, Inc., a Delaware corporation and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, in each case excluding (i) Mortgages Receivable (ii) receivables from "Sampler" contracts or lot or condominium sales, and (iii) management fees owed to the Company by a Club or Clubs pursuant to the terms of a Management Agreement, the payment of which is deferred pursuant to any net income limitations imposed by such agreement. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any 8 Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of (a) the present value of the remaining principal, premium, and interest payments that would be payable with respect to such Note if such Note were redeemed on April 1, 2003, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (b) the outstanding principal amount of such Note. "Make-Whole Average Life" means, with respect to any date of acceleration of Notes, the number of years (calculated to the nearest one-twelfth) from such date to April 1, 2003. "Make-Whole Price" means, with respect to any Note, the greater of (a) the sum of the principal amount of and Make-Whole Amount with respect to such Note, and (b) the redemption price of such Note on April 1, 2003. "Management Agreement" means any agreement between the Company and a Club or Clubs for the management of a Company resort or resorts. "Mortgages Receivable" means (i) the gross principal amount of notes receivable of the Company and its Restricted Subsidiaries secured by Liens on Vacation Intervals (including notes receivable secured by Vacation Intervals or other comparable timeshare interests acquired by the Company and its Restricted Subsidiaries), determined in accordance with the books and records of the Company, and (ii) all related customer files, instruments or other assets. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on (or tax benefit from) such gain or loss, realized in connection with (a) any Asset Sale 9 (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on (or tax benefit from) such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than the Credit Facilities or other revolving Indebtedness if there is no corresponding permanent reduction in commitments with respect thereto) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Notes" means the 6.0% Senior Subordinated Notes due 2007 issued under this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering and sale of the Notes by the Company pursuant to the Exchange Offer. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. 10 "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Old Notes" means the Company's 10 1/2% Senior Subordinated Notes due 2008 issued by the Company pursuant to an indenture dated as of April 1, 1998 as amended and restated as of the date hereof, by and among the Company, the Guarantors, and Wells Fargo Bank Minnesota, National Association (formerly known as Norwest Bank Minnesota, National Association), as trustee. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor that is engaged in the same business as the Company and its Restricted Subsidiaries were engaged in on the date hereof or a Related Business, or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor and that is engaged in the same line of business as the Company and its Restricted Subsidiaries were engaged in on the date hereof or a Related Business; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) payroll, travel, and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (g) loans or advances to employees made in the ordinary course of business consistent with past practices in an aggregate amount outstanding at any one time not to exceed $500,000; (h) stock, obligations, or securities received in settlement of debts created in the ordinary course of business and owing to the Company or a Restricted Subsidiary; (i) any Investment acquired by the Company or any of its Restricted Subsidiaries (1) in exchange for any other Investment or receivable held by the Company of any such Restricted Subsidiary in connection with or as a result of any bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or receivable or (2) as a result of a foreclosure (or deed in lieu of) by the Company or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (j) Hedging Obligations permitted under Section 4.09 hereof; (k) all Investments existing on the date hereof; (l) Investments by the Company or a Restricted Subsidiary in a Club or Clubs in an aggregate amount outstanding at any one time not to exceed $2.0 million; (m) investments in a Receivables Subsidiary, and (n) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent 11 changes in value), when taken together with all other Investments made pursuant to this clause that are at the time outstanding, not to exceed $5.0 million. "Permitted Liens" means (i) Liens existing on the date hereof to the extent and in the manner such Liens are in effect on such date; (ii) Liens securing Senior Debt and Liens on assets securing Guarantees of Senior Debt, in each case permitted to be incurred pursuant to this Indenture, (iii) Liens (if any) securing the Notes and the Subsidiary Guarantees; (iv) Liens securing Permitted Refinancing Indebtedness which is incurred to refinance any Indebtedness which has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture, provided, however, that such Liens are not materially less favorable to the Holders and are not materially more favorable to the Lien Holder with respect to such Liens than the Liens in respect of the Indebtedness being refinanced; (v) Liens in favor of the Company or any Wholly Owned Restricted Subsidiary; (vi) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (vii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (viii) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (ix) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xi) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $1.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the affected property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xii) Liens on assets of Receivables Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified Stock of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date the same as or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the 12 Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Subsidiary Guarantees, as applicable, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes and the Subsidiary Guarantees, as applicable, on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Receivables Subsidiary" of any Person means a Subsidiary which (i) is established and continues to operate for the limited purpose of acquiring, selling and financing Mortgages Receivable and related assets in connection with receivables securitization or financing transactions and (ii) all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Related Business" means, at any time, any business related, ancillary or complementary (as determined in good faith by the Board of Directors) to the business conducted by the Company and its Restricted Subsidiaries on the date hereof. "Responsible Officer," when used with respect to the Trustee, means any Officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other Officer of the Trustee customarily performing functions similar to those performed by any of the above designated Officers and also means, with respect to a particular corporate trust matter, any other Officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities, (ii) any other Indebtedness permitted to be incurred by the Company or a Restricted Subsidiary under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or Subsidiary 13 Guarantees, as applicable, and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company or any Guarantor to the Company or any of their respective Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. "Significant Restricted Subsidiary" of a Person means any Significant Subsidiary that is a Restricted Subsidiary. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantees" means, individually and collectively, the Guarantees given by the Guarantors pursuant to Article 11 hereof, including a notation in the Notes substantially in the form attached hereto as Exhibit A-1. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Treasury Rate" means, at any time of computation, the yield to maturity at such time (as compiled by and published in the most recent Federal Reserve Statistical Release H.15(519), which has become publicly available at least two business days prior to the date of acceleration of the Notes, or if such Statistical Release is no longer published, any publicly available source of similar market data) of United States Treasury securities with a constant maturity most nearly equal to the Make-Whole Average Life; provided, however, that if the Make-Whole Average Life is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life is less than 14 one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries; or (ii) any Receivables Subsidiary. "Vacation Interval" means an interest entitling the holder to use, for a limited period on an annual or other recurrent basis, a lodging unit, together with associated privileges and rights, at a Company resort, including, without limitation, a fee interest, a leasehold, a vendee's interest under a contract of deed, or other interest based on a floating period or points based system. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 15 SECTION 1.02. OTHER DEFINITIONS.
Defined in Term Section "Affiliate Transaction"...................................... 4.11 "Asset Sale Offer"........................................... 3.09 "Authentication Order"....................................... 2.02 "Change of Control Offer".................................... 4.15 "Change of Control Payment".................................. 4.15 "Change of Control Payment Date"............................. 4.15 "Covenant Defeasance"........................................ 8.03 "Event of Default"........................................... 6.01 "Excess Proceeds"............................................ 4.10 "incur"...................................................... 4.09 "Legal Defeasance"........................................... 8.02 "Offer Amount"............................................... 3.09 "Offer Period"............................................... 3.09 "Paying Agent"............................................... 2.03 "Permitted Debt"............................................. 4.09 "Purchase Date".............................................. 3.09 "Registrar".................................................. 2.03 "Restricted Payments"........................................ 4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: 16 "indenture securities" means the Notes and the Subsidiary Guarantees; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. (a) General. The Notes and the Trustee's certificate of authentication in respect thereof shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made part of this Indenture. The Subsidiary Guarantees shall be substantially in the form of Exhibit A-1, the terms of which are incorporated in and made part of this Indenture. The Notes may have notations, legends or endorsements required 17 by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $500 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note or Subsidiary Guarantee conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes shall be issued initially in the form of one or more Global Notes in definitive, fully registered form without interest coupons, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at the Corporate Trust Office of the Trustee, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of Cede & Co., as nominee of the Depositary, duly executed by the Company and authenticated and delivered by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of the outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee. (c) Certificated Securities. Except as provided in Section 2.06(a), owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of Definitive Notes. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. 18 The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company or any of their respective Subsidiaries. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent in connection with the Notes and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, and premium, if any, or interest on the Notes, and will notify the Trustee of any default by the Company or any Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any assets distributed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company, a Guarantor or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders or the Trustee all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company or any Guarantor, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors shall cause the 19 Registrar to furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. Global Notes may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. Global Notes may be exchanged for Definitive Notes only if (i) the Depositary (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, in its sole discretion, determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above, (x) the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes, and (y) Definitive Notes shall be issued in such names and issued in any approved denominations as the Depositary shall instruct the Trustee. At such time as all beneficial interests in Global Notes have been exchanged for Definitive Notes pursuant to this Section 2.06(a), redeemed, repurchased or cancelled, all Global Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. A Global Note may not be exchanged for another Note except as provided in this Section 2.06(a). (b) Transfer and Exchange of Beneficial Interests in the Global Notes. Nothing in this Indenture precludes the transfer and exchange of beneficial interests in the Global Notes by lawful means and in accordance with any applicable provisions of this Indenture and any applicable procedures of the Depositary. (c) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, subject to this Section 2.06, the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate Global Notes and Definitive Notes upon the Company or the Registrar's request. (ii) No service charge shall be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover 20 any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid Obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection or (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. SECTION 2.07. REPLACEMENT NOTES If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the 21 Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably 22 acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date (unless a shorter notice shall be satisfactory to the Trustee), an Officers' Certificate setting forth (a) the clause of this Indenture pursuant to which the redemption shall occur, (b) the redemption date, (c) the principal amount of Notes to be redeemed and (d) the redemption price. 23 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $500 or whole multiples of $500. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. 24 At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below: 25
Year Percentage ---- ---------- 2003........................................ 105.250% 2004........................................ 103.500% 2005........................................ 101.750% 2006 and thereafter......................... 100.000%
(b) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.15 hereof, the Company shall not be required to make mandatory redemption payments with respect to the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; 26 (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have Notes purchased in integral multiples of $500 only; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $500, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. 27 ARTICLE 4. COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York (or at such other location where the Trustee maintains an office), an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York (or at such other location where the Trustee maintains an office) for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 4.03. REPORTS. Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company and 28 the Guarantors shall furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K on behalf of the Company and the Guarantors were such Forms required to be filed in consequence of the Notes, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company), and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants, and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information with the Commission for public availability within the time periods specified in the SEC's rules and regulations. The Company and the Guarantors shall at all times comply with TIA Section 314(a). SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being 29 understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and dividends and distributions payable solely to the Company or to a Guarantor); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinate to the Notes or the Subsidiary Guarantees, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: 30 (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable reference period set forth in the first paragraph of Section 4.09 hereof, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in such Section 4.09; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date hereof (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the date of this Indenture of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into or exchanged for Disqualified Stock), plus (iii) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the date hereof, the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation; provided, however, that the foregoing amount shall not exceed the amount of Investments made (and treated as a Restricted Investment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, plus (iv) an amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any Restricted Subsidiaries in any Person resulting from dividends or distributions on, or repurchases or redemptions of, such Investments by such Person, net cash proceeds realized upon the sale of such Investment to an unaffiliated purchaser, reductions in obligations of such Person guaranteed by, and repayments of loans or advances or other transfers of assets by such Person to, the Company or a Restricted Subsidiary, provided, however, that no amount shall be included under this clause (iv) to the extent it is already included in Consolidated Net Income. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that 31 are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with Excess Proceeds remaining after an Asset Sale Offer; (v) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its respective Equity Interests on a pro rata basis; (vi) repurchases of Equity Interests of the Company deemed to occur upon exercise of employee options, warrants or rights if such Equity Interests represent a portion of the exercise price of or withholding tax due upon exercise of such options, warrants or rights; (vii) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary held by any employee or former employee pursuant to the terms of any of the Company's or such Restricted Subsidiaries' benefit plans or arrangements; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.0 million in any twelve-month period and $5.0 million in the aggregate and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (viii) the purchase, defeasance or other acquisition or retirement of all or part of the Old Notes at a cost no more than 10% of the face value of the Old Notes so acquired but only if the Company is permitted under Article 10 hereof to make any payment or other distribution to the Trustee or any Holder in respect of the Obligations hereunder; and (ix) additional Restricted Payments in an amount not to exceed $5.0 million in the aggregate. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, which calculations may be based upon the Company's latest available financial statements, together with a copy of any fairness opinion or appraisal required by this Indenture. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties 32 or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) Existing Indebtedness as in effect on the date of this Indenture, (ii) this Indenture and the Notes, (iii) applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (v) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vi) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired, (vii) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (viii) restrictions contained in security agreements or mortgages to the extent such restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages, (ix) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the capital stock or assets of such Restricted Subsidiary pending the closing of the sale of such sale or disposition, or (x) any restriction in any agreement that is not more restrictive than the restrictions in the Credit Facilities as in effect on the date of this Indenture and such restrictions contained in the Credit Facilities on the date of this Indenture. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and the Company and the Guarantors shall not issue any Disqualified Stock and the Company shall not permit any of its Restricted Subsidiaries which are not Guarantors to issue any shares of preferred stock other than to the Company or to a Wholly Owned Restricted Subsidiary which is a Guarantor, provided that any subsequent issuance or transfer of Capital Stock that results in such Guarantor ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent transfer of such preferred stock (other than to the Company or another Wholly Owned Restricted Subsidiary which is a Guarantor) will be deemed, in each case, to be the issuance of such preferred stock by the issuer thereof; provided, however, that the Company and any Guarantor may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock: (i) during the calendar quarter ending September 30, 2002, if the Consolidated Coverage Ratio for the most recently ended calendar quarter is at least 1.1:1; 33 (ii) during the calendar quarter ending December 31, 2002, if the Consolidated Coverage Ratio for the two most recently ended calendar quarters is at least 1.1:1; (iii) during the calendar quarter ending March 31, 2003, if the Consolidated Coverage Ratio for the three most recently ended calendar quarters is at least 1.1:1; (iv) during the calendar quarter beginning with, and including, the calendar quarter ending June 30, 2003 and for each calendar quarter of the Company thereafter, if the Consolidated Coverage Ratio for the four most recently ended calendar quarters is at least 1.25:1. The respective Consolidated Coverage Ratios shall be determined on a pro forma basis (including a pro forma application of the net proceeds from such Indebtedness or Disqualified Stock), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of the respective calendar quarters. The most recently ended calendar quarters shall be determined on the basis of the Company's calendar quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued. The foregoing limitations shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness secured by Mortgages Receivable; (ii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant, equipment, land or inventory used or held for sale in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount outstanding for the Company and its Restricted Subsidiaries not to exceed $5.0 million at any time outstanding; (iii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Restricted Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of its Restricted Subsidiaries; and provided further that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (iii), does not exceed $5.0 million; 34 (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Existing Indebtedness or Indebtedness that was permitted by this Indenture to be incurred; (v) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (A) if the Company or a Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and the Subsidiary Guarantees and (B)(i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (vi) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (vii) the guarantee by the Company or any Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary that was permitted to be incurred by another provision of this covenant; (viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed an incurrence of Indebtedness by a Restricted Subsidiary of the Company; (ix) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the Subsidiary Guarantees thereof and this Indenture in an aggregate principal amount up to $28,467,000; (x) the incurrence by the Company or any of its Restricted Subsidiaries of Existing Indebtedness of the Company or any such Restricted Subsidiary; (xi) the incurrence by the Company or any of its Restricted Subsidiaries in the ordinary course of business of Indebtedness (A) in respect of performance, completion, surety or similar bonds or guarantees (including pursuant to letters of credit) in connection with new construction, development, leasing of billboards, or compliance with federal, state or local law, or (B) in respect of bankers acceptances, letters of credit, appeal or similar bonds other than pursuant to clause 35 (A) in an aggregate amount at any time outstanding for the Company and its Restricted Subsidiaries not to exceed $5.0 million; (xii) the incurrence of Indebtedness of the Company or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations in connection with the disposition of any assets of the Company or any such Restricted Subsidiary (other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such assets for the purpose of financing such acquisition), in principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time (including all indebtedness incurred to replace, refund or refinance any such indebtedness) outstanding for the Company and its Restricted Subsidiaries not to exceed $7.5 million; (xiv) the incurrence by a Receivables Subsidiary of Indebtedness; and (xv) during the calendar quarter ending June 30, 2002, the incurrence of additional Indebtedness by the Company or any of its Restricted Subsidiaries in an aggregate principal amount not to exceed $2.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xv) of this paragraph or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.09. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant 36 to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this Section 4.10. Any Restricted Payment that is permitted by Section 4.07 hereof or any Permitted Investment will not be deemed to be an Asset Sale. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company (or such Restricted Subsidiary) may apply such Net Proceeds, at its option, either (a) to repay any Senior Debt of the Company or a Guarantor, or (b) to the acquisition of a controlling interest in another business, the making of a capital expenditure or the acquisition of other long-term assets, in each case, in the same line of business as the Company and its Restricted Subsidiaries were engaged on the date hereof or in a Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving Senior Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." Within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million hereunder, the Company shall commence a pro rata Asset Sale Offer pursuant to Section 3.09 hereof to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of repurchase, in accordance with the procedures set forth in Section 3.09 hereof. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to 37 the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (x) any employment, compensation or indemnity agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (y) transactions between or among the Company and/or its Restricted Subsidiaries, and (z) Restricted Payments that are permitted by Section 4.07 hereof, in each case, shall not be deemed Affiliate Transactions; and provided further that (i) transactions between the Company or a Restricted Subsidiary and any Club in the ordinary course of business or (ii) a securitization or similar transaction between the Company and a Receivables Subsidiary shall not be subject to clause (ii)(b) above. SECTION 4.12. LIENS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, or any income or profits therefrom (or assign or convey any right to receive income therefrom), which secures Indebtedness or trade payables that rank pari passu with or subordinate to the Notes or the Subsidiary Guarantees, as applicable, unless (i) if such Lien secures Indebtedness or trade payables that ranks pari passu with the Notes or Subsidiary Guarantees, as applicable, the Notes and such Subsidiary Guarantees are secured on an equal and ratable basis with the obligation so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness or trade payables that is subordinated to the Notes or Subsidiary Guarantees, as applicable, such Lien shall be subordinated to a Lien granted to the Holders of Notes and Subsidiary Guarantees on the same collateral as that securing such Lien to the same extent as such Indebtedness, as applicable, until such obligation is no longer secured by a lien. SECTION 4.13. BUSINESS ACTIVITIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business other than the same line of business in which the Company and its Restricted Subsidiaries are engaged on the date hereof or a Related Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. The Company shall not permit any of its Receivables Subsidiaries to engage in any business other than the business for which the Receivables Subsidiary was established. SECTION 4.14. CORPORATE EXISTENCE. (a) Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, 38 license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. (b) The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate, partnership or other existence of each of its Receivables Subsidiaries in accordance with the respective organizational documents (as the same may be amended from time to time) of such Receivables Subsidiary; provided, however, that the Company shall not be required to preserve the corporate, partnership or other existence of any of its Receivables Subsidiaries, if the Board of Directors of the Company shall determine that the purpose for which the Receivables Subsidiary was established has been fulfilled. SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $500 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $500 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws 39 and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment in an amount equal to the purchase price for the Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered by such Holder, if any; provided, that each such new Note shall be in a principal amount of $500 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control resulting from a merger or consolidation which is permitted under Section 5.01 hereof. (d) Notwithstanding the foregoing, prior to complying with the provisions of this Section 4.15, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. SECTION 4.16. SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Consolidated Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof, (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction, and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with the provisions of Section 4.10 hereof. 40 SECTION 4.17. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED SUBSIDIARIES. The Company (i) shall not, and shall not permit any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any Person (other than to the Company or a Wholly Owned Restricted Subsidiary that is a Guarantor), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof, and (ii) will not permit any Wholly Owned Restricted Subsidiary or Receivables Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor. SECTION 4.18. DESIGNATION OF A SUBSIDIARY AS AN UNRESTRICTED SUBSIDIARY. A Subsidiary, other than a Receivables Subsidiary, is a Restricted Subsidiary unless designated as an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if at the time of such designation: (a) all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated are deemed to be a Restricted Payment at the time of such designation (all such outstanding Investments will be deemed to constitute an amount equal to the greatest of (i) the net book value of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made), and such Restricted Payment is permitted at such time under Section 4.07 hereof; (b) giving pro forma effect thereto as if such designation had occurred at the beginning of the Company's most recently completed applicable reference period set forth in the first paragraph of Section 4.09 hereof for which internal financial statements are available preceding the date of such designation, the pro forma Consolidated Coverage Ratio for such period is greater than the historical Consolidated Coverage Ratio for such period; (c) no Default or Event of Default shall have occurred and be continuing immediately preceding such designation and giving pro forma effect thereto or would occur as a consequence thereof; and (d) such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. In the event that a Restricted Subsidiary becomes an Unrestricted Subsidiary in accordance with this paragraph, then such Restricted Subsidiary shall be released from its obligations under its Subsidiary Guarantee in accordance with Section 11.04 hereof. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary, if at the time of such redesignation: (x) giving pro forma effect to the redesignation and incurrence of Indebtedness of the Unrestricted Subsidiary (if any) as if they occurred at the beginning of the Company's most recently completed applicable reference period set forth in the first paragraph of Section 4.09 hereof for which internal financial statements are available preceding the date of such redesignation, (i) any Indebtedness of such Unrestricted Subsidiary (including any Non-Recourse Debt) could be incurred pursuant to the Consolidated 41 Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof and (ii) the pro forma Consolidated Coverage Ratio for such period is greater than the historical Consolidated Coverage Ratio for such period; (y) the newly redesignated Domestic Restricted Subsidiary executes and delivers a Subsidiary Guarantee and an Opinion of Counsel; and (z) no Default or Event of Default shall have occurred and be continuing immediately preceding such redesignation and giving pro forma effect thereto or would occur as a consequence thereof. Any such designation or redesignation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such designation or redesignation and an Officers' Certificate certifying that such designation or redesignation complied with the foregoing conditions. If any Unrestricted Subsidiary becomes a Restricted Subsidiary, such Subsidiary shall be subject to the provisions of Article 11 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the definition of an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture. If the Unrestricted Subsidiary at such time would not be permitted to be redesignated a Restricted Subsidiary, the Company shall be in default of this Section 4.18. SECTION 4.19. LIMITATION ON STATUS AS INVESTMENT COMPANY. The Company and its Restricted Subsidiaries shall take all actions (and refrain from taking all actions) necessary to ensure that neither the Company nor any of its Restricted Subsidiaries will be required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or will otherwise become subject to regulation under the Investment Company Act. SECTION 4.20. NO SENIOR SUBORDINATED DEBT. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes, and (ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Subsidiary Guarantees. No Indebtedness shall be deemed to be Senior Debt solely because it is secured and no Indebtedness shall be deemed to be subordinated solely because it is convertible into Equity Interests. SECTION 4.21. NO AMENDMENT OF SUBORDINATION PROVISIONS. Without the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding, the Company will not amend, modify or alter the provisions of Article 10 of this Indenture in any way that will adversely affect the rights of Holders of Notes. SECTION 4.22. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any 42 Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 4.23. LISTINGS OF COMPANY COMMON STOCK ON EXCHANGES. The Company will use reasonable efforts to (i) effect the quotation of the Company's common stock on the OTC Bulletin Board as soon as practicable following issuance of the Notes and (ii) effect a listing of the Company's common stock on the NASDAQ SmallCap Market or higher trading market as soon as practicable following issuance of the Notes. As soon as practicable after issuance of the Notes, the Company shall become compliant, and thereafter remain compliant, with the corporate governance regulations set forth in Section 4350 of the Bylaws of the Nasdaq Stock Market, Inc. (the "Nasdaq"), as in effect from time to time (or any successor regulations), other than, unless otherwise required of the Company, any provisions relating to the filing of reports or other information with Nasdaq or the execution of a listing agreement. SECTION 4.24 DIRECTORS AND OFFICERS INSURANCE. The Company will maintain directors' and officers' insurance in amounts acceptable to, and with companies acceptable to, the Company's Board of Directors. SECTION 4.25 MISCELLANEOUS REPORTS AND FINANCIAL FORECAST. Following the issuance of the Notes, the Company will use reasonable efforts to (a) file as soon as practicable all annual and periodic information required to have been filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act since September 30, 2000 and which the Company has failed to file by reason of Rule 12b-25 promulgated under the Exchange Act or otherwise, and to become current in all of its filings with the Commission required under Section 13 or Section 15(d) of the Exchange Act, (b) furnish as soon as practicable to the Holders of the Notes the Company's Annual Report on Form 10-K for fiscal 2000 and each Quarterly Report on Form 10-Q for fiscal 2001, and (c) furnish as soon as practicable to the Holders of the Notes a comprehensive business plan consistent with the financial forecast previously furnished to the Holders, which business plan shall be (A) created by management of the Company with the support of a financial consulting firm acceptable to the Board of Directors and (B) approved by the Board of Directors for distribution to the Holders of the Notes. SECTION 4.26 MANAGEMENT EQUITY BASED COMPENSATION. Unless approved by a majority of the Board of Directors, the Company may not authorize any equity based compensation arrangement in addition to the presently authorized and outstanding grants under the 1997 Stock Option Plan (whether in the form of a stock option plan, stock appreciation rights plan, restricted share plan or other form of stock based incentive plan) for management of the Company that would obligate the Company to issue shares of its common stock at any time in excess of five percent (5%) of the shares of common stock outstanding as of the day immediately following the date of original issuance of Notes under this Indenture. 43 ARTICLE 5. SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company pursuant to a supplemental indenture under the Notes and this Indenture in a form reasonably satisfactory to the Trustee, (iii) immediately after such transaction, no Default or Event of Default exists and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, immediately after such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable reference period test set forth in the first paragraph of Section 4.09 hereof, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio set forth in such Section 4.09. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. 44 ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions hereof) and such default continues for a period of 30 days; (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions hereof) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company fails to comply for 30 days after notice from the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes with any of the provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof; (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes, provided however, that no Event of Default may occur prior to December 31, 2002 if the Company fails to observe or fully perform the covenants imposed by Sections 4.03, 4.04(a) or 4.04(b); (e) a default occurs under any mortgage, indenture, or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; provided, that in the case of any such Payment Default under clause (a) such default continues beyond the lesser of 30 days or the longest period for cure provided in any such Indebtedness as to which a Payment Default exists, or in the case of any acceleration of Indebtedness described in clause (b), such Indebtedness is not discharged or such acceleration cured, waived, rescinded or annulled within the lesser of 30 days after acceleration or the longest period for cure provided in any such Indebtedness which has been accelerated; 45 (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; (g) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (h) the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, in an involuntary case; (ii) appoints a Custodian of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, or for all or substantially all of the property of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary; or (iii) orders the liquidation of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, and the order or decree remains unstayed and in effect for 60 consecutive days. 46 SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, no such acceleration shall be effective until five business days after the giving of written notice of such acceleration to the Company and the Representatives (as defined in Section 10.02) under the Designated Senior Debt at addresses (if any) previously reported to the Trustee by the Company. Upon any such declaration (and such period after notice, if applicable), the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to, Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to April 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, the Make-Whole Price shall become immediately due and payable to the extent permitted by law. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default 47 in the payment of the principal of, and premium, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, and premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or 48 to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Guarantor for the whole amount of principal of, and premium, if any, and interest remaining unpaid on the Notes and, to the extent lawful, interest on overdue principal and interest as provided in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; 49 Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, and premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, and premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. SECTION 6.12 ACKNOWLEDGMENTS AND AGREEMENTS OF HOLDERS WITH RESPECT TO DZ BANK FACILITY (a) Each Holder of the Notes, by its acceptance thereof, acknowledges and agrees that in connection with the DZ Bank Facility (i) any sale or other transfer of Mortgages Receivable and related assets by the Company to a Receivables Subsidiary constitutes a true sale of such Mortgages Receivable and (ii) there are no grounds upon which the assets of the Company and any Restricted Subsidiary could be substantively consolidated with the assets of such Receivables Subsidiary upon the occurrence and continuation of an Event of Default set forth in Sections 6.01 (h) or (i) hereof or otherwise. (b) Regarding the DZ Bank Facility, each Holder of the Notes, by its acceptance thereof, (i) agrees to take such action as may be necessary or appropriate to effect the acknowledgements and agreements set forth in clause (a) of this Section 6.12 and not to take any action contrary to, or inconsistent with, such acknowledgments and agreements, in each case, upon the occurrence and continuation of an Event of Default set forth in Sections 6.01(h) or (i) hereof or otherwise and (ii) subject to Sections 6.05 and 7.01 hereof, authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effect such acknowledgements and agreements and not to take any action contrary to, or inconsistent with, such acknowledgments and agreements, in each case, upon the occurrence and continuation of an Event of Default set forth in Sections 6.01(h) or (i) hereof or otherwise, and appoints the Trustee its attorney-in-fact for any and all such purposes. 50 (c) With respect to any creditor of a Receivables Subsidiary, the Trustee undertakes to perform or observe only such of its covenants and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations with respect to such creditors shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to any creditors of a Receivables Subsidiary, and shall not be liable to any such creditors for any loss, liability or expense in connection with this Indenture or otherwise. ARTICLE 7. TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein.) (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and 51 (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. 52 (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by the agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (h) The Trustee shall not be charged with knowledge of any Event of Default with respect to the Notes for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee shall have actual knowledge of the Event of Default or (2) written notice of such Event of Default shall have been given to a Responsible Officer of the Trustee by the Company, any other obligor on such Notes or by any Holder of such Notes. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. 53 SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. 54 The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. 55 If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be 56 applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, and premium, if any, and interest on such Notes when such payments are due, (b) the Company's and the Guarantors' obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22 and 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise 57 under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence) or insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other 58 than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. 59 SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, and premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; 60 (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Guarantor pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of a Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (f) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (g) to allow any Guarantor to execute a supplemental indenture and/or Subsidiary Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided in Section 4.21 and below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, and premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer, or purchase of, the Notes). In addition, without the consent of the Holders of at least 66-2/3% in principal amount of then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes), no waiver or amendment to this Indenture may make any change in the provisions of Section 4.15 hereof that adversely affects the rights of any Holder of Notes. Section 61 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 4.21, 6.04 and 6.07 hereof, the Holders of a majority in principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. Notwithstanding anything to the contrary herein, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; 62 (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest on the Notes; (g) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (h) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder of a Note and every subsequent Holder of a Note. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. 63 ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. SECTION 10.02. CERTAIN DEFINITIONS. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. A distribution may consist of cash, securities or other property, by set-off or otherwise. SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes; and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.04 hereof), as their interests may appear. SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations (other than (i) Permitted Junior Securities and (ii) payments and other 64 distributions made from any defeasance trust created pursuant to Section 8.04 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) a default, other than a payment default, on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.04(ii) hereof, 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 10.05. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this 65 Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. SECTION 10.08. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. SECTION 10.09. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. 66 SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. ARTICLE 11. GUARANTEES SECTION 11.01. UNCONDITIONAL GUARANTEE. Subject to the provisions of this Article 11, each Guarantor hereby unconditionally, jointly and severally, on a senior subordinated basis, guarantees (each such Guarantee being a "Subsidiary Guarantee" and all such Guarantees being the "Subsidiary Guarantees") to each 67 Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Notes or this Indenture, that: (i) the principal of and interest and premium, if any, on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal of, and interest on, to the extent lawful, the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05 hereof. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, subject to Section 11.05 hereof, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Subsidiary Guarantees will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in the Subsidiary Guarantees. If any Holder of Notes or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder of Notes, the Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that they shall not be entitled to any right of subrogation in relation to the Holders of the Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of the Subsidiary Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of the Subsidiary Guarantees. The Guarantors shall have the right to contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under this 68 Guarantee. The Notes will not be guaranteed by any present or future Subsidiary that is not a Domestic Restricted Subsidiary or any Unrestricted Subsidiary. SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE. The Obligations of each Guarantor under its Note Guarantee pursuant to this Article 10 shall be junior and subordinated in right of payment to the rights of holders of the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. SECTION 11.03. SEVERABILITY. In case any provision of a Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. RELEASE OF A GUARANTOR. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, in each case to a corporation, Person or entity which is not, and giving effect to the transaction will not be, the Company or a Restricted Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition shall be applied in accordance with Section 4.10 and the other applicable provisions of the Indenture. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with Section 4.17 hereof and this Section 11.04. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article 11. SECTION 11.05. LIMITATION OF GUARANTOR'S LIABILITY. Each Guarantor and by its acceptance of a Note each Holder confirms that it is the intention of all such parties that the Subsidiary Guarantee by such Guarantor pursuant to its Subsidiary Guarantee does not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or 69 payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under the Subsidiary Guarantees not constituting a fraudulent transfer or conveyance. SECTION 11.06. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. Subject to the provisions of Section 11.04, no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor, or sell or otherwise dispose of all or substantially all of its assets to or liquidate into any such corporation (other than the Company or another Restricted Subsidiary), Person or entity, unless: (i) subject to the provisions of Section 11.05, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger or acquiring such assets upon a sale, disposition or liquidation, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction. SECTION 11.07. WAIVER OF SUBROGATION. Each Guarantor hereby irrevocably waives, until and unless all of the Obligations guaranteed hereby are indefeasibly discharged, any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Subsidiary Guarantees and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it 70 will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.07 is knowingly made in contemplation of such benefits. SECTION 11.08. EXECUTION OF GUARANTEE. To evidence its Subsidiary Guarantee to the Holder of Notes specified in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee in the form set forth in Exhibit A-1 hereto shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantees. Each such Subsidiary Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Subsidiary Guarantee prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Subsidiary Guarantee on behalf of such Guarantor. Such signatures upon the Subsidiary Guarantees may be by manual or facsimile signature of such Officers and may be imprinted or otherwise reproduced on the Subsidiary Guarantees, and in case any such Officer who shall have signed the Subsidiary Guarantees shall cease to be such Officer before the Note on which such Subsidiary Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the person who signed the Subsidiary Guarantees had not ceased to be such Officer of the Guarantor. SECTION 11.09. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Subsidiaries shall acquire or create another Restricted Subsidiary after the date of the Indenture, then such newly acquired or created Restricted Subsidiary shall become a Guarantor, on a senior subordinated basis, of the Company's obligations under the Notes and this Indenture by (i) executing a supplemental indenture to this Indenture in the form set forth in Exhibit B hereto, (ii) executing a Subsidiary Guarantee in the form set forth in Exhibit A-1 hereto and (iii) delivering to the Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that the Subsidiary Guarantee and supplemental indenture have been duly authorized, executed and delivered by such Restricted Subsidiary and constitute the valid and binding obligations of such Restricted Subsidiary and enforceable against such Restricted Subsidiary in accordance with their respective terms, subject to customary exceptions for bankruptcy and equitable principles; provided, however, that this Section 11.09 shall not apply to any Subsidiary during such period as such Subsidiary (y) would not be a Domestic Restricted Subsidiary or (z) has been properly designated as an Unrestricted Subsidiary in accordance with this Indenture for so long as it continues to constitute an Unrestricted Subsidiary. 71 ARTICLE 12. MISCELLANEOUS SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 12.02. NOTICES. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Guarantor: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Robert E. Mead With a copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. 901 Main Street, Suite 3700 Dallas, Texas 75202-3792 Telecopier No.: (214) 747-3732 Attention: David N. Reed If to the Trustee: Wells Fargo Bank Minnesota, National Association Corporate Trust Department 6th and Marquette Minneapolis, Minnesota 55479-0069 Telecopier No.: (612) 667-9825 Attention: Corporate Trust Department The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. 72 All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company and/or any Guarantor to the Trustee to take any action under this Indenture, the Company and/or such Guarantor, as the case may be, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: 73 (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 12.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, Officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUESTED THEREBY. SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture, the Notes, or the Subsidiary Guarantees. 74 SECTION 12.10. SUCCESSORS. All agreements of the Company and the Guarantors in this Indenture, the Notes or the Subsidiary Guarantees shall bind the respective successors of the Company and the Guarantors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 75 SIGNATURES Dated as of May 2, 2002 SILVERLEAF RESORTS, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ------------------------------------------- Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer Dated as of May 2, 2002 AWARDS VERIFICATION CENTER, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer 76 Dated as of May 2, 2002 SILVERLEAF TRAVEL, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 SILVERLEAF RESORT ACQUISITIONS, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer 77 Dated as of May 2, 2002 BULL'S EYE MARKETING, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ------------------------------------------- Name: Harry J. White, Jr. Title: Treasurer Dated as of May 2, 2002 SILVERLEAF BERKSHIRES, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Sandra G. Cearley ------------------------------------------- Name: Sandra G. Cearley Title: Secretary Dated as of May 2, 2002 ESTARCOMMUNICATIONS, INC. By: /s/ Robert E. Mead ------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ------------------------------------------- Name: Harry J. White, Jr. Title: Treasurer 78 Dated as of May 2, 2002 WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ Jane Y. Schweiger ------------------------------------------- Name: Jane Y. Schweiger Title: Assistant Vice President 79 - -------------------------------------------------------------------------------- EXHIBIT A (Face of Note) 6.0% Senior Subordinated Notes due 2007 No. 001 $28,467,000 SILVERLEAF RESORTS, INC. promises to pay to Cede & Co. CUSIP No. 828395 AB 9 or registered assigns, the principal sum of Twenty-Eight Million, Four Hundred Sixty-Seven Thousand Dollars on April 1, 2007. Interest Payment Dates: April 1, and October 1 Record Dates: March 15, and September 15 Dated: May 2, 2002 SILVERLEAF RESORTS, INC. By: ---------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ---------------------------------- Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer (SEAL) This is one of the Global Notes referred to in the within-mentioned Indenture: Wells Fargo Bank Minnesota, National Association as Trustee By: ---------------------------------- - -------------------------------------------------------------------------------- A-1 (Back of Note) 6.0% Senior Subordinated Notes due 2007 [Insert the Global Note Legend for Global Notes](1) Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Silverleaf Resorts, Inc., a Texas corporation (the "Company"), promises to pay interest on the principal amount of this Note at 6.0% per annum until maturity. The Company will pay such interest semi-annually on April 1 and October 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on this Note will accrue from the most recent date to which interest has been paid, provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date. For each $500 of principal amount of this Note, the Company shall also pay an additional payment of $17.58 on May 16, 2002 which amount shall be treated as and represent a partial payment of the interest accrued on the Old Notes from October 1, 2001 through the date before the date of issuance of this Note and an additional payment of $5.87 on May 16, 2002 and $5.87 on October 1, 2002, which amounts shall be treated as and represent a partial payment of the remaining interest accrued on the Old Notes prior to October 1, 2001. The Company and the holder of this Note agree that such additional payments shall be treated and reported for federal income tax purposes as described in the preceding sentence and that such additional payments have been included herein solely to document the required payment of those amounts and not as interest or - ---------- (1) "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF." A-2 premium on the principal amount of this Note. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, and premium, if any, on the Global Note and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Wells Fargo Bank Minnesota, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May 2, 2002 ("Indenture") between the Company, its Subsidiaries and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company limited to $28,467,000 in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below: A-3
Year Percentage ---- ---------- 2003............................................... 105.250% 2004............................................... 103.500% 2005............................................... 101.750% 2006 and thereafter................................ 100.000%
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $500 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase (a "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence a pro rata Asset Sale Offer pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including Additional Notes) that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use any remaining Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $500 may be redeemed in part but only in whole multiples of $500, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. A-4 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $500 and integral multiples of $500. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions regarding payment and exchange of Notes in a manner that does not materially adversely affect any Holder, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply for 30 days after notice from the Trustee or the Holders of at least 25% in principal amount of then outstanding Notes with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of then outstanding Notes to comply with certain other agreements in the Indenture or the Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity and such A-5 default has not been cured or waived as provided in the Indenture; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. SUBSIDIARY GUARANTEES. Payment of principal and interest (including interest on overdue principal and overdue interest, if lawful) is unconditionally guaranteed on a senior subordinated basis by certain subsidiaries of the Company. 14. SUBORDINATION. The payment of principal, premium, if any, and interest on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. 15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 16. NO RECOURSE AGAINST OTHERS. A director, Officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT A-6 TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Sandra Cearley A-7 EXHIBIT A-1 [FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE Silverleaf Berkshires, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, Silverleaf Resort Acquisitions, a Texas corporation, Silverleaf Travel, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, and eStarCommunications, Inc., a Texas corporation (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Indenture referred to in the Note upon which this notation is endorsed), on terms and conditions provided in the Indenture, (i) has unconditionally guaranteed (a) the due and punctual payment of the principal of and interest, if any, on the Notes, whether at maturity or interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and (if lawful) interest on the Notes, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. Capitalized terms used herein have the meanings assigned to them in the Indenture unless otherwise indicated. No stockholder, Officer, director or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, Officer, director or incorporator. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized Officers. Dated as of May 2, 2002 AWARDS VERIFICATION CENTER, INC. By: ----------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ----------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 SILVERLEAF TRAVEL, INC. By: ----------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ----------------------------------------------- Name: Harry J. White, Jr. Title: ---------------------------------------- Dated as of May 2, 2002 SILVERLEAF RESORT ACQUISITIONS, INC. By: ----------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ----------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 BULL'S EYE MARKETING, INC. By: ----------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ----------------------------------------------- Name: Harry J. White, Jr. Title: Treasurer Dated as of May 2, 2002 SILVERLEAF BERKSHIRES, INC. By: ----------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ----------------------------------------------- Name: Sandra G. Cearley Title: Secretary Dated as of May 2, 2002 ESTARCOMMUNICATIONS, INC. By: ----------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: ----------------------------------------------- Name: Harry J. White, Jr. Title: Treasurer ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: ------------------------------ Your Signature: --------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: -------------------- --------------------- (Sign exactly as your name appears on the Note) Tax Identification No.: ------------- Signature Guarantee. [INSERT FOR GLOBAL NOTE] SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for and interest in another Global Note or for a Definitive Note have been made:
Principal Amount at maturity of this Global Note Signature of Amount of decrease in Amount of increase in following such authorized Officer Principal Amount of Principal Amount of decrease of Trustee or Note Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- --------------------- --------------------- ------------------- ------------------
EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Silverleaf Resorts, Inc. (or its permitted successor), a Texas corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and Wells Fargo Bank Minnesota, National Association, as trustee under the indenture referred to below (the "Trustee"). WITNESSETH WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of April 1, 1998 providing for the issuance of an aggregate principal amount of up to $28,467,000 of 6.0% Senior Subordinated Notes due 2007 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "New Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01(g) of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and B-1 all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. (c) The following is hereby waived: the benefit or advantage of any stay, extension or usury law wherever enacted, now or at any time hereafter in force, diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This New Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all of the obligations of a Guarantor under the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any Custodian, trustee, liquidator or other similar official acting in relation to either the Company or any Guarantor, any amount paid by the Company or any Guarantor either to the Trustee or such Holder, this New Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guaranteeing Subsidiary, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this New Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due B-2 and payable by the Guaranteeing Subsidiary for the purpose of this New Subsidiary Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) After giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Indenture, this New Subsidiary Guarantee shall be limited to the maximum amount as shall result in the obligations of such Guarantor under its New Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. 3. Execution and Delivery. The Guaranteeing Subsidiary agrees that this New Subsidiary Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of this New Subsidiary Guarantee. 4. Guaranteeing Subsidiary may Consolidate, Etc., On Certain Terms. (a) Subject to Section 11.06 of the Indenture and Section 5 hereof, the Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guaranteeing Subsidiary is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guaranteeing Subsidiary or sell or otherwise dispose of all or substantially all of its assets to or liquidate into any such corporation, Person or entity, unless: (i) subject to Section 2(i) hereof, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guaranteeing Subsidiary, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture, the Subsidiary Guarantees and this New Subsidiary Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guaranteeing Subsidiary, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guaranteeing Subsidiary immediately preceding the transaction; and (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and B-3 delivered to the Trustee and satisfactory in form to the Trustee, of the New Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guaranteeing Subsidiary, such successor corporation shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the New Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the New Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such New Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4, 5 and 11 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of the Guaranteeing Subsidiary as an entirety or substantially as an entirety to the Company or another Guarantor. 5. Releases. (a) In the event of a sale or other disposition of all of the assets of the Guaranteeing Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of the Guaranteeing Subsidiary, in each case to a corporation, Person or entity which is not, and giving effect to the transaction will not be, the Company or a Restricted Subsidiary of the Company, then such Guaranteeing Subsidiary (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guaranteeing Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guaranteeing Subsidiary) will be released and relieved of any obligations under this New Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guaranteeing Subsidiary from its obligations under this New Subsidiary Guarantee. (b) Any Guarantor (including the Guaranteeing Subsidiary) not released from its obligations under its Subsidiary Guarantee or New Subsidiary Guarantee, as the case may be, shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. No Recourse Against Others. No past, present or future director, Officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability B-4 for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. B-5 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: ----------------, ---- [GUARANTEEING SUBSIDIARY] By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: SILVERLEAF RESORTS, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: AWARDS VERIFICATION CENTER, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: B-6 SILVERLEAF TRAVEL, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: SILVERLEAF RESORT ACQUISITIONS, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: SILVERLEAF BERKSHIRES, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: B-7 BULL'S EYE MARKETING, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: ESTARCOMMUNICATIONS, INC. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION as Trustee By: ------------------------------------- Name: Title: B-8 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310(a)(1)................................................................................ 7.10 (a)(2)................................................................................ 7.10 (a)(3)................................................................................ N.A. (a)(4)................................................................................ N.A. (a)(5)................................................................................ 7.10 (b)................................................................................... 7.10 (c)................................................................................... N.A. 311(a)................................................................................... 7.11 (b)................................................................................... 7.11 (c)................................................................................... N.A. 312(a)................................................................................... 2.05 (b)................................................................................... 12.03 (c)................................................................................... 12.03 313(a)................................................................................... 7.06 (b)(1)................................................................................ N.A. (b)(2)................................................................................ 7.07 (c)................................................................................... 7.06; 12.02 (d)................................................................................... 7.06 314(a)................................................................................... 4.03; 12.02 (b)................................................................................... N.A. (c)(1)................................................................................ 12.04 (c)(2)................................................................................ 12.04 (c)(3)................................................................................ N.A. (d)................................................................................... N.A. (e)................................................................................... 12.05 (f)................................................................................... N.A. 315(a)................................................................................... 7.01 (b)................................................................................... 7.05; 12.02 (c)................................................................................... 7.01 (d)................................................................................... 7.01 (e)................................................................................... 6.11 316(a)(last sentence).................................................................... 2.09 (a)(1)(A)............................................................................. 6.05 (a)(1)(B)............................................................................. 6.04 (a)(2)................................................................................ N.A. (b)................................................................................... 6.07 (c)................................................................................... 2.12 317(a)(1)................................................................................ 6.08 (a)(2)................................................................................ 6.09 (b)................................................................................... 2.04
318(a)................................................................................... 12.01 (b)................................................................................... N.A. (c)................................................................................... 12.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. EX-4.3 5 d00253exv4w3.txt CERTIFICATE NO. 001 OF SENIOR SUBORDINATED NOTES EXHIBIT 4.3 - -------------------------------------------------------------------------------- 6.0% Senior Subordinated Notes due 2007 No. 001 $28,467,000 SILVERLEAF RESORTS, INC. promises to pay to Cede & Co. CUSIP No. 828395 AB 9 or registered assigns, the principal sum of Twenty-Eight Million, Four Hundred Sixty-Seven Thousand Dollars on April 1, 2007. Interest Payment Dates: April 1, and October 1 Record Dates: March 15, and September 15 Dated: May 2, 2002 SILVERLEAF RESORTS, INC. By: /s/ Robert E. Mead ---------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ---------------------------------- Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer (SEAL) This is one of the Global Notes referred to in the within-mentioned Indenture: Wells Fargo Bank Minnesota, National Association as Trustee By: /s/ Jane Y. Schweiger ----------------------- - -------------------------------------------------------------------------------- 6.0% Senior Subordinated Notes due 2007 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Silverleaf Resorts, Inc., a Texas corporation (the "Company"), promises to pay interest on the principal amount of this Note at 6.0% per annum until maturity. The Company will pay such interest semi-annually on April 1 and October 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on this Note will accrue from the most recent date to which interest has been paid, provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date. For each $500 of principal amount of this Note, the Company shall also pay an additional payment of $17.58 on May 16, 2002 which amount shall be treated as and represent a partial payment of the interest accrued on the Old Notes from October 1, 2001 through the date before the date of issuance of this Note and an additional payment of $5.87 on May 16, 2002 and $5.87 on October 1, 2002, which amounts shall be treated as and represent a partial payment of the remaining interest accrued on the Old Notes prior to October 1, 2001. The Company and the holder of this Note agree that such additional payments shall be treated and reported for federal income tax purposes as described in the preceding sentence and that such additional payments have been included herein solely to document the required payment of those amounts and not as interest or premium on the principal amount of this Note. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, and premium, if any, on the Global Note and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Wells Fargo Bank Minnesota, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of May 2, 2002 ("Indenture") between the Company, its Subsidiaries and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company limited to $28,467,000 in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
Year Percentage ---- ---------- 2003............................................... 105.250% 2004............................................... 103.500% 2005............................................... 101.750% 2006 and thereafter................................ 100.000%
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $500 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase (a "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence a pro rata Asset Sale Offer pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including Additional Notes) that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use any remaining Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $500 may be redeemed in part but only in whole multiples of $500, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $500 and integral multiples of $500. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions regarding payment and exchange of Notes in a manner that does not materially adversely affect any Holder, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply for 30 days after notice from the Trustee or the Holders of at least 25% in principal amount of then outstanding Notes with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of then outstanding Notes to comply with certain other agreements in the Indenture or the Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity and such default has not been cured or waived as provided in the Indenture; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. SUBSIDIARY GUARANTEES. Payment of principal and interest (including interest on overdue principal and overdue interest, if lawful) is unconditionally guaranteed on a senior subordinated basis by certain subsidiaries of the Company. 14. SUBORDINATION. The payment of principal, premium, if any, and interest on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. 15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 16. NO RECOURSE AGAINST OTHERS. A director, Officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Sandra Cearley ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: ------------------------------ Your Signature: ----------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $ ----------- Date: Your Signature: ------------------ ----------------------------- (Sign exactly as your name appears on the face of this Note) Tax Identification No.: -------------------- Signature Guarantee. SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for and interest in another Global Note or for a Definitive Note have been made:
Principal Amount at maturity of this Global Note Signature of Amount of decrease in Amount of increase in following such authorized Officer Principal Amount of Principal Amount of decrease of Trustee or Note Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- --------------------- --------------------- ------------------- ------------------
EX-4.4 6 d00253exv4w4.txt SUBSIDIARY GUARANTEE EXHIBIT 4.4 SUBSIDIARY GUARANTEE Silverleaf Berkshires, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, Silverleaf Resort Acquisitions, a Texas corporation, Silverleaf Travel, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, and eStarCommunications, Inc., a Texas corporation (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Indenture referred to in the Note upon which this notation is endorsed), on terms and conditions provided in the Indenture, (i) has unconditionally guaranteed (a) the due and punctual payment of the principal of and interest, if any, on the Notes, whether at maturity or interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and (if lawful) interest on the Notes, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. Capitalized terms used herein have the meanings assigned to them in the Indenture unless otherwise indicated. No stockholder, Officer, director or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, Officer, director or incorporator. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized Officers. Dated as of May 2, 2002 AWARDS VERIFICATION CENTER, INC. By: /s/ Robert E. Mead ---------------------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ---------------------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 SILVERLEAF TRAVEL, INC. By: Robert E. Mead ---------------------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ---------------------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of May 2, 2002 SILVERLEAF RESORT ACQUISITIONS, INC. By: /s/ Robert E. Mead ---------------------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ---------------------------------------------------------- Name: Harry J. White, Jr. Title: Vice President and Treasurer
Dated as of May 2, 2002 BULL'S EYE MARKETING, INC. By: /s/ Robert E. Mead ---------------------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ---------------------------------------------------------- Name: Harry J. White, Jr. Title: Treasurer Dated as of May 2, 2002 SILVERLEAF BERKSHIRES, INC. By: /s/ Robert E. Mead ---------------------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: Sandra G. Cearley ---------------------------------------------------------- Name: Sandra G. Cearley Title: Secretary Dated as of May 2, 2002 ESTARCOMMUNICATIONS, INC. By: /s/ Robert E. Mead ---------------------------------------------------------- Name: Robert E. Mead Title: Chief Executive Officer By: /s/ Harry J. White, Jr. ---------------------------------------------------------- Name: Harry J. White, Jr. Title: Treasurer
EX-10.1 7 d00253exv10w1.txt 2ND AMENDMENT TO AMENDED/RESTATED RECEIVABLES LOAN EXHIBIT 10.1 SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES LOAN AND SECURITY AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES LOAN AND SECURITY AGREEMENT ("Second Amendment") dated April 30, 2002, is made by and between Silverleaf Resorts, Inc., a Texas corporation f/k/a Silverleaf Vacation Club, Inc., f/k/a Ascension Capital Corporation, successor by merger to Ascension Resorts, Ltd., a Texas limited partnership d/b/a Silverleaf Resorts, Ltd. ("Borrower"), whose address is 1221 Riverbend, Suite 120, Dallas, Texas 75247, and Heller Financial, Inc., a Delaware corporation ("Agent" and "Lender"), as a Lender and as Agent for all Lenders and such financial institutions as are or hereafter become parties to this Loan Agreement as Lenders, whose address is 500 West Monroe Street, Chicago, Illinois 60661. RECITALS A. WHEREAS, Borrower and Lender entered into that certain Loan and Security Agreement dated as of October 11, 1994 (the "Original Loan Agreement", together with the amendments and restatements described below shall be collectively referred to as the "Loan Agreement") pursuant to which Lender made Borrower a Five Million Dollar ($5,000,000) revolving receivables loan ("Loan"). B. The Loan was modified and increased by an additional Five Million Dollars ($5,000,000) to Ten Million Dollars ($10,000,000) pursuant to the Loan Modification Agreement between Borrower and Lender dated April 19, 1995. C. The Loan was amended to reflect the merger of the Borrower into its general partner pursuant to the Amendment to Loan and Security Agreement between Borrower and Lender dated December 6, 1995. D. The Loan was modified and increased by an additional Five Million Dollars ($5,000,000) to Fifteen Million Dollars ($15,000,000) pursuant to the Amended and Restated Loan and Security Agreement between Borrower and Lender dated December 27, 1995. E. The Loan was amended to revise the procedure for making Advances and for funding option pursuant to the Amendment to Amended and Restated Loan and Security Agreement between Borrower and Lender dated February 28, 1996 ("February 1996 Amendment"). F. The Loan was modified and increased by an additional Ten Million Dollars ($10,000,000) to Twenty-five Million Dollars ($25,000,000) pursuant to the Amendment to Amended and Restated Loan and Security Agreement ("Second Restated Agreement") between Borrower and Lender dated August 15, 1996. G. The Loan was amended to add provisions regarding biennial timeshare interests pursuant to a letter agreement between Borrower and Lender dated March 31, 1997. -1- H. The Loan was modified and increased by an additional Fifteen Million Dollars ($15,000,000) to Forty Million Dollars ($40,000,000) pursuant to the Second Amendment to Amended and Restated Loan and Security Agreement dated October 31, 1997 ("October 31, 1997 Amendment"). I. The Loan was modified by the Amended and Restated Receivables Loan and Security Agreement dated September 1, 1999 ("September 1, 1999 Amendment") to, among other things, increase the Loan to Seventy Million Dollars ($70,000,000) less Advances outstanding under the Ten Million Dollar ($10,000,000) Inventory Loan of even date therewith ("Inventory Loan") and to provide for other Lenders to participate in the Loan and to join in and consent to the terms and conditions of this Loan Agreement and for Lender to act as Agent on behalf of such other Lenders and on behalf of Lender who shall also be deemed a Lender hereunder. J. The Loan was further modified by the First Amendment to Amended and Restated Receivables Loan and Security Agreement dated March 20, 2000 ("March 20, 2000 Amendment") to, among other things, modify the advance rates on certain Collateral. K. Due to the existence and continuation of certain Events of Default, Heller Financial, Inc. ("Heller"), Union Bank of California, N.A. ("UBOC") and Borrower entered into that certain Forbearance Agreement dated April 27, 2001 (the "Forbearance Agreement") pursuant to which Borrower acknowledged such Specified Events of Default and Heller, Agent and the Co-Lender as defined therein agreed to temporarily forbear in any enforcement action conditioned upon certain matters set forth therein including, but not limited to, Borrower's acknowledgment that it has no rights to further Advances under this Loan and that the obligations of Co-Lenders to make Advances hereunder terminated. L. Borrower and Lenders have entered into that certain First Amendment to Forbearance Agreement dated December 31, 2001 ("First Amendment to Forbearance Agreement") for the purpose of providing for, among other things, the extension of the forbearance period as set forth under the Forbearance Agreement. M. Borrower and Lenders have entered into that certain Second Amendment to Forbearance Agreement dated February 12, 2002 ("Second Amendment to Forbearance Agreement") for the purpose of providing for, among other things, the extension of the forbearance period as set forth under the Forbearance Agreement, as amended. N. Agent on behalf of Lenders has entered into that certain Amended and Restated Intercreditor Agreement with Sovereign and Textron dated April 30, 2002 (the "Intercreditor Agreement"). O. The parties desire to amend and modify the Loan further to provide for, among other things, the amendment of certain terms in respect of the Financed Notes Receivable under the Loan, as set forth hereinbelow. -2- NOW, THEREFORE, in consideration of the foregoing premises and the agreements, provisions and covenants herein contained, Borrower and Lender agree as follows: 1. RECITALS. The above recitals are true and correct and are incorporated herein. 2. INCORPORATION. The Exhibits and Schedules attached hereto are incorporated herein and made a part hereof. 3. DEFINITIONS. All capitalized terms not defined herein shall have the meanings ascribed to them in the Loan Agreement, as amended, modified and restated. 4. SECTION 1.1 (a) OF THE LOAN AGREEMENT IS AMENDED AS FOLLOWS: Notwithstanding anything stated to the contrary in the Loan Agreement, Availability under the Loan is zero (0) and no Unused Line Fee is payable by Borrower. Borrower acknowledges that all obligations to make Advances hereunder terminated on April 27, 2001 pursuant to the Forbearance Agreement and Lenders and Agent are not obligated to make any Advances to Borrower. 5. SECTION 1.5(b)(II) OF THE SEPTEMBER 1, 1999 AMENDMENT IS HEREBY DELETED AND REPLACED WITH THE FOLLOWING: INELIGIBLE FINANCED NOTE RECEIVABLE; VIOLATION OF OAK N' SPRUCE LIMITATION. If at any time after the expiration of the Revolving Period a Financed Note Receivable ceases to be an Eligible Note Receivable or if at any time the aggregate amount of Advances outstanding under this Loan Agreement and the Inventory Loan Agreement, as amended and restated, secured by assignments of Assignments of Beneficial Interests at Oak N' Spruce Resort exceeds $5,000,000 (the "Oak N' Spruce Limitation"), Borrower shall, within five (5) Business Days after notice, either (A) prepay the Loan in an amount equal to the balance due under such ineligible Financed Note Receivable, or (B) deliver to Agent one (1) or more Eligible Notes Receivable (depending on which type of Financed Note Receivable has become ineligible) having an outstanding aggregate principal balance equal to or in excess of the outstanding principal balance of such ineligible Financed Note Receivable; provided, however, to the extent that the aggregate amount of Advances then outstanding is equal to or less than the sum of eighty-five percent (85%) of the principal balance of all Eligible Notes Receivable, including, but not limited to, such replacement Eligible Notes Receivable, then no prepayment or replacement shall be required by Borrower and the Financed Note Receivable shall continue to be an Eligible Note Receivable, or (C) with respect to the Oak N'Spruce Limitation, repay that portion of the Loan, the Inventory Loan or the Supplemental Loan as determined by Agent, in its sole and absolute discretion, secured by assignments of Assignments of Beneficial Interests in excess of $5,000,000. Thereafter, at Borrower's request, Agent shall return such ineligible Note Receivable to Borrower and, within five (5) days of Agent's receipt from Borrower of a completed assignment relating to such Note Receivable and the Mortgage securing the same, in form acceptable to Agent substantially in the -3- form attached hereto as EXHIBIT A, Agent shall execute such instrument and return it to Borrower. 6. SECTION 5.4 OF THE SEPTEMBER 1, 1999 AMENDMENT IS HEREBY AMENDED AS FOLLOWS: Notwithstanding anything stated to the contrary herein, each Lender under this Loan Agreement shall have the same rights as Agent to audits, inspections, and investigations as provided in this Section 5.4. 7. SECTION 5.5 OF THE SEPTEMBER 1, 1999 AMENDMENT IS HEREBY AMENDED AS FOLLOWS: Notwithstanding anything stated to the contrary herein, Borrower shall deliver to each Lender, concurrently with its delivery to Agent, all information and reports required to be delivered to Agent pursuant to this Section 5.5. 8. SECTION 6.4 OF THE SEPTEMBER 1, 1999 AMENDMENT IS HEREBY DELETED AND REPLACED WITH THE FOLLOWING: COLLATERAL. (a) Borrower shall not take any action (nor permit or consent to the taking of any action) which might reasonably be anticipated to impair the value of the Collateral or any of the rights of Agent or Lenders in the Collateral. Borrower shall not (i) modify or amend any of the Pledged Documents without Agent's prior written consent except that Borrower shall be permitted to modify up to (1) 15% of the Notes Receivable which are to be pledged to Agent by reducing the interest rate charged and/or (2) 20% of the Notes Receivable which are to be pledged to Agent by extending the term of the Notes Receivable beyond 84 months so long as (a) no Financed Notes Receivable shall have been modified more than two times; (b) all Financed Notes Receivable have a weighted average interest rate of at least 13.75%; (c) no term exceeds 120 months; (d) no more than 20% of all Financed Notes Receivable have a term exceeding 84 months; (e) at such time as 10% of the Financed Notes Receivable constitute Notes Receivable which have been modified as permitted hereunder any additional modified Notes Receivable to be pledged to Agent shall be subject to the further requirement that the Purchasers under such modified Notes Receivable to be pledged to Agent shall have made two (2) timely and consecutive monthly payments; (f) no additional modified Notes Receivable shall be pledged to Agent after the expiration of the Revolving Period except in replacement of a modified Financed Note Receivable which has become ineligible; (g) no unmodified Financed Note Receivable which becomes ineligible may be replaced with a modified Note Receivable; and (h) there shall be no limit on assumptions of Notes Receivable provided the purchaser has made a 10% down payment, or (ii) grant extensions of time for the payment of, compromise for less than the full face value, release in whole or in part any Purchaser liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument or document representing the Collateral. -4- (b) If a Note Receivable is a newly originated Eligible Note Receivable which is replacing an existing Eligible Note Receivable pledged as Collateral under the Loan Agreement and the proceeds have been used to finance the purchase of an Interval which is being upgraded by the consumer borrower to a more expensive Interval, then (a) the principal balance of the existing Eligible Note Receivable which is being upgraded may still be included for purposes of calculating the Availability for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Note Receivable becomes thirty (30) or more days past due, and (b) on or before the second (2nd) Business Day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Note Receivable and in any event within ten (10) days of such upgrade, Borrower shall deliver to Lender or its designee the original of the new promissory note executed in connection with such upgrade duly endorsed in blank by Borrower and Borrower will cause all payments made with respect to such new promissory note to be forwarded to the Lockbox. (c) SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE AND INTERVALS. Borrower acknowledges and agrees that each of Lenders hereunder, Heller (with respect to the Inventory Loan and the Supplemental Loan), Textron and Sovereign has been and is hereby granted a security interest in all of Borrower's Notes Receivable and Intervals securing the Loan Agreement, the Inventory Loan Agreement, as amended and restated, the Textron Facility, and the Sovereign Facility. As consideration for Lenders' and Agent's agreements under this Loan Agreement and the Inventory Loan Agreement, as amended and restated, Borrower agrees that to secure the payment and performance of the Inventory Loan Agreement, as amended and restated, and the Loan Agreement, Borrower does hereby unconditionally and irrevocably assign, pledge and grant to Lenders and Heller (with respect to the Inventory Loan and the Supplemental Loan), (i) a second priority continuing security interest and lien in and to the right, title, and interest of Borrower in all of Borrower's Notes Receivable and Intervals pledged to Sovereign as Primary Secured Lender, and (ii) a second priority continuing security interest and lien in and to the right, title, and interest of Borrower in all of Borrower's Notes Receivable and Intervals pledged to Textron as Primary Secured Lender, and all proceeds, profits, extensions, additions, improvements, betterments, renewals, substitutions and replacements of the foregoing (the "Second Priority Collateral"). Borrower further acknowledges and agrees that upon repayment in full of the Textron Facility and/or the Sovereign Facility, Lenders' security interest in the Second Priority Collateral securing such facilities shall automatically become a first priority security interest securing the outstanding principal balance, interest and all other payment obligations under the Loan Agreement, and Borrower shall take such steps as Lenders and Agent may request to deliver such collateral to Agent on behalf of Lenders and to confirm Lenders' first priority security interest therein. Borrower, Agent and Lenders acknowledge and agree that Borrower has assigned, pledged, and granted to Textron and Sovereign equal second priority continuing security interest and lien (subordinated in priority and interest only to Lenders) in and to the right, title, and interest of Borrower in all of Borrower's Notes Receivable pledged to Lenders as Primary Secured Lenders. Lenders shall have a continuing security interest in all of Borrower's Notes Receivable and Intervals pledged to Lenders, including all Financed Notes Receivable, all ineligible -5- Notes Receivable in the Ineligible Note Portfolio, and any Notes Receivable or Intervals pledged to Textron or Sovereign, and, subject to the Intercreditor Agreement, Lenders and Agent may collect all proceeds derived from such Intervals and all payments made under or in respect of all such pledged Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Lenders and Agent, if at all, pursuant to this Loan Agreement. Borrower acknowledges and agrees that, pursuant to the foregoing terms contained in this Section, each of Agent (in respect of this Loan), Heller (in respect of the Inventory Loan and the Supplemental Loan), Textron and Sovereign shall be deemed to hold in possession as agent and on behalf of each of the other lenders all of Borrower's Notes Receivable pledged to such lender (or, as the case may be, Lenders) as Primary Secured Lender(s) and upon the full payment of the outstanding principal balance, interest and all other payment obligations by Borrower to such Primary Secured Lender(s) under the Loan, the Inventory Loan, the Supplemental Loan, the Textron Facility, or the Sovereign Facility, as the case may be, such Primary Secured Lender(s) may, in accordance with the allocation and distribution priority of the Loan Agreements of such Primary Secured Lender(s), at Borrower's sole cost and expense deliver possession to the remaining lenders, whose loans to Borrower have not been repaid in full, all of Borrower's Notes Receivable pledged to such Primary Secured Lender(s). Pursuant to the foregoing and notwithstanding anything stated to the contrary, Borrower further acknowledges and agrees that Lenders and Agent, upon the full repayment of the outstanding principal balance, interest and all other payment obligations under the Loan, the Inventory Loan and the Supplemental Loan, shall not be obligated to deliver possession to Borrower of the Financed Notes Receivable pledged by Borrower to Lenders to secure the Loan and in Agent's or each Lender's possession. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur Borrower shall retain possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. Each of Lenders and Agent agrees that it will not file or record a financing statement with respect to any Financed Note Receivable, except to the extent that Lenders are or become Primary Secured Lenders with respect to such Note Receivable. (d) INELIGIBLE NOTE PORTFOLIO. In addition to the other Collateral and as consideration for Lenders' agreements herein, Borrower agrees that to secure the payment and performance of the Loan, Borrower does hereby unconditionally and irrevocably assign, pledge and grant to Lenders hereunder, together with Heller (in respect of the Inventory Loan and the Supplemental Loan), Textron and Sovereign (as more particularly described in the Intercreditor Agreement), a first priority continuing security interest and lien in and to the right, title, and interest of Borrower in the Ineligible Note Portfolio, which shall include the notes and mortgages as set forth on the attached SCHEDULE G, and all proceeds, profits, extensions, additions, improvements, betterments, renewals, substitutions and replacements of the foregoing (collectively, the "Ineligible Note Portfolio"). To perfect the security interest of Lenders in the Ineligible Note Portfolio, Borrower agrees, subject to Lenders' prior approval, to execute and cause to be filed, at Borrower's sole cost and expense, UCC-1 financing statement(s) with the appropriate state and local governmental authorities as requested by Lenders and Borrower, as agent and on behalf of Lenders, Textron and Sovereign, unless and until an Event of Default shall occur, shall retain in its possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. By executing this Second Amendment, Borrower -6- acknowledges and agrees that it is holding such Notes Receivables as bailee and agent for the Lenders. Borrower shall hold and designate such Notes Receivable and related Mortgages in a manner which clearly indicates that they are being held by Borrower as bailee on behalf of Lenders. Upon the occurrence of an Event of Default, Borrower shall promptly deliver to Textron, as agent for Lenders, Sovereign and Textron, all original Notes Receivable comprising the Ineligible Note Portfolio, the related Mortgages and the documents listed on SCHEDULE G attached hereto and with respect thereto and thereafter Textron, as agent for Lenders, Sovereign and Textron, shall have the right to collect all proceeds therefrom and apply the same to payment of the Indebtedness as set forth in the Intercreditor Agreement. Borrower also shall execute and deliver in escrow to Textron as agent and on behalf of Lenders, Textron and Sovereign all appropriate Assignments of Mortgage as requested by Lenders, Textron and Sovereign, in the form attached hereto as SCHEDULE G and as approved by Lenders, Textron and Sovereign at their sole and absolute discretion, assigning equally to each of Lenders, Textron and Sovereign all of Borrower's rights, title and interests in all of the mortgages relating to the Notes Receivable in the Ineligible Note Portfolio. Borrower further agrees to promptly execute and deliver modifications or additional Assignments of Mortgage requested by Lenders, Textron and Sovereign in order to continue the security interests of Lenders, Textron and Sovereign in the Ineligible Note Portfolio. Borrower acknowledges and agrees that upon a Default or an Event of Default under this Loan, the Inventory Loan, the Supplemental Loan, the Textron Facility or Sovereign Facility, Textron, or a designee as designated by Lenders, Textron and Sovereign pursuant to the terms of the Intercreditor Agreement, shall have the right to automatically record, at Borrower's sole cost and expense, all such Assignments of Mortgage executed by Borrower and delivered to Textron in accordance with the terms of this Section. Upon a Default or Event of Default under the Loan, the Inventory Loan, the Supplemental Loan, the Textron Facility or Sovereign Facility, Borrower shall immediately deliver possession of the Ineligible Note Portfolio and all documents relating thereto to Textron as agent on behalf of Lenders, Textron and Sovereign, as more particularly described in the Intercreditor Agreement. Lenders' security interest and rights with respect to the Shared Collateral other than the Collateral pledged to Lenders as Primary Secured Lenders are subject to the terms of the Intercreditor Agreement. In the event of any conflict between the terms hereof and the Intercreditor Agreement regarding the Shared Collateral other than the Collateral pledged to Lenders as Primary Secured Lenders, the terms of the Intercreditor Agreement shall govern. Notwithstanding anything stated herein or stated in the Intercreditor Agreement, no provision contained herein or in the Intercreditor Agreement shall be construed to permit Sovereign, Textron or any lender other than Lenders to interfere with Lenders' rights, security interests, and remedies with respect to any Collateral pledged to Lenders as Primary Secured Lenders. So long that any indebtedness or obligations from Borrower to Lenders remain outstanding under the Loan Agreement remains outstanding, Lenders shall have the sole and absolute discretion to perfect, maintain, protect and enforce their security interests, and exercise their remedies, sell or otherwise dispose of the Collateral pledged to Lenders as Primary Secured Lenders. Lenders may exercise their discretion with respect to exercising or refraining from exercising any of their rights and remedies or taking any enforcement action with respect to the -7- Collateral where Lenders are Primary Secured Lenders, and Borrower shall not permit Textron, Sovereign or any lender other than the Lenders to take an enforcement action against the Collateral pledged to Lenders as Primary Secured Lenders. (e) MONTHLY REPORTS. So long as any indebtedness or obligation remains outstanding under the Loan, the Inventory Loan or the Supplemental Loan, Borrower shall provide to each Lender on a monthly basis a report which shall indicate, among other things, the conformance of the Borrower's business in respect to the Business Plan and any variance from the Business Plan. Such monthly report for each month shall be delivered to each Lender no later than the 15th day of the immediately following month. 9. ALLOCATION OF SHARED COLLATERAL. Notwithstanding anything stated to the contrary, Borrower and Lenders agree that upon a sale or other disposition of any Collateral cross-collateralized to secure the Loan, the Inventory Loan, the Supplemental Loan, the Textron Facility, and the Sovereign Facility (the "Shared Collateral") or the exercise of Textron's, Sovereign's and/or Lenders' remedies following the occurrence of an Event of Default, the proceeds derived from such Shared Collateral (which Shared Collateral shall not include the Existing Real Property Collateral described in the Intercreditor Agreement) shall be allocated as follows: (a) With respect to any Shared Collateral where Lenders are Primary Secured Lenders, proceeds derived from such Shared Collateral shall be applied (A) first toward repayment of any outstanding balance under the loan facilities where Lenders, individually or collectively, are Primary Secured Lenders, (B) next toward the Inventory Loan or the Supplemental Loan, and (C) any remaining proceeds thereafter will be applied against any outstanding balance under the Loan, and (D) then as provided in the Intercreditor Agreement. (b) With respect to any Shared Collateral where Lenders are not Primary Secured Lenders, any remaining proceeds following application against the indebtedness of Borrower to such Primary Secured Lender that are allocated to Lenders pursuant to the terms of the Intercreditor Agreement shall be applied (A) first toward repayment of any outstanding balance under the Inventory Loan or the Supplemental Loan, and (B) any remaining proceeds thereafter will be applied against any outstanding balance under the Loan, and (C) then as provided in the Intercreditor Agreement. (c) With respect to any Shared Collateral securing the Inventory Loan and where Heller is the Primary Secured Lender, any remaining proceeds following application against the indebtedness of Borrower to Heller under the Inventory Loan shall be applied (A) first toward repayment of any outstanding balance under the Supplemental Loan, and (B) any remaining proceeds thereafter will be applied against any outstanding balance under the Loan, and (C) then as provided in the Intercreditor Agreement. (d) With respect to any Shared Collateral securing the Supplemental Loan, and where Heller is the Primary Secured Lender, Borrower agrees that any remaining proceeds -8- following application against the indebtedness of Borrower to Heller under the Supplemental Loan shall be applied (A) first toward repayment of any outstanding balance under the Inventory Loan, and (B) any remaining proceeds thereafter will be applied against any outstanding balance under the Loan, and (C) then as provided in the Intercreditor Agreement. 10. FINANCIAL COVENANTS. (a) SECTION 5.8 OF THE SEPTEMBER 1, 1999 AMENDMENT, AS AMENDED, IS HEREBY REPLACED IN ITS ENTIRETY BY THE FOLLOWING: Borrower shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of Borrower as of September 30, 2001 plus (B) one hundred percent (100%) of the aggregate amount of proceeds received by Borrower after January 1, 2002 in connection with (1) each issuance by Borrower of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Indebtedness after January 1, 2002, other than Indebtedness which shall be the most senior Indebtedness of Borrower plus (C) one hundred percent (100%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after January 1, 2002. (b) MARKETING AND SALES EXPENSES. Borrower will not permit as of March 31, 2002 and as of the last day of each calendar quarter thereafter the ratio of Marketing and Sales Expenses for any calendar quarter, singly and on a cumulative basis, during the specified period below (the "Reference Period") to Borrower's net proceeds from the sale of Intervals for such Reference Period to equal or exceed the ratio set forth opposite such period described in the table below during such Reference Period:
PERIOD RATIO ------ ----- 4/1/02 to 12/31/02 0.550 to 1 1/1/03 and thereafter 0.525 to 1
(c) MINIMUM LOAN DELINQUENCY. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged pursuant to the Textron Facility and the Sovereign Facility) to be greater than twenty-five percent (25%). If, as of the last day of each calendar quarter, Borrower's over 30-day delinquency on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Heller under the Inventory Loan Agreement, as amended and restated, all Notes Receivable pledged to Lenders under the Loan Agreement, and all Notes Receivable pledged pursuant to the Textron Facility and the Sovereign Facility) is greater than twenty percent (20%), then Lenders and Agent shall have the right to conduct an audit, at Borrower's sole cost and expense, of all of Borrower's Notes Receivable pledged to Lenders under this Loan Agreement, to Heller under the Inventory Loan and the Supplemental Loan, to Textron under the Textron Facility and to Sovereign under the Sovereign Facility. -9- (d) INTEREST COVERAGE. (i) For the calendar quarter of Borrower ending June 30, 2002, Interest Coverage Ratio for Borrower shall be at least 1.1:1, (ii) for the calendar quarter of Borrower ending September 30, 2002, the average of the Interest Coverage Ratio of Borrower of such calendar quarter and the Interest Coverage Ratio for the immediately preceding calendar quarter shall be at least 1.1:1, (iii) for the calendar quarter of Borrower ending December 31, 2002, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for the two immediately preceding calendar quarters shall be at least 1.1:1, (iv) for each calendar quarter of Borrower beginning with, and including, the calendar quarter ending March 31, 2003 and for each calendar quarter of Borrower thereafter, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for each of the three immediately preceding calendar quarters shall be at least 1.25:1. The term "Interest Coverage Ratio" means with respect to any Person for any calendar quarter, the ratio of (y) EBITDA for such period less capital expenditures, as determined in accordance with GAAP, for such period to (z) the interest expense, minus all non-cash items constituting interest expense for such period. (e) PROFITABLE OPERATIONS. Borrower will not permit Consolidated Net Income (i) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (ii) for any two consecutive fiscal quarters (treated as a single accounting period ) to be less than $1.00. 11. SILVERLEAF FINANCE. Lenders and Agent acknowledge and agree that: (i) the transfer of Notes Receivable to Silverleaf Finance I, Inc. in connection with the DZ Facility is a true sale and not a financing transaction; (ii) Lenders and Agent will not file a motion to consolidate Silverleaf Finance I, Inc. with the Borrower in the event of a bankruptcy of Borrower; and (iii) Lenders and Agent will not take any affirmative action in support of any such motion to consolidate. 12. FILING AUTHORITY. Borrower reaffirms and grants to Lenders and Agent (by and through Lenders), and its successors as designated by Lenders, full power and authority to execute, acknowledge, deliver and file any security agreements and UCC-1 financing statements (and amendments thereto) requested by Lenders or necessary to perfect the security interest in the Collateral, including, without limitation, the Second Priority Collateral, granted to Lenders by Borrower to secure the Loan therewith. 13. BORROWER CONFIRMATION. Borrower hereby ratifies and confirms that the Loan Agreement, as amended, modified and restated, and other Loan Documents as amended herein are in full force and effect and agrees that such Loan Documents as amended and restated are and continue to be in full force and effect and enforceable in accordance with their respective terms. Borrower hereby incorporates by reference all covenants, warranties, and representations contained in the Loan Documents and reaffirms such covenants, warranties, and representations as of the day hereof. -10- 14. BORROWER ESTOPPEL. Execution of this Second Amendment by Lenders shall be without prejudice to Lenders' rights at any time in the future to exercise any and all rights conferred upon them by any of the Loan Documents in accordance with their original terms as previously and hereby amended. Neither this Second Amendment nor any provision hereof or of any other documents given in connection herewith shall constitute or shall be construed to constitute a waiver of any default, right, or remedy of Lenders under the Loan Agreement, the Note or the other Loan Documents subsequent to the date hereof. Any failure by Lenders at any point in time during the term of the Note or the Loan Agreement, as amended and restated, to insist upon strict and timely compliance with the terms and provisions of each such document shall not be deemed a waiver either expressly or implied by Lenders of any of their rights under any such document nor shall the same excuse Borrower's obligation to strictly and timely perform its obligation hereunder and therein. 15. RELEASE. The Borrower by execution of this Second Amendment hereby declares that as of this date the Borrower has no claim, set-off, counterclaim, defense, or other cause of action against Lenders including, but not limited to, a defense of usury, any claim or cause of action at common law, in equity, statutory or otherwise, in contract or in tort, for fraud malfeasance, misrepresentation, financial loss, usury, deceptive trade practice, or any other loss, damage or liability of any kind, including without limitation any claim for exemplary or punitive damages arising out of any transaction between Borrower and Lenders in connection with the Loan Agreement or any of the other Loan Documents, any security therefore or this Second Amendment, or any document mentioned herein. Further, to the extent that any such set-off, counterclaim, defense, or other cause of action may exist or might hereafter arise based on facts known or unknown which exist as of this date, such set-off, counterclaim, defense and other cause of action is hereby expressly and knowingly waived and released by Borrower. 16. COMPLETE AGREEMENT. There are and were no oral or written representations, warranties, understandings, stipulations, agreements, or promises made by either party or by any agent, employee or other representative of either party pertaining to the subject matter of this Second Amendment which have not been incorporated into this Second Amendment. This Second Amendment shall not be modified, changed, terminated, amended, superseded, waived or extended except by a written instrument executed by the parties hereto. If any term, comment or condition of this Second Amendment is held to be invalid, illegal, or unenforceable as to a particular person, entity, or situation and this Second Amendment will also be enforced to the fullest extent permitted by law as to any other person, entity, or situation. Except as specifically modified by the terms of this Second Amendment, the Loan Agreement, the Note and all the remaining Loan Documents shall not be affected by this Second Amendment and each shall remain in full force and effect. Nothing herein contained shall be construed to impair Lenders' security under the Loan Agreement or Loan Documents nor to limit or impair any rights or powers that Lenders now enjoy or may hereafter enjoy under the Loan Documents for recovery of the Indebtedness secured hereby. -11- 17. FURTHER ASSURANCES. Borrower agrees to execute such further documents, instruments and agreements as Lenders through Agent may require from time to time to effectuate the terms and conditions and understandings of this Second Amendment. 18. BORROWER REPRESENTATIONS. Borrower hereby represents and warrants to Agent and Lenders that: (a) The person executing this Second Amendment on behalf of the Borrower has full authority to execute this Second Amendment on behalf of Borrower and to bind Borrower thereby; (b) The execution and delivery by Borrower of this Second Amendment and the performance thereunder by Borrower has not and will not result in a breach of or constitute a default under any mortgage, lease, bank loan, credit arrangement or other instrument or agreement to which either Borrower or the Collateral securing the Loan may be bound or affected; (c) Borrower is a corporation duly formed, validly existing and in good standing under the laws of the state of Texas; and (d) The execution, delivery and performance by the Borrower of this Second Amendment and other Loan Documents as amended as of the date hereof, have been duly and validly authorized and all consents and approvals which are necessary for authorization, binding effect, performance, and enforceability of this Second Amendment and all other Loan Documents have been received. 19. ADDITIONAL RESORT COLLATERAL. Lenders and Agent acknowledge that Textron and Sovereign have been and are hereby granted a first priority security interest and Lien in the Additional Resort Collateral, as set forth on the attached SCHEDULE B and more particularly described in the Textron Documents and the Sovereign Documents. As additional consideration for Lenders' and Agent's agreements in this Second Amendment, Borrower agrees, and shall cause Textron and Sovereign to agree (as set out in their respective Loan Agreements and in the Intercreditor Agreement), that upon the occurrence of an Event of Default, Textron and Sovereign shall collectively, upon approval of the Majority of the Lenders (as defined in the Intercreditor Agreement), take action to enforce their rights against the Additional Resort Collateral, subject to the terms and conditions of the Intercreditor Agreement, provided, however, that the consent of the non-consenting Lender (for purposes of this Section 19 only, the term "Lender" shall mean either Textron, Sovereign or Heller (individually in respect to the Inventory Loan and the Supplemental Loan, and as agent and on behalf of itself and Union Bank under the Loan), which consent shall not be unreasonably withheld or delayed, shall be required for any sale or other disposition of all or any portion of the Additional Resort Collateral if such action would, in the reasonable determination of the non-consenting Lender, have a material adverse impact on the Collateral securing the non-consenting Lender's respective Loans to Borrower. The non-consenting Lender shall be entitled upon its written request to receive such information from the -12- other Lenders and Borrower as may be reasonably necessary for the non-consenting Lender to make such determination. In the event a Lender determines that a decision by the Majority of the Lenders hereunder to sell or otherwise dispose of all or any portion of the Additional Resort Collateral would, in the reasonable determination of such non-consenting Lender, have a material adverse impact on the Collateral securing such non-consenting Lender's respective Loans to Borrower, such non-consenting Lender shall immediately notify the other Lenders in writing and shall specify therein the basis for its decision. In such event, such non-consenting Lender shall cooperate in good faith with the other Lenders to effectuate such sale or disposition in a manner such that there is no material adverse impact on the Collateral securing the non-consenting Lender's respective Loans to Borrower. Notwithstanding the foregoing, any such sale or disposition shall be conditioned upon the execution and recording in the appropriate public records of subordination agreements protecting all use rights of the owners of the Intervals entitled to use of the Additional Resort Collateral. If the non-consenting Lender does not give such notice within ten (10) days of the date of the decision of the Majority of the Lenders, the non-consenting Lender shall be deemed to have waived any right to object to such decision. Notwithstanding anything stated to the contrary herein, in the event that Textron or Sovereign takes possession or control of the Additional Resort Collateral, Borrower agrees that the Standby Manager (as defined in the April ___, 2002 Amendment to Inventory Loan) shall be responsible for, among other things, the marketing, sale, resale and financing of all Intervals at the related Resort or Resorts on behalf of Lenders, Textron and Sovereign and that Lenders and Agent shall not be denied access to the amenities, sales centers or Resort related information reasonably necessary to sell, finance, dispose of or manage Lenders' Collateral under this Loan, the Inventory Loan and the Supplemental Loan. 20. ADDITIONAL ELIGIBLE NOTES RECEIVABLE. Borrower agrees that no additional Advances shall be made against any Additional Eligible Note Receivable (as defined in the March 2, 2000 Amendment) and all Additional Eligible Notes Receivable which become ineligible hereafter shall only be replaced with Eligible Notes Receivable conforming with the Eligible Notes Receivable criteria as defined in APPENDIX 1 attached hereto, and provided, that at all times hereafter the aggregate amount of Advances then outstanding shall be at all times equal to or less than eighty-five percent (85%) of the principal balance of all Notes Receivable pledged to Lenders hereunder. 21. NEGATIVE COVENANTS. (a) LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES AND/OR SECURITIZATION. Borrower will not obtain financing and grant liens with respect to the Collateral or any of its other assets or property, except as expressly provided herein. Prior to March 31, 2003, Borrower will not obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable, except as provided in this Loan Agreement, the Inventory Loan, as amended and restated, the Textron Facility and the Sovereign Facility, without Agent's and Lenders' prior written consent, which consent shall not be unreasonably withheld. At any time after March 31, 2003, Borrower may obtain financing and grant liens with respect to any of -13- Borrower's unpledged Notes Receivable in an amount not to exceed twenty million dollars ($20,000,000.00), provided that: (i) no Default or Event of Default has occurred; and (ii) any such financing does not result in Borrower's failure to substantially adhere to the Business Plan, as determined by Agent and Lenders in their sole and absolute discretion. At any time after March 31, 2003, if Borrower wishes to obtain financing in excess of twenty million dollars ($20,000,000.00) which will be secured by any of Borrower's unpledged Notes Receivable, Borrower shall obtain Agent's and Lenders' written consent, which consent shall not be unreasonably withheld. Borrower may obtain unsecured financing provided: (i) Borrower provides prior written notice to Agent setting forth the terms and conditions thereof; (ii) Lenders and Agent are provided with a copy of the loan documents therefor; and (iii) such financing does not result in Borrower's inability to substantially adhere to the Business Plan, as determined by Agent and Lenders in their sole and absolute discretion. (b) MODIFICATIONS OF TEXTRON DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Borrower shall not amend or modify the Textron Documents, the Sovereign Documents, DZ Documents, Bond Holder Exchange Documents or the documents evidencing any other indebtedness of Borrower, nor shall Borrower extend, modify, increase or terminate the Textron Facility, DZ Facility, the Bond Holder Exchange Transaction, the Sovereign Facility or any other credit facility or loan, without the prior written consent of Lenders and Agent, which consent shall not be unreasonably withheld. (c) BUSINESS OPERATIONS. Borrower shall not deviate from or fail to operate its business in substantial compliance with the Business Plan. Failure to comply with the foregoing covenants under this Section shall constitute an Event of Default. 22. EFFECT. Except as modified by this Second Amendment, all other terms and conditions of the Loan Agreement existing as of the date hereof shall remain in full force and effect. 23. CONDITIONS PRECEDENT. The following conditions shall have occurred prior to this Second Amendment becoming effective and binding on Lenders and Agent: (a) APRIL __, 2002 AMENDMENT TO INVENTORY LOAN. The April __, 2002 Amendment to Inventory Loan shall have been executed by Heller and Borrower and shall have become effective as set forth in Section 8 therein. (b) DZ FACILITY. The DZ Letter Agreement shall been approved by Lenders and Agent, which approval may be withheld at their sole and absolute discretion, the DZ Letter remains in full force and effect and has not been amended, modified or rescinded, the DZ Documents shall be satisfactory to Lenders and Agent at their sole and absolute discretion, and -14- Borrower shall promptly furnish to Lenders and Agent copies of the DZ Documents upon execution. (c) TEXTRON FACILITY AND SOVEREIGN FACILITY MODIFICATION. Borrower shall deliver to Agent, evidence satisfactory to Agent and Lenders, that the Textron Facility and the Sovereign Facility have each been modified in a manner as previously approved by Lenders and Agent and Agent has been provided with copies of all of the executed Textron Documents modifications and the executed Sovereign Documents modifications. (d) BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Transaction shall have been approved by Lenders and Agent, which approval may be withheld at their sole and absolute discretion, and have been consummated on or before March 31, 2002. THE TERMS AND PROVISIONS OF THIS SECOND AMENDMENT SHALL NOT BIND LENDERS AND AGENT UNTIL AND UNLESS THE CONDITIONS SET FORTH IN THIS SECOND AMENDMENT, INCLUDING WITHOUT LIMITATION, THIS SECTION 23 HEREOF, HAVE BEEN SATISFIED, AS DETERMINED BY AGENT IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT THAT THE DZ FACILITY HAS NOT BEEN CONSUMMATED OR DZ FAILS TO MAKE ITS FIRST FUNDING REQUIRED UNDER THE DZ FACILITY, OR AGENT DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT ANY OF THE CONDITIONS SET FORTH IN THIS SECTION ARE NOT SATISFIED ON OR BEFORE MAY 31, 2002, THEN THIS SECOND AMENDMENT, AND THE OBLIGATIONS OF LENDERS AND AGENT HEREUNDER, SHALL BE NULL AND VOID IN ALL RESPECTS AB INITIO. IN SUCH EVENT, THE LOAN AGREEMENT EXISTING PRIOR HERETO AND THE TERMS AND CONDITIONS THEREIN SET FORTH, AS MODIFIED BY THE FORBEARANCE AGREEMENT AND THE ORIGINAL INTERCREDITOR AGREEMENT, SHALL CONTINUE TO GOVERN AND CONTROL BORROWER'S OBLIGATIONS WITH RESPECT TO REPAYMENT IN FULL OF THE INDEBTEDNESS, AS SUCH TERM IS DEFINED IN THE LOAN AGREEMENT. 24. REPLACEMENT NOTES RECEIVABLE. Except as may be provided in the Business Plan, ineligible Notes Receivable shall be replaced with Eligible Notes Receivable, to the extent available, on a dollar for dollar basis. If Borrower is unable to deliver Eligible Notes Receivable to replace any ineligible Notes Receivable, Borrower shall, subject to Agent's prior written consent (which consent may be withheld at Agent's sole and absolute discretion), deliver additional Notes Receivable, if available, to Agent to replace the ineligible Notes Receivable, including such additional Notes Receivable that do not satisfy the criteria for Eligible Notes Receivable ("Non-Conforming Notes Receivable"), provided, that no event of default has occurred and is continuing under such additional Note Receivable. In the event that any Eligible Note Receivable becomes available thereafter, Borrower shall promptly substitute such Eligible Note Receivable for the Non-Conforming Note Receivable. Borrower acknowledges and agrees that Borrower shall only deliver Non-Conforming Notes Receivable to Agent (on behalf of Lenders), to the extent that Non-Conforming Notes Receivable are also delivered to Textron and Sovereign pro rata based on the then outstanding principal balance of their respective loans to Borrower. Notwithstanding anything stated to the contrary herein, Borrower acknowledges, confirms and agrees that the aggregate amount of Advances then outstanding under the Loan Agreement shall be at all times equal to or less than eighty-five percent (85%) of the principal balance of all Notes Receivable pledged to Lenders hereunder. -15- 25. AUTHORITY. By execution of this Second Amendment, Union Bank of California, N.A. hereby reaffirms and grants to Heller Financial, Inc. full power and authority to enter into the Intercreditor Agreement as agent for and on behalf of both Lenders, and Heller Financial, Inc. is hereby authorized and directed to do all acts and execute all instruments in connection with the Intercreditor Agreement. 26. WAIVER. On the effective date of this Second Amendment and so long as each condition precedent set forth in this Second Amendment has been satisfied, Lenders agree to waive all prior Defaults and Events of Default under the Receivables Loan, including the Specified Events of Default as described in the Forbearance Agreement. 27. COUNTERPARTS. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. [SIGNATURES ON THE NEXT PAGE] -16- IN WITNESS WHEREOF, Borrower, Agent and Lenders have caused this Second Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. BORROWER: SILVERLEAF RESORTS, INC., a Texas corporation By: /s/ Harry J. White, Jr. ---------------------------------------- Name: Harry J. White, Jr. -------------------------------------- Its: Chief Financial Officer --------------------------------------- Silverleaf Resorts, Inc. AGENT AND LENDER: HELLER FINANCIAL, INC. By: /s/ Dennis K. Holland ---------------------------------------- Name: Dennis K. Holland -------------------------------------- Its: Senior Vice President --------------------------------------- LENDER: UNION BANK OF CALIFORNIA, N.A. By: /s/ Daniel J. Isenberg --------------------------------------- Name: Daniel J. Isenberg -------------------------------------- Its: Vice President --------------------------------------- -17- APPENDIX 1 DEFINITION OF TERMS The following terms used in this Second Amendment are added to the Appendix of the Loan Agreement and shall have the following meanings: ADDITIONAL RESORT COLLATERAL. Shall mean the real and personal property, now or hereafter acquired by Borrower and listed on SCHEDULE B. For the avoidance of doubt, "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc. that constitutes "Pledged Assets" under the DZ Documents. ASSIGNMENTS OF MORTGAGE. The Assignments of Mortgage executed and delivered by Borrower in connection with the Ineligible Note Portfolio and pursuant to the terms of Section 8(d) of this Second Amendment, in the form attached hereto as SCHEDULE G. AVAILABILITY. Pursuant to the Forbearance Agreement, Availability is zero (0). BOND HOLDER EXCHANGE TRANSACTION. The term "Bond Holder Exchange Transaction" shall mean that certain senior subordinate note holder exchange transaction on the terms and conditions outlined in that certain Term Sheet dated October 19, 2001 (the "Bond Holder Exchange Term Sheet"), a copy of which is attached hereto as EXHIBIT C, and which is to be consummated by the documents listed on SCHEDULE C hereto (the "Bond Holder Exchange Documents"). BUSINESS PLAN. The term "Business Plan" shall mean the five (5) year "Stand Alone" business plan prepared by Borrower, together with the Senior Lender Advance, attached hereto as SCHEDULE A. The Business Plan includes the "Impact on Lenders Worksheet" setting forth the amounts to be advanced by each of Heller (under the Inventory Loan), Textron and Sovereign pursuant to their respective credit facilities (the "Senior Lender Advance Schedule"). DZ FACILITY. The term "DZ Facility" shall mean that certain note purchase facility to be provided by DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main, as agent for Autobahn Funding Company LLC ("DZ") to Borrower, on the terms outlined in the DZ Letter Agreement dated December 12, 2001, attached hereto as EXHIBIT D ("DZ Letter Agreement"), and evidenced by the documents listed on SCHEDULE D hereto (the "DZ Documents"). ELIGIBLE NOTE RECEIVABLE. Each Note Receivable satisfying all of the following criteria: (a) Purchaser has made a cash down payment of at least ten percent of the actual purchase price of the Interval and at least one monthly payment under the related Note Receivable and no part of such payment has been made or loaned to Purchaser by Borrower or an Affiliate; (b) The weighted average interest rate of all Financed Notes Receivable is no less than 13.75% per annum; (c) No installment is more than thirty (30) days past due on a contractual basis at the time of assignment to Agent, nor becomes more than sixty (60) days past due on a contractual basis thereafter; (d) The Unit with respect to the Interval purchased has been completed, developed and furnished in accordance with the purchase contract; (e) All amenities for the Resort have been completed and are available for use by all Purchasers; (f) The purchaser is not an Affiliate, shareholder, officer, director or agent of, related to or employed by Borrower; (g) The Note Receivable is free and clear of adverse claims, liens and encumbrances and is not currently, nor shall it be potentially in the future, subject to claims of rescission, invalidity, unenforceability, illegality, defense, offset or counterclaim; (h) The Note Receivable is secured by a first priority mortgage or deed of trust on the purchased Interval or by a first priority perfected security interest in the related Certificate of Beneficial Interest and an Assignment of Mortgage and Assignment of Beneficial Interest; (i) Subject to the provisions of SCHEDULE 3.2.6.(IV) of this Loan Agreement, the Mortgage securing a Note Receivable is insured under a mortgagee title insurance policy acceptable to Agent subject only to the Permitted Exceptions; (j) The Purchaser meets credit standards acceptable to Lenders and Agent at their sole and absolute discretion and shall have a minimum Fair Isaac Company (FICO) Credit Bureau Score of at least 550 (k) No single Purchaser shall have an aggregate outstanding principal balance due under his/her or its Notes in excess of $36,000; (l) Payments are to be in legal tender of the United States; (m) The Note Receivable and the Purchase Documents are valid, genuine and enforceable against the obligor thereunder, and such obligor has not assigned his or her interest thereunder; (n) At least 90% of the aggregate outstanding principal balance of all Financed Notes Receivable arises from Purchasers who are U.S. or Canadian residents and no more than 25% of the Notes Receivable comprising the Collateral shall be originated from Sales of Biennial Intervals; (o) Payments have been made by the obligor thereunder and not by Borrower or any Affiliate of Borrower on the obligor's behalf; and (p) The Interval or Biennial Interval with respect to each Eligible Note Receivable is subject to a Purchaser Mortgage or to an Assignment of Mortgage and Beneficial Interest; (q) Up to 15% of the Eligible Notes Receivable may be modified to reduce the interest rate charged in accordance with paragraph 6.4 hereof. (r) Up to 20% of the Eligible Notes Receivable may be modified to extend the term thereof beyond 84 months, but not exceeding 120 months, and in accordance with paragraph 6.4 hereof. (s) Each Eligible Note Receivable shall evidence a self-amortizing loan and 80% of the Eligible Notes Receivable shall have a term not exceeding 84 months and the remainder shall have a term not exceeding 120 months. APRIL 30, 2002 AMENDMENT TO INVENTORY LOAN. That certain Fourth Amendment to Second Amended and Restated Inventory Loan and Security Agreement entered into between Heller Financial, Inc. and Borrower dated April 30, 2002. MATURITY DATE. August 31, 2004. MAXIMUM EXPOSURE. Subject at all times to a limit in the aggregate amount of the Loan Commitments of all participating Lenders, the lesser of (a) $70,000,000.00 less Advances outstanding under the Inventory Loan and the Supplemental Loan or (b) the aggregate amount equal to eighty-five percent (85%) of the outstanding principal balance of all Eligible Notes Receivable pledged to Agent for the benefit of the Lenders hereunder. PRIMARY SECURED LENDER. The term "Primary Secured Lender" shall mean a Lender who has been or is hereby granted a first priority security interest by Borrower in Borrower's Notes Receivable to secure its (or as the case may be, and its co-lender's or co-lenders') loan(s) to Borrower. RESORT(s). The projects as listed and legally described on the attached SCHEDULE H, including, without limitation, all related common elements, limited common elements, parking areas and other amenities, as established by the Declaration. SOVEREIGN FACILITY. The term "Sovereign Facility" shall mean that certain credit facility provided by Sovereign Bank ("Sovereign") to Borrower pursuant to the documents listed on SCHEDULE E hereto (the "Sovereign Documents"). SUPPLEMENTAL LOAN. That certain $10,000,000 loan facility from Heller to Borrower under that certain Second Amended and Restated Inventory Loan and Security Agreement between Borrower and Heller dated March 1, 2001, as modified and amended, pursuant to which advances to Borrower are made from Heller during the Supplemental Revolving Period (as defined therein). TANGIBLE NET WORTH. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as: (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated debt of such Person and its consolidated subsidiaries, the terms and conditions of which are reasonably satisfactory to Agent, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. TEXTRON FACILITY. The term "Textron Facility" shall mean that certain credit facility provided by Textron Financial Corporation ("Textron") to Borrower pursuant to the documents listed on SCHEDULE F hereto (the "Textron Documents"). LIST OF EXHIBITS 1. Exhibit A - Assignment of Note Receivable And The Mortgage 2. Exhibit C - Bond Holder Exchange Term Sheet LIST OF SCHEDULES 1. Schedule A - Business Plan 2. Schedule B - Additional Resort Collateral 3. Schedule C - Bond Holder Exchange Documents 4. Schedule D - Dz Documents 5. Schedule E - Sovereign Documents 6. Schedule F - Textron Documents 7. Schedule G - Assignment of Mortgage 8. Schedule H - Resorts EX-10.2 8 d00253exv10w2.txt 4TH AMENDMENT TO AMENDED/RESTATED INVENTORY LOAN EXHIBIT 10.2 FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED INVENTORY LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED INVENTORY LOAN AND SECURITY AGREEMENT ("Fourth Amendment") dated April 30, 2002, is made by and between SILVERLEAF RESORTS, INC., a Texas corporation f/k/a SILVERLEAF VACATION CLUB, INC., f/k/a ASCENSION CAPITAL CORPORATION, successor by merger to ASCENSION RESORTS, LTD. d/b/a SILVERLEAF RESORTS, LTD., a Texas limited partnership ("BORROWER"), whose address is 1221 Riverbend, Suite 120, Dallas, Texas 75247, and Heller Financial, Inc., a Delaware corporation whose address is 500 West Monroe Street, Chicago, Illinois 60661 ("LENDER"). RECITALS: WHEREAS, on December 27, 1995 Borrower and Lender entered into that certain Loan and Security Agreement (the "Original Inventory Loan Agreement") as amended on February 28, 1996 and December 27, 1996 (the "Original Inventory Loan"); and The Original Inventory Loan as amended was modified and amended pursuant to that certain Amended and Restated Inventory Loan and Security Agreement (the "Inventory Loan Agreement") between Borrower and Lender dated September 1, 1999 (the "Inventory Loan"); and The Inventory Loan was modified and amended pursuant to that certain Second Amended and Restated Inventory Loan and Security Agreement (the "Supplemental Loan Agreement") between Borrower and Lender dated March 1, 2001 to provide for a Supplemental Loan in the amount of $10,000,000.00 (the "Supplemental Loan"), to be advanced to Borrower through a Supplemental Revolving Period ending on March 23, 2001 (the "Original Supplemental Revolving Period"), as modified and amended by that certain First Amendment to Second Amended and Restated Inventory Loan and Security Agreement between Borrower and Lender dated March 15, 2001 (the "First Amendment to Supplemental Loan"), and that certain letter agreement dated April 12, 2001 ("Letter Agreement") (the Original Inventory Loan Agreement, the Inventory Loan Agreement, the Supplemental Loan Agreement, and all amendments and modifications thereto are collectively referred to as the "Loan Agreement"); and Due to the existence and continuation of certain Events of Default, Lender and Borrower entered into that certain Forbearance Agreement dated April 27, 2001 (the "Forbearance Agreement") pursuant to which Borrower acknowledged such Events of Default and Lender agreed to temporarily forbear in any enforcement action conditioned upon certain matters set forth therein; and The terms and obligations of Borrower under the Forbearance Agreement shall continue in full force and effect in the event that the conditions set forth in Section 4 and Section 8 hereof have not been satisfied; and Pursuant to the Forbearance Agreement, the Supplemental Loan Agreement, as amended, was further modified by that certain Second Amendment to Second Amended and Restated Inventory Loan and Security Agreement between Borrower and Lender dated May 3, 2001 (the "Second Amendment to Supplemental Loan") to extend to Borrower a secured working capital credit facility (the "Working Capital Facility") which is a component of the Supplemental Loan Agreement and provides for advances to be additionally secured pursuant to the terms in the Second Amendment to Supplemental Loan; and Lender and Other Lenders entered into that certain Intercreditor Agreement dated May 17, 2001 (the "Original Intercreditor Agreement") to establish the priority of each Lender's respective security interest in the Real Property Collateral (as defined therein) and to set forth their understanding regarding future advances to Borrower; and The Supplemental Loan Agreement, as amended, was further modified by that certain Third Amendment to Second Amended and Restated Inventory Loan and Security Agreement between Borrower and Lender effective July 27, 2001 (the "Third Amendment to Supplemental Loan") to provide for certain terms in respect of interest payments under the Working Capital Facility; and Borrower, Lender and Union Bank of California, N.A. have entered into that certain First Amendment to Forbearance Agreement dated December 31, 2001 ("First Amendment to Forbearance Agreement") for the purpose of providing for, among other things, the extension of the forbearance period as set forth under the Forbearance Agreement; and Borrower, Lender and Union Bank of California, N.A. have entered into that certain Second Amendment to Forbearance Agreement dated February 12, 2002 ("Second Amendment to Forbearance Agreement") for the purpose of providing for, among other things, the extension of the forbearance period as set forth under the Forbearance Agreement; and Borrower desires to extend the Availability Period, the Revolving Period, the Supplemental Availability Period, the Supplemental Revolving Period, and the maturity dates for the Inventory Loan and the Supplemental Loan; and As consideration in exchange for Lender's agreement to extend the revolving and availability periods and the maturity dates of the Inventory Loan and the Supplemental Loan, Borrower agrees to amend the terms for allocation of the Real Estate Collateral Proceeds (as defined hereinbelow) under the Loan Agreement, and grant to Lender security interests in the Additional Collateral and the Ineligible Note Portfolio; and Borrower's agreement to grant to Lender security interests in the Additional Collateral and the Ineligible Note Portfolio and to modify the conditions of collateralization under the Loan Agreement serves as significant inducement for Lender to extend the revolving and availability periods and maturity dates of the Inventory Loan and the Supplemental Loan; and 2 Lender and Borrower desire to further modify the provisions under the Supplemental Loan and the Inventory Loan to extend the respective revolving periods and maturity dates of the Supplemental Loan and the Inventory Loan, to amend the conditions for collateralization under said Loans and to provide for such security interests in the Additional Collateral and the Ineligible Note Portfolio as described hereinbelow; and Pursuant to the terms of this Fourth Amendment, Borrower shall make and deliver to Lender that certain Second Amended and Restated Promissory Note dated of even date herewith ("Second Amended and Restated Promissory Note"), a copy of which is attached hereto as EXHIBIT A); and Pursuant to the terms of this Fourth Amendment, Borrower shall make and deliver to Lender that certain Amended and Restated Revolving Promissory Note (Inventory Loan) dated of even date herewith ("Amended and Restated Revolving Promissory Note"), a copy of which is attached hereto as EXHIBIT B; and Lender and Borrower, together with Additional Lenders, shall enter into that certain Amended and Restated Intercreditor Agreement dated as of the Closing Date, a copy of which is attached hereto as EXHIBIT C ("Intercreditor Agreement"), to provide for cross-collateralization of certain properties secured under the Loan Agreements between Borrower and Lender and under the Additional Loan Agreements; and Borrower, Lender and Union Bank of California, N.A. are entering into the Second Amendment to Amended and Restated Receivables Loan and Security Agreement dated of even date herewith, a copy of which is attached hereto as EXHIBIT P ("Second Amendment to Amended and Restated Receivables Loan Agreement"); and The parties desire to further amend the terms of the Supplemental Loan Agreement, as amended, as set forth herein. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrower and Lender agree as follows: 1. RECITALS. The above recitals are true and correct and are incorporated herein. 2. INCORPORATION. The Exhibits and Schedules attached hereto are incorporated herein and made a part hereof. 3. DEFINITIONS. All capitalized terms not defined herein shall have the meanings ascribed to them in the Loan Agreement. 4. TEXTRON AND SOVEREIGN OBLIGATION TO FUND. Notwithstanding anything herein to the contrary, the obligation of Lender to make any Advance under this Loan Agreement shall be subject to and conditioned upon (i) both Textron and Sovereign entering into agreements with 3 Borrower to extend certain additional financing to Borrower pursuant to the Textron Documents and the Sovereign Documents as provided in the Intercreditor Agreement dated as of the Closing Date among Textron, Sovereign and Lender, on or before the date that any Advance hereunder is to be made and (ii) as determined by Lender in its sole and absolute discretion, both Textron and Sovereign each making advances to Borrower substantially in accordance with the Business Plan, including the Senior Lender Advance Schedule attached thereto, which Lender agrees will be determined on a quarterly basis commencing on April 1, 2002. Lender shall have no obligation to make any Advance hereunder to the extent that: (i) either Sovereign or Textron terminates its respective facility; (ii) as determined by Lender in its sole and absolute discretion, Sovereign or Textron fails at any time to make advances to Borrower substantially in accordance with the Business Plan, which Lender agrees will be determined on a quarterly basis commencing on April 1, 2002; (iii) Borrower shall fail to close under the DZ Facility and execute and deliver copies of the DZ Documents to Lender; or (iv) the Bond Holder Exchange Transaction has not been consummated pursuant to the terms of the Bond Holder Exchange Term Sheet. 5. LOANS; FORBEARANCE FEE. (a) Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balances of the Inventory Loan, the Supplemental Loan, and the Receivables Loan are, respectively, $9,936,000, $8,543,633.81, and $31,886,168.56. (b) At no time shall Lender be required to advance outstanding loans in excess of $50,000,000 in the aggregate under the Inventory Loan, the Receivables Loan (the Receivables Loan also includes, in addition to Lender's commitment, a $20,000,000 commitment by Union Bank of California, N.A.), and the Supplemental Loan. In the event that the total sum of the outstanding balances advanced by Lender under the Inventory Loan, the Receivables Loan and the Supplemental Loan exceeds $50,000,000, Borrower shall immediately repay to Lender one or more of such Loans in the amount necessary to reduce the aggregate outstanding balances to $50,000,000 or a lesser amount. (c) Borrower acknowledges, agrees and confirms that as of the date hereof and during the term of this Loan Agreement Borrower has not and shall not pledge any Timeshare Intervals as Collateral under the Supplemental Loan. (d) Borrower acknowledges that Borrower is not entitled to request or receive any further Advances under the Receivables Loan. (e) Borrower acknowledges, agrees and confirms that as of the date hereof and during the term of this Loan Agreement Borrower shall not pledge to Lender any Timeshare Interval which has been previously pledged or will be simultaneously pledged to any lender or Person (except for the second priority pledge described in Section 7(g) below). (f) Borrower agrees that any repayment ("Excess Collateral Payment") of the outstanding principal balance of the Inventory Loan from the proceeds of the Real Estate 4 Collateral or from the Receivables Loan Collateral following the full payment of all indebtedness and obligations under the Receivables Loan, or from the proceeds of the Supplemental Loan Collateral following the full payment of all indebtedness and obligations under the Supplemental Loan, or from the proceeds of any collateral other than Intervals securing the Inventory Loan ("Excess Collateral") shall constitute a permanent paydown of the Inventory Loan resulting in a permanent reduction in the Inventory Loan Availability and Borrower shall not have the right to reborrow any portion of such Excess Collateral Payment under the Inventory Loan; nor shall Borrower be entitled to the release of any Intervals in connection with such Excess Collateral Payment. Thereafter, all Intervals in excess of that number of Intervals equal to (i) the outstanding principal balance of the Inventory Loan after the application of the Excess Collateral Payment, divided by (ii) 1600, shall be held by Lender as additional collateral (the "Excess Intervals") for the Inventory Loan. The Availability under the Inventory Loan shall be reduced by such Excess Collateral Payment. (g) Borrower agrees that proceeds derived from any excess Notes Receivable securing the Receivables Loan shall be used to pay down the Inventory Loan, subject to Subsection (f) above. (h) As consideration in exchange for Lender's agreements under the Second Amendment to Forbearance Agreement and this Fourth Amendment, Borrower agrees to pay to Lender a forbearance fee ("Forbearance Fee") in the amount of Four Hundred and Fifty Thousand Dollars ($450,000.00). Such Forbearance Fee shall be paid as follows: (i) On the Closing Date, the amount of Fifty Thousand Dollars ($50,000.00), by wire transfer fund pursuant to transfer instructions provided by Lender; and (ii) The balance thereafter shall be paid in quarterly installments of Fifty Thousand Dollars ($50,000.00) each due on the first day of every July, October, January and April until paid in full unless otherwise accelerated pursuant to the terms hereof. 6. THE FOLLOWING SECTION 1.7 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: SUSPENSION OF ADVANCES. Lender shall not be obligated to fund any Advance hereunder if: (i) Borrower shall fail to substantially adhere to the Business Plan as determined by Lender in its sole and absolute discretion, (ii) Lender in its sole and absolute discretion determines that any of the conditions in Sections 4, 5 and 6 of the Loan Agreement or Sections 4, 7, 9, 10 and 11 of this Fourth Amendment are not true or have not been complied with, or (iii) a Default or Event of Default shall have occurred and be continuing. 7. SECTION 2.2 OF THE SUPPLEMENTAL LOAN AGREEMENT IS HEREBY AMENDED BY ADDING THE FOLLOWING THERETO: 5 (a) NOTES RECEIVABLE. Borrower shall not take any action (nor permit or consent to the taking of any action) which might reasonably be anticipated to impair the value of the Collateral or any of the rights of Lender in the Collateral. Borrower shall not (i) modify or amend any of the Pledged Documents without Lender's prior written consent except that Borrower shall be permitted to modify up to (1) 15% of the Notes Receivable which are to be pledged to Lender by reducing the interest rate charged and/or (2) 20% of the Notes Receivable which are to be pledged to Lender by extending the term of the Notes Receivable beyond 84 months so long as (a) no Financed Notes Receivable shall have been modified more than two times; (b) all Financed Notes Receivable have a weighted average interest rate of 13.75%; (c) no term exceeds 120 months; (d) no more than 20% of all Financed Notes Receivable have a term exceeding 84 months; (e) at such time as 10% of the Financed Notes Receivable constitute Notes Receivable which have been modified as permitted hereunder any additional modified Notes Receivable to be pledged to Lender shall be subject to the further requirement that the Purchasers under such modified Notes Receivable to be pledged to Lender shall have made two (2) timely and consecutive monthly payments; (f) no additional modified Notes Receivable shall be pledged to Lender after the expiration of the Revolving Period except in replacement of a modified Financed Note Receivable which has become ineligible; (g) no unmodified Financed Note Receivable which becomes ineligible may be replaced with a modified Note Receivable; and (h) there shall be no limit on assumptions of Notes Receivable provided the purchaser has made a 10% down payment, or (ii) grant extensions of time for the payment of, compromise for less than the full face value, release in whole or in part any Purchaser liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument or document representing the Collateral. If a Note Receivable is a newly originated Eligible Note Receivable which is replacing an existing Eligible Note Receivable pledged as Collateral under the Loan Agreement and the proceeds have been used to finance the purchase of an Interval which is being upgraded by the consumer borrower to a more expensive Interval, then (a) the principal balance of the existing Eligible Note Receivable which is being upgraded may still be included for purposes of calculating the Availability for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Note Receivable becomes thirty (30) or more days past due, and (b) on or before the second (2nd) Business Day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Note Receivable and in any event within ten (10) days of such upgrade, Borrower shall deliver to Lender or its designee the original of the new promissory note executed in connection with such upgrade duly endorsed in blank by Borrower and Borrower will cause all payments made with respect to such new promissory note to be forwarded to the Lockbox. (b) ADDITIONAL COLLATERAL. In addition to the other Collateral and as consideration for Lender's agreements herein and under the Intercreditor Agreement, Borrower agrees that to secure the payment and performance of the Inventory Loan and the Supplemental Loan, Borrower does hereby unconditionally and irrevocably assign, pledge and grant to Lender, 6 together with Textron and Sovereign (as more particularly described in the Intercreditor Agreement), a first priority continuing security interest and lien in and to the right, title, and interest of Borrower in the (i) the Backup Servicing Agreement, and (ii) the Consulting Agreement, and all proceeds, profits, extensions, additions, improvements, betterments, renewals, substitutions and replacements of the foregoing (collectively, the "Additional Collateral"). On or before the Closing Date, Borrower shall execute and deliver appropriate collateral assignments of each of the foregoing in the forms approved by Lender at its sole and absolute discretion and attached hereto as, respectively, EXHIBIT M and EXHIBIT N. (c) REPLACEMENT NOTES RECEIVABLE. Except as may be provided in the Business Plan, ineligible Notes Receivable shall be replaced with Eligible Notes Receivable, to the extent available, on a dollar for dollar basis. If Borrower is unable to deliver Eligible Notes Receivable to replace any ineligible Notes Receivable, Borrower shall, subject to Lender's prior written consent (which consent may be withheld at Lender's sole and absolute discretion), deliver additional Notes Receivable, if available, to Lender to replace the ineligible Notes Receivable, including such additional Notes Receivable that do not satisfy the criteria for Eligible Notes Receivable ("Non-Conforming Notes Receivable"), provided, that no event of default has occurred and is continuing under such additional Note Receivable. In the event that any Eligible Note Receivable becomes available thereafter, Borrower shall promptly substitute such Eligible Note Receivable for the Non-Conforming Note Receivable. Borrower acknowledges and agrees that Borrower shall only be entitled to deliver Non-Conforming Notes Receivable to Lender and Additional Lenders pro rata based on the then outstanding principal balance of their respective loans to Borrower. Notwithstanding anything stated to the contrary herein, Borrower acknowledges, confirms and agrees that the aggregate amount of Advances then outstanding under the Supplemental Loan shall be at all times equal to or less than seventy-five percent (75%) of the principal balance of all Notes Receivable pledged to Lender hereunder. (d) TAX REFUND. Borrower agrees that it shall use the proceeds of the Tax Refund strictly to fund Operating Expenses in accordance with the Business Plan and for no other reason, without Lender's prior written consent. Borrower further agrees that notwithstanding anything herein to the contrary, so long as there shall be adequate proceeds from the Tax Refund to fund Operating Expenses as provided in the Business Plan, Borrower shall not be entitled, nor shall Lender be obligated to make, any Advance hereunder. Upon request of Lender, Borrower shall promptly provide to Lender such evidence as Lender may request as to the manner in which the proceeds of the Tax Refund are being used. (e) INELIGIBLE NOTE PORTFOLIO. In addition to the other Collateral and as consideration for Lender's agreements herein and under the Intercreditor Agreement, Borrower agrees that to secure the payment and performance of the Inventory Loan and the Supplemental Loan, Borrower does hereby unconditionally and irrevocably assign, pledge and grant to Lender, together with Textron and Sovereign (as more particularly described in the Intercreditor Agreement), a first priority continuing security interest and lien in and to the right, title, and interest of Borrower in the Ineligible Note Portfolio, which shall include the notes and mortgages 7 as set forth on the attached SCHEDULE A, and all proceeds, profits, extensions, additions, improvements, betterments, renewals, substitutions and replacements of the foregoing (collectively, the "Ineligible Note Portfolio"). To perfect the security interest of Lender in the Ineligible Note Portfolio, Borrower agrees, subject to Lender's prior approval, to execute and cause to be filed, at Borrower's sole cost and expense, UCC-1 financing statement(s) with the appropriate state and local governmental authorities as requested by Lender and Borrower, as agent and on behalf of Lender, Textron and Sovereign, unless and until an Event of Default shall occur, shall retain in its possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. By executing this Fourth Amendment, Borrower acknowledges and agrees that it is holding such Notes Receivables as bailee and agent for the Lender. Borrower shall hold and designate such Notes Receivable and related Mortgages in a manner which clearly indicates that they are being held by Borrower as bailee on behalf of Lender. Upon the occurrence of an Event of Default, Borrower shall promptly deliver to Textron, as agent for Lender, Sovereign and Textron, all original Notes Receivable comprising the Ineligible Note Portfolio, the related Mortgages and the documents listed on SCHEDULE A attached hereto and with respect thereto and thereafter Textron, as agent for Lender, Sovereign and Textron, shall have the right to collect all proceeds therefrom and apply the same to payment of the Indebtedness as set forth in the Intercreditor Agreement. Borrower also shall execute and deliver in escrow to Textron as agent and on behalf of Lender and Additional Lenders all appropriate Assignments of Mortgage as requested by Lender and Additional Lenders, in the form attached hereto as EXHIBIT O and as approved by Lender and Additional Lenders at their sole and absolute discretion, assigning equally to each of Lender, Textron and Sovereign all of Borrower's rights, title and interests in all of the mortgages relating to the Notes Receivable in the Ineligible Note Portfolio. Borrower further agrees to promptly execute and deliver modifications or additional Assignments of Mortgage requested by Lender and Additional Lenders in order to continue the security interests of Lender, Textron and Sovereign in the Ineligible Note Portfolio. Borrower acknowledges and agrees that upon a Default or an Event of Default under the Supplemental Loan, the Inventory Loan, the Textron Facility or Sovereign Facility, Textron, or a designee as designated by Lender and Additional Lenders pursuant to the terms of the Intercreditor Agreement, shall have the right to automatically record, at Borrower's sole cost and expense, all such Assignments of Mortgage executed by Borrower and delivered to Textron in accordance with the terms of this Section. Upon a Default or Event of Default under the Supplemental Loan, the Inventory Loan, the Textron Facility or Sovereign Facility, Borrower shall immediately deliver possession of the Ineligible Note Portfolio and all documents relating thereto to Textron as agent on behalf of Lender, Textron and Sovereign, as more particularly described in the Intercreditor Agreement. (f) ADDITIONAL RESORT COLLATERAL. Lender acknowledges and agrees that in connection with their respective facilities, Textron and Sovereign have a first priority security interest and Lien in the Additional Resort Collateral, as set forth on the attached SCHEDULE 7(f) and more particularly described in the Intercreditor Agreement. As additional consideration for Lender's agreements in this Fourth Amendment and the Intercreditor Agreement, Borrower 8 agrees, and shall cause Textron and Sovereign to agree (as set out in their respective Loan Agreements and in the Intercreditor Agreement), that upon the occurrence of an Event of Default, Textron and Sovereign shall , upon approval of the Majority of the Lenders (as defined in the Intercreditor Agreement), take action to enforce their rights against the Additional Resort Collateral, subject to the terms and conditions of the Intercreditor Agreement, provided, however, that the consent of the non-consenting Senior Lender (for purposes of this Section 7(f) only, the term "Senior Lender" shall mean Textron, Sovereign or Lender), which consent shall not be unreasonably withheld or delayed, shall be required for any sale or other disposition of all or any portion of the Additional Resort Collateral if such action would, in the reasonable determination of the non-consenting Senior Lender, have a material adverse impact on the Collateral securing the non-consenting Senior Lender's respective Loans to Borrower. The non-consenting Senior Lender shall be entitled upon its written request to receive such information from the other Senior Lenders and Borrower as may be reasonably necessary for the non-consenting Senior Lender to make such determination. In the event a Senior Lender determines that a decision by the Majority of the Lenders hereunder to sell or otherwise dispose of all or any portion of the Additional Resort Collateral would, in the reasonable determination of such non-consenting Senior Lender, have a material adverse impact on the Collateral securing such non-consenting Senior Lender's respective Loans to Borrower, such non-consenting Senior Lender shall immediately notify the other Senior Lenders in writing and shall specify therein the basis for its decision. In such event, such non-consenting Senior Lender shall cooperate in good faith with the other Senior Lenders to effectuate such sale or disposition in a manner such that there is no material adverse impact on the Collateral securing the non-consenting Senior Lender's respective Loans to Borrower. Notwithstanding the foregoing, any such sale or disposition shall be conditioned upon the execution and recording in the appropriate public records of subordination agreements protecting all use rights of the owners of the Intervals entitled to use of the Additional Resort Collateral. If the non-consenting Senior Lender does not give such notice within ten (10) days of the date of the decision of the Majority of the Lenders, the non-consenting Senior Lender shall be deemed to have waived any right to object to such decision. Notwithstanding anything stated to the contrary herein, in the event that Textron or Sovereign takes possession or control of the Additional Resort Collateral, Borrower agrees that the Standby Manager shall be responsible for, among other things, the marketing, sale, resale and financing of all Intervals at the related Resort or Resorts on behalf of Lender, Textron and Sovereign and that Lender shall not be denied access to the amenities, sales centers or Resort related information reasonably necessary to sell, finance, dispose of or manage Lender's Collateral under the Inventory Loan, the Supplemental Loan and the Receivables Loan. (g) SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Borrower acknowledges and agrees that each of Lender and Additional Lenders has been and is hereby granted a security interest in all of Borrower's Notes Receivable securing the Loans of each other Lender and all related documents including, without limitation, contracts, mortgages, title insurance policies (the "Second Priority Collateral"). As consideration for Lender's agreements under this Loan Agreement and the Intercreditor Agreement, Borrower agrees that to secure the payment and 9 performance of the Inventory Loan, the Supplemental Loan and the Receivables Loan, Borrower does hereby unconditionally and irrevocably assign, pledge and grant to Lender, (i) a second priority continuing security interest and lien in and to the right, title, and interest of Borrower in all of Borrower's Second Priority Collateral pledged to Sovereign as Primary Secured Lender (as defined in the Intercreditor Agreement), and (ii) a second priority continuing security interest and lien in and to the right, title, and interest of Borrower in all of Borrower's Second Priority Collateral pledged to Textron as Primary Secured Lender (as defined in the Intercreditor Agreement), and all proceeds, profits, extensions, additions, improvements, betterments, renewals, substitutions and replacements of the foregoing. Borrower further acknowledges and agrees that upon repayment in full of the Textron Facility and/or the Sovereign Facility, Lender's security interest in the Second Priority Collateral securing such facilities shall automatically become a first priority security interest securing the Borrower's Indebtedness under the Inventory Loan, the Supplemental Loan and the Receivables Loan, and Borrower shall take such steps as Lender may request to deliver such collateral to Lender and to confirm Lender's first priority security interest therein. Borrower and Lender acknowledge and agree that Borrower has assigned, pledged, and granted to Additional Lenders equal second priority continuing security interest and lien (subordinated in priority and interest only to Lender) in and to the right, title, and interest of Borrower in all of Borrower's Second Priority Collateral pledged to Lender as Primary Secured Lender (as defined in the Intercreditor Agreement). Notwithstanding that Lender is obligated, subject to the conditions of the Loan Documents, to make Advances only in respect of Eligible Notes Receivable pledged to Lender from and after the Closing Date hereof, Lender shall have a continuing security interest in all of Borrower's Notes Receivable pledged to Lender, including all Financed Notes Receivable, all ineligible Notes Receivable in the Ineligible Note Portfolio and any Second Priority Collateral pledged to Textron or Sovereign, and Lender, subject to the Intercreditor Agreement, may collect all payments made under or in respect of all such pledged Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Lender, if at all, pursuant to this Loan Agreement. Borrower acknowledges and agrees that, pursuant to the foregoing terms contained in this Section and the Intercreditor Agreement, Lender shall be deemed to hold in possession as agent and on behalf of each of the Additional Lenders all of Borrower's Second Priority Collateral pledged to Lender as Primary Secured Lender (as defined in the Intercreditor Agreement) and upon the full repayment of all Indebtedness to Lender from Borrower under the Receivables Loan, the Inventory Loan, and the Supplemental Loan (including, without limitation, all fees, expenses, and other payment obligations in addition to the outstanding balances and accrued interest under the Receivables Loan, the Inventory Loan, and the Supplemental Loan), Lender may at Borrower's sole cost and expense deliver possession to Textron and/or Sovereign, whose loans to Borrower have not been repaid in full, all of Borrower's Second Priority Collateral pledged to Lender as Primary Secured Lender. Borrower further acknowledges and agrees that, pursuant to the foregoing terms contained in this Section and the Intercreditor Agreement, each of the Additional Lenders shall be deemed to hold in possession as agent and on behalf of each of Lender and the remaining Additional Lender all of Borrower's Second Priority Collateral pledged to such Lender as Primary 10 Secured Lender (as defined in the Intercreditor Agreement) and upon the full payment of all such Primary Secured Lender's loans to Borrower under the Textron Facility or the Sovereign Facility, as the case may be, such Primary Secured Lender may at Borrower's sole cost and expense deliver possession to Lender and the remaining Additional Lender, whose loans to Borrower have not been repaid in full, all of Borrower's Second Priority Collateral pledged to such Primary Secured Lender. Pursuant to the foregoing and notwithstanding anything stated to the contrary, Borrower further acknowledges and agrees that upon the full repayment of all Indebtedness to Lender from Borrower under the Receivables Loan, the Inventory Loan, and the Supplemental Loan (including, without limitation, all fees, expenses, and other payment obligations in addition to the outstanding balances and accrued interest under the Receivables Loan, the Inventory Loan, and the Supplemental Loan), Lender shall not be obligated to deliver possession to Borrower of the Second Priority Collateral pledged by Borrower to Lender to secure such Loans and in Lender's possession. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur Borrower shall retain possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. Except to the extent that Lender is a Primary Secured Lender (as defined in the Intercreditor Agreement) with respect to such Note Receivable, Lender agrees that it will not file or record a financing statement with respect to any of Borrower's Second Priority Collateral pledged to Textron, Sovereign or Lender. Lender's security interest and rights with respect to the Shared Collateral other than the Collateral pledged to Lender as Primary Lender (as defined in the Intercreditor Agreement) are subject to the terms of the Intercreditor Agreement. In the event of any conflict between the terms hereof and the Intercreditor Agreement regarding the Shared Collateral other than the Collateral pledged to Lender as Primary Lender (as defined in the Intercreditor Agreement), the terms of the Intercreditor Agreement shall govern. Notwithstanding anything stated herein or stated in the Intercreditor Agreement, no provision contained herein or in the Intercreditor Agreement shall be construed to permit Sovereign, Textron or any lender other than Lender to interfere with Lender's rights, security interests, and remedies with respect to any Collateral pledged to Lender as Primary Lender. So long as any indebtedness or obligations from Borrower to Lender remain outstanding under the Loan Agreement or the Receivables Loan Agreement, Lender shall have the sole and absolute discretion to perfect, maintain, protect and enforce its security interest, and exercise its remedies, sell or otherwise dispose of the Collateral pledged to Lender as Primary Lender. Lender may exercise its discretion with respect to exercising or refraining from exercising any of its rights and remedies or taking any enforcement action with respect to the Collateral where Lender is Primary Lender, and Borrower shall not permit Textron, Sovereign or any lender other than the Lender to take an enforcement action against the Collateral pledged to Lender as Primary Lender. (h) FINANCED INTERVALS. The following are eligibility requirements for Eligible Unsold Timeshare Intervals securing the Advances made under the Inventory Loan after the date hereof which are in addition to those criteria set out under the Loan Agreement: 11 (i) Each Unit from which a Financed Interval is derived shall have been completed on January 1, 1995 or after. (ii) No more than ten percent (10%) of Financed Intervals shall at any time be derived from Units completed during the period between January 1, 1995 and December 31, 1997. (iii) Each Resort which has been approved shall generate no more than twenty-five percent (25%) of all Financed Intervals at any one time. Pursuant to the foregoing, Borrower shall deliver to Lender quarterly reports providing such information during the terms of this Loan Agreement and the Receivables Loan Agreement. (iv) Each Financed Interval shall cease to qualify as an Eligible Unsold Timeshare Interval upon the earlier of (A) the date such Financed Interval is released by Lender as security hereunder or (B) the expiration of twenty-four (24) months from the date such Financed Interval was pledged to Lender. If the 24-month period from the date hereof expires and a Financed Interval has not been released by Lender as security hereunder, Borrower shall pay immediately to Lender a release fee in the amount of $1,600 in exchange for Lender's release of each such Financed Interval. No Financed Interval currently or subsequently pledged to Textron shall be pledged to Lender to secure an Advance under this Loan Agreement. A Financed Interval previously pledged to Lender and released by Lender may be repledged to Lender only if (A) Borrower retakes title to such Financed Interval as a result of foreclosure, a deed in lieu of foreclosure, or a purchaser upgrade, (B) such Interval otherwise complies with the eligibility requirements of an Eligible Unsold Timeshare Interval hereunder, and (C) the 24-month eligibility period (as described hereinabove) applicable to such specific Interval shall not be renewed, but the period of time during which such Interval was previously pledged shall be included in determining the total eligibility period for that Interval. (v) In the event that any Financed Interval pledged to Lender prior to the date hereof does not comply with the requirements set out under subsections (i) - (iv) above, Borrower shall have a period of nine (9) months from the date hereof to replace such non-conforming Interval with a conforming Interval, or in the alternative, pay to Lender a release fee in the amount of $1,600. 8. CONDITIONS PRECEDENT; CLOSING; ADVANCES; ADDITIONAL COVENANTS. (a) APPROVAL OF DOCUMENTS PRIOR TO CLOSING DATE. Borrower has delivered to Lender (with copies to Lender's counsel), prior to the Closing Date, and Lender has reviewed and approved in its sole discretion, prior to the Closing Date, the form and content of all of the items specified in Subsections (i) through (vi) below (the "Submissions"). Lender shall have the right to review and approve any changes to the form of any of the Submissions. If Lender disapproves of any changes to any of the Submissions, Lender shall have the right to require Borrower either to cure or correct the defect objected to by Lender or to elect not to fund any Advance under the Inventory Loan or the Supplemental Loan. Under no 12 circumstances shall Lender's failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower's sole cost and expense. (i) A certificate in the form attached as EXHIBIT D to be dated as of the Closing Date and signed by the president, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4, 5, and 6 of the Loan Agreement and Sections 4, 7, 9, 10 and 11 of this Fourth Amendment are true; (ii) Copies of any amendments to the articles of incorporation/charter and by-laws of Borrower not previously delivered to Lender, certified to be true, correct and complete by Borrower and the Secretary of State of the State of Texas and current certificates of good standing for Borrower for the State of Texas and states where the Resorts are located, a current certificate of authority to conduct business by the Secretary of State in each state in which Borrower conducts business; (iii) A certificate of the Secretary of Borrower certifying the adoption by the Board of Directors of Borrower of a resolution authorizing Borrower to enter into and execute this Fourth Amendment, the Amended and Restated Revolving Promissory Note, the Second Amended and Restated Promissory Note, the Intercreditor Agreement and the other Loan Documents, to borrow the Loans from Lender, and to grant to Lender a first priority security interest (subject to the Intercreditor Agreement) in and to the Additional Collateral and the Ineligible Note Portfolio in the form attached hereto as EXHIBIT E. (iv) A certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign this Fourth Amendment, the Amended and Restated Revolving Promissory Note, the Second Amended and Restated Promissory Note, the Intercreditor Agreement and the other Loan Documents, and all such documents requested by Lender in the form attached hereto as EXHIBIT F; and (v) All items listed on the Closing and Document Checklist, attached hereto as SCHEDULE 8(a)(v). (b) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have delivered to Lender, on or before the Closing Date, the following Loan Documents, each of which shall be in the form of the respective Loan Documents attached hereto as Exhibits, and each of which when required, shall be in recordable form: (i) Second Amended and Restated Promissory Note (EXHIBIT A). (ii) Amended and Restated Revolving Promissory Note (EXHIBIT B). (iii) Closing Opinions of Counsels for Borrower (EXHIBIT G). 13 (iv) Consulting Agreement (EXHIBIT J). (v) Backup Servicing Agreement (EXHIBIT K). (vi) Modification to Real Estate Collateral Mortgages. Borrower shall have executed and delivered to Lender, on or before the date hereof, modifications to the Real Estate Collateral Mortgages, each of which shall be in the form attached hereto as EXHIBIT H, and each of which shall be in recordable form. (vii) Intercreditor Agreement. Borrower, Textron, and Sovereign shall have executed and delivered to Lender, on or before the Closing Date, the Intercreditor Agreement, in the form attached hereto as EXHIBIT C. (viii) Financing Statements. Original UCC-1 financing statements covering the Collateral, filed with the Secretary of State of Texas and the Secretary of State of each state in which the Collateral is located or where required by the applicable Uniform Commercial Code to perfect and continue the security interests granted under this Loan Agreement or as requested by Lender. Such UCC-1 financing statements shall include, without limitation, the financing statements required under Section 7(e) hereof and as requested by Lender in order to perfect Lender's security interest in the Ineligible Note Portfolio, as more particularly described in Section 7(e) hereinabove. (ix) Collateral Assignment of Consulting Agreement (EXHIBIT M). (x) Collateral Assignment of Backup Servicing Agreement (EXHIBIT N). (xi) Assignments of Mortgages (EXHIBIT O). (xii) Such other agreements, documents, instruments, certificates and materials as Lender may request to evidence the Indebtedness, to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein. (c) SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT. Borrower and Lender shall have executed, on or before the Closing Date, the Second Amendment to Amended and Restated Loan Agreement, in the form attached hereto as EXHIBIT P. (d) CLOSING DATE CONDITIONS. On or before the Closing Date, the following conditions shall be satisfied: (i) UCC SEARCH. Lender shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under Texas, and other applicable law to verify that it has a first and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if Lender determines that Lender 14 does not have a first and prior perfected lien and security interest covering any portion of the Collateral, subject to liens permitted by the Intercreditor Agreement against the Collateral other than the Collateral pledged to Lender as Primary Lender (as defined in the Intercreditor Agreement). (ii) LITIGATION SEARCH. Lender shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Resorts, any portion of the Collateral, Borrower, or any Affiliates of Borrower (each a "Material Party"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Lender determines, in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall not be obligated to fund any advance if Lender determines that any such litigation is pending. (iv) RECORDING OF MODIFICATIONS TO REAL ESTATE COLLATERAL MORTGAGES. The modifications to the Real Estate Collateral Mortgages shall have been duly recorded in the applicable land records for each state in which the Real Estate Collateral is located. (v) DZ FACILITY. The DZ Letter Agreement dated December 12, 2001, attached hereto as EXHIBIT L ("DZ Letter Agreement"), shall be satisfactory to Lender at its sole and absolute discretion, Lender shall have at its sole and absolute discretion approved all of the DZ Documents, evidence satisfactory to Lender that the DZ Facility has closed on terms and conditions set forth in the DZ Letter Agreement, and Lender has been provided with copies of all of the executed DZ Documents. (vi) STANDBY MANAGER. Borrower will have entered into the Consulting Agreement with the Standby Manager in form and substance satisfactory to Lender in its sole discretion and shall be assigned by Borrower to Lender as security for Indebtedness. The Standby Manager shall have such duties and responsibilities as Lender may request, in its sole discretion, from time to time, including without limitation: (1) preparation of a report evaluating Borrower's business and the operation of the Resorts to be delivered to Lender within ten (10) days after the Closing Date; (2) on an ongoing basis, monitoring: (a) the operations of Borrower including the offer and sale of Intervals by Borrower and the financing by Borrower of such sales, (b) Borrower's compliance with the Business Plan, (c) Borrower's operation of the Silverleaf Club, (d) Borrower's and/or Silverleaf's Club's management and operation of the Resorts, the related amenities and the Additional Resort Collateral; and (3) submission of weekly written reports to Lender as to the foregoing. Notwithstanding the foregoing, Borrower acknowledges and agrees that on and after an Event of Default, the Standby Manager shall be responsible for, among other things: (i) managing the operation of the Resorts, the related amenities, the Additional Resort Collateral and any other Collateral that Lender deems necessary, (ii) monitoring or supervising the marketing, sale, resale and financing of Intervals pledged to Lender as Collateral, (iii) at the discretion and election of Lender, assuming and managing the 15 servicing operations carried on by the servicing agent, and (iv) Lender may request, from time to time, in its sole discretion, such other duties and responsibilities related to the operation of the Resorts and related amenities, the Additional Resort Collateral, the Intervals and any other Collateral that Lender deems necessary. Borrower shall provide Lender with a list in form and substance satisfactory to Lender, in its sole discretion, of the duties and responsibilities associated with the operation of the Resorts. Borrower agrees that in accordance with the provisions contained therein the term of the Consulting Agreement shall expire on June 30, 2004. (vii) STANDBY SERVICER. Borrower will have entered into the Backup Servicing Agreement in form and substance satisfactory to Lender in its sole discretion with the Standby Servicer and such Backup Servicing Agreement shall not have been modified, amended or otherwise rescinded. (viii) BOND HOLDER EXCHANGE TRANSACTION CONSUMMATION. The Bond Holder Exchange Term Sheet dated October 19, 2001, a copy of which is attached hereto as EXHIBIT I, shall have been approved by the requisite number of bond holders and shall be satisfactory to Lender at its sole and absolute discretion and evidence satisfactory to Lender in its sole discretion that the Bond Holder Exchange Transaction shall have fully closed. Lender shall have at its sole and absolute discretion approved all of the Bond Holder Exchange Documents and has been provided with copies of all of the executed Bond Holder Exchange Documents. (ix) TEXTRON FACILITY AND SOVEREIGN FACILITY MODIFICATION. On or before the Closing Date, Borrower shall deliver to Lender, evidence satisfactory to Lender, that the Textron Facility and the Sovereign Facility have each been modified in a manner substantially similar to that set forth in their respective term sheets and as previously been approved by Lender and Lender has been provided with copies of all of the executed Textron Documents modifications and the executed Sovereign Documents modifications, as approved by Lender at its sole and absolute discretion. (x) ASSIGNMENTS OF MORTGAGE. On or before the Closing Date, Borrower shall have executed and delivered in escrow to Textron, or an agent designated by Lender and Additional Lenders under the Intercreditor Agreement, all of the appropriate Assignments of Mortgage requested by Lender and Additional Lenders in the form attached hereto as EXHIBIT O and as approved by Lender and Additional Lenders at their sole and absolute discretion. (xi) AVAILABILITY. Lender shall have determined that the aggregate outstanding principal amount due to Lender under the Inventory Loan, the Supplemental Loan, and the Receivables Loan, whether such requested Advance is included or not, does not exceed $50,000,000. LENDER SHALL NOT BE OBLIGATED TO MAKE ANY ADVANCES HEREUNDER UNTIL ALL CONDITIONS SET FORTH IN SECTIONS 8(a) THROUGH 8(d) HEREOF AND SECTION 3 OF THE SUPPLEMENTAL LOAN AGREEMENT HAVE BEEN SATISFIED, AS DETERMINED BY LENDER IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT THAT DZ FAILS TO MAKE ITS FIRST FUNDING REQUIRED UNDER THE DZ FACILITY OR 16 LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT ANY OF THE CONDITIONS SET FORTH IN THIS SECTION ARE NOT SATISFIED ON OR BEFORE MAY 31, 2002, THEN THIS FOURTH AMENDMENT, AND THE OBLIGATIONS OF LENDER HEREUNDER, SHALL BE NULL AND VOID IN ALL RESPECTS AB INITIO. IN SUCH EVENT, THE SUPPLEMENTAL LOAN AGREEMENT EXISTING PRIOR HERETO AND THE TERMS AND CONDITIONS THEREIN SET FORTH, AS MODIFIED BY THE FORBEARANCE AGREEMENT AND THE ORIGINAL INTERCREDITOR AGREEMENT, SHALL CONTINUE TO GOVERN AND CONTROL BORROWER'S OBLIGATIONS WITH RESPECT TO REPAYMENT IN FULL OF THE INDEBTEDNESS, AS SUCH TERM IS DEFINED IN THE SUPPLEMENTAL LOAN AGREEMENT. (e) THE FOLLOWING SECTION 3.12 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: AVAILABLE UNRESTRICTED CASH. Borrower shall have less than five million dollars ($5,000,000) in available unrestricted Cash. (f) THE FOLLOWING SECTION 3.13 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: INSUFFICIENT TAX REFUND PROCEEDS. There are insufficient proceeds from the Tax Refund to pay Operating Expenses as provided in the Business Plan. (g) THE FOLLOWING SECTION 3.14 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: AVAILABILITY. Lender shall have determined that (a) the aggregate outstanding principal balance due to Lender under the Inventory Loan, the Supplemental Loan, and the Receivables Loan, whether such requested Advance is included or not, does not exceed Fifty Million Dollars ($50,000,000); (b) the total outstanding principal balance under the Inventory Loan does not exceed Ten Million Dollars ($10,000,000); (c) the total outstanding principal balance under the Supplemental Loan does not exceed Ten Million Dollars ($10,000,000); (d) the aggregate amount of Advances then outstanding under the Receivables Loan shall be at all times equal to or less than eighty-five percent (85%) of the principal balance of all Notes Receivable pledged to Lender; and (e) the aggregate amount of Advances then outstanding under the Supplemental Loan shall be at all times equal to or less than seventy-five percent (75%) of the principal balance of all Notes Receivable pledged to Lender hereunder. In the event that any maximum principal balance or advance rate as set forth in Subsections (a) through (e) is exceeded, Borrower shall immediately repay to Lender such necessary amount or amounts in order not to exceed the maximum principal balance(s) and/or the advance rate(s) established in Subsections (a) through (e) herein. (h) THE FOLLOWING SECTION 3.15 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: 17 MAINTENANCE OF INVENTORY CONTROL. Borrower shall maintain and at all times fully comply with the Inventory Control Procedures set forth on SCHEDULE 8(h) attached hereto from the date hereof until the Inventory Loan and the Supplemental Loan are repaid in full. Borrower shall permit Lender, its officers, employees, auditors, and other agents or designees to review the books and records of Borrower and make such other examinations and inspections as Lender in its sole discretion deems necessary to determine that Borrower is in full compliance with such Inventory Control Procedures. (i) REPAYMENT OF INVENTORY LOAN. Borrower shall repay to Lender the outstanding principal balance and all accrued interest under the Inventory Loan pursuant to the amortization schedule attached hereto as SCHEDULE 8(i) ("Amortization Schedule"). (j) SECTION 1.4(a) IS HEREBY AMENDED BY ADDING THERETO: (iv) Borrower agrees that within ninety (90) days from the Closing Date, if Lender determines in its sole discretion that ninety-five percent (95%) ("Required Collection Rate") of all funds collected in connection with the Financed Notes Receivable have not been deposited directly into Lender's Lockbox by the individual obligors thereunder or the Lockbox Agent, Lender shall have the right to direct Borrower to establish a separate lockbox account for the collection of all payments received by Borrower on behalf of Lender directly from obligors, it being the express intention of the parties hereto to minimize the amount of such payments deposited directly into Borrower's own accounts. Lender may appoint either Lender, Textron, or Sovereign to serve as lockbox agent on behalf of Lender in respect to its facilities. (k) REQUEST FOR ADVANCE. Lender shall have received five (5) days, prior to each Advance under the Inventory Loan or the Supplemental Loan, a completed and executed Request for Advance in the form attached as EXHIBIT A, which shall be made in accordance with the terms of the Business Plan, the Loan Agreement and the Intercreditor Agreement. 9. THE FOLLOWING SECTION 4.17 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: Borrower hereby represents and warrants to Lender that the following are true and correct as of the Closing Date and as of the date of each Advance (if any) made to Borrower hereunder: (a) REAL ESTATE COLLATERAL. (i) FIRST LIEN. Subject to the other first lien rights of Textron and Sovereign as provided in the Intercreditor Agreement, upon execution and delivery of the modification to the Real Estate Collateral Mortgages, as modified, Lender will continue to have a valid first lien on the Real Estate Collateral. 18 (ii) ACCESS. Each parcel of the Real Estate Collateral has adequate legal rights of access to a public way. (iii) SINGLE TAX LOT. Each parcel of the Real Estate Collateral constituting real property consists of a single tax lot. No portion of said lot covers property other than the land in question and no portion of the land in question lies in any other tax lot. (iv) FLOOD ZONE. Except as is disclosed in the surveys of each portion of the Real Estate Collateral that have been or will be provided to Lender, no portion of such land is located in a flood hazard area as defined by the Federal Insurance Administration. (v) SEISMIC EXPOSURE. No portion of Real Estate Collateral is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (vi) CONDEMNATION. No portion of the Real Estate Collateral has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of the Real Estate Collateral. (vii) NO PURCHASE OPTIONS. No person or entity has an option to purchase any portion of the Real Estate Collateral, or any portion thereof, or any interest therein. (b) TEXTRON AND SOVEREIGN FACILITIES. The modifications of the Textron Facility and the Sovereign Facility on terms and conditions substantially similar to those set forth in the Term Sheet and otherwise approved by Lender, have closed and Lender has been provided with true and correct copies of the Textron Documents and the Sovereign Documents, as so modified. There is no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Textron Facility or the Sovereign Facility and Borrower is in good standing under both of such facilities. (c) BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Term Sheet has not been amended, modified or otherwise rescinded. (d) DZ FACILITY. The DZ Letter Agreement is in full force and effect and has not been amended, modified or otherwise rescinded. (e) STANDBY MANAGER AND STANDBY SERVICER. Borrower has entered into the Consulting Agreement and the Backup Servicing Agreement, in the forms attached hereto as EXHIBITS J, and K, respectively, with each of the Standby Manager and the Standby Servicer, and each such agreement is in full force and effect and has not been modified, amended or terminated. (f) ASSIGNMENTS OF MORTGAGE. Each such Assignment of Mortgage (including any permitted modifications as requested and approved by Lender and Additional Lenders thereto) 19 delivered to Textron or an agent or successor designated by Lender and Additional Lenders pursuant to Section 7(e) hereof shall be in full force and effect and has not be modified, amended or terminated (except as approved by Lender and Additional Lenders pursuant to the terms of Section 7(e) hereinabove), and Lender, Textron and Sovereign shall continue to have equal one-third (1/3) first priority continuing security interest and lien in and to the right, title, and interest of Borrower in the Ineligible Note Portfolio. (g) INTERNAL LOANS. There are no existing loans to Borrower from any officers, shareholders, or Affiliates of Borrower. (h) APPROVAL OF J & J LIMITED, INC. J & J Limited, Inc. or, as the case may be, an entity through which James E. Peters shall perform the substantive duties of Standby Manager, has been approved by Borrower's board of directors to serve as the Standby Manager during the term of this Loan Agreement. 10. AFFIRMATIVE COVENANTS. So long as any portion of the Indebtedness remains unpaid, Borrower hereby agrees with Lender as follows: (a) AMENITIES. Borrower will cause, or to the extent provided for pursuant to the Declarations, will use its best efforts to ensure that the Timeshare Owners' Association, or the manager of the Resort, as applicable, will cause, the Resort to be maintained in good condition and repair, and in accordance with the provisions of the applicable Timeshare Documents, and Borrower will cause each Purchaser of an Interval at the Resort to have continuing access to, and the use of, to the extent of such Purchaser's time-share periods, all of the Common Elements and related or appurtenant services, rights and benefits, all as provided in the Declaration and the Timeshare Documents. (b) OPERATION OF BORROWER'S BUSINESS. Borrower will operate its business in substantial compliance with the Business Plan attached hereto as SCHEDULE 10(b). (c) STANDBY MANAGER AND STANDBY SERVICER. Borrower will enter into the Consulting Agreement with Standby Manager and the Backup Servicing Agreement with Standby Servicer on or before the Closing Date and will maintain such Consulting Agreement and Backup Servicing Agreement in full force and effect. Lender shall have the right at any time to terminate any then existing servicing agreement and replace any then existing Servicer with the Standby Servicer or such other servicer as Lender may select in its sole and absolute discretion, and the Standby Servicer will assume full control over the servicing of all Financed Notes Receivable, reporting solely to Lender, as provided in Section 14 hereof. Borrower agrees that upon the occurrence of a Default or Event of Default under this Loan Agreement, Lender may, with the approval of a majority of the Borrower's board of directors, which approval shall not be unreasonably withheld or delayed, terminate any then existing management agreements and replace any existing manager with such manager as Lender, subject to the Intercreditor Agreement, may select, provided however, if: (x) the obligations have become immediately due and payable in accordance with the acceleration provision under Section 8.1 (a) of the Inventory Loan Agreement, 20 or (y) Lender elects to have J & J Limited, Inc. act as Standby Manager, then no such approval of Borrower's board of directors shall be required; and (2) at Lender's election, the Standby Servicer will assume full control over the servicing of all Financed Notes Receivable as provided in Section 14 hereof. (d) DZ FACILITY LETTER AGREEMENT. The DZ Letter Agreement remains in full force and effect and has not been amended, modified or rescinded and Borrower shall promptly furnish to Lender copies of the DZ Documents upon execution. (e) TEXTRON FACILITY, SOVEREIGN FACILITY, DZ FACILITY AND BOND HOLDER EXCHANGE TRANSACTION. Borrower will comply with each of the terms and conditions of the Textron Facility, the Sovereign Facility, the DZ Facility and the Bond Holder Exchange Documents and will promptly deliver to Lender, upon receipt by Borrower, copies of any notices received by Borrower in connection with any of the foregoing credit facilities. (f) FINANCIAL COVENANTS. (i) TANGIBLE NET WORTH. Borrower shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of Borrower as of September 30, 2001 plus (B) one hundred percent (100%) of the aggregate amount of proceeds received by Borrower after January 1, 2002 in connection with (1) each issuance by Borrower of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Indebtedness after January 1, 2002, other than Indebtedness which shall be the most senior Indebtedness of Borrower plus (C) one hundred percent (100%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after January 1, 2002. (ii) MARKETING AND SALES EXPENSES. Borrower will not permit as of March 31, 2002 and as of the last day of each calendar quarter thereafter the ratio of Marketing and Sales Expenses for any calendar quarter, singly and on a cumulative basis, during the specified period below (the "Reference Period") to Borrower's net proceeds from the sale of Intervals for such Reference Period to equal or exceed the ratio set forth opposite such period described in the table below during such Reference Period:
PERIOD RATIO ------ ----- 4/1/02 to 12/31/02 0.550 to 1 1/1/03 and thereafter 0.525 to 1
(iii) MINIMUM LOAN DELINQUENCY. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged pursuant to the Textron Facility and the Sovereign Facility) to be greater than twenty-five percent (25%). If, as 21 of the last day of each calendar quarter, Borrower's over 30-day delinquency on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Lender under the Loan Agreement and all Notes Receivable pledged pursuant to the Textron Facility and the Sovereign Facility) is greater than twenty percent (20%), then Lender shall have the right to conduct an audit, at Borrower's sole cost and expense, of all of Borrower's Notes Receivable pledged to Lenders under this Loan Agreement, the Textron Facility and the Sovereign Facility. (iv) INTEREST COVERAGE. (A) For the calendar quarter of Borrower ending June 30, 2002, Interest Coverage Ratio for Borrower shall be at least 1.1:1, (B) for the calendar quarter of Borrower ending September 30, 2002, the average of the Interest Coverage Ratio of Borrower of such calendar quarter and the Interest Coverage Ratio for the immediately preceding calendar quarter shall be at least 1.1:1, (C) for the calendar quarter of Borrower ending December 31, 2002, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for the two immediately preceding calendar quarters shall be at least 1.1:1, (D) for each calendar quarter of Borrower beginning with, and including, the calendar quarter ending March 31, 2003 and for each calendar quarter of Borrower thereafter, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for each of the three immediately preceding calendar quarters shall be at least 1.25:1. The term "Interest Coverage Ratio" means with respect to any Person for any calendar quarter, the ratio of (y) EBITDA for such period less capital expenditures, as determined in accordance with GAAP, for such period to (z) the interest expense, minus all non-cash items constituting interest expense for such period. (v) PROFITABLE OPERATIONS. Borrower will not permit Consolidated Net Income (A) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (B) for any two consecutive fiscal quarters (treated as a single accounting period ) to be less than $1.00. 11. THE FOLLOWING SECTION 6.4 IS HEREBY ADDED TO THE SUPPLEMENTAL LOAN AGREEMENT: (a) LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES AND/OR SECURITIZATION. Borrower will not obtain financing and grant liens with respect to the Collateral or any of its other assets or property, except as hereafter provided. Prior to March 31, 2003, Borrower will not obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable, except as provided in this Loan Agreement, the Receivables Loan, the Textron Facility and the Sovereign Facility, without Lender's prior written consent, which consent shall not be unreasonably withheld. At any time after March 31, 2003, Borrower may obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable in an amount not to exceed twenty million dollars ($20,000,000.00), provided that: (i) no Default or Event of Default has occurred; and (ii) any such financing does not result in Borrower's failure to substantially adhere to the Business Plan, as determined by Lender in its sole and absolute 22 discretion. At any time after March 31, 2003, if Borrower wishes to obtain financing in excess of twenty million dollars ($20,000,000.00) which will be secured by any of Borrower's unpledged Notes Receivable, Borrower shall obtain Lender's written consent, which consent shall not be unreasonably withheld. Borrower may obtain unsecured financing provided: (i) Borrower provides prior written notice to Lender setting forth the terms and conditions thereof; (ii) Lender is provided with a copy of the loan documents therefor; and (iii) such financing does not result in Borrower's inability to substantially adhere to the Business Plan, as determined by Lender in its sole and absolute discretion. (b) COMPENSATION OF SENIOR MANAGEMENT. The compensation payable to the senior management of the Borrower, as a group, shall not be increased by more than twenty-five percent (25%) each fiscal year. (c) MODIFICATIONS OF TEXTRON DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Borrower shall not amend or modify the Textron Documents, the Sovereign Documents, DZ Documents, Bond Holder Exchange Documents or the documents evidencing any other indebtedness of Borrower, nor shall Borrower extend, modify, increase or terminate the Textron Facility, DZ Facility, the Bond Holder Exchange Transaction, the Sovereign Facility or any other credit facility or loan, without the prior written consent of Lender, which consent shall not be unreasonably withheld. (d) MODIFICATIONS OF CONSULTING AGREEMENT, BACKUP SERVICING AGREEMENT, MANAGEMENT AGREEMENTS AND SERVICING AGREEMENTS. Borrower shall not amend or modify the Consulting Agreement, the Backup Servicing Agreement or any management agreements, servicing agreements, without the prior written consent of Lender, which consent shall not be unreasonably withheld. 12. SECTION 7.12 OF THE SUPPLEMENTAL LOAN AGREEMENT IS HEREBY AMENDED AS FOLLOWS: (a) CROSS DEFAULT; CROSS COLLATERALIZATION. The Inventory Loan, the Supplemental Loan, and the Working Capital Facility are given in connection with one or more loans which Lender, either individually or as Lender on behalf of itself and other Lenders, has made or will make to Borrower. Upon the occurrence of an Event of Default under the Inventory Loan, the Supplemental Loan, the Working Capital Facility or any of the other Loan Documents relating hereto or the occurrence of an Event of Default under the Receivables Loan Agreement, regarding the Receivables Loan, then in any such event, the Lender may declare all of the principal, interest and other sums which may be outstanding under the Inventory Loan, the Supplemental Loan, the Working Capital Facility and the Receivables Loan to be immediately due and payable and the Lender may exercise any and all rights and remedies provided in the Loan Documents or any Loan Document in connection with this Loan Agreement or the Receivables Loan Agreement. 23 Any and all Collateral pledged under the Inventory Loan and granted as security for the Inventory Loan shall secure to Lender the payment of the total Indebtedness under the Inventory Loan Agreement, the Supplemental Loan Agreement and the Receivables Loan Agreement and the performance of the covenants and agreements set forth therein, all of which are secured to Lender without apportionment or allocation of any part or portion of said Collateral pledged under the Inventory Loan Agreement. Notwithstanding the immediately preceding sentence, Lender shall have the option, but not the obligation, to separate and allocate the proceeds of the Collateral securing the Supplemental Loan from the other Collateral when exercising its remedies in applying the Collateral against the Indebtedness upon an Event of Default. The Inventory Loan, the Supplemental Loan and the Working Capital Facility are given in connection with one or more loans which Lender, the Other Lenders and the Additional Lenders have made or will make to Borrower. Upon the occurrence of an Event of Default under the Inventory Loan Agreement, the Supplemental Loan Agreement, or the Receivables Loan Agreement, or any of the other Loan Documents relating hereto or the occurrence of an Event of Default under the Other Loan Agreements or the Additional Loan Agreements (collectively the "Obligations"), then in any such event, the Lender may declare all of the principal, interest and other sums which may be outstanding, due or payable under all of the Loans or under any other loan agreements or indebtedness from Borrower to Lender (collectively the "Indebtedness") to be immediately due and payable and the Lender may exercise any and all rights and remedies provided in the Loan Documents or any Loan Document in connection with the Loans. Borrower acknowledges and agrees with Lender that with respect to the Real Estate Collateral, subject to the Section 12(b) hereof, the Supplemental Loan Agreement is cross-collateralized with the Other Loan Agreements pursuant to the terms of the Intercreditor Agreement. Subject to Section 12(b) herein, the Real Estate Collateral shall also be cross-collateralized with the Inventory Loan Collateral to secure to Lender the payment of the total indebtedness under the Inventory Loan. Upon an Event of Default, Lender shall be entitled to enforce the payment of the Indebtedness and performance of all of Borrower's obligations under the Inventory Loan Agreement, the Supplemental Loan Agreement and the Receivables Loan Agreement, and to exercise all of its rights, remedies and powers provided hereunder or under any other Loan Document relating to the Inventory Loan, the Supplemental Loan or the Receivables Loan, subject to the terms of the Intercreditor Agreement, in one or more proceedings, whether contemporaneous, consecutive or both to be determined by Lender in its sole and absolute discretion. The enforcement of any such rights or remedies by Lender shall not constitute an election of remedies and shall not prejudice in any way, limit or preclude the enforcement of any other right or remedy under any of the Loan Documents through one or more additional proceedings. No judgment obtained by Lender in any one or more enforcement proceeding shall merge the debt secured hereby into such judgment and any portion of the Indebtedness which shall remain unpaid shall be a continuing obligation of Borrower not merged with such judgment. Lender may bring any action or proceeding including without limitation foreclosure through 24 judicial proceedings, power of sale or otherwise in any state or federal court and such proceeding may relate to all or any part of the total Collateral without regard to the fact that any one or more prior or contemporaneous proceedings have been commenced elsewhere with respect to the same or any other part of the total Collateral. As contemplated herein, the documents and instruments evidencing and securing each of the Inventory Loan, the Supplemental Loan and the Working Capital Facility shall secure each such Loan and each of the other Loans. Borrower acknowledges that the documents and instruments evidencing and securing the debts and obligations under each of the Other Loan Agreements shall also secure the obligations under the Inventory Loan Agreement, the Supplemental Loan Agreement and the Receivables Loan Agreement and vice-versa. Further, the documents and instruments evidencing and securing the debts and obligations under the Additional Loan Agreements shall also secure each of the Inventory Loan Agreement, the Supplemental Loan Agreement and the Receivables Loan Agreement and vice-versa. Except as provided in the Intercreditor Agreement, the proceeds of any such enforcement or foreclosure shall be applied to the payment of the Indebtedness in such order as Lender may determine in its sole discretion. Notwithstanding anything stated to the contrary herein, but subject to the Intercreditor Agreement, Borrower agrees that in respect to the Additional Collateral and the Ineligible Note Portfolio, upon a sale or disposition or Lender's enforcement of its security interests hereunder, the first Ten Million Dollars ($10,000,000) of any proceeds derived therefrom shall be applied toward repayment of the outstanding balance of the Inventory Loan, and the balance of such proceeds, if any, shall then be applied, respectively, toward the full repayment of first, the Supplemental Loan, and then the Receivables Loan. Any excess of such proceeds shall be applied in accordance with the Intercreditor Agreement and upon full payment of all indebtedness of Borrower to Additional Lenders, any remaining balance of such proceeds shall be delivered to Borrower. Borrower acknowledges and agrees that upon repayment in full of all indebtedness under the Textron Facility, the Sovereign Facility, and all of the Other Loan Agreements and the Additional Loan Agreements, Lender's security interest in the collateral securing such facilities shall automatically become a first priority security interest for Borrower's obligations under the Inventory Loan, the Supplemental Loan and the Working Capital Facility, and Borrower shall take such steps as Lender may request to deliver such collateral to Lender and to confirm Lender's first priority security interest therein. (b) ALLOCATION OF REAL ESTATE COLLATERAL PROCEEDS. Notwithstanding anything stated to the contrary, Borrower hereby agrees with Lender that upon a sale or other disposition of the Real Estate Collateral or the exercise of Lender's remedies following the occurrence of an Event of Default, the proceeds derived from the Real Estate Collateral shall be allocated as follows, subject to the Intercreditor Agreement: (i) The first One Million Dollars ($1,000,000.00) of the proceeds from the Real Estate Collateral ("Real Estate Collateral Proceeds") shall be applied toward repayment of 25 the outstanding principal balance of the Supplemental Loan. Such repayment shall not constitute a permanent paydown of the Supplemental Loan and Borrower during the term of the Supplemental Revolving Period shall have a right to reborrow such amount under the Supplemental Loan so long as no Event of Default has occurred and is continuing and provided, that the sum of Advances of such reborrowed amount shall be less than seventy-five percent (75%) of the principal balance of all Eligible Notes Receivable against which such Advances are financed. (ii) The greater of (1) any amount of the Real Estate Collateral Proceeds in excess of One Million Dollars ($1,000,000.00) and (2) the remaining amount of the Real Estate Collateral Proceeds following payment pursuant to Subsection (i) hereinabove shall at its option be applied toward payment of the outstanding principal balance of the Inventory Loan, or the outstanding principal balance of the Supplemental Loan. Such repayment shall constitute a permanent paydown of the Inventory Loan and Borrower shall not have a right to reborrow such amount under the Inventory Loan or the Supplemental Loan. (c) ALLOCATION OF SHARED COLLATERAL. Notwithstanding anything stated to the contrary and subject to Section 12(b) hereof, Borrower hereby agrees with Lender that upon a sale or other disposition of any Collateral cross-collateralized to secure the Textron Facility, the Sovereign Facility, the Receivables Loan, the Inventory Loan and the Supplemental Loan (the "Shared Collateral") or the exercise of Textron's, Sovereign's and/or Lender's remedies following the occurrence of an Event of Default, the proceeds derived from such Shared Collateral (which Shared Collateral shall not include the Real Estate Collateral) at Lender's option, will be allocated as follows: (i) With respect to any Shared Collateral where Lender is not a Primary Secured Lender, any remaining proceeds following application against the indebtedness of Borrower to such Primary Secured Lender that are allocated to Lender pursuant to the terms of the Intercreditor Agreement shall be applied (A) first toward repayment of any outstanding balance under the Inventory Loan and the Supplemental Loan, and (B) any remaining proceeds thereafter will be applied against any outstanding balance under the Receivables Loan, and (C) then as provided in the Intercreditor Agreement. (ii) With respect to any Shared Collateral securing the Inventory Loan and where Lender is the Primary Secured Lender, any remaining proceeds following application against the indebtedness of Borrower to Lender under the Inventory Loan shall be applied (A) first toward repayment of any outstanding balance under the Supplemental Loan, and (B) any remaining proceeds thereafter will be applied against any outstanding balance under the Receivables Loan, and (C) then as provided in the Intercreditor Agreement. (iii) With respect to any Shared Collateral securing the Supplemental Loan and where Lender is the Primary Secured Lender, any remaining proceeds following application against the indebtedness of Borrower to Lender under the Supplemental Loan shall be applied (A) first toward repayment of any outstanding balance under the Inventory Loan, and (B) 26 any remaining proceeds thereafter will be applied against any outstanding balance under the Receivables Loan, and (C) then as provided in the Intercreditor Agreement. 13. SECTION 7 OF THE SUPPLEMENTAL LOAN AGREEMENT IS HEREBY AMENDED BY ADDING THE FOLLOWING THERETO: ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default set forth in the Loan Agreement, the following shall constitute an "Event of Default" under the Loan Agreement: (a) PAYMENTS. Failure of Lender to receive from Borrower within five (5) days of the date of written notice has been sent to Borrower after the due date: (i) any amount payable under the Amended and Restated Revolving Promissory Note or the Second Amended and Restated Promissory Note, or (ii) any other payment due under the Loan Agreements, except for the Amended and Restated Revolving Promissory Note and the Second Amended and Restated Promissory Note Maturity Dates for which no grace period is allowed. (b) COVENANT DEFAULTS. Borrower shall fail to perform or observe any covenant, agreement, obligation, representation or warranty contained in this Fourth Amendment, the Intercreditor Agreement or in any of the Loan Documents (other than any covenant or agreement obligating Borrower to pay the Indebtedness), and in the absence of any other specified grace period provided therein or herein with respect to such covenant, agreement, obligation, representation or warranty, such failure shall continue for thirty (30) days after Lender delivers written notice thereof to Borrower, provided, however, if the failure is incapable of cure within such thirty (30) day period and Borrower shall be diligently pursuing a cure, such thirty (30) day cure period shall be extended by an additional period not to exceed sixty (60) days. (c) WARRANTIES OR REPRESENTATIONS. Any representation or other statement made by or on behalf of Borrower in this Fourth Amendment, any of the Loan Documents or any instrument furnished in compliance with or in reference to the Loan Documents, shall be false, misleading or incorrect in any material respect as of the date made. (d) [INTENTIONALLY DELETED.] (e) DEFAULT UNDER MORTGAGES. If a default or Event of Default occurs under a Deed of Trust, a Mortgage, or any other Loan Document and such default or Event of Default is not cured within the applicable grace period (if any), provided therein. (f) MODIFICATION OF TEXTRON DOCUMENTS, SOVEREIGN DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS OR OTHER DEBT INSTRUMENTS. Any modification, amendment, extension or termination of any of the Textron Documents, the Sovereign Documents, DZ Documents, Bond Holder Exchange Documents or the documents evidencing any other indebtedness of Borrower without the prior written consent of Lender. 27 (g) BUSINESS OPERATIONS. Failure of Borrower to operate its business in substantial compliance with the Business Plan. (h) DEFAULT UNDER TEXTRON FACILITY OR SOVEREIGN FACILITY. Borrower fails to perform or observe any covenant, agreement, or obligation, or breaches any representation or warranty under the Additional Loan Agreements or either (i) the Textron Documents or (ii) the Sovereign Documents, and such default or Event of Default is not cured within the applicable grace period (if any) permitted therein. (i) DEFAULT UNDER DZ FACILITY AND/OR BOND HOLDER EXCHANGE TRANSACTION. Borrower fails to perform or observe any covenant, agreement, or obligation, or breaches any representation or warranty under either (i) the DZ Letter Agreement or the DZ Documents, or (ii) the Bond Holder Exchange Term Sheet or the Bond Holder Exchange Documents, and such default or Event of Default is not cured within the applicable grace period (if any) permitted therein. (j) DZ FACILITY NOTES RECEIVABLE PURCHASES. If DZ does not purchase Notes Receivable in substantially the amounts (as determined by Lender in its sole and absolute discretion) and during the periods specified in the Business Plan or if the proceeds of such purchase are insufficient to make the principal payments described in the DZ Letter Agreement or if Borrower fails to apply such proceeds to repayment of the loans as provided in the DZ Letter Agreement. (k) DEFAULT OR TERMINATION OF CONSULTING AGREEMENT. If the Consulting Agreement terminates or Borrower fails to perform or observe any covenant, agreement, or obligation, or breaches any representation or warranty under the Consulting Agreement, and such default or Event of Default is not cured within the applicable grace period (if any) permitted therein. (l) DEFAULT OR TERMINATION OF BACKUP SERVICING AGREEMENT. If the Backup Servicing Agreement terminates or Borrower fails to perform or observe any covenant, agreement, or obligation, or breaches any representation or warranty under the Backup Servicing Agreement, and such default or Event of Default is not cured within the applicable grace period (if any) permitted therein. (m) DEFAULT OR TERMINATION OF ASSIGNMENTS OF MORTGAGE. If any of the Assignments of Mortgage terminates or Borrower fails to perform or observe any covenant, agreement, or obligation, or breaches any representation or warranty under the Assignments of Mortgage, and such default or Event of Default is not cured within the applicable grace period (if any) permitted therein. (n) DEFAULT OR TERMINATION OF COLLATERAL ASSIGNMENTS. If the Collateral Assignment of Backup Servicing Agreement or the Collateral Assignment of Consulting Agreement terminates or Borrower fails to perform or observe any covenant, agreement, or 28 obligation, or breaches any representation or warranty under either the Collateral Assignment of Backup Servicing Agreement or the Collateral Assignment of Consulting Agreement, and such default or Event of Default is not cured within the applicable grace period (if any) permitted therein. (o) MODIFICATIONS OF CONSULTING AGREEMENT, BACKUP SERVICING AGREEMENT, MANAGEMENT AGREEMENTS AND SERVICING AGREEMENTS. Any modification, extension of amendment of the Consulting Agreement, the Backup Servicing Agreement or any management agreements, servicing agreements without the prior written consent of Lender. (p) USE OF LOAN PROCEEDS. If the proceeds of any Advance are used for any purpose not set forth in the Business Plan. 14. SECTION 8 OF THE SUPPLEMENTAL LOAN AGREEMENT IS HEREBY AMENDED BY ADDING THE FOLLOWING THERETO: REMEDIES. In addition to the Remedies set forth in the Loan Agreement, upon the occurrence of an Event of Default, Lender may take any one or more of the following actions, all without notice to Borrower: (a) REPLACEMENT OF MANAGER AND SERVICER. Without demand or notice of any nature whatsoever, Lender may, subject to the Intercreditor Agreement, (i) terminate any then existing servicing agreement and replace any then existing Servicer with the Standby Servicer or such other servicer as Lender may select in its sole and absolute discretion; and (ii) upon an Event of Default terminate any then existing management agreement and, with the approval of the majority of Borrower's board of directors, which approval shall not be unreasonably withheld or delayed, replace any existing manager with the Standby Manager, or such other manager as Lender may select, in its sole and absolute discretion, provided however, if: (x) the obligations of Borrower have become immediately due and payable in accordance with the acceleration provision under Section 8.1 (a) of the Inventory Loan Agreement, or (y) Lender elects to have J & J Limited, Inc. act as Standby Manager, then no such approval of Borrower's board of directors shall be required. 15. SECTION 9 OF THE SUPPLEMENTAL LOAN AGREEMENT IS HEREBY AMENDED BY ADDING THE FOLLOWING THERETO: CERTAIN RIGHTS OF LENDER. In addition those set forth in the Loan Agreement, Lender's rights under the Loan Agreement shall also include the following: (a) STANDBY SERVICER. Borrower acknowledges and agrees that upon written notice from Lender, to be given at any time during the terms of the Inventory Loan, the Supplemental Loan and the Receivables Loan in Lender's sole and absolute discretion, the Servicing Agent shall be replaced by the Standby Servicer, or such other servicing entity as may be selected by 29 Lender in its sole and absolute discretion, for the purpose of servicing all Notes Receivable comprising the Collateral. 16. SILVERLEAF FINANCE. Lender acknowledges and agrees that: (i) the transfer of Notes Receivable to Silverleaf Finance I, Inc. in connection with the DZ Facility is a true sale and not a financing transaction; (ii) Lender will not file a motion to consolidate Silverleaf Finance I, Inc. with the Borrower in the event of a bankruptcy of Borrower; and (iii) Lender will not take any affirmative action in support of any such motion to consolidate. 17. FILING AUTHORITY. Borrower reaffirms and grants to Lender and its designee full power and authority to execute, acknowledge, deliver and file any security agreements and UCC-1 financing statements (and amendments thereto) requested by Lender or necessary to perfect the security interest in the Collateral granted to Lender by Borrower to secure the Inventory Loan, the Supplemental Loan and the Working Capital Facility herewith. 18. BORROWER CONFIRMATION. Borrower hereby ratifies and confirms that the Loan Agreement and other Loan Documents as amended herein are in full force and effect and agrees that as modified, the Note, the Promissory Note as amended and restated and the other Loan Documents are and continue to be in full force and effect and enforceable in accordance with their respective terms. Borrower hereby incorporates by reference all covenants, warranties, and representations contained in the Loan Documents and reaffirms such covenants, warranties, and representations as of the day hereof except with respect to the Specified Events of Default and except as provided in Section 23 hereof. 19. BORROWER ESTOPPEL. Execution of this Fourth Amendment by Lender shall be without prejudice to Lender's rights at any time in the future to exercise any and all rights conferred upon it by any of the Loan Documents in accordance with their original terms as previously and hereby amended. Neither the Fourth Amendment nor any provision hereof or of any other documents given in connection herewith shall constitute or shall be construed to constitute a waiver of any default, right, or remedy of Lender under the Note, the Promissory Note as amended and restated or the other Loan Documents subsequent to the date hereof. Any failure by Lender at any point in time during the term of the Note, the Promissory Note, the Loan Documents or the Inventory Loan Agreement or the Supplemental Loan Agreement to insist upon strict and timely compliance with the terms and provisions of each such document shall not be deemed a waiver either expressly or implied by Lender of any or its rights under any such document nor shall the same excuse Borrower's obligation to strictly and timely perform its obligation hereunder and therein. 20. RELEASE. The Borrower by execution of this Fourth Amendment hereby declares that as of this date the Borrower has no claim, set-off, counterclaim, defense, or other cause of action against Lender including, but not limited to, a defense of usury, any claim or cause of action at common law, in equity, statutory or otherwise, in contract or in tort, for fraud malfeasance, misrepresentation, financial loss, usury, deceptive trade practice, or any other loss, damage or liability of any kind, including without limitation any claim for exemplary or punitive 30 damages arising out of any transaction between Borrower and Lender in connection with the Loan Agreement, or any of the other Loan Documents, any security therefore or this Fourth Amendment, or any document mentioned herein. Further, to the extent that any such set-off, counterclaim, defense, or other cause of action may exist or might hereafter arise based on facts known or unknown which exist as of this date, such set-off, counterclaim, defense and other cause of action is hereby expressly and knowingly waived and released by Borrower. 21. COMPLETE AGREEMENT, ETC. There are and were no oral or written representations, warranties, understandings, stipulations, agreements, or promises made by either party or by any agent, employee or other representative of either party pertaining to the subject matter of the Fourth Amendment which have not been incorporated into the Fourth Amendment. The Fourth Amendment shall not be modified, changed, terminated, amended, superseded, waived or extended except by a written instrument executed by the parties hereto. If any term comment or condition of this Fourth Amendment is held to be invalid, illegal, or unenforceable as to a particular person, entity, or situation and the Fourth Amendment will also be enforced to the fullest extent permitted by law as to any other person, entity, or situation. Except as specifically modified by the terms of the Fourth Amendment, the Note, the Promissory Note as amended and restated and all the remaining Loan Documents shall not be affected by the Fourth Amendment and each shall remain in full force and effect. Nothing herein contained shall be construed to impair Lender's security under any of the Loan Agreements or Loan Documents nor to limit or impair any rights or powers that Lender now enjoys or may hereafter enjoy under the Loan Documents for recovery of the Indebtedness secured hereby. 22. FURTHER ASSURANCES. Borrower agrees to execute such further documents, instruments and agreements as Lender may require from time to time to effectuate the terms and conditions and understandings of this Fourth Amendment. 23. BORROWER REPRESENTATIONS. Borrower hereby represents and warrants to the Lender that: (a) The Persons executing the Fourth Amendment on behalf of the Borrower have full authority to execute the Fourth Amendment on behalf of Borrower and to bind Borrower thereby; (b) The execution and delivery by Borrower of the Fourth Amendment and the performance thereunder by Borrower has not and will not result in a breach of or constitute a default under any mortgage, lease, bank loan, credit arrangement or other instrument or agreement to which either Borrower or the Collateral securing the Loans may be bound or affected; (c) Borrower is a corporation duly formed, validly existing and in good standing under the laws of the State of Texas; 31 (d) The execution, delivery and performance by the Borrower of the Fourth Amendment and other Loan Documents as amended as of the date hereof, have been duly and validly authorized and all consents and approvals which are necessary for authorization, binding affect, performance, and enforceability of the Fourth Amendment and all other Loan Documents have been received; and (e) Borrower will not be, on or after the date hereof, a party to any contract or agreement which restricts its right or ability to incur indebtedness or prohibits Borrower's execution of the Inventory Loan or the Supplemental Loan, or compliance with the terms of the Loan Agreement, the Loan Documents, the Receivables Loan Agreement, the Textron Documents, the Bond Holder Exchange Documents, the Sovereign Documents or the DZ Documents. Borrower has not agreed or consent to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien except in favor of Lender as provided herein, and, with respect to the Real Estate Collateral and the Ineligible Note Portfolio, in favor of Textron and Sovereign. (f) Except as disclosed on SCHEDULE 23(f) hereto, there are no actions, suits, proceedings, orders or injunctions pending or, to the best of Borrower's knowledge, threatened against or affecting Borrower any Resort or the Intervals, at law or in equity, or before or by any governmental authority, in any case individually in which the claim exceeds or would reasonably be expected to exceed $50,000 or all cases for which claims in the aggregate exceed or could reasonably be expected to exceed $250,000. Borrower has received no notice from any court or governmental authority alleging that Borrower has violated any applicable timeshare act, any of the rules or regulations thereunder, or any other applicable laws. (g) Since the date of the Inventory Loan and the Receivables Loan, except as otherwise disclosed by the Borrower to Lender in writing, since September 30, 2001, there has occurred no materially adverse change in the financial condition or business of the Borrower and its subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its subsidiaries as of September 30, 2001, or the consolidated statement of income as of such date, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrower or any of its subsidiaries. Following Lender's receipt and approval of the Borrower's financial statements for the fiscal year ended on December 31, 2001, there has occurred no materially adverse change in the financial condition or business of the Borrower and its subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its subsidiaries as of December 31, 2001, or the consolidated statement of income as of such date, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrower or any of its Subsidiaries. Since September 30, 2001, the Borrower has not made any Distribution. 32 24. WAIVER. Effective on the Closing Date of this Fourth Amendment, and so long as each condition precedent to Lender's obligation to make Advances in this Fourth Amendment has been satisfied, Lender agrees to waive all prior Defaults and Events of Default under the Inventory Loan and the Supplemental Loan, including but not limited to, the Specified Events of Default provided in the Forbearance Agreement. 25. COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] 33 IN WITNESS WHEREOF, Borrower and Lender have caused this Fourth Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written. BORROWER: SILVERLEAF RESORTS, INC., a Texas corporation By: /s/ Harry J. White, Jr. -------------------------------------- Name: Harry J. White, Jr. ------------------------------------ Its: Chief Financial Officer ------------------------------------- Silverleaf Resorts, Inc. LENDER: HELLER FINANCIAL, INC. By: /s/ Dennis K. Holland -------------------------------------- Name: Dennis K. Holland ------------------------------------ Its: Senior Vice President ------------------------------------- 34 APPENDIX 1 DEFINITION OF TERMS TERMS DEFINED. The following terms used in this Fourth Amendment are added to the Appendix of the Supplemental Loan Agreement and shall have the following meanings: ADDITIONAL COLLATERAL. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following: (i) the Backup Servicing Agreement; and (ii) the Consulting Agreement. ADDITIONAL LENDERS. The Lenders who, together with Lender, are parties to the Intercreditor Agreement with Borrower. ADDITIONAL LOAN AGREEMENTS. The Loan Agreements between Borrower and Additional Lenders as more particularly described in the Intercreditor Agreement. ADDITIONAL RESORT COLLATERAL. Shall mean the real and personal property, now or hereafter acquired by Borrower and listed on SCHEDULE 7(f). For the avoidance of doubt, "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc. that constitutes "Pledged Assets" under the DZ Documents. AMENDED AND RESTATED REVOLVING PROMISSORY NOTE. The Amended and Restated Revolving Promissory Note (Inventory Loan) evidencing the Inventory Loan in the principal amount of $10,000,000 executed and delivered by Borrower to Lender on the date hereof and any substitution or replacement therefor. ASSIGNMENTS OF MORTGAGE. The Assignments of Mortgage executed and delivered by Borrower in connection with the Ineligible Note Portfolio and pursuant to the terms of Section 7(e) of this Fourth Amendment, in the form attached hereto as EXHIBIT O. AVAILABILITY PERIOD. The availability period for the Inventory Loan commencing on the Closing Date and ending on March 31, 2004. BACKUP SERVICING AGREEMENT. Shall mean the agreement, in the form attached hereto as EXHIBIT K, pursuant to which the Standby Servicer shall provide servicing functions with respect to the pledged Notes Receivable upon the occurrence of an Event of Default hereunder in accordance with Section 17 hereof. BOND HOLDER EXCHANGE TRANSACTION. The term "Bond Holder Exchange Transaction" shall mean that certain senior subordinate note holder exchange transaction on the terms and 35 conditions outlined in that certain Term Sheet dated October 19, 2001 (the "Bond Holder Exchange Term Sheet"), a copy of which is attached hereto as EXHIBIT I, and which is to be consummated by the documents listed on SCHEDULE I hereto (the "Bond Holder Exchange Documents"). BUSINESS PLAN. The term "Business Plan" shall mean the five (5) year "Stand Alone" business plan prepared by Borrower, together with the Senior Lender Advance, attached hereto as SCHEDULE 10(b). The Business Plan includes the "Impact on Lenders Worksheet" setting forth the amounts to be advanced by each of Lender, Textron and Sovereign pursuant to their respective credit facilities (the "Senior Lender Advance Schedule"). CASH AND CASH EQUIVALENTS. Unrestricted (i) cash; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Rating Group or P-1 (or better) by Moody's Investor Service, Inc. provided that the maturities of such Cash and Cash Equivalents shall not exceed one year. CLOSING DATE. The Closing Date shall be the date on which (i) all conditions set forth in Sections 4 and 8 of the Fourth Amendment are satisfied by Borrower and (ii) the Fourth Amendment is duly executed by Borrower and Lender, but not later than May 31, 2002. In the event that all of the conditions under Sections 4 and 8 of this Fourth Amendment have not been satisfied by May 31, 2002, this Fourth Amendment shall become null and void. COLLATERAL. Collective, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following: (i) Financed Notes Receivable (including all Notes Receivable comprising the Ineligible Notes Portfolio) and all proceeds of or from them; (ii) Mortgages and all proceeds of or from them (including the Mortgages securing the Notes Receivable comprising the Ineligible Note Portfolio); (iii) Documents, instruments, accounts, chattel paper, and general intangibles relating to the Financed Notes Receivable (including any relating to the Ineligible Note Portfolio) and the related Mortgages; (iv) the Backup Servicing Agreement; (v) the Consulting Agreement; 36 (vi) All collateral under the Textron Facility, the Sovereign Facility, the Receivables Loan, the Inventory Loan, the Supplemental Loan and the Working Capital Facility; (vii) Real Estate Collateral; (viii) All books, records, reports, computer tapes, disks and software relating to the Collateral; and (ix) Extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof. COLLATERAL ASSIGNMENT OF BACKUP SERVICING AGREEMENT. Shall mean the Collateral Assignment of Backup Servicing Agreement, in the form attached here as EXHIBIT N, by Borrower to Lender of all of Borrower's rights under the Backup Servicing Agreement. COLLATERAL ASSIGNMENT OF CONSULTING AGREEMENT. Shall mean the Collateral Assignment of Consulting Agreement, in the form attached here as EXHIBIT M, by Borrower to Lender of all of Borrower's rights under the Consulting Agreement. CONSULTING AGREEMENT. Shall mean the agreement between the Standby Manager and Borrower, dated April 30, 2002, a copy of which is attached hereto as EXHIBIT J, providing for the management of Borrower's business on the occurrence of an Event of Default hereunder. DISTRIBUTION. The declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock of the Borrower, directly or indirectly through a subsidiary of the Borrower or otherwise; the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower. DZ FACILITY. The term "DZ Facility" shall mean that certain note purchase facility to be provided by DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main, as agent for Autobahn Funding Company LLC ("DZ") to Borrower, on the terms outlined in the DZ Letter Agreement dated December 12, 2001, attached hereto as EXHIBIT L ("DZ Letter Agreement"), and evidenced by the documents listed on SCHEDULE L hereto (the "DZ Documents"). ELIGIBLE NOTE RECEIVABLE. Each Note Receivable satisfying all of the following criteria: 37 (a) Purchaser has made a cash down payment of at least ten percent of the actual purchase price of the Interval and at least one monthly payment under the related Note Receivable and no part of such payment has been made or loaned to Purchaser by Borrower or an Affiliate; (b) The weighted average interest rate of all Financed Notes Receivable is no less than 13.75% per annum; (c) No installment is more than thirty (30) days past due on a contractual basis at the time of assignment to Lender, nor becomes more than sixty (60) days past due on a contractual basis thereafter; (d) The Unit with respect to the Interval purchased has been completed, developed and furnished in accordance with the purchase contract; (e) All amenities for the Resort have been completed and are available for use by all Purchasers; (f) The purchaser is not an Affiliate, shareholder, officer, director or agent of, related to or employed by Borrower; (g) Subject to the Intercreditor Agreement, the Note Receivable is free and clear of adverse claims, liens and encumbrances and is not currently, nor shall it be potentially in the future, subject to claims of rescission, invalidity, unenforceability, illegality, defense, offset or counterclaim; (h) The Note Receivable is secured by a first priority mortgage or deed of trust on the purchased Interval or by a first priority perfected security interest in the related Certificate of Beneficial Interest and an Assignment of Mortgage and Assignment of Beneficial Interest; (i) Subject to the provisions of SCHEDULE 3.2.6.(IV) of the Receivables Loan Agreement, the Mortgage securing a Note Receivable is insured under a mortgagee title insurance policy acceptable to Lender subject only to the Permitted Exceptions; (j) The Purchaser meets credit standards acceptable to Lender at its sole and absolute discretion and shall have a minimum Fair Isaac Company (FICO) Credit Bureau Score of at least 550; (k) No single Purchaser shall have an aggregate outstanding principal balance due under his/her or its Notes in excess of $36,000; (l) Payments are to be in legal tender of the United States; 38 (m) The Note Receivable and the Purchase Documents are valid, genuine and enforceable against the obligor thereunder, and such obligor has not assigned his or her interest thereunder; (n) At least 90% of the aggregate outstanding principal balance of all Financed Notes Receivable arises from Purchasers who are U.S. or Canadian residents and no more than 25% of the Notes Receivable comprising the Collateral shall be originated from Sales of Biennial Intervals; (o) Payments have been made by the obligor thereunder and not by Borrower or any Affiliate of Borrower on the obligor's behalf; and (p) The Interval or Biennial Interval with respect to each Eligible Note Receivable is subject to a Purchaser Mortgage or to an Assignment of Mortgage and Beneficial Interest; (q) Up to 15% of the Eligible Notes Receivable may be modified to reduce the interest rate charged in accordance with paragraph 6.4 of the Second Amendment to Amended and Restated Receivables Loan Agreement. (r) Up to 20% of the Eligible Notes Receivable may be modified to extend the term thereof beyond 84 months, but not exceeding 120 months, and in accordance with paragraph 6.4 of the Second Amendment to Amended and Restated Receivables Loan Agreement. (s) Each Eligible Note Receivable shall evidence a self-amortizing loan and 80% of the Eligible Notes Receivable shall have a term not exceeding 84 months and the remainder shall have a term not exceeding 120 months. FINANCED NOTE RECEIVABLE. An Eligible Note Receivable as to which an Advance has been made and which has been assigned and delivered to Lender or an agent on behalf of Lender as security for the Inventory Loan, the Supplemental Loan or the Receivables Loan. FIRST AMENDMENT TO FORBEARANCE AGREEMENT. That certain First Amendment to Forbearance Agreement dated December 31, 2001 ("First Amendment to Forbearance Agreement") entered into between Lender, Borrower and Union Bank of California, N.A. providing for, among other things, the extension of the forbearance period as set forth under the Forbearance Agreement. INDEBTEDNESS. Collectively, all payment obligations of Borrower to Lender: (i) under the Amended and Restated Revolving Promissory Note and the Second Amended and Restated Promissory Note and other Loan Documents; (ii) under the Loan Agreement; (iii) in connection with the Amended and Restated Receivables Loan and Security Agreement from Lender to Borrower, as amended, and (iv) in connection with any and all other indebtedness of Borrower to Lender whether now existing or hereafter arising. 39 INELIGIBLE NOTE PORTFOLIO. Shall mean certain of Borrower's Notes Receivable and Mortgages which are not currently pledged to any other Person and which shall be held by Borrower, as agent for and on behalf of each of Lender, Textron and Sovereign, unless and until an Event of Default shall occur and which are listed on SCHEDULE A, attached hereto. INTERCREDITOR AGREEMENT. The Amended and Restated Intercreditor Agreement between Borrower and Lender and Additional Lenders dated as of the Closing Date. INTEREST RATE. The Interest Rate for the Inventory Loan shall be set forth in the Amended and Restated Revolving Promissory Note. The Interest Rate for the Supplemental Loan shall be defined in the Second Amended and Restated Promissory Note. INVENTORY CONTROL PROCEDURES. The Inventory Control Procedures as set forth in the attached SCHEDULE 8(h) hereto. INVENTORY LOAN COLLATERAL. The portion of the Collateral securing the Inventory Loan. LENDER'S LOCKBOX. The lockbox account designated by Lender as the depositary of payments from obligors in connection with the Financed Notes Receivable. MARKETING AND SALES EXPENSES. Shall mean all promotion, lead generation, sales commissions and all other marketing expenses incurred or paid by Borrower pursuant to any marketing agreements or otherwise. MATURITY DATE. The Maturity Date for the Inventory Loan shall be March 31, 2007, or any earlier date on which the Inventory Loan shall be required to be paid in full, whether by acceleration or otherwise. The Maturity Date for the Supplemental Loan shall be March 31, 2007, or any earlier date on which the Supplemental Loan shall be required to be paid in full, whether by acceleration or otherwise. RECEIVABLES LOAN AGREEMENT. That certain Amended and Restated Receivables Loan Agreement between Borrower, Lender and Union Bank of California, N.A. dated September 1, 1999, as amended and modified. RECEIVABLES LOAN COLLATERAL. The portion of the Collateral securing the Receivables Loan. REVOLVING PERIOD. The revolving period for the Inventory Loan commencing on the Closing Date and ending on March 31, 2004. SECOND AMENDED AND RESTATED PROMISSORY NOTE. The Second Amended and Restated Promissory Note (Supplemental Loan) evidencing the Supplemental Loan in the principal amount of $10,000,000 executed and delivered by Borrower to Lender on the date hereof and any substitution or replacements therefor. 40 SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES LOAN AGREEMENT. Shall mean that certain Second Amendment to Amended and Restated Receivables Loan and Security Agreement between Borrower, Lender and Union Bank of California, N.A. dated of even date herewith. SECOND AMENDMENT TO FORBEARANCE AGREEMENT. That certain Second Amendment to Forbearance Agreement dated February 12, 2002 entered into between Lender, Borrower and Union Bank of California, N.A. providing for, among other things, the extension of the forbearance period as set forth under the Forbearance Agreement. SOVEREIGN FACILITY. The term "Sovereign Facility" shall mean that certain credit facility provided by Sovereign Bank ("Sovereign") and other lenders to Borrower pursuant to the documents listed on SCHEDULE B hereto (the "Sovereign Documents"). STANDBY MANAGER. Shall mean the Person selected by Lender to act as standby manager of the Resorts in accordance with the Loan Agreement and the Consulting Agreement. STANDBY SERVICER. Shall mean the Person selected by Lender to act as standby servicer in accordance with the Loan Agreement and the Backup Servicing Agreement. The current Standby Servicer is Concord Servicing Corporation. SUPPLEMENTAL AVAILABILITY PERIOD. The period commencing on the Closing Date and ending on March 31, 2004. SUPPLEMENTAL LOAN COLLATERAL. The portion of the Collateral securing the Supplemental Loan. SUPPLEMENTAL REVOLVING PERIOD. The period commencing on the Closing Date and ending on March 31, 2004. SURVEY. A plat or survey of the Resorts and the Real Estate Collateral prepared by a licensed surveyor acceptable to Lender and in a form acceptable to Lender. TANGIBLE NET WORTH. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as: (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated debt of such Person and its consolidated subsidiaries, the terms and conditions of which are reasonably satisfactory to Lender, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent to the Closing Date deferred sales are no longer considered an asset under GAAP, Lender agrees, at the request of Borrower, to determine, in its 41 reasonable discretion, whether deferred sales should continue to be considered an asset for purposes of determining Borrower's Tangible Net Worth. TAX REFUND. The term "Tax Refund" means that certain corporate tax refund of Borrower for the 1998 and 1999 tax years in the estimated amount of $5,000,000. TEXTRON FACILITY. The term "Textron Facility" shall mean that certain credit facility provided by Textron Financial Corporation ("Textron") to Borrower pursuant to the documents listed on SCHEDULE C hereto (the "Textron Documents"). 42 LIST OF EXHIBITS 1. EXHIBIT A - SECOND AMENDED AND RESTATED PROMISSORY NOTE 2. EXHIBIT B - AMENDED AND RESTATED REVOLVING PROMISSORY NOTE 3. EXHIBIT C - INTERCREDITOR AGREEMENT 4. EXHIBIT D - CERTIFICATE OF BORROWER 5. EXHIBIT E - CERTIFICATE OF RESOLUTIONS OF BORROWER 6. EXHIBIT F - INCUMBENCY CERTIFICATE 7. EXHIBIT G - CLOSING OPINIONS OF COUNSELS FOR BORROWER 8. EXHIBIT H - MODIFICATION TO REAL ESTATE COLLATERAL MORTGAGES 9. EXHIBIT I - BOND HOLDER EXCHANGE TERM SHEET 10. EXHIBIT J - CONSULTING AGREEMENT 11. EXHIBIT K - BACKUP SERVICING AGREEMENT 12. EXHIBIT L - DZ LETTER AGREEMENT 13. EXHIBIT M - COLLATERAL ASSIGNMENT OF CONSULTING AGREEMENT 14. EXHIBIT N - COLLATERAL ASSIGNMENT OF BACKUP SERVICING AGREEMENT 15. EXHIBIT O - ASSIGNMENT(s) OF MORTGAGE 16. EXHIBIT P - SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES LOAN AGREEMENT 17. EXHIBIT A - REQUEST FOR ADVANCE LIST OF SCHEDULES 1. SCHEDULE 7(f) - ADDITIONAL RESORT COLLATERAL 2. SCHEDULE 8(a)(v) - CLOSING AND DOCUMENT CHECKLIST 3. SCHEDULE 8(h) - INVENTORY CONTROL PROCEDURES 4. SCHEDULE 8(i) - AMORTIZATION SCHEDULE 5. SCHEDULE 10(b) - BUSINESS PLAN 6. SCHEDULE 23(f) - LITIGATION SCHEDULE 7. SCHEDULE A - INELIGIBLE NOTE PORTFOLIO 8. SCHEDULE B - SOVEREIGN DOCUMENTS 9. SCHEDULE C - TEXTRON DOCUMENTS 10. SCHEDULE I - BOND HOLDER EXCHANGE DOCUMENTS 11. SCHEDULE L - DZ DOCUMENTS 43 EX-10.3 9 d00253exv10w3.txt AMENDED/RESTATED REVOLVING CREDIT AGREEMENT EXHIBIT 10.3 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Dated as of April 30, 2002 Among Silverleaf Resorts, Inc., as Borrower, The Lending Institutions Referred to Herein as Banks, and Sovereign Bank, as Agent TABLE OF CONTENTS 1. DEFINITIONS AND RULES OF INTERPRETATION..................................................1 1.1. Definitions...................................................................1 1.2. Rules of Interpretation......................................................26 2. THE REVOLVING CREDIT FACILITY...........................................................27 2.1. Commitment to Lend...........................................................27 2.2. Mandatory Automatic Reduction of Tranche B Total Commitment..................30 2.3. The Notes....................................................................30 2.4. Interest on Loans............................................................30 2.5. Requests for Loans...........................................................30 2.6. Funds for Loans..............................................................31 2.6.1. Funding Procedures................................................31 2.6.2. Advances by Agent.................................................31 2.7. Change in Borrowing Base; Ineligible Consumer Loans..........................32 2.8. Repayments of Loans Prior to Event of Default................................33 2.8.1. Credit for Funds Received in Borrower's Account...................33 2.8.2. Application of Payments Prior to Event of Default.................33 2.9. Repayments of Loans After Event of Default...................................35 3. REPAYMENT OF THE LOANS..................................................................35 3.1. Maturity.....................................................................35 3.2. Mandatory Repayments of Loans................................................36 3.3. Optional Repayments of Loans.................................................37 4. CERTAIN GENERAL PROVISIONS..............................................................38 4.1. Funds for Payments...........................................................38 4.1.1. Payments to Agent.................................................38 4.1.2. No Offset, etc....................................................38 4.2. Computations.................................................................38 4.3. Additional Costs, etc........................................................38 4.4. Capital Adequacy.............................................................40 4.5. Certificate..................................................................40 4.6. Indemnity....................................................................40 4.7. Interest After Default.......................................................40 4.7.1. Overdue Amounts...................................................40 4.7.2. Amounts Not Overdue...............................................41 5. SECURITY; SERVICING AGREEMENT; LOCK BOX AGREEMENT AND COLLATERAL CUSTODIAN AGREEMENT....41 5.1. Collateral...................................................................41 5.2. Lock Box Agreement...........................................................41 5.3. Collateral Custodial.........................................................41 5.4. Servicing Agreement..........................................................42 5.5. Collateral Procedures........................................................42
ii 5.6. Eligible Projects...................................................................42 5.7. Security Interests in All Consumer Loan Collateral and other Consumer Loans...............................................................................43 5.8. Release of Certain Collateral.......................................................44 6. REPRESENTATIONS AND WARRANTIES.................................................................44 6.1. Corporate Authority.................................................................44 6.1.1. Incorporation; Good Standig..............................................44 6.1.2. Authorization............................................................44 6.1.3. Enforceability...........................................................44 6.2. Approvals...........................................................................45 6.3. Associations........................................................................45 6.4. Title to Properties; Leases.........................................................45 6.5. Assignability.......................................................................45 6.6. Financial Statements and Business Condition.........................................45 6.6.1. Fiscal Year..............................................................45 6.6.2. Financial Statements.....................................................45 6.7. No Material Changes, etc............................................................46 6.8. Operation of Business...............................................................46 6.9. Litigation..........................................................................46 6.10. No Materially Adverse Contracts, etc.; No Defaults..................................47 6.11. Compliance with Other Instruments. Laws, etc........................................47 6.12. Tax Status..........................................................................47 6.13. No Event of Default.................................................................48 6.14. Holding Company and Investment Company Acts.........................................48 6.15. Absence of Financing Statements etc.................................................48 6.16. Perfection of Security Interest.....................................................48 6.17. Certain Transactions................................................................48 6.18. Employee Benefit Plans..............................................................48 6.19. Use of Proceeds.....................................................................48 6.19.1. General.................................................................49 6.19.2. Regulations U and X.....................................................49 6.19.3. Ineligible Securities...................................................49 6.20. Environmental Compliance............................................................49 6.21. Subsidiaries, etc...................................................................50 6.22. Disclosure..........................................................................51 6.23. The Projects and the Additional Resort Collateral...................................51 6.24. Sale of Timeshare Interests.........................................................51 6.25. Tangible Property...................................................................51 6.26. Real Property Taxes: Special Assessments............................................52 6.27. Violations..........................................................................52 6.28. Subordination.......................................................................52 6.29. Standby Servicer....................................................................52 6.30. Inventory Control...................................................................52 6.31. Operating Contracts.................................................................52 6.32. Heller and Textron Facilities.......................................................52 6.33. Bond Holder Exchange Transaction....................................................52 6.34. DZ Facility.........................................................................52
iii 7. AFFIRMATIVE COVENANTS OF THE BORROWER...........................................................52 7.1. Punctual Payment.....................................................................53 7.2. Maintenance of Office; Management....................................................53 7.3. Records and Accounts.................................................................53 7.4. Financial Statements, Certificates and Information...................................53 7.5. Notices..............................................................................57 7.5.1. Defaults..................................................................57 7.5.2. Environmental Events......................................................58 7.5.3. Notification of Claims Against Collateral.................................58 7.5.4. Notice of Litigation and Judgments........................................58 7.5.5. Notice of Loss............................................................58 7.6. Corporate Existence; Maintenance of Properties.......................................58 7.7. Insurance............................................................................59 7.8. Taxes................................................................................61 7.9. Inspection of Properties and Books, etc..............................................61 7.9.1. General; Audits and Fair Lending Review...................................61 7.9.2. Collateral Reports........................................................61 7.9.3. Appraisals................................................................62 7.9.4. Environmental Assessments.................................................62 7.9.5. Communication with Accountants............................................62 7.10. Compliance with Laws, Contracts, Licenses, and Permits..............................63 7.11. Underwriting Criteria...............................................................63 7.12. Agreements Constituting Collateral..................................................63 7.13. Subordination.......................................................................64 7.14. Sale of Timeshare Interests.........................................................64 7.15. Consumer Documents..................................................................64 7.16. Collection..........................................................................64 7.17. Use of Proceeds.....................................................................64 7.18. Bank Accounts.......................................................................64 7.18.1. General..................................................................64 7.18.2. Acknowledgment of Application............................................65 7.19. Servicing Agreement and Lock Box Agreement..........................................65 7.20. Standby Management Agreement; Standby Servicing Agreement...........................65 7.21. Tangible Property...................................................................65 7.22. Further Assurances..................................................................65 7.23. Business Plan.......................................................................66 7.24. Tax Refund..........................................................................66 7.25. Net Securitization Cash Flow........................................................66 7.26. Sale or Securitizations of Notes Receivable.........................................66 7.27. Heller Facility, Textron Facility, DZ Bank Securitization and Bond Holder Exchange Transaction.........................................................................66 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER......................................................66 8.1. Restrictions on Indebtedness.........................................................67 8.2. Restrictions on Liens................................................................68 8.3. Restrictions on Investments..........................................................70 8.4. Distributions........................................................................70
iv 8.5. Merger, Consolidation................................................................70 8.5.1. Mergers and Acquisitions..................................................70 8.5.2. Disposition of Assets.....................................................71 8.6. Sale and Leaseback...................................................................71 8.7. Compliance with Environmental Laws...................................................71 8.8. Subordinated Debt....................................................................71 8.9. Employee Benefit Plans...............................................................71 8.10. Business Activities.................................................................72 8.11. Fiscal Year; Jurisdiction of Organization...........................................72 8.12. Transactions with Affiliates........................................................72 8.13. Bank Accounts.......................................................................72 8.14. Covenant Against Alienation.........................................................73 8.15. Association Liens...................................................................73 8.16. Time Share Instruments; Required Consumer Loan Documentation; Management Agreements..........................................................................73 8.17. Compensation of Senior Management...................................................73 8.18. Sale of Timeshare Interests.........................................................73 8.19. Modification of Loan Documents......................................................74 8.20. No New Construction.................................................................74 8.21. Modification of Other Documents.....................................................74 9. FINANCIAL COVENANTS OF THE BORROWER.............................................................74 9.1. Tangible Net Worth...................................................................74 9.2. Marketing Expenses...................................................................75 9.3. Minimum Loan Delinquency.............................................................75 9.4. Debt Service.........................................................................75 9.5. Profitable Operations................................................................75 10. CLOSING CONDITIONS.............................................................................75 10.1. Loan Documents......................................................................76 10.2. Other Debt; Intercreditor Agreement; Etc............................................76 10.2.1. Heller Facility and Textron Facility Modifications.......................76 10.2.2. Intercreditor Agreement..................................................76 10.2.3. Definitive Exchange Offer................................................76 10.2.4. DZ Bank Securitization...................................................77 10.3. Certified Copies of Charter Documents...............................................77 10.4. Corporate Action....................................................................77 10.5. Incumbency Certificate..............................................................77 10.6. Validity of Liens...................................................................77 10.7. Perfection Certificates and UCC Search Results; Litigation Search...................78 10.8. Survey and Taxes....................................................................78 10.9. Title Insurance.....................................................................78 10.10. Certificates of Insurance...........................................................79 10.11. Borrower's Account Notices to Consumer Borrowers....................................79 10.12. Borrowing Base Certificate..........................................................79 10.13. Hazardous Waste Assessments.........................................................79 10.14. Opinion of Counsel..................................................................79
v 10.15. [Intentionally Omitted.]............................................................79 10.16. Loan Paydown; Availability of Tranche A Total Commitment;...........................79 10.17. Business Plan.......................................................................79 10.18. Oak 'N Spruce Resort UCC Financing Statements.......................................80 10.19. Initial Lockbox Agreement...........................................................80 10.20. Standby Manager.....................................................................80 10.21. Forbearance Agreement...............................................................80 10.22. No Changes..........................................................................80 10.23. No Material Change..................................................................80 10.24. Payment of Expenses.................................................................80 10.25. Servicing Agreement.................................................................81 10.26. Estoppel Letters....................................................................81 11. CONDITIONS TO ALL BORROWINGS...................................................................81 11.1. Representations True: No Event of Default...........................................81 11.2. No Legal Impediment.................................................................81 11.3. Governmental Regulation.............................................................81 11.4. Proceedings and Documents...........................................................81 11.5. Borrowing Base Certificate..........................................................82 11.6. No Adverse Change...................................................................82 11.7. Available Cash on Hand..............................................................82 11.8. Pro-Rata Advances...................................................................82 11.9. Operating Expenses..................................................................82 12. EVENTS OF DEFAULT; ACCELERATION; ETC...........................................................82 12.1. Events of Default and Acceleration..................................................82 12.2. Termination of Commitments..........................................................87 12.3. Remedies............................................................................87 12.4. Standby Servicer and Standby Manager................................................88 12.5. Distribution of Collateral Proceeds.................................................88 12.6. Relief From Automatic Stay, Etc.....................................................92 13. SETOFF.........................................................................................92 14. THE AGENT......................................................................................93 14.1. Authorization.......................................................................93 14.2. General; Employees and Agents.......................................................94 14.3. No Liability........................................................................94 14.4. No Representations..................................................................95 14.4.1. General..................................................................95 14.4.2. Consumer Loan Collateral.................................................95 14.4.3. Closing Documentation, etc...............................................96 14.5. Payments............................................................................96 14.5.1. Payments to Agent........................................................96 14.5.2. Distribution by Agent....................................................96 14.5.3. Delinquent Banks.........................................................96 14.6. Holders of Notes....................................................................97
vi 14.7. Indemnity...........................................................................97 14.8. Agent as Bank.......................................................................97 14.9. Resignation; Removal................................................................97 14.10. Notification of Defaults and Events of Default Notices..............................98 15. EXPENSES AND INDEMNIFICATION...................................................................98 15.1. Expenses............................................................................98 15.2. Indemnification.....................................................................99 15.3. Survival............................................................................100 16. SURVIVAL OF COVENANTS, ETC.....................................................................100 17. ASSIGNMENT AND PARTICIPATION...................................................................100 17.1. Conditions to Assignment by Banks...................................................100 17.2. Certain Representations and Warranties Limitations Covenants........................101 17.3. Register............................................................................102 17.4. New Notes...........................................................................102 17.5. Participations......................................................................103 17.6. Disclosure..........................................................................103 17.7. Assignee or Participant Affiliated with the Borrower................................103 17.8. Miscellaneous Assignment Provisions.................................................104 17.9. Assignment by Borrower..............................................................104 18. NOTICES, ETC...................................................................................104 19. GOVERNING LAW..................................................................................105 20. HEADINGS.......................................................................................105 21. COUNTERPARTS...................................................................................105 22. ENTIRE AGREEMENT, ETC..........................................................................105 23. WAIVER OF JURY TRIAL...........................................................................106 24. CONSENTS, AMENDMENTS, WAIVERS, ETC.............................................................106 25. SEVERABILITY...................................................................................107 26. NONCONSOLIDATION WITH SILVERLEAF FINANCE I, INC................................................108 27. TRANSITIONAL ARRANGEMENTS......................................................................108 28. RELEASE........................................................................................108 29. WAIVER.........................................................................................109
vii EXHIBITS Exhibit A Form of Borrowing Base Certificate Exhibit B Form of Tranche A Note Exhibit C Form of Tranche B Note Exhibit D Form of Loan Request Exhibit E Eligible Projects Exhibit F Existing Mortgaged Property Exhibit G Form of Assignment and Acceptance Exhibit H Authorized Officers Exhibit I Additional Resort Collateral Exhibit J DZ Bank Commitment Letter Exhibit K Bond Holder Exchange Term Sheet Exhibit L Business Plan Exhibit M Crown Resorts Projects Exhibit N Ineligible Note Portfolio SCHEDULES Schedule 1 Banks; Commitments Schedule 1.1(a) Heller Documents Schedule 1.1(b) Textron Documents Schedule 1.1(c) DZ Bank Documents Schedule 1.1(d) Bond Holder Exchange Documents Schedule 2.1(f) Executive Management Schedule 2.2 Automatic Reduction of Tranche B Total Commitment Schedule 6.9 Litigation Schedule 6.10 Defaults Schedule 6.20 Environmental Matters Schedule 6.21(a) Subsidiaries Schedule 6.21(b) Joint Ventures Schedule 6.28 Affiliate Debt Schedule 6.30 Inventory Control Procedures Schedule 7.7 Project Title Policies Schedule 7.13 Affiliate Fees Schedule 7.14 Jurisdictions of Sales of Timeshare Interests Schedule 8.1 Indebtedness Schedule 8.2 Liens Schedule 8.3 Investments Schedule 8.17 Compensation of Senior Management AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of April 30, 2002 by and among Silverleaf Resorts, Inc., a Texas corporation (the "BORROWER") having its principal place of business at 1221 Riverbend, Suite 120, Dallas, Texas 75247, and Sovereign Bank, a federally chartered savings bank, and the other lending institutions listed on SCHEDULE 1 and Sovereign Bank, a federally chartered savings bank, as agent for itself and such other lending institutions. WHEREAS, the Borrower, Sovereign Bank, Liberty Bank, and Sovereign Bank, as agent for itself and Liberty Bank, are parties to that certain Loan and Security Agreement dated as of September 30, 1999, as amended to date (as amended, the "ORIGINAL AGREEMENT"), pursuant to which the Sovereign Bank and Liberty Bank have extended credit to the Borrower on the terms set forth therein; and WHEREAS, the Borrower, Sovereign Bank and Liberty Bank have agreed to enter into this Credit Agreement to amend and restate the Original Agreement in its entirety as set forth herein; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. DEFINITIONS AND RULES OF INTERPRETATION. 1.1. DEFINITIONS. The following terms shall have the meanings set forth in this Section 1 or elsewhere in the provisions of this Credit Agreement referred to below: Additional Available Amount. See Section 3.2(d). Additional Resort Collateral. Collectively, the development rights, the real property, the fixtures and the personal property, including all management agreements for the Eligible Projects, now or hereafter acquired by the Borrower, and described on EXHIBIT I attached hereto. For the avoidance of any doubt, "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc. that constitutes "Pledged Assets" under the DZ Bank Documents. Additional Resort Collateral Assignment. An agreement executed and delivered by the Borrower to the Agent or its collateral agent, for the benefit of the Banks, granting to the Agent or its collateral agent, for the benefit of the Banks, a first priority security interest in that portion of the Additional Resort Collateral constituting personal property. 2 Additional Resort Collateral Mortgages. The several mortgages and deeds of trust, in form and substance satisfactory to the Agent, dated as of the Closing Date, from the Borrower to the Agent or its collateral agent with respect to the fee interests of the Borrower in that portion of the Additional Resort Collateral consisting of real property and fixtures. Affiliate. Any Person that would be considered to be an affiliate of the Borrower under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Borrower were issuing securities. Agent. Sovereign Bank, acting as agent for the Banks, or any successor agent appointed in accordance with the terms hereof. Agent's Office. The Agent's office located at 15 Westminster Street, Providence, Rhode Island, 02903, or at such other location as the Agent may designate from time to time. Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be approved by the Agent. Assignment and Acceptance. See Section 17.1. Assignments of Development Rights. The assignments of development rights, in form and substance satisfactory to the Required Banks, dated as of the Closing Date, made by the Borrower in favor of the Agents, pursuant to which the Borrower assigns its development rights for each of the Eligible Projects. Assignment of Management Agreements. The assignment of management agreements, in form and substance satisfactory to the Required Banks, dated as of the Closing Date, made by the Borrower in favor of the Agent, assigning all of the Borrower's rights under the management agreements for the Eligible Projects. Association. With respect to each Eligible Project, the corporation or other organization of owners of Timeshare Interests which has responsibility for managing and administering the Eligible Project's facilities, time share program and reservation systems. Authorized Officer. An officer of the Borrower who has been duly authorized by Borrower to execute and deliver to the Banks Borrowing Base Certificates and other certificates, each, of whom is listed on EXHIBIT H attached hereto, as such exhibit may be amended by the Borrower from time to time. Available Cash on Hand. As of any date of determination, the sum of all Cash and Cash Equivalents held by the Borrower as of such date. Available Fund-Up Amount. See Section 3.2(c). 3 Banks. Sovereign and the other lending institutions listed on SCHEDULE 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to Section 17. Base Rate. The higher of (i) the variable annual rate of interest so designated from time to time by Sovereign as its "prime rate," such rate being a reference rate and not necessarily representing the lowest or best rate being charged to any customer and (ii) two and three-fourths of one percent (2.75%) above the Federal Funds Effective Rate; provided that, in the event that, the higher of clauses (i) and (ii) above is less than six percent (6%), then the "Base Rate" shall be six percent (6%). For the purposes of this definition, "FEDERAL FUNDS EFFECTIVE RATE" shall mean for any day, the rate per annum equal to 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, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected by the Agent. Changes in the Base Rate resulting from any changes in Sovereign's "prime rate" shall take place immediately without notice or demand of any kind. Bond Holder Exchange Documents. See Section 10.2.3. Bond Holder Exchange Term Sheet. See Section 10.2.3. Bond Holder Exchange Transaction. See Section 10.2.3. Borrower. As defined in the preamble hereto. Borrower's Account. See Section 7.18.1. Borrowing Base. At the relevant time of reference thereto, an amount determined by the Agent by reference to the most recent Borrowing Base Certificate delivered to the Banks and the Agent pursuant to Section 7.4(f), which is equal to the sum of seventy-five percent (75%) of the Eligible Consumer Loan Amount. Borrowing Base Certificate. A Borrowing Base Certificate signed by the chief financial officer of the Borrower and in substantially the form of EXHIBIT A hereto. Business Day. Any day on which banking institutions in Providence, Rhode Island and Middletown, Connecticut are open for the transaction of banking business. Business Plan. See Section 10.17. Capitalized Leases. Leases under which the Borrower or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. 4 Cash and Cash Equivalents. Unrestricted (i) cash, (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Rating Group or P-1 (or better) by Moody's Investor Service, Inc. provided that the maturities of such Cash and Cash Equivalents shall not exceed one year. CERCLA. See Section 6.20(a). Chase. See Section 10.19. Closing Date. The first date on which the conditions set forth in Section 10 have been satisfied and any Loans are to be made. Code. The Internal Revenue Code of 1986. Collateral. All of the property, rights and interests of the Borrower and its Subsidiaries that are or are intended to be subject to the security interests and mortgages created by the Security Documents, including, without limitation, the Consumer Loan Collateral, the Existing Mortgaged Properties, the Additional Resort Collateral, Silverleaf Finance I, Inc. Stock, the Ineligible Note Portfolio, the Standby Servicing Agreement, the Standby Management Agreement, and all collateral under the Textron Facility and the Heller Facility. Collateral Custodian. State Street Bank and Trust Company. Collateral Custodian Agreement. See Section 5.3. Commitment. With respect to each Bank, the aggregate amount of its Tranche A Commitment and Tranche B Commitment. Commitment Percentage. With respect to each Bank, its Tranche A Commitment Percentage and/or its Tranche B Commitment Percentage, as the context requires. Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Net Income. The consolidated net income of the Borrower and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges (but excluding any extraordinary profits or losses), determined in accordance with generally accepted accounting principles. 5 Consolidated Total Interest Expense. For any period, the aggregate amount of interest required to be paid or accrued by the Borrower and its Subsidiaries during such period on all Indebtedness of the Borrower and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any Capitalized Lease, or any synthetic lease referred to in clause (vi) of the definition of the term "Indebtedness," and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. consumer borrower. Each person (including two or more persons acting jointly and severally) who purchases a Timeshare Interest and finances such purchase with purchase money financing extended by the Borrower. Consumer Loan Collateral. All of the Borrower's right, title and interest in each consumer loan pledged by the Borrower to the Agent as Collateral, now existing or hereafter arising, (a) for which the original promissory note, comparable instrument or installment sales contract shall, at the time of determination, be in the possession of the Agent (including possession through an agent or bailee) or (b) which shall be identified by the Borrower as being pledged to the Agent pursuant to the Security Agreement as evidenced by a Borrowing Base Certificate or other means by which the promissory note, comparable instrument or installment sales contract may be identified to the grant of the security interest under the Security Agreement. Consumer Loan Cover Sheet. A document, on a form satisfactory to the Agent, prepared by the Borrower and executed by an Authorized Officer of the Borrower stating the outstanding principal amount of a consumer loan and certifying that (a) attached to such document are the Required Consumer Loan Documents for the consumer loan, (b) the Required Consumer Loan Documents are consistent as to consumer borrower name, property address, loan amount, interest rate and loan term, (c) the promissory note, comparable instrument or installment sales contract evidencing such loan bears an original signature or signatures of the maker or other obligor consistent with the name of the consumer borrower as submitted, (d) the promissory note, comparable instrument or installment sales contract does not contain any irregular writing which affects or appears to affect the validity thereof (but the promissory note, comparable instrument or installment sales contract may contain endorsements to the Borrower or the Agent or in blank), and (e) the loan has all of the characteristics of an Eligible Consumer Loan. The Borrower shall be entitled to deliver a Consumer Loan Cover Sheet relating to a single consumer loan or a Consumer Loan Cover Sheet or Sheets relating to multiple consumer loans. Credit Agreement. This Amended and Restated Revolving Credit Agreement, including the Schedules and Exhibits hereto. Crown Resorts Projects. The projects listed on EXHIBIT M. 6 Current Notes. See Section 10.2.3. Debtor Relief Laws. Any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar law, proceeding or device providing for the relief of debtors from time to time in effect and generally affecting the rights of creditors. Default. See Section 12.1. Delinquent Bank. See Section 14.5.3. Distribution. The declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock of the Borrower, directly or indirectly through a Subsidiary of the Borrower or otherwise; the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower. Dollars or $. Dollars in lawful currency of the United States of America. Drawdown Date. The date on which any Loan is made or is to be made. DZ Bank. DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main. DZ Bank Commitment Letter. See Section 10.2.4. DZ Bank Documents. The documents listed on SCHEDULE 1.1(c). DZ Bank Securitization. That certain note purchase facility to be provided by DZ Bank, as agent for Autobahn Funding Company LLC, to the Borrower, on the terms outlined in the DZ Bank Commitment Letter, and evidenced by the documents listed on SCHEDULE 1.1(c). Earnings Before Interest and Taxes. The consolidated earnings (or loss) from the operations of the Borrower and its Subsidiaries for any period (but excluding any extraordinary profits or losses), after all expenses and other proper charges but before payment or provision for any income taxes or interest expense for such period, determined in accordance with generally accepted accounting principles. EBITDA. With respect to the Borrower and its Subsidiaries for any period, (a) the sum of (i) Consolidated Net Income, (ii) Interest Expense, (iii) depreciation and amortization and other non-cash items properly deducted in determining Consolidated Net Income, and (iv) federal, state and local income taxes, in each case for such Person for such period, computed and calculated in accordance with generally accepted accounting principles, to the extent deducted in determining Consolidated Net Income minus (b) non-cash items properly added in determining Consolidated Net Income, in each case for the corresponding period. 7 Eligible Assignee. Any bank, insurance company, commercial finance company or other financial institution, or, if an Event of Default has occurred and is continuing, any other Person approved by the Required Banks, such approval not to be unreasonably withheld. Eligible Consumer Loan. A loan to a consumer borrower with all of the following characteristics: (1) Residence of the Consumer Borrower. The borrower shall be (a) a resident of the United States or Canada and (b) the owner of the collateral securing such loan. Any loan made to a resident of Canada shall not cause the outstanding principal amount of all of the Eligible Consumer Loans pledged as Collateral and made to residents of Canada to exceed 5% of the outstanding principal amount of all Eligible Consumer Loans pledged as Collateral. (2) Underwriting and Other Criteria. The loan shall have been made in accordance with the Borrower's general underwriting criteria as set forth in Section 7.11. For loans made after the Closing Date, the consumer borrower shall have a FICO Credit Bureau Score of at least 600; provided that up to an aggregate of fifteen percent (15%) of the outstanding principal amount of all Eligible Consumer Loans made after the Closing Date and pledged as Collateral hereunder may be made to consumer borrowers with FICO Credit Bureau Scores of less than 600 (both for each Loan and on a cumulative basis). From and after the date hereof, the consumer loan shall not cause the weighted average of the FICO Credit Bureau Scores of the consumer borrowers under Eligible Consumer Loans pledged as Collateral after the Closing Date to be less than 640. The consumer borrower shall be a member of the applicable Association. (3) Terms of the Loan. The loan shall have the following terms: (a) an original term not to exceed eighty-four (84) months; provided that loans made prior to the date hereof may have an original term that exceeds eighty-four (84) months so long as the term remaining after the date hereof does not exceed eight-four (84) months; and provided further, that up to twenty percent (20%) of the outstanding principal amount of all Eligible Consumer Loans pledged as Collateral may have an original term greater than eighty-four (84) months, but not greater than one hundred and twenty (120) months; (b) the principal amount of the loan shall equal not more than ninety percent (90%) of the sales price (not including closing costs, broker's commission, and prior to any discounts) of the Unit or Oak N' Spruce Beneficial Interest securing such loan, with the downpayment of the purchase being not less than ten percent (10%) of the sales price (not including closing costs, broker's commission, and prior to any discounts); (c) the loan shall be payable in equal monthly installments of principal and interest over the original term of the loan, with the first 8 installment due and payable not more than sixty (60) days from the date of the making of the loan; (d) the principal amount of the loan shall bear interest at an interest rate of not less than twelve and one-half of one percent (12.5%) per annum or, if the loan does not cause the outstanding principal amount of all Eligible Consumer Loans pledged as Collateral and bearing an interest rate of less than twelve and one-half of one percent (12.5%) per annum to exceed twenty percent (20%) of the outstanding principal amount of all Eligible Consumer Loans pledged as Collateral, the loan shall have an interest rate of not less than ten percent (10%) per annum; and (e) all principal, interest and other amounts payable in respect of the loan shall be payable in Dollars. (4) Collateral Securing the Loan. The collateral securing the loan shall be a Timeshare Interest in or an Oak N' Spruce Beneficial Interest in a Unit (a) acceptable to the Agent, (b) constructed in compliance with all applicable laws and regulations, served by utilities necessary for their intended use, furnished and ready for occupancy, (c) for which a valid certificate of occupancy or equivalent has been issued by appropriate Governmental Authorities or for which no certificate of occupancy or equivalent is required by appropriate Governmental Authorities, and (d) duly admitted to the provisions of the applicable Timeshare Instruments. (5) Borrower's Prior Perfected Security Interest in the Collateral Securing the Loan. The loan shall be secured by a valid perfected first priority mortgage or deed of trust on the Timeshare Interest or an Oak N' Spruce Beneficial Interest, subject (in the case of the Unit or, for an Oak N' Spruce Beneficial Interest, in the case of the beneficial interest or related Unit) only to (a) liens for taxes not yet due and payable and (b) other easements, restrictions and encumbrances acceptable to the Agent, which do not represent liens securing monies owed or claimed and which do not materially affect the value of the collateral for such loan. Any prior mortgages or deeds of trust or security interests on the Timeshare Interest shall have been released of record, and the loan or any rights thereto shall not be affected by or subject to any escrow for presales or otherwise. (6) Agent's Prior Perfected Security Interest in the Loan. If pledged to the Agent as Collateral, the Agent shall have a valid, perfected, first priority security interest in the loan and all supporting obligations, liens and related rights, free and clear of any liens or claims of any other Person. (7) Required Consumer Loan Documents. The Borrower shall have delivered the Required Consumer Loan Documents at the time when the loan is or was pledged as Collateral. All of the Required Consumer Loan Documents shall be the legal, valid and binding obligations of the consumer borrower, in full force and effect and enforceable in accordance with their terms, with no claim of defense, setoff or counterclaim asserted by the consumer borrower. 9 (8) Regulatory Compliance. The loan shall comply in all respects with all requirements of all applicable state and federal law, including, without limitation, state laws and regulations governing sales of timeshares, applicable usury limitations, real estate settlement procedures, the Securities Act of 1933, the Securities Exchange Act of 1934, the Interstate Land Sales Full Disclosure Act, the Federal Trade Commission Act, the Consumer Credit Protection Act of 1968, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing Act, the Consumer Leasing Act of 1976, the Equal Credit Opportunity Act, the Truth in Lending Act, the Flood Disaster Prevention Act of 1973, the applicable Timeshare Act, and Regulation Z of the Board of Governors of the Federal Reserve System. All applicable rescission or cancellation periods relating to the loan shall have expired. (9) Payments not Overdue. Payments on the loan shall have been timely made within the following limitations: (a) No payments on the loan shall be more than (i) twenty-nine (29) days late as of the first date such loan is included in the calculation of the Eligible Consumer Loan Amount or (ii) sixty (60) days late at any time thereafter and no other defaults shall have occurred with respect to such loan and the documents related thereto, or (b) If defaults shall have occurred, (i) the consumer borrower shall have entered into a payment plan accepted by the Borrower, (ii) the first payment under such payment plan shall have been timely made and no other payments under the payment plan shall be more than twenty-nine (29) days late and no other defaults shall have occurred with respect to such loan since the payment plan, (iii) there shall have been no more than two (2) revised payment plans during the term of the loan, and (iv) the payment plan for any loan shall not have been modified more than once in the twelve (12) months prior to date such loan is pledged to the Agent. (10) Consumer not an Affiliate of the Borrower. The consumer borrower or any guarantor or other surety is not, and no payment of a sum due under the loan has been made by, an officer, director, agent, employee, principal, broker, or creditor (or relative thereof) of the Borrower or an Affiliate of the Borrower. (11) No Violation of Environmental or Other Law. The Borrower has no knowledge or notice of any of the following conditions existing in connection with the collateral securing such loan: hazardous wastes or Hazardous Substances prohibited by applicable law or regulation, asbestos or urea formaldehyde insulation, or any release of any of the foregoing prohibited by any Environmental Laws or any applicable law or regulation. (12) No Downgrade Replacement. The loan shall not be replacing an Eligible Consumer Loan and financing the purchase of a Timeshare Interest which constitutes a downgrade by the consumer borrower to a less expensive Timeshare Interest. 10 (13) No Upgrade Replacement from Another Lender. The loan shall not be replacing a loan pledged as collateral to another lender and financing the purchase of a Timeshare Interest which constitutes an upgrade by the consumer borrower to a more expensive Timeshare Interest, other than such loans that had previously been pledged to Heller, Credit Suisse First Boston and DZ Bank and that do not have a modified payment plan in effect. (14) Other Upgrade Replacements. If the loan is a newly originated Eligible Consumer Loan which is replacing an existing Eligible Consumer Loan pledged as Collateral under the Security Agreement and the proceeds have been used to finance the purchase of a Timeshare Interest which is being upgraded by the consumer borrower to a more expensive Timeshare Interest: (a) the principal balance of the existing Eligible Consumer Loan which is being upgraded may still be included for purposes of calculating the Borrowing Base for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Consumer Loan becomes thirty (30) or more days past due; (b) on or before the second business day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Consumer Loan and in any event within ten (10) days of such upgrade, the Borrower shall deliver to the Agent or its designee the original of the new promissory note, comparable instrument or installment sale contract executed in connection with such upgrade duly endorsed in blank by the Borrower and the Borrower will cause all payments made with respect to such new promissory note, comparable instrument or installment sale contract to be forwarded to the Lock Box; (c) any new upgraded consumer loan involving a prior Eligible Consumer Loan shall only be included as part of the Borrowing Base if the prior Eligible Consumer Loan has been removed from the Borrowing Base and the new upgraded consumer loan satisfies all conditions for an Eligible Consumer Loan; and (d) an amount equal to the sum of (i) the principal balance of all existing Eligible Consumer Loans being upgraded which are included within subclause (a) of this clause (14) minus (ii) the principal balance of all upgraded loans for which promissory notes have been delivered to the Agent or its designee and payments thereunder are being made to the Lock Box in accordance with subclause (b) of this clause (14), if positive, shall be deducted from the Eligible Consumer Loan Amount when calculating the Borrowing Base as an adjustment for all such upgraded consumer loans. (15) No Other Modifications. Except as otherwise expressly contemplated by this definition of the term "Eligible Consumer Loan," the terms of the loan have not have been modified without the prior written consent of the Required Banks. 11 (16) Other Requirements. Such other characteristics as the Agent may require from time to time, in its reasonable discretion, including, without limitation, the establishment of any reserves to reflect any events, contingencies, conditions, or risks which do or may adversely affect any Eligible Consumer Loans pledged as the Collateral, the Agent's or any Bank's rights therein or the value of such Collateral. In addition, the Agent reserves the right to incorporate the general underwriting criteria set forth in Section 7.11 into the definition of "Eligible Consumer Loans" effective as of, or any time after, the Closing Date. Eligible Consumer Loan Amount. The sum of (a) the aggregate principal amount outstanding from time to time of all Eligible Consumer Loans pledged to the Agent as Collateral less (b) the amount by which the aggregate principal amount of Eligible Consumer Loans in respect of the Oak N' Spruce Resort pledged to the Agent exceeds twenty percent (20%) of the aggregate principal amount outstanding of all Eligible Consumer Loans pledged to the Agent, less (c) the amount by which the aggregate principal amount of Eligible Consumer Loans for which a modified payment plan has been implemented (in accordance with clause (b) of paragraph (9) of the definition of "Eligible Consumer Loan") exceeds (i) from the Closing Date to the first anniversary of the Closing Date, fifteen percent (15%) of the aggregate principal amount outstanding of all Eligible Consumers Loans pledged to the Agent, (ii) from the first anniversary of the Closing Date to the second anniversary of the Closing Date, seven and one-half percent (7 1/2%) of the aggregate principal amount outstanding of all Eligible Consumer Loans pledged to the Agent, (iii) from and after the second anniversary of the Closing Date to the third anniversary of the Closing Date, six percent (6%) of the aggregate principal amount outstanding of all Eligible Consumer Loans pledged to the Agent, and (iv) from and after the third anniversary of the Closing Date, five percent (5%) of the aggregate principal amount outstanding of all Eligible Consumer Loans pledged to the Agent.. Eligible Projects. Those timeshare resorts owned by the Borrower listed on EXHIBIT E attached hereto, as such EXHIBIT E may be amended from time to time by the Borrower and all of the Banks in accordance with Section 5.6. For the avoidance of any doubt, none of the Crown Resort Projects is an "Eligible Project". Employee Benefit Plan. Any employee benefit plan within the meaning of Section 3(3) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan. Environmental Indemnity. The Amended and Restated Environmental Indemnity dated as of the date hereof made by the Borrower in favor of the Agent and the Banks and in form and substance satisfactory to the Banks and the Agent. Environmental Laws. See Section 6.20(a). EPA. See Section 6.20(b). ERISA. The Employee Retirement Income Security Act of 1974. 12 ERISA Affiliate. Any Person which is treated as a single employer with the Borrower under Section 414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the regulations promulgated thereunder. Event of Default. See Section 12.1. Existing Mortgaged Property. The Real Estate of the Borrower described on EXHIBIT F attached hereto. Existing Mortgages. The several mortgages and deeds of trust from the Borrower to the Agent with respect to the fee interests of the Borrower in the Existing Mortgaged Property. Existing Mortgage Amendments. The amendment and restatements of the Existing Mortgages, in form and substance satisfactory to the Agent. FICO Credit Bureau Score. A credit risk score determined by the Fair Isaac Company for a consumer borrower through the analysis of individual credit files in order to predict the likelihood of repayment based on sample statistics. Forbearance Agreement. The Forbearance Agreement, dated April 18, 2001, among the Borrower, the Agent and the Lenders, as amended. generally accepted accounting principles. (i) When used in Section 9, whether directly or indirectly through reference to a capitalized term used therein, means (A) prior to the Banks' receipt and approval of the financial statements of the Borrower for the fiscal year ended on December 31, 2001, (1) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the period ended on September 30, 2001, and (2) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the period ended on September 30, 2001, and (B) following the Banks' receipt and approval of the financial statements of the Borrower for the fiscal year ended on December 31, 2001, (1) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on December 31, 2001, and (2) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the fiscal year ended on December 31, 2001 and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (B) consistently applied with past financial statements of the Borrower adopting the same principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a 13 qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Governmental Authorities. The United States of America, the state where the Eligible Project is located and any political subdivision thereof, the county of and city or town where the Eligible Project is located, and any agency, authority, department, commission, board, bureau, or instrumentality of any of them. Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Hazardous Substances. See Section 6.20(b). Heller. Heller Financial Corporation, a Delaware corporation. Heller Documents. The documents listed on SCHEDULE 1.1(a). Heller Facility. Those certain credit facilities provided by Heller to the Borrower pursuant to the documents listed on SCHEDULE 1.1(a). Indebtedness. As to any Person and whether recourse is secured by or is otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication: (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), (v) every obligation of such Person under any Capitalized Lease, (vi) every obligation of such Person under any lease (a "SYNTHETIC LEASE") treated as an operating lease under generally accepted accounting principles and as a loan or financing for U.S. income tax purposes, (vii) all sales by such Person of (A) accounts or general intangibles for money due or to become due, (B) chattel paper, instruments or documents creating 14 or evidencing a right to payment of money or (C) other receivables (collectively "RECEIVABLES"), whether pursuant to a purchase facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted receivables for collection and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (viii) every obligation of such Person (an "EQUITY RELATED PURCHASE OBLIGATION") to purchase, redeem, retire or otherwise acquire for value any shares of capital stock of any class issued by such Person, any warrants, options or other rights to acquire any such shares, or any rights measured by the value of such shares, warrants, options or other rights, (ix) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other, indices (a "DERIVATIVE CONTRACT"), (x) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law, (xi) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (i) through (x) (the "PRIMARY OBLIGATION") of another Person (the "PRIMARY OBLIGOR"), in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (A) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (B) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (C) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation. The "amount" or "principal amount" of any Indebtedness at any time of determination represented by (u) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (v) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (w) any synthetic lease shall be the stipulated loss value, termination value or other equivalent amount, (x) any derivative contract shall be the maximum amount of any termination or loss 15 payment required to be paid by such Person if such derivative contract were, at the time of determination, to be terminated by reason of any event of default or early termination event thereunder, whether or not such event of default or early termination event has in fact occurred and (y) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price. Indenture. The Indenture dated as of April 1, 1998 among the Borrower, the Subsidiaries of the Borrower, as guarantors, and Norwest Bank Minnesota, N.A., as trustee. Ineligible Note Portfolio. All of the right, title and interest of the Borrower in certain loans made by it to consumer borrowers secured by a mortgage or deed of trust on a Timeshare Interest or an Oak N' Spruce Beneficial Interest listed on EXHIBIT N, which are not currently pledged to any other Person and which shall be held by the Borrower, as agent for and on behalf of the Banks, Textron and Heller, in accordance with the terms of the Intercreditor Agreement, until an Event of Default shall occur. Ineligible Securities. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. Initial Lockbox Agreement. Lockbox Agreement dated as of September 30, 1999 among the Agent, the Borrower, and Chase. Intercreditor Agreement. See Section 10.2.2. Interest Expense. With respect to any Person for any period, the interest expense of such Person during such period determined in accordance with generally accepted accounting principles, and shall in any event include, without limitation, (i) the amortization of debt discounts, (ii) the amortization of all fees payable in connection with the incurrence of Indebtedness to the extent included in interest expense, (iii) the portion of any obligations in respect of Capitalized Leases allocable to interest expense, (iv) all fixed and all calculable dividend payments on preferred stock, and (v) payments of interest expense in kind. Investments. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (i) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (ii) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (iii) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, 16 repayment, liquidating dividend or liquidating distribution); (iv) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (ii) may be deducted when paid; and (v) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Loan Documents. This Credit Agreement, the Notes, the Security Documents, the Environmental Indemnity, the Intercreditor Agreement, the Standby Servicing Agreement, the Collateral Custodial Agreement, the Servicing Agreement, and such other agreements, documents, instruments and certificates evidencing the obligations or effectuating the transactions contemplated herein. Loan Request. See Section 2.5. Loan Year. The period from the Closing Date to the first anniversary of the Closing Date and each twelve (12) calendar month period thereafter. Loans. Loans made or to be made by the Banks to the Borrower pursuant to Section 2.1. Lockbox Agreement. The Replacement Lockbox Agreement and, to the extent still in effect in accordance with Section 5.2, the Initial Lockbox Agreement. Management Agreement. (1) With respect to the following Eligible Projects: Holly Lake Resort, Piney Shores Resort, The Villages (including Lake O' The Woods), Hill County Resort, Seaside Resort, Ozark Mountain Resort, Holiday Hills Resort, Timber Creek Resort, Fox River Resort, Oak N' Spruce Resort, Apple Mountain Resort and Beech Mountain Resort, that certain Management Agreement by and between Silverleaf Club (f/k/a Master Club, f/k/a Master Endless Escape Club) and Borrower dated May 28, 1990, as amended through Eighth Amendment dated March 9, 1999, as such agreement may be amended from time to time, and (2) with respect to the following resorts managed by the Borrower: Alpine Bay (including Capricorn Complex, Dogwood Hills and The Pines), Hickory Hills Resort, Quail Hollow Village at Beech Mountain Lakes, Treasure Lake Resort (including Silverwoods and Wolf Run Manor), Foxwood Hills Resort (including Kinston Manor and Villas at Foxwood Hills), Tansi Resort (including Hiawatha Manor, Hiawatha Manor I, and Hiawatha Manor West) and Westwind Manor Resort, each of the management agreements between the Association for the resort and the developer of the resort in each case, assigned to the Borrower pursuant to a Bill of Sale and Blanket Assignment dated May 28, 1998. Marketing Expenses. All promotion, lead generation, sales commission and all other marketing expenses incurred or paid by the Borrower pursuant to any marketing agreement or otherwise. Monthly Financial Reports. The reports delivered or to be delivered by the Borrower to the Banks pursuant to clauses (j), (k), (l), and (m) of Section 7.4. 17 Mortgaged Property. Collectively, the Existing Mortgaged Property and the Additional Resort Collateral consisting of real property and fixtures. Mortgages. Collectively, the Existing Mortgages and the Additional Resort Collateral Mortgages. Multiemployer Plan. Any multiemployer plan within the meaning of Section 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate. Net Cash Proceeds. With respect to any sale or other disposition of any of the Existing Mortgaged Properties or Additional Resort Collateral, as the case may be, the cash proceeds received by the Borrower from such sale or other disposition, net of all reasonable costs of sale and property transfer or sales taxes paid or payable as a result thereof by the Borrower. Net Securitization Cash Flow. Silverleaf Finance I, Inc.'s right, title and interest in any excess cash flow derived from the consumer loans sold by the Borrower to Silverleaf Finance I, Inc. and then sold by Silverleaf Finance I, Inc. to DZ Bank pursuant to the DZ Bank Documents. New Notes. See Section 10.2.3. Notes. Collectively, the Tranche A Notes and the Tranche B Notes. Note Record. A Record with respect to a Note. Notices to Maker. See clause (6) of the definition of "Required Consumer Loan Documents". Oak N' Spruce Resort. The Borrower's project in Lee, Massachusetts. Oak N' Spruce Beneficial Interest. The use rights and interests of a purchaser under a Certificate as defined in the Oak N' Spruce Resort Declaration of Trust. Oak N' Spruce Resort Declaration of Trust. That certain Amended and Restated Declaration of Trust of Oak N' Spruce Resort dated January 6, 1998, and recorded in Book 1587, Page 179, in the Berkshire Middle District Registry of Deeds, as amended by Amendment to the Amended and Restated Declaration of Oak N Spruce Resort Trust dated July 9, 1998 and recorded with the Berkshire Middle District Registry of Deeds in Book 1612, Page 588, by Second Amendment to the Amended and Restated Declaration of Trust of Oak N' Spruce Resort Trust dated November 13, 1998 and recorded with the Berkshire Middle District Registry of Deeds in Book 1631, Page 831 and by Third Amendment to the Amended and Restated Declaration of Oak N' Spruce Resort Trust dated April 15, 1999 and recorded with the Berkshire Middle District Registry of Deeds in Book 1658, Page 506. 18 Obligations. All indebtedness, obligations and liabilities of any of the Borrower and its Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents or in respect of any of the Loans or any of the Notes or other instruments at any time evidencing any thereof. Operating Contracts. See Section 6.31. Operating Expenses. All expenditures, computed in accordance with generally accepted accounting principles, of whatever kind relating to the ownership, operation, maintenance and management of the Eligible Projects that are incurred on a regular monthly or other periodic basis, including, without limitation, utilities, ordinary and capital repairs and maintenance, insurance premiums, license fees, property taxes and assessments, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by the Required Banks, and other similar costs. Original Agreement. See the recitals hereto. outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of ERISA and any successor entity or entities having similar responsibilities. Perfection Certificate. The Perfection Certificate as defined in the Security Agreement. Permitted Liens. Liens, security interests and other encumbrances permitted by Section 8.2. Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Project Title Policy. See Section 7.7. RCRA. See Section 6.20(a). Real Estate. All real property at any time owned or leased (as lessee or sublessee) by the Borrower or any of its Subsidiaries, including, without limitation, the real property where each of the Eligible Projects and the Additional Resort Collateral is located and the Existing Mortgaged Property. 19 Record. The grid attached to a Note, or the continuation of such grid, or any other similar record, including computer records, maintained by any Bank with respect to any Loan referred to in such Note. Reference Period. Any period of four (4) consecutive fiscal quarters of the Borrower and its Subsidiaries ending on the relevant date. Register. See Section 17.3. Replacement Lockbox Agreement. See Section 5.2. Required Banks. As of any date, (a) if there are only two (2) Banks, then both Banks (with a Bank and its Affiliates being considered one Bank for purposes of this clause (a)) and (b) if there are more than two (2) Banks, then both (i) the Banks holding at least seventy-five percent (75%) of the then outstanding principal balance of the Loans on such date, and if no such principal is outstanding, the Banks whose aggregate Commitments constitute at least seventy-five percent (75%) of the Total Commitment and (ii) if Sovereign or Liberty Bank then holds at least $5,000,000 in principal amount of the outstanding Loans or Commitments, each such Bank. Required Consumer Loan Documents. With respect to each loan included within Consumer Loan Collateral and the Eligible Consumer Loan Amount, the Consumer Loan Cover Sheet relating to such loan, together with the following: (1) Promissory Note or Other Evidence of Indebtedness. The original promissory note, comparable instrument or installment sale contract signed by the consumer borrower and payable to the Borrower or endorsed by the consumer borrower to the order of the Borrower, and endorsed in blank by an Authorized Officer of the Borrower, and the original of any and all guaranties and other credit enhancement documents supporting or securing payment of the consumer borrower's obligations; (2) Mortgage or other Security Agreement. Either: (a) the original or copy time-stamped by the appropriate recording office of the recorded mortgage or deed of trust securing the promissory note, comparable instrument or installment sale contract, and an original or copy time-stamped by the appropriate recording office of all amendments and assignments of such mortgage or deed of trust showing an unbroken chain of title from the originator to the Borrower, or (b) in the case of a loan secured by an assignment of an Oak N' Spruce Beneficial Interest (i) an original or copy time-stamped by the appropriate recording office of an assignment of beneficial interest securing the promissory note, comparable instrument or installment sale contract and an original or copy time-stamped by the appropriate recording office of all amendments and assignments of such assignment of beneficial interest showing an unbroken chain of title 20 from the originator to the Borrower and (ii) evidence satisfactory to the Agent of the perfection of the Borrower's security interest in the Oak N' Spruce Beneficial Interest, including, without limitation, a copy of a UCC financing statement filed by the Borrower against the consumer borrower in the appropriate jurisdiction and recording office; (3) Assignment to the Agent. Either: (a) an original or copy time-stamped by the appropriate recording office of the recorded assignment to the Agent of the mortgage or deed of trust referred to in clause (2) above, or (b) in the case of a loan secured by an assignment of an Oak N' Spruce Beneficial Interest (i) an original or copy time-stamped by the appropriate recording office of an assignment to the Agent of the assignment of beneficial interest referred to in clause (2) above and (ii) evidence satisfactory to the Agent of the perfection of the Agent's security interest in the assignment of beneficial interest; (4) Evidence of Regulatory Compliance. An original credit application and right of rescission notices, if applicable, credit report, purchase contract containing truth in lending disclosure statement, good faith estimate of settlement costs (if any), and HUD-1 settlement statement, receipt for timeshare documents, privacy act notice, servicing disclosure statement and acknowledgement of representations; (5) Evidence of Consumer Borrower Ownership. Either: (a) a copy of deed to the consumer borrower with evidence of recording in the appropriate recording office, or (b) in the case of a loan secured by an assignment of an Oak N' Spruce Beneficial Interest, a certificate of beneficial interest in favor of the consumer borrower with evidence of recording in the appropriate recording office; (6) Payment Notices. (a) A copy of the notice to consumer borrower that payments shall be made to the Lock Box Agent and (b) an original notice, in form and substance satisfactory to the Agent, to the consumer borrower signed by payee of the note directing that payments be made directly to the Agent or its designee ("NOTICES TO MAKER"); (7) Evidence of Authority of Organization. If the consumer borrower or any guarantor or other surety shall be an organization, all resolutions and authorizations to evidence authority to enter into the transaction and that the transaction has been duly authorized; 21 (8) Releases of Prior Interests. If requested by the Agent in connection with each such loan which has at any time been subject to any security interest, pledge or hypothecation for the benefit of any Person, a certification or release by the former secured party in form acceptable to the Agent that such security interest has been released; and (9) Other Documents. Other documents required by the Agent from time to time. Requirements. Any law, ordinance, code, order, rule or regulation of any Governmental Authority relating in any way to the acquisition and ownership of any Eligible Project, the construction of any Eligible Project, or the use, occupancy or operation of the Eligible Project following the completion of construction, including, without limitation, the Timeshare Act, and laws, ordinances, rules or regulations relating to timeshares, subdivision control, zoning, building, use and occupancy, fire prevention, health, safety, sanitation, handicapped access, historic preservation and protection, tidelands, wetlands, flood control, access and earth removal, and all Environmental Laws. SARA. See Section 6.20(a). Section 20 Subsidiary. A Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Security Agreement. The Amended and Restated Security Agreement dated as of the Closing Date between the Borrower and the Agent and in form and substance satisfactory to the Banks and the Agent. Security Documents. The Security Agreement, the Existing Mortgage Amendments, the Additional Resort Collateral Mortgages, the Assignments of Development Rights, the Lock Box Agreement, the Standby Management Agreement Assignment, the Assignment of Management Agreements, the Stock Pledge Agreement, the estoppel letters identified in Section 10.6 and all other instruments and documents required to be executed or delivered pursuant to any Security Document. Senior Lender Advance Schedule. See Section 10.17. Servicer. See Section 5.4. Servicing Agreement. See Section 5.4. Silverleaf Club. Silverleaf Club, a Texas non-profit corporation, a master association to which each Association belongs. Silverleaf Finance I, Inc. Stock. All issued and outstanding shares of capital stock of Silverleaf Finance I, Inc., a Delaware corporation, all certificates, instruments or other documents evidencing or representing the same and all 22 dividends and distributions therefrom, including dividends and distributions paid in stock. Sovereign. Sovereign Bank, a federally chartered savings bank, in its individual capacity. Standby Management Agreement Assignment. The assignment, in form and substance satisfactory to the Required Banks, among the Borrower, the Standby Manager, and the Agent, pursuant to which the Borrower assigns all of its rights under the Standby Management Agreement to the Agent. Standby Management Agreement. The agreement, in form and substance satisfactory to the Required Banks, to be dated on or prior to the Closing Date between the Standby Manager and the Borrower pursuant to which the Standby Manager shall (1) monitor the operations of the Borrower and the Silverleaf Club and the Borrower's compliance with the Business Plan, (2) assist the Borrower with the preparation of the reports deliverable to the Banks by the Borrower pursuant to this Agreement, and (3) assume the management of the Eligible Projects upon the occurrence of an Event of Default in accordance with the terms of this Agreement. Standby Manager. The Person selected by the Borrower and acceptable to the Required Banks, in their sole discretion, to act as standby manager in accordance with the Standby Management Agreement. Subject to their review and approval of the Standby Management Agreement, in their sole discretion, the Required Banks hereby approve J&J Limited, Inc. as the initial Standby Manager. Standby Servicer. The Person selected by the Required Banks to act as standby servicer in accordance with the Standby Servicing Agreement. The current Standby Servicer is Concord Servicing Corporation. Standby Servicing Agreement. The Backup Servicing Agreement, dated as of May 9, 2001, among the Borrower, Concord Servicing Corporation, and the Agent, as amended by the First Amendment to Backup Servicing Agreement, in form and substance satisfactory to the Required Banks, dated on or prior to the Closing Date, among the Borrower, Concord Servicing Corporation, pursuant to which agreement, as amended, the Standby Servicer shall provide servicing functions with respect to the Consumer Loan Collateral and the Ineligible Note Portfolio upon the occurrence of an Event of Default. Stock Pledge Agreement. The stock pledge agreement, in form and substance satisfactory to the Required Banks, dated the Closing Date, made by the Borrower in favor of the Agent or its collateral agent, for the benefit of the Banks and the Agent, pledging the Silverleaf Finance I, Inc. Stock. Subordinated Debt. The New Notes and any other unsecured Indebtedness of the Borrower or any of its Subsidiaries that is expressly subordinated and made junior to the payment and performance in full of the Obligations, and evidenced as such by a subordination agreement or by another written instrument containing 23 subordination provisions in form and substance approved by the Required Banks in writing. Subsidiary. Any corporation, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Survey. In relation to each Mortgaged Property, an instrument survey of such Mortgaged Property, which shall show the location of all buildings, structures, easements and utility lines on such Mortgaged Property, shall be sufficient to remove the survey exception from the Title Policy, shall show that all buildings and structures are within the lot lines of such Mortgaged Property, shall not show any encroachments by others, shall show the zoning district or districts in which such Mortgaged Property is located, shall show any flood hazard district as established by the Federal Emergency Management Agency or any successor agency or equivalent of any other Governmental Authority and shall show whether such Mortgaged Property is located in any flood plain, flood hazard or wetland protection district established by any Governmental Authority. Surveyor Certificate. In relation to each Mortgaged Property for which a Survey has been conducted, a certificate executed by the surveyor who prepared such Survey dated as of a recent date and containing such information relating to such Mortgaged Property as the Agent or the applicable title insurance company may require, such certificate to be satisfactory to the Agent in form and substance. Tangible Net Worth. With respect to any Person, the amount calculated in accordance with generally accepted accounting principles as (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated Indebtedness of such Person and its consolidated subsidiaries the terms and conditions of which are reasonably satisfactory to the Required Banks, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent applications, licenses and rights in any of the foregoing and other items treated as intangibles in accordance with generally accepted accounting principles. Tax Refund. That certain corporate tax refund of the Borrower for the 1998 and 1999 tax years in the estimated amount of $5,000,000. Textron. Textron Financial Corporation, a Delaware corporation. Textron Documents. The documents listed on SCHEDULE 1.1(b). Textron Facility. Those certain credit facilities provided by Textron and certain other lenders to the Borrower pursuant to the documents listed on SCHEDULE 1.1(b). 24 Timeshare Act. With respect to each Eligible Project, the statutes and regulations related to timeshare development and sales in the jurisdiction where such Eligible Project is located. Timeshare Instruments. With respect to each Eligible Project, the documents pursuant to which the Eligible Project shall be submitted to a timeshare form of ownership and registered with appropriate Governmental Authorities. Timeshare Interest. (a) As defined in the Timeshare Instruments for each Eligible Project, consisting of an undivided interest in a Unit at the Eligible Project as tenant-in-common, together with the right to make use of any and all easements appurtenant thereto, the non-exclusive right to use the common areas and amenities, and the exclusive right to use and occupy any Unit and the common furnishings therein for a use period for which such rights to use have been properly reserved or (b) with respect to Oak N' Spruce Resort, an Oak N' Spruce Beneficial Interest. Title Policy. In relation to each Mortgaged Property, an ALTA standard form title insurance policy issued by a title insurance company, acceptable to the Agent (with such reinsurance or co-insurance as the Agent may require, any such reinsurance to be with direct access endorsements) in such amount as may be determined by the Agent insuring the priority of the Mortgage of such Mortgaged Property and that the Borrower or one of its Subsidiaries holds fee simple title to such Mortgaged Property, subject only to the encumbrances permitted by the applicable Mortgage and which shall not contain exceptions for mechanics liens, persons in occupancy or matters which would be shown by a survey (except as may be permitted by the applicable Mortgage), shall not insure over any matter except to the extent that any such affirmative insurance is acceptable to the Agent in its sole discretion, and shall contain such endorsements and affirmative insurance as the Agent in its discretion may require, including but not limited to (i) comprehensive endorsement, (ii) variable rate of interest endorsement, (iii) usury endorsement, (iv) revolving credit endorsement, (v) tie-in endorsement, (vi) doing business endorsement and (vii) ALTA form 3.1 zoning endorsement. Total Commitment. The sum of the Commitments of the Banks, as in effect from time to time. Tranche A Banks. Sovereign and the other lending institutions listed on SCHEDULE 1 hereto under the heading "Tranche A Banks" and any Person who becomes an assignee of any rights and obligations of a Tranche A Bank pursuant to Section 17. Tranche A Commitment. With respect to each Tranche A Bank, the amount set forth on SCHEDULE 1 hereto as the amount of such Tranche A Bank's commitment to make Tranche A Loans, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. 25 Tranche A Commitment Percentage. With respect to each Tranche A Bank, the percentage set forth in SCHEDULE 1 hereto as such Tranche A Bank's percentage of the aggregate Tranche A Commitments of all of the Tranche A Banks. Tranche A Conversion Date. The earlier of (a) March 31, 2004 and (b) two (2) years from the Closing Date, as the same may be extended with the consent of all of the Tranche A Banks as set forth in Section 3.2(a). Tranche A Loans. Loans made or to be made by the Tranche A Banks to the Borrower pursuant to Section 2.1(a). Tranche A Maturity Date. The earliest of (a) March 30, 2007, (b) five (5) years from the Closing Date or (c) the weighted average maturity date of the Eligible Consumer Loans pledged as Collateral as of the Tranche A Conversion Date, as determined by the Agent in its reasonable discretion. Tranche A Notes. See Section 2.3. Tranche A Total Commitment. The sum of the Tranche A Commitments of the Tranche A Banks, as in effect from time to time, which shall not exceed the sum of $48,000,000 minus the Tranche B Total Commitment, as determined on the Closing Date. Tranche B Banks. Sovereign and the other lending institutions listed on SCHEDULE 1 hereto under the heading "Tranche B Banks" and any Person who becomes an assignee of any rights and obligations of a Tranche B Bank pursuant to Section 17. Tranche B Commitment. With respect to each Tranche B Bank, the amount set forth on SCHEDULE 1 hereto as the amount of such Tranche B Bank's commitment to make Tranche B Loans to the Borrower, as the same shall be reduced in accordance with Section 2.2 hereof and may otherwise be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. Tranche B Commitment Percentage. With respect to each Tranche B Bank, the percentage set forth on SCHEDULE 1 hereto as such Tranche B Bank's percentage of the aggregate Tranche B Commitments of all of the Tranche B Banks. Tranche B Loans. Loans made or to be made by the Tranche B Banks to the Borrower pursuant to Section 2.1(b). Tranche B Maturity Date. The earlier of (a) March 30, 2007 and (b) five (5) years from the Closing Date. Tranche B Notes. See Section 2.3. Tranche B Total Commitment. The sum of the Tranche B Commitments of the Tranche B Banks, as in effect from time to time, which shall not exceed $11,500,000 (or such lesser amount determined on the Closing Date). 26 Unit. Each of the units at one of the Eligible. Projects designated for timeshare interval ownership in the respective Timeshare Instruments. Voting Stock. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. Weekly Flash Reports. See Section 7.4(o). 1.2. RULES OF INTERPRETATION. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "Section " refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof', "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. (j) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." 27 (k) This Credit Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are, however, cumulative and are to be performed in accordance with the terms thereof. (l) This Credit Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Agent and the Borrower and are the product of discussions and negotiations among all parties. Accordingly, this Credit Agreement and the other Loan Documents are not intended to be construed against the Agent or any of the Banks merely on account of the Agent's or any Bank's involvement in the preparation of such documents. 2. THE REVOLVING CREDIT FACILITY. 2.1. COMMITMENT TO LEND. (a) Tranche A Commitment. Subject to the terms and conditions set forth in this Credit Agreement, each of the Tranche A Banks severally agrees to lend to the Borrower, and the Borrower may borrow, repay, and reborrow from time to time from the Closing Date up to but not including the Tranche A Conversion Date, upon notice by the Borrower to the Agent given in accordance with Section 2.5, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Tranche A Commitment then in effect, provided that (i) the sum of the outstanding Tranche A Loans (after giving effect to all amounts requested) shall not at any time exceed the lesser of (A) the Tranche A Total Commitment then in effect and (B) the Borrowing Base and (ii) the sum of the outstanding Tranche A Loans and the outstanding Tranche B Loans (after giving effect to all amounts requested) shall not at any time exceed ninety-five percent (95%) of the Eligible Consumer Loan Amount. Notwithstanding anything herein to the contrary, the Borrower acknowledges, confirms and agrees that it shall not be entitled to receive, nor shall any Bank be required to make, any Tranche A Loan if and to the extent that: (i) the Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by the Required Banks in their sole and absolute discretion; or (ii) the most recent Weekly Flash Report delivered to the Banks in accordance with Section 7.4(n), indicates that the Borrower has in excess of five million dollars ($5,000,000) in Available Cash on Hand. The Tranche A Loans shall be made pro rata in accordance with each Bank's Tranche A Commitment Percentage. Each request for a Tranche A Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Section 10 and Section 11, in the case of the initial Tranche A Loan to be made on the Closing Date, and Section 11, in the case of all other Tranche A Loans, have been satisfied on the date of such request. (b) Tranche B Commitment. Subject to the terms and conditions set forth in this Credit Agreement, each of the Tranche B Banks severally agrees to lend to the Borrower, and the Borrower may borrow, repay, and reborrow from time to time 28 (except as otherwise provided below) from the Closing Date up to but not including the Tranche B Maturity Date, upon notice by the Borrower to the Agent given in accordance with Section 2.5, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Tranche B Commitment then in effect, provided that (i) the sum of the outstanding amount of the Tranche B Loans (after giving effect to all amounts requested) shall not at any time exceed the Tranche B Total Commitment then in effect and (ii) the sum of the outstanding Tranche A Loans and the outstanding Tranche B Loans (after giving effect to all amounts requested) shall not at any time exceed ninety-five percent (95%) of the Eligible Consumer Loan Amount. Notwithstanding anything herein to the contrary, the Borrower acknowledges, confirms and agrees that it shall not be entitled to receive, nor shall any Bank be required to make, any Tranche B Loan if and to the extent that: (i) the Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by the Required Banks in their sole and absolute discretion; or (ii) the most recent Weekly Flash Report delivered to the Banks in accordance with Section 7.4(n), indicates that the Borrower has in excess of five million dollars ($5,000,000) in Available Cash on Hand. Other than the initial Tranche B Loans to be made on the Closing Date, the Borrower may not borrow or reborrow any Tranche B Loans prior to the repayment in full of all of the Tranche A Loans and the cancellation, or permanent reduction to zero, of the Tranche A Total Commitment. Notwithstanding anything to the contrary set forth herein, the Borrower may not reborrow any Tranche B Loans made by Liberty Bank or its successors and assigns. The Tranche B Loans shall be made pro rata in accordance with each Bank's Tranche B Commitment Percentage. Each request for a Tranche B Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Section 10 and Section 11, in the case of the initial Tranche B Loan to be made on the Closing Date, and Section 11, in the case of all other Tranche B Loans, have been satisfied on the date of such request. (c) Business Plan. Notwithstanding anything herein to the contrary, the obligation of each Bank to make any Loan under this Agreement shall be subject to and conditioned upon both Heller and the lenders under the Textron Facility each making advances to the Borrower substantially in accordance with the Business Plan, including the Senior Lender Advance Schedule, which the Agent agrees will be determined on a quarterly basis commencing with the quarter beginning on April 1, 2002. The Banks shall have no obligation to make any Loan hereunder to the extent that either the lenders under the Textron Facility or Heller terminates its respective facility or fails to make advances to the Borrower as provided in the Business Plan, including the Senior Lender Advance Schedule, which the Agent agrees will be determined on a quarterly basis commencing with the quarter beginning on April 1, 2002. (d) General. The Borrower acknowledges, agrees and confirms that the effectiveness of this Credit Agreement is subject to the satisfaction of the conditions set forth in Section 10 and Section 11 on or before May 31, 2002. Until such time as the Banks determine that the conditions set forth in Section 10 and Section 11 have been satisfied, all of the Borrower's rights shall be governed by and construed in accordance with the terms and 29 conditions of the Original Agreement, as modified by the Forbearance Agreement. If the conditions set forth in Section 10 and Section 11 are not satisfied on or before May 31, 2002, then this Agreement, and the respective rights and obligations of the parties hereto, shall be null and void AB INITIO and of no further force and effect and the respective rights and obligations of the Borrower, the Agent and the Banks shall be governed by the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement. (e) Suspension of Loans. If any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction shall be issued limiting or otherwise materially adversely affecting any Timeshare Interest sales activities, other business operations in respect of the Eligible Projects, or the enforcement of the remedies of the Agent and the Banks hereunder or under the Security Documents, then, in such event, the Agent and the Banks shall have no obligation to make any Loans hereunder: (i) in respect of Eligible Consumer Loans from the sale of Timeshare Interests which are the subject of any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction until the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been lifted or released to the satisfaction of the Required Banks and (ii) in respect of consumer loans from the sale of Timeshare Interests at any Eligible Project if: (x) the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction in question has not been lifted or released to the satisfaction of the Required Banks within sixty (60) days of its issuance and (y) there is a reduction in the total number of sales of Timeshare Interests by the Borrower in any Loan Year of more than twenty percent (20%) from the total number of sales of Timeshare Interests in the immediately preceding Loan Year. (f) Change in Control. If there shall occur a change, singly or in the aggregate, of more than fifty percent (50%) of the executive management of the Borrower as described in SCHEDULE 2.1(f), the Banks shall have no obligation to make any Loans hereunder, unless within thirty (30) days prior thereto the Borrower provides the Banks with written information setting forth the replacement executive management personnel of the Borrower together with a description of those Persons' experience, ability and reputation, and the Required Banks, acting in good faith, determine that the replacement management personnel's experience, ability and reputation is equal to or greater than that of the Borrower as set forth on SCHEDULE 2.1(f). Notwithstanding the foregoing, the makeup of the Borrower's Board of Directors may be altered in accordance with the Bond Holder Exchange Documents, provided that no more than two (2) of the five (5) positions shall be controlled by the holders of the New Notes. (g) Failure to Adhere to Business Plan/Default or Event of Default. The Agent and the Banks shall not be obligated to fund any Loan hereunder if: (i) the Borrower shall fail to substantially adhere to the Business Plan (including the Senior Lender Advance Schedule) as determined by the Required Banks in their sole and absolute discretion or (ii) a Default or Event of Default shall have occurred and be continuing. 30 2.2. MANDATORY AUTOMATIC REDUCTION OF TRANCHE B TOTAL COMMITMENT. The Tranche B Total Commitment shall be reduced automatically on a monthly basis as of the first day of each calendar month based on a twenty (20) year amortization schedule to an amount equal to or less than the amount set forth on SCHEDULE 2.2. Upon each such reduction, the Tranche B Commitments of each of the Tranche B Banks shall be reduced pro rata in accordance with its Tranche A Commitment Percentage and the Borrower shall make any prepayments required by Section 3.2(b) hereof. No reduction of the Tranche B Commitments may be reinstated. 2.3. THE NOTES. The Tranche A Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of EXHIBIT B hereto (each a "TRANCHE A NOTE"). The Tranche B Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of EXHIBIT C hereto (each a "TRANCHE B Note"). Each of the Tranche A Notes and the Tranche B Notes shall be dated as of the Closing Date and completed with appropriate insertions. One Tranche A Note shall be payable to the order of each Tranche A Bank in a principal amount equal to such Bank's Tranche A Commitment or, if less, the outstanding amount of all Tranche A Loans made by such Bank, plus interest accrued thereon, as set forth below. One Tranche B Note shall be payable to the order of each Tranche B Bank in a principal amount equal to such Bank's Tranche B Commitment or, if less, the outstanding amount of all Tranche B Loans made by such Tranche B Bank, plus interest accrued thereon, as set forth below. The Borrower irrevocably authorizes each Bank to make or cause to be made, at or about the time of the Drawdown Date of any Loan or at the time of receipt of any payment of principal on such Bank's Note, an appropriate notation on such Bank's Note Record reflecting the making of such Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Loans set forth on such Bank's Note record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Note Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Note to make payments of principal of or interest on any Note when due. 2.4. INTEREST ON LOANS. Except as otherwise provided in Section 4.7, (a) each Tranche A Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the date such Loan is repaid at a rate per annum equal to the Base Rate and (b) each Tranche B Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the date such Loan is repaid at the rate of eight percent (8%) per annum. The Borrower promises to pay interest on each Loan monthly in arrears on the first day of each calendar month for the prior calendar month. 2.5. REQUESTS FOR LOANS. The Borrower shall give to the Agent written notice in the form of EXHIBIT D hereto (or telephonic notice confirmed in a writing in the form of EXHIBIT D hereto) of each Loan requested hereunder (a "LOAN REQUEST") no less than two (2) Business Days prior to the proposed Drawdown Date of any Loan. Each such notice shall specify (i) the principal amount of the Tranche A Loan or Tranche B Loan requested and (ii) the proposed Drawdown Date 31 of such Loan. Each Loan Request for a Tranche A Loan shall be accompanied by a Borrowing Base Certificate. With each Loan Request for a Tranche A Loan, the Borrower shall deliver to the Agent the Required Consumer Loan Documents for the Eligible Consumer Loans to be pledged by the Borrower to the Agent and upon which such Loan Request is based so that the Borrowing Base shall exceed the outstanding amount of all Tranche A Loans (including the Tranche A Loans included in such Loan Request). By submitting a Loan Request, the Borrower shall be deemed to represent and warrant that (i) with respect to a Loan Request for a Tranche A Loan, the information in the most recent Borrowing Base Certificate remains true and accurate as of the date of such Loan Request, (ii) the proceeds of such Loan shall be used by the Borrower in accordance with Section 6.19.1 and the Business Plan, and (iii) that after giving effect to the requested advance, the outstanding principal amount of the Tranche A Loans will not exceed the lesser of the Tranche A Total Commitment and the Borrowing Base and the outstanding principal amount of the Tranche B Loans will not exceed the Tranche B Total Commitment. Promptly upon receipt of any such notice, the Agent shall notify each of the Tranche A Banks and/or Tranche B Banks, as applicable, thereof. Each such notice shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Loan(s) requested from the Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $100,000 or an integral multiple thereof. The Borrower shall not submit more frequently than once a calendar week a Loan Request for a Tranche A Loan. 2.6. FUNDS FOR LOANS. 2.6.1. FUNDING PROCEDURES. Subject to the terms and conditions set forth herein (including receipt by each Bank of a Loan Request within the time period specified in Section 2.5), not later than 1:00 p.m. (Providence, Rhode Island time) on the proposed Drawdown Date of any Loans, each of the Tranche A Banks and/or Tranche B Banks, as applicable, will make available to the Agent, at the Agent's Office, in immediately available funds, the amount of such Bank's Tranche A Commitment Percentage and/or Tranche B Commitment Percentage, as applicable, of the amount of the requested Loans. Upon receipt from each such Bank of such amount, and upon receipt of the documents required by Sections 10 and 11 and the satisfaction of the other conditions set forth herein, to the extent applicable, the Agent will make available to the Borrower the aggregate amount of such Loans made available to the Agent by the Banks. The failure or refusal of any Bank to make available to the Agent at the aforesaid time and place on any Drawdown Date the amount of its applicable Commitment Percentage of the requested Loans shall not relieve any other Bank from its several obligation hereunder to make available to the Agent the amount of such other Bank's applicable Commitment Percentage of any requested Loans. 2.6.2. ADVANCES BY AGENT. The Agent may, unless notified to the contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's applicable Commitment Percentage of the Loans to be made on such 32 Drawdown Date, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (ii) the amount of such Bank's applicable Commitment Percentage of such Loans, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date (or such later date which is two Business Days after such Bank received the Loan Request for such Loan) to the date on which the amount of such Bank's applicable Commitment Percentage of such Loans shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Bank with respect to any amounts owing under this paragraph shall be prima facie evidence of the amount due and owing to the Agent by such Bank. If the amount of such Bank's applicable Commitment Percentage of such Loans is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Loans made on such Drawdown Date. 2.7. CHANGE IN BORROWING BASE; INELIGIBLE CONSUMER LOANS. (a) The Borrowing Base shall be determined weekly (or at such other intervals as may be specified pursuant to Section 7.4(f)) by the Agent by reference to the Borrowing Base Certificate delivered to the Banks and the Agent pursuant to Section 7.4(f) and other information obtained by or provided to the Agent or any of the Banks. The Agent shall give to the Borrower written notice of any change in the Borrowing Base determined by the Required Banks. In the case of any change in the general criteria for Eligible Consumer Loans, such notice shall be effective upon its receipt by the Borrower. Prior to the time that such notice becomes effective, the Borrowing Base shall be computed as it would have been computed in the absence of such notice. (b) If any consumer loan pledged as Consumer Loan Collateral shall subsequent to the pledge under the Security Agreement no longer qualify as an Eligible Consumer Loan, such consumer loan shall be excluded from the Borrowing Base, and the Borrower (i) shall replace such consumer loan with an Eligible Consumer Loan that provides the same amount of credit to the Borrowing Base, (ii) shall reduce the amount of outstanding Tranche A Loans (if necessary) so that the total amount of Tranche A Loans outstanding shall not exceed the Borrowing Base, or (iii) if the Borrower is unable to replace such consumer loan with an Eligible Consumer Loan or reduce the Tranche A Loan, and the Required Banks give their prior written consent, may replace such consumer loan with a consumer loan that does not satisfy the criteria for being classified as an Eligible Consumer Loan. In the event that any Eligible Consumer Loan becomes available thereafter, the Borrower shall promptly substitute such Eligible Consumer Loan for the ineligible consumer loan pledged to the Agent. 33 2.8. REPAYMENTS OF LOANS PRIOR TO EVENT OF DEFAULT. 2.8.1. CREDIT FOR FUNDS RECEIVED IN BORROWER'S ACCOUNT. Prior to the occurrence of an Event of Default as to which the account officers of the Agent active upon the Borrower's account have actual knowledge, (i) all funds and cash proceeds in the form of money, checks and like items received in the Borrower's Account as contemplated by Section 7.18 shall be credited, on the same Business Day on which the Agent determines that good collected funds have been received, and, prior to the receipt of good collected funds, may, in the Agent's discretion, be credited on a provisional basis until final receipt of good collected funds, and applied as contemplated by Section 2.8.2, (ii) all funds and cash proceeds in the form of a wire transfer received in the Borrower's Account as contemplated by Section 7.18 shall be credited on the same Business Day as the Agent's receipt of such amounts (or up to such later date as the Agent determines that good collected funds have been received), and applied as contemplated by Section 2.8.2, and (iii) all funds and cash proceeds in the form of an automated clearing house transfer received in the Borrower's Account as contemplated by Section 7.18 shall be credited, on the next Business Day following the Agent's receipt of such amounts (or up to such later date as the Agent determines that good collected funds have been received), and applied as contemplated by Section 2.8.2. For purposes of the foregoing provisions of this Section 2.8.1, the Agent shall not be deemed to have received any such funds or cash proceeds on any day unless received by the Agent before 2:30 p.m. (Providence, Rhode Island time) on such day. The Borrower further acknowledges and agrees that any such provisional credits or credits in respect of wire or automatic clearing house funds transfers shall be subject to reversal if final collection in good funds of the related item is not received by, or final settlement of the funds transfer is not made in favor of, the Agent in accordance with the Agent's customary procedures and practices for collecting provisional items or receiving settlement of funds transfers. 2.8.2. APPLICATION OF PAYMENTS PRIOR TO EVENT OF DEFAULT. (a) Prior to the occurrence of an Event of Default of which the account officers of the Agent active on the Borrower's account have knowledge, and except as otherwise provided in Section 2.8.2(b) and (c), all funds transferred to the Borrower's Account and for which the Borrower has received credits shall be applied to the Obligations once each calendar week as follows: (i) first, to pay the fees, expenses, costs, and any past due amounts (other than principal and interest on any Loans) due and payable by the Borrower to the Agent or any Bank; (ii) second, to pay interest then due and payable on the Tranche A Loans, interest then due and payable on the Tranche B Loans, and any other Obligations then due and payable (other than the principal of the Loans); 34 (iii) third, to make any unpaid principal payments due with respect to the Tranche B Loans under Section 2.2; (iv) fourth, to reduce the principal of the Tranche A Loans; (v) fifth, to reduce the principal of the Tranche B Loans pro rata based upon the respective Tranche A Commitment Percentages of the Banks; and (vi) sixth, to reduce any remaining principal of the Tranche B Loans. (b) Prior to the occurrence of an Event of Default of which the account officers of the Agent active on the Borrower's account have knowledge, any funds in the Borrower's Account constituting (1) the Net Cash Proceeds of the sale or other disposition of any of the Additional Resort Collateral or (2) insurance proceeds in respect of damaged or destroyed Additional Resort Collateral that are not applied to repair or replacement in accordance with Section 7.7, proceeds of title insurance and condemnation proceeds respect to any of the Additional Resort Collateral shall be applied to the Obligations as follows: (i) first, to pay the fees, expenses, costs and any past due amounts (other than principal and interest on any Loans) due and payable by the Borrower to the Agent or any Bank; (ii) second, to pay interest then due and payable on the Tranche A Loans, interest then due and payable on the Tranche B Loans, and any other Obligations then due and payable (other than the principal of the Loans); (iii) third, to reduce the principal of the Tranche B Loans pro rata based upon the respective Tranche A Commitment Percentages of the Banks; (iv) fourth, to reduce any remaining principal of the Tranche B Loans; and (v) fifth, to reduce the principal of the Tranche A Loans. (c) Prior to the occurrence of an Event of Default of which the account officers of the Agent active on the Borrower's account have knowledge, any funds in the Borrower's Account constituting (1) the Net Cash Proceeds of the sale or other disposition of any of the Existing Mortgaged Properties or (2) insurance proceeds in respect of damaged or destroyed Existing Mortgaged Property that are not applied to repair or replacement in accordance with Section 7.7, proceeds of title insurance and condemnation proceeds respect to any of the Existing Mortgaged Properties shall be applied to the Obligations as follows: 35 (i) first, to pay the fees, expenses, and any past due amounts (other than principal and interest on any Loans) due and payable by the Borrower to Sovereign; (ii) second, to pay interest then due and payable on the Tranche B Loans of Sovereign, interest then due and payable on the Tranche A Loans of Sovereign, and any other Obligations then due and payable to Sovereign (other than the principal of the Loans); (iii) third, to reduce the principal of the Tranche B Loans of Sovereign; (iv) fourth, to reduce the principal of the Tranche A Loans of Sovereign; (v) fifth, to pay interest then due and payable on the Tranche B Loans of the Tranche B Banks (other than Sovereign), interest then due and payable on the Tranche A Loans of the Tranche A Banks (other than Sovereign), and any other Obligations then due and payable (other than the principal of the Loans) to the Banks (other than Sovereign); and (vi) sixth, to reduce the principal of the Tranche B Loans of the Tranche B Banks (other than Sovereign) and then to reduce the principal of the Tranche A Loans of the Tranche A Banks (other than Sovereign). (d) Except as otherwise provided in Section 2.8.2(a), (b), or (c), all prepayments of the Loans pursuant to this Section 2.8.2 shall be allocated among the Banks making such Loans, in proportion, as nearly as practicable, to the respective unpaid principal amount of such Loans outstanding, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. 2.9. REPAYMENTS OF LOANS AFTER EVENT OF DEFAULT. Following the occurrence and during the continuance of an Event of Default of which the account officers of the Agent active on the Borrower's account have knowledge, all funds transferred to the Borrower's Account and for which the Borrower has received credits shall be applied to the Obligations in accordance with Section 12.5. 3. REPAYMENT OF THE LOANS. 3.1. MATURITY. (a) Tranche A Maturity Date. The Borrower promises to pay on the Tranche A Maturity Date, and there shall become absolutely due and payable on the Tranche A Maturity Date, all of the Tranche A Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 36 (b) Tranche B Maturity Date. The Borrower promises to pay on the Tranche B Maturity Date, and there shall become absolutely due and payable on the Tranche B Maturity Date, all of the Tranche B Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 3.2. MANDATORY REPAYMENTS OF LOANS. (a) Scheduled Payments of Tranche A Loans. Not later than December 31, 2004, the Borrower may request in writing to the Agent and the Tranche A Banks that the Tranche A Conversion Date be extended. If the Agent and each of the Tranche A Banks, in their sole discretion, consent to such request, the Tranche A Conversion Date shall be extended for such period as determined by the Agent and the Tranche A Banks. Effective upon the occurrence of the Tranche A Conversion Date, the Tranche A Commitments shall terminate and the Borrower shall pay the outstanding principal amount of the Tranche A Loans by applying thereto the proceeds from the Consumer Loan Collateral in accordance with Sections 2.8 and 2.9, with a final payment on the Tranche A Maturity Date in an amount equal to the unpaid balance of the Tranche A Loans. Notwithstanding anything herein to the contrary, the Borrower agrees that on and after the Tranche A Conversion Date, the outstanding principal balance of the Tranche A Loans shall be reduced in substantial accordance with the Business Plan. Absent a Default or an Event of Default, following the Tranche A Conversion Date, all payments of principal and interest on the Consumer Loan Collateral shall continue to be paid to the Agent for the pro rata benefit of the Banks and the Agent, and the Agent shall apply such payments as set forth in Section 2.8.2(a) to satisfy the Borrower's obligations under this Section 3.2(a). (b) Overadvances. If at any time the sum of the outstanding amount of the Tranche A Loans exceeds the Tranche A Total Commitment then in effect, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Tranche A Loans. In the event that the aggregate outstanding Tranche A Loans at any time exceed the Borrowing Base or the outstanding Tranche A Loans and Tranche B Loans exceed 95% of the Eligible Consumer Loan Amount, the Borrower (i) shall pay the amount of such excess to the Agent for application to the outstanding Tranche A Loans, (ii) shall pledge sufficient Eligible Consumer Loans to increase the Borrowing Base to equal or exceed the outstanding principal amount of the Tranche A Loans, or (iii) if the Borrower is unable to pay such excess or pledge additional Eligible Consumer Loans, and the Required Banks give their prior written consent, may deliver to the Agent consumer loans that do not satisfy the criteria for being classified as Eligible Consumer Loans. If at any time the sum of the outstanding amount of the Tranche B Loans exceeds the Tranche B Total Commitment then in effect, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Tranche B Loans. (c) Mandatory Tranche B Fund Up Prepayment. If and to the extent that: (i) at the end of each calendar quarter during the first two (2) years following the Closing Date, commencing with the quarter beginning on April 1, 2002 (x) the outstanding principal balance of all Tranche A Loans is less than seventy percent 37 (70%) of the then Eligible Consumer Loan Amount (such difference being hereinafter referred to as an "AVAILABLE FUND-UP Amount") and (y) provided the Borrower has Available Cash on Hand of five million dollars ($5,000,000) or more as indicated in the most recent Weekly Flash Report or (ii) at the end of the calendar quarter commencing April 1, 2004, if the Tranche A Conversion Date has not yet occurred, (x) the outstanding principal balance of all Tranche A Loans is less than seventy-five percent (75%) of the then Eligible Consumer Loan Amount (such difference also being referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided the Borrower has Available Cash on Hand of five million dollars ($5,000,000) or more as indicated in the most recent Weekly Flash Report, then the Borrower agrees that the Agent may, on the last Business Day of each such calendar quarter, make a Tranche A Loan in an amount equal to such Available Fund Up Amount and apply such Tranche A Loan to the repayment of the outstanding Tranche B Loans as follows: (i) first, to pay interest then due and payable on the Tranche B Loans and the Tranche A Loans and (ii) second, to reduce the principal of the Tranche B Loans pro rata based on the respective Tranche A Commitment Percentages of the Banks until such time as the Tranche B Loans are paid in full. Any such reduction of the Tranche B Loans shall permanently reduce the Tranche B Commitments by a corresponding amount. (d) Further Quarterly Payments. If, at the end of any calendar quarter commencing the quarter beginning on April 1, 2002, the Borrower has Available Cash on Hand exceeding five million dollars ($5,000,000), as indicated in the most recent Weekly Flash Report (the "ADDITIONAL AVAILABLE AMOUNT"), then the Borrower agrees to repay the Loans in an amount equal to such Additional Available Amount and such amount will be applied as follows: (i) first, to pay interest then due and payable on the Tranche B Loans and the Tranche A Loans, (iii) second, to reduce the principal of the Tranche B Loans pro rata based upon the respective Tranche A Commitment Percentages of the Banks until such time as the Tranche B Loans are paid in full, and (iii) third, to reduce the principal of the Tranche A Loans. Any such reduction of the Tranche B Loans shall permanently reduce the Tranche B Commitments by a corresponding amount. 3.3. OPTIONAL REPAYMENTS OF LOANS. The Borrower shall have the right, at its election, to repay the outstanding amount of the Loans, as a whole or in part, at any time without penalty or premium. The Borrower shall give the Agent, no later than 10:00 a.m., Providence, Rhode Island time, at least three (3) Business Days prior written notice, of any proposed repayment pursuant to this Section 3.3 of Loans, specifying the proposed date of payment of Loans and the principal amount to be paid. Each such partial prepayment of the Loans shall be in an integral multiple of $100,000, shall be accompanied by the payment of accrued interest on the principal repaid to the date of payment and shall be applied first to the outstanding Tranche B Loans and, after the outstanding Tranche B Loans have been repaid in full, then to the outstanding Tranche A Loans. No Tranche B Loans so repaid may be reborrowed. Each partial prepayment shall be allocated among the applicable Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Tranche A Note or Tranche B Note, as applicable, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. 38 4. CERTAIN GENERAL PROVISIONS. 4.1. FUNDS FOR PAYMENTS. 4.1.1. PAYMENTS TO AGENT. All payments of principal, interest, and any other amounts due hereunder or under any of the other Loan Documents shall be made on the due date thereof to the Agent in Dollars, for the respective accounts of the applicable Banks and the Agent, at the Agent's Office or at such other place that the Agent may from time to time designate, in each case at or about 11:00 a.m. (Providence, Rhode Island, time or other local time at the place of payment) and in immediately available funds. 4.1.2. NO OFFSET, ETC. All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without recoupment, setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Agent, for the account of the applicable Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the applicable Banks or the Agent to receive the same net amount which such Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 4.2. COMPUTATIONS. All computations of interest on the Loans shall be based on a 360-day year and paid for the actual number of days elapsed. Whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Note Records from time to time shall be considered correct and binding on the Borrower unless within five (5) Business Days after receipt of any notice by the Agent or any of the Banks of such outstanding amount, the Agent or such Bank shall notify the Borrower to the contrary. 4.3. ADDITIONAL COSTS, ETC. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to 39 time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such Bank's Tranche A Commitment or Tranche B Commitment or any of the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of any Bank, or (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, any of the Loans, such Bank's Tranche A Commitment or Tranche B Commitment, or any class of loans or commitments of which any of the Loans or such Bank's Tranche A Commitment or Tranche B Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Tranche A Commitment or Tranche B Commitment, or (ii) to reduce the amount of principal, interest, or other amount payable to such Bank or the Agent hereunder on account of such Bank's Tranche A Commitment or Tranche B Commitment or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts 40 as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or other sum. 4.4. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction, or (ii) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the Agent for the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Bank or (as the case may be) the Agent of a certificate in accordance with Section 4.5 hereof. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.5. CERTIFICATE. A certificate setting forth any additional amounts payable pursuant to Sections 4.3 or 4.4 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. 4.6. INDEMNITY. The Borrower agrees to indemnify each Bank and to hold each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Bank may sustain or incur as a consequence of default by the Borrower in making a borrowing after the Borrower has given (or is deemed to have given) a Loan Request. 4.7. INTEREST AFTER DEFAULT. 4.7.1. OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Tranche A Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to four percent (4%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). Overdue principal and (to the extent permitted by applicable law) interest on the Tranche B Loans shall bear interest compounded monthly and payable on demand at a rate per annum equal to four percent (4%) above the interest 41 rate applicable to the Tranche B Loans pursuant to Section 2.4 until such amounts shall be paid in full (after as well as before judgment). 4.7.2. AMOUNTS NOT OVERDUE. During the continuance of a Default or an Event of Default, the principal of the Loans not overdue shall, until such Default or Event of Default has been cured or remedied or such Default or Event of Default has been waived by the Required Banks pursuant to Section 24, bear interest at a rate per annum equal to four percent (4%) above the rate of interest otherwise applicable to such Loans pursuant to Section 2.4. Any installment or payment due hereunder which shall be received by the Agent more than ten (10) days after its due date shall be subject to an additional charge of five percent (5%) per annum on the amount so overdue (but in not event higher than the maximum allowed by applicable law). 5. SECURITY; SERVICING AGREEMENT; LOCK BOX AGREEMENT AND COLLATERAL CUSTODIAN AGREEMENT. 5.1. COLLATERAL. Pursuant to the Security Documents, the Obligations shall be secured by a perfected security interest in the Collateral with the priority set forth in the applicable Security Documents (subject only to Permitted Liens entitled to priority under applicable law). 5.2. LOCK BOX AGREEMENT. Pursuant to the Initial Lockbox Agreement, Chase shall receive in the lock box identified therein all payments on loans constituting Consumer Loan Collateral and other consumer loans pledged to the Agent (other than the Ineligible Note Portfolio) in the ordinary course of business. By June 30, 2002, the Borrower and the Agent shall have entered into a replacement lockbox agreement, in form and substance satisfactory to the Required Banks (the "REPLACEMENT LOCKBOX AGREEMENT"), pursuant to which Sovereign shall replace Chase as the lock box agent. By September 30, 2002, the Borrower shall have delivered to each of the consumer borrowers of an Eligible Consumer Loan included in the calculation of the Eligible Consumer Loan Amount as of such date a notice, in form and substance satisfactory to the Agent, instructing such consumer borrower to remit payments in respect of its Eligible Consumer Loan directly to the Lock Box with Sovereign. Following such replacement, the Initial Lockbox Agreement shall remain in effect for a transitional period satisfactory to the Required Banks. Chase or Sovereign, to the extent then the effective lockbox agent, shall deposit to the Borrower's Account all payments collected with respect to the Consumer Loan Collateral and other consumer loans pledged to the Agent (other than the Ineligible Note Portfolio) on each Business Day. All amounts deposited by Chase or, in its capacity solely as the lockbox agent, Sovereign in the Borrower's Account shall be applied by the Agent on a weekly basis as provided in Section 2.8 or Section 2.9, as the case may be. 5.3. COLLATERAL CUSTODIAL. Pursuant to the Custodial Agreement, dated as of August 11, 2002, as amended by the First Amendment to Custodial Agreement date on or prior to the date hereof, among the Agent, the Borrower and the Collateral Custodian (as so amended, the "COLLATERAL CUSTODIAL AGREEMENT"), the 42 Collateral Custodian shall hold, as collateral agent for the Agent, all of the Consumer Loan Collateral (including the Required Consumer Loan Documents). 5.4. SERVICING AGREEMENT. Pursuant to the Amended and Restated Servicing Agreement, of even date herewith (the "SERVICING AGREEMENT") among the Borrower, the Agent and the Borrower, as servicer (the "SERVICER"), the Servicer shall service and administer loans constituting Consumer Loan Collateral in the ordinary course of business. The Servicer shall administer all amounts due to the Borrower with respect to the Consumer Loan Collateral and shall direct payment to the Lock Box of all amounts to be collected with respect to the Consumer Loan Collateral. All amounts directed by the Servicer to the Lock Box shall be transferred to the Borrower's Account as set forth in Section 5.2 and applied by the Agent as set forth in Section 2.8 or Section 2.9, as the case may be. The Servicer shall provide to the Agent such reports and perform such other functions as the Agent shall require. Following an Event of Default or for other good cause, the Agent shall be entitled to establish a substitute servicing arrangement with a servicer acceptable to the Required Banks at any time. 5.5. COLLATERAL PROCEDURES. The Borrower shall deliver to the Agent the Required Consumer Loan Documents from time to time to such locations and in such manner acceptable to the Agent as the Agent shall reasonably determine. The Borrower shall take any actions required by the Agent to obtain the release of any lien or security interest in favor of any party other than the Agent in any Consumer Loan Collateral. The Borrower shall pay to the Agent all custodial costs incurred, as determined by the Agent. With the prior consent of the Agent in each instance, in its sole discretion, the Borrower shall be entitled to effect delivery to the Agent by delivery to the Collateral Custodian or a successor custodian approved by the Agent. All consumer loans delivered by the Borrower to the Agent or the Collateral Custodian shall be accompanied by the Required Consumer Loan Documents, and the Borrower shall be deemed to represent and warrant in connection with all such loans delivered to the Agent or the Collateral Custodian that the certifications required to be included in the Consumer Loan Cover Sheet are true even if no such cover sheet shall be delivered by the Borrower. The Borrower shall promptly deliver to the Agent or the Collateral Custodian any additional documents related to any Consumer Loan Collateral which the Borrower acquires after delivery to the Agent or the Collateral Custodian of the Required Consumer Loan Documents. 5.6. ELIGIBLE PROJECTS. (a) Proposed Additional Projects. The Borrower may propose additional projects to be included as Eligible Projects. The Agent shall conduct such review of such projects as the Agent shall deem appropriate, including, without limitation, review of all timeshare instruments, consumer loan documents, real estate documents, amenities agreements, management contracts, marketing contracts, and other documentation related to such project. The Agent, with the consent of all of the Banks, shall be entitled to approve or not approve such proposed project as an Eligible Project. 43 (b) Acceptance of Additional Projects. Upon the approval by all of the Banks of a proposed project as an Eligible Project, EXHIBIT E shall be deemed amended to include such project and the Agent shall circulate a revised EXHIBIT E containing such additional projects to the Banks. The Borrower shall take such other action as the Banks shall require in connection with such project, including, without limitation, the subordination of any applicable management and marketing fees, the delivery of an opinion from local counsel in the jurisdiction where such project is located, or any other action as the Agent shall require. Upon the inclusion of an additional project as an Eligible Project, all representations, warranties and covenants of the Borrower with regard to the Eligible Projects in the Loan Documents shall be deemed amended to refer to the additional Eligible Project. 5.7. SECURITY INTERESTS IN ALL CONSUMER LOAN COLLATERAL AND OTHER CONSUMER LOANS. The Agent shall have a first-priority perfected security interest in the Consumer Loan Collateral and a second-priority security interest in any loans pledged by the Borrower to Heller or Textron and included in Heller's or Textron's borrowing bases, perfected to the extent set forth in the Intercreditor Agreement. Notwithstanding that the Banks are obligated, subject to the conditions of the Loan Documents, to make Tranche A Loans only in respect of Eligible Consumer Loans pledged to the Agent from and after the Closing Date, the Agent, for the benefit of the Banks, shall have a continuing security interest in all of the Consumer Loan Collateral, all consumer loans constituting part of the Ineligible Note Portfolio and any consumer loans pledged to Heller or Textron and the Agent may, on behalf of the Banks, collect all payments made under or in respect of all such Consumer Loan Collateral, including, without limitation, Eligible Consumer Loans that are or may become ineligible, until any of the same may be released by Agent, if at all, pursuant to Section 8.1 or the Security Agreement. The Agent shall have a security interest in the Ineligible Note Portfolio perfected by the filing of Uniform Commercial Code financing statements in accordance with the terms of the Intercreditor Agreement. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur, the Borrower, as agent for and on behalf of the Agent, Heller and Textron, will retain possession of and collect all payments under or in respect of all consumer loans in the Ineligible Note Portfolio, subject to the terms of the Intercreditor Agreement. By executing this Agreement, the Borrower acknowledges and agrees that it is holding the consumer loans constituting the Ineligible Note Portfolio as bailee and agent for the Agent. The Borrower shall hold and designate such consumer loans and the mortgages or deeds of trust related thereto in a manner that clearly indicates that they are being held by the Borrower as bailee on behalf of the Agent. Upon the occurrence of an Event of Default, the Borrower shall promptly deliver to Textron, as agent for the Banks, Heller and itself, pursuant to the terms of the Intercreditor Agreement, all original consumer loans comprising the Ineligible Note Portfolio, and the related mortgages and deeds of trust. Upon the occurrence of an Event of Default, Textron, in such capacity as agent, shall have the right to collect all proceeds therefrom for application in accordance with the terms of the Intercreditor Agreement. The Borrower further acknowledges and agrees that upon repayment in full of the Heller Facility or the Textron Facility, the Agent's security interest in the collateral securing such facilities shall automatically become a first priority security interest for the Obligations and the Borrower shall take such 44 steps as the Agent may request to deliver such collateral to the Agent and to confirm the Agent's first priority security interest therein. 5.8. RELEASE OF CERTAIN COLLATERAL. Upon the Borrower's repayment in full of all Obligations under and in respect of the Tranche B Loans, the Agent shall release its security interest in and mortgage on the Existing Mortgaged Property, the Additional Resort Collateral, and the Silverleaf Finance I, Inc. Stock; provided that (i) no Default or Event of Default shall exist and (ii) Heller and Textron shall be releasing simultaneously their interest, if any, in such Collateral. 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Banks and the Agent as follows: 6.1. CORPORATE AUTHORITY. 6.1.1. INCORPORATION; GOOD STANDING. Each of the Borrower and its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas (in the case of the Borrower) or its state of incorporation (in the case of its Subsidiaries), (ii) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary. The Borrower's tax identification number is 75-2259890. 6.1.2. AUTHORIZATION. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate authority of such Person, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower or any of its Subsidiaries and (iv) do not conflict with any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, the Borrower or any of its Subsidiaries. 6.1.3. ENFORCEABILITY. The execution and delivery of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of 45 specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 6.2. APPROVALS. The execution, delivery and performance by the Borrower or any of its Subsidiaries of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority, any shareholders, directors, bondholders, or any other Person, other than those already obtained. 6.3. ASSOCIATIONS. Each Association is a corporation or unincorporated association duly organized, validly existing and in good standing under the laws of the jurisdiction where the respective Eligible Project is located. Each Association at the following Eligible Projects is a member of the Silverleaf Club: Holly Lake Resort, Piney Shores Resort, The Villages (including Lake O' The Woods), Hill Country Resort, Seaside Resort, Ozark Mountain Resort, Holiday Hills Resort, Timber Creek Resort, Fox River Resort, Oak N' Spruce Resort, and Apple Mountain Resort. Each of the Associations and the Silverleaf Club has the power and authority to own and operate its property, perform its obligations under the Timeshare Instruments, and conduct its business as it is now being conducted or as proposed to be conducted. Each Association has the authority to levy annual assessments to cover the costs of maintaining and operating the respective Eligible Project. Any lien for unpaid assessments in favor of any Association or the Silverleaf Club shall at all times be subordinate to any lien securing an Eligible Consumer Loan and to any lien in favor of the Agent or any Bank. 6.4. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 8.2 hereto, the Borrower has good and marketable title to the Collateral, subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances, except Permitted Liens. 6.5. ASSIGNABILITY. Each Required Consumer Loan Document delivered and/or assigned to the Agent (or the Collateral Custodian, as agent of the Agent) in connection with each loan pledged as Consumer Loan Collateral contains no prohibitions on assignment (other than prohibitions which have been waived with all necessary consents obtained), and upon the exercise of the Agent's or any Bank's rights as secured party, the Agent or such Bank shall be entitled to the same benefits pursuant to each such document as the Borrower is entitled. 6.6. FINANCIAL STATEMENTS AND BUSINESS CONDITION. 6.6.1. FISCAL YEAR. The Borrower and each of its Subsidiaries has a fiscal year which is the twelve months ending on December 31 of each calendar year. 6.6.2. FINANCIAL STATEMENTS. The Weekly Flash Reports, the Monthly Financial Reports for the first ten (10) months of the calendar year 2001 and the Alternative Financial Models dated December 4, 2001 are, to 46 the best of Borrower's knowledge, accurate and fairly represent the financial condition of the Borrower for the periods in question, subject to the written qualifications set forth therein, including the fact that such statements and reports are preliminary and subject to completion of the audit thereof and that the Borrower anticipates adjustments thereto which may significantly affect the results thereof, including an estimated reduction in shareholder equity of $63,000,000. To the best of Borrower's knowledge, there are no material liabilities, direct or indirect, fixed or contingent, of the Borrower, except as disclosed to the Banks in writing. 6.7. NO MATERIAL CHANGES, ETC. Prior to the Banks' receipt and approval of the Borrower's financial statements for the fiscal year ended on December 31, 2001, except as otherwise disclosed by the Borrower to the Banks in writing, and subject to the qualifications set forth in Section 6.6.2, since September 30, 2001, there has occurred no materially adverse change in the financial condition or business of the Borrower and its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 2001, or the consolidated statement of income as of such date, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrower or any of its Subsidiaries. Following the Banks' receipt and approval of the Borrower's financial statements for the fiscal year ended on December 31, 2001, there has occurred no materially adverse change in the financial condition or business of the Borrower and its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2001, or the consolidated statement of income as of such date, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrower or any of its Subsidiaries. Since September 30, 2001, the Borrower has not made any Distribution. 6.8. OPERATION OF BUSINESS. Each of the Borrower and its Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted and as presently proposed to be conducted without known conflict with any rights of others. The Borrower's buildings and the operation of the Borrower's business and the Eligible Projects comply with all zoning, environmental, public health and safety, banking, securities, lending and other similar laws and regulations and all other Requirements. 6.9. LITIGATION. Except as set forth on SCHEDULE 6.9, there are no actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Borrower or any of its Subsidiaries or materially impair the right of the Borrower or any of its Subsidiaries, to carry on business substantially as now 47 conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrower, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 6.10. NO MATERIALLY ADVERSE CONTRACTS, ETC.; NO DEFAULTS. Neither the Borrower nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower or any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of the Borrower or any of its Subsidiaries. Except for the Specified Events of Default (as defined in the Forbearance Agreement) during the term of the Forbearance Agreement, the Borrower has no knowledge of any Default or Event of Default not disclosed to the Banks in writing. Except for the specified events of default under the forbearance agreement between the Borrower and Heller and the forbearance agreement among the Borrower, Textron and the other lenders party thereto, all of which shall be waived by Textron and Heller on or prior to the Closing Date, the Borrower has no knowledge of any default or event of default under the Heller Documents or the Textron Documents, except as disclosed to the Banks in writing, and neither Heller nor Textron has accelerated any loan obligation of the Borrower on account of any such specified default or event of default. Except for the Specified Events of Default or as disclosed in SCHEDULE 6.10, to the best of the Borrower's knowledge, the Borrower is not in default of any material indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it may be bound or affected. 6.11. COMPLIANCE WITH OTHER INSTRUMENTS. LAWS, ETC. Neither the Borrower nor any of its Subsidiaries is in violation of (a) any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrower or any of its Subsidiaries or (b) any decree, order, judgment, statute, license, rule or regulation or other Requirement. 6.12. TAX STATUS. The Borrower and its Subsidiaries (i) have made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (ii) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (iii) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Borrower know of no basis for any such claim. 48 6.13. NO EVENT OF DEFAULT. Taking into consideration the waiver set forth in Section 29, from and after the Closing Date, no Default or Event of Default has occurred and is continuing under this Credit Agreement. 6.14. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 6.15. ABSENCE OF FINANCING STATEMENTS ETC. Except with respect to Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any of the Collateral or the Borrower's rights thereto. 6.16. PERFECTION OF SECURITY INTEREST. All filings, assignments, pledges and deposits of documents or instruments have been made and all other actions have been taken that are necessary or advisable, under applicable law, to establish and perfect the Agent's security interest in the Collateral. The Collateral and the Agent's rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses. The Borrower is the owner of the Collateral free from any lien, security interest, encumbrance and any other claim or demand, except for Permitted Liens. 6.17. CERTAIN TRANSACTIONS. None of the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 6.18. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any of its ERISA Affiliates has any Employee Benefit Plans, Guaranteed Pension Plans or Multiemployer Plans. No liability to the PBGC has been incurred by the Borrower or any ERISA Affiliate. 6.19. USE OF PROCEEDS. 49 6.19.1. GENERAL. The proceeds of the Loans shall be used solely for working capital and general corporate purposes in accordance with the Business Plan. 6.19.2. REGULATIONS U AND X. No portion of any Loan is to be used for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.19.3. INELIGIBLE SECURITIES. No portion of the proceeds of any Loans is to be used for the purpose of knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period or within thirty (30) days thereafter, any Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary. 6.20. ENVIRONMENTAL COMPLIANCE. The Borrower has taken all necessary steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, has determined that: (a) none of the Borrower, its Subsidiaries or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "ENVIRONMENTAL LAWS"), which violation would have a material adverse effect on the environment or the business, assets or financial condition of the Borrower or any of its Subsidiaries; (b) neither the Borrower nor any of its Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous substances as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C. Section 9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("HAZARDOUS SUBSTANCES") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Borrower or any of its Subsidiaries conduct a remedial investigation, removal 50 or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except as set forth on SCHEDULE 6.20 attached hereto: (i) no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrower, its Subsidiaries or operators of its properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrower or its Subsidiaries, which releases would have a material adverse effect on the value of any of the Real Estate or adjacent properties or the environment; (iv) to the best of the Borrower's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have been transported offsite only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the best of the Borrower's knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) None of the Borrower and its Subsidiaries, any Mortgaged Property or any of the other Real Estate is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Mortgage or to the effectiveness of any other transactions contemplated hereby. 6.21. SUBSIDIARIES, ETC. SCHEDULE 6.21(a) contains a list of all of the Borrower's Subsidiaries and the percentage of issued and outstanding shares of each class of capital stock or equivalent issued by or owned by the Borrower. None of the Borrower's Subsidiaries has any ownership or security interest in the Collateral. 51 Except as set forth on SCHEDULE 6.21(b) hereto, (a) neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or partnership with any other Person and (b) no Subsidiary has any material assets or material income. 6.22. DISCLOSURE. No information, exhibit or written report or the content of any schedule furnished by or on behalf of the Borrower to the Agent or any Bank in connection with any Loan or Eligible Project contains any material misstatement of fact or omits the statement of a material fact necessary to make the statement contained herein or therein not misleading. The Borrower knows of no fact or condition which will prevent the sale of Timeshare Interests to consumer borrowers or prevent the operation of the Eligible Projects in accordance with the Timeshare Documents, related public offering statements, and applicable law, or prevent the Borrower from performing its Obligations pursuant to the Loan Documents. The Business Plan furnished to the Banks in accordance with Section 10.17 is based on assumptions that the Borrower believes are reasonable. 6.23. THE PROJECTS AND THE ADDITIONAL RESORT COLLATERAL. Each Eligible Project and Additional Resort Collateral has adequate access from a publicly dedicated street, and is constructed and operated in compliance with all applicable laws and regulations, served by utilities necessary for its intended use, and, with respect to the Eligible Projects only, furnished and equipped and ready for occupancy. All amenities for each Eligible Project which have been offered to purchasers of Timeshare Interests or referred to in any offering materials are available to consumer borrowers. Each Timeshare Instrument for each Eligible Project has been recorded in the real property records where such project is located and otherwise filed in accordance with all applicable laws and regulations. 6.24. SALE OF TIMESHARE INTERESTS. The marketing, sale, offering for sale, rental solicitation of purchasers and financing of Timeshare Interests: (a) will not constitute the sale, or the offering for sale, of securities subject to the registration requirements of the Securities Act of 1933, as amended, or any state securities law applicable to such sale or offer for sale; (b) will not violate any Timeshare Act, or any land sales or consumer protection law, statute or regulation of the State of Texas or any other state or jurisdiction in which sales or solicitation activities occur or any Eligible Project is located; and (c) will not violate any consumer credit or usury statute of the State of Texas or any other state or jurisdiction in which sales or solicitation activities occur or any Eligible Project is located. All marketing and sales activities have been performed by Borrower's employees or by independent contractors or agents of the Borrower, all of whom are properly licensed in accordance with applicable laws. There have been no misrepresentations made by the Borrower or any of its employees or selling agents with respect to any matter relating to any Eligible Project or the sale or financing of Timeshare Interests. 6.25. TANGIBLE PROPERTY. The machinery, equipment, fixtures, tools and supplies used in connection with each Eligible Project and Additional Resort Collateral, including, without limitation, with respect to the operations and maintenance of the common areas, are owned or leased either by the Borrower, Silverleaf Club or the respective Association. 52 6.26. REAL PROPERTY TAXES: SPECIAL ASSESSMENTS. Each portion of the Real Estate constituting real property consists of a single tax lot. No portion of said lots covers property other than the Real Estate in question and no portion of the land in question lies in any other tax lot. There are no unpaid or outstanding real estate or other taxes or assessments on or against any Eligible Project, any Real Estate or any part thereof which are payable by the Borrower (except real estate taxes not yet due and payable). The Borrower has delivered to the Agent true and correct copies of real estate tax bills for each Eligible Project and the Real Estate for the past fiscal tax year. No abatement proceedings are pending with reference to any real estate taxes assessed against the Real Estate. There are no betterment assessments or other special assessments presently pending with respect to any part of any Eligible Project or the Real Estate and the Borrower has received no notice of any such special assessment being contemplated. 6.27. VIOLATIONS. The Borrower has received no notices of, and has no knowledge of, any violations of any applicable Requirements. 6.28. SUBORDINATION. There is no indebtedness of the Borrower presently owing to any Affiliate or shareholder of the Borrower except as described on SCHEDULE 6.28 attached hereto. 6.29. STANDBY SERVICER. The Borrower has entered into the Standby Servicing Agreement and such agreement is in full force and effect and has not been modified, amended, or terminated. 6.30. INVENTORY CONTROL. Attached hereto as SCHEDULE 6.30 is a true and complete copy of the Borrower's Inventory, Sales and Assignments procedures. 6.31. OPERATING CONTRACTS. The Borrower has entered into contracts, agreements, and arrangements necessary for the operation of the Eligible Projects, including, but not limited to, those with respect to utilities, maintenance, management, services, marketing and sales (the "OPERATING CONTRACTS"). 6.32. HELLER AND TEXTRON FACILITIES. The modifications of the Heller Facility and the Textron Facility on terms and conditions as provided in the Business Plan have closed, and the Agent has been provided with true and correct copies of the Heller Documents and the Textron Documents, as so modified. There is no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Heller Facility or the Textron Facility and the Borrower is in good standing under both of such facilities. 6.33. BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Term Sheet has not been amended, modified or otherwise rescinded. 6.34. DZ FACILITY. The DZ Bank Commitment Letter is in full force and effect and has not been amended, modified or otherwise rescinded. 7. AFFIRMATIVE COVENANTS OF THE BORROWER. 53 The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 7.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans provided for in this Credit Agreement, all in accordance with the terms of this Credit Agreement and the Notes. 7.2. MAINTENANCE OF OFFICE; MANAGEMENT. The Borrower will maintain its chief executive office at 1221 Riverbend, Suite 120, Dallas, Texas or at such other place in the United States of America as the Borrower shall designate upon written notice to the Agent, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. Unless replaced by the Standby Manager in accordance with the terms of the Loan Documents and the Standby Management Agreement, the Borrower shall remain engaged in the active management of the Eligible Projects and shall continue to perform duties substantially similar to those presently performed as provided in the management agreement relating to each Eligible Project. 7.3. RECORDS AND ACCOUNTS. The Borrower will (i) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles, (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves, and (iii) at all times engage Deloitte & Touche, L.P. or other independent certified public accountants satisfactory to the Required Banks as the independent certified public accountants of the Borrower and its Subsidiaries and will not permit more than thirty (30) days to elapse between the cessation of such firm's (or any successor firm's) engagement as the independent certified public accountants of the Borrower and its Subsidiaries and the appointment in such capacity of a successor firm as shall be satisfactory to the Required Banks. 7.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower will deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower (notwithstanding the foregoing, the Borrower shall deliver its annual financial statements for its fiscal years 2000 and 2001 within ninety (90) days of the Closing Date), the consolidated balance sheet of the Borrower and its Subsidiaries and the consolidating balance sheet of the Borrower and its Subsidiaries, each as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income and consolidating statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated and consolidating statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and 54 certified (such certification to be in form and substance satisfactory to the Agent) by Deloitte & Touche, L.P. or by other independent certified public accountants satisfactory to the Agent, together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the fiscal quarters of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries and the unaudited consolidating balance sheet of the Borrower and its Subsidiaries, each as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income and consolidating statement of cash flow for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments); (c) as soon as practicable, but in any event within thirty (30) days after the end of each month in each fiscal year of the Borrower, unaudited monthly consolidated financial statements of the Borrower and its Subsidiaries for such month and unaudited monthly consolidating financial statements of the Borrower and its Subsidiaries for such month, each prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial condition of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments); (d) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Borrower, in form and substance satisfactory to the Required Banks, and (i) setting forth in reasonable detail computations evidencing compliance with the covenants contained in Section 9 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since September 30, 2001 (with respect to financial statements delivered prior the Required Banks' receipt and approval of the financial statements for the fiscal year ended on December 31, 2001) or December 31, 2001 (with respect to financial statements delivered following the Required Banks' receipt and approval of 55 the financial statements for the fiscal year ended on December 31, 2001), (ii) stating that no Default or Event of Default has occurred and (iii) if a Default or Event of Default has occurred and is continuing, specifying the nature and the period of existence thereof and the action proposed to be taken with respect thereto; (e) within five (5) days after the filing thereof, a copy of the Borrower's Form 10-K and 10-Q as filed with the Securities and Exchange Commission; (f) (i) on the first day of each calendar week, (ii) from time to time as requested by the Agent, (iii) simultaneously with each Loan Request, and (iv) simultaneously with any request for release of any Collateral, a Borrowing Base Certificate substantially in the form of EXHIBIT A, accompanied by summary aging reports and a trial balance of the Consumer Loan Collateral, acceptable in form to the Required Banks; (g) within thirty (30) days after filing, a copy of the federal income tax return for the Borrower and the Association, with all schedules; (h) within one hundred and twenty (120) days after the close of each fiscal year, annual reports required by each relevant Timeshare Act, or such other management prepared financial statements of Silverleaf Club containing information concerning each Eligible Project satisfactory to the Required Banks; (i) no later than sixty (60) days prior to the start of any fiscal year, the Borrower shall submit to the Banks an update to the Business Plan for the upcoming fiscal year in form acceptable to the Required Banks (each such update to the Business Plan shall be subject to the Required Banks' approval); (j) no later than the fifteenth (15th) day of each calendar month, the Borrower shall furnish to the Banks, or cause the Servicer to furnish to the Banks, three (3) copies of a report in form and substance acceptable to the Required Banks prepared by the Borrower or the Servicer, certified by an Authorized Officer of the Borrower, and showing, with respect to each of the loans constituting Consumer Loan Collateral as of the close of business on the last day of the calendar month last ended: (i) the account number; (ii) name(s) of consumer borrower(s); (iii) original principal amount of such consumer loan; (iv) any payment, including any prepayment, received on account of such consumer loan during the period covered by the statement; 56 (v) a cash receipts journal; (vi) the opening and closing principal balance; (vii) any consumer loans constituting Consumer Loan Collateral cancelled during the period covered by such statement; (viii) any delinquency of principal and interest payments on a 30-60-90 day basis; (ix) any delinquency of principal, interest or assessments in excess of ninety (90) days; (x) the interest rate for each consumer loan and the weighted average consumer interest rate for all Eligible Consumer Loan pledged to the Agent and the outstanding principal amount of Eligible Consumer Loans bearing an interest rate of less than 12.5% and such amount expressed as a percentage of the outstanding principal balance of all Eligible Consumer Loans; (xi) any extensions, refinances or other adjustments to such consumer loan; (xii) the outstanding principal balance of Eligible Consumer Loans made to residents of Canada and such amount expressed as a percentage of the outstanding principal balance of all Eligible Consumer Loans; (xiii) the outstanding principal balance of Eligible Consumer Loans made to consumer borrowers with a FICO Credit Bureau Score of less than 600 and such amount expressed as a percentage of the outstanding principal balance of all Eligible Consumer Loans; (xiv) the weighted average of the FICO Credit Bureau Scores of all consumer borrowers under Eligible Consumer Loans; (xv) the outstanding principal balance of Eligible Consumer Loans described in paragraph (9)(b) of the definition of "Eligible Consumer Loans" and such amount expressed as a percentage of the outstanding principal balance of all Eligible Consumer Loans; (xvi) the outstanding principal balance of Eligible Consumer Loans with an original term of greater than eighty-four (84) months and such amount expressed as a percentage of the outstanding principal balance of all Eligible Consumer Loans; and (xvii) such other information as the Agent or any Bank .may request; 57 (k) no later than the fifteenth (15th) day of each calendar month, the Borrower shall deliver to the Banks a sales and cancellation report indicating the sales and cancellation activity with respect to each Eligible Project for the preceding calendar month showing such detailed information as the Agent or any Bank may request; (l) no later than the fifteenth (15th) day of each calendar month, the Borrower shall deliver to the Banks an inventory report in form satisfactory to the Required Banks indicating the number of Timeshare Interests sold and unsold at each Eligible Project, identified by Unit and type or color of Timeshare Interest, for the preceding calendar month; (m) no later than the fifteenth (15th) day of each calendar month, the Borrower shall deliver to the Banks a report in form satisfactory to the Required Banks indicating the performance of each Eligible Consumer Loan pledged as Collateral described in clause (b) of paragraph (9) of the definition of "Eligible Consumer Loan" during the preceding calendar month; (n) no later than the fifteenth (15th) day of each calendar month, the Borrower shall deliver to the Banks a report in form satisfactory to the Required Banks indicating, among other things, the conformity of the Borrower's business to the Business Plan and any variances therefrom during the preceding calendar month; (o) weekly "flash reports" (the "WEEKLY FLASH REPORTS") consisting of the number of showings of the Eligible Projects to prospective purchasers of Timeshare Interests, gross sales reports, accountants payables reports, accounts receivables reports and cash balances before 5:00 p.m. (eastern standard time) on each Thursday during the term hereof for the prior week; and (p) from time to time, with reasonable promptness, such other financial data and information (including accountants, management letters) and such other information concerning the Collateral, the Eligible Projects and the business and operations of the Borrower, as the Agent or any Bank may reasonably request. 7.5. NOTICES. 7.5.1. DEFAULTS The Borrower will promptly notify the Agent and each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or any of its Subsidiaries is a party or obligor, whether as principal or surety, the Borrower shall forthwith give written notice thereof to each of the Banks, describing the notice or action and the nature of the claimed default. 58 7.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give notice to the Banks (i) of any violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that has the potential to materially affect the assets, liabilities, financial conditions or operations of the Borrower or any of its Subsidiaries, or the Agent's security interests pursuant to the Security Documents. 7.5.3. NOTIFICATION OF CLAIMS AGAINST COLLATERAL. The Borrower will, immediately upon becoming aware thereof, notify the Banks in writing of any setoff, claims (including, with respect to the Real Estate, environmental claims), withholdings or other defenses to which any of the Collateral, or the Agent's rights with respect to the Collateral, are subject. 7.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Banks in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or becomes a party involving any material claim against the Borrower or any of its Subsidiaries (which in a situation involving monetary claims shall have in excess of $100,000 in dispute) and stating the nature and status of such litigation or proceedings. The Borrower will, and will cause each of its Subsidiaries, to give notice to the Banks, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of its Subsidiaries in an amount in excess of $100,000. 7.5.5. NOTICE OF LOSS. If any Collateral shall be materially damaged or destroyed, the Borrower shall immediately notify the Agent and the Banks. 7.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and those of its Subsidiaries and will not, and will not cause or permit any of its Subsidiaries to, convert to a limited liability company. It (i) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now 59 conducted by them and in related businesses; provided that nothing in this Section 7.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties or those of its Subsidiaries if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Borrower and its Subsidiaries on a consolidated basis. 7.7. INSURANCE. (a) Insurance Generally. The Borrower will maintain the insurance coverage set forth below with financially sound and reputable insurers in the amounts and for the periods set forth below. (i) At all times during the term of this Agreement, the Borrower shall maintain insurance for each Eligible Project against loss by fire, windstorm and other hazards, with minimum coverage equal to the replacement cost of each Eligible Project. (ii) At all times during the term of this Agreement, the Borrower shall maintain broad form coverage public liability insurance with minimum coverage of Five Million Dollars ($5,000,000). The amount of such coverage shall be reviewed annually by the Required Banks and may, in the Required Banks' sole discretion and at the Borrower's expense, be increased or decreased during the term of this Agreement. The Borrower shall obtain a new or revised policy within twenty (20) days of receipt of notice from the Agent of a revision in the amount of public liability insurance required. (iii) If any of the improvements now or hereafter constructed on the Real Estate are within an area designated by the Director of the Federal Emergency Management Agency, pursuant to the Flood Disaster Protection Act of 1973, as amended, as one having special flood hazards, the Borrower shall maintain flood insurance at the maximum limit of coverage available. (iv) The Borrower shall maintain workers' compensation insurance and such other insurance as shall be necessary or prudent for the operation of the Borrower's business, all with minimum coverage at least equal to that in effect on the date of this Agreement. (v) The Borrower will maintain insurance on each of the Mortgaged Properties in accordance with the terms of the applicable Mortgage. The Borrower shall pay all premiums for and take all other actions to maintain in full force and effect the insurance required by this Section 7.7. The Borrower shall ensure that no such policies shall be cancelled except after thirty (30) days' prior notice by the insurance carrier to the Agent, and that the Agent for the pro rata benefit of the Banks shall be named as an additional insured, mortgagee and lender's loss payee on such policies. The Borrower shall at least thirty (30) days 60 prior to the expiration date of each policy, and otherwise, from time to time upon the Agent's request, furnish or cause to be furnished to the Agent and the Banks, evidence of the maintenance of the insurance required by this Section 7.7, including, without limitation, such originals or copies as the Agent may request of policies, certificates of insurance, riders and endorsements relating to such insurance and proof of premium payments. (b) Project Title Policies. In addition to the foregoing, in connection with each Eligible Project (other than Oak N' Spruce Resort), the Borrower shall provide a mortgagee title insurance policy in favor of the Agent for the pro rata benefit of the Banks on a current ALTA Loan Policy Form issued by a title insurance company qualified to do business in the State of Texas or the jurisdiction of the respective Eligible Project and acceptable to the Agent issued in the amount equal to twenty-five percent (25%) of the outstanding principal amount of the consumer loans from such Eligible Project pledged to the Agent under the Security Agreement and insuring that the mortgages or deed of trusts referred to in clause (2) of the definition of "Required Consumer Loan Documents" are not subject to any prior liens, other than certain Permitted Liens, substantially in the form of the specimen policy for each Eligible Project attached as SCHEDULE 7.7 attached hereto (each a "PROJECT TITLE POLICY"). The Project Title Policies shall contain only those exceptions approved by the Agent, in writing, and shall contain affirmative insurance for real estate taxes, matters of survey and against mechanics liens. Any material deviation from such specimen policy shall require the Agent's consent. If the Agent or the Banks at any time shall determine that title to any Collateral or the assignment to the Agent of the Borrower's rights in such Collateral shall be defective in any respect, the Borrower shall within sixty (60) days after a request by the Agent provide to the Agent and the Banks title insurance in favor of the Agent for the pro rata benefit of the Banks acceptable to the Agent for 100% of the principal amount of Consumer Loan Collateral pledged hereunder. (c) Insurance Proceeds. In the event of any fire or other casualty to or with respect to the improvements on or at any Eligible Project or any Real Estate comprising the Additional Resort Collateral, the Borrower covenants that the Borrower or the applicable Association, as the case may be, will promptly restore, repair or replace (or cause to be restored, repaired or replaced) the damaged improvements and restore, repair or replace any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the improvements and personal property on any Eligible Project or any Real Estate comprising the Additional Resort Collateral, in accordance with the terms of the applicable Timeshare Instruments and applicable Timeshare Act. The insufficiency of any net insurance proceeds shall in no way relieve the Borrower or, as applicable, the Association of its obligation to restore, repair or replace such improvements and other personal property in accordance with the terms hereof, of the applicable Timeshare Instruments and the applicable Timeshare Act, and the Borrower covenants that the Borrower or, as the case may be, the applicable Association shall promptly comply or cause compliance with the provisions of the applicable Timeshare Instruments and the applicable Timeshare Act relating to such restoration, repair or replacement. The Borrower shall, unless an Event of Default 61 has occurred, apply all insurance proceeds payable to or received by it in accordance with the applicable Timeshare Instruments. If an Event of Default has occurred, the Agent may, in its sole discretion, apply all insurance proceeds in accordance with the applicable Timeshare Instruments or to the repayment of the Loans in accordance with Section 12.5. 7.8. TAXES. The Borrower will, and will cause each of its Subsidiaries to, duly pay and discharge, or cause to be duly paid or discharged, before the same shall become overdue, all taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by foreign jurisdictions that in the aggregate are not material to the business or assets of the Borrower on an individual basis or of the Borrower and its Subsidiaries on a consolidated basis) imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto with the consent of the Required Banks; and provided further that the Borrower and each Subsidiary of the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 7.9. INSPECTION OF PROPERTIES AND BOOKS, ETC. 7.9.1. GENERAL; AUDITS AND FAIR LENDING REVIEW. The Borrower shall permit the Banks, through the Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrower or any of its Subsidiaries, to examine the books of account of the Borrower and its Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as the Agent or any Bank may reasonably request and all at the Borrower's expense. The Agent, and any Bank acting through the Agent, shall have the right to audit the Borrower's operations and the Collateral from time to time at the Borrower's expense; provided that, if no Event of Default has occurred, the Agent, and any Bank acting through the Agent, shall conduct such audits no more frequently than twice each calendar year. At the discretion of the Agent, the Agent shall be entitled to conduct a fair lending review of the Borrower, at the Borrower's expense, at least once a calendar year. 7.9.2. COLLATERAL REPORTS. No more frequently than two times during each calendar year, or more frequently as determined by the Agent if an Event of Default shall have occurred and be continuing, upon the request of the Agent, the Borrower will obtain and deliver to the Agent, or, if the Agent so elects, will cooperate with the Agent in the Agent's obtaining, a 62 report of an independent collateral auditor satisfactory to the Agent (which may be affiliated with one of the Banks) with respect to the Eligible Consumer Loans included in the Borrowing Base, which report shall indicate whether or not the information set forth in the Borrowing Base Certificate most recently delivered is accurate and complete in all material respects based upon a review by such auditors of the Eligible Consumer Loans (including verification with respect to the amount, aging, identity and credit of the respective consumer borrowers). All such collateral value reports shall be conducted and made at the expense of the Borrower. 7.9.3. APPRAISALS. No more frequently than once during two (2) calendar years, or more frequently as determined by the Agent if an Event of Default shall have occurred and be continuing, upon the request of the Agent, the Borrower will obtain and deliver to the Agent appraisal reports in form and substance and from appraisers satisfactory to the Agent, stating the then current fair market, orderly liquidation and forced liquidation values of all or any portion of the Collateral and the then current business value of each of the Borrower and its Subsidiaries. All such appraisals shall be conducted and made at the expense of the Borrower. 7.9.4. ENVIRONMENTAL ASSESSMENTS. No more frequently than once during two (2) calendar years, or more frequently as determined by the Agent if an Event of Default shall have occurred and be continuing, the Agent, in its discretion, for the purpose of assessing and ensuring the value of any Mortgaged Property or Additional Resort Collateral, obtain one or more environmental assessments or audits of such Mortgaged Property or Additional Resort Collateral prepared by a hydrogeologist, an independent engineer or other qualified consultant or expert approved by the Agent to evaluate or confirm (i) whether any Hazardous Substances are present in the soil or water at such Mortgaged Property or Additional Resort Collateral and (ii) whether the use and operation of such Mortgaged Property or Additional Resort Collateral complies with all Environmental Laws. Environmental assessments may include without limitation detailed visual inspections of such Mortgaged Property or Additional Resort Collateral including any and all storage areas, storage tanks, drains, dry wells and leaching areas, and the taking of soil samples, surface water samples and ground water samples, as well as such other investigations or analyses as the Agent deems appropriate. All such environmental assessments shall be conducted and made at the expense of the Borrower. 7.9.5. COMMUNICATION WITH ACCOUNTANTS. The Borrower authorizes the Agent and, if accompanied by the Agent, the Banks to communicate directly with the Borrower's independent certified public accountants and authorizes such accountants to disclose to the Agent and the Banks any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of the Borrower or any of its Subsidiaries. At the request of the Agent, the Borrower shall 63 deliver a letter addressed to such accountants instructing them to comply with the provisions of this Section 7.9.5. 7.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The Borrower will, and will cause each of its Subsidiaries to, comply with (i) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (ii) the provisions of its charter documents and by-laws, (iii) all agreements and instruments by which it or any of its properties may be bound and (iv) all applicable decrees, orders, and judgments. The Borrower, its employees, servants and agents have and, at all times, will have all licenses, registrations, approvals and other authority as may be necessary to enable them to own and operate their businesses, to perform all services which they have agreed to perform in any state, municipality or other jurisdiction, to sell Timeshare Interests, to finance the sale of Timeshare Interests and to operate the Eligible Projects and the Additional Resort Collateral. If at any time while any Loan or Note is outstanding or any Bank has any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower may fulfill any of its obligations hereunder, the Borrower will immediately take or cause to be taken all reasonable steps within the power of the Borrower to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. 7.11. UNDERWRITING CRITERIA. All Eligible Consumer Loans pledged as Collateral to the Agent subsequent to the date of execution of this Agreement will be consistent with the Borrower's general underwriting criteria as approved in writing by the Required Banks, including, without limitation, (i) the requirement that a majority of sales shall be made to consumer borrowers with minimum annual income as follows: $35,000 for Texas, $40,000 for Illinois, and $45,000 for Massachusetts and (ii) the requirement that each consumer borrower shall have a major credit card issued in his or her name. In addition to the foregoing, effective as of the date sixty (60) days after the Closing Date, the Borrower shall ensure that the weighted average FICO Credit Bureau Scores of all consumer borrowers with respect to which a FICO Credit Bureau Score can be obtained be not less than 640. The Borrower shall not materially alter its general underwriting criteria without the prior written approval of the Required Banks, which approval may be withheld by the Required Banks in their sole discretion. 7.12. AGREEMENTS CONSTITUTING COLLATERAL. The Borrower shall comply with all terms of any agreements related to any Collateral, and the Borrower shall immediately notify the Agent and the Banks of any defaults or events of defaults under any such agreements. Except for prepayments in the ordinary course of business and except for revised payment plans as provided for in clause (b) of paragraph (9) of the definition of Eligible Consumer Loan, the Borrower shall not modify, compromise, extend, rescind or cancel any agreements related to the Collateral without the prior written consent of the Required Banks, which consent shall not be unreasonably withheld. 64 7.13. SUBORDINATION. All indebtedness to officers or shareholders of the Borrower now existing or hereafter arising, including subordinated shareholder debt, if any, and Indebtedness and fees payable to affiliated entities, other than those fees set forth on SCHEDULE 7.13, shall be subordinated to the Obligations, pursuant to subordination agreements in form and substance satisfactory to the Required Banks. 7.14. SALE OF TIMESHARE INTERESTS. The Borrower will sell or offer for sale Timeshare Interests only in the State of Texas and such other jurisdictions listed on SCHEDULE 7.14 where the Borrower has completed all registrations consistent with applicable Requirements. All sales will be made in compliance with all Requirements and utilizing then current disclosure materials approved as required by all Governmental Authorities. Before it sells or offers for sale Timeshare Interests in any other jurisdictions, the Borrower will notify the Agent and provide the Agent with evidence satisfactory to the Agent that the Borrower has complied with all laws of such jurisdiction governing its proposed conduct. 7.15. CONSUMER DOCUMENTS. The Borrower agrees with Agent that the consumer loan documents in the forms previously delivered to the Agent are the only documents which have been or will be used in connection with the credit sale of Timeshare Interests and that the Borrower shall not materially modify or amend, or permit the modification or amendment of, any such consumer loan documents or use or permit the use by others of any other or additional documents in connection with the credit sale of Timeshare Interests, except with the consent of the Agent, or as reasonably requested by the Agent in order to meet any of the Requirements or to protect the Agent's security interest therein from any claims or disputes. If any such consumer loan document shall be modified or amended or if any additional document shall be used in connection with the credit sale of Timeshare Interests, the Borrower shall immediately provide to the Agent an accurate and complete copy of such consumer loan document as so modified or amended and of any such additional document. 7.16. COLLECTION. The Borrower will undertake the diligent and timely collection of all amounts due under each consumer loan in connection with the credit sale of a Timeshare Interest, including the Consumer Loan Collateral, and will bear the entire expense of such collection. 7.17. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans solely for working capital and general corporate purposes in accordance with the Business Plan. 7.18. BANK ACCOUNTS. 7.18.1. GENERAL. On or prior to the Closing Date, the Borrower will (i) establish a depository account (the "BORROWER'S ACCOUNT") with the Agent under the control of the Agent for the benefit of the Banks and the Agent, in the name of the Borrower, (ii) instruct all consumer borrowers and other obligors, pursuant to notices of assignment and instruction letters in 65 form and substance satisfactory to the Agent, to remit all payments on consumer loans pledged as Collateral to the Lock Box for credit to the Borrower's Account, and (iii) otherwise at all times ensure that immediately upon the Borrower's, the Servicer's or any of its Subsidiaries' receipt of any funds constituting cash proceeds of any Collateral, all such amounts shall be deposited in the Borrower's Account, subject to the Intercreditor Agreement. 7.18.2. ACKNOWLEDGMENT OF APPLICATION. The Borrower hereby agrees that all amounts received by the Agent in the Borrower's Account will be the sole and exclusive property of the Agent, for the accounts of the Banks and the Agent, to be applied in accordance Section 2.8 or Section 2.9, as applicable. 7.19. SERVICING AGREEMENT AND LOCK BOX AGREEMENT. The Borrower shall (a) exercise all reasonable efforts to enforce or secure the performance of each and every obligation, covenant, condition and agreement to be performed by the Servicer under the Servicing Agreement and (b) in a timely manner perform, and not suffer or permit any default in, any of Borrower's obligations under the Servicing Agreement or the Lock Box Agreement. 7.20. STANDBY MANAGEMENT AGREEMENT; STANDBY SERVICING AGREEMENT. The Borrower will enter into the Standby Management Agreement on or before the Closing Date and will maintain such agreement in full force and effect. The Standby Manager will monitor the daily operations and performance of the Borrower. The Borrower shall instruct the Standby Manager to provide (a) the Banks with regular reports on the Borrower's business and the operation of the Eligible Projects and (b) the Agent or any Bank with any information reasonably requested. The Agent may (and, at the direction of the Required Banks, shall) request, from time to time, in its sole discretion and as it deems necessary, that the Standby Manager perform such other duties and responsibilities related to the operation of the Eligible Projects, the related amenities, the Timeshare Interests, the Additional Resort Collateral, and any other Collateral. The Borrower shall provide the Required Banks with a list in form and substance satisfactory to the Required Banks, in their sole discretion, of the duties and responsibilities associated with the operation of the Eligible Projects. The Borrower will maintain the Standby Servicing Agreement in full force and effect. 7.21. TANGIBLE PROPERTY. The machinery, equipment, fixtures, tools and supplies to be used in connection with each Eligible Project and Additional Resort Collateral, including, without limitation, with respect to the operations and maintenance of the common areas, will be owned or leased either by the Borrower, the Silverleaf Club or the respective Association. The Borrower will obtain such non-disturbance and estoppel agreements as the Agent may reasonably require for any tangible property necessary to the ownership, operation or maintenance of each Eligible Project and Additional Resort Collateral which is not owned by the Borrower, the Silverleaf Club or the respective Association. 7.22. FURTHER ASSURANCES. The Borrower will, and will cause each of its Subsidiaries to, cooperate with the Banks and the Agent and execute such further 66 instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 7.23. BUSINESS PLAN. The Borrower will operate its business in substantial compliance with the Business Plan, including the Senior Lender Advance Schedule. 7.24. TAX REFUND. The Borrower agrees that it shall use the proceeds of the Tax Refund strictly to fund Operating Expenses in accordance with the Business Plan and for no other reason, without the Required Banks' prior written consent. The Borrower agrees to use the Tax Refund before requesting any Loans hereunder. Upon request of the Agent, the Borrower shall promptly provide to the Banks such evidence as the Agent may request as to the manner in which the proceeds of the Tax Refund are being used. 7.25. NET SECURITIZATION CASH FLOW. The Borrower will cause Silverleaf Finance I, Inc. to declare, at least quarterly, a cash dividend payable to the Borrower in an amount equal to the Net Securitization Cash Flow for such quarter. If no Default or Event of Default has occurred, the Borrower agrees to use such dividends for payment of Operating Expenses as provided in the Business Plan and for no other purpose. If a Default or Event of Default has occurred, then all such dividends shall be paid directly to the Agent, as agent for the Banks, and applied by the Agent in repayment of the Tranche B Loans in accordance with the priorities set forth in Section 3.2(c). 7.26. SALE OR SECURITIZATIONS OF NOTES RECEIVABLE. The Borrower shall use its best efforts to sell and/or securitize the consumer loans pledged to the Agent as security for the Loans, including, without limitation, the Eligible Consumer Loans, and the proceeds of any such sale or securitization shall be used to pay down the Loans in accordance with the Business Plan and according to the priorities set forth in Section 2.8.2(a). The Borrower agrees to provide the Agent with written notice prior to any such sale or securitization and agrees to deliver to the Agent copies of all documents executed in connection therewith. The proceeds received from any such securitization shall be used to pay down the Loans in accordance with the Business Plan. 7.27. HELLER FACILITY, TEXTRON FACILITY, DZ BANK SECURITIZATION AND BOND HOLDER EXCHANGE TRANSACTION. The Borrower will comply with each of the terms and conditions of the Heller Facility, the Textron Facility, the DZ Bank Documents and the Bond Holder Exchange Documents and will promptly deliver to the Banks, upon receipt by Borrower, copies of any notices received by Borrower in connection with any of the foregoing credit facilities. 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 67 8.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (c) Indebtedness arising under the New Notes, Indebtedness arising under the Heller Facility, and Indebtedness arising under the Textron Facility; (d) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrower or any Subsidiary of the Borrower or under any Capitalized Lease, provided that the aggregate principal amount of such Indebtedness incurred by the Borrower and its Subsidiaries shall not exceed the aggregate amount of $1,000,000 per calendar year; (e) Indebtedness arising under a revolving credit facility secured by a pledge of loans made by the Borrower to consumer borrowers (and the related mortgages or deeds of trust on Timeshare Interests purchased by the consumer borrowers, which loans have not been pledged to any Person by the Borrower); provided that (i) prior to March 31, 2003, such Indebtedness shall be incurred only with the prior written consent of the Required Banks, not to be unreasonably withheld, and as a condition to such consent, the Required Banks may require that (A) all proceeds of such financing be applied to the repayment of the Loans pursuant to Section 2.8.2(a) and (B) advances to be funded by Tranche A Loans prior to advances from such other financing; and (ii) from and after March 31, 2003, such Indebtedness shall be incurred only if (A) no Default or Event of Default has occurred and is continuing or will result therefrom, (B) in the reasonable opinion of the Required Banks, such Indebtedness is substantially similar in structure to this Credit Agreement, (C) in the reasonable opinion of the Required Banks, both before and after giving effect to such Indebtedness, the Borrower is and will continue to be in compliance in all material respects with the Business Plan and (D) the aggregate outstanding principal amount of such Indebtedness shall not exceed $20,000,000 at any time provided that the Borrower 68 shall, at the Required Banks' request, submit a request for Tranche A Loans hereunder prior to accepting advances from such other financing; (f) Indebtedness in respect of the sale of "receivables" described in clause (vii) of the definition of Indebtedness, to the extent permitted by Section 8.5.2 hereof, and (g) Indebtedness existing on November 1, 2001 and listed and described on SCHEDULE 8.1 hereto. 8.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not permit any of its Subsidiaries to, (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired or the Timeshare Interests mortgaged as security for any Consumer Loan Collateral, or upon the income or profits therefrom; (ii) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (iii) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (iv) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; (v) sell, assign, pledge or otherwise transfer any "receivables" as defined in clause (vii) of the definition of the term "Indebtedness," with or without recourse; or (vi) enter into or permit to exist any arrangement or agreement, enforceable under applicable law, which directly or indirectly prohibits the Borrower or any of its Subsidiaries from creating or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest other than in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents and other than customary anti-assignment provisions in leases and licensing agreements entered into by the Borrower or such Subsidiary in the ordinary course of its business, provided that the Borrower or any of its Subsidiaries may create or incur or suffer to be created or incurred or to exist: (a) liens in favor of the Borrower on all or part of the assets of Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries of the Borrower to the Borrower; (b) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties other than the Collateral to secure claims for labor, material or supplies in respect of obligations not overdue; 69 (c) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (d) liens on properties other than the Collateral in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower or such Subsidiary shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties other than the Collateral, in existence less than one hundred and twenty (120) days from the date of creation thereof in respect of obligations not overdue; (f) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Borrower or a Subsidiary of the Borrower is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower and its Subsidiaries, which defects do not individually or in the aggregate have a materially adverse effect on the business of the Borrower individually or of the Borrower and its Subsidiaries on a consolidated basis; (g) presently outstanding liens listed on SCHEDULE 8.2 hereto and the Project Title Policies; (h) purchase money security interests in or purchase money mortgages on real or personal property other than the Collateral acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by Section 8.1(d), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired; (i) liens and encumbrances on each Mortgaged Property as and to the extent permitted by the Mortgage applicable thereto; (j) liens in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents and liens in respect of the Heller Facility and the Textron Facility, to the extent provided in the Intercreditor Agreement; (k) transfers of receivables to the extent permitted by Section 8.1(f) hereof; and 70 (l) security interests in consumer loans (other than the Consumer Loan Collateral) to secure Indebtedness permitted by Section 8.1(e) hereof, provided that such security interests shall extend only to consumer loans comprising the borrowing base of such Indebtedness. 8.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Service, Inc., and not less than "A 1" if rated by Standard and Poor's Rating Group; (d) Investments existing on November 1, 2001 and listed on SCHEDULE 8.3 hereto; (e) Investments consisting of residuals under the DZ Bank Securitization; (f) Investments outstanding on November 1, 2001 by the Borrower in Subsidiaries of the Borrower; (g) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by Section 8.5.2; and (h) Investments consisting of loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business not to exceed $100,000 in the aggregate at any time outstanding. 8.4. DISTRIBUTIONS. The Borrower will not make any Distributions. 8.5. MERGER, CONSOLIDATION. 8.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business 71 consistent with past practices) except the merger or consolidation of one or more of the Subsidiaries of the Borrower with and into the Borrower, or the merger or consolidation of two or more Subsidiaries of the Borrower. 8.5.2. DISPOSITION OF ASSETS. The Borrower will not, and will not permit any of its Subsidiaries to, become a party to or agree to or effect any disposition of assets, other than (i) the sale of Timeshare Interests and the disposition of obsolete assets, in each case in the ordinary course of business consistent with past practices, (ii) the sale of Eligible Consumer Loans constituting Consumer Loan Collateral into the DZ Bank Securitization and other similar purchase facilities for receivables; provided that the proceeds of such sales are transferred to the Borrower's Account and applied as contemplated by Section 2.8 or Section 2.9, as the case may be, and (iii) the sale of consumer loans (not constituting Consumer Loan Collateral) into the DZ Bank Securitization and other similar purchase facilities for receivables; provided that if such consumer loans are Collateral, the proceeds of such sales are transferred to the Borrower's Account and applied as contemplated by Section 2.8 or Section 2.9, as the case may be. 8.6. SALE AND LEASEBACK. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any Subsidiary of the Borrower intends to use for substantially the same purpose as the property being sold or transferred. 8.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and will not permit any of its Subsidiaries or the Associations to, (i) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (ii) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real Estate, (iv) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (v) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law. 8.8. SUBORDINATED DEBT. The Borrower will not, and will not permit any of its Subsidiaries to, amend, supplement or otherwise modify the terms of any of the Subordinated Debt or prepay or repurchase any of the Subordinated Debt. 8.9. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA Affiliate will: 72 (a) engage in any "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code which could result in a material liability for the Borrower or any of its Subsidiaries; or (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to Section 302(f) or Section 4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of Section 4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. 8.10. BUSINESS ACTIVITIES. The Borrower will not, and will not permit any of its Subsidiaries to, engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of business other than the businesses conducted by them on the Closing Date and in related businesses. 8.11. FISCAL YEAR; JURISDICTION OF ORGANIZATION. The Borrower will not, and will not permit any of it Subsidiaries to, change the date of the end of its fiscal year from that set forth in Section 6.6.1. The Borrower will not change its jurisdiction of organization without giving the Banks thirty (30) days prior written notice. 8.12. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any of its Subsidiaries to, engage in any transaction with any Affiliate (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm's-length basis in the ordinary course of business. 8.13. BANK ACCOUNTS. The Borrower will not, and will not permit any of its Subsidiaries to, violate directly or indirectly the Lock Box Agreement or any bank agency or lock box agreement in favor of the Agent for the benefit of the Banks and the Agent with respect to any accounts. 73 8.14. COVENANT AGAINST ALIENATION. The Borrower shall not in any way notify any consumer borrower of an consumer loan constituting Consumer Loan Collateral that payments should be made other than to the Servicer or the Lock Box Agent. 8.15. ASSOCIATION LIENS. The Borrower shall not in any way create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, restriction or other encumbrance on any of the Associations or the Silverleaf Club or their assets, other than in the ordinary course of business of such Association or Silverleaf Club and other than in favor of the Agent, for the benefit of the Agent and the Banks, Heller and Textron on a pari passu basis. 8.16. TIME SHARE INSTRUMENTS; REQUIRED CONSUMER LOAN DOCUMENTATION; MANAGEMENT AGREEMENTS. The Borrower shall not amend or modify in any material respect adverse to the interest of the Agent or the Banks or terminate any Timeshare Instrument or any Management Agreement. The Borrower shall not cause or permit any amendment to or modification of the form or terms of the Required Consumer Loan Documentation, except as otherwise permitted by this Credit Agreement. Other than pursuant to the Security Documents, the Borrower shall not assign any of its rights under any Timeshare Instrument or Management Agreement. 8.17. COMPENSATION OF SENIOR MANAGEMENT. No management agreement for any Eligible Project shall be modified, assigned, extended, terminated, or entered into nor shall the current method of operation and management of the Eligible Projects be changed in any material manner, without the prior written approval of the Required Banks, except as otherwise expressly provided for herein. The compensation payable to the senior management of the Borrower, as a group, shall not be increased by more than twenty-five percent (25%) each year, with the increase for the fiscal year ending December 31, 2002 being measured against the compensation payable to the senior management of the Borrower as of December 31, 2001, which compensation is set forth on SCHEDULE 8.17. The Borrower represents and warrants that SCHEDULE 8.17 accurately sets forth such compensation. 8.18. SALE OF TIMESHARE INTERESTS. The marketing, sale, offering for sale, rental solicitation of purchasers and financing of Timeshare Interests: (a) will not constitute the sale, or the offering for sale, of securities subject to the registration requirements of the Securities Act of 1933, as amended, or any state securities law applicable to such sale or offer for sale; (b) will not violate any Timeshare Act, or any land sales or consumer protection law, statute or regulation of the State of Texas or any other state or jurisdiction in which sales or solicitation activities occur; and (c) will not violate any consumer credit or usury statute of the State of Texas or any other state or jurisdiction in which sales or solicitation activities occur. All marketing and sales activities will be performed by Borrower's employees or by independent contractors or agents of the Borrower, all of whom are and will be properly licensed in accordance with applicable laws. There shall be no misrepresentations by the Borrower or any of its employees or selling agents with 74 respect to any matter relating to any Eligible Project or the sale or financing of Timeshare Interests. 8.19. MODIFICATION OF LOAN DOCUMENTS. The Borrower shall not amend or modify the Heller Documents, the Textron Documents, the DZ Bank Documents, the Bond Holder Exchange Documents or the documents evidencing any other Indebtedness of Borrower, nor shall the Borrower extend, modify, increase or terminate the Heller Facility, DZ Bank Securitization, the Bond Holder Exchange Transaction, the Textron Facility or any other credit facility or loan, without the prior written consent of the Required Banks, which consent shall not be unreasonably withheld. For avoidance of any doubt, it shall not be deemed unreasonable if the Required Banks withhold their consent to any such proposed amendment or modification if the Loan Documents are not being amended or modified in a substantially similar manner. 8.20. NO NEW CONSTRUCTION. The Borrower shall not, without the Required Banks' written consent, construct any improvements (excluding resort amenities) on any Eligible Project, Real Estate or any portion of the Additional Resort Collateral, unless such improvements are contemplated by the Business Plan. 8.21. MODIFICATION OF OTHER DOCUMENTS. The Borrower shall not amend or modify the Standby Management Agreement, the Servicing Agreement, or the Standby Servicing Agreement, without the prior written consent of the Required Banks, which consent shall not be unreasonably withheld. 9. FINANCIAL COVENANTS OF THE BORROWER. 9.1. TANGIBLE NET WORTH. The Borrower will not permit Tangible Net Worth of the Borrower at any time to be less than an amount equal to (i) the greater of (A) $100,000,000 and (B) an amount equal to 90% of the Tangible Net Worth of the Borrower as of September 30, 2001, plus (ii) (A) on a cumulative basis, 100% of the positive Consolidated Net Income after January 1, 2002, plus (B) 100% of the proceeds of (1) any sale by the Borrower of (x) equity securities issued by the Borrower or (y) warrants or subscription rights for equity securities issued by the Borrower or (2) any Indebtedness incurred by the Borrower, other than the Loans and any loans under the Heller Facility or the Textron Facility and other senior indebtedness of the Borrower incurred under Section 8.1(d) and (e) hereof, in the case of each of (1) and (2) above occurring after January 1, 2002. For purposes of this Section 9.1, if any change in generally accepted accounting principles after the Closing Date results in a material change in the calculation to be performed in this Section 9.1, solely as a result of such change in generally accepted accounting principles, the Banks and the Borrower shall negotiate in good faith a modification of the covenant set forth in this Section 9.1 so that the economic effect of the calculation of such covenant using generally accepted accounting principles as so changed is as close as feasible to what the economic effect of the calculation of such covenant would have been using generally accepted accounting principles in effect as of the Closing Date. 75 9.2. MARKETING EXPENSES. As of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2002, the Borrower will not permit the ratio of the Marketing Expenses to the Borrower's net sales of Timeshare Interests as recorded on the Borrower's financial statements for either the fiscal quarter or, from and after the fiscal quarter ending June 30, 2002, the Reference Period then ending to equal or exceed the ratio set forth opposite such period in the table below :
Fiscal Quarter Ending Ratio --------------------- ----- March 31, 2002 - December 31, 2002 .550 to 1 January 1, 2003 - thereafter .525 to 1
9.3. MINIMUM LOAN DELINQUENCY. The Borrower will not permit as of the last day of each fiscal quarter its over 30-day delinquency rate on its entire consumer loan portfolio (including, without limitation, all consumer loans pledged pursuant to the Security Agreement, the Heller Facility and the Textron Facility) for any Reference Period to be greater than twenty-five percent (25%). In the event that, as of the last day of any fiscal quarter, such delinquency rate is greater than twenty percent (20%), the Borrower hereby agrees that, at the Agent's request and at the Borrower's expense, the Banks may conduct an audit of the Borrower in accordance with Section 7.9.1 hereof (and such audit shall not count against the annual audit limit set forth in Section 7.9.1). 9.4. DEBT SERVICE. The Borrower will not permit the ratio of (i) EBITDA less capital expenditures as determined in accordance with generally accepted accounting principles to (ii) Consolidated Total Interest Expense for: (a) the fiscal quarter ending June 30, 2002 to be less than 1.1 to 1; (b) the two (2) consecutive fiscal quarters ending September 30, 2002 to be less than 1.1 to 1; (c) the three (3) consecutive fiscal quarters ending December 31, 2002 to be less than 1.1 to 1; and (d) each period of four (4) consecutive fiscal quarters ending on or after March 31, 2003 to be less than 1.25 to 1. 9.5. PROFITABLE OPERATIONS. The Borrower will not permit Consolidated Net Income (a) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (b) for any two consecutive fiscal quarters (treated as a single accounting period) to be less than $1.00. 10. CLOSING CONDITIONS. 76 The effectiveness of this Credit Agreement and obligations of the Banks to make the initial Loans shall be subject to the satisfaction of the following conditions precedent on or prior to May 31, 2002, as determined by each Bank: 10.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. 10.2. OTHER DEBT; INTERCREDITOR AGREEMENT; ETC. 10.2.1. HELLER FACILITY AND TEXTRON FACILITY MODIFICATIONS. The Borrower shall have delivered to the Banks, evidence satisfactory to the Banks, that the Heller Facility and the Textron Facility have each been modified in accordance with the Business Plan. Each of the Heller Facility and the Textron Facility shall be in full force and effect and shall permit the Borrower to make borrowings thereunder. The Borrower shall have delivered to the Banks copies of the executed documents relating to the modification of the Heller Facility and the Textron Facility, including, without limitation, the Heller Documents and the Textron Documents, each of which shall be in form and substance satisfactory to the Banks. There shall exist no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Heller Facility or the Textron Facility and the Borrower is in good standing under both of such facilities. 10.2.2. INTERCREDITOR AGREEMENT. Textron, Heller and the Agent (as agent for the Banks) shall have duly executed and delivered an Intercreditor Agreement (the "INTERCREDITOR AGREEMENT"), in form and substance satisfactory to the Banks, providing for, among other things, the pari passu sharing among the Banks and the lenders under the Textron Facility of certain real estate collateral and the pari passu sharing among the Banks, the lenders under the Textron Facility, and Heller of other collateral pledged to or for the benefit of each such lender, and the subordination of certain liens granted to each lender on collateral pledged to the other lenders. 10.2.3. DEFINITIVE EXCHANGE OFFER. The Borrower shall have completed a definitive exchange, upon terms, and pursuant to documents, in form and substance satisfactory to the Banks (the "BOND HOLDER EXCHANGE TRANSACTION"), with the holders of its 10 1/2% Senior Subordinated Notes issued pursuant to the Indenture in accordance with the term sheet, dated October 19, 2001, a copy of which is attached hereto as EXHIBIT K (the "BOND HOLDER EXCHANGE TERM SHEET"), pursuant to which (a) at least 80% of the holders of the now outstanding senior subordinated notes of the Borrower (the "CURRENT NOTES") will be issued capital stock of the Borrower and new senior subordinated notes of the Borrower which will have a reduced interest rate and principal balance and the term contemplated by the Business Plan (the "NEW NOTES") in exchange for their surrender of their Current Notes, (b) the holders of the New Notes will forgive all interest 77 accrued under the Current Notes prior to their surrender (provided that, holders of the New Notes may be entitled to receive partial interest payments in accordance with the terms of the exchange offer, but in no event shall such partial interest payments exceed $1,700,000 in the aggregate), (c) all defaults thereunder shall have been waived or cured by the Closing Date, and (d) the trustee acting on behalf of the holders of the New Notes consents to the Borrower's execution and delivery of the Loan Documents. The Borrower shall have delivered to the Banks the documents executed to consummate the Bond Holder Exchange Transaction, which documents are listed on SCHEDULE 1.1(d) (the "BOND HOLDER EXCHANGE DOCUMENTS"). 10.2.4. DZ BANK SECURITIZATION. The receipt by the Banks of evidence satisfactory to the Banks that the DZ Bank Securitization has closed on terms and conditions set forth in the letter agreement dated December 12, 2001, as supplemented by that certain letter agreement dated February 7, 2002, and as further supplemented by that certain letter agreement dated March 19, 2002, each attached hereto as EXHIBIT J (the "DZ BANK COMMITMENT LETTER"), except that DZ Bank shall waive any limitations on the Borrower's ability to pledge the Additional Resort Collateral to the Agent, and has been documented in form and substance satisfactory to the Banks. The Borrower shall have delivered to the Banks copies of all executed documents related to the DZ Bank Securitization. 10.3. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall have received from the Borrower and each Subsidiary of the Borrower, a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (i) its charter or other incorporation documents as in effect on such date of certification and (ii) its by-laws as in effect on such date. 10.4. CORPORATE ACTION. All corporate action necessary for the valid execution, delivery and performance by the Borrower and each of its Subsidiaries of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 10.5. INCUMBENCY CERTIFICATE. Each of the Banks shall have received from the Borrower and each of its Subsidiaries an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Borrower or such Subsidiary, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of each of the Borrower or such Subsidiary, each of the Loan Documents to which the Borrower or such Subsidiary is or is to become a party; (ii) in the case of the Borrower, to make Loan Requests; and (iii) to give notices and to take other action on its behalf under the Loan Documents. 10.6. VALIDITY OF LIENS. The Security Documents shall be effective to create in favor of the Agent a legal, valid and enforceable first priority or second priority security interest in the Collateral, as required by the applicable Security Document (except for Permitted Liens entitled to priority under applicable law and except for 78 any other liens ). All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected. The Agent shall have received evidence thereof in form and substance satisfactory to the Agent. 10.7. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS; LITIGATION SEARCH. The Banks shall have received from each of the Borrower and its Subsidiaries a completed and fully executed Perfection Certificate and the results of UCC searches with respect to its Collateral, indicating no liens, other than Permitted Liens, and otherwise in form and substance satisfactory to the Banks. The Agent shall have obtained, at the Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Eligible Projects, any portion of the Collateral, the Borrower, or any Affiliates of Borrower (each a "MATERIAL PARTY"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which the Banks determine in their sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. The Banks shall not be obligated to fund any Loan if the Banks determine that any such litigation is pending. 10.8. SURVEY AND TAXES. The Agent shall have received (i) a Survey of each Mortgaged Property and Additional Resort Collateral (subject to an Additional Resort Collateral Mortgage) together with a Surveyor Certificate relating thereto, each in form and substance satisfactory to the Agent, (ii) evidence of payment of real estate taxes and municipal charges on all Real Estate not delinquent on or before the Closing Date, and (iii) legible recorded plats of the parcels comprising the Additional Resort Collateral and the Existing Mortgaged Property, which recorded plats are in form and substance satisfactory to the Agent and the title companies delivering the Title Policies pursuant to Section 10.9 and are sufficient to remove the survey exception from the Title Policies issued with respect thereto. 10.9. TITLE INSURANCE. The Agent shall have received a Title Policy, in form and substance satisfactory to the Agent, covering each Existing Mortgaged Property and Additional Resort Collateral (subject to an Additional Resort Collateral Mortgage) and a Project Title Policy covering each Eligible Project (or commitments to issue such policies, with all conditions to issuance of each Title Policy or Project Title Policy, as the case may be, deleted by an authorized agent of the applicable title insurance company) together with proof of payment of all fees and premiums for such policies, from the applicable title insurance company and in amounts satisfactory to the Agent with respect to the Title Policies for each Existing Mortgaged Property and Additional Resort Collateral (subject to an Additional Resort Collateral Mortgage) and in the amounts required by Section 7.7 for each Eligible Project, insuring the interest of the Agent and each of the Banks as mortgagee under the Mortgages or as assignee of the consumer loan mortgages, as the case may be. 79 10.10. CERTIFICATES OF INSURANCE. The Banks shall have received (i) a certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with Section 7.7 and (ii) certified copies of all policies evidencing such insurance (or certificates therefore signed by the insurer or an agent authorized to bind the insurer). 10.11. BORROWER'S ACCOUNT NOTICES TO CONSUMER BORROWERS. The Borrower shall have established the Borrower's Account and the Lock Box. The Borrower shall have delivered to each of the consumer borrowers of an Eligible Consumer Loan included in the calculation of the Eligible Consumer Loan Amount as of the Closing Date a notice, in form and substance satisfactory to the Agent, instructing such consumer borrower to remit payments in respect of its Eligible Consumer Loan directly to the Lock Box. 10.12. BORROWING BASE CERTIFICATE. The Banks shall have received from the Borrower the initial Borrowing Base Certificate dated as of the Closing Date. 10.13. HAZARDOUS WASTE ASSESSMENTS. The Agent shall have received hazardous waste site assessments from environmental engineers and in form and substance satisfactory to the Agent, covering all Real Estate. 10.14. OPINION OF COUNSEL. Each of the Banks and the Agent shall have received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from: (a) Meadow, Owens, Collier, Reed, Cousins & Blau, L.L.P., counsel to the Borrower and its Subsidiaries; (b) local counsel to the Borrower in each jurisdiction where an Eligible Project is located; and (c) local counsel to the Borrower in each jurisdiction where Mortgaged Property is located (which opinions will include zoning and environmental opinions). 10.15. [INTENTIONALLY OMITTED.] 10.16. LOAN PAYDOWN; AVAILABILITY OF TRANCHE A TOTAL COMMITMENT; All interest due and owing to the Banks shall be paid in full prior to the Closing Date and approximately $11,500,000 shall be paid down on the principal balance of the loans made by the Banks pursuant to the Original Agreement. On the Closing Date, after giving effect to the repayment by the Borrower of the Loans under the Original Agreement from the DZ Bank Securitization, the amount of availability under the Tranche A Total Commitment shall not be less than $2,000,000. 10.17. BUSINESS PLAN. The Banks shall have received evidence satisfactory to them that the five-year "Stand Alone" business plan of the Borrower, including, 80 without limitation, the "Impact on Lenders Worksheet" (the "SENIOR LENDER ADVANCE SCHEDULE") setting forth the amounts to be advanced by the Banks, the lenders under the Textron Facility, and Heller pursuant to their respective credit facilities, a copy of which is attached hereto as EXHIBIT L (the "BUSINESS PLAN"), has been adopted by the Board of Directors (and, if necessary, the shareholders) of the Borrower. The Business Plan shall have been consummated through the Closing Date in all material respects. 10.18. OAK 'N SPRUCE RESORT UCC FINANCING STATEMENTS. The Borrower shall have delivered to the Agent evidence satisfactory to the Agent of the filing by the Borrower of a UCC financing statement, in form and in the jurisdictions satisfactory to the Agent, against each of the consumer borrowers of an Eligible Consumer Loan financing the purchase of an Oak 'N Spruce Beneficial Interest, which Eligible Consumer Loan is included in the calculation of the Borrowing Base as of the Closing Date. 10.19. INITIAL LOCKBOX AGREEMENT. The Borrower, JP Morgan Chase Bank of New York (as successor to Chase Bank of Texas, N.A.) ("CHASE"), and the Agent shall have entered into an Amended and Restated Lockbox Agreement of even date herewith, in form and substance satisfactory to the Agent, pursuant to which Chase will continue to administer the Lock Box (under and as defined in the Initial Lockbox Agreement) following the Closing Date. 10.20. STANDBY MANAGER. The Borrower shall have entered into a Standby Management Agreement, in form and substance satisfactory to the Banks, in their sole discretion, with the Standby Manager. 10.21. FORBEARANCE AGREEMENT. All of the terms and conditions of the Forbearance Agreement shall have been satisfied to the satisfaction of the Banks and the Banks shall have determined that no Termination Event (as defined in the Forbearance Agreement) shall have occurred and be continuing. 10.22. NO CHANGES. All information and documents heretofore delivered by the Borrower to the Banks, including information and documents delivered in connection with the Forbearance Agreement, shall remain true and correct in all respects. 10.23. NO MATERIAL CHANGE. Except as disclosed by the Borrower in writing to the Banks prior to the date hereof, no material change shall have occurred in the assets, liabilities, or financial condition of the Borrower or any of its Subsidiaries since September 30, 2001. 10.24. PAYMENT OF EXPENSES. The Borrower shall have reimbursed the Agent for, or paid directly, all reasonable fees, costs, and expenses incurred by the Banks, their counsel and their professional advisors, for which invoices have been delivered. 81 10.25. SERVICING AGREEMENT. The Servicing Agreement, in form and substance satisfactory to the Banks, shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of the Servicing Agreement. 10.26. ESTOPPEL LETTERS. The Borrower shall deliver to the Banks (i) an estoppel letter with respect to each Eligible Project duly executed and delivered by the applicable Association, each in form and substance satisfactory to the Banks, and (ii) an estoppel letter with respect to the Management Agreement, in form and substance satisfactory to the Banks, duly executed and delivered by Silverleaf Club. 11. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to make any Loan whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent, as determined by each Bank: 11.1. REPRESENTATIONS TRUE: NO EVENT OF DEFAULT. Each of the representations and warranties of any of the Borrower and its Subsidiaries contained in this Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. 11.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make such Loan. 11.3. GOVERNMENTAL REGULATION. Each Bank shall have received such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 11.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 82 11.5. BORROWING BASE CERTIFICATE. The Banks shall have received the most recent Borrowing Base Certificate required to be delivered to the Agent in accordance with Section 7.4(f). 11.6. NO ADVERSE CHANGE. No material adverse change shall have occurred in the financial condition of the Borrower, in the business operations of the Borrower, or in the condition of the Collateral or the Borrower's business from the Closing Date. 11.7. AVAILABLE CASH ON HAND. The most recent Weekly Flash Report delivered to the Agent indicates that the Borrower has less than five million dollars ($5,000,000) Available Cash on Hand. 11.8. PRO-RATA ADVANCES. Heller and Textron shall have funded advances requested by the Borrower in accordance with Section 2.1(c) hereof and the Intercreditor Agreement. 11.9. OPERATING EXPENSES. There are insufficient proceeds from the Tax Refund to pay Operating Expenses as provided in the Business Plan. 12. EVENTS OF DEFAULT; ACCELERATION; ETC. 12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events ("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "DEFAULTS") shall occur: (a) the Borrower shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment and such failure shall continue for three (3) days after the Agent has provided the Borrower with written or verbal notice thereof; (b) the Borrower shall fail to pay any interest on the Loans or any other sums due hereunder or under any of the other Loan Documents, when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment and such failure shall continue for three (3) days after the Agent has provided the Borrower with written or verbal notice thereof; (c) the Borrower shall fail to comply with any of its covenants contained in Sections 7, 8 or 9 or any of the covenants contained in any of the Security Documents; (d) the Borrower or any of its Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this Section 12.1) for fifteen (15) days after written notice of such failure has been given to the Borrower by the Agent; 83 (e) any representation or warranty of the Borrower or any of its Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument constituting or relating to the Collateral or delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) the Borrower or any of its Subsidiaries shall fail to pay when due, or within any applicable period of grace, any obligation for borrowed money (including, without limitation, any obligation under the Heller Facility, the Textron Facility, or the New Notes), or credit received in respect of any Capitalized Leases in excess of $100,000, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received (including, without limitation, the New Notes and the agreements and instruments executed into by the Borrower in connection with the Heller Facility and the Textron Facility) or in respect of any Capitalized Leases in excess of $100,000 for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof, or any such holder or holders shall rescind or shall have a right to rescind the purchase of any such obligations; (g) an event of default shall occur under the DZ Bank Facility, the Heller Facility, the Textron Facility or the New Notes; (h) the Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of its Subsidiaries or of any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (i) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the 84 Borrower or any Subsidiary of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (j) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive, any final judgment against the Borrower or any of its Subsidiaries that, with other outstanding final judgments, undischarged, against the Borrower or any of its Subsidiaries exceeds in the aggregate $100,000; (k) the holders of all or any part of the Subordinated Debt shall accelerate the maturity of all or any part of the Subordinated Debt or the Subordinated Debt shall be prepaid or repurchased in whole or in part; (l) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded or the Agent's security interests, mortgages or liens in a substantial portion of the Collateral shall cease to be perfected, or shall cease to have the priority contemplated by the Security Documents, in each case other than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower, any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof, (m) the Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $100,000, or the Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $100,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of Section 302(f)(1) of ERISA), provided that the Agent determines in its reasonable discretion that such event (A) could be expected to result in liability of the Borrower or any of its Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $100,000 and (B) could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension Plan; or (ii) the appointment by a United States District Court of a trustee to administer such Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to terminate such Guaranteed Pension Plan; 85 (n) the Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (o) there shall occur any material damage to, or loss, theft or destruction of, any of the Collateral or any Eligible Project, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case is not fully covered by insurance and which, in the opinion of the Agent or the Required Banks, materially impairs its security interest or increases its risk; (p) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Borrower or any of its Subsidiaries if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Borrower or such Subsidiary; (q) the Borrower or any of its Subsidiaries shall be indicted for a state or federal crime, or any civil or criminal action shall otherwise have been brought or threatened against the Borrower or any of its Subsidiaries, a punishment for which in any such case could include the forfeiture of any assets of the Borrower or such Subsidiary included in the Borrowing Base or any assets of the Borrower or such Subsidiary not included in the Borrowing Base but having a fair market value in excess of $100,000; (r) (i) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Borrower (other than Robert E. Mead); (ii) during any period of twelve consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; or (iii) there shall occur any change in the Borrower's key management personnel (whether by termination, death, incompetence or otherwise), which the Required Bank deem material, and, within thirty (30) days of such change, the Borrower does not have in place a team of key management personnel with skills at least commensurate, in the reasonable opinion of the Required Banks, with those of the Borrower's key management team in place as of the date hereof. (s) there shall occur a material adverse change in the Collateral or in the business, operations, properties or condition (financial or otherwise) of the Borrower, which, in the opinion of the Agent or the Required Banks, impairs its security or increases its risk, including, without limitation, if any financial information furnished to the Agent or Banks shall indicate any 86 operating loss or total liabilities in excess of total assets, as determined in accordance with generally accepted accounting principles (in the absence of any operating loss or total liabilities in excess of total assets, any adverse change which has less than a five percent (5%) one time or annual adverse impact on any of the Borrower's revenues, net profit, net worth or assets shall not be deemed material); (t) there shall occur an event of default under any material agreement affecting or related to any Eligible Project; (u) commencement of any levy, seizure, attachment or sale upon execution against any Collateral or other proceedings of any nature whereby the Borrower shall or may be deprived of title or right of possession to the Collateral or any part thereof; (v) the Borrower or the Servicer shall fail to remit to the Agent any proceeds of any Collateral or shall fail to perform any of the obligations under the Lock Box Agreement or the Servicing Agreement; (w) the Borrower, Silverleaf Club or any Association shall fail to fund maintenance fees, taxes, reserves, or other payments required for the proper and efficient operation of any Eligible Project, or the Silverleaf Club or any Association shall default in the observance or performance of its duties in connection with an Eligible Project; (x) there shall occur a conveyance, assignment, sale, pledge, transfer, hypothecation or other disposition (which shall include execution of a contract for sale) of legal or equitable ownership of any part of the Collateral, except as expressly permitted by the Loan Documents; (y) any material adverse change in the financial condition of the Borrower or in the condition of the Collateral (for purposes of this provision, a decline in the net worth of the Borrower of $100,000 or less shall not be considered a material adverse change); or (z) DZ Bank does not purchase loans in substantially the amounts and during the periods specified in the Business Plan or if the proceeds of such purchase are insufficient to make the principal payments described in Section 3.2 hereof or if Borrower fails to apply such proceeds to repayment of the Loans as provided in Section 3.2 hereof. then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Required Banks shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in Sections 12.1(h), 12.1(i) or 87 12.1(k), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. 12.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of Default specified in Section 12.1(h), Section 12.1(1) or Section 12.1(k) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, or if on any Drawdown Date the conditions precedent to the making of the Loans to be made on such Drawdown Date are not satisfied, the Agent may and, upon the request of the Required Banks, shall, by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Loans. If any such notice is given to the Borrower, the Agent will forthwith furnish a copy thereof to each of the Banks. No termination of the credit hereunder shall relieve the Borrower of any of the Obligations or any of its existing obligations to any of the Banks arising under other agreements or instruments. 12.3. REMEDIES. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans pursuant to Section 12.1, each Bank, if owed any amount with respect to the Loans, may, with the consent of the Required Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. In addition to foregoing, the Agent may, and at the request of the Required Banks shall, pursue any of the foregoing remedies: (i) deliver Notices to Maker (which Notices to Maker shall not be delivered in the absence of an Event of Default) and other notices to account debtors and servicers that payments should be made directly to the Agent, record or file assignments or mortgages, complete blank endorsements and take such other actions as the Agent shall deem necessary to exercise rights in the Collateral or assign the Collateral, (ii) require the Borrower to give notice to account debtors and servicers that payment should be made directly to the Agent, (iii) require the Borrower to assemble Collateral and make it available to the Agent at a place designated by the Agent which is reasonably convenient, and (iv) in its name or in the Borrower's name, without notice to the Borrower, and at Borrower's expense (A) verify the validity and amount of or any other matter relating to the Consumer Loan Collateral, by mail, telephone, facsimile or otherwise or (B) direct all consumer borrowers to make payment directly to the Agent or a Person designated by the Agent and forward invoices directly to such consumer borrowers. No remedy herein conferred upon any Bank or the Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder 88 or now or hereafter existing at law or in equity or by statute or any other provision of law. Notwithstanding anything to the contrary herein or any other Loan Documents, the Agent and the Banks shall not, by virtue of entering into this Credit Agreement or the other Loan Documents or the exercise of rights hereunder or thereunder, be deemed to have assumed any obligations, responsibilities or duties of the Borrower in respect of any Eligible Projects, Timeshare Interests, Timeshare Instruments or other documents, instruments or agreements relating to the business of the Borrower. 12.4. STANDBY SERVICER AND STANDBY MANAGER. Without demand or notice of any nature whatsoever, upon an Event of Default, the Agent may, and at the request of the Required Banks shall, with the approval of a majority of the Borrower's Board of Directors, not to be unreasonably withheld or delayed (provided that (i) if the Obligations have become immediately due and payable in accordance with Section 12.1 hereof or (ii) the Required Banks elect to have J&J Limited, Inc. act as Standby Manager, then no such approval shall be required), terminate any then existing management agreement and replace any existing manager of the Eligible Projects with the Standby Manager, or such other manager as the Required Banks may select in their sole and absolute discretion. Upon an Event of Default, the Agent may, and at the request of the Required Banks shall, without demand or notice of any nature whatsoever, terminate any then existing servicing agreement and replace any then existing servicer with the Standby Servicer or such other servicer as the Required Banks may select in their sole and absolute discretion. Upon an Event of Default, at the election of the Required Banks, the Borrower agrees that with the approval of the Borrower's Board of Directors, not to be unreasonably withheld or delayed (provided that (i) if the Obligations have become immediately due and payable in accordance with Section 12.1 hereof or (ii) the Required Banks elect to have J&J Limited, Inc. act as Standby Manager, then no such approval shall be required), the Standby Manager or such other manager as the Required Banks may select in their sole and absolute discretion may assume control of (A) the management or the operation of the Eligible Projects, the related amenities, the Additional Resort Collateral and any other Collateral as the Required Banks may in their sole discretion deem necessary and (B) the monitoring or supervising of the marketing, sales, resales, and financings of the Timeshare Interests pledged to the Agent, reporting to the Banks, subject to the terms of the Intercreditor Agreement. Upon an Event of Default, at the election of the Required Banks, the Borrower agrees that the Standby Servicer or such other servicer as the Required Banks may select in their sole and absolute discretion may assume control over the servicing of the Consumer Loan Collateral or any other consumer loans pledged to the Agent, reporting to the Banks. The Agent shall also have the right, but not the obligation, to assume management of the Eligible Projects, subject to the terms of the Intercreditor Agreement. 12.5. DISTRIBUTION OF COLLATERAL PROCEEDS. (a) Except as otherwise provided in Section 12.5(b) and (c) below, in the event that the Agent receives proceeds of Collateral or in the event that, following the occurrence or during the continuance of any Default or Event of 89 Default, the Agent or any Bank, as the case may be, receives any monies in connection with the enforcement of any the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: (i) First, to the payment of, or (as the case may be) the reimbursement of the Agent and the Banks for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Agent and the Banks in connection with the collection of such monies by the Agent and the Banks, for the exercise, protection or enforcement by the Agent and the Banks of all or any of the rights, remedies, powers and privileges of the Agent and the Banks under this Credit Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Agent and the Banks against any taxes or liens which by law shall have, or may have, priority over the rights of the Agent and the Banks to such monies; (ii) Second, to pay interest on the Tranche A Loans and to pay interest on the Tranche B Loans; (iii) Third, to pay any other Obligations (other than the principal of the Loans) then due and payable; (iv) Fourth, to pay the principal of the Tranche A Loans (it being understood that such repayment shall be accompanied by a permanent reduction in the Tranche A Total Commitment (if then in effect) in the amount of such repayment); (v) Fifth, to pay the principal of the Tranche B Loans pro rata based upon the respective Tranche A Commitment Percentages of the Banks (it being understood that such repayment shall be accompanied by a permanent reduction in the Tranche B Total Commitment (if then in effect) in the amount of such repayment); (vi) Sixth, to pay any remaining principal of the Tranche B Loans (it being understood that such repayment shall be accompanied by a permanent reduction in the Tranche B Total Commitment (if then in effect) in the amount of such repayment); and (vii) Seventh, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Banks and the Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to Section 9-608(a)(i)(c) or 9-615(a)(3) of the Uniform Commercial Code; and (viii) Eighth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto. 90 (b) In the event that the Agent receives Net Cash Proceeds in respect of any of the Additional Resort Collateral, insurance proceeds in respect of damaged or destroyed Additional Resort Collateral, title insurance proceeds and condemnation proceeds respect to any of the Additional Resort Collateral or in the event that, following the occurrence or during the continuance of any Default or Event of Default, the Agent or any Bank, as the case may be, receives any monies in connection with the foreclosure of any of the Additional Resort Collateral, or otherwise with respect to the realization upon any of the Additional Resort Collateral, such monies shall be distributed for application as follows: (i) First, to the payment of, or (as the case may be) the reimbursement of the Agent and the Banks for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Agent and the Banks in connection with the collection of such monies by the Agent and the Banks, for the exercise, protection or enforcement by the Agent and the Banks of all or any of the rights, remedies, powers and privileges of the Agent and the Banks under this Credit Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Agent and the Banks against any taxes or liens which by law shall have, or may have, priority over the rights of the Agent and the Banks to such monies; (ii) Second, to pay interest on the Tranche A Loans and to pay interest on the Tranche B Loans; (iii) Third, to pay any other Obligations (other than the principal of the Loans) then due and payable; (iv) Fourth, to pay the principal of the Tranche B Loans pro rata based upon the respective Tranche A Commitment Percentages of the Banks (it being understood that such repayment shall be accompanied by a permanent reduction in Total Tranche B Commitment (if then in effect) in the amount of such repayment); (v) Fifth, to pay any remaining principal of the Tranche B Loans (it being understood that such repayment shall be accompanied by a permanent reduction in Total Tranche B Commitment (if then in effect) in the amount of such repayment); (vi) Sixth, to pay the principal of the Tranche A Loans (it being understood that such repayment shall be accompanied by a permanent reduction in Total Tranche A Commitment (if then in effect) in the amount of such repayment); (vii) Seventh, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Banks and the 91 Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to Section 9-608(a)(i)(c) or 9-615(a)(3) of the Uniform Commercial Code; and (viii) Eighth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto. (c) In the event that the Agent receives Net Cash Proceeds in respect of any of the Existing Mortgaged Properties, insurance proceeds in respect of damaged or destroyed Existing Mortgaged Properties, title insurance proceeds and condemnation proceeds respect to any of the Existing Mortgaged Properties or in the event that, following the occurrence or during the continuance of any Default or Event of Default, the Agent or any Bank, as the case may be, receives any monies in connection with the foreclosure of any of the Existing Mortgages or otherwise with respect to the realization upon any of the Existing Mortgaged Properties, such monies shall be distributed for application as follows: (i) First, to the payment of, or (as the case may be) the reimbursement of the Agent and the Banks for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Agent and the Banks in connection with the collection of such monies by the Agent and the Banks, for the exercise, protection or enforcement by the Agent and the Banks of all or any of the rights, remedies, powers and privileges of the Agent and the Banks under this Credit Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Agent and the Banks against any taxes or liens which by law shall have, or may have, priority over the rights of the Agent and the Banks to such monies; (ii) Second, to pay interest on the Tranche A Loans of Sovereign and to pay interest on the Tranche B Loans of Sovereign; (iii) Third, to pay any other Obligations (other than the principal of the Loans) then due and payable to Sovereign; (iv) Fourth, to pay the principal of the Tranche B Loans of Sovereign (it being understood that such repayment shall be accompanied by a permanent reduction in Sovereign's Tranche B Commitment (if then in effect) in the amount of such repayment); (v) Fifth, to pay the principal of the Tranche A Loans of Sovereign (it being understood that such repayment shall be accompanied by a permanent reduction in Sovereign's Tranche A Commitment (if then in effect) in the amount of such repayment); 92 (vi) Sixth, to pay the interest on the Tranche A Loans of the Tranche A Banks (other than Sovereign) and to pay interest on the Tranche B Loans of the Tranche B Banks (other than Sovereign) and to pay any other Obligations (other than the principal of the Loans) then due and payable to the Banks (other than Sovereign); (vii) Seventh, to pay the principal of the Tranche A Loans of the other Tranche A Banks (it being understood that such repayment shall be accompanied by a permanent reduction in the Tranche A Total Commitment (if then in effect) in the amount of such repayment); (viii) Eighth, to pay the principal of the Tranche B Loans of the other Tranche B Banks (it being understood that such repayment shall be accompanied by a permanent reduction in the Tranche B Total Commitment (if then in effect) in the amount of such repayment); (ix) Ninth, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Banks and the Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to Section 9-608(a)(i)(c) or 9-615(a)(3) of the Uniform Commercial Code; and (x) Tenth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto. (d) Except as otherwise provided in Section 12.5(a), (b) and (c) above, with respect to each type of Obligation owing to the Banks, such as interest, principal, fees and expenses, all payments shall be made to the Banks pro rata. 12.6. RELIEF FROM AUTOMATIC STAY, ETC. To the fullest extent permitted by law, in the event the Borrower shall make any application for or seek relief or protection under the federal bankruptcy code (the "BANKRUPTCY CODE") or other Debtor Relief Laws, or in the event that any involuntary petition is filed against the Borrower under the Bankruptcy Code or any other Debtor Relief Law, and not dismissed with prejudice within 45 days, the Borrower agrees that the automatic stay provisions of Section 362 of the Bankruptcy Code shall be modified to permit set-off and the Borrower agrees that the Agent and each Bank automatically and without demand or notice (each of which is hereby waived) shall be entitled to immediate relief from any automatic stay imposed by Section 362 of the Bankruptcy Code or otherwise, on or against the exercise of the rights and remedies otherwise available to the Agent and the Banks as provided in the Loan Documents. 13. SETOFF. Regardless of the adequacy of any collateral, during the continuance of any 93 Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees with each other Bank that (i) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank, and (ii) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 14. THE AGENT. 14.1. AUTHORIZATION. (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto, provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. Each Bank hereby authorizes the Agent to hold and exercise control over the Consumer Loan Collateral and to exercise discretion with regard to the acceptance of Consumer Loan Collateral and the inclusion of Consumer Loan Collateral in the Borrowing Base from time to time. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks. 94 (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. Such actions include the designation of the Agent as "secured party", "mortgagee" or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations, all for the benefit of the Banks and the Agent. (d) Each of the Banks and the Borrower hereby acknowledges the terms of the Intercreditor Agreement and further acknowledges that certain rights and remedies hereunder (including those set forth in Sections 3.2(c) and 12.4 hereof) are subject to the terms of the Intercreditor Agreement. Each of the Banks hereby authorizes the Agent to execute, deliver and perform the Intercreditor Agreement in its capacity as Agent for the Banks. The Agent and the Banks hereby agree that Agent shall act, or refrain from acting, as a "Lender" under the Intercreditor Agreement at the direction of the Required Banks (except that the Agent may act, or refrain from acting, with respect to the Existing Mortgaged Property solely at the direction of Sovereign), and that all amounts received by the Agent under the Intercreditor Agreement shall be applied to the Obligations in accordance with the terms of this Credit Agreement. 14.2. GENERAL; EMPLOYEES AND AGENTS. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. 14.3. NO LIABILITY. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. Subject to the preceding sentence, in the administration of the Loans and the custody of the Collateral, the Agent shall exercise the same standard of care as it exercises with loans where it is the sole lender. 95 14.4. NO REPRESENTATIONS. 14.4.1. GENERAL. The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, any of the other Loan Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of the Borrower or any of its Subsidiaries. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrower or any of its Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 14.4.2. CONSUMER LOAN COLLATERAL. The Agent shall be under no obligation to review or in any manner approve any Consumer Loan Collateral delivered to the Agent from time to time, although nothing herein shall preclude the Agent from conducting whatever review it deems appropriate. The Agent shall have no responsibility for taking any steps necessary to preserve rights against other parties or any other rights pertaining to Collateral. The Agent shall not be required to perfect or maintain the perfection of its security interests. No loss of or damage to any Collateral shall release the Borrower from the Indebtedness. The Agent may, but shall not be obligated to, take such action as it deems fit, at the Borrower's expense, to collect or enforce any loan pledged to the Agent hereunder which shall be in default and the Agent shall not be liable to the Borrower for any act or omission taken by it in the collection or enforcement of such loans. The Agent shall not be liable or responsible in any way for any loss or damage to the Collateral or any diminution in the value thereof, except if caused by the Agent's gross negligence or willful misconduct. The Agent shall not be liable or responsible in any way for any act of any custodian, carrier, servicer, lock box agent or any other Person whatsoever, and all of the same shall be at the Borrower's sole risk. The Agent and the Banks shall not be responsible for any excise, property or other taxes related to the Collateral or the sale thereof and all such taxes shall be the 96 responsibility of the Borrower. The grants of security interests under the Security Documents shall not obligate or be construed to obligate the Agent to perform any of the terms contained in the agreements constituting Collateral or otherwise to impose any duty upon the Agent with respect to the same. 14.4.3. CLOSING DOCUMENTATION, ETC. For purposes of determining compliance with the conditions set forth in Section 10, each Bank that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or made available, by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank. 14.5. PAYMENTS. 14.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the Agent hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly (and in any event within two (2) Business Days) after receipt to distribute to each Bank such Bank's pro rata share of payments received by the Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. If the Agent does not so distribute within two (2) Business Days any such payment received by it for the account of any Bank, the Agent shall pay to such Bank on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by such Bank for federal funds acquired by such Bank during each day included in such period, times (ii) the amount of such payment for the account of such Bank, times (iii) a fraction, the numerator of which is the number of days that elapse from and including the date which is two Business Days after the Agent received such payment to the date on which such payment is made to such Bank, and the denominator of which is 365. 14.5.2. DISTRIBUTION BY AGENT. If in the reasonable opinion of the Agent the distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 14.5.3. DELINQUENT BANKS. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan 97 Documents, any Bank that fails (i) to make available to the Agent its pro rata share of any Loan required to be funded by such Bank or (ii) to comply with the provisions of Section 13 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "DELINQUENT BANK") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Loans. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Loans. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Loans have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 14.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any Note as the absolute owner thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder. 14.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold harmless the Agent and its affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent or such affiliate has not been reimbursed by the Borrower as required by Section 15), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's willful misconduct or gross negligence. 14.8. AGENT AS BANK. In its individual capacity, Sovereign shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes, as it would have were it not also the Agent. 14.9. RESIGNATION; REMOVAL. The Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Banks and the Borrower. The Required Banks (determined without regard to Notes and Commitments held by the Bank which is the Agent) may remove the Agent upon 30 days' prior notice to the Agent after the occurrence of one of the following (unless cured within the 30 day period): (a) a material uncured default by the Agent in the performance of its duties; 98 (b) the failure of the Agent, as a Bank, to advance its pro-rata share of the Loans in accordance with this Credit Agreement; or (c) the appointment of a receiver for the Agent or the assumption of the Agent's operations by any federal regulatory agency with jurisdiction over the Agent. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 14.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT NOTICES. Each Bank hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that (a) upon receipt of any notice under this Section 14.10, or (b) if Sovereign is the Agent, upon Sovereign's obtaining actual knowledge of the existence of a Default or Event of Default, it shall promptly notify the other Banks of the existence of such Default or Event of Default. The Agent hereby agrees that it will promptly distribute to the Banks, all Loan Requests, reports and other information delivered to it under Section 7.4, notices delivered to it under Section 7.5, other notices and information delivered to the Agent hereunder for distribution to the Banks, and all material notices sent or received by the Agent with respect to the Intercreditor Agreement. 15. EXPENSES AND INDEMNIFICATION. 15.1. EXPENSES. The Borrower agrees to pay (i) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (ii) any taxes (including any interest and penalties in respect thereto) payable by the Agent or any of the Banks (other than taxes based upon the Agent's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and each Bank with respect thereto), (iii) the reasonable fees, expenses and disbursements of the Agent's Special Counsel, any local counsel to the Agent and counsel to each Bank incurred in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, the closing hereunder, any amendments, modifications, approvals, consents or waivers hereto or hereunder, or the cancellation of any Loan Document upon payment in full in cash of all of the Obligations or pursuant to any terms of such Loan Document providing for such 99 cancellation, (iv) the fees, expenses and disbursements of the Agent or any of its affiliates incurred by the Agent or such affiliate in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including all title insurance premiums and surveyor, engineering and appraisal charges, (v) any fees, costs, expenses and bank charges, including bank charges for returned checks, incurred by the Agent in establishing, maintaining or handling the Borrower's Account, the Lock Box, any other lock box and any other accounts for the collection of any of the Collateral; (vi) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by any Bank or the Agent in connection with (A) the interpretation, enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrower or any of its Subsidiaries, (vii) all reasonable fees, expenses and disbursements of any Bank or the Agent incurred in connection with UCC searches, UCC filings or mortgage recordings, (viii) the fees and expenses (including reasonable attorney's fees) of the Collateral Custodian, and (ix) any other fees and expenses to be paid pursuant to the terms of the Loan Documents. 15.2. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Agent, its affiliates and the Banks (and their respective affiliates, officers, directors, representatives, agents and attorneys) from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character (a) arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (i) any actual or proposed use by the Borrower or any of its Subsidiaries of the proceeds of any of the Loans, (ii) the reversal or withdrawal of any provisional credits granted by the Agent upon the transfer of funds from the Borrower's Account, the Lock Box or any other lock box or concentration accounts or in connection with the provisional honoring of checks or other items, (iii) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of the Borrower or any of its Subsidiaries comprised in the Collateral, (iv) the Borrower or any of its Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents, (v) any alleged obligation or undertaking on the Agent's part to perform or discharge any of the terms, covenants, and conditions contained in the Servicing Agreement, the Lock Box Agreement, or the Collateral Custodian Agreement, or (vi) with respect to the Borrower and its Subsidiaries and their respective properties and assets, the violation of or noncompliance with any Requirements or any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property), or (b) related in any way to 100 (i) any act or omission of the Borrower or any of its Subsidiaries or any of their respective employees, contractors, or agents or (ii) any Eligible Project, Existing Mortgaged Property or Additional Resort Collateral and the operator of the Borrower's business, in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Banks and the Agent and its affiliates shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this Section 15.2 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. 15.3. SURVIVAL. The covenants contained in this Section 15 shall survive payment or satisfaction in full of all other Obligations. 16. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Bank or the Agent at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such Subsidiary hereunder. 17. ASSIGNMENT AND PARTICIPATION. 17.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein, each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it) and the Notes held by it; provided that (i) the Agent shall have given its prior written consent to such assignment, which consent shall not be unreasonably withheld, except that the consent of the Agent shall not be required for any such assignment by Liberty Bank of less than all of its Loans and Commitments hereunder (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (iii) each assignment shall be in an amount that is a whole multiple of $5,000,000 (or such lesser amount as shall constitute the aggregate 101 holdings of such Bank) and (iv) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an assignment and acceptance, substantially in the form of EXHIBIT G hereto (an "ASSIGNMENT AND ACCEPTANCE"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Tranche A Bank and/or Tranche B Bank, as the case may be, hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment, be released from its obligations under this Credit Agreement. 17.2. CERTAIN REPRESENTATIONS AND WARRANTIES LIMITATIONS COVENANTS. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage; (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations or any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in Section 7.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; 102 (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; and (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. 17.3. REGISTER. The Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "REGISTER'") for the recordation of the names and addresses of the Banks and the Tranche A Commitment Percentage and Tranche B Commitment Percentage of, and principal amount of the Tranche A Loans and the Tranche B Loans owing to the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and the Banks at any reasonable time and from time to time upon reasonable prior notice. 17.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (i) record the information contained therein in the Register, and (ii) give prompt notice thereof to the Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Borrower, at its, own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note or Notes, a new Note or Notes to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note or Notes to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this Section 17.4, the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance 103 satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Borrower. 17.5. PARTICIPATIONS. Each Bank may sell participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; provided that (i) each such participation shall be in an amount of not less than $5,000,000, (ii) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower and (iii) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on Loans, only to the extent such participant has an interest in such Loans, extend the term or increase the amount of the Tranche A Commitment or Tranche B Commitment of such Bank as it relates to such participant or extend any regularly scheduled payment date for principal or interest on any Loans in which the participant has acquired an interest. 17.6. DISCLOSURE. The Borrower agrees that in addition to disclosures made in accordance with standard and customary banking practices any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. For purposes of this Section 17.6 an assignee or participant or potential assignee or participant may include a counterparty with whom such Bank has entered into or potentially might enter into a derivative contract referenced to credit or other risks or events arising under this Credit Agreement or any other Loan Document. 17.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to Section 12.1 or Section 12.2, and the determination of the Required Banks shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans to a participant, and such participant is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to Section 12.1 or 104 Section 12.2 to the extent that such participation is beneficially owned by the Borrower or any Affiliate of the Borrower, and the determination of the Required Banks shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. 17.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall retain its rights to be indemnified pursuant to Section 15 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Agent certification as to its exemption from deduction or withholding of any United States federal income taxes. Anything contained in this Section 17 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 17.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 18. NOTICES, ETC. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 1221 Riverbend, Suite 120, Dallas, Texas 75247, USA, Attention: Robert E. Mead, facsimile number: 212-905-0514 or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice; (b) if to the Agent, at 15 Westminster Street, Providence, Rhode Island, 02903, USA, Attention: John Baer, facsimile number: 401-752-1042 or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (c) if to any Bank, at such Bank's address set forth on SCHEDULE 1 hereto, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice. 105 Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 19. GOVERNING LAW. THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 18. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 20. HEADINGS. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 21. COUNTERPARTS. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 22. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any 106 term hereof may be changed, waived, discharged or terminated, except as provided in Section 24. 23. WAIVER OF JURY TRIAL. The Borrower hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Credit Agreement, the Notes or any of the other Loan Documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. Except as prohibited by law, the Borrower hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Borrower (i) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that the Agent and the Banks have been induced to enter into this Credit Agreement and the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. 24. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly provided in this Credit Agreement, any consent or approval required or permitted by this Credit Agreement to be given by the Banks may be given, and any term of this Credit Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower of any terms of this Credit Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Required Banks. Notwithstanding the foregoing, (a) the principal amount of or the rate of interest on the Notes (other than interest accruing pursuant to Section 4.7.2 following the effective date of any waiver by all of the Banks of the Default or Event of Default relating thereto) may not be increased or decreased without the written consent of all of the Banks; (b) the amount of the Commitments may not be increased or reduced, without the written consent of all of the Banks, other than reductions specifically provided for herein and reductions effected by permitted assignments; (c) the principal amortization or mandatory reductions of the Loans or Commitments may not be changed, except as specifically provided for herein, without the written consent of all of the Banks; (d) the Tranche A Conversion Date may not be extended without the written consent of each of the Tranche A Banks; 107 (e) a substantial amount of the Collateral (other than the Existing Mortgaged Properties) may not be released (other than any release specifically provided for herein) without the written consent of all of the Banks; (f) the Intercreditor Agreement may not be amended without the written consent of all of the Banks (other than any amendment relating solely to the Existing Mortgaged Properties, which may be approved by Sovereign in its sole discretion) and to the extent that the Agent is agreeing to or consenting with any action or waiver under the Intercreditor Agreement (other than any action or waiver relating solely to the Existing Mortgaged Properties, which may be approved by Sovereign in its sole discretion), the Agent shall consult with all of the Banks prior thereto and shall agree or consent (or not agree or consent) as directed by all of the Banks; (g) no Tranche A Loan shall be made during the continuance of an Event of Default without the written consent of all of the Banks; (h) neither the Tranche A Maturity Date nor the Tranche B Maturity Date may be postponed without the written consent of all of the Banks; (i) this Section 24 and the definition of Required Banks may not be amended without the written consent of all of the Banks; (j) none of Section 7.4, Section 9, or Section 11 may be amended in any material respect without the written consent of all of the Banks; (k) the Borrower may not amend the Business Plan in any material respect without the written consent of all of the Banks; (l) no Event of Default may be waived by the Banks, and no provision of any Loan Document may be amended for the purpose of curing any Event of Default, in each case without the written consent of all of the Banks; and (m) Section 14 may not be amended without the written consent of the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. 25. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any 108 jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. 26. NONCONSOLIDATION WITH SILVERLEAF FINANCE I, INC. As of the Closing Date, the Banks (a) acknowledge the true sale nature of the transfer of receivables from the Borrower to Silverleaf Finance I, Inc. ("SFI") in connection with the DZ Bank Securitization and (b) agree that they will not take action to seek or support a substantive consolidation of SFI into the Borrower in case of the bankruptcy of the Borrower or otherwise. The Banks further agree not to take any action to challenge the true sale nature of the transfer of receivables from the Borrower to SFI or commence or join with others in commencing an involuntary bankruptcy of SFI. 27. TRANSITIONAL ARRANGEMENTS. This Credit Agreement shall supersede the Original Agreement in its entirety, except as provided in this Section 27. On the Closing Date, the rights and obligations of the parties under the Original Agreement and the "Notes" defined therein shall be subsumed within and be governed by this Credit Agreement and the Notes; provided however, that any of the "Loans" (as defined in Original Agreement) outstanding under the Original Agreement shall, for purposes of this Credit Agreement, be Loans hereunder. Upon its receipt of the Notes to be delivered hereunder on the Closing Date, each Bank will promptly return to the Borrower, marked "Cancelled" or "Replaced", the notes of the Borrower held by such Bank pursuant to the Original Agreement. All interest and all commitment, facility and other fees and expenses owing or accruing under or in respect of the Original Agreement shall be calculated as of the Closing Date (prorated in the case of any fractional periods), and shall be paid on the Closing Date in accordance with the method specified in the Original Agreement, as if the Original Agreement were still in effect. 28. RELEASE. In order to induce the Agent and the Banks to enter into this Agreement, the Borrower acknowledges and agrees that: (i) the Borrower has no claim or cause of action against the Agent or any Bank (or any of their respective directors, officers, employees or agents); (ii) the Borrower has no offset right, counterclaim or defense of any kind against any of its obligations, indebtedness or liabilities to the Agent or any Bank; and (iii) each of the Agent and the Banks has heretofore properly performed and satisfied in a timely manner all of its obligations to the Borrower. The Borrower wishes to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect the Agent's or any of the Banks' rights, interests, contracts, collateral security or remedies. Therefore, the Borrower unconditionally releases, waives and forever discharges (A) any and all liabilities, obligations, duties, promises or indebtedness of 109 any kind of the Agent or any Bank to the Borrower, except the obligations to be performed by the Agent or any Bank on or after the date hereof as expressly stated in this Credit Agreement and the other Loan Documents, and (B) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which the Borrower might otherwise have against the Agent, any Bank or any of their respective directors, officers, employees or agents, in either case (A) or (B), on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind. 29. WAIVER. On the Closing Date, so long as each condition precedent set forth in this Agreement has been satisfied, the Banks agree to waive all prior Defaults and Events of Default under the Original Agreement, including, but not limited to the Specified Events of Default (as defined in the Forbearance Agreement). For the avoidance of any doubt, the Borrower, the Agent and the Banks acknowledge and agree that the foregoing waiver shall not extend to any Default or Event of Default that may exist or occur on or after the Closing Date under this Agreement. IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. SILVERLEAF RESORTS, INC. By: /s/ Harry J. White, Jr. --------------------------------------- Name: Harry J. White, Jr. Title: CFO SOVEREIGN BANK, individually and as Agent By: /s/ John Baer -------------------------------------- Name: John Baer Title: Vice President LIBERTY BANK By: /s/ Mark E. Rauniker -------------------------------------- Name: Mark E. Rauniker Title: Vice President List of Exhibits: Exhibit E: Eligible Projects Exhibit F: Existing Mortgaged Property EX-10.4 10 d00253exv10w4.txt AMENDED/RESTATED LOAN, SECURITY & AGENCY AGREEMENT EXHIBIT 10.4 AMENDED AND RESTATED LOAN, SECURITY AND AGENCY AGREEMENT (TRANCHE A) among SILVERLEAF RESORTS, INC. (as Borrower) THE PARTIES WHICH HEREAFTER EXECUTE THIS AGREEMENT (as Lenders) and TEXTRON FINANCIAL CORPORATION (as Lender and Facility and Collateral Agent) As of April 30, 2002 AMENDED AND RESTATED LOAN, SECURITY AND AGENCY AGREEMENT (TRANCHE A) THIS AMENDED AND RESTATED LOAN, SECURITY AND AGENCY AGREEMENT (TRANCHE A), dated as of April 30, 2002, entered into by and among SILVERLEAF RESORTS, INC. (as "Borrower"), the parties, including TEXTRON FINANCIAL CORPORATION ("TFC"), a Delaware corporation, which execute and deliver this Agreement, in their respective capacities as lenders hereunder (collectively, the "Lenders" and each individually, a "Lender") and TEXTRON FINANCIAL CORPORATION as facility agent and collateral agent ("Agent"). WITNESSETH: WHEREAS, Borrower was formerly known as ASCENSION CAPITAL CORPORATION (the "GUARANTOR"), the successor to ASCENSION RESORTS, LTD., a Texas limited partnership (the "ORIGINAL BORROWER"), by merger of EQUAL INVESTMENT COMPANY, a Texas corporation, ASCENSION RESORTS, LTD. and ASCENSION CAPITAL CORPORATION; WHEREAS, TFC, Original Borrower and Guarantor were parties to that certain Loan and Security Agreement dated as of August 15, 1995 (the "ORIGINAL AGREEMENT"), pursuant to which the Original Borrower executed its Secured Promissory Note in favor of Lender in the amount of $5,000,000.00, as amended to date (the "ORIGINAL NOTE"); WHEREAS, on December 28, 1995 Ascension Resorts, Ltd. was merged into the Guarantor and Guarantor was thereafter renamed Silverleaf Vacation Club, Inc.; WHEREAS, on December 28, 1995, TFC, Borrower and Guarantor amended the Original Agreement pursuant to a First Amendment to Loan and Security Agreement dated as of December 28, 1995 (the "FIRST AMENDMENT") to, among other things, evidence TFC's approval of the merger of Ascension Resorts, Ltd. into Ascension Capital Corporation and to reflect the above-mentioned merger and name change; WHEREAS, on October 31, 1996, TFC and Borrower further amended the Original Agreement pursuant to a Second Amendment to Loan and Security Agreement dated as of October 31, 1996 (the "SECOND AMENDMENT") to, among other things, increase the amount of the Loan, decrease the interest rate, and extend the maturity date of the Loan; WHEREAS, pursuant to a commitment letter dated January 26, 1999, TFC and Borrower agreed to further modify the terms of the Original Agreement to, among other things, increase the amount of the Loan, decrease the interest rate, extend the maturity date of the Loan and to reflect the change in Borrower's name to Silverleaf Resorts, Inc.; WHEREAS, TFC and Borrower further amended the Original Agreement pursuant to a Third Amendment to Loan and Security Agreement dated as of March 31, 1999 (the "THIRD AMENDMENT") to amend the Agreement as provided in the January 26, 1999 commitment letter; WHEREAS, TFC and Borrower further amended the Original Agreement pursuant to a Fourth Amendment to Loan and Security Agreement dated as of December 16, 1999 (the "FOURTH AMENDMENT") to, among other things, modify the definitions of Borrowing Base and Eligible Notes Receivable; WHEREAS, TFC and Borrower, as a result of certain Events of Default under the Original Agreement, entered into that certain Forbearance Agreement dated as of April 6, 2001 (the "FORBEARANCE AGREEMENT"); WHEREAS, TFC and Borrower further amended the Original Agreement pursuant to a Fifth Amendment to Loan and Security Agreement dated as of April 17, 2001 (the "FIFTH AMENDMENT") to, among other things, extend the Revolving Credit Period and to incorporate the terms of the Forbearance Agreement; WHEREAS, TFC and Borrower have agreed to enter into this Agreement, as such term is hereafter defined, to restructure and modify the Loan, including separating the Loan into two separate components - the Revolving Loan Component in the amount of up to $56,894,400.00 and the Term Loan Component in the amount of up to $15,105,600.00; WHEREAS, pursuant to this Agreement, the Commitment, as such term is hereinafter defined, shall be reduced to $63,920,000.00 less the outstanding principal balance of the Term Loan Component from time to time and the aggregate Commitment hereunder, under the Additional Credit Facility and the Tranche C Facility, as such terms are hereinafter defined, shall be reduced to $136,000,000.00 less the outstanding principal balance of the Term Loan Component and the aggregate term loan component of the Additional Credit Facility and the Tranche C Facility from time to time; WHEREAS, pursuant to this Agreement, the Original Note will be replaced by: (i) an Amended and Restated Secured Promissory Note or Notes in the aggregate original principal amount of $56,894,400.00 in favor of Agent, as agent for each of the Lenders (singly and collectively the "REVOLVING LOAN COMPONENT NOTE") and (ii) a Secured Promissory Note or Notes in the aggregate original principal amount of $15,105,600.00 in favor of Agent, as agent for each of the Lenders (singly and collectively the "TERM LOAN COMPONENT NOTE", and together with the Revolving Loan Component Note, sometimes referred to herein singly and collectively as the "NOTE"); WHEREAS, in connection with the Loans to be made by Lenders pursuant to this Agreement, Textron Financial Corporation has agreed to act as facility agent and collateral agent for the other Lenders and to perform such duties with respect to the Loans as are expressly set forth herein; WHEREAS, the Lenders and Borrower have agreed to enter into this Agreement to amend and restate the Original Agreement; and WHEREAS, Borrower acknowledges, agrees and confirms that if Borrower fails to satisfy any of the conditions set forth in Section 4 hereof, as determined by TFC, in its sole and absolute discretion, on or before May 31, 2002, then this Agreement, and the obligations of TFC and each Lender hereunder, shall be null and void in all respects AB INITIO. In such event, the terms and conditions of the Original Loan Agreement, as modified by the Forbearance Agreement, shall continue to control with respect to the Loan; Borrower further acknowledges, confirms and agrees that until such time as Borrower has satisfied all of the conditions set forth in Section 4 hereof, as determined by TFC, in its sole and absolute discretion, the Loan shall continue to be governed by the terms and provisions set forth in the Original Loan Agreement, as modified by the Forbearance Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties to this Agreement, intending to be legally bound, agree as follows: SECTION 1 -- DEFINITION OF TERMS 1.1 Capitalized terms used in this Agreement are defined in this Section 1.1. The definitions include the singular and plural forms of the terms defined. (a) ADDITIONAL CREDIT FACILITY. The term "Additional Credit Facility" shall mean that certain $71,000,000.00 credit facility (also known as the "TRANCHE B CREDIT FACILITY") provided by TFC and certain other Persons to Borrower pursuant to that certain Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated of even date herewith by and among Borrower, TFC and each Person which executes such agreement as a lender, as it may be amended from time to time (the "ADDITIONAL CREDIT FACILITY LOAN AGREEMENT"). (b) ADDITIONAL ELIGIBLE RESORTS or ADDITIONAL ELIGIBLE RESORT. The terms "Additional Eligible Resorts" and "Additional Eligible Resort" shall have the meanings ascribed to such terms in Section 3.7 hereof. (c) ADDITIONAL RESORT COLLATERAL. The term "Additional Resort Collateral" shall mean singly and collectively, the development rights, real property, fixtures and other personal property, including all management agreements for the Resorts, now owned or hereafter acquired by Borrower and described on Schedule 1.1(c) attached hereto. "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc., that constitute "Pledged Assets" under the DZ Documents. (d) ADDITIONAL RESORT COLLATERAL MORTGAGES. A properly recorded, first priority mortgage, deed of trust, deed to secure debt or other security instrument, as applicable, executed and delivered by Borrower to Agent, as agent on behalf of each Lender, encumbering all of the right, title and interest of Borrower in that portion of the Additional Resort Collateral constituting real property. (e) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. The term "Additional Resort Collateral Assignments" shall mean singly and collectively: (i) a first priority security agreement executed and delivered by Borrower to Agent, on behalf of each Lender, granting to Agent, on behalf of each Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting personal property, and (ii) a first priority security agreement executed and delivered by Borrower to Agent, on behalf of each Lender, granting to Agent, on behalf of each Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting development rights. (f) ADVANCE. A portion of the proceeds of the Loans advanced from time to time by Lenders to Borrower in accordance with the terms of this Agreement. (g) AFFILIATE. Any party controlled by, controlling, or under common control with, Borrower. (h) AGREEMENT. This Amended and Restated Loan, Security and Agency Agreement by and among Borrower, Agent and each Lender which executes this Agreement (including the Exhibits and Schedules to it), as it may be amended from time to time. (i) ASSIGNMENT OF MANAGEMENT AGREEMENTS. The term "Assignment of Management Agreements" shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Agent, of all of Borrower's rights under each management agreement for the Resorts. (j) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. The term "Assignment of Notes Receivable and Mortgages" shall mean a recordable Collateral Assignment of Notes Receivable and Mortgages, in the form attached hereto as Exhibit A, made by Borrower in favor of Agent, as collateral agent for each Lender, evidencing the assignment to Agent, as collateral agent for each Lender, of all of the Pledged Notes Receivable and Mortgages. Each such assignment shall, from and after the date hereof, indicate by notation on the first page thereof that it is either a "Tranche A- Revolving Loan Component" assignment or a "Tranche A-Term Loan Component" assignment. (k) BOND HOLDER EXCHANGE TRANSACTION. The term "Bond Holder Exchange Transaction" shall mean that certain senior subordinate note holder exchange transaction on the terms and conditions outlined in that certain term sheet dated October 19, 2001 (the "BOND HOLDER EXCHANGE TRANSACTION LETTER"), a copy of which is attached hereto as Exhibit E, and which is to be consummated pursuant to the documents listed on Schedule 1.1(k) hereto (the "BOND HOLDER EXCHANGE DOCUMENTS"). (l) BORROWING BASE. With respect to each Eligible Note Receivable pledged to Agent hereunder in connection with each Advance under the Revolving Loan Component from and after the date hereof, an amount equal to seventy-five percent (75%) of the remaining principal balance of each such Eligible Note Receivable. Notwithstanding anything herein to the contrary, the total aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent shall not exceed the Maximum Effective Advance Rate, as such term is defined herein. (m) BUSINESS PLAN. The term "Business Plan" shall mean the five (5) year "Stand Alone" business plan prepared by Borrower and attached hereto as Exhibit F. The Business Plan includes the "Impact on Lenders Worksheet" setting forth the amounts to be advanced by each of the Lenders, Heller and Sovereign pursuant to their respective credit facilities (the "SENIOR LENDER ADVANCE SCHEDULE"). (n) CASH AND CASH EQUIVALENTS. Unrestricted (i) cash; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Rating Group or P-1 (or better) by Moody's Investor Service, Inc. provided that the maturities of such Cash and Cash Equivalents shall not exceed one year. (o) CODE. The Uniform Commercial Code in force in the State of Rhode Island as amended from time to time. (p) COLLATERAL. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following: (i) Pledged Notes Receivable (including all Notes Receivable comprising the Ineligible Note Portfolio) and all proceeds of or from them; (ii) Mortgages and all proceeds of or from them (including the Mortgages securing the Notes Receivable comprising the Ineligible Note Portfolio); (iii) Documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable (including any relating to the Ineligible Note Portfolio) and the related Mortgages; (iv) the Land; (v) the Additional Resort Collateral; (vi) the Silverleaf Finance I, Inc. Stock; (vii) Intentionally Omitted; (viii) the Standby Servicing Agreement; (ix) the Standby Management Agreement; (x) All collateral under the Additional Credit Facility, the Heller Facility, the Sovereign Facility, the Tranche C Facility and the Inventory Loan, as each such term is herein defined; (xi) Intentionally Omitted; (xii) All books, records, reports, computer tapes, disks and software relating to the Collateral; and (xiii) Extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof. (q) COMMITMENT. The term "Commitment" shall refer singly to the obligation of each Lender to make a Loan or Loans under the Revolving Loan Component to Borrower in an aggregate amount not to exceed the Pro Rata Percentage for each Lender of each Advance and collectively to all Loans to be made by all Lenders under the Revolving Loan Component as provided herein. The maximum aggregate Commitment of the Lenders hereunder shall not exceed (i) $63,920,000.00 minus (ii) the outstanding principal balance of the Term Loan Component from time to time. The Commitment and the Maximum Available Amount shall be subject to reduction as provided in Section 2.1(a). The maximum aggregate Commitment under this Agreement, the Additional Credit Facility and the Tranche C Facility shall be $136,000,000.00 less the outstanding principal balance of the Term Loan Component and the aggregate term loan component of the Additional Credit Facility and the Tranche C Facility from time to time, which maximum aggregate Commitment shall be reduced as provided in Section 2.1(a). (r) COMMON ELEMENTS. All common elements, including but not limited to any limited common elements, as each such common element is defined or provided for in the Declaration or other Timeshare Documents. (s) DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar law, proceeding or device providing for the relief of debtors from time to time in effect and generally affecting the rights of creditors. (t) DECLARATION OR DECLARATIONS. With respect to each Resort, the applicable Declaration or Declarations described on Schedule 1.1(t) attached hereto. (u) DEFAULT. An event or condition the occurrence of which immediately is or, with a lapse of time or the giving or notice or both, becomes an Event of Default. (v) DEFAULT RATE. The term "Default Rate" shall have the meaning given to such term in the Note. (w) DZ FACILITY. The term "DZ Facility" shall mean that certain note purchase facility to be provided by DZ Bank AG Deutsche Zentral-Genossenschaftsbank, as agent for Autobahn Funding Company, LLC ("DZ") to Borrower, on the terms outlined in the DZ Letter Agreement, dated December 12, 2001, as supplemented by that certain letter agreement by and between Borrower and DZ dated February 7, 2002, and attached hereto as Exhibit G (collectively, the "DZ LETTER AGREEMENT") and evidenced by the documents listed on Schedule 1.1(w) hereto (the "DZ DOCUMENTS"). (x) DIVISION OR COMMISSION. The governmental authority of each state in which a Resort is located, having jurisdiction over the establishment and operation of the Resort in question and the sale of Intervals at such Resort. (y) EBITDA. The term EBITDA means, with respect to any Person for any period: (a) the sum of (i) net income (but excluding any extraordinary gains or losses or any gains or losses from the sale or disposition of assets other than in the ordinary course of business), (ii) interest expense, (iii) depreciation and amortization and other non-cash items properly deducted in determining net income, and (iv) federal, state and local income taxes, in each case for such Person for such period, computed and calculated in accordance with GAAP minus (b) non-cash items properly added in determining net income, in each case for the corresponding period. (z) EFFECTIVE ADVANCE RATE. The term "Effective Advance Rate" shall mean the aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder. The Effective Advance Rate shall at no time exceed 95% (the "Maximum Effective Advance Rate"). In addition, the Effective Advance Rate determined with respect to the aggregate of the Loan, the Additional Credit Facility and the Tranche C Facility (collectively "TFC's Facilities") shall at no time exceed 95% of the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to TFC, as agent or lender as applicable, under TFC's Facilities. (aa) EFFECTIVE DATE. The term "Effective Date" shall have the meaning given in Section 14.1 hereof. (bb) ELIGIBLE NOTES RECEIVABLE. Those Pledged Notes Receivable which satisfy each of the following criteria: (i) Borrower shall be the sole payee; (ii) it arises from a bona fide sale by Borrower of one or more Intervals; (iii) the Interval sale from which it arises shall not have been cancelled by Purchaser, and any statutory or other applicable cancellation or rescission period shall have expired and the Interval sale is otherwise in compliance with this Agreement; (iv) it is secured by a Mortgage on the purchased Interval; (v) principal and interest payments on it are payable to Borrower in legal tender of the United States; (vi) payments of principal and interest on it are payable in equal monthly installments; (vii) it shall have an original term of no more than one hundred twenty (120) months; (viii) a cash down payment has been received from Purchaser or the maker in an amount equal to at least ten percent (10%) of the actual purchase price of each Interval, and Purchaser shall have received no cash or other rebates of any kind; (ix) the average number of monthly payments made by all Purchasers pursuant to all Eligible Notes Receivable pledged hereunder shall at all times be at least seven (7) monthly payments; (x) no monthly installment is more than thirty (30) days contractually past due at the time of an Advance in respect of such Eligible Note Receivable, or more than sixty (60) days contractually past due at any time; (xi) the rate of interest payable on the unpaid balance is at least the rate required so that when the Advance is made in respect of such Eligible Note Receivable the average interest rate on all Eligible Notes Receivable in respect of which Advances are outstanding shall not be less than twelve and one-half percent (12.5%) per annum at any time; (xii) Purchaser of the related Interval has immediate access, for the timeshare "unit week" related to such purchase, to the Interval described in the Mortgage securing such Eligible Note Receivable, which Interval has been completed, developed, and furnished in accordance with the specifications provided in the Purchaser's purchase contract, public offering statement and other Timeshare Documents; and Purchaser has, subject to the terms of the Declaration, purchase contract, public offering statement and other Timeshare Documents, complete and unrestricted access to the related Interval and the Resort; (xiii) neither Purchaser of the related Interval or any other maker of the Note is an Affiliate of, or related to, or employed by Borrower; (xiv) Purchaser or other maker has no claim against Borrower and no defense, set-off or counterclaim with respect to the Note Receivable; (xv) the maximum remaining principal balance of any such Note Receivable shall not exceed $25,000 and the total maximum remaining principal balance of the Notes Receivable executed by any one Purchaser or other maker shall not exceed $25,000 in the aggregate (or such greater amount as may be approved in writing in advance by Agent); (xvi) it is executed by a U.S. or Canadian resident; provided, however, that no more than ten percent (10%) of the outstanding principal balance of all Eligible Notes Receivable shall at any time be comprised of Notes Receivable executed by Canadian residents, and, to the extent such outstanding principal balance of such Notes exceeds ten percent (10%), they shall not be considered Eligible Notes Receivable; (xvii) the original of such Note Receivable has been endorsed to Agent and delivered to Agent as provided in this Agreement, and the terms thereof and all instruments related thereto shall comply in all respects with all applicable federal and state laws and the regulations promulgated thereunder; and (xviii) the Unit in which the timeshare Interval being financed or evidenced by such Note Receivable is located, shall not be subject to any Lien which is not previously consented to in writing by Agent. (xix) If the loan is a newly originated Eligible Note Receivable which is replacing an existing Eligible Note Receivable pledged as Collateral under the Agreement and the proceeds have been used to finance the purchase of an Interval which is being upgraded by the Purchaser to a more expensive Interval: (1) the principal balance of the existing Eligible Note Receivable which is being upgraded may still be included for purposes of calculating the Borrowing Base for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Note Receivable becomes thirty (30) or more days past due; (2) on or before the second business day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Note Receivable and in any event within ten (10) days of such upgrade, the Borrower shall deliver to the Agent or its designee the original of the new promissory note, comparable instrument or installment sale contract executed in connection with such upgrade duly endorsed in blank by the Borrower and the Borrower will cause all payments made with respect to such new promissory note, comparable instrument or installment sale contract to be forwarded to the lockbox; and (3) any new upgraded Note Receivable involving a prior Eligible Note Receivable shall only be included as part of the Borrowing Base if the prior Eligible Note Receivable has been removed from the Borrowing Base and the new upgraded Note Receivable satisfies all conditions for an Eligible Note Receivable. Notwithstanding anything herein to the contrary, Lenders shall be under no obligation to make Advances in respect of: (i) Crown Resorts Notes Receivable (i.e. Notes Receivable relating to intervals at the Crown Resorts listed on Schedule 4.5(c)(iii)) if Advances have already been made under this Loan, the Additional Credit Facility and/or the Tranche C Facility, in total, in respect of 681 Crown Resorts Notes Receivable, exclusive of [x] Notes Receivable relating to intervals at the Quail Hollow Resort and [z] any other Crown Resort Notes Receivable for which Borrower shall have delivered to Agent an acceptable Mortgagee Title Insurance Policy insuring the Mortgage securing such Crown Resort Note Receivable; and (ii) Notes Receivable from Oak N' Spruce Resort if any such Advance, together with any prior Advances made in respect of Notes Receivable from Oak N' Spruce Resort under this Loan Agreement, the Additional Credit Facility, the Tranche C Facility and/or the Inventory Loan would exceed, in the aggregate, $32,000,000.00. (cc) ENCUMBERED INTERVALS. The Intervals subject to the Mortgages. (dd) ENVIRONMENTAL LAWS. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended from time to time ("RCRA"), the Superfund Amendments and Reauthorization Act of 1986, as amended, the federal Clean Air Act, the federal Clean Water Act, the federal Safe Drinking Water Act, the federal Toxic Substances Control Act, the federal Hazardous Materials Transportation Act, the federal Emergency Planning and Community Right to Know Act of 1986, the federal Endangered Species Act, the federal Occupational Safety and Health Act of 1970, the federal Water Pollution Control Act, all state and local environmental laws, rules and regulations of each state in which a Resort or any of the Land is located, as all of the foregoing legislation may be amended from time to time, and any regulations promulgated pursuant to the foregoing; together with any similar local, state or federal laws, rules, ordinances or regulations either in existence as of the date hereof, or enacted or promulgated after the date of this Agreement, that concern the management, control, storage, discharge, treatment, containment, removal and/or transport of Hazardous Materials or other substances that are or may become a threat to public health or the environment; together with any common law theory involving Hazardous Materials or substances which are (or alleged to be) hazardous to human health or the environment, based on nuisance, trespass, negligence, strict liability or other tortious conduct, or any other federal, state or local statute, regulation, rule, policy, or determination pertaining to health, hygiene, the environment or environmental conditions. (ee) ENVIRONMENTAL INDEMNIFICATION AGREEMENT. The term "Environmental Indemnification Agreement" shall mean the Environmental Indemnification Agreement, in the form attached as Exhibit A, to be made by Borrower to Lenders pursuant to this Agreement, as the same may be amended from time to time. (ff) EURODOLLAR BUSINESS DAY. Eurodollar Business Day shall mean any day on which commercial banks are open for international business (including dealings in dollar deposits) in London, England. (gg) EXCHANGE COMPANY. Resort Condominiums International, Inc. ("RCI"). (hh) EVENT OF DEFAULT. Defined in Section 8.1 of this Agreement. (ii) FACILITY FEE. The term "Facility Fee" shall mean the facility fee set forth in the Fee Letter, which shall be payable in accordance with Section 2.7. (jj) FEE LETTER. The term "Fee Letter" shall mean that certain fee letter dated March 28, 2001, describing the Facility Fee. (kk) FINAL MATURITY DATE. The term "Final Maturity Date" shall mean, with respect to the Revolving Loan Component Note the earlier of (a) March 31, 2007 or (b) the weighted average maturity date of the Pledged Notes Receivable pledged as Collateral as of the end of the Revolving Loan Term, as determined by the Agent in its reasonable discretion, and with respect to the Term Loan Component Note, March 31, 2007. (ll) FINANCIAL STATEMENTS. The tax returns and balance sheets and statements of income and expense of Borrower, and the related notes and schedules delivered by Borrower to Lenders prior to the date of this Agreement (the "CLOSING DATE") and provided for in Section 4.5(c) of this Agreement; and the monthly, quarterly and annual financial statements and reports required to be provided to Lenders pursuant to Section 7.1(h) (i), (ii) and (iii). (mm) FORBEARANCE AGREEMENT. The term "Forbearance Agreement" shall mean that certain Forbearance Agreement dated April 6, 2001, by and among Borrower and Agent, as amended from time to time. (nn) FORBEARANCE TERMINATION EVENT. The term "Forbearance Termination Event" shall have the same meaning as the term "Termination Event" described in the Forbearance Agreement. (oo) GAAP. Generally accepted accounting principles, applied on a consistent basis, as described in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board which are applicable in the circumstances as of the date in question. (pp) HAZARDOUS MATERIALS. "Hazardous substances," "hazardous waste" or "hazardous constituents," "toxic substances", or "solid waste", as defined in the Environmental Laws, and any other contaminant or any material, waste or substance which is petroleum or petroleum based, asbestos, polychlorinated biphenyls, flammable explosives, or radioactive materials. (qq) HELLER FACILITY. The term "Heller Facility" shall mean, singly and collectively, those certain credit facilities provided by Heller Financial Corporation ("HELLER") to Borrower pursuant to the documents listed on Schedule 1.1 (qq) hereto (the "HELLER DOCUMENTS"). (rr) INELIGIBLE NOTE PORTFOLIO. The term "Ineligible Note Portfolio" shall mean certain of Borrower's Notes Receivable and Mortgages which are not currently pledged to any other Person, which are listed in Exhibit K attached hereto and which shall be held by Borrower, as agent for and on behalf of each Lender, unless and until an Event of Default shall occur, in which case the Ineligible Note Portfolio shall be delivered to Agent in accordance with Section 3.2 hereof. (ss) INTEREST RATE. The Interest Rate on the Revolving Loan Component Note shall be a variable rate, adjusted as of each LIBOR Determination Date, equal to the sum of LIBOR, determined as of each LIBOR Determination Date, plus three percent (3%) per annum, provided, however, that at no time shall the Interest Rate on the Revolving Loan Component Note be less than six percent (6%) per annum. The Interest Rate with respect to the Term Loan Component Note shall be a fixed rate of interest equal to eight percent (8%) per annum. (tt) INTERVAL. With respect to each Resort the undivided fractional fee interval ownership interest as a tenant-in-common (sometime referred to in the Timeshare Documents as a condoshare interest or condoshare week) in a Unit sold to a Purchaser by delivery of a deed for a time-share period per calendar year (or, in the case of a biennial use period, per alternate calendar year) of one week (as defined in the Declaration), together with all appurtenant rights and interests, including, without limitation, appurtenant rights in and to Common Elements, and easement, license, access and use rights in and to all Resort facilities and amenities (as described in the Declaration), all as more particularly described in the Declaration or other Timeshare Documents. Notwithstanding the foregoing, the term "Interval" shall also include, with respect to the Oak N' Spruce Resort only, the beneficial interest in the entity which owns each of the Units at the Oak N' Spruce Resort, as evidenced by the delivery to the Purchaser of any such beneficial interest of a certificate of beneficial interest for a timeshare period per calendar year (or, in the case of biennial use period, per alternate calendar year) of one week (as defined in the Oak N' Spruce Resort Declaration), together with all pertinent rights and interests, including, without limitation, a pertinent right in and to Common Elements, and easements, license, access and use rights in and to all Oak N' Spruce Resort facilities and amenities, all as more particularly described in the Declaration or other Timeshare Documents for the Oak N' Spruce Resort. (uu) INVENTORY LOAN. The term "Inventory Loan" shall mean that certain $10,000,000 time share interval inventory loan provided by TFC to Borrower pursuant to that certain Loan and Security Agreement dated December 16, 1999 by and between TFC and Borrower, as amended by the First Amendment to Loan and Security Agreement dated April 17, 2001 and as further amended by the Second Amendment to Loan and Security Agreement dated of even date herewith (the "INVENTORY LOAN AGREEMENT"). (vv) LAND. The term "Land" shall mean the real property described in Schedule 1.1(vv) hereof. (ww) LAND MORTGAGE OR LAND MORTGAGES. The term "Land Mortgage" or "Land Mortgages" shall mean singly and collectively, a properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument encumbering all of the right, title and interest of Borrower in the Land and securing the Loan, as modified and amended by mortgage modifications, in the form attached hereto as Exhibit A. (xx) LIEN. Any interest in property securing an obligation owed to, or claim by, a Person other than the owner of such property, whether such interest arises in equity or is based on the common law, statute, or contract. (yy) LIBOR shall mean, with respect to any LIBOR Rate Period, the rate per annum (rounded upwards, if necessary, to the nearest one-sixteenth (1/16th) of one percent (1%)) reported at 11:00 a.m. London time on the first day of each LIBOR Rate Period (or if such date is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day) (such date, the "LIBOR DETERMINATION DATE"), on Dow Jones Telerate Service Page 3750 (British Bankers Association Settlement Rate) as the non-reserve adjusted London Interbank Offered Rate for U.S. dollar deposits having a ninety (90) day term (or on such other page as may replace said Page 3750 on that service or such other service or services as may be nominated by the British Bankers Association for the purpose of displaying such rate, all as determined by Agent in its sole but good faith discretion). In the event that (i) more than one such LIBOR is provided, the average of such rates shall apply, or (ii) no such LIBOR is published, then LIBOR shall be determined from such comparable financial reporting company as Agent in its sole but good faith discretion shall determine. LIBOR for any LIBOR Rate Period shall be adjusted from time to time by increasing the rate thereof to compensate Agent and any Lender for any aggregate reserve requirements (including, without limitation, all basic, supplemental, marginal and other reserve requirements and taking into account any transitional adjustments or other scheduled changes in reserve requirements during any LIBOR Rate Period) which are required to be maintained by Agent or any Lender with respect to "Eurocurrency Liabilities" (as presently defined in Regulation D of the Board of Governors of the Federal Reserve System) of the same term under Regulation D, or any other regulations of a Governmental Authority having jurisdiction over Agent or any Lender of similar effect. (zz) LIBOR RATE PERIOD shall mean each successive ninety (90) day period during the Term. The initial LIBOR Rate Period shall commence on the date of the first Advance hereunder (or if such day is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day) and shall terminate on a date which is ninety days thereafter (or if such day is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day). Each LIBOR Rate Period after the initial LIBOR Rate Period shall commence on the first Eurodollar Business Day immediately following the expiration of the immediately preceding LIBOR Rate Period and shall terminate ninety days thereafter (or if such day is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day). (aaa) LOAN OR LOANS. The terms "Loan" and "Loans" mean, as the context requires, singly each loan and collectively all loans made by TFC to Borrower prior to the date hereof pursuant to the Original Loan Agreement. The term "Loan" shall also mean, as the context requires, collectively all Loans made by all Lenders to Borrower hereunder. From and after the Effective Date, the Loan shall consist of the Revolving Loan Component in the maximum amount of $56,894,400.00 and the Term Loan Component in the maximum amount of $15,105,600.00, which amounts shall be repaid as provided in Section 2.4 hereof. Notwithstanding the foregoing, in the event that TFC shall elect to fund any portion of the Loan without additional Lenders, the terms "Loan" and "Loans" mean singly each loan and collectively all loans previously made pursuant to the Original Loan Agreement and to be made by TFC to Borrower pursuant to this Agreement, subject to the limitations set forth in Section 2.9 hereof. (bbb) LOAN DOCUMENTS. Collectively, this Agreement and the following documents and instruments listed below as such agreements, documents, instruments or certificates may be amended, renewed, extended, restated or supplemented from time to time. (i) THIS AGREEMENT; (ii) THE ORIGINAL LOAN AGREEMENT; (iii) THE REVOLVING LOAN COMPONENT NOTE; (iv) THE TERM LOAN COMPONENT NOTE; (v) THE ENVIRONMENTAL INDEMNIFICATION AGREEMENT; (vi) THE ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES; (vii) BORROWER'S CERTIFICATE AND REQUEST FOR ADVANCE; (viii) THE LOCKBOX AGREEMENT; (ix) THE LAND MORTGAGE; (x) THE ADDITIONAL RESORT COLLATERAL MORTGAGES; (xi) THE ADDITIONAL RESORT COLLATERAL ASSIGNMENT; (xii) THE STOCK PLEDGE AGREEMENT; (xiii) ASSIGNMENT OF MANAGEMENT AGREEMENTS; (xiv) THE STANDBY MANAGEMENT AGREEMENT ASSIGNMENT; (xv) THE STANDBY SERVICING AGREEMENT ASSIGNMENT; (xvi) THE ASSIGNMENT OF MORTGAGES; (xvii) FINANCING STATEMENTS; UCC financing statements covering the Collateral, to be filed with the Texas Secretary of State and the Secretary of State and/or such other office where UCC financing statements are required to be filed pursuant to the Code; and (xviii) OTHER ITEMS; Such other agreements, documents, instruments, certificates and materials as Agent may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Agent, as agent for Lenders, contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, as such agreements, documents, instruments or certificates may be hereafter amended, renewed, extended, restated or supplemented from time to time. (ccc) LOAN YEAR. The period from the date that TFC determines in its sole discretion that all conditions set forth in Section 4 hereof have been satisfied, which date shall not be later than May 31, 2002, through March 31, 2003 and each twelve (12) calendar month period thereafter. (ddd) LOCKBOX AGENT. The JP Morgan Chase Bank, a New York banking association having a place of business at 2200 Ross Avenue, Dallas, Texas 75201, or such other financial institution as may be approved by Agent in writing from time to time. (eee) LOCKBOX AGREEMENT. The Amended and Restated Lockbox and Servicing Agreement, dated as of July 18, 2001, by and among Borrower, Lenders, Agent, Servicing Agent and Lockbox Agent, pursuant to which the Lockbox Agent is to provide lockbox, reporting and related services and is to provide for the receipt of payments on the Notes Receivable and the disbursement of such payments to Agent. (fff) MARKETING AND SALES EXPENSES. Shall mean all promotion, lead generation, sales commissions and all other marketing expenses incurred or paid by Borrower pursuant to any marketing agreements or otherwise. (ggg) MANDATORY PREPAYMENT. Any prepayment required by Sections 2.4(a), 2.4(c), 2.4(d), 2.4(e) and 2.5(b) of this Agreement. (hhh) MORTGAGE. A properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument, as applicable, executed and delivered by each Purchaser to Borrower, securing a Pledged Note Receivable and encumbering all of the right, title and interest of such Purchaser in the related Encumbered Interval and Common Elements, and related or appurtenant easement, access and use rights and benefits. (iii) NET SECURITIZATION CASH FLOW. All right, title and interest of Silverleaf Finance I, Inc., a wholly owned subsidiary of Borrower, in any excess cash flow derived from the Notes Receivable sold by Silverleaf Finance I, Inc. to DZ pursuant to the DZ Documents. (jjj) NOTE. Singly and collectively, the Revolving Loan Component Note and the Term Loan Component Note. (kkk) NOTE RECEIVABLE. A promissory note executed in favor of Borrower in connection with a Purchaser's acquisition of an Interval. (lll) OBLIGATIONS. All amounts due or becoming due to each Lender in respect of the Loan or Loans under any of the Loan Documents, the Tranche C Facility, the Additional Credit Facility and the Inventory Loan, including principal, interest, prepayment premiums, contributions, taxes, insurance, loan charges, custodial fees, attorneys' and paralegals' fees and expenses and other fees or expenses incurred by a Lender or advanced to or on behalf of Borrower by a Lender pursuant to any of the Loan Documents, and the prompt and complete payment and performance by Borrower of all obligations, indebtedness and liabilities pursuant to this Agreement or any of the Loan Documents or otherwise. (mmm) OPERATING CONTRACT OR OPERATING CONTRACTS. As defined in Section 6.20. (nnn) OPERATING EXPENSES. Shall mean the total of all expenditures, computed in accordance with Generally Accepted Accounting Principles, of whatever kind relating to the ownership, operation, maintenance and management of the Resorts that are incurred on a regular monthly or other periodic basis, including, without limitation, utilities, ordinary and capital repairs and maintenance, insurance premiums, license fees, property taxes and assessments, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Agent, and other similar costs. (ooo) PARTICIPANT. Participant shall mean, singly and collectively, any bank or other entity, which is indirectly or directly funding any Lender with respect to the Loan, in whole or in part, including, without limitation, any direct or indirect assignee of, or participant in, the Loan. (ppp) PAYMENT AUTHORIZATION AGREEMENT. Pre-authorized electronic debit agreement by Purchaser for payment of a Note Receivable. (qqq) PERSON. An individual, partnership, corporation, limited liability company, trust, unincorporated organization, other entity, or a government or agency or political subdivision thereof. (rrr) PLEDGED NOTES RECEIVABLE. Any Note Receivable which at any time has been pledged to Agent on behalf of Lenders by Borrower pursuant to this Agreement or any of the Loan Documents, including an Ineligible Note Receivable. (sss) PROPERTY OR PROPERTIES. Any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. (ttt) PRIME RATE. The highest prime rate of interest from time to time announced or published in the Money Rates column of the Wall Street Journal (Eastern Edition) (the "WSJ"). In the event that the prime rate announced or published in the WSJ shall no longer be available, due to the nonexistence of the WSJ or the WSJ's failure to publish or announce a prime rate, then the Prime Rate shall be the highest prime rate published by a major money center bank selected by Agent. (uuu) PRO RATA PERCENTAGE. The applicable percentage of the Loan that each Lender has agreed to make to Borrower pursuant to this Agreement. (vvv) PURCHASE PRICE. The total purchase price of a timeshare Interval, as set forth in the Timeshare Documents and Note Receivable relating to the purchase of such Interval. (www) PURCHASER. Any Person who purchases one or more Intervals. (xxx) RESORT OR RESORTS (ALSO "ELIGIBLE RESORT" OR "ELIGIBLE RESORTS"). Individually and collectively, as applicable, each or all of the interval ownership and time-share projects consisting of: (i) (A) Holly Lake Ranch, Hawkins, Texas; (B) Piney Shores Resort, Conroe, Texas; (C) Lake O' The Woods, Flint, Texas; (D) Hill Country Resort, Canyon Lake, Texas; (E) Ozark Mountain Resort, Kimberling City, Missouri; (F) Holiday Hills Resort, Branson, Missouri; (G) Fox River Resort, LaSalle County, Illinois; (H) Timber Creek Resort, Jefferson County, Missouri (I) Oak N' Spruce Resort, South Lee, Massachusetts; (J) Apple Mountain Resort, Habersham County, Georgia; (K) The Villages, Flint, Texas; (L) Silverleaf's Seaside Resort, Galveston County, Texas; (M) Tansi Resort-Hiawatha Manor, Cumberland County, Tennessee; (N) Tansi Resort-Hiawatha Manor I, Cumberland County, Tennessee and (O) Tansi Resort-Hiawatha Manor West, Cumberland County, Tennessee (also sometimes individually and collectively referred to herein as the "Existing Resorts") and (ii) subject to Agent's prior written approval and satisfaction by Borrower of the conditions precedent set forth in Sections 3.7 and 4.5 hereof, the Additional Eligible Resorts. The term "Resort" or "Resorts" includes, among other things, the undivided annual or (biennial) timeshare ownership interests (Intervals) in the respective Resorts, and the appurtenant exclusive rights to use Units in one or more buildings or phases and all appurtenant or related properties, amenities, facilities, equipment, appliances, fixtures, easements, licenses, rights and interests, including without limitation, the Common Elements, as established by and more fully defined and described in the respective Declarations, and the other Timeshare Documents. (yyy) REVENUES. Shall mean all proceeds from the sale of Intervals, regardless of whether such proceeds are in the form of cash or Notes Receivable. (zzz) REVOLVING LOAN COMPONENT. Shall mean that portion of the Loan in the amount of $56,894,400.00 on the terms and conditions described in Sections 2.1, 2.3, 2.4 and 2.5 hereof, which amount shall be repaid as provided in Section 2.4 and Section 2.5(b) hereof. (aaaa) REVOLVING LOAN COMPONENT NOTE. Shall mean that certain Amended and Restated Note or Notes, in the form attached hereto as Exhibit A, dated the date hereof, and executed and delivered by Borrower to Agent, as agent on behalf of each Lender (subject to Section 2.1(d) hereof) evidencing the Revolving Loan Component. (bbbb) REVOLVING LOAN TERM. Shall mean the period commencing on the Effective Date and ending on March 31, 2004. (cccc) SECURITY. Shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. (dddd) SERVICING AGENT. Agent's exclusive agent, which shall be such Person or Persons designated by Borrower and approved by Agent in its sole discretion, for the purposes of billing and collecting amounts due on account of the Pledged Notes Receivable, providing reports pursuant to the Lockbox Agreement and performing other servicing functions not performed by the Lockbox Agent. Borrower shall be the Servicing Agent until: (i) an Event of Default shall have occurred and Agent replaces Borrower as Servicing Agent as provided in Section 9.1(i) or (ii) Agent elects to appoint the Standby Servicer in accordance with Section 10.14 hereof. (eeee) SILVERLEAF CLUB. Shall mean Silverleaf Club, a Texas non-profit corporation. (ffff) STOCK PLEDGE AGREEMENT. Shall mean the agreement in the form attached hereto as Exhibit A, pursuant to which all issued and outstanding shares of Silverleaf Finance I, Inc.'s capital stock and all right, title and interest in such shares, all certificates, instruments or other documents evidencing or representing the same and all dividends and distributions therefrom, including dividends and distributions paid in stock (the "SILVERLEAF FINANCE I, INC. STOCK") are pledged to Agent, as agent for each Lender, as security for the Loan. (gggg) SOVEREIGN FACILITY. The term "Sovereign Facility" shall mean that certain credit facility provided by Sovereign Bank ("SOVEREIGN") to Borrower pursuant to the documents listed on Schedule 1.1(gggg) hereto (the "SOVEREIGN DOCUMENTS"). (hhhh) STANDBY MANAGER. Shall mean the Person selected by Borrower, and acceptable to Agent, in its sole discretion, to act as standby manager of Borrower's Resorts in accordance with this Agreement. Subject to the review and approval of the Standby Management Agreement by Agent, in its sole discretion, Agent hereby approves J & J Limited, Inc. as the initial Standby Manager. (iiii) STANDBY MANAGEMENT AGREEMENT. Shall mean the agreement to be entered into between the Standby Manager and Borrower providing for the management of Borrower's Resorts on the occurrence of an Event of Default hereunder. (jjjj) INTENTIONALLY OMITTED. (kkkk) INTENTIONALLY OMITTED. (llll) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Agent, as agent for each Lender, of all of Borrower's rights under the Standby Management Agreement. (mmmm) STANDBY SERVICER. Shall mean the Person selected by Agent to act as standby servicer in accordance with this Agreement. The current Standby Servicer is Concord Servicing Corporation. (nnnn) STANDBY SERVICING AGREEMENT. Shall mean the agreement pursuant to which the Standby Servicer shall provide servicing functions with respect to the Pledged Notes Receivable upon the occurrence of an Event of Default hereunder in accordance with Sections 9.1(i) and 10.14 hereof. (oooo) STANDBY SERVICING AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached hereto as Exhibit A, pursuant to which Borrower assigns to Agent, as agent for each Lender, all of Borrower's rights under the Standby Servicing Agreement. (pppp) SURVEY. A plat or survey of the Resort, the Land and that portion of the Additional Resort Collateral constituting real property, prepared by a licensed surveyor acceptable to Agent and in a form acceptable to Agent. (qqqq) TERM. With respect to the Revolving Loan Component, a period beginning on the Effective Date and ending on the Final Maturity Date. With respect to the Term Loan Component, a period of five (5) years from the Effective Date. (rrrr) TERM LOAN COMPONENT. Shall mean that portion of the Loan in the amount of $15,105,600.00 on the terms and conditions set forth in Sections 2.2, 2.3, 2.4 and 2.5 hereof, which amount shall be repaid as provided in Section 2.4 and Section 2.5(b) hereof. (ssss) TERM LOAN COMPONENT NOTE. Shall mean that Secured Promissory Note or Notes, in the form attached hereto as Exhibit A, dated the date hereof, and executed and delivered by Borrower to Agent, as agent on behalf of each Lender (subject to Section 2.2 hereof) evidencing the Term Loan Component. (tttt) INTENTIONALLY OMITTED. (uuuu) TIMESHARE ACT. Any statute, act, regulation, ordinance, rule or law applicable to the establishment and operation of the Resorts and the sales of the Intervals. (vvvv) TIMESHARE DOCUMENTS. Any registration statement required under any Timeshare Act approving the establishment and operation of the Resorts and the sales of Intervals. (wwww) TIMESHARE OWNERS' ASSOCIATION. With respect to each Resort, the applicable not-for-profit corporations described on Schedule 1.1(wwww). (xxxx) TANGIBLE NET WORTH. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as: (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated debt of such Person and its consolidated subsidiaries, the terms and conditions of which are reasonably satisfactory to Agent, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent to the Effective Date deferred sales are no longer considered an asset under GAAP, Agent agrees, at the request of Borrower, to determine, in its reasonable discretion, whether deferred sales should continue to be considered an asset for purposes of determining Borrower's Tangible Net Worth. (yyyy) TOTAL INTEREST EXPENSE. For any period, the aggregate amount of interest required to be paid or accrued by Borrower and its subsidiaries during such period on all indebtedness of Borrower and its subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease, or any synthetic lease and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. (zzzz) INTENTIONALLY OMITTED. (aaaaa) TRANCHE C FACILITY. The term "Tranche C Facility" shall mean that certain $10,200,000 credit facility provided by TFC to Borrower pursuant to that certain Loan And Security Agreement dated April 17, 2001 (the "TRANCHE C LOAN AGREEMENT") by and between Borrower and TFC, as amended by a First Amendment to Loan and Security Agreement of even date herewith. (bbbbb) TRANSFER ACCOUNT. The account established by Agent, as described in Schedule B hereto, to which all Loans by Lenders will be made. (ccccc) TAX REFUND. The term "Tax Refund" means that certain corporate tax refund of Borrower for the 1998 and 1999 tax years in the estimated amount of $5,000,000.00. (ddddd) INTENTIONALLY OMITTED. (eeeee) UCC FINANCING STATEMENTS. The UCC-1 Financing Statements, naming Borrower as debtor and Agent as secured party on behalf of Lenders, heretofore or hereafter filed in connection with the Loans and all amendments thereto. (fffff) UNIT. With respect to each Resort, one living unit in a building incorporated into the Resort pursuant to the Declaration, together with all related or appurtenant Common Elements and related or appurtenant interests in services, easements and other rights or benefits, as described and provided for in the Declaration, including but not limited to the right to use the Resort amenities and facilities in accordance with the Timeshare Documents. (ggggg) VOLUNTARY PREPAYMENT. Any voluntary prepayment of the Loan permitted to be made by Borrower under the terms of this Agreement. SECTION 2 -- THE LOAN 2.1 REVOLVING LOAN COMPONENT AND LENDING LIMITS. (a) REVOLVING LOAN COMPONENT. Upon the terms and subject to the conditions set forth in this Agreement, each Lender agrees severally, at any time and from time to time during the Revolving Loan Term, to make a loan or loans to Borrower, and Borrower may borrow, repay and reborrow during the Revolving Loan Term, with respect to the Revolving Loan Component only, in an aggregate amount not to exceed at any time the lesser of: (i) each Lender's Pro Rata Percentage of the amount of the Borrowing Base or (ii) the lending limits set forth in section 2.1(b) hereof. Notwithstanding anything herein to the contrary, the aggregate balance of all Advances shall not exceed $63,920,000.00 less the aggregate outstanding principal balance of the Term Loan Component from time to time (the "MAXIMUM AVAILABLE AMOUNT"). Borrower's right to receive Advances hereunder shall also be subject to the terms and conditions set forth in that certain Intercreditor Agreement between Lender, Borrower, Heller and Sovereign dated of even date herewith. Borrower acknowledges, confirms and agrees that TFC shall have the right to allocate any request for an Advance hereunder to this Loan, the Additional Credit Facility and/or the Tranche C Facility in such manner as TFC may elect in its sole and absolute discretion. Notwithstanding anything herein to the contrary, Borrower acknowledges, confirms and agrees that it shall not be entitled to receive, nor shall any Lender be required to make, any Advance if and to the extent that: (i) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Agent in its sole and absolute discretion; or (ii) the most recent weekly flash report delivered in accordance with Section 7.1(h)(xii) hereof (a "WEEKLY FLASH REPORT"), indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. Borrower acknowledges, agrees and confirms that as provided in the Business Plan, the Commitment and the Maximum Available Amount shall be reduced to the following amounts: (i) on and after March 31, 2004 - approximately $49,350,000.00, less the outstanding principal balance of the Term Loan Component from time to time; (ii) on and after March 31, 2005 - approximately $35,250,000.00, less the outstanding principal balance of the Term Loan Component from time to time; and (iii) on and after March 31, 2006 - approximately $32,900,000.00, less the outstanding principal balance of the Term Loan Component from time to time. On or after the Effective Date, the aggregate amount of the Commitment provided hereunder, under the Additional Credit Facility and the Tranche C Facility shall be equal to $136,000,000.00 less the aggregate principal balance of the Term Loan Components hereunder, under the Additional Credit Facility and under the Tranche C Facility. Borrower further acknowledges, confirms and agrees that the aggregate Commitment under this Agreement, the Additional Credit Facility and the Tranche C Facility shall be reduced to the following amounts: (i) after March 31, 2004 - $105,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time; (ii) after March 31, 2005 - $75,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time; and (iii) after March 31, 2006 - $70,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time. (b) LENDING LIMITS. Borrower acknowledges, agrees and confirms that the obligations of all Lenders, including TFC, to make Loans under this Agreement to Borrower is limited to the lesser of: (i) the Borrowing Base or (ii) the Maximum Available Amount. Borrower further acknowledges, agrees and confirms that the obligation of each Lender, including TFC, to make loans hereunder to Borrower is limited to: (i) with respect to each Advance hereunder, each Lender's Pro Rata Percentage of any such Advance hereunder and (ii) with respect to all Advances made hereunder, such Lender's obligation hereunder shall be limited to its Pro Rata Percentage of the Maximum Available Amount. Notwithstanding anything heretofore to the contrary, Borrower acknowledges, agrees and confirms that Lenders shall have no obligation to make any Advance, nor shall Borrower be entitled to receive any Advance, if at any time, (x) the aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate unpaid principal balance of all Eligible Notes Receivable pledged to Agent hereunder is, or would be as a result of any Advance, be in excess of the Maximum Effective Advance Rate, (y) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Agent in its sole and absolute discretion; or (z) the most recent Weekly Flash Report indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. Borrower acknowledges, agrees and confirms that Lenders' obligation to Borrower and Borrower's right to borrow under this Agreement is subject to the satisfaction of the conditions set forth in Section 4 hereof on or before May 31, 2002. Until such time as Agent determines that the conditions set forth in Section 4 hereof have been satisfied, all of Borrower's rights with respect to Advances shall be governed by and construed in accordance with the terms and conditions of the Original Loan Agreement, as modified by the Forbearance Agreement and the letter agreement dated April 15, 2002 (the "Extension Letter"). If the conditions set forth in Section 4 are not satisfied on or before May 31, 2002, then this Agreement, and the respective rights and obligations of the parties hereto, shall be null and void AB INITIO and of no further force and effect and the respective rights and obligations of Borrower, TFC and the other Lenders shall be governed by the terms and conditions of the Original Loan Agreement, as modified by the Forbearance Agreement. Anything contained in this Section 2.1(b) to the contrary notwithstanding, the Maximum Available Amount may also be reduced in accordance with Section 13.11 hereof. (c) MAKING OF LOANS. Each Loan under the Revolving Loan Component by a Lender shall be made ratably in accordance with each Lender's respective Pro Rata Percentage, provided, however, that the failure of any Lender to make any required Loan shall not in itself relieve any other Lender of its obligation to make any required Loan hereunder. Likewise, no Lender, including TFC, shall be responsible or liable for the failure of any other Lender to make any Loan required to be made by such other Lender, nor shall any Lender, including TFC, be obligated to make any Loan or Loans in excess of its respective Pro Rata Percentage, but not in excess of its Commitment, in the event that any other Lender fails or refuses to make a Loan or Loans as provided hereunder. As and when additional Lenders, other than TFC, execute and deliver this Agreement, then (A) such additional Lenders shall be deemed to have simultaneously purchased from each of the other Lenders which has previously executed and delivered this Agreement, a share in such other Lenders' Loans so that the amount of the Loans of all Lenders shall be pro rata as otherwise set forth above and (B) such other adjustments shall be made from time to time as shall be equitable to insure that the Advances to Borrower are made ratably by each Lender in accordance with its respective Pro Rata Percentage. (d) NOTE EVIDENCING BORROWER'S OBLIGATIONS. Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balance of the Revolving Loan Component is $56,894,400.00, which amount shall be repaid as provided in Section 2.4 hereof. Borrower's obligations to pay the principal of and interest on the Loan or Loans made by each Lender under the Revolving Loan Component shall be evidenced by a Revolving Loan Component Note to Agent, as agent for each Lender, which Note shall be dated as of the date hereof and be in the stated principal amount of the Revolving Loan Component. The Note will mature on the Final Maturity Date, bear interest as provided in Section 2.3 hereof and be otherwise entitled to the benefits of this Agreement. Notwithstanding the stated principal amount of the Note, the aggregate outstanding principal amount of the Loan at any time shall be the aggregate principal amount owing on the Note at such time. Agent shall and is hereby authorized to record on the grid attached to the Note (or, alternatively, in its internal books and records) the date and amount of each Advance made by Lenders, the interest rate and interest period applicable thereto and each repayment thereof; and such grid or other books and records shall, as between Borrower and each Lender, absent manifest error, constitute prima facie evidence of the accuracy of the information contained therein. Failure by Agent to so record any Advance made by Lenders (or any error in such recordation) or any payment thereon shall not affect the Obligations of Borrower under this Agreement or under the Note and shall not adversely affect Lender's rights under this Agreement with respect to the repayment thereof. At the election of any Lender, Borrower shall execute and deliver to such Lender, a Revolving Loan Component Note in a stated principal amount equal to such Lender's Pro Rata Percentage of the Loan, which such Note or Notes shall be on the same terms and conditions as provided above and which Note or Notes shall be included within the definition of "Revolving Loan Component Note" as such term is used herein. (e) NOTICE OF ADVANCES. (i) Upon receipt by Agent from Borrower of a written request for Advance in accordance with Section 5 hereof and Borrower's satisfaction of the requirements set forth in Section 5 hereof, Agent shall give a written notice (a "NOTICE OF BORROWING") to each Lender, (which Notice of Borrowing shall be given to each Lender not less than two (2) business days prior to the date of the proposed Advance) in the form attached hereto as Exhibit B, setting forth: (i) the total amount of the Advance requested by Borrower; (ii) the aggregate amount of all Loans previously made by each respective Lender; (iii) the outstanding principal balance of the Revolving Loan Component; (iv) the outstanding principal balance of the Term Loan Component; (v) the current Interest Rate as determined in accordance with Section 2.3 hereof; (vi) each such Lender's Pro Rata Percentage of the requested Advance and (vii) the date on which such Advance is to be made; or, at the option of the Agent: (ii) Agent shall provide to each Lender: (A) each month by the close of business on the fifth (5th) business day following receipt by Agent from Borrower, but in no event later than the 30th day of the month: (i) an updated borrowing base report (a "Borrowing Base Report") in the form attached as Exhibit L; and (ii) an updated trial balance and aging report for the Pledged Notes Receivable (a "Collateral Data Report"); and (B) by the close of business on the tenth (10th) business day following receipt by Agent from Borrower of the documents described in Section 2.1(e)(ii)(A) above: (i) a summary of all Advances made by Agent during the immediately preceding month (a "Summary of Weekly Advances"); and (ii) a summary report of Advances and repayments or collections for the immediately preceding month and a calculation of the net Lender's Advance required of such Lender with respect to all Advances made during the immediately preceding month (a "Lender Advance Report"). (f) DISBURSEMENT OF FUNDS. (i) If notice of Advances is provided in accordance with Section 2.1(e)(i) above, then after receiving a Notice of Borrowing from Agent, each Lender shall, not later than 11:00 a.m., Eastern Standard Time, on the date specified in such Notice of Borrowing on which the proposed Advance is to be made, wire transfer to Agent at the Transfer Account, in immediately available funds, an amount equal to each such Lender's Pro Rata Percentage of the proposed Advance as set forth in the Notice of Borrowing. Upon Agent's receipt of funds from each Lender equal to the amount of the requested Advance, and subject to Borrower's compliance with the terms and conditions of this Agreement, Agent shall disburse the Advance to Borrower by wire transfer of funds as directed in writing by Borrower. If Agent shall not receive funds from any Lender as set forth above, then the amount of the Advance in question shall be automatically reduced by an amount equal to the missing Lender's Pro Rata Percentage of the Advance in question, and Agent shall, subject to Borrower's compliance with the terms and conditions of this Agreement, disburse the Advance in the reduced amount to Borrower by wire transfer of funds as directed in writing by Borrower. Agent, in its sole and absolute discretion, may (but shall not be obligated to) make the full amount of the requested Advance available to Borrower prior to the receipt by Agent from one or more Lenders of funds representing such Lender's or Lenders' Pro Rata Percentage of the Advance in question. If the funds representing such Lender's or Lenders' Pro Rata Percentage of the Advance in question are not received by Agent within two business days of the date of such Advance, Borrower shall immediately, upon demand of Agent, repay such amount to Agent. Nothing herein shall be deemed to relieve any Lender from its obligations hereunder or to prejudice any rights Agent may have against any Lender as a result of any Lender's failure to make any Loan or Loans as provided herein; or (ii) If notice of Advances is provided in accordance with Section 2.1(e)(ii) above, then by the close of business on the third (3rd) business day following such Lender's receipt of the Lender Advance Report, such Lender shall wire transfer to Agent at the Transfer Account, in immediately available funds, the net amount due from such Lender as set forth in the Lender Advance Report. If the funds representing such Lender's amount of the Advance or Advances in question are not received by Agent within five (5) business days of the date of such Lender's receipt of the Lender Advance Report, Borrower shall immediately, upon demand of Agent, repay such amount to Agent. Nothing herein shall be deemed to relieve any Lender from its obligations hereunder or to prejudice any rights Agent may have against any Lender as a result of any Lender's failure to make any Loan or Loans as provided herein. (g) HELLER AND SOVEREIGN OBLIGATION TO FUND. Notwithstanding anything herein to the contrary, the obligation of each Lender to make any Advance under this Agreement shall be subject to and conditioned upon both Heller and Sovereign each making advances to Borrower substantially in accordance with the Business Plan, including the Senior Lender Advance Schedule, which Agent agrees will be determined on a quarterly basis commencing April 1, 2002. Lenders shall have no obligation to make any Advance hereunder in the event that either Sovereign or Heller terminates its respective facility or fails to make advances as provided in the Business Plan, including the Senior Lender Advance Schedule, which Agent agrees will be determined on a quarterly basis commencing April 1, 2002. 2.2 TERM LOAN COMPONENT. Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balance of the Term Loan Component is $15,105,600.00, which amount shall be repaid as provided in Section 2.4. Borrower further acknowledges, agrees and confirms that Borrower shall have no right to re-borrow or borrow, nor shall Lenders have any obligation to make any additional loan or loans to Borrower with respect to the Term Loan Component. Borrower's obligation to repay the principal of and interest on the Loan or Loans comprising the Term Loan Component shall be evidenced by a Term Loan Component Note to Agent, as agent for each Lender, which Note shall be dated as of the date hereof and be in the stated principal amount of the Term Loan Component, increased by the Facility Fee. The Term Loan Component Note will mature on the Final Maturity Date, bear interest as provided in Section 2.3 and be otherwise entitled to the benefits of this Agreement. At the election of any Lender, Borrower shall execute and deliver to such Lender a Term Loan Component Note in a stated principal amount equal to such Lender's Pro Rata Percentage of the Loan, which Note or Notes shall be on the same terms and conditions as provided above and which Note or Notes shall be included within the definition of "Term Loan Component Note" as such term is used herein. 2.3 INTEREST RATE. From and after the Effective Date, with respect to the Revolving Loan Component, including each Loan hereafter made pursuant to Section 2.1(a) hereof, the Revolving Loan Component shall bear interest at the Interest Rate applicable to the Revolving Loan Component as of the date funds are received by Agent as provided in Section 2.1(f) through each Lender's receipt of repayment of the Revolving Loan Component in accordance with Section 2.4 (if received by a Lender later than 1:00 p.m., Eastern Standard Time, then interest accrual shall be through the next Business Day following such receipt). From and after the Effective Date, the Term Loan Component shall bear interest at the Interest Rate applicable to the Term Loan Component through each Lender's receipt of payment of the Term Loan Component as provided in Section 2.4. Immediately upon the occurrence of an Event of Default and after the Final Maturity Date (if the Loan is not paid in full on the Final Maturity Date), at Agent's election, in its sole discretion, the entire Loan will bear interest at the Default Rate. Prior to the Effective Date, the Loan shall bear interest as provided in the Original Agreement. 2.4 PAYMENTS. From and after the Effective Date, Borrower agrees punctually to pay or cause to be paid to Agent, as agent for each Lender, all principal and interest due under each Note in respect of the Loans. Borrower shall make the following payments on the Loan: (a) INITIAL LOAN PAYDOWN. On or before May 31, 2002, Borrower shall make, from the proceeds of the DZ Facility, a payment on the Revolving Loan Component in the amount of approximately $12,449,000. (b) MONTHLY PAYMENTS. (1) Revolving Loan Component. Borrower shall direct or otherwise cause all makers of all Pledged Notes Receivable to pay all monies due thereunder to the lockbox established pursuant to the Lockbox Agreement, or as otherwise required by Agent. One hundred percent (100%) of the cleared funds collected from the Pledged Notes Receivable each week will be paid to Agent by the Lockbox Agent pursuant to the Lockbox Agreement, and will be applied by Agent first to the payment of costs or expenses incurred by Agent pursuant to this Agreement in creating, maintaining, protecting or enforcing the Liens in and to the Collateral and in collecting any amounts due to any Lender in connection with the Loan ("COLLECTION COSTS") and the balance to each Lender in accordance with the applicable percentage of the outstanding principal balance of the Loan that each Lender has made (the "Pro Rata Payment Percentage") as provided in Section 2.8 hereof. Each Lender shall apply each such payment in the following order: (i) to any interest accrued at the applicable Default Rate on the Revolving Loan Component; (ii) then to interest at the applicable Interest Rate on the Revolving Loan Component; and (iii) then to principal on the Revolving Loan Component. In the event that the cleared funds received by Agent are insufficient to pay the amounts described in aforementioned clauses (i)-(ii), then Borrower shall pay the difference to Agent on or before the fifth (5th) day of the following month. In the event Borrower receives any payments on any of the Pledged Notes Receivable directly from or on behalf of the maker or makers thereof, Borrower shall receive all such payments in trust for the sole and exclusive benefit of Lenders; and Borrower shall deliver to the Lockbox Agent all such payments (in the form so received by Borrower) as and when received by Borrower, unless Agent shall have notified Borrower to deliver directly to Agent all payments in respect of the Pledged Notes Receivable which may be received by Borrower, in which event all such payments (in the form received) shall be endorsed by Borrower to Agent as agent for Lenders and delivered to Agent promptly upon Borrower's receipt thereof. (2) Term Loan Component. Borrower shall pay to Agent on or before the tenth day of each month an amount equal to: (i) all interest accrued at the applicable Default Rate on the Term Loan Component; plus (ii) all interest due and payable as of the last day of the immediately preceding month; plus (iii) a principal payment sufficient to amortize the Term Loan Component in full on the basis of a twenty (20) year amortization schedule. In the event that Borrower fails to make the payment in question, Agent may, at its option, on or before the tenth day of each month, make an Advance with respect to the Revolving Loan Component and apply such Advance to the payment of amounts due in respect of the Term Loan Component as provided immediately above. (c) MANDATORY TERM LOAN COMPONENT FUND UP PREPAYMENT. If and to the extent that: (i) at the end of each calendar quarter during the first two (2) years of the Term following the Effective Date, commencing the calendar quarter ending June 30, 2002 (x) the outstanding principal balance of all Loans made with respect to the Revolving Loan Component is less than seventy percent (70%) of the then outstanding principal balance of the Eligible Notes Receivable pledged to Agent with respect to such Loans (such difference being hereinafter referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided Borrower has available unrestricted cash of five million dollars ($5,000,000.00) or more as indicated in the most recent Weekly Flash Report or (ii) at the end of each calendar quarter commencing the calendar quarter ending June 30, 2004 (x) the outstanding principal balance of all Loans made with respect to the Revolving Loan Component is less than seventy-five percent (75%) of the then outstanding principal balance of the Eligible Notes Receivable pledged to Agent with respect to such Loans (such difference also being referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided Borrower has available unrestricted cash of five million dollars ($5,000,000.00) or more as indicated in the most recent Weekly Flash Report, then Borrower agrees that Agent may, on the last Business Day of each such calendar quarter, make an Advance with respect to the Revolving Loan Component in an amount equal to such Available Fund Up Amount and apply such Advance to the repayment of the Term Loan Component as follows: (i) first to interest at the applicable Default Rate; (ii) then to interest at the applicable Interest Rate and (iii) then to reduction of principal of the Term Loan Component until such time as the Term Loan Component is paid in full. (d) FURTHER QUARTERLY PAYMENTS. If, at the end of any calendar quarter commencing April 1, 2002, Borrower has available unrestricted cash exceeding five million dollars ($5,000,000.00), as indicated on the most recent Weekly Flash Report (the "ADDITIONAL AVAILABLE AMOUNT"), then Borrower agrees to repay the Loan in an amount equal to such Additional Available Amount and such amount will be applied as follows: (i) first to interest at the applicable Default Rate; (ii) then to interest at the applicable Interest Rate; (iii) then to the reduction of principal of the Term Loan Component until such time as the Term Loan Component is paid in full and (iv) then to the repayment of the Revolving Loan Component as provided in Section 2.4(b) above. (e) LOAN BALANCE REDUCTION. Notwithstanding anything hereto to the contrary, Borrower agrees that on and after March 31, 2004, the outstanding principal balance of the Loan shall be reduced in substantial accordance with the Business Plan. (f) FINAL PAYMENT. The entire outstanding principal amount of the Loan, together with all other Obligations hereunder, shall be due and payable on the Final Maturity Date. (g) PAYMENTS TO LENDER. Promptly upon receipt by Agent of any payment from Borrower in accordance with this Section 2.4, and after payment of any Collection Costs, Agent shall promptly wire transfer to each Lender as described in Schedule C hereto, in immediately available funds, each such Lender's Pro Rata Percentage of the payment in question. Prior to the Effective Date, Borrower shall make payments as provided in the Original Loan Agreement. 2.5 PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. Borrower may repay the Loan, either in whole or in part, at any time, provided that any such prepayment shall be in increments of not less than $100,000.00. (b) MANDATORY PREPAYMENTS. If at any time and for any reason: (i) the outstanding unpaid principal balance of the Revolving Loan Component shall exceed the Maximum Available Amount as reduced in accordance with Section 2.1(a); (ii) the outstanding unpaid principal balance of the Revolving Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder shall exceed the Borrowing Base; or (iii) the outstanding unpaid principal balance of both the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder shall exceed the Maximum Effective Advance Rate (each an "EXCESS FUNDING") then, within five (5) Business Days following Borrower's receipt of telecopied notice from Agent of the occurrence of such excess or, absent such telecopied notice, within fifteen (15) days after the end of the calendar month in which such excess occurred: (x) In the case of an Excess Funding described in (i) above, Borrower shall promptly repay the principal balance of the Revolving Loan Component in an amount equal to such Excess Funding or (y) in the case of an Excess Funding described in (ii) and (iii) above, Borrower shall prepay the principal balance of the Term Loan Component (and if necessary the Revolving Loan Component) in an amount equal to such Excess Funding. If Agent has determined that Notes Receivable have been delivered to Agent and were included in the Borrowing Base, which Notes Receivable did not or no longer qualify as Eligible Notes Receivable ("INELIGIBLE NOTES RECEIVABLE"), provided that an Excess Funding exists, Borrower shall substitute Eligible Notes Receivable for such Ineligible Notes Receivable and thereby increase the aggregate principal amount of Eligible Notes Receivable pledged to Agent as agent for Lenders so that Excess Funding is eliminated. The pledge and delivery to Agent as agent for Lenders of additional Eligible Notes Receivable shall comply with the document delivery and recordation requirements set forth in Section 5.1 of this Agreement and shall be accompanied by a written certification of Borrower to the effect that such additional Pledged Notes Receivable are Eligible Notes Receivable, and that, giving effect to the pledge to Agent as agent for Lenders of such Eligible Note Receivable: (i) the outstanding unpaid principal balance of the Revolving Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder is equal to or less than the Borrowing Base and (ii) the outstanding unpaid principal balance of both the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder is equal to or less than the Maximum Effective Advance Rate. If Borrower elects to prepay the excess principal balance of the Loan pursuant to this Section 2.5(b), no prepayment premium shall be payable in connection with such prepayment. (c) PREMIUMS. Subject to Section 2.6 hereof, no prepayment premium shall be required in connection with any prepayment of the principal balance of the Loan hereunder. 2.6 PAYMENT OF FUNDING LOSSES AND OTHER AMOUNTS RELATING TO LIBOR CONTRACT, ETC. (a) FUNDING LOSSES: BREAKING OF LIBOR CONTRACT, CHANGE IN LAW, ETC. Borrower hereby agrees to pay to Agent on behalf of each Lender any amount necessary to compensate any Lender for any losses or costs (including, without limitation, the costs of breaking any "LIBOR" contract, if applicable, or funding losses determined on the basis of Lender's reinvestment rate and the interest rate thereon) (collectively, "FUNDING LOSSES") sustained by any Lender: (i) if the Loan, or any portion hereof, is prepaid for any reason whatsoever on any date other than the Final Maturity Date (including, without limitation, from condemnation or insurance proceeds); (ii) upon the conversion of the interest rate on the Loan to an interest rate based on the Prime Rate in accordance with Section 2.6(b) hereof; (iii) as a consequence of the reduction of any amounts received or receivable from Borrower, in either case, due to the introduction of, or any change in, law or applicable regulation or treaty (including the administration or interpretation thereof), whether or not having the force of law, or due to the compliance by any Lender with any directive, whether or not having the force of law, or request from any central bank or domestic or foreign governmental authority, agency or instrumentality having jurisdiction; (iv) as a consequence of the breaking of any LIBOR contract and/or (v) any other set of circumstances not attributable to any Lender's acts. Payment of Funding Losses hereunder shall be in addition to any obligation to pay any other amounts due and owing under this Agreement or any other Loan Documents. (b) CONVERSION TO INTEREST RATE BASED ON PRIME RATE. If Agent determines (which determination shall be conclusive and binding upon Borrower, absent manifest error) (i) that dollar deposits in an amount approximately equal to the then outstanding principal balance of the Loan are not generally available at such time in the London Interbank Market for deposits in Eurodollars, (ii) that the rate at which such deposits are being offered will not adequately and fairly reflect the cost to Lenders of maintaining the Interest Rate based on LIBOR, or of funding the same in such market for such Interest Accrual Period, due to circumstances affecting the London Interbank Market generally, (iii) that reasonable means do not exist for ascertaining LIBOR, (iv) that the Interest Rate based on LIBOR would be in excess of the maximum interest rate which Borrower may by law pay, then, in any such event, or (v) any LIBOR contract is broken as a result of the sale, pledge, refinancing or securitization in bulk of Eligible Notes Receivable relating to the Resorts by Borrower, Agent shall so notify Borrower and, as of the date of such notification with respect to an event described in clauses (ii), (iv) or (v) above, or as of the expiration of the applicable LIBOR Rate Period with respect to an event described in clause (i) or (iii) above, interest shall accrue at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), which new rate shall apply until such time as the situations described above are no longer in effect, or as otherwise provided herein; provided, however, if the situation described in clause (ii) above occurs, (x) Borrower shall have the option, to be exercised by written notice to Agent, to pay to Agent on behalf of Lenders (in the manner reasonably required by Agent) for such increased cost of maintaining the Interest Rate based on LIBOR, and (y) if the same only affects a portion of the Loan, then only such portion shall have interest accrue at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), and interest shall continue to accrue on the remaining portion at the Interest Rate based on LIBOR. (c) BACK-UP INTEREST RATE BASED ON PRIME RATE. If the introduction of, or any change in, any law, regulation or treaty, or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof, shall make it unlawful for any Lender to maintain the Interest Rate based on LIBOR with respect to the Loan, or any portion thereof, or to fund the Loan, or any portion thereof, in Eurodollars in the London Interbank Market, then, (i) the Loan (or such portion of the Loan) shall, with respect to such Lender, thereafter bear interest at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), (unless the Default Rate shall be applicable), and (ii) Borrower shall pay to Agent on behalf of any such Lender the amount of Funding Losses (if any) incurred in connection with such conversion. Interest shall accrue at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), which new rate shall continue until such date, if any, as the situation described in this Section 2.6(c) is no longer in effect. (d) CAPITAL ADEQUACY EVENTS, ETC. If Agent shall have determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards", or the adoption of any other law, rule, regulation or guideline (including, but not limited to, any United States law, rule, regulation or guideline) regarding capital adequacy, or any change becoming effective in any of the foregoing or in the enforcement or interpretation or administration of any of the foregoing by any court or any domestic or foreign governmental authority, central bank or comparable agency charged with the enforcement or interpretation or administration thereof, or compliance by any Lender, with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of any Lender or any Lender's holding company, as the case may be, to a level below that which any Lender or its holding company, as the case may be, could have achieved but for such applicability, adoption, change or compliance (taking into consideration each Lender's or its holding company's, as the case may be, policies with respect to capital adequacy) (the foregoing being hereinafter referred to as "CAPITAL ADEQUACY EVENTS"), then, upon demand by Agent, Borrower shall pay to Agent on behalf of any such Lender, from time to time, such additional amount or amounts as will compensate any such Lender for any such reduction suffered. (e) PAYMENT OF AMOUNTS DUE UNDER SECTION 2.6. Any amount payable by Borrower under Section 2.6(a) or 2.6(d) hereof shall be paid to Agent on behalf of Lenders within five (5) days of receipt by Borrower of a certificate signed by an officer of Agent setting forth the amount due and the basis for the determination of such amount, which statement shall be conclusive and binding upon Borrower, absent manifest error. Failure on the part of Agent to demand payment from Borrower for any such amount attributable to any particular period shall not constitute a waiver of Agent's or any Lender's right to demand payment of such amount for any subsequent or prior period. Agent shall use reasonable efforts to deliver to Borrower prompt notice of any event described in Sections 2.6(a) or 2.6(d) hereof and of the amount to be paid under this Section 2.6(e) as a result thereof; provided, however, any failure by Agent to so notify Borrower shall not affect Borrower's obligation to make the payments to be made under this Section 2.6(e) as a result thereof. All amounts which may become due and payable by Borrower in accordance with the provisions of this Section 2.6(e) shall constitute additional interest hereunder and shall be secured by this Agreement and the other Loan Documents. 2.7 FACILITY FEE. Borrower acknowledges and agrees that a Facility Fee in the amount set forth in the Fee Letter is due and payable exclusively to Lenders. Borrower acknowledges, agrees and confirms that each Lender has earned its respective Pro Rata Percentage of the Facility Fee notwithstanding whether the Loan or any portion is funded and further agrees that the Facility Fee shall be paid at closing from the proceeds of the Term Loan Component and is included in the current outstanding principal balance of the Term Loan Component and shall be repaid by Borrower to Lenders as part of the Term Loan Component Note. 2.8 PRO RATA TREATMENT. Each repayment of principal and interest on the Revolving Loan Component and Term Loan Component shall be allocated among Lenders in accordance with their respective Pro Rata Payment Percentage. Each Lender agrees that in computing such Lender's portion of any Advance to be made hereunder, Agent may, in its discretion, round each Lender's such Advance to the next higher or lower whole dollar amount. If any Lender shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Loans which results in its receiving more than its Pro Rata Payment Percentage of any payments described above, then (A) such Lender shall be deemed to have simultaneously purchased from each of the other Lenders a share in such other Lender's Loans so that the amount of the Loans of all Lenders shall be pro rata as otherwise set forth above, (B) such Lender shall immediately pay to the other Lenders their Pro Rata Payment Percentage of the payments otherwise received as consideration for such purchase and (C) such other adjustments shall be made from time to time as shall be equitable to insure that all Lenders share such payments ratably. If all or any portion of any such excess payment is thereafter recovered from Lender which received the same, the purchase provided in this Section 2.8 shall be deemed to have been rescinded to the extent of such recovery, without interest. Borrower expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of another Lender's loans may exercise all rights of payment (including all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. 2.9 MAXIMUM OBLIGATION OF TEXTRON FINANCIAL CORPORATION UNDER THE LOAN, THE ADDITIONAL CREDIT FACILITY, THE TRANCHE C FACILITY AND THE INVENTORY LOAN. Borrower acknowledges, agrees and confirms that notwithstanding anything to the contrary herein, in any other Loan Document or in any document evidencing or securing the Additional Credit Facility or the Tranche C Facility, TFC, as a Lender, shall not be obligated to fund any Advance hereunder, which when taken together with the loans or advances made by TFC to Borrower under this Agreement, the Additional Credit Facility and the Tranche C Facility, would cause the aggregate amount of such loans and advances by TFC to Borrower to exceed a maximum aggregate amount of $50,200,000.00 prior to the Effective Date and: (i) after the Effective Date and prior to March 31, 2004, $44,567,000.00; (ii) after March 31, 2004 and prior to March 31, 2005, $34,409,000.00; (iii) after March 31, 2005 and prior to March 31, 2006, $24,577,000.00; and (iv) after March 31, 2006, $22,939,000.00. TFC's maximum obligation under the Inventory Loan shall be $10,000,000.00 throughout the term of the Inventory Loan. 2.10 SUSPENSION OF ADVANCES. (a) SUSPENSION OF SALES. If any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction shall be issued limiting or otherwise materially adversely affecting any Interval sales activities, other business operations in respect of the Resorts, or the enforcement of the remedies of Agent and Lenders hereunder, then, in such event, Agent and Lenders shall have no obligation to make any Advances hereunder: (i) in respect of Pledged Notes Receivable from the sale of Intervals which are the subject of any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been issued until the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been lifted or released to the satisfaction of Agent and (ii) in respect of Pledged Notes Receivable from the sale of Intervals at any Resort if: (x) the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction in question has not been lifted or released to the satisfaction of Agent within sixty (60) days of its issuance and (y) there is a reduction in the total number of sales of Intervals by Borrower in any Loan Year of more than twenty percent (20%) from the total number of sales of Intervals in the immediately preceding Loan Year. (b) CHANGE IN CONTROL. If there shall occur a change, singly or in the aggregate, of more than fifty percent (50%) of the executive management of Borrower as described in Schedule 2.10(b) hereto, Lender shall have no obligation to make any Advances hereunder, unless within thirty (30) days prior thereto Borrower provides Lender with written information setting forth the replacement executive management personnel of Borrower together with a description of those Persons' experience, ability and reputation, and Agent, acting in good faith, determines that the replacement management personnel's experience, ability and reputation is equal to or greater than that of Borrower as set forth on Schedule 2.10(b). Notwithstanding the foregoing, the makeup of the Borrower's Board of Directors may be altered in accordance with the Bond Holder Exchange Documents, provided that Agent shall have no obligation to make any Advances hereunder if more than two (2) of the five (5) Board of Directors' positions are controlled by the Bond Holders. (c) FAILURE TO ADHERE TO BUSINESS PLAN/DEFAULT OR EVENT OF DEFAULT. Agent and Lenders shall not be obligated to fund any Advance hereunder if: (i) Borrower shall fail to substantially adhere to the Business Plan (including the Senior Lender Advance Schedule) as determined by Agent in its sole and absolute discretion or (ii) a Default or Event of Default shall have occurred and be continuing. SECTION 3 -- COLLATERAL 3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and grants to Agent, as agent for each Lender, a continuing first priority security interest in and to the Collateral to further secure the payment and performance of the Obligations. To further secure the payment and performance of the Obligations, Borrower shall also execute and deliver to Agent, as agent for each Lender: (i) the modifications to the Land Mortgages in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority mortgage lien on the Land and (ii) the Additional Resort Collateral Mortgages, in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority mortgage lien on that portion of the Additional Resort Collateral consisting of real property. To further secure the payment and performance of the Obligations, Borrower shall further execute and deliver to Agent, as agent for each Lender: (1) the Additional Resort Collateral Assignment, in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority security interest on that portion of the Additional Resort Collateral consisting of personal property; (2) the Stock Pledge Agreement, in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority security interest in the Silverleaf Finance I, Inc. Stock; (3) the Standby Management Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Agent, as agent for each Lender, all of Borrower's right, title and interest in the Standby Management Agreement Assignment; and (4) the Standby Servicing Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Agent, as agent for each Lender, all of Borrower's right, title and interest in the Standby Servicing Agreement. For convenience of administration, Agent is acting as agent for Lenders under the Agreement. Agent, as such agent, may execute any of its duties hereunder by or through its agents, officers or employees and shall be entitled to rely upon the advice of counsel as to its duties. Agent, as such agent, shall not be liable to Lenders for any action taken or omitted to be taken by it in good faith and shall neither be responsible to Lenders for the consequences of any oversight or error of judgment nor be answerable to Lenders for any loss unless the same shall happen through Agent's gross negligence or willful misconduct. To the extent that Agent, as such agent, shall not be reimbursed by Borrower for any costs, liabilities or expenses incurred in such capacity, Lenders shall reimburse Agent therefor pro rata in accordance with their respective Pro Rata Percentages (including Agent as one of Lenders for this purpose). Each Lender agrees that Agent shall be entitled to take and shall only be required to take, any action which it is permitted to take under this Agreement. Notwithstanding anything herein to the contrary, Borrower acknowledges and agrees as follows: (a) The Revolving Loan Component shall be secured by: (i) a first priority security interest in the Eligible Notes Receivable pledged to Agent on behalf of Lenders as provided herein, the Mortgages with respect thereto and that portion of the other Collateral related thereto; (ii) a first priority security interest in the Ineligible Note Portfolio, the Mortgages with respect thereto and that portion of the other Collateral related thereto; (iii) a second priority security interest, subject only to the security interest securing the Term Loan Component and the Inventory Loan, in the Silverleaf Finance I, Inc. Stock and the Additional Resort Collateral. (b) The Term Loan Component shall be secured by: (i) a first priority security interest in the Additional Resort Collateral; (ii) a first priority security interest in Borrower's Silverleaf Finance I, Inc. Stock; (iii) Intentionally Omitted; (iv) a second priority security interest, subject only to the security interest securing the Revolving Loan Component, in the Eligible Notes Receivable pledged to Agent on behalf of Lenders as provided herein, the Mortgages with respect thereto and that portion of the other Collateral related thereto; and (v) second priority security interest, subject only to the security interest securing the Revolving Loan Component, in the Ineligible Note Portfolio, the Mortgages with respect thereto and the other Collateral related thereto. In addition to the foregoing, Borrower acknowledges, agrees and confirms that the security interest granted to Agent, on behalf of Lenders, in all other Collateral to secure the Loan, including the Land, the Standby Management Agreement, the Standby Servicing Agreement and the other collateral securing the Heller Facility, the Sovereign Facility, the Additional Credit Facility, the Tranche C Facility and the Inventory Loan shall be equal in priority as between the Revolving Loan Component and the Term Loan Component and, with respect to the collateral securing the Heller Facility, the Sovereign Facility, the Additional Credit Facility, the Tranche C Facility and the Inventory Loan, subject only to the security interests securing such facilities. For purposes hereof, the reference to "collateral securing the Heller Facility" and "collateral securing the Sovereign Facility" shall mean the Notes Receivable and related Mortgages exclusively assigned to Heller or Sovereign in connection with an advance under their respective loan documents. 3.2 SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Notwithstanding that Lenders may be obligated, subject to the conditions of the Loan Documents, to make Advances only in respect of Eligible Notes Receivable pledged to Agent, Lenders shall have a continuing security interest in all of the Pledged Notes Receivable, including all Notes Receivable in the Ineligible Note Portfolio and any Notes Receivable pledged to Heller or Sovereign and Agent may, on behalf of Lenders, collect all payments made under or in respect of all such Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Agent, if at all, pursuant to Section 12.10 or Section 7.2(a) below. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur, Borrower, as agent for and on behalf of Lenders, shall retain possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. By executing this Agreement, Borrower acknowledges and agrees that it is holding such Notes Receivable as bailee and agent for the Agent. Borrower shall hold and designate such Notes Receivable in a manner which clearly indicates that they are being held by Borrower as bailee on behalf of Agent. Upon the occurrence of an Event of Default, Borrower shall promptly deliver to Agent, as agent for each Lender, Sovereign and Heller, all original Notes Receivable comprising the Ineligible Note Portfolio and to the extent not previously delivered to Agent, the documents listed in Section 5.1(b) hereof and with respect thereto and after such Event of Default Agent shall have the right to collect all proceeds therefrom and apply the same to payment of the Obligations as set forth in Section 2.4(b) hereof. To perfect the security interest of Agent, as agent for each Lender, in the Ineligible Note Portfolio, Borrower agrees, subject to Agent's prior approval, to execute and cause to be filed, at Borrower's sole cost and expense, UCC-1 financing statement(s) with the appropriate state and local governmental authorities as requested by Agent. Borrower also shall execute and deliver in escrow to Agent, as agent and on behalf of each Lender, Sovereign and Heller, an assignment of Mortgages in the form attached hereto as Exhibit A (the "Assignment of Mortgages") and as approved by Agent, Sovereign and Heller at their sole and absolute discretion, assigning equally to each of Agent, as agent for each Lender, Heller and Sovereign, all of Borrower's rights, title and interests in each and all of the Mortgages relating to the Notes Receivable in the Ineligible Note Portfolio. Borrower further agrees to promptly execute and deliver modifications or additional Assignments of Mortgages requested by Agent, Heller and Sovereign in order to continue the security interests of Agent, Heller and Sovereign in the Ineligible Note Portfolio. Borrower acknowledges and agrees that upon an Event of Default, Agent, or a designee as designated by Agent, Heller and Sovereign pursuant to the terms of the Intercreditor Agreement, shall have the right to automatically record, at Borrower's sole cost and expense, all such Assignments of Mortgages executed by Borrower and delivered to Agent in accordance with the terms of this Section 3.2. 3.3 FINANCING STATEMENTS. Borrower agrees, at its own expense, to execute the financing statements, continuation statements and amendments provided for by the Code together with any and all other instruments or documents and take such other action as may be required to perfect and to continue the perfection of Agent's security interests in the Collateral. Borrower hereby authorizes Agent to execute and/or file on Borrower's behalf any such financing statements, continuation statements and amendments. 3.4 PRIORITY OF EACH LENDER'S LIENS. Each Lender shall have an equal security interest in the Collateral based upon its Pro Rata Percentage and no Lender's security interest in the Collateral shall have priority over any other Lender's security interest in the Collateral. 3.5 INSURANCE. Insurance coverage with respect to the Resort(s) is provided by the Timeshare Owners' Association. Borrower shall furnish Agent, upon request, with satisfactory evidence that the Units, Buildings and Resorts are adequately insured. Borrower shall furnish to Agent evidence of insurance coverage with respect to the Land, that portion of the Additional Resort Collateral constituting real property and such other portion of the Additional Resort Collateral as Agent may reasonably request. Such insurance coverage shall insure against such risks, be in such amounts, with such companies and on such other terms as Agent may reasonably require. Each such policy shall name Agent as an additional insured and loss payee as agent for Lenders, as their respective interests may appear. In the event of a loss or damage to any portion of the Additional Resort Collateral constituting real property, Borrower shall, unless an Event of Default exists, apply the proceeds of any such insurance policy to restoration and repair of the Additional Resort Collateral in question in accordance with the applicable Declaration. If an Event of Default has occurred, Agent may, in its sole discretion, apply the proceeds of any such insurance policy to restoration and repair of such Additional Resort Collateral in question in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof. 3.6 PROTECTION OF COLLATERAL; REIMBURSEMENT. The portion of the Collateral consisting of: (i) the original Pledged Notes Receivable (including, but subject to Section 3.2 hereof, the Ineligible Note Portfolio), (ii) the original Mortgages, (iii) the original purchase contract (including addendum) related to such Pledged Notes Receivable and Mortgages, and (iv) originals or true copies of the related truth-in-lending disclosure, loan application, warranty deed, and if required by Agent, the related Purchaser's acknowledgement receipt and the Exchange Company application and disclosures, shall be delivered at Borrower's expense to Agent, as agent for Lenders, at its East Hartford, Connecticut office, and held in Agent's possession and control until the Obligations are fully satisfied; and Borrower shall pay to Agent at the time of each Advance, to reimburse Agent for Agent's administrative costs, a custodial fee of $10.00 for each Pledged Note Receivable (and related Collateral) delivered into Agent's physical possession. The portion of the Collateral delivered to Agent as described above shall be segregated by Agent and stored in a fire-resistant filing cabinet; and Borrower agrees that such storage is and shall be deemed to constitute reasonable care by Agent with respect to such Collateral. All insurance expenses and all expenses of protecting the Collateral, including without limitation, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, and any and all excise, property, intangibles, sales and use taxes imposed by any state, federal or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrower; and if Borrower fails to promptly pay any portion thereof when due, Agent may, at its option, but shall not be required to, pay the same and charge Borrower's account therefor, and Borrower agrees promptly to reimburse Agent therefor with interest accruing thereon daily at the Default Rate. All sums so paid or incurred by Agent for any of the foregoing and any and all other sums for which Borrower may become liable hereunder and all costs and expenses (including attorneys' and paralegals' fees, legal expenses and court costs) which Agent may incur in enforcing or protecting its Lien on, or rights and interest in, the Collateral or any of its rights or remedies under this Agreement or any other Loan Document or with respect to any of the transactions hereunder or thereunder, until paid by Borrower to Agent with interest at the Default Rate, shall be included among the Obligations, and, as such, shall be secured by all of the Collateral. Provided that Agent retains the original Pledged Notes Receivable and Mortgages, and originals or copies of the related Timeshare Documents delivered to it and listed above, in a fire-resistant filing cabinet as provided above, Agent shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, Lockbox Agent, Servicing Agent or any other Person whomsoever. 3.7 ADDITIONAL ELIGIBLE RESORTS. From time to time during the Term, Borrower may propose to Agent that one or more additional time-share plans and projects owned and operated by Borrower be included among the Eligible Resorts in respect of which Advances may be made. Any such proposal will be in writing, and will be accompanied or supported by the due diligence and supporting Borrower, Affiliate, project, financial and related information identified in Section 4.5 hereto, and such other information as Agent may require. Borrower will reasonably cooperate with Agent's underwriting and due diligence, and Borrower will be responsible for payment upon billing for Agent's out-of-pocket expenses in connection therewith. Subject to: (i) Agent's satisfactory underwriting and due diligence review, including satisfaction of the conditions in Sections 4 and 5 hereof as they relate to such additional time-share resorts, and (ii) consent of such Lenders (including TFC) whose total Pro Rata Payment Percentage is equal to or exceeds sixty-six and two-thirds percent (66 2/3%) of the outstanding principal balance of the Loan, Agent may, but shall not be required to, approve one or more such additional time-share resorts, including future phases or condominiums in an Existing Eligible Resort, as an Eligible Resort qualifying for Advances under and subject to the terms of this Agreement and the other Loan Documents. Notwithstanding the foregoing, in the event that a Lender does not consent to the approval of such additional time-share resort, then such Lender shall not be obligated to fund any Advances hereunder with respect to Pledged Notes Receivable originating from such resort. Subject in each instance to Agent's acceptable underwriting and due diligence review, consent of such Lenders (including TFC) whose total Pro Rata Payment Percentage is equal to or exceeds sixty-six and two-thirds percent (66 2/3%) of the outstanding principal balance of the Loan and Agent's prior written approval, any project as may be approved by Agent and Lenders after the Effective Date, if any, is hereinafter referred to as an "ADDITIONAL ELIGIBLE RESORT". Any Advances hereunder with respect to any Additional Eligible Resort will be subject to all terms and conditions of this Agreement and the other Loan Documents. Notwithstanding anything in this Section 3.7 to the contrary, Agent may, in its sole and absolute discretion, require that the Lenders (including TFC) unanimously consent to the approval of any project as an Additional Eligible Resort. 3.8 MODIFICATION OF ELIGIBLE NOTES RECEIVABLE. Notwithstanding anything herein to the contrary, Borrower shall have the right to modify the interest rate and term only of the Eligible Notes Receivable without Agent's prior consent, provided that: (i) any such change in the rate of interest on any one or more Eligible Notes Receivable shall not reduce the average interest rate on all Eligible Notes Receivable to less than twelve and one half percent (12 1/2%) per annum at any time; (ii) the term of no Eligible Notes Receivable shall be increased to a term longer than one hundred twenty (120) months from its original date; (iii) at no time may Borrower so modify the terms of Eligible Notes Receivable constituting more than fifteen percent (15%) of the outstanding principal balance of all Eligible Notes Receivable at any time; (iv) Borrower immediately provides Agent with notice of any such modification together with any original documentation evidencing such modification and (v) no Eligible Note Receivable is modified more than once in any twelve (12) month period or more than twice during the term of such Eligible Note Receivable. 3.9 ASSUMPTION OF OBLIGATIONS UNDER ELIGIBLE NOTES RECEIVABLE. Notwithstanding anything herein to the contrary, upon the sale by a Purchaser of an Interval, the new Purchaser of the Interval may be substituted as obligor under the Eligible Note Receivable in question, provided that: (i) said new Purchaser assumes in writing all of the obligations of the original obligor under the Eligible Note Receivable in question; (ii) the Eligible Note Receivable continues to meet all of the criteria for an Eligible Note Receivable as set forth herein and (iii) the new Purchaser has made a cash down payment equal to at least 10% of the original sales price of the Interval in question, which down payment shall be in addition to the cash down payment made by the original obligor. 3.10 TAX REFUND. Borrower agrees that it shall use the proceeds of the Tax Refund strictly to fund Operating Expenses in accordance with the Business Plan and for no other reason, without Agent's prior written consent. Borrower agrees to use the Tax Refund before requesting any Advance hereunder. Upon request of Agent, Borrower shall promptly provide to Agent such evidence as Agent may request as to the manner in which the proceeds of the Tax Refund are being used. 3.11 PURCHASER/CRITERIA. All Eligible Notes Receivable pledged as Collateral to Agent subsequent to the Effective Date will be underwritten in a manner consistent with the Borrower's general underwriting criteria, as approved in writing by Agent, including, without limitation: (i) the requirement that a majority of sales shall be made to Purchasers with minimum annual income as follows: $35,000 for purchasers residing in the state of Texas, $40,000 for purchasers residing in the state of Illinois, and $45,000 for purchasers residing in the state of Massachusetts, (ii) the requirement that each Purchaser shall have a major credit card issued in his or her name, with a copy of such credit card maintained in Borrower's file for such Purchaser, and (iii) the requirement that the weighted average FICO Credit Bureau Scores of all Purchasers with respect to which a FICO score can be obtained be not less than 640, provided that the aggregate outstanding principal balance of Eligible Notes Receivable pledged to Agent with respect to which a FICO score can not be obtained, does not exceed ten percent (10%) of the aggregate outstanding principal amount of all Eligible Notes Receivable pledged to Agent. Borrower shall not materially alter its general underwriting criteria without the prior written approval of Agent, which approval Agent may withhold in its sole discretion. 3.12 REPLACEMENT NOTES RECEIVABLE. Except as may be provided in the Business Plan, Ineligible Notes Receivable, as such term is defined in Section 2.5(b), shall be replaced with Eligible Notes Receivable, to the extent available, on a dollar for dollar basis, provided, however, that if Borrower is unable to deliver Eligible Notes Receivable to replace any Ineligible Notes Receivable, Borrower shall deliver additional Notes Receivable, if available, to Agent, whether or not such additional Notes Receivable satisfy the criteria for Eligible Notes Receivable. In the event that any Eligible Note Receivable becomes available thereafter, the Borrower shall promptly substitute such Eligible Note Receivable for the Ineligible Note Receivable pledged to Agent. 3.13 CROSS COLLATERALIZATION. The Collateral also secures the Obligations of Borrower under the Additional Credit Facility, the Inventory Loan, and the Tranche C Facility. Upon repayment of this Loan and the satisfaction by Borrower of all of the Obligations under this Loan, the Collateral shall continue to secure the Additional Credit Facility, the Inventory Loan and the Tranche C Facility, as provided in the documents evidencing and securing the Additional Credit Facility, the Inventory Loan and the Tranche C Facility. Borrower further acknowledges and agrees that upon repayment in full of the Heller Facility and/or the Sovereign Facility, Agent's security interest in the collateral securing such facilities shall automatically become a first priority security interest securing the Borrower's Obligations hereunder and under the Additional Credit Facility, the Tranche C Facility and the Inventory Facility and Borrower shall take such steps as Agent may request to deliver such collateral to Agent and to confirm Agent's first priority security interest therein. Notwithstanding the foregoing: (a) when the Term Loan Component and the Inventory Loan are paid in full, the Additional Resort Collateral shall be released from the Lien of the security interest granted to Agent hereunder provided: (i) an Event of Default has not occurred; and (ii) the Additional Resort Collateral is also released from any lien granted to Sovereign pursuant to the Sovereign Documents; (b) when both the Term Loan Component and the Inventory Loan are paid in full, the Silverleaf Finance I, Inc. Stock shall be released from the Lien of the security interest granted to Agent hereunder provided: (i) an Event of Default has not occurred; and (ii) the Silverleaf Finance I, Inc. Stock is also released from any lien granted to Sovereign pursuant to the Sovereign Documents. SECTION 4 -- CONDITIONS PRECEDENT TO THE CLOSING 4.1 CONDITIONS PRECEDENT. The obligation of Agent and Lenders under this Agreement and the obligation to fund any Advance, including the initial Advance, hereunder shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and are correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Agent. (b) NO PROHIBITED ACTS. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of this Agreement or the Loan Documents. (c) NO CHANGES. That all information and documents heretofore delivered by Borrower to Agent with respect to Borrower, the Business Plan or the Existing Resorts, including information and documents delivered in connection with the Additional Credit Facility, the Forbearance Agreement, the Tranche C Facility and the Inventory Loan, remain true and correct in all respects. (d) APPROVAL OF DOCUMENTS PRIOR TO EFFECTIVE DATE. Borrower has delivered to Agent (with copies to Agent's counsel), prior to the Effective Date, and Agent has reviewed and approved, prior to the Effective Date, the form and content of all of the items specified in Subsection 4.1(d)(i) through (vi) below (the "SUBMISSIONS"). Agent shall have the right to review and approve any changes to the form of any of the Submissions. If Agent disapproves of any changes to any of the Submissions, Agent shall have the right to require Borrower either to cure or correct the defect objected to by Agent or to elect not to fund the Loan or any Advance. Under no circumstances shall Agent's failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower's sole cost and expense, unless expressly stated to be an obligation and expense of Agent. Agent shall have the right of prior approval of any Person responsible for preparing a Submission ("PREPARER") and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Agent believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Agent and include the following language: "THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION AS AGENT FOR EACH LENDER IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL." (i) A certificate in the form attached as Exhibit A, to be dated as of the Effective Date and signed by the president, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4.1(a), (b) and (c) above are true; (ii) Copies of any amendments to the articles of incorporation of Borrower not previously delivered to Agent, certified to be true and complete by Borrower and the Secretary of State of the State of Texas and a current certificate of good standing for Borrower, and copies of any amendments to the by-laws of Borrower not previously delivered to Agent, certified to be true, correct and complete by the secretary or assistant secretary of Borrower; (iii) A certificate of the Secretary of Borrower certifying the adoption by the Board of Directors of Borrower of a resolution authorizing Borrower to enter into and execute this Agreement, the Notes, and the other Loan Documents, to borrow the Loan from Lenders, and to grant to Lenders a first priority security interest in and to the Collateral; (iv) A certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign the Agreement, the Notes and the other Loan Documents; and (v) Copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower not previously delivered to Agent. (e) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have delivered to Agent, on or before the Effective Date, the following Loan Documents, each of which shall be in the form of the respective Loan Documents attached hereto as Exhibit A, and each of which when required, shall be in recordable form: (i) THIS AGREEMENT. (ii) CLOSING OPINIONS FOR BORROWER. (iii) REVOLVING LOAN COMPONENT NOTE. (iv) TERM LOAN COMPONENT NOTE. (v) ADDITIONAL RESORT COLLATERAL MORTGAGE. (vi) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. (vii) STOCK PLEDGE AGREEMENT. Together with delivery of all original stock certificates indorsed to Agent, as agent for each Lender and Sovereign. (viii) ASSIGNMENT OF MORTGAGES. (ix) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. (x) ENVIRONMENTAL INDEMNITY AGREEMENT. An Environmental Indemnity Agreement, executed by Borrower in favor of each Lender. (xi) LOCKBOX AGREEMENT CONFIRMATION. The Lockbox Agreement confirmation, executed by Lockbox Agent, Agent, on behalf of each Lender, and Borrower. (xii) MODIFICATION TO LAND MORTGAGES. Borrower shall have executed and delivered to Agent, on or before the date hereof, modifications to the Land Mortgages, each of which shall be in the form attached hereto as Exhibit A, and each of which shall be in recordable form. (xiii) STANDBY SERVICING AGREEMENT ASSIGNMENT. (xiv) INTERCREDITOR AGREEMENT. Borrower, Heller and Sovereign shall have executed and delivered to Agent, on or before the date hereof, the intercreditor agreement, in the form attached hereto as Exhibit A. (xv) FINANCING STATEMENTS. Original UCC financing statements covering the Collateral, filed with the Secretary of State of Texas. (xvi) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. (xvii) ASSIGNMENT OF MANAGEMENT AGREEMENTS. (xviii) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Agent may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Agent as agent for Lenders contemplated by the Loan Documents, and to effectuate the transactions contemplated herein. (f) HELLER FACILITY AND SOVEREIGN FACILITY MODIFICATION. On or before the Effective Date, Borrower shall deliver to Agent, evidence satisfactory to Agent, that the Heller Facility and the Sovereign Facility have each been modified in accordance with the Business Plan and Agent has been provided with copies of all of the executed Heller Documents modifications and the executed Sovereign Documents modifications; (g) EFFECTIVE DATE CONDITIONS. On or before the Effective Date, the following conditions shall be satisfied: (i) PHYSICAL INSPECTION. Agent shall be satisfied with its physical inspection of the Resorts. (ii) UCC SEARCH. Agent shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under Texas, and other applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Agent shall not be obligated to fund any Advance if Agent determines that Lenders do not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein. (iii) LITIGATION SEARCH. Agent shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Resorts, any portion of the Collateral, Borrower, or any Affiliates of Borrower (each a "Material Party"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Agent determines in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lenders shall not be obligated to fund any Advance if Agent determines that any such litigation is pending. (iv) TITLE SEARCHES. Title Searches for each real property comprising the Additional Resort Collateral and each real property comprising the Land, together with legible copies of each exception or matter noted thereon. (v) TITLE INSURANCE POLICIES: (1) Borrower shall deliver to Agent, with respect to each parcel of real property comprising the Land, an endorsement to the existing mortgagee's title insurance policy (the "LAND MORTGAGE TITLE POLICY ENDORSEMENT") updating each applicable policy previously issued with respect to the Land through the date hereof and indicating that the applicable Land Mortgage, as modified to date, is a first priority Lien on the land in question. Such Land Mortgage Title Policy Endorsement shall be an amount equal to the fair market value of the Land, and issued by companies and in form and substance satisfactory to Agent in its sole discretion. (2) Borrower shall deliver to Agent, with respect to each parcel of real property comprising the Additional Resort Collateral, a mortgagee's title insurance policy (the "ADDITIONAL RESORT COLLATERAL TITLE POLICY") in the full amount of the appraised value of each such parcel, indicating that the applicable Additional Resort Mortgage is a first priority Lien on the parcel in question. The title policy shall be in form and substance, and contain such endorsements, as are satisfactory to Agent in its sole discretion, and shall be issued by a title insurance company satisfactory to Agent. (3) Borrower shall be responsible for the payment of all costs and expenses of the foregoing title policies and endorsements. (vi) INTENTIONALLY OMITTED. (vii) SURVEYS. To the extent not previously delivered to Agent, Borrower shall deliver to Agent, at its sole cost and expense: (i) an ALTA survey of each parcel comprising the Additional Resort Collateral and the Land, which surveys shall be in form and substance satisfactory to Agent and the applicable title company, and shall be certified by the surveyor to Agent and the applicable title company, on such form of certification as may be approved by Agent; or (ii) legible recorded plats of the parcel comprising the Additional Resort Collateral and the Land, provided such recorded plats are in form and substance reasonably satisfactory to Agent and Title Company and are sufficient to remove the survey exception from the title policy issued with respect thereto. (viii) RECORDING OF MODIFICATIONS TO LAND MORTGAGES AND ADDITIONAL COLLATERAL MORTGAGES. The Additional Resort Collateral Mortgages and modifications to the Land Mortgages shall have been duly recorded in the applicable land records for each state in which the Land and the Additional Resort Collateral is located. (ix) ENVIRONMENTAL REPORT. To the extent not previously delivered to Agent, an Environmental Report or Reports covering the Land and that portion of the Additional Resort Collateral which is real property confirming: (1) that soil conditions are sufficient to support all existing and any contemplated improvements to such real property; (2) the absence of Hazardous Materials on such real property; (3) that the issuer of the report has obtained, reviewed and included with its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable and state local authorities and such other information as Agent may reasonably require, including without limitation a Phase I environmental audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from the real property in question, or in such proximity thereto as to create a material risk of contamination thereof. (x) INSURANCE. Evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (xi) GOVERNMENTAL PERMITS. To the extent not previously delivered to Agent, copies of all applicable government permits, approvals, consents, licenses and certificates with respect to the use and operation of the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property; (xii) TAXES. Evidence satisfactory to Agent that all taxes and assessments owed by or for which Borrower is responsible for collection had been paid with respect to the Resorts and the Collateral, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangible taxes, real property taxes and any assessments related to the resorts or the Collateral. Copies of the most current tax bills for the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property shall be provided to Agent; (xiii) DZ FACILITY. Evidence satisfactory to Agent that the DZ Facility has closed on terms and conditions set forth in the DZ Letter Agreement and has been documented in form and substance reasonably satisfactory to Agent and Agent has been provided with copies of all of the executed DZ Documents. (xiv) LOAN PAYDOWN FROM THE PROCEEDS OF THE DZ FACILITY. Interest on the Revolving Loan Component and the Term Loan Component shall be paid in full to the Effective Date and approximately $12,449,000 shall be paid down on the principal balance of the Revolving Loan Component. Interest on the Heller Facility shall be paid in full to the Effective Date. Interest on the Sovereign Facility shall be paid in full to the Effective Date and approximately $9,504,000 shall be paid down on the principal balance of the Sovereign Facility. (xv) STANDBY MANAGER. Borrower will have entered into the Standby Management Agreement in form and substance satisfactory to Agent, in its sole discretion, with the Standby Manager. On and after an Event of Default, the Standby Manager shall be responsible for, among other things: (i) managing the operation of the Resorts, the related amenities, the Additional Resort Collateral and any other Collateral that Agent deems necessary, (ii) monitoring or supervising the marketing, sale, resale and financing of Intervals pledged to Agent as Collateral and (iii) such other duties and responsibilities Agent may request, from time to time, in its sole discretion, which are related to the operation of the Resorts and related amenities, the Additional Resort Collateral, the Intervals and any other Collateral that Agent deems necessary. Borrower shall provide Agent with a list in form and substance satisfactory to Agent, in its sole discretion, of the duties and responsibilities associated with the operation of the Resorts. (xvi) FORBEARANCE AGREEMENT. All of the terms and conditions of the Forbearance Agreement shall have been satisfied to the satisfaction of Agent and Agent shall have determined that no Forbearance Termination Event shall have occurred and be continuing. (xvii) BOND HOLDER EXCHANGE TRANSACTION CONSUMMATION. Evidence satisfactory to Agent in its sole discretion that the Bond Holder Exchange Transaction outlined in the Bond Holder Exchange Transaction Letter, a copy of which is attached hereto as Exhibit E, as approved by Agent, has been accepted by the requisite number of bond holders and the Bond Holder Exchange Transaction shall have fully closed. Agent shall be provided with copies of all of the executed Bond Holder Exchange Documents. (xviii) ZONING. To the extent not previously provided by Borrower to Agent, and if requested by Agent, evidence that the use and operation of the portions of the Additional Resort Collateral comprised of real property comply with all applicable zoning, building, health, safety and fire codes and regulations. (xix) RESORT CONSULTANT. The Borrower, at its own expense, shall retain a consultant of recognized standing, acceptable to Agent in its sole discretion (the "RESORT CONSULTANT"). The Resort Consultant shall have such duties and responsibilities as Agent may request, in its sole discretion, from time to time, including without limitation: (1) preparation of a report evaluating Borrower's business and the operation of the Resorts to be delivered to Agent within ten (10) days after the Effective Date; (2) on an ongoing basis, monitoring: (a) the operations of Borrower including the offer and sale of Intervals by Borrower and the financing by Borrower of such sales, (b) Borrower's compliance with the Business Plan, (c) Borrower's operation of the Silverleaf Club and (d) Borrower's and/or Silverleaf's Club's management and operation of the Resorts, the related amenities and the Additional Resort Collateral; and (3) submission of weekly written reports to Agent as to the foregoing. The Agreement with the Resort Consultant shall be in form and substance acceptable to Agent in its sole discretion and shall be assigned by Borrower to Agent as security for the Obligations. Notwithstanding the foregoing, Borrower and Agent acknowledge and agree that the Resort Consultant may also perform the duties of the Standby Manager. (xx) ESTOPPEL LETTERS. Borrower shall deliver to Agent, with respect to each Resort, an estoppel letter, executed by the applicable Timeshare Owners' Association, in the form attached hereto as Exhibit A. IN THE EVENT THAT AGENT DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT ANY OF THE CONDITIONS SET FORTH IN SECTION 4.1, 4.3, OR 4.4 ARE NOT SATISFIED ON OR BEFORE MAY 31, 2002, THEN THIS AGREEMENT, AND THE OBLIGATIONS OF AGENT AND EACH LENDER HEREUNDER, SHALL BE NULL AND VOID IN ALL RESPECTS AB INITIO. IN SUCH EVENT, THE ORIGINAL LOAN AGREEMENT AND THE TERMS AND CONDITIONS THEREIN SET FORTH, AS MODIFIED BY THE FORBEARANCE AGREEMENT, SHALL GOVERN AND CONTROL BORROWER'S OBLIGATION WITH RESPECT TO REPAYMENT IN FULL OF THE OBLIGATIONS, AS SUCH TERM IS DEFINED IN THE ORIGINAL LOAN AGREEMENT. 4.2 EFFECTIVE DATE ADVANCES. In the event that Borrower desires Lenders to make an Advance on the Effective Date, then, in addition to all of the conditions precedent set forth in this Section 4, Borrower shall have complied with all of the requirements of Section 5 below at least five (5) Business Days prior to the Effective Date. 4.3 EXPENSES. Borrower shall have paid all fees and expenses required to be paid pursuant to this Agreement. Lenders shall have no obligation to fund any Loan or make the initial Advance or any subsequent Advance unless (a) the amount of the initial Advance together with any moneys paid by Borrower is sufficient to satisfy all fees and expenses required to be paid pursuant to this Agreement, and (b) the Advance will not be used for any of the uses set forth in Section 6.11. 4.4 PROCEEDINGS SATISFACTORY. Borrower shall execute all of the Loan Documents approved by Agent on the Effective Date, and all actions taken in connection with the execution or delivery of the Loan Documents, and all documents and papers relating thereto, shall be satisfactory to Agent and its counsel. Agent and its counsel shall have received copies of such documents and papers as Agent or such counsel may reasonably request in connection therewith, all in form and substance satisfactory to Agent and its counsel. 4.5 CONDITIONS PRECEDENT TO FUNDING OF ADVANCES WITH RESPECT TO ADDITIONAL ELIGIBLE RESORTS. As provided in Section 3.7 hereof, Borrower may propose to Agent that Agent approve one or more additional timeshare plans for inclusion hereunder as an Additional Eligible Resort in respect of which Advances may be made. The obligation of Lenders to fund any Advances with respect to an Additional Eligible Resort shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and shall be correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Agent. (b) NO PROHIBITED ACTS. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of the Loan Documents. (c) APPROVAL OF DOCUMENTS PRIOR TO ADVANCE. Borrower has delivered or caused to be delivered to Agent (with copies to Agent's counsel), at least fifteen (15) Business Days prior to the date of each Advance, and Agent has reviewed and approved, at least five (5) Business Days prior to the date of each Advance, the form and content of all of the items specified in each of the Submissions required pursuant to this Section 4.5. Agent shall have the right to review and approve any changes to the form of any of the Submissions. If Agent disapproves of any changes to any of the Submissions, Agent shall have the right to require Borrower either to cure or correct the defect objected to by Agent or to elect on behalf of Lenders not to fund the Loan or any Advance. Under no circumstances shall Agent's failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower's sole cost and expense, unless expressly stated to be an obligation and expense of Agent. Agent shall have the right of prior approval of any Preparer and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Agent believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Agent and include the following language: "THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION AS AGENT FOR EACH LENDER IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL." (i) a certificate in the form attached as Exhibit A, to be dated as of the date of each such Advance and signed by the president, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4.5(a) and (b) above are true; (ii) copies of the articles of incorporation of Borrower, together with any amendments thereto certified to be true and complete by Borrower and the Secretary of State of the State of Texas, a current certificate of good standing for Borrower issued by the Secretary of State of the State of Texas, a current certificate of authority to conduct business issued by the secretary of state in each state in which Borrower conducts business, and copies of the by-laws of Borrower certified to be true, correct and complete by the secretary or assistant secretary of Borrower; (iii) except for the Resorts listed on Schedule 4.5(c)(iii) (the "CROWN RESORTS"), a Survey for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent in connection with the Advance in question; and with respect to each Crown Resort, a legible, full size copy of the recorded plat for each such Resort; (iv) a certificate of the secretary or assistant secretary of Borrower certifying the adoption by the board of directors thereof, respectively, of a resolution authorizing the addition of the Resort in question as an Additional Eligible Resort and to authorize Borrower to enter into, execute and deliver any Documents in connection therewith; (v) a certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign all documents required in connection with such Additional Eligible Resort as required pursuant to this Section 4.5; (vi) an inspection report or reports covering each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent in connection with the Advance in question, including without limitation all real property and personal property subject to the Declaration and all adjacent property, confirming: (1) the absence of Hazardous Materials on the personal property and real property comprising each such Additional Eligible Resort; (2) that the inspection firm has obtained, reviewed and included within its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable state and local authorities and a Phase I Environmental Audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from each such Additional Eligible Resort or in such proximity thereto as to create a material risk of contamination of each such Additional Eligible Resort; (vii) evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (viii) evidence that Borrower and the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question are in compliance with all applicable laws in connection with its sales of Intervals, including without limitation, the Timeshare Acts; (ix) a current preliminary title report or certificate of title for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent in connection with the Advance in question, with copies of all title exceptions; (x) copies of all applicable governmental permits, approvals, consents, licenses, and certificates for the establishment of each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question as timeshare projects in accordance with the applicable Timeshare Act, and for the occupancy and intended use and operation of each such Additional Eligible Resort, including the Units, including a letter certification from Borrower regarding zoning classification and compliance, letters or other satisfactory evidence from utility companies, governmental entities or other persons confirming that water, sewer (sanitary and storm), electricity, solid waste disposal, telephone, police, fire and rescue services are being provided to each Resort, and any business licenses necessary for operation of each such Additional Eligible Resort; (xi) certified true, correct and complete copies of all of the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question; (xii) evidence satisfactory to Agent that all taxes and assessments owed by or for which Borrower is responsible for collection have been paid, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangibles taxes, real property taxes, and income taxes, and any assessments related to each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question and copies of the most current paid tax bills for each such Additional Eligible Resort evidencing that each such Additional Eligible Resort have been segregated from all other property on the applicable municipal taxrolls; (xiii) written confirmation from an architect covering each Additional Eligible Resort, other than a Crown Resort, for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question as to the physical condition of the improvements at each such Additional Eligible Resort, including that soil conditions are sufficient to support all existing and any contemplated improvements to the real property; which written confirmation shall be in form and substance reasonably acceptable to Agent. Each architect rendering such written confirmation shall be licensed as an architect in the state of Texas; (xiv) such credit references on Borrower as Agent deems necessary in its sole discretion; (xv) copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower, if any; (xvi) a commitment to issue Mortgagee Title Policies from Title Company for each such Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, Agent and each Lender agree that Borrower shall not be required to provide such a commitment or a Mortgagee Title Insurance Policy with respect to any Crown Resort (other than the Quail Hollow Resort), or, until such time as deeded Intervals are permitted under local law governing the Oak N' Spruce Resort, the Oak N' Spruce Resort in order to qualify any such Resort as an Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, if any claim, lien, encumbrance, charge or other matter arises with respect to any Interval or Intervals for which an Eligible Note Receivable has been pledged to Agent as agent for Lenders pursuant to this Agreement, then, in such event: (a) The Note Receivable with respect to the Interval in question shall cease to be an Eligible Note Receivable and Borrower immediately shall either replace the Note Receivable in question or make a Mandatory Prepayment as provided in Section 2.5(b) hereof; and (b) The Resort at which the Interval in question is located shall cease to be an Additional Eligible Resort, unless and until Borrower shall cure any such claim, lien, encumbrance, charge or other matter to the satisfaction of Agent. Furthermore, any and all further requests for Advances in respect of such Resort must be accompanied by satisfactory Mortgagee Title Policies for all Intervals with respect to which such Advances are requested. (xvii) the Financial Statements; (xviii) to the extent not previously delivered hereunder or in connection with the Existing Credit Facility or the Inventory Loan, Borrower will execute, or cause to be executed with respect to each Additional Eligible Resort, a confirmation that the Assignment of Additional Resort Collateral covers any management agreement with respect to such Additional Resort, an Assignment of Notes Receivable and Mortgages, Borrower's Affidavit with Respect to the Additional Eligible Resorts and an Environmental Indemnification Agreement, each in the form attached hereto as Exhibit A; (xix) with respect to any improvements, including any Units, constructed at a Resort within the twenty-four month period prior to any Advance with respect to an Additional Eligible Resort, Borrower shall also deliver to Agent, for its approval, such documents and instruments as Agent may reasonably request in connection with such newly constructed improvements, including, without limitation, copies of building permits, plans and specifications, construction and architectural contracts, title insurance insuring over, among other things, mechanics liens, certificates of occupancy and satisfactory evidence of the completion of such improvements; (xx) such other documents, instruments, agreements, tests, reports and inspections as Agent may require with respect to Borrower or any applicable Affiliate, the Loan or any Resort, including any Additional Eligible Resort; and (xxi) Upon request of Agent, Borrower shall deliver to Agent evidence, satisfactory to Agent, that there is no material litigation, written complaint, suit, action, written claim or written charge pending against Borrower or any Affiliate with any court or with any governmental authority with respect to the Resort, the Timeshare Documents, any Eligible Notes Receivable, any Interval, or any marketing, offer or sale of any Interval. (d) PHYSICAL INSPECTION. Agent shall be satisfied with its physical inspection of the Additional Eligible Resorts. (e) UCC SEARCH. Agent shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under all applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Agent shall not be obligated to fund any Advance if Agent determines that Lenders do not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein. (f) LITIGATION SEARCH. Agent shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Additional Eligible Resorts, any portion of the Collateral, Borrower, or any Affiliate (each a "MATERIAL PARTY"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Agent determines, in its sole discretion, exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Agent shall not be obligated to fund any Advance if it determines that any such litigation is pending. (g) OPINIONS OF BORROWER'S COUNSEL. Borrower shall deliver to Agent, for the benefit of Agent and each Lender, at Borrower's sole cost and expense, such opinions of counsel, including counsel admitted in each state in which each Additional Eligible Resort is located, as to such matters with respect to Borrower and each Additional Eligible Resort as Agent may request, and in form and substance acceptable to Agent in its sole discretion. (h) FUNDING PROCEDURE. Borrower shall have complied to Agent's satisfaction with each of the conditions precedent to funding of an Advance set forth in Section 5 hereof. (i) MANAGEMENT OF RESORT. Borrower shall provide evidence satisfactory to Agent that Borrower, or an Affiliate, is the manager or operator of each Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Agent, which with respect to all Resorts (other than the Crown Resorts) shall have a term which shall expire no earlier April 1, 2009. With respect to each Crown Resort only, each such Resort may qualify as an Additional Eligible Resort (subject to satisfaction by Borrower of the conditions set forth in this Section 4.5), so long as Borrower, or an Affiliate, is the manager or operator of each such Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Agent. Borrower agrees to provide an estoppel letter, in form and substance acceptable to Agent, from the applicable Timeshare Owner's Association. Each such management agreement constitutes a part of the Additional Resort Collateral and is assigned to Agent, on behalf of Lenders, to secure the Obligations as provided herein. (j) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Agent may request to determine the acceptability of any such Additional Eligible Resort, to evidence the Obligations, to evidence and perfect the rights and Liens and security interests of Agent contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, including, without limitation, true copies of all Resort Documents for each such Additional Eligible Resort, all Timeshare Documents and operating and management contracts and agreements, evidence of compliance with the applicable Timeshare Act and other applicable laws, evidence of all required governmental licenses and permits; title searches; title commitments or policies, including complete and legible copies of each title exception, engineering, environmental and soil reports, and evidence of compliance with all applicable zoning and building codes; each of which shall be satisfactory to Agent in its sole and absolute discretion. SECTION 5 -- FUNDING PROCEDURE 5.1 The obligation of any Lender to make any loan shall be subject to the satisfaction of all of the following conditions precedent: (a) REQUESTS FOR ADVANCES. Each request for an Advance shall: (i) be in writing in form attached hereto as Exhibit C and shall certify the amount of the then-current Borrowing Base and the then-current Effective Advance Rate, specify the principal amount of the Advance requested and designate the account to which the proceeds of such Advance are to be transferred; (ii) state that the representations and warranties of Borrower contained in the Agreement and any closing or funding related certifications are true and correct as of the date of the request and, after giving effect to the making of such requested Advance, will be true and correct as of the date on which the requested Advance is to be made; (iii) state that no Default or Event of Default exists as of the date of the request and, after giving effect to the making of such requested Advance, no Default or Event of Default would exist as of the date on which the requested Advance is to be made; (iv) be delivered to the office of Agent at least five (5) Business Days prior to the date of the requested Advance; (v) be signed by a principal financial officer of Borrower; (vi) certify that Borrower has no knowledge of any asserted or threatened defense, offset, counterclaim, discount or allowance in respect of each Note Receivable to be pledged in connection with such requested Advance, or in respect of any of the Pledged Notes Receivable; (vii) contain an aging report of the Pledged Notes Receivable; identifying, among other things, which among them are Eligible Notes Receivable; and (viii) contain a delinquency report which shall be in form and substance satisfactory to Agent and shall show which of such Notes Receivable is delinquent and the duration of such delinquency, and which of such Pledged Notes Receivable is not an Eligible Note Receivable; (b) LOAN DOCUMENTS/COLLATERAL. Not less than five (5) Business Days prior to the date of any Advance, Borrower shall have: (i) delivered to Agent a list of all Eligible Notes Receivable and related Mortgages which are to be the subject of such requested Advance, indicating the unpaid principal balance owing on each of the Pledged Notes Receivable deemed to be an Eligible Note Receivable, together with such additional information as Agent may require; (ii) delivered to Agent (or, if Agent shall so instruct, a designee appointed by Agent in writing) (A) the original of each Pledged Note Receivable (duly endorsed with the words "Pay to the order of Textron Financial Corporation as Agent with recourse"), (B) the original of each Mortgage securing such Pledged Notes Receivable, (C) the original of each purchase contract (including addenda) relating to the Pledged Notes Receivable and Mortgages, (D) originals or true copies of the related truth-in-lending disclosures, loan application, warranty deed, Payment Authorization Agreement and, if required by Agent, the related Purchaser's acknowledgement, receipt and exchange company application, disclosures and materials, and (E) with respect to each Eligible Note Receivable from the sale of Intervals at Oak N' Spruce: (i) the original UCC-1 Financing Statement, naming the Purchaser of the Interval giving rise to the Eligible Note Receivable as debtor and Borrower as secured party (the "PURCHASER FINANCING STATEMENT"), perfecting Borrower's security interest in the applicable Interval to secure the Purchaser's obligations under the Eligible Note Receivable and (ii) a UCC-3 Assignment, naming Borrower as assignor and Agent as assignee on behalf of Lenders, assigning to Agent, on behalf of Lenders, all of Borrower's right, title and interest under each Purchaser Financing Statement. (iii) delivered to Agent a duly executed Assignment of Notes Receivable and Mortgages assigning to Agent all of Borrower's right, title and interest in and to each such Pledged Note Receivable and the related Mortgage; and (iv) subject to Section 4.5(c)(xvi) hereof, delivered to Agent, with respect to each Encumbered Interval, a commitment for a Mortgagee's Title Policy showing that the Mortgage in respect of such Interval has been assigned to Agent and insuring in favor of Agent the first priority Lien of such Mortgage in the amount of the Advance to be made in respect of such Pledged Note Receivable, with a satisfactory title insurance policy to be issued on the date of Advance. The Mortgages and the assignments thereof to Agent shall each have been duly recorded in the applicable land records which are described in Schedule D hereof. The Mortgagee's Title Policies shall be in form and substance satisfactory to Agent and shall be issued by a title insurance company satisfactory to Agent (the "TITLE COMPANY"), and name Agent as the insured party therein as agent for Lenders. The funding of the requested Advance, delivery of the Collateral and issuance of the title insurance policy, and recording of the assignments or any releases may, in Agent's discretion, be effected by way of an escrow arrangement with the Title Company or other fiduciary, the form and substance of which shall be satisfactory to Agent. (c) OTHER CONDITIONS. In addition to the other conditions set forth in this Agreement, the making of the initial or any requested Advance shall be subject to the satisfaction of the following conditions: (i) no Default or Event of Default shall exist immediately prior to the making of such requested Advance or, after giving effect thereto, immediately after the making of such requested Advance; (ii) each agreement required to have been executed and delivered in connection with any prior Advance shall be consistent with the terms of this Agreement and shall be in full force and effect; (iii) the date on which such requested Advance is to be made shall be a Business Day; (iv) Borrower shall have delivered to Agent a certification showing the dollar amount of the requested Advance based on the Eligible Notes Receivable pledged to Agent, and the Notes Receivable being pledged contemporaneously with each requested Advance in the form attached hereto as Exhibit C; (v) not more than one Advance shall have previously been made in the same calendar month in which such requested Advance is to be made, unless Agent, in its sole discretion, agrees to make an additional Advance during such calendar month; (vi) such requested Advance shall be in a principal amount of not less than $50,000, unless Agent, in its sole discretion, agrees to make an Advance in an amount less than $50,000; (vii) Agent shall have determined that the requested Advance, when added to the aggregate outstanding principal amount of all previous Advances, if any, does not, based on the Eligible Notes Receivable that have been duly pledged in favor of Agent: (i) exceed the total amount of the Borrowing Base, or (ii) cause the Effective Advance Rate, determined with respect to the aggregate of the Loan, the Additional Credit Facility and the Tranche C Facility, to exceed 95%; (viii) if Agent shall so require, Agent shall have received an executed closing protection letter issued by the Title Company, which shall be reasonably acceptable to Agent; (ix) each Lender shall have agreed to make and does make an Advance in an amount equal to its respective Pro Rata Percentage; (x) the most recent Weekly Flash Report indicates that Borrower has less than five million dollars ($5,000,000) in available unrestricted cash; (xi) Heller and Sovereign fund their respective portion in accordance with Section 2.1(g) and as provided in the Intercreditor Agreement; and (xii) there are insufficient proceeds from the Tax Refund to pay Operating Expenses as provided in the Business Plan. (d) EXPENSES. Borrower shall have paid all fees and expenses required to be paid by Borrower pursuant to this Agreement in connection with such requested Advance or any conditions related thereto. (e) PROCEEDINGS SATISFACTORY. All actions taken in connection with such requested Advance and all documents and papers relating thereto shall be satisfactory to Agent and its counsel. Agent and its counsel shall have received copies of such documents and papers as Agent or such counsel may reasonably request in connection with such requested Advance, all in form and substance reasonably satisfactory to Agent and its counsel. (f) PARTIAL WAIVER OF REQUIREMENT FOR TITLE INSURANCE POLICIES UPON SATISFACTORY MAINTENANCE OF INVENTORY CONTROL PROCEDURES. Anything in Section 5.1(b)(iv) hereof to the contrary notwithstanding, the delivery of a commitment for a Mortgagee Title Policy and a Mortgagee Title Policy shall be required only with respect to twenty-five percent (25%) of the Eligible Notes Receivable delivered to Agent in respect of each advance, subject to the following requirements and limitations: (i) Borrower shall be in full compliance with the Inventory Control Procedures (as defined in Section 6.23 herein); and (ii) Agent shall have the right in its sole discretion to determine those Eligible Notes Receivable in respect of which commitments for Mortgagee Title Policies and also the Mortgagee Title Policies themselves shall be required. In the event that Borrower fails to satisfy the requirements of Subparagraph 5.1(f)(i), then, immediately upon such failure, the partial waiver provided under this subparagraph shall no longer be effective. SECTION 6 -- GENERAL REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Agent and each Lender as follows: 6.1 ORGANIZATION, STANDING, QUALIFICATION. Borrower: (a) is a duly organized and validly existing Texas corporation duly organized, validly existing and in good standing under the laws of the State of Texas, and (b) has all requisite power, corporate or otherwise, to conduct its business and to execute and deliver, and to perform its obligations under, the Loan Documents. 6.2 AUTHORIZATION, ENFORCEABILITY, ETC. (a) The execution, delivery and performance by Borrower of the Loan Documents has been duly authorized by all necessary corporate action by Borrower and does not and will not: (i) violate any provision of the certificate or articles of incorporation of Borrower, bylaws of Borrower, or any agreement, law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect to which Borrower is a party or is subject; (ii) result in, or require the creation or imposition of, any Lien upon or with respect to any asset of Borrower other than Liens in favor of Lenders; or (iii) result in a breach of, or constitute a default by Borrower under, any indenture, loan or credit agreement or any other agreement, document, instrument or certificate to which Borrower is a party or by which it or any of its assets are bound or affected. (b) No approval, authorization, order, license, permit, franchise or consent of, or registration, declaration, qualification or filing with, any governmental authority or other Person, including without limitation, the Division or the Timeshare Owners' Association is required in connection with the execution, delivery and performance by Borrower of any of the Loan Documents. (c) The Loan Documents constitute legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. (d) Borrower has, or will have, good and marketable title to the Collateral, free and clear of any lien, security interest, charge or encumbrance except for the security interests created by this Agreement or any Loan Document or otherwise created in favor of Agent or those specifically consented to in writing by Agent or permitted hereunder. No financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of Lenders hereunder or Agent, Heller or Sovereign as permitted hereunder. (e) The execution and delivery of the Loan Documents, the delivery and endorsement to Agent as agent for Lenders of the Pledged Notes Receivable, the filing of the UCC-1's with the office of the secretary of state of the state in which Borrower is organized and the Assignment of Notes Receivable and Mortgages in the official records of the county in which the applicable Resort is located, create in favor of Agent as agent for Lenders a valid and perfected continuing first or second, as applicable, priority security interest in the Collateral. The Collateral shall secure the full payment and performance of the Obligations. (f) None of the Pledged Notes Receivable is forged or has affixed thereto any unauthorized signatures or has been entered into by any Person without the required legal capacity; and during the term of the Agreement, none will be forged, or will have affixed thereto, any unauthorized signatures. (g) Except as permitted in Sections 3.8 and 3.9 hereof, there have been no modifications or amendments to the Pledged Notes Receivable or Mortgages. (h) The makers of the Eligible Notes Receivable have no defenses, offsets, counterclaims or claims relating to the Eligible Notes Receivable or the Mortgages. (i) The Pledged Notes Receivable and the Mortgages were executed and delivered by Purchasers in favor of Borrower in connection with the purchase of the related Encumbered Intervals. (j) The Mortgages constitute and will constitute valid and enforceable first and prior liens and security interests on the Encumbered Intervals. (k) The Pledged Notes Receivable and the Mortgages are and shall remain in full force and effect, are and will be valid and binding obligations of the respective makers in favor of Agent, as holder on behalf of Lenders; and Borrower further warrants and guarantees the value, quantity, sound condition, grade and quality of the Encumbered Intervals and rights, properties, easements and interests appurtenant or related thereto. (l) The grant of the security interests described herein has not affected and will not affect the validity or enforceability of the obligations of the respective makers of the Pledged Notes Receivable under such Notes Receivable or the respective Mortgages. (m) Neither Agent nor any Lender shall be required to take, and Borrower has taken any and all required steps to protect each Lender's security interest in the Collateral (other than maintaining possession of the portion of the Collateral constituting instruments); and neither Agent nor any Lender is or shall be required to collect or realize upon the Collateral or any distribution of interest or principal, nor shall loss of, or damage to, the Collateral release Borrower from any of the Obligations. 6.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. The Weekly Flash Reports, the Monthly Financial Reports for the first ten (10) months of the calendar year 2001 and the Alternative Financial Models dated December 4, 2001 are, to the best of Borrower's knowledge, accurate and fairly represent the financial condition of the Borrower for the periods in question, subject to the written qualifications set forth therein, including the fact that such statements and reports are preliminary and subject to completion of the audit thereof and that Borrower anticipates adjustments thereto which may significantly affect the results thereof, including an estimated reduction in shareholder equity of $63,000,000. To the best of Borrower's knowledge, there are no material liabilities, direct or indirect, fixed or contingent, of Borrower, except as disclosed to Agent in writing. 6.4 TAXES. In accordance with the requirements set forth in the Declaration, Borrower represents and warrants that Borrower or Timeshare Owners' Association, as required, has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other taxes and assessments against the Resort and the Collateral; and Borrower knows of no basis for any additional taxes or assessments against the Resorts or the Collateral. Borrower or the Timeshare Owners' Association, as the case may be, has filed all tax returns required to have been filed by it and has paid or will pay prior to delinquency, all taxes shown to be due and payable on such returns, including interest and penalties thereon, and all other taxes which are payable by it to the extent the same have become due and payable. Borrower has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other assessments against that portion of the Additional Resort Collateral constituting real property and against the Land, and Borrower knows of no basis for any additional taxes or assessments against the Land or other such real property. 6.5 TITLE TO PROPERTIES: PRIOR LIENS. Borrower has good and marketable title to all of the Collateral and to all unsold Units and Intervals at each Resort, and all rights, properties and benefits appurtenant to or benefiting them. Borrower is not in default under any of the documents evidencing or securing any indebtedness which is secured, wholly or in part, by any portion of any Resort or any portion or all the Collateral and no event has occurred which with the giving of notice, the passage of time or both, would constitute a default under any of the documents evidencing or securing any such indebtedness. Other than the Liens granted in favor of Agent, the Liens granted to secure the Additional Credit Facility, the Tranche C Facility and the Inventory Loan and the Liens described in Schedule 6.5 hereto, there are no liens or encumbrances against the Collateral, or against any Resort. 6.6 SUBSIDIARIES, AFFILIATES AND CAPITAL STRUCTURE. Borrower has no subsidiaries or Affiliates which have any involvement or interest in any Resort in any way. None of the Affiliates of Borrower are parties to any proxies, voting trusts, shareholders agreements or similar arrangements pursuant to which voting authority, rights or discretion with respect to Borrower is vested in any other Person. 6.7 LITIGATION, PROCEEDINGS, ETC. Except for those matters identified in Schedule 6.7 hereto, there are no actions, suits, proceedings, orders or injunctions pending or threatened against or affecting Borrower, the Resort or the Timeshare Owners' Association at law or in equity, or before or by any governmental authority or other tribunal, which (a) could have a material adverse effect on Borrower or (b) relate to the Loan or which could have a material effect on the Collateral or the Resort. Borrower has received no notice from any court, governmental authority or other tribunal alleging that Borrower or the Resort have violated the Timeshare Act, any of the rules or regulations thereunder, the Declaration or any other applicable laws, agreements or arrangements that could have any material effect on the Loan, the Collateral or the Resorts. 6.8 LICENSES, PERMITS, ETC. Borrower, the Resorts, the Timeshare Owners' Associations or Borrower's Affiliates involved in the operations of the Resorts, and, to the best of Borrower's knowledge after diligent inquiry, other Persons involved in the operations of the Resorts, possess all requisite franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions and orders as are necessary to carry on its or their business as now being conducted, without any known conflict with the rights of others and, with respect to Borrower, the Resorts and the Timeshare Owners' Associations, in each case subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title retention agreement or option other than as provided for by this Agreement. Borrower has all permits, licenses and consents for the ownership and use of the Land and the Additional Resort Collateral. 6.9 ENVIRONMENTAL MATTERS. Except as otherwise noted on Schedule 6.9: (a) neither the Land, any portion of the Additional Resort Collateral consisting of real property or any Resort contains any Hazardous Materials, (b) no Hazardous Materials are used or stored at or transported to or from the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, (c) neither Borrower nor the Resorts nor any manager thereof or to Borrower's knowledge, the Timeshare Owners' Associations, have received notice from any governmental agency, entity or other Person with regard to Hazardous Materials on, under or affecting any Resort, the Land or any portion of the Additional Resort Collateral consisting of real property, and (d) neither Borrower nor the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, nor any portion thereof, nor to Borrower's knowledge after diligent inquiry, the Timeshare Owners' Associations, are in violation of any Environmental Laws. 6.10 FULL DISCLOSURE. No information, exhibit or written report or the content of any schedule furnished by or on behalf of Borrower to Agent or any Lender in connection with the Loan or the Resorts contains any material misstatement of fact or omits the statement of a material fact necessary to make the statement contained herein or therein not misleading. Borrower knows of no fact or condition which will prevent the sale of Intervals to Purchasers or prevent the operation of the Resorts in accordance with the Declarations and related public offering statements, and in accordance with applicable law, or prevent Borrower from performing its Obligations pursuant to the Loan Documents. 6.11 USE OF PROCEEDS/MARGIN STOCK. (a) The proceeds of the Loan, the Additional Credit Facility, the Tranche C Facility, the Inventory Loan, the Heller Loan, the Tax Refund, the Sovereign Loan, the DZ Facility and any cash dividend or other cash distribution Borrower receives from Silverleaf Finance I, Inc. will be used strictly in accordance with the Business Plan and for no other purpose and (b) none of the proceeds of the Loan will be used to purchase or carry any "margin stock" (as defined under Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time), and no portion of the proceeds of the Loan will be extended to others for the purpose of purchasing or carrying margin stock. None of the transactions contemplated in the Agreement (including, without limitation, the use of the proceeds from the Loan) will violate or result in the violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. 6.12 DEFAULTS. Except for the Specified Events of Default (as defined in the Forbearance Agreement) during the Forbearance Period (as defined in the Forbearance Agreement), Borrower has no knowledge of any Default or Event of Default not disclosed to Agent in writing. Except for the specified events of default under the forbearance agreement between Borrower and Heller or the forbearance agreement between Borrower and Sovereign, Borrower has no knowledge of any default or event of default under the Heller Documents or the Sovereign Documents, except as disclosed to Agent in writing, and neither Heller nor Sovereign has accelerated any loan obligation of Borrower on account of any such specified default or event of default. 6.13 COMPLIANCE WITH LAW. Borrower (a) is not in violation, nor are any of its Resorts, or the business operations in respect of any of the Resorts, or to Borrower's knowledge after diligent inquiry, the Timeshare Owners' Association, in violation, of the Timeshare Act, or any laws, ordinances, governmental rules or regulations of any state in which a Resort is located, any political subdivision of said states or any other jurisdiction to which Borrower or the Resorts, or the business operations conducted in respect of the Resorts, or the Timeshare Owners' Association, are subject; and (b) has not failed, nor have the Resorts or, to Borrower's knowledge, the Timeshare Owners' Associations failed, to obtain any consents or joinders, or any approvals, licenses, permits, franchises or other governmental authorizations, or to make or cause to be made any filings, submissions, registrations or declarations with any government or agency or department thereof, necessary to the establishment, ownership or operation of the Resorts or any of Borrower's Properties, or to the conduct of Borrower's business, including, without limitation, the operation of the Resorts and the sale, or offering for sale, of Intervals therein; which violation or failure to obtain or register materially adversely affects Borrower, the Resorts or the business, prospects, profits, properties or condition (financial or otherwise) of Borrower or the Resorts. Borrower has, to the extent required by its activities and businesses, and the operations of the Resorts, fully complied with: (1) all of the applicable provisions of (a) the Consumer Credit Protection Act; (b) Regulation Z of the Federal Reserve Board; (c) the Equal Credit Opportunity Act; (d) Regulation B of the Federal Reserve Board; (e) the Federal Trade Commission's 3-day cooling-off Rule for Door-to-Door Sales; (f) Section 5 of the Federal Trade Commission Act; (g) the Interstate Land Sales Full Disclosure Act ("ILSA"); (h) federal postal laws; (i) applicable state and federal securities laws; (j) applicable usury laws; (k) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (l) applicable real estate sales licensing, disclosure, reporting and escrow laws; (m) the Americans With Disabilities Act and related accessibility guidelines ("ADA"); (n) the Real Estate Settlement Procedures Act ("RESPA"); (o) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (p) the Federal Trade Commission's Privacy of Consumer Financial Information Rule and (q) other applicable federal statutes and the rules and regulations promulgated thereunder; and (2) all of the applicable provisions of the Timeshare Acts, any law or laws of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resort, or the sale, offering for sale, or financing of Intervals. 6.14 RESTRICTIONS OF BORROWER. Except for this Agreement and the Loan Documents, the Inventory Loan Documents, the Tranche B Loan Documents, the Tranche C Loan Documents, the Heller Documents and the Sovereign Documents, Borrower will not be, on or after the date hereof, a party to any contract or agreement which restricts its right or ability to incur indebtedness or prohibits Borrower's execution of or compliance with the terms of this Agreement, the other Loan Documents, the Inventory Loan Loan Agreement, the Tranche C Facility Loan Agreement, the Additional Credit Facility Loan Agreement, the Heller Documents, the Bond Holder Exchange Documents, the Sovereign Documents or the DZ Documents. Borrower has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien except in favor of Agent as provided herein, and, with respect to the Land, the Additional Resort Collateral, the Silverleaf Finance I. Inc., Stock and the Ineligible Notes Receivable, in favor of Heller and Sovereign, as applicable. 6.15 BROKER'S FEES. Borrower, Agent and each Lender represent to each other that none of them has made any commitment or taken any action which will result in a claim for any brokers', finders' or other similar fees or commitments with respect to the transactions described in the Agreement. Borrower agrees to indemnify Agent and each Lender and save and hold Agent and each Lender harmless from all claims of any Person for any broker's or finder's fee or commission, and this indemnity shall include reasonable attorneys' fees and legal expenses. 6.16 DEFERRED COMPENSATION PLANS. Borrower has no pension, profit sharing or other compensatory or similar plan (herein called a "Plan") providing for a program of deferred compensation for any employee or officer. No fact or situation, including but not limited to, any "Reportable Event," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974 as the same may be amended from time to time ("Pension Reform Act"), exists or will exist in connection with any Plan of Borrower which might constitute grounds for termination of any Plan by the Pension Benefit Guaranty Corporation or cause the appointment by the appropriate United States District Court of a Trustee to administer any such Plan. No "Prohibited Transaction" within the meaning of Section 406 of the Pension Reform Act exists or will exist upon the execution and delivery of the Agreement or the performance by the parties hereto of their respective duties and obligations hereunder. Borrower will (1) at all times make prompt payment of contributions required to meet the minimum funding standards set forth in Sections 302 through 305 of the Pension Reform Act with respect to each of its Plans; (2) promptly, after the filing thereof, furnish to Agent copies of each annual report required to be filed pursuant to Section 103 of the Pension Reform Act in connection with each Plan for each Plan Year, including any certified financial statements or actuarial statements required pursuant to said Section 103; (3) notify Agent immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any Plan which might constitute grounds for termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a Trustee to administer the Plan; and (4) notify Agent of any "Prohibited Transaction" as that term is defined in Section 406 of the Pension Reform Act. Borrower will not (a) engage in any Prohibited Transaction or (b) terminate any such Plan in a manner which could result in the imposition of a Lien on the Property of Borrower pursuant to Section 4068 of the Pension Reform Act. 6.17 LABOR RELATIONS. The employees of Borrower are not a party to any collective bargaining agreement with Borrower, and, to the best knowledge of Borrower and its officers, there are no material grievances, disputes or controversies with any union or any other organization of Borrower's employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 6.18 RESORT. (a) TIMESHARE PLAN. Each Resort has been established and dedicated, and is and will remain, a time-share plan and project in full compliance with all applicable laws and regulations, including without limitation, the Timeshare Act. (b) ACCESS. Each Resort has direct access to a publicly dedicated road and all roadways inside each Resort are subject to an access and use easement or other dedication or provision that benefits and will continue to benefit all Purchasers. (c) UTILITIES. Electric, sanitary and stormwater sewer, telephone, water facilities and other necessary utilities are available in sufficient capacity to service each Resort and any easements necessary to the furnishing of such utility services have been obtained and duly recorded, and inure to the benefit of each Resort and each Timeshare Owners' Association. (d) AMENITIES. Each Purchaser of an Interval has and will have access to and the full use and enjoyment of all of the Common Elements and public utilities of the Resort in which such interval is located, all in accordance with the Declaration and Timeshare Documents. (e) CONSTRUCTION. All costs arising from the construction or acquisition of any Units and any other improvements and the purchase of any fixtures or equipment, inventory, furnishings or other personalty located in, at, or on the Resorts have been paid or will be paid when due. (f) SALE OF INTERVALS. The marketing, sale, offering of sale, rental, solicitation of Purchasers or, if applicable, lessees, and financing of Intervals in the Resort: (1) do not constitute the sale, or the offering of sale, of Securities subject to the registration requirements of the Securities Act of 1933, as amended, or any state securities law; (2) do not violate the Timeshare Act or any land sales or consumer protection law, statute or regulation of the state where the Resort is located or any other state or jurisdiction in which a Purchaser resides or in which sales or solicitation activities occur; and (3) do not violate any consumer credit or usury statute of state where the Resort is located or any other state or jurisdiction in which a Purchaser resides or in which sales or solicitation activities occur. All marketing and sales activities are performed by employees of Borrower, all of whom are and shall be properly licensed in accordance with applicable laws. (g) TANGIBLE PROPERTY. Except for specific items which may be owned by independent contractors, the machinery, equipment, fixtures, tools and supplies used in connection with the Resort, including without limitation, with respect to the operations and maintenance of the Common Elements, are owned either by Borrower or the applicable Timeshare Owners' Association. (h) OPERATING CONTRACTS. Borrower has entered into the contracts, agreements, and arrangements necessary for the operation of the Resorts, including but not limited to those with respect to utilities, maintenance, management, services, marketing and sales (hereinbelow defined as "Operating Contracts"). 6.19 TIMESHARE REGIMEN REPORTS. Borrower has furnished to Agent true and correct copies of the Timeshare Documents listed on Schedule 6.19, which consist of all those placed on file by Borrower with the Divisions or any federal, state or local regulatory or recording agencies, offices or departments. All such filings and/or recordations, and all joinders and consents, necessary in order to establish the plan in respect of the Resorts, including without limitation, the Units, Intervals, and all appurtenant Common Elements, and all related use and access rights, have been done or obtained and all laws, regulations and statutes, and all agreements or arrangements, in connection therewith have been complied with. 6.20 OPERATING CONTRACTS. The contracts, agreements and arrangements comprising those agreements or arrangements relating to the operation of the Resorts, including without limitation, with respect to utilities, maintenance, management, services, marketing and sales under which the fees to be paid equal or exceed $50,000.00 (collectively, all such agreements and arrangements are referred to herein as the "OPERATING CONTRACTS") are unmodified and in full force and effect and shall remain free and clear of any lien. 6.21 ARCHITECTURAL AND ENVIRONMENTAL CONTROL. All Units, Common Elements and other improvements at, upon or appurtenant to the Resort are and will be in compliance with the design, use, architectural and environmental control provisions, if any, set forth in the Declaration. 6.22 TAX IDENTIFICATION/SOCIAL SECURITY NUMBERS. Borrower's federal taxpayer's identification number is: 75-2259890. 6.23 INVENTORY CONTROL PROCEDURES. Borrower has provided to Agent a true and complete copy of Borrower's Inventory, Sales and Assignments procedures (the "Inventory Control Procedures"), a copy of which is attached hereto as Schedule 6.23. 6.24 LAND. (a) FIRST LIEN. Subject to the other first lien rights of Heller and Sovereign as provided in the Intercreditor Agreement, upon execution and recording of the modification to the Land Mortgages, as modified, Lender will continue to have a valid first lien on the Land. (b) ACCESS. The Land has adequate legal rights of access to a public way. (c) SINGLE TAX LOT. Each portion of the Land constituting real property consists of a single tax lot. No portion of said lot covers property other than the land in question and no portion of the land in question lies in any other tax lot. (d) FLOOD ZONE. Except as is disclosed in the surveys of each portion of the Land that have been or will be provided to Lender, no portion of the land in question is located in a flood hazard area as defined by the Federal Insurance Administration. (e) SEISMIC EXPOSURE. No portion of the Land is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (f) CONDEMNATION. No part of the Land has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of the Land. (g) NO PURCHASE OPTIONS. No person or entity has an option to purchase the Land, or any portion thereof, or any interest therein. 6.25 ADDITIONAL RESORT COLLATERAL. (a) FIRST LIEN. Subject to the other first lien rights of Heller and Sovereign as provided in the Intercreditor Agreement, upon execution and delivery of the Additional Resort Collateral Assignments and execution and recording of the Additional Resort Collateral Mortgages, Lender will have a valid first lien in the Additional Resort Collateral. (b) ACCESS. The portion of the Additional Resort Collateral constituting real property has adequate legal rights of access to a public way. (c) INTENTIONALLY OMITTED. (d) FLOOD ZONE. Except as is disclosed in the surveys of the portion of the Additional Resort Collateral constituting real property that have been or will be provided to Lender, no portion of such land is located in a flood hazard area as defined by the Federal Insurance Administration. (e) SEISMIC EXPOSURE. No portion of the Additional Resort Collateral constituting real property is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (f) CONDEMNATION. No portion of the Additional Resort Collateral constituting real property has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of such land. (g) NO PURCHASE OPTIONS. No person or entity has an option to purchase any portion of the Additional Resort Collateral, or any portion thereof, or any interest therein. 6.26 ADDITIONAL REPRESENTATIONS AND WARRANTIES. This Agreement, the Original Agreement, the Note and the other Loan Documents constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms. Borrower ratifies and confirms each covenant and agreement made under the Original Agreement and the other Loan Documents, except as provided in the Forbearance Agreement. 6.27 HELLER AND SOVEREIGN FACILITIES. The modifications of the Heller Facility and the Sovereign Facility on terms and conditions as provided in the Business Plan, have closed and Agent has been provided with true and correct copies of the Heller Documents and the Sovereign Documents, as so modified. There is no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Heller Facility or the Sovereign Facility and Borrower is in good standing under both of such facilities. 6.28 BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Letter has not been amended, modified or otherwise rescinded. 6.29 DZ FACILITY. The DZ Letter Agreement is in full force and effect and has not been amended, modified or otherwise rescinded. 6.30 STANDBY SERVICER. Borrower has entered into the Standby Servicing Agreement, a copy of which is attached hereto as Exhibit I, with the Standby Servicer, and such agreement is in full force and effect and has not been modified, amended or terminated. SECTION 7 -- COVENANTS 7.1 AFFIRMATIVE COVENANTS. So long as any portion of the Obligations remains unsatisfied, Borrower hereby covenants and agrees with Agent and each Lender as follows: (a) PAYMENT AND PERFORMANCE OF OBLIGATIONS. Borrower shall pay all of the Loan and related expenses when and as the same become due and payable, and Borrower shall strictly observe and perform all of the Obligations, including without limitation, all covenants, agreements, terms, conditions and limitations contained in the Loan Documents, and will do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default hereunder, other than a Specified Event of Default (as defined in the Forbearance Agreement); and Borrower will maintain an office or agency in the State of Texas where notices, presentations and demands in respect of the Loan Documents may be made upon Borrower. Such office or agency and the books and records of Borrower shall be maintained at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221 until such time as Borrower shall so notify Agent, in writing, of any change of location of such office or agency. (b) MAINTENANCE OF EXISTENCE, QUALIFICATION AND ASSETS. Borrower shall at all times (i) maintain its legal existence, (ii) maintain its qualification to transact business and good standing in any state and in any jurisdiction where it conducts business in connection with the Resort, and (iii) comply or cause compliance with all governmental laws, rules, regulations and ordinances applicable to the Resort, Borrower or its business, including, without limitation, the Timeshare Act. (c) CONSOLIDATION AND MERGER. Borrower will not consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, unless: (i) Borrower is the continuing or surviving corporation in any such consolidation or merger and (ii) prior to and immediately after such consolidation or merger, Borrower shall not be in default hereunder. (d) MAINTENANCE OF INSURANCE. Borrower, or if required pursuant to the Declaration, the Timeshare Owners' Association, shall maintain (or Borrower shall cause to be maintained) at all times during the term of this Agreement, policies of insurance with premiums being paid when due, and shall deliver to Agent originals of insurance policies issued by insurance companies, in amounts, in form and in substance, and with expiration dates, all acceptable to Agent and containing a waiver of subrogation rights by the insuring company, a non-contributory standard mortgagee benefit clause, or their equivalents, and a mortgagee loss payable endorsement in favor of and satisfactory to Agent on behalf of each Lender, and breach of warranty coverage, providing the following types of insurance on and with respect to Borrower (or, as appropriate, the respective Associations) and the Resort: (i) Fire and extended coverage insurance (including lightning, hurricane, tornado, wind and water damage, vandalism and malicious mischief coverage) covering the improvements and any personal property located in or on the Resort and any real property constituting part of the Additional Resort Collateral, in an amount not less than the full replacement value of such improvements and personal property, and said policy of insurance shall provide for a deductible acceptable to Agent, breach of warranty coverage, replacement cost endorsements satisfactory to Agent, and shall not permit co-insurance; (ii) Public liability and property damage insurance covering the Resort in amounts and on terms satisfactory to Agent; and (iii) Such other insurance on the Resort and any real property constituting part of the Additional Resort Collateral or any replacements or substitutions therefor including, without limitation, flood insurance (if the Property is or becomes located in an area which is considered a flood risk by the U.S. Emergency Management Agency or pursuant to the National Flood Insurance program), in such amounts and upon terms as may from time to time be reasonably required by Agent. To the extent any other timeshare receivable lender has any rights to approve the form of insurance policies with respect to the Resort, the amounts of coverage thereunder, the insurers under such policies, or the designation of an attorney-in-fact for purposes of dealing with damage to any part of the Resort or insurance claims or matters related thereto, or any successor to such attorney-in-fact, or any changes with respect to any of the foregoing, Borrower shall take all steps as may be necessary (and, after turnover, if any, of control of the Resort to the Timeshare Owners' Association, Borrower shall use its best efforts) to ensure that Agent, on behalf of each Lender, shall at all times have a co-equal right, with such other lender (including, without limitation, Borrower or any third-party lender), to approve all such matters and any proposed changes in respect thereof; and Borrower shall not cause or permit any changes with respect to any insurance policies, insurers, coverage, attorney-in-fact, or insurance trustee, if any, without Agent's prior written approval. In the event of any insured loss or claim in respect of the Resort or any real property comprising the Additional Resort Collateral, Borrower shall apply (or cause to be applied), and Borrower covenants that the Timeshare Owners' Association shall apply (or cause to be applied), all proceeds of such insurance policies in a manner consistent with the Timeshare Documents and the Timeshare Act. All insurance policies required pursuant to this Agreement (or the Timeshare Documents or Timeshare Act) shall provide that the coverage afforded thereby shall not expire or be amended, canceled, modified or terminated without at least thirty (30) days prior written notice to Agent. At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 7.1(d), a renewal or replacement thereof satisfactory to Agent shall be delivered to Agent. Borrower shall deliver or cause to be delivered to Agent receipts evidencing the payment for all such insurance policies and renewals or replacements. In the event of any fire or other casualty to or with respect to the improvements on or at the Resort or any real property comprising the Additional Resort Collateral, Borrower covenants that Borrower or the Timeshare Owners' Association, as the case may be, will promptly restore or repair (or cause to be restored, repaired or replaced) the damaged improvements and repair or replace any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the improvements and personal property on the Resort or any real property comprising the Additional Resort Collateral, in accordance with the terms of the Timeshare Documents or Timeshare Act. The insufficiency of any net insurance proceeds shall in no way relieve Borrower or, as applicable, Borrower and Timeshare Owners' Association, of its obligation to restore, repair or replace such improvements and other personal property in accordance with the terms hereof, of the Declaration or other Timeshare Documents or of the Timeshare Act, and Borrower covenants that Borrower or, as the case may be, the Timeshare Owners' Association, shall promptly comply and cause compliance with the provisions of the Declaration and other Timeshare Documents, or of the Timeshare Act relating to such restoration, repair or replacement. Borrower shall, unless an Event of Default has occurred, apply all insurance proceeds payable to or received by it, in accordance with the applicable Declaration. If an Event of Default has occurred, Agent may, in its sole discretion, apply all insurance proceeds in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof. (e) MAINTENANCE OF SECURITY. Borrower shall execute and deliver (or cause to be executed and delivered) to Agent all security agreements, financing statements, assignments and such other agreements, documents, instruments and certificates, and supplements and amendments thereto, and take such other actions, as Agent deems necessary or appropriate in order to maintain as valid, enforceable and perfected first or second priority liens and security interests, as applicable, all Liens and security interests in the Collateral granted to Agent as agent for Lenders to secure the Obligations. Borrower shall not grant extensions of time for the payment of, compromise for less than the full face value or release in whole or in part, any Purchaser or other Person liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument, chattel paper or document representing the Collateral. (f) PAYMENT OF TAXES AND CLAIMS. Borrower will pay, and, as applicable pursuant to the Declaration, Borrower covenants that the Timeshare Owners' Association will pay, when due, all taxes imposed upon the Resort, the Collateral, Borrower, the Timeshare Owners' Association, or any of its or their property, or with respect to any of its or their franchises, businesses, income or profits, or with respect to the Loan or any of the Loan Documents; and Borrower and the Timeshare Owners' Association, as the case may be, shall pay all other charges and assessments against Borrower, the Collateral and the Resort before any claim (including, without limitation, claims for labor, services, materials and supplies) arises for sums which have become due and payable. Except for the Liens in connection with the Additional Credit Facility, the Tranche C Facility and the Inventory Loan and the Liens in favor of Agent on behalf of Lenders granted pursuant to the Loan Documents, and except as otherwise specifically provided for herein, Borrower covenants that no statutory or other Liens whatsoever (including, without limitation, mechanics', materialmens', judgment or tax liens) shall attach to any of the Collateral or the Resort except for such Liens as are expressly provided for pursuant to the Declaration, which shall, in any event, be subordinate to the Lien of Agent on behalf of Lenders. In the event any such Lien attaches to any of the Collateral or the Resort Borrower shall, within thirty (30) days after any such Lien attaches, either (i) cause such Lien to be released of record or (ii) provide Agent with a bond in accordance with the applicable laws of the State, issued by a corporate surety acceptable to Agent, in an amount and form acceptable to Agent. (g) INSPECTIONS. Borrower shall, at any time and from time to time and at the expense of Borrower, permit Agent or any Lender or their respective agents or representatives (provided such Lender has coordinated such inspection with Agent) to inspect the Resort, the Collateral and if necessary, in Agent's opinion, to ascertain or assure Borrower's compliance with the terms of this Agreement, any of Borrower's other assets or Property, and to examine and make copies of and abstracts from its and, to the extent it has access thereto or possession thereof, the Timeshare Owners' Association's, books, accounts, records, original correspondence, computer tapes, disks, software, and other papers as it may desire; and to discuss its affairs, finances and accounts with any of its officers, employees, Affiliates, contractors or independent public accountants (and by this provision Borrower authorizes said accountants to discuss with Agent, its agents or representatives, the affairs, finances and accounts of Borrower). Agent and each Lender agree to use reasonable efforts not to unreasonably interfere with Borrower's business operations in connection with any such inspections. Without limiting the foregoing, Agent shall have the right to make such credit investigations as Agent may deem appropriate in connection with its review of Notes Receivable, and Borrower shall make available to Agent all credit information in Borrower's possession or under its control or to which it may have access, with respect to Purchasers or other obligors under Notes Receivable as Agent may request. (h) REPORTING REQUIREMENTS. So long as any portion of the Obligations remain unsatisfied, Borrower shall furnish (or cause to be furnished, as the case may be) to Agent the following: (i) MONTHLY FINANCIAL REPORTS. As soon as available and in any event within ten (10) days after the end of each calendar month, a report showing (i) the trial balance of the Pledged Notes Receivable, (ii) an aging report on the Pledged Notes Receivable, (iii) a report detailing the collections on each of the Pledged Notes Receivable, (iv) a Borrowing Base Report (v) monthly reports from the Lockbox Agent required pursuant to the Lockbox Agreement;and (vi) a report in form satisfactory to Agent indicating, among other things, the conformity of the Borrower's business to the Business Plan and any variances therefrom during the preceding calendar month. (ii) QUARTERLY FINANCIAL REPORTS. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, copies of income statements and balance sheets for the operations of each Resort and for Borrower, certified by the Chief Financial Officer of Borrower. (iii) ANNUAL FINANCIAL REPORTS. As soon as available and in any event within ninety (90) days after the end of each calendar year or other fiscal year as may be applicable with respect to Borrower (a "FISCAL YEAR"), a statement of income and expense of Borrower for the annual period ended as of the end of such Fiscal Year, and a balance sheet of Borrower as of the end of such Fiscal Year, all in such detail and scope as may be reasonably required by Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Notwithstanding the foregoing, Borrower shall deliver its annual financial statements for Fiscal Years 2000 and 2001 within 90 days of the Effective Date. Each annual financial statement of Borrower shall be prepared by an independent certified public accountant and certified by Borrower to be true, correct and complete, and shall otherwise be in form acceptable to Lender. In the event that Lender, acting in good faith, is not satisfied with any such Financial Statement, and if Borrower fails to provide Lender with new Financial Statements acceptable to Lender within fifteen (15) days after Lender delivers written notice of such dissatisfaction to Borrower, then, at Lender's request, Borrower shall furnish to Lender copies of audited income statements and balance sheets certified by an independent certified public accountant acceptable to Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Such audited annual statements shall also be in form and content satisfactory to Lender. If the figures for net and total operating income (as such terms are defined in accordance with GAAP) in the audited annual statements do not vary by more than five percent (5%) from the figures in the unaudited annual statements, Lender shall bear, pro rata based upon its Pro Rata Percentage, the cost of the certified public accountant's audit. If, however, such figures vary by more than five percent (5%), Borrower shall bear the cost of such certified public accountant's audit; (iv) OFFICER'S CERTIFICATE. Each set of annual Financial Statements or reports delivered to Agent pursuant to Sections 7.1(h)(i), (ii) and (iii) of this Agreement will be accompanied by a certificate of the President or the Treasurer of Borrower in the form attached as Exhibit D setting forth that the signers have reviewed the relevant terms of the Agreement (and all other agreements and exhibits between the parties) and have made, or caused to be made, under their supervision, a review of the transactions and conditions of Borrower from the beginning of the period covered by the Financial Statements or reports being delivered therewith to the date of the certificate and that such review has not disclosed the existence during such period of any condition or event which constitutes a Default or Event of Default or, if any such condition or event existed or exists or will exist, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto; (v) SALES REPORTS. Concurrently with the financial statements required pursuant to Section 7.1(h)(i), (ii) and (iii), Borrower shall deliver to Agent, a sales report, detailing the sales of all Intervals at the Resorts for the period covered thereby, certified by Borrower to be true, correct and complete and otherwise in a form approved by Agent; (vi) AUDIT REPORTS. Promptly upon receipt thereof, one (1) copy of each other report submitted to Borrower by independent public accountants or other Persons in connection with any annual, interim or special audit made by them of the books of Borrower; (vii) NOTICE OF DEFAULT OR EVENT OF DEFAULT. Except for a Specified Event of Default identified in the Forbearance Agreement, immediately upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, or upon becoming aware of any acceleration with respect to any Specified Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto; (viii) NOTICE OF CLAIMED DEFAULT. Except for a Specified Event of Default identified in the Forbearance Agreement, immediately upon becoming aware of a claim of Default or Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto; (ix) MAINTENANCE OF INVENTORY CONTROL. Borrower shall maintain and at all times fully comply with the Inventory Control Procedures from the date hereof until the Loan is repaid in full. Borrower shall permit Agent, its officers, employees, auditors, and other agents or designees to review the books and records of Borrower and make such other examinations and inspections as Agent in its sole discretion deems necessary to determine that Borrower is in full compliance with such Inventory Control Procedures. (x) MATERIAL ADVERSE DEVELOPMENTS. Except as provided in the Business Plan, immediately upon becoming aware of any claim, action, proceeding, development or other information which may materially and adversely affect Borrower, the Collateral, the Resorts, the business, prospects, profits or condition (financial or otherwise) of Borrower, or the ability of Borrower to perform its Obligations under the Agreement, Borrower shall provide Agent with telephonic or telegraphic notice, followed by telefaxed and mailed written confirmation, specifying the nature of such development or information and such anticipated effect; (xi) OTHER INFORMATION. Borrower shall deliver to Agent: (i) within five (5) days of the filing thereof with the United States Securities and Exchange Commission, copies of each Form 8-K, 10-Q and 10-K filed by Borrower; (ii) at least semi-annually during the Term (or more frequently upon request of Agent), current addresses and telephone numbers for each obligor under an Eligible Note Receivable pledged to Agent on behalf of Lenders hereunder and (iii) any other information related to the Loan, the Collateral, the Resort or Borrower as Agent may in good faith request including, without limitation, annually, federal call reports relating to Lockbox Agent; and (xii) WEEKLY FINANCIAL REPORTS. Weekly "flash reports" consisting of the number of showings of the Resorts to prospective purchasers of Intervals, gross sales reports, accounts payable reports, accounts receivable reports and cash balances before 5:00 p.m. (eastern standard time) on each Thursday during the term hereof. (i) RECORDS. Borrower shall keep adequate records and books of account reflecting all financial transactions of Borrower and with respect to the Resort in which complete entries will be made in accordance with GAAP. In addition, Borrower shall keep, and shall promptly deliver to Agent upon Agent's request therefor, complete, timely and accurate records of all sales of Intervals and all payments in respect of Pledged Notes Receivable. (j) MANAGEMENT. Borrower shall: (i) remain engaged in the active management of the Resorts, (ii) unless Borrower notifies Agent in writing at least thirty (30) days in advance of its new location, retain its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221, and (iii) continue to perform duties substantially similar to those presently performed as provided in the management agreement relating to each Resort. No management agreement for any Resort shall be modified, assigned, extended, terminated or entered into nor shall the current method of operation and management of the Resorts be changed in any material manner, without the prior written approval of Agent, except as contemplated in Section 7.1(y) hereof. (k) FICA. Borrower shall furnish to Agent within thirty (30) days after the expiration of each calendar quarter proof reasonably satisfactory to Agent that Borrower's obligations to make deposits for F.I.C.A., social security and withholding taxes have been satisfied. (l) OPERATING CONTRACTS. Subject to the rights of the Timeshare Owners' Association as set forth in the Timeshare Documents, no Operating Contract shall be modified, extended, terminated or entered into, without the prior written approval of Agent, if any such modification, extension, termination or new agreement could have a material adverse impact on the operation of the Resort or the Collateral. (m) NOTICES. Borrower shall notify Agent within five (5) Business Days of the occurrence of any event (i) as a result of which any representation or warranty of Borrower contained in any Loan Documents would be incorrect or materially misleading if made at that time, or (ii) as a result of which Borrower is not in full compliance with all of its covenants and agreements contained in this Agreement or any Loan Document, or (iii) which constitutes or, with the passage of time, notice or a determination by Agent would constitute, an Event of Default. (n) MAINTENANCE. Borrower shall maintain, or shall cause to be maintained, or to the extent provided for pursuant to the Declaration, shall use its best efforts to cause the Timeshare Owners' Association to maintain, the Resort and that portion of the Additional Resort Collateral consisting of real property in good repair, working order and condition and shall make all necessary replacements and improvements to the Resort and that portion of the Additional Resort Collateral consisting of real property so that the value and operating efficiency of the Resort and that portion of the Additional Resort Collateral consisting of real property will be maintained at all times and so that the Resort and that portion of the Additional Resort Collateral consisting of real property remains in compliance in all respects with the Timeshare Act, the Timeshare Documents and other applicable law. (o) CLAIMS. Borrower shall promptly notify Agent of any claim, action or proceeding affecting the Resort or Collateral, or any part thereof, or Agent, any Lender or any of the security interests or rights granted in favor of Agent hereunder or under any of the Loan Documents. At the request of Agent, Borrower shall appear in and defend in favor of each Lender, at Borrower's sole expense, any such claim, action or proceeding. (p) REGISTRATION AND REGULATIONS. (i) LOCAL LEGAL COMPLIANCE. Borrower will comply, and will cause the Resort, the Land and each portion of the Additional Resort Collateral constituting real property to comply, with all applicable servitudes, restrictive covenants, applicable planning, zoning or land use ordinances and building codes, all applicable health and Environmental Laws and regulations, and all other applicable laws, rules, regulations, agreements or arrangements. (ii) REGISTRATION COMPLIANCE. Borrower will maintain, or cause to be maintained, all necessary registrations, current filings, consents, franchises, approvals, and exemption certificates, and Borrower will make or pay, or cause to be made or paid, all registrations, declarations or fees with the Division and any other government or any agency or department thereof, whether in the state or another jurisdiction, required in connection with the Resort and the occupancy, use and operation thereof, the incorporation of Units into the time-share plan established pursuant to the Declaration and the other Timeshare Documents, and the sale, advertising, marketing, and offering for sale of Intervals. All such registrations, filings and reports will be truthfully completed; and true and complete copies of such registrations, applications, consents, licenses, permits, franchises, approvals, exemption certificates, filings and reports will be delivered to Agent. Borrower shall advise Agent of any changes with respect to its marketing or sales programs in any jurisdiction, including jurisdictions other than the state, and at Agent's request from time to time, Borrower shall deliver to Agent: (A) written statements by the applicable state authorities, in form acceptable to Agent, stating that no registration is necessary for the sale of Intervals in the particular state, (B) an opinion of counsel in form acceptable to Agent and rendered by counsel acceptable to Agent, stating that no such registration is necessary, or (C) such other evidence of compliance with applicable laws as Agent may require; and (iii) OTHER COMPLIANCE. Borrower has, in all material respects, complied with and will comply with all laws and regulations of the United States, the State of Texas, the each state in which an applicable Resort, the Land or Collateral is located, any political subdivision of either such state and any other governmental, quasi-governmental or administrative jurisdiction in which Intervals have been sold or offered for sale, or in which sales, offers of sale or solicitations with respect to the Resort have been or will be conducted, including to the extent applicable, but not limited to: (1) the Timeshare Act; (2) the Consumer Credit Protection Act; (3) Regulation Z of the Federal Reserve Board; (4) the Equal Credit Opportunity Act; (5) Regulation B of the Federal Reserve Board; (6) the Federal Trade Commission's 3-day cooling-off Rule for Door-to-Door Sales; (7) Section 5 of the Federal Trade Commission Act; (8) ILSA; (9) federal postal laws; (10) applicable state and federal securities laws; (11) applicable usury laws; (12) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (13) applicable real estate sales licensing, disclosure, reporting and escrow laws; (14) the ADA; (15) RESPA; (16) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (17) the Federal Trade Commission's Privacy of Consumer Financial Information Rule; (18) other applicable federal statutes and the rules and regulations promulgated thereunder; and (19) any state law or law of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resort, or the sale, offering for sale, or financing of Intervals. (r) OTHER DOCUMENTS. Borrower will maintain to the satisfaction of Agent, and make available to Agent and the other Lenders, accurate and complete files relating to the Resort, the Pledged Notes Receivable and other Collateral, and such files will contain true copies of each Pledged Note Receivable, as amended from time to time, copies of all relevant credit memoranda relating to such Notes Receivable and all collection information and correspondence relating thereto. Without limiting the foregoing, Borrower shall maintain evidence of its compliance with the requirements of Section 3.11. (s) FURTHER ASSURANCES. Borrower will execute and deliver, or cause to be executed and delivered, such other and further agreements, documents, instruments, certificates and assurances as, in the judgment of Agent exercised in good faith may be necessary or appropriate to more effectively evidence or secure, and to ensure the performance of, the Obligations. In addition, Borrower shall deliver to Agent from time to time upon each request by Agent such documents, instruments or other matters or items as Agent may require to evidence Borrower's compliance with the covenants set forth in this Section 7.1 and Section 3.11. (t) UTILITIES. Borrower will cause, or to the extent provided for pursuant to the Declaration, covenants to use its best efforts to ensure that the Timeshare Owners' Association, or the manager of the Resort, as applicable, will cause, electric, sanitary and stormwater sewer, water facilities, drainage facilities, solid waste disposal, telephone and other necessary utilities to be available to the Resort in sufficient capacity to service the Resort. (u) AMENITIES. Borrower will cause, or to the extent provided for pursuant to the Declarations, will use its best efforts to ensure that the Timeshare Owners' Association, or the manager of the Resort, as applicable, will cause, the Resort to be maintained in good condition and repair, and in accordance with the provisions of the applicable Timeshare Documents, and Borrower will cause each Purchaser of an Interval at the Resort to have continuing access to, and the use of, to the extent of such Purchaser's time-share periods, all of the Common Elements and related or appurtenant services, rights and benefits, all as provided in the Declaration and the Timeshare Documents. (v) EXPENSES AND CLOSING FEES. Whether or not the transactions contemplated hereunder are completed, Borrower shall pay all expenses of Agent, each Lender and each of TFC's participants relating to negotiating, preparing, documenting, closing and enforcing this Agreement, including, but not limited to: (i) the cost of preparing, reproducing and binding this Agreement, the other Loan Documents and all Exhibits and Schedules thereto; (ii) the fees and disbursements of Agent's, each Lender's and each of TFC's participants' counsel; (iii) Agent's, each Lender's and each of TFC's participants' out-of-pocket expenses; (iv) all fees and expenses (including fees and expenses of Agent's, each Lender's and each of TFC's participants' counsel) relating to any amendments, waivers, consents or subsequent closings pursuant to the provisions hereof; (v) all costs, outlays, legal fees and expenses of every kind and character had or incurred in (1) the interpretation or enforcement of any of the provisions of, or the creation, preservation or exercise of rights and remedies under, any of the Loan Documents including the costs of appeal (2) the preparation for, negotiations regarding, consultations concerning, or the defense or prosecution of legal proceedings involving any claim or claims made or threatened against Agent arising out of this transaction or the protection of the Collateral securing the Loan or Advances made hereunder, expressly including, without limitation, the defense by Agent, each Lender and each of TFC's participants of any legal proceedings instituted or threatened by any Person to seek to recover or set aside any payment or setoff theretofore received or applied by Agent, each Lender and each of TFC's participants with respect to the Obligations, and any and all appeals thereof; and (3) the advancement of any expenses provided for under any of the Loan Documents; (vi) all expenses relating to the maintenance and administration of the Lockbox and Lockbox Account by the Lockbox Agent and Servicing and any escrow by the Title Company or any other escrow agent; (vii) the custodial fees payable to Agent with respect to the original Pledged Notes Receivable and related Collateral; (viii) all costs and expenses incurred by Agent under the Note, and all late charges under the Note; and (ix) all real and personal property taxes and assessments, documentary stamp and intangible taxes, sales taxes, recording fees, title insurance premiums and other title charges, document copying, transmittal and binding costs, appraisal fees, lien and judgment search costs, fees of architects, engineers, environmental consultants, surveyors and any special consultants, construction inspection fees, brokers fees, escrow fees, wire transfer fees, and all travel and out-of-pocket expenses of Agent, each Lender and each of TFC's participants to conduct inspections or audits. Without limitation of the foregoing, Borrower shall pay the costs of UCC and other searches, UCC and other Loan Document recording fees and applicable taxes, and premiums on each Mortgagee Title Policy delivered to Agent pursuant to this Agreement. (w) INDEMNIFICATION OF AGENT AND LENDERS. In addition to (and not in lieu of) any other provisions of any Loan Document providing for indemnification in favor of Agent or Lenders, Borrower shall defend, indemnify and hold harmless Agent and each Lender, their respective subsidiaries, affiliates, officers, directors, agents, employees, representatives, consultants, contractors, servants, and attorneys, as well as the respective heirs, personal representatives, successors or assigns of any or all of them (hereafter collectively the "Indemnified Lender Parties"), from and against, and promptly pay on demand or reimburse each of them with respect to, any and all liabilities, claims, demands, losses, damages, costs and expenses (including without limitation, reasonable attorneys' and paralegals' fees and costs), actions or causes of action of any and every kind or nature whatsoever asserted against or incurred by any of them by reason of or arising out of or in any way related or attributable to (i) this Agreement, the Loan Documents, or the Collateral; (ii) the transactions contemplated under any of the Loan Documents or any of the Timeshare Documents, including without limitation, those in any way relating to or arising out of the violation of any federal or state laws, including the Timeshare Act; (iii) any breach of any covenant or agreement or the incorrectness or inaccuracy of any representation and warranty of Borrower contained in this Agreement or any of the Loan Documents (including without limitation any certification of Borrower delivered to any Lender or Agent); (iv) any and all taxes, including real estate, personal property, sales, mortgage, excise, intangible or transfer taxes, and any and all fees or charges, including, without limitation under the Timeshare Act, which may at any time arise or become due prior to the payment, performance and discharge in full of the Obligations; (v) the breach of any representation or warranty as set forth herein regarding any Environmental Laws; (vi) the failure of Borrower to perform any obligation or covenant herein required to be performed pursuant to any Environmental Laws; (vii) the use, generation, storage, release, threatened release, discharge, disposal or presence on, under or about the Resort of any Hazardous Materials; (viii) the removal or remediation of any Hazardous Materials from the Resort required to be performed pursuant to any Environmental Laws or as a result of recommendations of any environmental consultant or as required by Agent; (ix) claims asserted by any Person (including without limitation any governmental or quasi-governmental agency, commission, department, instrumentality or body, court, arbitrator or administrative board (collectively, a "GOVERNMENTAL AGENCY"), in connection with or any in any way arising out of the presence, use, storage, disposal, generation, transportation, release, or treatment of any Hazardous Materials on, in, under or affecting the Resort; (x) the violation or claimed violation of any Environmental Laws in regard to the Resort; or (xi) the preparation of an environmental audit or report on the Resort, whether conducted by a Lender, Agent, Borrower or a third-party, or the implementation of environmental audit recommendations. Such indemnification shall not give Borrower any right to participate in the selection of counsel for Agent or any Lender or the conduct or settlement of any dispute or proceeding for which indemnification may be claimed. Agent and each Lender agree to give Borrower written notice of the assertion of any claim or the commencement of any action or lawsuit described in this Section. It is the express intention of the parties hereto that the indemnity provided for in this Section, as well as the disclaimers of liability referred to in this Agreement, are intended to and shall protect and indemnify Agent and each Lender from the consequences of Agent's and each Lender's own negligence, whether or not that negligence is the sole or concurring cause of any liability, obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense or disbursement provided, however, that Borrower shall not be required to protect and indemnify Agent or any Lender from the consequences of Agent's or any such Lender's gross negligence, where that gross negligence is the sole cause of the liability, obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense or disbursement for which indemnification or protection would otherwise be required. The provisions of this Section shall survive the full payment, performance and discharge of the Obligations and the termination of this Agreement, and shall continue thereafter in full force and effect. (x) OPERATION OF BORROWER'S BUSINESS. Borrower will operate its business in substantial compliance with the Business Plan, including the Senior Lender Advance Schedule. (y) STANDBY MANAGER, RESORT CONSULTANT AND STANDBY SERVICER. Borrower will enter into agreements for the Standby Manager and the Resort Consultant on or before the Effective Date and will maintain such agreements in full force and effect. Borrower will maintain the agreement for the Standby Servicer in full force and effect. Borrower agrees that upon the occurrence of a Default or Event of Default hereunder: (1) Agent may, with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, terminate any then existing management agreements and replace any existing manager with such manager as Agent may select, provided however, if: (x) the obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Agent elects to have J & J Limited, Inc. act as Standby Manager, then no such approval of Borrower's Board of Directors shall be required; and (2) the Standby Servicer will assume full control over the servicing of all Pledged Notes Receivable, reporting solely to Agent, as provided in Sections 9.1(i) and 10.14 hereof. (z) DZ FACILITY. The DZ Letter Agreement remains in full force and effect and has not been amended, modified or rescinded and Borrower will diligently commence and proceed to close the DZ Facility on or before May 31, 2002 as contemplated in the DZ Letter Agreement and the Business Plan, and will promptly provide Agent with true and correct copies of the DZ Documents. (aa) BOND HOLDER EXCHANGE TRANSACTION. Borrower will act diligently and in good faith to cause the requisite number of bond holders to accept the offer to participate in the Bond Holder Exchange Transaction on the terms set forth in the Bond Holder Exchange Letter and to close the Bond Holder Exchange Transaction on or before May 31, 2002, and promptly provide Agent with true and correct copies of all documents executed and/or delivered in connection with the Bond Holder Exchange Transaction. (bb) HELLER FACILITY, SOVEREIGN FACILITY, DZ FACILITY AND BOND HOLDER EXCHANGE TRANSACTION. Borrower will comply with each of the terms and conditions of the Heller Facility, the Sovereign Facility, the DZ Facility and the Bond Holder Exchange Documents and will promptly deliver to Agent, upon receipt by Borrower, copies of any notices received by Borrower in connection with any of the forgoing credit facilities. (cc) FINANCIAL COVENANTS. (i) TANGIBLE NET WORTH. Borrower shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of Borrower as of September 30, 2001 plus (B) one hundred percent (100%) of the aggregate amount of proceeds received by Borrower after January 1, 2002 in connection with (1) each issuance by Borrower of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Indebtedness after January 1, 2002, other than Indebtedness which shall be the most senior Indebtedness of Borrower plus (C) one hundred percent (100%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after January 1, 2002. (ii) MARKETING AND SALES EXPENSES. Borrower will not permit as of March 31, 2002 and as of the last day of each calendar quarter thereafter the ratio of Marketing and Sales Expenses for any calendar quarter, singly and on a cumulative basis, during the specified period below (the "REFERENCE PERIOD") to Borrower's net proceeds from the sale of Intervals for such Reference Period to equal or exceed the ratio set forth opposite such period described in the table below during such Reference Period:
Period Ratio ------ ----- 4/1/02 - 12/31/02 .550 to 1 1/1/03 - thereafter .525 to 1
(iii) MINIMUM LOAN DELINQUENCY. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Agent under the Agreement and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) to be greater than twenty-five percent (25%). If, as of the last day of each calendar quarter, Borrower's over 30-day delinquency on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Agent under the Agreement and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) is greater than twenty percent (20%), then Agent shall have the right to conduct an audit, at Borrower's sole cost and expense, of all Borrower's Notes Receivable pledged to the Lenders hereunder. (iv) INTEREST COVERAGE. (i) For the calendar quarter of Borrower ending June 30, 2002, the Interest Coverage Ratio for Borrower shall be at least 1.1:1; (ii) for the calendar quarter of Borrower ending September 30, 2002, the average of the Interest Coverage Ratio of Borrower of such calendar quarter and the Interest Coverage Ratio for the immediately preceding calendar quarter shall be at least 1.1:1, (iii) for the calendar quarter of Borrower ending December 31, 2002, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for the two immediately preceding calendar quarters shall be at least 1.1:1; (iv) for each calendar quarter of Borrower beginning with, and including, the calendar quarter ending March 31, 2003 and for each calendar quarter of Borrower thereafter, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for each of the three immediately preceding calendar quarters shall be at least 1.25:1. The term Interest Coverage Ratio means with respect to any Person for any calendar quarter, the ratio of (a) EBITDA for such period less capital expenditures as determined in accordance with GAAP, for such period to (b) the interest expense minus all non-cash items constituting interest expense for such period. (v) PROFITABLE OPERATIONS. Borrower will not permit Consolidated Net Income (a) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (b) for any two consecutive fiscal quarters (treated as a single accounting period) to be less than $1.00. (dd) NET SECURITIZATION CASH FLOW. Borrower will cause Silverleaf Finance I, Inc. to declare, at least quarterly, a cash dividend payable to Borrower, in an amount equal to the Net Securitization Cash Flow for such quarter. If no Default or Event of Default has occurred, Borrower agrees to use such dividends for payment of Operating Expenses as provided in the Business Plan and for no other purpose. If a Default or Event of Default has occurred, then all such dividends shall be paid directly to Agent, as agent for each Lender, and applied by Agent in repayment of the Term Loan Component as provided in Section 2.4(b). Borrower shall provide Agent with notice of Silverleaf Finance I, Inc.'s declaration of a cash dividend, together with a certification that: (i) states whether a Default or Event of Default exists, and (ii) contains a calculation of the Net Securitization Cash Flow. (ee) SALE OR SECURITIZATIONS OF NOTES RECEIVABLE. Borrower shall use its best efforts to sell and/or securitize the Notes Receivable pledged to Agent as security for the Loan, and the proceeds of any such sale or securitization shall be applied first to repayment of the Revolving Loan Component as provided in Section 2.4(b), and then after the Revolving Loan Component has been paid in full, to repayment of the Term Loan Component as provided in Section 2.4(b). Borrower agrees to provide Agent with written notice prior to any such sale or securitization and agrees to deliver to Agent copies of all documents executed in connection therewith. Any such sale or securitization shall be acceptable to Agent in its sole and absolute discretion. The proceeds received from any such securitization shall be used to pay down the Loan in accordance with the Business Plan. 7.2 NEGATIVE COVENANTS. So long as any portion of the Obligations remain unsatisfied, Borrower hereby covenants and agrees with Agent and each Lender as follows: (a) LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES. Borrower will not obtain financing and grant liens with respect to the Collateral or any of its other assets or property, except as hereafter provided. Prior to March 31, 2003, Borrower will not obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable, except as provided in this Agreement, the Additional Credit Facility, the Tranche C Facility, the Inventory Loan, the Heller Facility, and the Sovereign Facility, without the Agent's prior written consent, which consent will not be unreasonably withheld. As a condition to such consent, Agent may require that all proceeds of such financing be applied in repayment of the Loan as provided in Section 2.4 hereof so as to reduce the Effective Advance Rate, and may require advances to be funded from the Revolving Loan Component prior to advances from such other financing. At any time after March 31, 2003, Borrower may obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable in an amount not to exceed twenty million dollars ($20,000,000.00), without Agent's consent, provided that: (i) no Default or Event of Default has occurred; (ii) and such financing does not result in (x) Borrower's failure to substantially adhere to the Business Plan or (y) an Event of Default; and (iii) Agent may require advances to be funded from the Revolving Loan Component prior to advances from such other financing. At any time after March 31, 2003, if Borrower wishes to obtain financing in excess of twenty million dollars ($20,000,000.00) which will be secured by any of Borrower's unpledged Notes Receivable, Borrower will obtain Agent's written consent, which consent will not be unreasonably withheld. Borrower may obtain unsecured financing provided: (i) Borrower provides prior written notice to Agent setting forth the terms and conditions thereof; (ii) Agent is provided a copy of the loan documents thereof; and (iii) such financing does not result in Borrower's inability to substantially adhere to the Business Plan, as determined by Agent in its sole and absolute discretion. (b) RESTRICTIONS ON TRANSFERS. Except as hereinafter specifically provided, Borrower shall not, whether voluntarily or involuntarily, by operation of law or otherwise, (i) without obtaining the prior written consent of Agent (which consent may be given, withheld or conditioned by Agent in Agent's sole discretion), transfer, sell, pledge, convey, hypothecate, factor or assign all or any portion of the Collateral, the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities, or contract to do any of the foregoing, including, without limitation, pursuant to options to purchase, and so-called "installment sales contracts", "land contracts", or "contracts for deed", (ii) without obtaining the prior written consent of Agent (which consent may be given, withheld or conditioned by Agent in Agent's sole discretion), lease or license all or any portion of the Collateral, the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities, or change the legal or actual possession or use thereof, (iii) permit the assignment, transfer, delegation, change, modification or diminution of the duties or responsibilities of Borrower, of any manager of the Resort approved by Agent as manager of the Resort (except for an assignment of such duties to a professional management company or companies reasonably acceptable to Agent in advance) without obtaining the prior written consent of Agent (which consent shall not be unreasonably withheld), or (iv) without obtaining the prior written consent of Agent (which consent may be given, withheld or conditioned by Agent in Agent's sole discretion), cause or permit the assignment, pledge or other encumbrance of any of the Operating Contracts or all or any portion of Borrower's right, title or interest in the Declaration. Without limiting the generality of the preceding sentence, and subject to the terms of this Agreement, the prior written consent of Agent (as specified above) shall be required for (A) any transfer of the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities or any part thereof made to a subsidiary or Affiliate or otherwise, (B) any transfer of all or any part of the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities by Borrower to its stockholders or Affiliates or vice versa, and (C) any corporate merger or consolidation, disposition or other reorganization, except as permitted in Section 7.1(c). In the event that Agent is willing to consent to a transfer which would otherwise be prohibited by this Section 7.2(b), Agent may condition its consent on such terms as it desires, including, without limitation, an increase in the Interest Rate and the requirement that Borrower pay a transfer fee, together with any expenses incurred by Agent in connection with the granting of such consent (including, without limitation, attorneys' fees and expenses). If Borrower violates the terms of this Section 7.2(b), in addition to any other rights or remedies which Agent may have herein, in any other Loan Document, or at law or in equity, Agent may by written notice to Borrower increase, effective immediately as of the date of such violation, the Interest Rate to the Default Rate. (c) USE OF A LENDER'S OR AGENT'S NAME. Borrower will not, and will not permit any Affiliate to, without the prior written consent of Agent, such Lender or such TFC participant, use the name of Agent, any Lender or any TFC participant or the name of any affiliate of Agent, any Lender or any TFC participant in connection with any of their respective businesses or activities, except in connection with internal business matters and as required in dealings with governmental agencies. (d) TRANSACTIONS WITH AFFILIATES. Without the prior written consent of Agent, which shall not unreasonably be withheld, Borrower will not enter into any transaction with any Affiliate in connection with the Resorts, including, without limitation, relating to the purchase, sale or exchange of any assets or properties or the rendering of any service, except in the ordinary course of, and pursuant to the reasonable requirements of, the operations of the Resorts and upon fair and reasonable terms. (e) RESTRICTIVE COVENANTS. Borrower will not without Agent's prior written consent seek, consent to, or otherwise acquiesce in, any change in any private restrictive covenant, planning or zoning law or other public or private restriction, which would limit or alter the use of the Resort. (f) SUBORDINATED OBLIGATIONS. Borrower will not, directly or indirectly, (i) permit any payment to be made in respect of any indebtedness, liabilities or obligations, direct or contingent, (the "SUBORDINATED DEBT") to any of its shareholders or their affiliates or which are subordinated by the terms thereof or by separate instrument to the payment of principal of, and interest on, the Note; (ii) permit the amendment, rescission or other modification of any such subordination provisions of any of Borrower's subordinated obligations in such a manner as to affect adversely the Lien in and to the Collateral or Lenders' senior priority position and entitlement as to payment and rights with respect to the Note and the Obligations, or (iii) permit the prepayment or redemption, except for mandatory prepayments, of all or any part of Borrower's obligations to its shareholders, or of any subordinated obligations of Borrower except in accordance with the terms of such subordination. (g) TIMESHARE REGIME. Without Agent's prior written consent, which consent shall not be unreasonably withheld as to changes necessary to implement the Business Plan, Borrower shall not amend, modify or terminate the Declarations or other Timeshare Documents, or any other restrictive covenants, agreements or easements regarding the Resorts (except for routine non-substantive modifications which have no impact on the Collateral) Except as otherwise provided herein or in the Sovereign Documents, Borrower shall not assign its rights as "developer" under the Declarations without Agent's prior written consent, or file or permit to be filed any additional covenants, conditions, easements or restrictions against or affecting the Resorts (or any portion thereof) without Agent's prior written consent, which consent shall not be unreasonably withheld. (h) NAME CHANGE. Borrower will not change its name. (i) COLLATERAL. Borrower shall not take any action (nor permit or consent to the taking of any action) which might impair the value of the Collateral or any of the rights of Lenders in the Collateral, nor shall Borrower cause or permit any amendment to or modification of the form or terms of any of the Pledged Notes Receivable, Mortgages or, except as specifically provided herein above, the other Timeshare Documents. (j) MARKETING/SALES. Borrower shall not market, attempt to sell or sell or permit or justify any sales or attempted sales of any Intervals except in compliance with the Timeshare Act and applicable laws in state and other jurisdictions where marketing, sales or solicitation activities occur. (k) MODIFICATIONS OF HELLER DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Borrower shall not amend or modify the Heller Documents, the Sovereign Documents, DZ Documents, Bond Holder Exchange Documents or the documents evidencing any other indebtedness of Borrower, nor shall Borrower extend, modify, increase or terminate the Heller Facility, DZ Facility, the Bond Holder Exchange Transaction, the Sovereign Facility or any other credit facility or loan, without the prior written consent of Lender, which consent shall not be unreasonably withheld. (l) COMPENSATION OF SENIOR MANAGEMENT. The compensation payable to the senior management of Borrower, as a group, shall not be increased by more than twenty-five percent (25%) each year, with the increase in the first year following the Effective Date being measured against the compensation payable to the senior management of Borrower as of December 31, 2001, which compensation is set forth on Schedule 7.2(l). The Borrower represents and warrants that Schedule 7.2(l) accurately sets forth such compensation. (m) NO NEW CONSTRUCTION. Borrower will not, without Agent's prior written approval, construct any improvements (excluding resort amenities) on any Resorts, Land or any portion of the Additional Resort Collateral constituting real property, unless such improvements are contemplated in the Business Plan. (n) MODIFICATION OF OTHER DOCUMENTS. Borrower shall not amend or modify the Standby Management Agreement or the Standby Servicing Agreement, without the prior written consent of Agent, which consent shall not be unreasonably withheld. SECTION 8 -- EVENTS OF DEFAULT 8.1 NATURE OF EVENTS. An "Event of Default" shall exist if any of the following shall occur: (a) PAYMENTS. If Borrower shall fail to make, as and when due, any payment or mandatory prepayment of principal, interest, fees or other amounts with respect to the Loan and such failure shall continue for five (5) days after notice of such failure is provided by Agent. (b) COVENANT DEFAULTS. If Borrower shall fail to perform or observe any covenant, agreement or warranty contained in this Agreement or in any of the Loan Documents, (other than with respect to: (i) the failure to make timely payments in respect of the Loan as provided in Section 8.1(a); (ii) the failure to deliver payments made under the Pledged Notes Receivable directly to Agent as required pursuant to Section 2.4 above as provided in Section 8.1(h); or (iii) violation of (x) the financial covenants in Section 7.1(cc) or (y) any negative covenants in Section 7.2) and, such failure shall continue for fifteen (15) days after notice of such failure is provided by Agent, provided however, that if Borrower commences to cure such failure within such 15 day period, but, because of the nature of such failure, cure cannot be completed within 15 days notwithstanding diligent effort to do so, then, provided Borrower diligently seeks to complete such cure, an Event of Default shall not result unless such failure continues for a total of thirty (30) days. (c) WARRANTIES OR REPRESENTATIONS. If any representation or other statement made by or on behalf of Borrower in this Agreement, in any of the Loan Documents or in any instrument furnished in compliance with or in reference to the Loan Documents, is false, misleading or incorrect in any material respect as of the date made or reaffirmed. (d) ENFORCEABILITY OF LIENS. If any lien or security interest granted by Borrower to Lenders in connection with the Loan is or becomes invalid or unenforceable or is not, or ceases to be, a perfected first or second priority lien or security interest, as applicable, in favor of Agent, for itself and as agent for the Lenders, encumbering the asset which it is intended to encumber, and Borrower fails to cause such lien or security interest to become a valid, enforceable, first or second, as applicable, and prior lien or security interest in a manner satisfactory to Agent within ten (10) days after Agent delivers written notice thereof to Borrower. (e) INVOLUNTARY PROCEEDINGS. If a case is commenced or a petition is filed against Borrower under any Debtor Relief Law; a receiver, liquidator or trustee of Borrower or of any material asset of Borrower is appointed by court order and such order remains in effect for more than forty-five (45) days; or if any material asset of Borrower is sequestered by court order and such order remains in effect for more than forty-five (45) days. (f) PROCEEDINGS. If Borrower voluntarily seeks, consents to or acquiesces in the benefit of any provision of any Debtor Relief Law, whether now or hereafter in effect; consents to the filing of any petition against it under such law; makes an assignment for the benefit of its creditors; admits in writing its inability to pay its debts generally as they become due; or consents or suffers to the appointment of a receiver, trustee, liquidator or conservator for it, or any part of its assets. (g) ATTACHMENT, JUDGMENT, TAX LIENS. The issuance, filing, levy or seizure against the Collateral, or, with respect to the Resort or the Obligations, against Borrower of one or more attachments, injunctions, executions, tax liens or judgments for the payment of money cumulatively in excess of $100,000.00, which is not discharged in full or stayed within thirty (30) days after issuance or filing. (h) FAILURE TO DEPOSIT PROCEEDS. If Borrower shall fail to deliver payments made under the Pledged Notes Receivable directly to Agent as required pursuant to Section 2.4 above, or if Borrower shall take any other act which Agent shall deem to be a conversion of the Collateral or fraudulent with respect to any Lender. (i) TIMESHARE DOCUMENTS. If the Declaration, any of the other documents creating or governing the Resort, its timeshare regime, or the Timeshare Owners' Association, or the restrictive covenants with respect to the Resort, shall be terminated, amended or modified without Agent's prior written consent (except for routine non-substantive modifications which have no impact on the Collateral). (j) REMOVAL OF COLLATERAL. If Borrower conceals, removes, transfers, conveys, assigns or permits to be concealed, removed, transferred, conveyed or assigned, any of the Collateral in violation of the terms of the Loan Documents or with the intent to hinder, delay or defraud its creditors or any of them including, without limitation, any Lender. (k) OTHER DEFAULTS. If a material default shall occur in any of the covenants or Obligations set forth in any of the Loan Documents. (l) MATERIAL ADVERSE CHANGE. Any material adverse change in the financial condition of Borrower or in the condition of the Collateral. For purposes of this provision, a decline in the net worth of Borrower of $100,000.00 or less shall not be considered a material adverse change. (m) DEFAULT BY BORROWER IN OTHER AGREEMENTS. Except for any Specified Event of Default (as provided in the Forbearance Agreement), which Specified Events of Default shall include a prior existing default under the Heller Facility or the Sovereign Facility, any default by Borrower (i) in the payment of any indebtedness to any Lender, including any indebtedness owed to Agent under the Heller Facility, DZ Facility, Sovereign Facility, Bond Holder Exchange Transaction, Tranche C Facility, Additional Credit Facility or the Inventory Loan, (ii) in the payment or performance of other indebtedness for borrowed money or obligations secured by any part of the Resort; (iii) in the payment or performance of other material indebtedness or obligations (material indebtedness or obligations being defined for purposes of this provision as any indebtedness or obligation in excess of $200,000) where such default accelerates or permits the acceleration (after the giving of notice or passage of time or both) of the maturity of such indebtedness, or permits the holders of such indebtedness to elect a majority of the board of directors of Borrower (whether or not such default[s] have been waived by such holder) or (iv) the acceleration by Heller, Sovereign, DZ or the bondholders of their respective credit facilities. (n) LOSS OF LICENSE. The loss, revocation or failure to renew or file for renewal of any registration, approval, license, permit or franchise now held or hereafter acquired by Borrower or with respect to any Resort, or the failure to pay any fee, which is necessary for the continued operation of any Resort or Borrower's business in the same manner as it is being conducted at the time of such loss, revocation, failure to renew or failure to pay. (o) VIOLATION OF NEGATIVE COVENANTS. Borrower violates any negative covenants set forth in Section 7.2. (p) VIOLATION OF FINANCIAL COVENANTS. Borrower violates any financial covenants set forth in Section 7.1(cc). (q) USE OF LOAN PROCEEDS. If the proceeds of any Advance are used for any purpose not set forth in the Business Plan or in contravention of Section 6.11(b). (r) RECEIVABLE ADVANCES IN EXCESS OF BORROWING BASE OR LOAN IN EXCESS OF MAXIMUM EFFECTIVE ADVANCE RATE. If the outstanding aggregate principal balance of all Advances exceeds the Borrowing Base or if the outstanding aggregate principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregated outstanding principal balance of Eligible Notes Receivable pledged to Agent hereunder exceeds the Maximum Effective Advance Rate. (s) FAILURE OF DZ FACILITY AND/OR BOND HOLDER EXCHANGE TRANSACTION TO CLOSE. If either the DZ Facility or the Bond Holder Exchange Transaction shall fail to close on the terms and conditions set forth, respectively, in the DZ Letter Agreement and the Bond Holder Exchange Letter, on or before May 31, 2002. (t) DZ FACILITY NOTES RECEIVABLE PURCHASES. If DZ does not purchase Notes Receivable in substantially the amounts and during the periods specified in the Business Plan or if the proceeds of such purchase are insufficient to make the principal payments described in Section 2.4 hereof or if Borrower fails to apply such proceeds to repayment of the Loan as provided in Section 2.4 hereof. SECTION 9 -- REMEDIES 9.1 REMEDIES UPON DEFAULT. Should an Event of Default occur, Agent, on behalf of each Lender, may, and upon request of Lenders having at the time of such request total Pro Rata Percentages of more than 66 2/3%, Agent shall, take any one or more of the actions described in this Section 9, all without notice to Borrower: (a) ACCELERATION. Without demand or notice of any nature whatsoever, declare the unpaid balance of the Loans, or any part thereof, immediately due and payable, whereupon the same shall be due and payable. (b) TERMINATION OF OBLIGATION TO ADVANCE. Terminate any obligation of Lenders to lend under this Agreement in its entirety, or any portion of any such commitment, to the extent Agent shall deem appropriate, all without notice to Borrower. (c) JUDGMENT. Reduce each Lender's claim to judgment, foreclose or otherwise enforce each Lender's security interest in all or any part of the Collateral by any available judicial or other procedure under law. (d) SALE OF COLLATERAL AND FORECLOSURE OF MORTGAGES. After notification, if any, provided for in Section 9.2 below, Agent may sell or otherwise dispose of, at the office of Agent, or elsewhere, as chosen by Agent, all or any part of the Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Agent's power of sale, but sales may be made from time to time until all of the Collateral has been sold or until the Obligations have been paid in full and fully performed), and at any such sale it shall not be necessary to exhibit the Collateral. Borrower hereby acknowledges and agrees that a private sale or sales of the Collateral, after notification as provided for in Section 9.2, shall constitute a commercially reasonable disposition of the Collateral sold at any such sale or sales, and otherwise, commercially reasonable action on the part of Agent. Agent shall also have the right, in accordance with the laws of the State in which any Collateral consisting of real property is located, to foreclose the lien of the Land Mortgages and/or the Additional Resort Collateral Mortgages. (e) RETENTION OF COLLATERAL. At its discretion, retain such portion of the Collateral as shall aggregate in value to an amount equal to the aggregate amount of the Loans, in satisfaction of the Obligations, whenever the circumstances are such that Agent is entitled on behalf of Lenders and elects to do so under applicable law. (f) RECEIVER. Apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Borrower hereby consents to any such appointment. (g) PURCHASE OF COLLATERAL. Buy the Collateral at any public or private sale. (h) EXERCISE OF OTHER RIGHTS. Agent, on behalf of each Lender, shall have all the rights and remedies of a secured party under the Code and other legal and equitable rights to which it may be entitled, including, without limitation, and without notice to Borrower, the right to continue to collect all payments made on the Pledged Notes Receivable, and to apply such payments to the Obligations, and to sue in its own name the maker of any defaulted Pledged Notes Receivable. Agent may also exercise any and all other rights or remedies afforded by any other applicable laws or by the Loan Documents as Agent shall deem appropriate, at law, in equity or otherwise, including, but not limited to, the right to bring suit or other proceeding, either for specific performance of any covenant or condition contained in the Loan Documents or in aid of the exercise of any right or remedy granted to Agent in the Loan Documents. Agent shall also have the right to require Borrower to assemble any of the Collateral not in Agent's possession, at Borrower's expense, and make it available to Agent at a place to be determined by Agent which is reasonably convenient to both parties, and shall, on behalf of each Lender, have the right to take immediate possession of all of the Collateral, and may enter the Resort or any of the premises of Borrower or wherever the Collateral shall be located, with or without process of law wherever the Collateral may be, and, to the extent such premises are not the property of Agent, to keep and store the same on said premises until sold (and if said premises be the property of Borrower, Borrower agrees not to charge Agent or any Lender for use and occupancy, rent, or storage of the Collateral, for a period of at least ninety (90) days after sale or disposition of the Collateral). (i) REPLACEMENT OF MANAGER AND SERVICER. Without demand or notice of any nature whatsoever, upon an Event of Default, Agent may: (1) terminate any then existing management agreements and with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, replace any existing manager with such manager as Agent may select, provided however, if: (x) the Obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Agent elects to have J & J Limited, Inc. act as Standby Manager, then no such approval shall be required; and (2) terminate any then existing servicing agreement and replace any then existing Servicer with the Standby Servicer or such other servicer as Agent may select in its sole and absolute discretion. Agent shall also have the right to assume management of the Resorts. 9.2 NOTICE OF SALE. Reasonable notification of time and place of any public sale of the Collateral or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made shall be sent to Borrower and to any other person entitled under the Code to notice; provided, however, that if the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Agent may sell or otherwise dispose of the Collateral without notification, advertisement or other notice of any kind. It is agreed that notice sent not less than five (5) calendar days prior to the taking of the action to which such notice relates is reasonable notification and notice for the purposes of this Section 9.2. Agent shall have the right to bid at any public or private sale on behalf of Lenders. Out of money arising from any such sale, Agent shall retain an amount equal to all of its costs and charges, including attorneys' fees for advice, counsel or other legal services or for pursuing, reclaiming, seeking to reclaim, taking, keeping, removing, storing and advertising such Collateral for sale, selling same and any and all other charges and expenses in connection therewith and in satisfying any prior Liens thereon. Any balance shall be applied upon the Obligations, and in the event of deficiency, Borrower shall remain liable to Lenders. In the event of any surplus, such surplus shall be paid to Borrower or to such other Persons as may be legally entitled to such surplus. If, by reason of any suit or proceeding of any kind, nature or description against Borrower, or by Borrower or any other party against Agent or any Lender, which in such Agent's sole discretion makes it advisable for Agent to seek counsel for the protection and preservation of Lenders' security interest, or to defend the interest of Lenders, such expenses and counsel fees shall be allowed to Agent and the same shall be made a further charge and Lien upon the Collateral. In view of the fact that federal and state securities laws may impose certain restrictions on the methods by which a sale of Collateral comprised of Securities may be effected after an Event of Default, Borrower agrees that upon the occurrence or existence of an Event of Default, Agent may, on behalf of Lenders, from time to time, attempt to sell all or any part of such Collateral by means of a private placement restricting the bidding and prospective purchasers to whose who will represent and agree that they are purchasing for investment only and not for, or with a view to, distribution. In so doing, Agent may solicit offers to buy such Collateral, or any part of it for cash, from a limited number of investors deemed by Agent, in its reasonable judgment, to be responsible parties who might be interested in purchasing the Collateral, and if Agent solicits such offers from not less than two (2) such investors, then the acceptance by Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral. 9.3 APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the occurrence of any Event of Default: (i) each Lender may, with or without proceeding with such sale or foreclosure or demanding payment or performance of the Obligations, without notice, terminate each Lender's further performance under this Agreement or any other agreement or agreements between any Lender and Borrower, without further liability or obligation by Agent or any Lender; (ii) Agent may, on behalf of Lenders, at any time, appropriate and apply on any Obligations any and all Collateral in its (or the Lockbox Agent's) possession and (iii) each Lender may apply any and all balances, credits, deposits, accounts, reserves, indebtedness or other moneys due or owing to Borrower held by any Lender hereunder or under any other financing agreement or otherwise, whether accrued or not, subject to Section 2.8 hereof. Neither such termination, nor the termination of this Agreement by lapse of time, the giving of notice or otherwise, shall absolve, release or otherwise affect the liability of Borrower in respect of transactions prior to such termination, or affect any of the Liens, security interests, rights, powers and remedies of Agent or Lenders, but they shall, in all events, continue until all of the Obligations are satisfied. 9.4 RIGHTS OF LENDER REGARDING COLLATERAL. In addition to all other rights possessed by Agent or Lenders, Agent, at its option, may on behalf of each Lender from time to time after there shall have occurred an Event of Default, and so long as such Event of Default remains uncured, at its sole discretion, take the following actions: (a) Transfer all or any part of the Collateral into the name of Agent or its nominee; (b) Take control of any proceeds of any of the Collateral; (c) Extend or renew the Loan and grant releases, compromises or indulgences with respect to the Obligations, any portion thereof, any extension or renewal thereof, or any security therefor, to any obligor hereunder or thereunder; and (d) Exchange certificates or instruments representing or evidencing the Collateral for certificates or instruments of smaller or larger denominations for any purpose consistent with the terms of this Agreement. 9.5 DELEGATION OF DUTIES AND RIGHTS. Agent may execute any of its duties and/or exercise any of its rights or remedies under the Loan Documents by or through its officers, directors, employees, attorneys, agents or other representatives. 9.6 AGENT AND/OR LENDERS NOT IN CONTROL. Except as expressly provided herein or in any Loan Document, none of the covenants or other provisions contained in this Agreement or in any Loan Document shall give Agent or any Lender the right or power to exercise control over the affairs and/or management of Borrower. 9.7 WAIVERS. The acceptance by Agent or any Lender at any time and from time to time of partial payments of the Loan or performance of the Obligations shall not be deemed to be a waiver of any Event of Default then existing. No waiver by Agent or any Lender of any Event of Default shall be deemed to be a waiver of any other or subsequent Event of Default. No delay or omission by Agent or any Lender in exercising any right or remedy under the Loan Documents shall impair such right or remedy or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such right or remedy preclude other or further exercise thereof, or the exercise of any other right or remedy under the Loan Documents or otherwise. Further, except as otherwise expressly provided in this Agreement or by applicable law, Borrower and each and every surety, endorser, guarantor and other party liable for the payment or performance of all or any portion of the Obligations, severally waive notice of the occurrence of any Event of Default, presentment and demand for payment, protest, and notice of protest, notice of intention to accelerate, acceleration and nonpayment, and agree that their liability shall not be affected by any renewal or extension in the time of payment of the Loan, or by any release or change in any security for the payment or performance of the Loan, regardless of the number of such renewals, extensions, releases or changes. 9.8 CUMULATIVE RIGHTS. All rights and remedies available to any Lender or Agent on behalf of Lenders under the Loan Documents shall be cumulative of and in addition to all other rights and remedies granted under any of the Loan Document, at law or in equity, whether or not the Loan is due and payable and whether or not Agent shall have instituted any suit for collection or other action in connection with the Loan Documents. 9.9 EXPENDITURES BY LENDERS OR AGENT. Any sums expended by or on behalf of Agent or Lenders pursuant to the exercise of any right or remedy provided herein shall become part of the Obligations and shall bear interest at the Default Rate, from the date of such expenditure until the date repaid. 9.10 DIMINUTION IN VALUE OF COLLATERAL. Neither Agent nor any Lender shall have any liability or responsibility whatsoever for any diminution or loss in value of any of the Collateral, specifically including that which may arise from Agent or any Lender's negligence or inadvertence, whether such negligence or inadvertence is the sole or concurring cause of any damage, but specifically excluding any diminution or loss in value which is actually and proximately caused by Agent's failure to retain the Pledged Notes Receivable in a fire-resistant filing cabinet as provided in Section 3.6 above. 9.11 AGENT'S KNOWLEDGE. Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default unless Agent has actual knowledge of the Event of Default or has received a notice from a Lender or Borrower referring to this Agreement and describing such Event of Default. Each Lender agrees that upon learning of the existence of an Event of Default, it will promptly notify Agent thereof in writing. Any such notice by a Lender shall be in writing sufficient to identify the nature of the Event of Default. 9.12 LENDER'S ENFORCEMENT RIGHTS. Each Lender has assigned to Agent its absolute and unconditional right to enforce the payment of its Note. No Lender may unilaterally enforce any Lien or security interest in the Collateral, or bring suit against Borrower to enforce such Lender's rights hereunder or under its Note. SECTION 10 -- CERTAIN RIGHTS OF LENDERS 10.1 PROTECTION OF COLLATERAL. Agent on behalf of each Lender may at any time and from time to time take such actions as it deems necessary or appropriate to protect Lender's Liens and security interests in and to preserve the Collateral, and to establish, maintain and protect the enforceability of Lender's rights with respect thereto, all at the expense of Borrower. Borrower agrees to cooperate fully with all of Agent's efforts to preserve the Collateral and Lender's Liens, security interests and rights and will take such actions to preserve the Collateral and Lender's Liens, security interests and rights as Agent may direct, including, without limitation, by promptly paying upon Lender's demand therefor, all documentary stamp taxes or other taxes that may be or may become due in respect of any of the Collateral. All of Agent's expenses of preserving the Collateral and each Lender's liens and security interests and rights therein shall be added to the Loan. 10.2 PERFORMANCE BY AGENT. If Borrower fails to perform any agreement contained herein, Agent may itself perform, or cause the performance of, such agreement on behalf of Lenders, and the expenses of Agent incurred in connection therewith shall be payable by Borrower under Section 10.5 below. In no event, however, shall Agent or any Lender have any obligation or duties whatsoever to perform any covenant or agreement of Borrower contained herein or in any of the Loan Documents, Timeshare Documents or Operating Contracts, and any such performance by Agent shall be wholly discretionary with Agent. The performance by Agent of any agreement or covenant of Borrower on any occasion shall not give rise to any duty on the part of Agent to perform any such agreements or covenants on any other occasion or at any time. In addition, Borrower acknowledges that neither Agent nor any Lender shall at any time or under any circumstances whatsoever have any duty to Borrower or to any third party to exercise any of Lender's rights or remedies hereunder. 10.3 NO LIABILITY OF LENDER. Neither the acceptance of this Agreement by Agent and each Lender, nor the exercise of any rights hereunder by Lender or Agent on its behalf, shall be construed in any way as an assumption by Agent or any Lender of any obligations, responsibilities or duties of Borrower arising in connection with any Resort or under the Timeshare Documents or Timeshare Acts, or any of the Operating Contracts, or in connection with any other business of Borrower, or the Collateral, or otherwise bind Agent or any Lender to the performance of any obligations with respect to any Resort or the Collateral; it being expressly understood that neither Agent nor Lender shall be obligated to perform, observe or discharge any obligation, responsibility, duty, or liability of Borrower with respect to any Resort or any of the Collateral, or under any of the Timeshare Documents, the Timeshare Acts or under any of the Operating Contracts, including, but not limited to, appearing in or defending any action, expending any money or incurring any expense in connection therewith. Without limitation of the foregoing, neither this Agreement, any action or actions on the part of Agent taken hereunder, nor the acquisition of the Pledged Notes Receivable and the Mortgages by Agent prior to or following the occurrence of an Event of Default shall constitute an assumption by Agent or any Lender of any obligations of Borrower with respect to any Resort or the Pledged Notes Receivable, the Mortgages or any documents or instruments executed in connection therewith, and Borrower shall continue to be liable for all of its obligations thereunder or with respect thereto. Borrower agrees to indemnify, protect, defend and hold Agent and each Lender harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or incurred by Agent and each Lender by reason of, arising out of, or connected in any way with (i) any failure or alleged failure of Borrower to perform any of its covenants or obligations with respect to each Resort or the Purchasers of any of the Intervals, (ii) a breach of any certification, representation, warranty or covenant of Borrower set forth in any of the Loan Documents, (iii) the ownership of the Pledged Notes Receivable, the Mortgages and the rights, titles and interests assigned hereby, or intended so to be, (iv) the debtor-creditor relationships between Borrower on the one hand, and the Purchasers, Agent or Lender, as the case may be, on the other, or (v) the Pledged Notes Receivable, the Mortgages or the operation of the Resorts or sale of Intervals. The obligations of Borrower to indemnify, protect, defend and hold Agent and each Lender harmless as provided in this Agreement are absolute, unconditional, present and continuing, and shall not be dependent upon or affected by the genuineness, validity, regularity or enforceability of any claim, demand or suit from which Agent or any Lender is indemnified. The indemnity provisions in this Section 10.3 shall survive the satisfaction of the Obligations and termination of this Agreement, and remain binding and enforceable against Borrower, or its successors or assigns. Borrower hereby waives all notices with respect to any losses, damages, liabilities, suits, costs and expenses, and all other demands whatsoever hereby indemnified, and agrees that its obligations under this Agreement shall not be affected by any circumstances, whether or not referred to above, which might otherwise constitute legal or equitable discharges of its obligations hereunder. 10.4 RIGHT TO DEFEND ACTION AFFECTING SECURITY. Agent may, at Borrower's expense, appear in and defend any action or proceeding at law or in equity which Agent in good faith believes may affect the security interests granted under this Agreement, including without limitation, with respect to Pledged Notes Receivable or Mortgages, the value of the Collateral or each Lender's rights under any of the Loan Documents. 10.5 EXPENSES. All expenses payable by Borrower, under any provision of this Agreement shall be an Obligation of Borrower and shall be paid by Borrower to Agent, upon demand, and shall bear interest at the Default Rate from the date of expense until repaid by Borrower. 10.6 LENDER'S RIGHT OF SET-OFF. Subject to Section 2.8 hereof, each Lender shall have the right to set-off against any Collateral any Obligations then due and unpaid by Borrower, provided Borrower is in Default. 10.7 NO WAIVER. No failure or delay on the part of Agent in exercising any right, remedy or power under this Agreement or in giving or insisting upon strict performance by Borrower hereunder or in giving notice hereunder shall operate as a waiver of the same or any other power or right, and no single or partial exercise of any such power or right shall preclude any other or further exercise thereof or the exercise of any other such power or right. Agent, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Borrower of any and all of the terms and provisions of this Agreement to be performed by Borrower. The collection and application of proceeds, the entering and taking possession of the Collateral, and the exercise by Agent of the rights of Lenders contained in the Loan Documents and this Agreement shall not cure or waive any default, or affect any notice of default, or invalidate any acts done pursuant to such notice. No waiver by Agent or any Lender of any breach or default of or by any party hereunder shall be deemed to alter or affect Lender's rights hereunder with respect to any prior or subsequent default. 10.8 RIGHT OF AGENT TO EXTEND TIME OF PAYMENT, SUBSTITUTE, RELEASE SECURITY, ETC. Without affecting the liability of any Person or entity including without limitation, any Purchasers, for the payment of any of the Obligations or without affecting or impairing Lender's Lien on the Collateral, or the remainder thereof, as security for the full amount of the Loan unpaid and the Obligations, subject to Section 13.11 hereof, Agent may from time to time, without notice: (a) release any Person liable for the payment of the Loan, (b) extend the time or otherwise alter the terms of payment of the Loan, (c) accept additional security for the Obligations of any kind, including deeds of trust or mortgages and security agreements, (d) alter, substitute or release any property securing the Obligations, (e) realize upon any collateral for the payment of all or any portion of the Loan in such order and manner as it may deem fit, or (f) join in any subordination or other agreement affecting this Agreement or the lien or charge thereof. 10.9 ASSIGNMENT OF LENDER'S INTEREST. Each Lender shall have the right to assign its Loans and all or any portion of its rights in or pursuant to this Agreement or any of the Loan Documents to any subsequent holder or holders of its Note or the Obligations evidenced thereby, provided that each Lender shall give Agent concurrent written notice of each such assignment. 10.10 NOTICE TO PURCHASER. Borrower authorizes any of Agent, Lockbox Agent or Servicing Agent (but none of Agent, Lockbox Agent nor Servicing Agent shall be obligated) to communicate at any time and from time to time with any Purchaser or any other Person primarily or secondarily liable under a Pledged Note Receivable with regard to the Lien of Agent thereon and any other matter relating thereto, and by no later than the Effective Date, Borrower shall deliver to Agent a notification to the Purchasers executed in blank by Borrower and in form acceptable to Agent, pursuant to which the Purchasers (or other obligors) may be directed to remit all payments in respect of the Collateral as Agent may require. 10.11 COLLECTION OF THE NOTES. Borrower hereby directs and authorizes each party liable for the payment of the Pledged Notes Receivable, and by no later than the Effective Date shall direct in writing each such party, to pay each installment thereon to Lockbox Agent pursuant to the Lockbox Agreement, unless and until directed otherwise by written notice from Agent or, at Agent's direction, from Borrower, after which such parties are and shall be directed to make all further payments on the Pledged Notes Receivable in accordance with the directions of Agent. Following the occurrence of an Event of Default, Agent shall have the right to require that all payments becoming due under the Pledged Notes Receivable be paid directly to Agent as agent for Lenders, and Agent is hereby authorized to receive, collect, hold and apply the same in accordance with the provisions of this Agreement. In the event that following the occurrence of an Event of Default, Agent or Lockbox Agent does not receive any installment of principal or interest due and payable under any of the Pledged Notes Receivable on or prior to the date upon which such installment becomes due, Agent may, at its election (but without any obligation to do so), give or cause Lockbox Agent to give notice of such default to the defaulting party or parties, and Agent shall have the right (but not the obligation), subject to the terms of such Notes, to accelerate payment of the unpaid balance of any of the Pledged Notes Receivable in default and to foreclose each of the Mortgages securing the payment thereof, and to enforce any other remedies available to the holder of such Pledged Notes Receivable with respect to such default. Borrower hereby further authorizes, directs and empowers Agent (and Lockbox Agent or any other Person as may be designated by Agent in writing) to collect and receive all checks and drafts evidencing such payments and to endorse such checks or drafts in the name of Borrower and upon such endorsements, to collect and receive the money therefor. The right to endorse checks and drafts granted pursuant to the preceding sentence is irrevocable by Borrower, and the banks or banks paying such checks or drafts upon such endorsements, as well as the signers of the same, shall be as fully protected as though the checks or drafts have been endorsed by Borrower. 10.12 POWER OF ATTORNEY. Borrower does hereby irrevocably constitute and appoint Agent as Borrower's true and lawful agent and attorney-in-fact, with full power of substitution, for Borrower and in Borrower's name, place and stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in the name of Borrower and in favor of Agent on behalf of each Lender as provided in Section 10.11 above, (b) to demand and receive from time to time any and all property, rights, titles, interests and liens hereby sold, assigned and transferred, or intended so to be, and to give receipts for same, (c) from time to time to institute and prosecute in Agent's own name any and all proceedings at law, in equity, or otherwise, that Agent may deem proper in order to collect, assert or enforce any claim, right or title, of any kind, in and to the property, rights, titles, interests and liens hereby sold, assigned or transferred, or intended so to be, and to defend and compromise any and all actions, suits or proceedings in respect of any of the said property, rights, titles, interests and liens, (d) upon an Event of Default to change Borrower's post office mailing address, and (e) generally to do all and any such acts and things in relation to the Collateral as Agent shall in good faith deem advisable. Borrower hereby declares that the appointment made and the powers granted pursuant to this Section 10.12 are coupled with an interest and are and shall be irrevocable by Borrower in any manner, or for any reason, unless and until a release of the same is executed by Agent and duly recorded in the appropriate public records of Dallas County, Texas. 10.13 RELIEF FROM AUTOMATIC STAY, ETC. To the fullest extent permitted by law, in the event Borrower shall make application for or seek relief or protection under the federal bankruptcy code ("Bankruptcy Code") or other Debtor Relief Laws, or in the event that any involuntary petition is filed against Borrower under such Code or other Debtor Relief Laws, and not dismissed with prejudice within 45 days, the automatic stay provisions of Section 362 of the Bankruptcy Code are hereby modified as to Agent and each Lender to the extent necessary to implement the provisions hereof permitting set-off and the filing of financing statements or other instruments or documents; and Agent and each Lender shall automatically and without demand or notice (each of which is hereby waived) be entitled to immediate relief from any automatic stay imposed by Section 362 of the Bankruptcy Code or otherwise, on or against the exercise of the rights and remedies otherwise available to Lenders as provided in the Loan Documents. 10.14 STANDBY SERVICER. Borrower acknowledges and agrees that upon written notice from Agent, to be given at any time during the term of the Loan in Agent's sole and absolute discretion, the Servicing Agent shall be replaced by the Standby Servicer, or such other servicing entity as may be selected by Agent in its sole and absolute discretion, for the purpose of servicing all Notes Receivable comprising the Collateral. SECTION 11 -- TERM OF AGREEMENT This Agreement shall continue in full force and effect and the security interests granted hereby and the duties, covenants and liabilities of Borrower hereunder and all the terms, conditions and provisions hereof relating thereto shall continue to be fully operative until all of the Obligations have been satisfied in full. Borrower expressly agrees that if Borrower makes a payment to Agent on behalf of any Lender, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise required to be repaid to a trustee, receiver or any other party under any Debtor Relief Laws, state or federal law, common law or equitable cause, then to the extent of such repayment, the Obligations or any part thereof intended to be satisfied and the Liens provided for hereunder securing the same shall be revived and continued in full force and effect as if said payment had not been made. SECTION 12 -- MISCELLANEOUS 12.1 NOTICES. All notices, requests and other communications to either party hereunder shall be in writing and shall be given to such party at its address set forth below or at such other address as such party may hereafter specify for the purpose of notice to Agent, any Lender or Borrower. Each such notice, request or other communication shall be effective (a) if given by mail, when such notice is deposited in the United States Mail with first class postage prepaid, addressed as aforesaid, provided that such mailing is by registered or certified mail, return receipt requested, (b) if given by overnight delivery, when deposited with a nationally recognized overnight delivery service such as Federal Express or Airborne with all fees and charges prepaid, addressed as provided below, or (c) if given by any other means, when delivered at the address specified in this Section 12.1. IF TO BORROWER: Silverleaf Resorts, Inc. 1221 Riverbend Drive, Suite 120 Dallas, TX 75221 Attn: Mr. Robert Mead, CEO WITH A COPY TO: Meadows, Owens, Collier, Reed, Cousins and Blau 3700 Nations Bank Plaza 901 Main St. Dallas, TX 75202 Attn: George R. Bedell, Esq. IF TO LENDER: Textron Financial Corporation 40 Westminster Street Providence, Rhode Island 02903 Attention: Accounting Department/Collections IF TO AGENT: Textron Financial Corporation 40 Westminster Street Providence, Rhode Island 02903 Attention: Accounting Department / Collections WITH A COPY TO: Textron Financial Corporation P.O. Box 6687 Providence, Rhode Island 02940-6687 Attention: Division Counsel (RRD) AND TO: Textron Financial Corporation 333 East River Drive, Suite 104 East Hartford, Connecticut 06108 Attn: Division President Notwithstanding the foregoing, copies of the requests or notices from Borrower to Lender or Agent which are specified in the Sections of this Agreement listed below shall not be delivered to Providence, Rhode Island as provided above, but rather shall be delivered in accordance with this Section 12.1 to Textron Financial Corporation, 333 East River Drive, Suite 104, East Hartford, Connecticut 06108, Attention: Nicholas L. Mecca, Division President. The applicable Sections of this Agreement are Section 2.4(a) Voluntary Prepayments, Section 5(a) Request for Advances, and Section 12.10 Return of Notes Receivable. In addition, all documents, instruments and other items to be delivered to Lenders from time to time pursuant to this Agreement shall be delivered to Agent's office at 333 East River Drive, Suite 104, East Hartford, Connecticut 06108. 12.2 SURVIVAL. All representations, warranties, covenants and agreements made by Borrower herein, in the other Loan Documents or in any other agreement, document, instrument or certificate delivered by or on behalf of Borrower under or pursuant to the Loan Documents shall be considered to have been relied upon by Lenders and shall survive the delivery to Lenders of such Loan Documents (and each part thereof), regardless of any investigation made by or on behalf of Lenders. 12.3 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF ITS CHOICE OF LAWS PRINCIPLES. 12.4 LIMITATION ON INTEREST. Agent, each Lender and Borrower intend to comply at all times with applicable usury laws. All agreements between Agent, each Lender and Borrower, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to any Lender exceed the highest lawful rate permissible under applicable usury laws. If, from any circumstance whatsoever, fulfillment of any provision hereof, of the Note or of any other Loan Documents shall involve transcending the limit of such validity prescribed by any law which a Court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if from any circumstance Agent or any Lender shall ever receive anything of value deemed interest by applicable law which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal of Loan and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Loan, such excess shall be refunded to Borrower. All interest paid or agreed to be paid to Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal so that the interest on the Loan for such full period shall not exceed the highest lawful rate. Borrower agrees that in determining whether or not any interest payment under the Loan Documents exceeds the highest lawful rate, any non-principal payment (except payments specifically described in the Loan Documents as "interest") including without limitation, prepayment fees and late charges, shall to the maximum extent not prohibited by law, be an expense, fee, premium or penalty rather than interest. Agent and each Lender hereby expressly disclaim any intent to contract for, charge or receive interest in an amount which exceeds the highest lawful rate. The provisions of the Note, this Agreement, and all other Loan Documents are hereby modified to the extent necessary to conform with the limitations and provisions of this Section, and this Section shall govern over all other provisions in any document or agreement now or hereafter existing. This Section shall never be superseded or waived unless there is a written document executed by Agent, each Lender and Borrower, expressly declaring the usury limitation of this Agreement to be null and void, and no other method or language shall be effective to supersede or waive this paragraph. 12.5 INVALID PROVISIONS. If any provision of this Agreement or any of the other Loan Documents is held to be illegal, invalid or unenforceable under present or future laws effective during the term thereof, such provision shall be fully severable, this Agreement and the other Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof or thereof, and the remaining provisions hereof or thereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement and/or the Loan Documents (as the case may be) a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 12.6 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of Borrower, Agent and each Lender and their respective successors and assigns; provided that Borrower may not transfer or assign any of its rights or obligations under this Agreement, the Commitment or the other Loan Documents without the prior written consent of Agent. This Agreement and the transactions provided for or contemplated hereunder or under any of the Loan Documents are intended solely for the benefit of the parties hereto. No third party shall have any rights or derive any benefits under or with respect to this Agreement, the Commitment or the other Loan Documents except as provided in advance in a writing signed on behalf of Agent and each Lender. 12.7 AMENDMENT. This Agreement may not be amended or modified, and no term or provision hereof may be waived, except by written instrument signed by Borrower and Agent on behalf of itself and Lenders. 12.8 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signature thereto and hereto were on the same instrument. This Agreement shall become effective upon Agent's receipt of one or more counterparts hereof signed by Borrower. 12.9 LENDERS AND AGENT NOT FIDUCIARIES. The relationship between Borrower, Agent and each Lender is solely that of debtor and creditor, and Agent and Lenders have no fiduciary or other special relationship with Borrower, and no term or provision of any of the Loan Documents shall be construed so as to deem the relationship between Borrower, Agent and Lenders to be other than that of debtor and creditor. 12.10 RETURN OF NOTES RECEIVABLE. (a) In the event Borrower complies with its Obligations under Section 2.5(b) of this Agreement with respect to Pledged Notes Receivable pursuant to which a default by the Purchaser thereof has occurred, and Borrower thereafter desires to enforce such Note Receivable against the Purchaser thereof, then provided that no Event of Default has occurred which has not been cured to Agent's satisfaction (as evidenced by a written acceptance of such cure executed by Agent), and no event has occurred which with notice, the passage of time or both, would constitute an Event of Default, then within thirty (30) days after its receipt of a written request from Borrower, Agent shall deliver such ineligible Note Receivable to Borrower, provided that such delivery shall be for the sole purpose of enforcing Agent's rights thereunder and Agent, notwithstanding such delivery, shall continue to have, on behalf of Lenders, a first priority security interest in any such note. (b) In the event that all Obligations hereunder are fully satisfied, then within a reasonable time thereafter, Agent shall endorse the Pledged Notes Receivable "Pay to the order of Silverleaf Resorts, Inc. without recourse", and deliver such Pledged Notes Receivable, together with any other nonrecourse Collateral reassignment documents requested and prepared by Borrower, at Borrower's sole cost and expense. 12.11 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be determined or made in accordance with GAAP consistently applied at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. 12.12 TOTAL AGREEMENT. This Agreement and the other Loan Documents, including the Exhibits and Schedules to them, is the entire agreement between the parties relating to the subject matter hereof, incorporates or rescinds all prior agreements and understandings between the parties hereto relating to the subject matter hereof, cannot be changed or terminated orally or by course of conduct, and shall be deemed effective as of the date it is accepted by Agent at the offices set forth above. The documents evidencing the Additional Credit Facility, the Tranche C Facility and the Inventory Loan shall remain in full force and effect. 12.13 LITIGATION. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, BORROWER, AGENT AND EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF BORROWER, AGENT AND EACH LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF AGENT OR ANY LENDER, NOR AGENT'S OR ANY LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO AGENT'S AND EACH LENDER'S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. The waiver and stipulations of Borrower, Agent, and each Lender in this Section 12.13 shall survive the final payment or performance of all of the Obligations of Borrower and the resulting termination of this Agreement. 12.14 INCORPORATION OF EXHIBITS. This Agreement, together with all Exhibits and Schedules hereto, constitute one document and agreement which is referred to herein by the use of the defined term "Agreement." Such Exhibits and Schedules are incorporated herein as to fully set out in this Agreement. The definitions contained in any part of this Agreement shall apply to all parts of this Agreement. 12.15 CONSENT TO ADVERTISING AND PUBLICITY OF TIMESHARE DOCUMENTS. Borrower hereby consents that Agent and each Lender may issue and disseminate to the public information describing the credit accommodation entered into pursuant to this Agreement, including the names and addresses of Borrower and any subsidiaries and Affiliates, the amount and a general description of Borrower's business. 12.16 DIRECTLY OR INDIRECTLY. Where any provision in the Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provisions shall be applicable whether such action is taken directly or indirectly by such Person. 12.17 HEADINGS. Section headings have been inserted in the Agreement as a matter of convenience of reference only; such section headings are not a part of the Agreement and shall not be used in the interpretation of this Agreement. 12.18 GENDER AND NUMBER. Words of any gender in this Agreement shall include each other gender and the singular shall mean the plural and vice versa where appropriate. SECTION 13 - AGENT 13.1 AUTHORIZATION AND ACTION. Each Lender hereby accepts the appointment of and irrevocably (but subject to Section 13.8) authorizes Agent to take such action as Agent on its behalf and to exercise such powers as are expressly delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Agent shall not be required to take any action which exposes Agent to personal liability or which is contrary to this Agreement or applicable law. Agent agrees to give to each Lender prompt notice of each notice given to it by Borrower pursuant to the terms of this Agreement. The appointment and authority of Agent hereunder shall terminate upon the payment of the Obligations in full. 13.2 NATURE OF AGENT'S DUTIES. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any of the Loan Documents, express or implied, is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein or therein. Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect to Borrower, whether coming into its possession before the date hereof or at any time or times thereafter (except as expressly set forth in this Agreement). If Agent seeks the consent or approval of Lenders, to the taking or refraining from taking any action hereunder, Agent shall send notice thereof to each Lender. 13.3 UCC FILINGS. Each of Borrower, Agent and Lender expressly recognizes and agrees that Agent shall be listed as the assignee or secured party of record on the various UCC filings required to be made hereunder in order to perfect the grant of a security interest in the Collateral herein for the benefit of Lenders, that such listing shall be for administrative convenience only in creating a single secured party to take certain actions hereunder on behalf of the holders of the Obligations, and that such listing will not affect in any way the status of such holders as the beneficial holders of such security interest. In addition, such listing shall impose no duties on Agent other than those expressly and specifically undertaken in accordance with this Section 13. 13.4 AGENT'S RELIANCE, ETC. Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement (including Agent's servicing, administering or collecting Receivables) except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, Agent: (i) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of Borrower or to inspect the property (including the books and records) of Borrower (except as otherwise expressly set forth in this Agreement); (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement, or any other instrument or document furnished pursuant hereto, or any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, the Loan Documents, or for any failure of Borrower or any of its Affiliates to perform its obligation under the Loan Documents; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex or telecopier) believed by it to be genuine and to be or to have been signed or sent by the proper party or parties. Agent may, but shall not be required to, at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the requisite Lender, as applicable in accordance with this Agreement. Without limiting the foregoing, Lender shall not have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the requisite Lender as applicable in accordance with this Agreement. Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it or them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Agent. 13.5 AGENT AND AFFILIATES. To the extent that Agent or any of its Affiliates are or shall become Lenders hereunder, Agent or such Affiliate, in such capacity, shall have each and every right and power under this Agreement as would any other Lender hereunder (including the right to vote upon any matter upon which any of Lenders are entitled to vote) and, without exception, may exercise the same as though it were not an Agent. Agent and its Affiliates may engage in any kind of business with Borrower, any of its Affiliates and any Person who may do business with or own securities of Borrower or any of its Affiliates, all as if it were not an Agent hereunder and without any duty to account therefor to Lenders. 13.6 CREDIT DECISION. Independently, and without reliance upon Agent, each Lender has, to the extent it deems appropriate, made and shall continue to make (a) its own independent investigation of the financial affairs and business affairs of Borrower in connection with any action or inaction with respect to the transactions contemplated herein, and (b) its own evaluation of the creditworthiness of Borrower and of the value of the Collateral, and, except as expressly provided in this Agreement, Agent has had and shall have no duty or responsibility to provide any Lender with any credit or other information with respect thereto. Agent shall not be responsible to any Lender for any recitals, statements, representation or warranties herein or in any document, certificate or other writing delivered in connection herewith (unless made by Agent) or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement (except with respect to Agent's obligations hereunder) or the Loan Documents or the financial condition of Borrower or the value of the Collateral. Except as expressly herein provided with respect to its duties as agent, Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or the Loan Documents, the financial condition of Borrower, or the existence or possible existence of any Event of Default. 13.7 INDEMNIFICATION. Each Lender agrees to indemnify Agent (to the extent not reimbursed by Borrower), ratably in accordance with each Lender's Pro Rata Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any action taken or omitted by Agent under this Agreement; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from Agent's gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Lender agrees to reimburse Agent (to the extent not reimbursed by Borrower) ratably in accordance with Lender's Pro Rata Percentage, promptly upon demand, for any out-of-pocket expenses (including reasonable counsel fees) incurred by Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement. The rights of Agent under this Section 13.7 shall survive the termination of this Agreement. For purposes of this paragraph, the term "Agent" shall include Agent, its affiliates and their respective officers, directors, employees and agents. 13.8 SUCCESSOR AGENT. Agent may resign at any time by giving thirty days notice thereof to Lenders and Borrower. Upon any such resignation Lenders, including TFC, shall have the right to appoint a successor Agent, and such resignation shall not be effective until such successor Agent is appointed and has accepted such appointment. If no successor Agent shall have been so appointed and accepted such appointment within seventy-five (75) days after Agent's giving of notice of resignation, then Agent may, on behalf of Lenders, appoint a successor Agent, which successor Agent shall be experienced in the types of transactions contemplated by this Agreement. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from all further duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 13 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 13.9 DUTY OF CARE. Agent shall endeavor to exercise the same care in its administration of the Loan Documents as it exercises with respect to similar transactions in which it is involved and where no other co-lenders or participants are involved; provided that the liability of Agent for failing to do so shall be limited as provided in the preceding paragraphs of this Section 13. 13.10 DELEGATION OF AGENCY. (a) If at any time or times it shall be necessary or prudent in connection with the exercise or protection of Agent's rights hereunder in order to conform to any law of any jurisdiction in which any of the Collateral shall be located, or Agent shall be advised by counsel that it is so necessary or prudent in the interest of Lenders, or Agent shall deem it necessary for its own protection in the performance of its duties hereunder Agent and, to the extent required by Agent, Borrower shall execute and deliver all instruments and agreements reasonably necessary or proper to constitute another bank or trust company, or one or more individuals approved by Agent (each an "Approved Delegate"), either to act as co-agent or co-agents or trustee of all or any of the Collateral, jointly with Agent originally named herein or any successor, or to act as separate agent or agents or trustee of any such Collateral. Every separate agent and every co-agent and every trustee, other than any agent which may be appointed as successor to Agent, shall, to the extent permitted by applicable law, be appointed to act and be such, subject to the following provisions and conditions, namely: (i) except as otherwise provided herein, all rights, remedies, powers, duties and obligations conferred upon, reserved or imposed upon Agent in respect of the custody, control and management of moneys, paper or securities shall be exercised solely by Agent hereunder; (ii) all rights, remedies, powers, duties and obligations conferred upon, reserved to or imposed upon Agent hereunder shall be conferred, reserved or imposed and exercised or performed by Agent except to the extent that the instrument appointing such separate agent or separate agents or co-agent or co-agents or trustee shall otherwise provide, and except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, Agent shall be incompetent or unqualified to perform such act or acts, in which event such rights, remedies, powers, duties and obligations shall be exercised and performed by such separate agents or co-agent or co-agents to the extent specifically directed in writing by Agent; (iii) no power given thereby to, or which it is provided hereby may be exercised by, any such separate agent or separate agents or co-agent or co-agents or trustee shall be exercised hereunder by such separate agent or separate agents or co-agent or co-agents or trustee except jointly with, or with the consent in writing of, anything herein contained to the contrary notwithstanding; (iv) no separate agent or co-agent or trustee constituted under this Section 13.10 shall be personally liable by reason of any act or omission of any other agent, separate agent, co-agent or trustee hereunder; and (v) Agent, at any time by an instrument in writing, executed by it, may accept the resignation of or remove any such separate agent or co-agent or trustee of Agent, and in that case, by an instrument in writing executed by Agent and Borrower (to the extent necessary or requested by Agent) jointly may appoint a successor to such separate agent or co-agent or trustee, as the case may be, anything therein contained to the contrary notwithstanding. In the event that Borrower shall not have joined in the execution of any such instrument with a Person or entity within ten (10) days after the receipt of a written request from Agent to do so, Agent, acting alone, may appoint a successor and may execute any instrument in connection therewith, and Borrower hereby irrevocably appoints Agent its agent and attorney to act for it in such connection in either of such contingencies. In the event that Borrower shall not have joined in the execution of such instruments or agreements with any Approved Delegate within thirty (30) Business Days after the receipt of a written request from Agent to do so, Borrower hereby irrevocably appoints Agent as its agent and attorney to act for it under the foregoing provisions of this Section 13.10 in such contingency, it being understood that the power of attorney granted hereunder is coupled with an interest. (b) Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel, and other specialists and advisors (including affiliates of such Agent) selected by it, concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any such agents, attorneys-in-fact, counsel and other specialists and advisors selected by it with reasonable care. 13.11 AGENT'S RESPONSIBILITIES. (a) Each subsequent holder of any Note by its acceptance thereof irrevocably joins in the designation of TFC as agent for Lenders as provided herein with the same force and effect as if it were an original Lender hereunder and signatory hereto. TFC hereby accepts such designation and appointment as agent. Agent, acting as such under the provisions of this Agreement, or under any other instrument or document delivered pursuant hereto, shall not be liable or responsible, directly or indirectly, for any action taken, or omitted to be taken, by it in good faith, nor shall Agent be liable or responsible for the consequences of any oversight or error of judgment on its part, but Agent shall only be liable or responsible for any loss suffered by any of Lenders hereunder provided such loss was caused by Agent's gross negligence or willful misconduct. Agent shall not, by any action or inaction hereunder, be deemed to make any representation or warranty regarding the legality, legal effect or sufficiency of any act of Borrower in connection with, or under any of the provisions of, this Agreement, or any instrument or document delivered pursuant thereto, or the validity or enforceability of any instrument or document furnished to Agent pursuant to this Agreement. Agent shall have no liability or responsibility in connection with the collection or payment of any sums due to Lenders by Borrower, the sole responsibility of Agent being to account to Lenders only for monies actually received by it. Agent shall have no obligation to make any application of any funds received by it until such funds are immediately available at Agent's office. Any monies received by Agent need not be segregated from other funds except to the extent required by law, and Agent shall not be liable for interest on any funds received by it. Agent shall not be charged with knowledge of any facts which would prohibit the making of any payment of monies in accordance with the provisions of this Agreement unless and until Agent shall have received written notice thereof at its office from Borrower or any Lender. The duties of Agent shall be mechanical and administrative in nature, Agent shall not, by reason of this Agreement, be deemed a fiduciary in respect of Lenders, and nothing in this Agreement shall impose upon Agent any obligations in respect of this Agreement except as expressly herein set forth. (b) Agent shall have the right to exercise all the rights granted to, and exercisable by, it under this Agreement and any instrument or document delivered pursuant to this Agreement, in such manner from time to time, as Agent in its sole discretion, shall deem proper. (c) Agent agrees to provide each Lender with notice (and copies of documents, as appropriate) of the following: (i) Agent's actual knowledge that any event or condition exists that would permit a Lender to refuse to make an Advance (including but not limited to those events or conditions provided in Sections 2.1(a) and 2.1(b) hereof); (ii) Agent's receipt of any notice from any party to the Intercreditor Agreement; (iii) Agent's receipt of any notice or request from Borrower regarding a proposed modification, waiver or consent, provided, however, Agent shall not be required to provide notice unless Agent finds such proposed modification, waiver or consent acceptable and intends to recommend approval of such proposed modification, waiver or consent to the Lenders; (iv) Failure of any Lender to make a required Advance or other accommodation within ten (10) business days of the time period specified in Section 2.1(f) hereof; (v) Notice of Heller or Sovereign ceasing to make advances under their respective loan facilities, or TFC ceasing or refusing to make advances under the Additional Credit Facility or the Tranche C Facility; (vi) Copies of any information/notices provided to Agent by Borrower pursuant to Sections 5.1(a), 7.1(h), 7.1(i), 7.1(m) 7.1(o), 7.1(s) and 7.1(dd) hereof; and (vii) Reasonable prior written notice of Agent's intent to exercise its rights under Section 7.1(g). The scope of any examination, audit or inspection conducted by Agent pursuant to said Section 7.1(g) (including but not limited to setting the parameters of any sample pool that is the subject of such examination, audit or inspection) shall be reasonably acceptable to each Lender. (d) Except as otherwise provided in this Agreement, Agent shall be entitled, at its option, from time to time and at any time, to enter into any amendment of, or waive compliance with the terms of the Loan Agreement without obtaining prior approval from any Lender, provided that, without the prior approval of each Lender in each instance, Agent may not: (i) reduce the principal amount of the Loan; (ii) change the Borrowing Base (advance rate) (provided, however, Agent may reduce the Borrowing Base for a limited time (not more than sixty (60) days) to adjust an over-advance circumstance); (iii) change the definition of Eligible Notes Receivable; (iv) decrease the Interest Rate; (v) extend the Final Maturity Date of the Loan; (vi) waive or excuse any payment; (vii) release any material Collateral or any material third party obligor (except as expressly authorized by this Agreement in the normal course of Borrower's business). (viii) waive an Event of Default; or (ix) waive any of the Advance requirements set forth in Section 5.1. Notwithstanding the foregoing, Agent may take any such actions referred to in such preceding sentences and each Lender shall be bound thereby, with the consent of such Lenders (including Agent as a Lender for this purpose) whose total Pro Rata Payment Percentage is equal to or exceeds sixty-six and two-thirds percent (66 2/3%) of the outstanding principal balance of the Loan. Notwithstanding the foregoing, in the event that a Lender does not consent to any of the amendments or waivers requiring sixty-six and two-thirds percent (66 2/3%) consent under the previous paragraph, then such Lender shall not be obligated to fund any additional Advances hereunder but it shall continue to receive its Pro Rata Payment Percentage of each repayment of principal and interest on the Loan in accordance with the terms of this Agreement and shall be repaid in full over a period not to exceed the then existing Final Maturity Date under the Loan. Furthermore, in the event a Lender does not consent to any amendment or waivers regarding: (i) reduction of the principal amount of the Loan; (ii) reduction in the release price as to any Collateral or any other change with regard to release of Collateral; (iii) reduction of the Interest Rate; (iv) any express change in the Effective Advance Rate which adversely impacts the Collateral as to such Lender; or (v) any subordination or release of any material Collateral, except as set forth in this Agreement or the Loan Documents, then in any of such events any such modification shall be applicable only to new money advanced by Agent and such changes shall not be applicable in any way to the existing balance due under the Loan as of the date of such change. Notwithstanding anything to the contrary contained in this Section 13.11(d), Agent may, in its sole and absolute discretion, require that the Lenders (including TFC) unanimously consent to the approval of any such action(s) referred to in this Section 13.11(d) before any such action(s) is taken. Borrower acknowledges and agrees that in the event that a Lender does not consent to any of the amendments or waivers requiring sixty-six and two-thirds percent (66 2/3%) consent under the previous paragraph and such Lender is not obligated to fund any additional Advances hereunder, the Maximum Available Amount shall be reduced by an amount equal to the amount of any unused portion of such Lender's Commitment. 13.12 POWER OF ATTORNEY. Each Lender does hereby irrevocably constitute and appoint Agent as its true and lawful agent and attorney-in-fact, with full power of substitution, for and in its name, place and stead, or otherwise, to (a) demand and receive from time to time any and all property, rights, titles, interests and liens hereby sold, assigned and transferred, or intended so to be, and to give receipts for same, (b) from time to time to institute and prosecute in Agent's own name any and all proceedings at law, in equity, or otherwise, that Agent may deem proper in order to collect, assert or enforce any claim, right or title, of any kind, in and to the property, rights, titles, interests and liens hereby sold, assigned or transferred, or intended so to be, and to defend and compromise any and all actions, suits or proceedings in respect of any of the said property, rights, titles, interests and liens, and (c) generally to do all and any such acts and things in relation to the Loans, the Collateral and this Agreement as Agent shall in good faith deem advisable. Each Lender hereby declares that the appointment made and the powers granted pursuant to this Section 13.12 are coupled with an interest and are and shall be irrevocable by it in any manner, or for any reason, unless and until the repayment in full of the Obligation. 13.13 RATIFICATION AND CONFIRMATION. Borrower hereby ratifies, confirms, assumes and agrees to be bound by all statements, covenants and agreements set forth in the Original Agreement and the other Loan Documents. Borrower reaffirms, restates and incorporates by reference all of the covenants and agreements made in the Loan Documents as if the same were made as of this date. Borrower agrees to pay the Loan and all related expenses, as and when due and payable in accordance with this Agreement and the other Loan Documents, and to observe and perform the Obligations, and do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default. In addition, to further secure, and to evidence and confirm the securing of, the prompt and complete payment and performance by Borrower of the Loan and all of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and grants to Agent, and hereby confirms or reaffirm the prior granting to Agent of, a continuing first priority Lien, mortgage and security interest in and to all of the Collateral, whether now existing or hereafter acquired. Also, as provided in the Loan Documents, the Loan is and shall be further secured by the Liens and security interests in favor of Agent in the properties and interests relating to Additional Eligible Resorts, which now or hereafter serve as collateral security for any Obligations. On the date hereof and thereafter upon satisfaction of the requirements for approval by Agent of Additional Resorts, Borrower shall record, or cause to be recorded, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements in the appropriate public records of the state in which each Resort is located to further evidence and perfect Agent's Lien on the Collateral. Borrower agrees to deliver or cause to be delivered by its Affiliates, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements as Agent may deem necessary to further evidence and perfect Agent's Lien on the Collateral. 13.14 ESTOPPEL. Borrower acknowledges, agrees and confirms that: (a) Advances under the Original Agreement have been made prior to the date hereof; (b) all such Advances made prior to the date hereof were made in favor of the Original Borrower and Borrower in respect of the Existing Eligible Resorts; (c) Advances made prior to the date hereof under the Original Agreement are deemed as having been made for the benefit of Borrower and Borrower acknowledges and agrees that Borrower received a direct and substantial financial benefit from such Advances and (d) immediately prior to the date hereof, and without giving effect to any Advances that may be made pursuant to this Agreement, the status of the Loan, including the outstanding principal balance thereof is as reflected in the Loan Funding Report delivered to and approved by Agent, a copy of which is attached as Exhibit J. The Loan constitutes valuable consideration to Borrower, which consideration is uninterrupted and continuous since the dates on which the Loan was first made. This Agreement and the other Loan Documents and the Loan modifications and transactions provided for or contemplated hereunder or thereunder, shall in no way adversely affect the Lien or perfection or priority of any Lien of Agent as of the date hereof in and to any Collateral, and are not intended to constitute, and do not constitute or give rise to, any novation, cancellation or extinguishment of any of Borrower's Obligations existing as of the Closing Date to Agent, or of any interests owned or held by Agent (and not previously released) in and to any of the Collateral; it being the intention of the parties that the transactions provided for or contemplated herein shall be effectuated without any interruption in the continuity of the value and consideration received by Borrower, and of the attachment, perfection, priority and continuation in favor of Agent in and to all Collateral and proceeds. 13.15 PARTICIPATION AGREEMENT. Nothing in this Section 13 shall affect or limit any of the Participants' rights or Agent's obligations under each Participant's respective participation agreement with the Agent. SECTION 14 - SPECIAL CONDITIONS 14.1 EFFECTIVE DATE. BORROWER ACKNOWLEDGES, AGREES AND CONFIRMS THAT THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING ANY OBLIGATION OF LENDERS TO MAKE ANY ADVANCE HEREUNDER, SHALL NOT BECOME EFFECTIVE UNTIL THE EFFECTIVE DATE, AS SUCH TERM IS HEREINAFTER DEFINED. FOR PURPOSES OF THIS AGREEMENT, THE TERM "EFFECTIVE DATE" SHALL MEAN THE DATE ON WHICH AGENT DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT EACH OF THE CONDITIONS SET FORTH IN SECTION 4 HEREOF HAVE BEEN SATISFIED, INCLUDING BUT NOT LIMITED TO: (i) THE CLOSING OF THE DZ FACILITY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE DZ LETTER AGREEMENT AND THE BUSINESS PLAN; (ii) THE CONSUMMATION OF THE BOND HOLDER EXCHANGE TRANSACTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE BOND HOLDER EXCHANGE LETTER AND THE BUSINESS PLAN; (iii) THE APPROVAL OF THIS AGREEMENT (AND THE MODIFICATION OF THE ORIGINAL AGREEMENT AS CONTEMPLATED HEREIN) BY EACH LENDER AND PARTICIPANT; AND (iv) THE CLOSING OF THE SOVEREIGN FACILITY AND HELLER FACILITY IN ACCORDANCE WITH THE BUSINESS PLAN. IN THE EVENT THAT THE EFFECTIVE DATE DOES NOT OCCUR ON OR BEFORE MAY 31, 2002, THEN THIS AGREEMENT, AND ALL OF THE OBLIGATIONS OF AGENT AND LENDERS HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ANY ADVANCE HEREUNDER SHALL BE VOID AB INITIO, AS IF THIS AGREEMENT WAS NEVER ENTERED INTO. IN SUCH EVENT, THE LOAN, AND THE RIGHTS AND OBLIGATIONS OF BORROWER WITH RESPECT THERETO, SHALL BE GOVERNED IN ALL RESPECTS BY THE TERMS AND CONDITIONS SET FORTH IN THE ORIGINAL LOAN AGREEMENT, AS MODIFIED BY THE FORBEARANCE AGREEMENT. BORROWER EXPRESSLY ACKNOWLEDGES, AGREES AND CONFIRMS THAT TIME IS OF THE UTMOST ESSENCE WITH RESPECT TO THE EFFECTIVE DATE OCCURRING ON OR BEFORE MAY 31, 2002. ON THE EFFECTIVE DATE, AND SO LONG AS EACH CONDITION PRECEDENT SET FORTH IN THIS AGREEMENT HAS BEEN SATISFIED, THE LENDERS AGREE TO WAIVE ALL PRIOR DEFAULTS AND EVENTS OF DEFAULT UNDER THE ORIGINAL LOAN AGREEMENT, INCLUDING BUT NOT LIMITED TO THE SPECIFIED EVENTS OF DEFAULT PROVIDED IN THE FORBEARANCE AGREEMENT. 14.2 DZ BANK FACILITY CONDITIONS. Agent, for itself and on behalf of each Lender, acknowledges and agrees that: (i) the transfer of Notes Receivable to Silverleaf Finance I, Inc. in connection with the DZ Facility is a true sale and not a financing transaction; (ii) no Lender or Agent will consolidate Silverleaf Finance I, Inc. with the Borrower in the event of a bankruptcy; and (iii) no Lender or Agent will take any action to the contrary in the case of a bankruptcy of Borrower or otherwise. 14.3 RELEASE. IN ORDER TO INDUCE AGENT, LENDERS AND PARTICIPANTS TO ENTER INTO THIS AGREEMENT, BORROWER ACKNOWLEDGES AND AGREES THAT: (i) BORROWER HAS NO CLAIM OR CAUSE OF ACTION AGAINST AGENT, ANY LENDER OR ANY PARTICIPANT (OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS); (ii) BORROWER HAS NO OFFSET RIGHT, COUNTERCLAIM OR DEFENSE OF ANY KIND AGAINST ANY OF ITS OBLIGATIONS, INDEBTEDNESS OR LIABILITIES TO AGENT, ANY LENDER OR ANY PARTICIPANT; AND (iii) EACH OF AGENT, LENDERS AND PARTICIPANTS HAS HERETOFORE PROPERLY PERFORMED AND SATISFIED IN A TIMELY MANNER ALL OF ITS OBLIGATIONS TO BORROWER. BORROWER WISHES TO ELIMINATE ANY POSSIBILITY THAT ANY PAST CONDITIONS, ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS WOULD IMPAIR OR OTHERWISE ADVERSELY AFFECT AGENT'S, ANY OF LENDERS' OR ANY OF PARTICIPANTS' RIGHTS, INTERESTS, CONTRACTS, COLLATERAL SECURITY OR REMEDIES. THEREFORE, BORROWER UNCONDITIONALLY RELEASES, WAIVES AND FOREVER DISCHARGES (A) ANY AND ALL LIABILITIES, OBLIGATIONS, DUTIES, PROMISES OR INDEBTEDNESS OF ANY KIND OF AGENT, ANY LENDER OR ANY PARTICIPANT TO BORROWER, EXCEPT THE OBLIGATIONS TO BE PERFORMED BY AGENT, ANY LENDER OR ANY PARTICIPANT ON OR AFTER THE DATE HEREOF AS EXPRESSLY STATED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) ALL CLAIMS, OFFSETS, CAUSES OF ACTION, SUITS OR DEFENSES OF ANY KIND WHATSOEVER (IF ANY), WHETHER ARISING AT LAW OR IN EQUITY, WHETHER KNOWN OR UNKNOWN, WHICH BORROWER MIGHT OTHERWISE HAVE AGAINST AGENT, ANY LENDER ANY PARTICIPANT OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, IN EITHER CASE (A) OR (B), ON ACCOUNT OF ANY PAST OR PRESENTLY EXISTING CONDITION, ACT, OMISSION, EVENT, CONTRACT, LIABILITY, OBLIGATION, INDEBTEDNESS, CLAIM, CAUSE OF ACTION, DEFENSE, CIRCUMSTANCE OR MATTER OF ANY KIND. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, Borrower and Agent, for itself and as agent for each of the Lenders, have caused this Agreement to be duly executed and delivered effective as of the date first above written. BORROWER: SILVERLEAF RESORTS, INC., a Texas corporation /s/ Patricia K. Dorey By: /s/ Harry J. White, Jr. - ---------------------------------- ------------------------------------- Name: Harry J. White, Jr. Title: CFO LENDER: TEXTRON FINANCIAL CORPORATION, a Delaware corporation [illegible] By: /s/ John T. Dannibale - ---------------------------------- ------------------------------------- Name: John T. Dannibale Title: VP AGENT: TEXTRON FINANCIAL CORPORATION, a Delaware corporation as Agent for each Financial Institution listed on Schedule A [illegible] By: /s/ John T. Dannibale - ---------------------------------- ------------------------------------- Name: John T. Dannibale STATE OF TEXAS ) ) ss: COUNTY OF DALLAS ) The foregoing instrument was acknowledged before me this 24th day of April, 2002 by Harry J. White, Jr., CFO of Silverleaf Resorts, Inc., a Texas corporation, on behalf of the Corporation. /s/ R. Laine Close ------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: STATE OF CONNECTICUT ) ) ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by John T. Dannibale, VP of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Mary F. Rittlinger ------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: August 31, 2004 STATE OF CONNECTICUT ) ) ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by John T. Dannibale, VP of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Mary F. Rittlinger ------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: August 31, 2004 Exhibits: Schedule A Description of Lenders EX-10.5 11 d00253exv10w5.txt AMENDED/RESTATED LOAN, SECURITY & AGENCY AGREEMENT EXHIBIT 10.5 AMENDED AND RESTATED LOAN, SECURITY AND AGENCY AGREEMENT (TRANCHE B) among SILVERLEAF RESORTS, INC. (as Borrower) BANK OF SCOTLAND WEBSTER BANK and THE PARTIES WHICH HEREAFTER EXECUTE THIS AGREEMENT (as Lenders) and TEXTRON FINANCIAL CORPORATION (as Lender and Facility and Collateral Agent) As of April 30, 2002 AMENDED AND RESTATED LOAN, SECURITY AND AGENCY AGREEMENT (TRANCHE B) THIS AMENDED AND RESTATED LOAN, SECURITY AND AGENCY AGREEMENT (TRANCHE B), dated as of April 30, 2002, entered into by and among SILVERLEAF RESORTS, INC. (as "Borrower"), the parties, including TEXTRON FINANCIAL CORPORATION ("TFC"), a Delaware corporation and BANK OF SCOTLAND, which execute and deliver this Agreement in their respective capacities as lenders hereunder (collectively, the "Lenders" and each individually, a "Lender") and TEXTRON FINANCIAL CORPORATION as facility agent and collateral agent ("Agent"). WITNESSETH: WHEREAS, Agent and Borrower were parties to that certain Loan, Security and Agency Agreement dated as of December 16, 1999, pursuant to which the Borrower executed its Secured Promissory Note in favor of the Agent, as agent for Lenders, in the amount of $71,000,000.00, as amended to date (the "ORIGINAL NOTE"); WHEREAS, Agent and Borrower entered into a First Amendment to Loan, Security and Agency Agreement dated as of April 17, 2001 (the "FIRST AMENDMENT") to, among other things, incorporate the terms of a certain Forbearance Agreement dated as of April 6, 2001; and WHEREAS, pursuant to the First Amendment the Original Note was replaced by an Amended and Restated Secured Promissory Note in the original principal amount of $61,000,000 in favor of TFC (the "TFC Note") and a Secured Promissory Note in the original principal amount of $10,000,000 in favor of Bank of Scotland (the "BOS Note", and together with the TFC Note, singly and collectively the "Note"). WHEREAS, the Lenders and Borrower have agreed to enter into this Agreement, as such term is hereafter defined, to restructure and modify the Loan, including separating the Loan into two separate components - the Revolving Loan Component in the amount of up to $56,104,200.00 and the Term Loan Component in the amount of up to $14,895,800.00; WHEREAS, pursuant to this Agreement, the Commitment, as such term is hereinafter defined, shall be reduced to $63,022,000.00 less the outstanding principal balance of the Term Loan Component from time to time and the aggregate Commitment hereunder, under the Additional Credit Facility and the Tranche C Facility, as such terms are hereinafter defined, shall be reduced to $136,000,000.00 less the outstanding principal balance of the Term Loan Component and the aggregate term loan component of the Additional Credit Facility and the Tranche C Facility from time to time; WHEREAS, pursuant to this Agreement, the Original Note will be replaced by: (i) an Amended and Restated Secured Promissory Note or Notes in the aggregate original principal amount of $56,104,200.00 in favor of Agent, as agent for each of the Lenders (singly and collectively the "REVOLVING LOAN COMPONENT NOTE") and (ii) a Secured Promissory Note or Notes in the aggregate original principal amount of $14,895,800.00 in favor of Agent, as agent for each of the Lenders (singly and collectively the "TERM LOAN COMPONENT NOTE", and together with the Revolving Loan Component Note, sometimes referred to herein singly and collectively as the "NOTE"); WHEREAS, in connection with the Loans to be made by Lenders pursuant to this Agreement, Textron Financial Corporation has agreed to act as facility agent and collateral agent for the other Lenders and to perform such duties with respect to the Loans as are expressly set forth herein; WHEREAS, the Lenders and Borrower have agreed to enter into this Agreement to amend and restate the Original Agreement; and WHEREAS, Borrower acknowledges, agrees and confirms that if Borrower fails to satisfy any of the conditions set forth in Section 4 hereof, as determined by TFC, in its sole and absolute discretion, on or before May 31, 2002, then this Agreement, and the obligations of TFC and each Lender hereunder, shall be null and void in all respects AB INITIO. In such event, the terms and conditions of the Original Loan Agreement, as modified by the Forbearance Agreement, shall continue to control with respect to the Loan; Borrower further acknowledges, confirms and agrees that until such time as Borrower has satisfied all of the conditions set forth in Section 4 hereof, as determined by TFC, in its sole and absolute discretion, the Loan shall continue to be governed by the terms and provisions set forth in the Original Loan Agreement, as modified by the Forbearance Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties to this Agreement, intending to be legally bound, agree as follows: SECTION 1 -- DEFINITION OF TERMS 1.1 Capitalized terms used in this Agreement are defined in this Section 1.1. The definitions include the singular and plural forms of the terms defined. (a) ADDITIONAL CREDIT FACILITY. The term "Additional Credit Facility" shall mean that certain $72,000,000.00 credit facility (also known as the "TRANCHE A CREDIT FACILITY") provided by TFC and certain other Persons to Borrower pursuant to that certain Amended and Restated Loan, Security and Agency Agreement (Tranche A) dated of even date herewith by and among Borrower, TFC and each Person which executes such agreement as a lender, as it may be amended from time to time (the "ADDITIONAL CREDIT FACILITY LOAN AGREEMENT"). (b) ADDITIONAL ELIGIBLE RESORTS or ADDITIONAL ELIGIBLE RESORT. The terms "Additional Eligible Resorts" and "Additional Eligible Resort" shall have the meanings ascribed to such terms in Section 3.7 hereof. (c) ADDITIONAL RESORT COLLATERAL. The term "Additional Resort Collateral" shall mean singly and collectively, the development rights, real property, fixtures and other personal property, including all management agreements for the Resorts, now owned or hereafter acquired by Borrower and described on Schedule 1.1(c) attached hereto. "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc., that constitute "Pledged Assets" under the DZ Documents. (d) ADDITIONAL RESORT COLLATERAL MORTGAGES. A properly recorded, first priority mortgage, deed of trust, deed to secure debt or other security instrument, as applicable, executed and delivered by Borrower to Agent, as agent on behalf of each Lender, encumbering all of the right, title and interest of Borrower in that portion of the Additional Resort Collateral constituting real property. (e) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. The term "Additional Resort Collateral Assignments" shall mean singly and collectively: (i) a first priority security agreement executed and delivered by Borrower to Agent, on behalf of each Lender, granting to Agent, on behalf of each Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting personal property, and (ii) a first priority security agreement executed and delivered by Borrower to Agent, on behalf of each Lender, granting to Agent, on behalf of each Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting development rights. (f) ADVANCE. A portion of the proceeds of the Loans advanced from time to time by Lenders to Borrower in accordance with the terms of this Agreement. (g) AFFILIATE. Any party controlled by, controlling, or under common control with, Borrower. (h) AGREEMENT. This Amended and Restated Loan, Security and Agency Agreement by and among Borrower, Agent and each Lender which executes this Agreement (including the Exhibits and Schedules to it), as it may be amended from time to time. (i) ASSIGNMENT OF MANAGEMENT AGREEMENTS. The term "Assignment of Management Agreements" shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Agent, of all of Borrower's rights under each management agreement for the Resorts. (j) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. The term "Assignment of Notes Receivable and Mortgages" shall mean a recordable Collateral Assignment of Notes Receivable and Mortgages, in the form attached hereto as Exhibit A, made by Borrower in favor of Agent, as collateral agent for each Lender, evidencing the assignment to Agent, as collateral agent for each Lender, of all of the Pledged Notes Receivable and Mortgages. Each such assignment shall, from and after the date hereof, indicate by notation on the first page thereof that it is either a "Tranche B-Revolving Loan Component" assignment or a "Tranche B-Term Loan Component" assignment. (k) BOND HOLDER EXCHANGE TRANSACTION. The term "Bond Holder Exchange Transaction" shall mean that certain senior subordinate note holder exchange transaction on the terms and conditions outlined in that certain term sheet dated October 19, 2001 (the "BOND HOLDER EXCHANGE TRANSACTION LETTER"), a copy of which is attached hereto as Exhibit E, and which is to be consummated pursuant to the documents listed on Schedule 1.1(k) hereto (the "BOND HOLDER EXCHANGE DOCUMENTS"). (l) BORROWING BASE. With respect to each Eligible Note Receivable, pledged to Agent hereunder in connection with each Advance under the Revolving Loan Component from and after the date hereof, an amount equal to seventy-five percent (75%) of the remaining principal balance of each such Eligible Note Receivable. Notwithstanding anything herein to the contrary, the total aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent shall not exceed the Maximum Effective Advance Rate, as such term is defined herein. (m) BUSINESS PLAN. The term "Business Plan" shall mean the five (5) year "Stand Alone" business plan prepared by Borrower and attached hereto as Exhibit F. The Business Plan includes the "Impact on Lenders Worksheet" setting forth the amounts to be advanced by each of the Lenders, Heller and Sovereign pursuant to their respective credit facilities (the "SENIOR LENDER ADVANCE SCHEDULE"). (n) CASH AND CASH EQUIVALENTS. Unrestricted (i) cash; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Rating Group or P-1 (or better) by Moody's Investor Service, Inc. provided that the maturities of such Cash and Cash Equivalents shall not exceed one year. (o) CODE. The Uniform Commercial Code in force in the State of Rhode Island as amended from time to time. (p) COLLATERAL. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following: (i) Pledged Notes Receivable (including all Notes Receivable comprising the Ineligible Note Portfolio) and all proceeds of or from them; (ii) Mortgages and all proceeds of or from them (including the Mortgages securing the Notes Receivable comprising the Ineligible Note Portfolio); (iii) Documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable (including any relating to the Ineligible Note Portfolio) and the related Mortgages; (iv) the Land; (v) the Additional Resort Collateral; (vi) the Silverleaf Finance I, Inc. Stock; (vii) INTENTIONALLY OMITTED; (viii) the Standby Servicing Agreement; (ix) the Standby Management Agreement; (x) All collateral under the Additional Credit Facility, the Heller Facility, the Sovereign Facility, the Tranche C Facility and the Inventory Loan, as each such term is herein defined; (xi) Intentionally Omitted; (xii) All books, records, reports, computer tapes, disks and software relating to the Collateral; and (xiii) Extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof. (q) COMMITMENT. The term "Commitment" shall refer singly to the obligation of each Lender to make a Loan or Loans under the Revolving Loan Component to Borrower in an aggregate amount not to exceed the Pro Rata Percentage for each Lender of each Advance and collectively to all Loans to be made by all Lenders under the Revolving Loan Component as provided herein. The maximum aggregate Commitment of the Lenders hereunder shall not exceed (i) $63,022,000.00 minus (ii) the outstanding principal balance of the Term Loan Component from time to time. The Commitment and the Maximum Available Amount shall be subject to reduction as provided in Section 2.1(a). The maximum aggregate Commitment under this Agreement, the Additional Credit Facility and the Tranche C Facility shall be $136,000,000.00 less the outstanding principal balance of the Term Loan Component and the aggregate term loan component of the Additional Credit Facility and the Tranche C Facility from time to time, which maximum aggregate Commitment shall be reduced as provided in Section 2.1(a). (r) COMMON ELEMENTS. All common elements, including but not limited to any limited common elements, as each such common element is defined or provided for in the Declaration or other Timeshare Documents. (s) DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar law, proceeding or device providing for the relief of debtors from time to time in effect and generally affecting the rights of creditors. (t) DECLARATION OR DECLARATIONS. With respect to each Resort, the applicable Declaration or Declarations described on Schedule 1.1(t) attached hereto. (u) DEFAULT. An event or condition the occurrence of which immediately is or, with a lapse of time or the giving or notice or both, becomes an Event of Default. (v) DEFAULT RATE. The term "Default Rate" shall have the meaning given to such term in the Note. (w) DZ FACILITY. The term "DZ Facility" shall mean that certain note purchase facility to be provided by DZ Bank AG Deutsche Zentral-Genossenschaftsbank, as agent for Autobahn Funding Company, LLC ("DZ") to Borrower, on the terms outlined in the DZ Letter Agreement, dated December 12, 2001, as supplemented by that certain letter agreement by and between Borrower and DZ dated February 7, 2002, and attached hereto as Exhibit G (collectively, the "DZ LETTER AGREEMENT") and evidenced by the documents listed on Schedule 1.1(w) hereto (the "DZ DOCUMENTS"). (x) DIVISION OR COMMISSION. The governmental authority of each state in which a Resort is located, having jurisdiction over the establishment and operation of the Resort in question and the sale of Intervals at such Resort. (y) EBITDA. The term EBITDA means, with respect to any Person for any period: (a) the sum of (i) net income (but excluding any extraordinary gains or losses or any gains or losses from the sale or disposition of assets other than in the ordinary course of business), (ii) interest expense, (iii) depreciation and amortization and other non-cash items properly deducted in determining net income, and (iv) federal, state and local income taxes, in each case for such Person for such period, computed and calculated in accordance with GAAP minus (b) non-cash items properly added in determining net income, in each case for the corresponding period. (z) EFFECTIVE ADVANCE RATE. The term "Effective Advance Rate" shall mean the aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder. The Effective Advance Rate shall at no time exceed 95% (the "Maximum Effective Advance Rate"). In addition, the Effective Advance Rate determined with respect to the aggregate of the Loan, the Additional Credit Facility and the Tranche C Facility (collectively "TFC's Facilities") shall at no time exceed 95% of the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to TFC, as agent or lender as applicable, under TFC's Facilities. (aa) EFFECTIVE DATE. The term "Effective Date" shall have the meaning given in Section 14.1 hereof. (bb) ELIGIBLE NOTES RECEIVABLE. Those Pledged Notes Receivable which satisfy each of the following criteria: (i) Borrower shall be the sole payee; (ii) it arises from a bona fide sale by Borrower of one or more Intervals; (iii) the Interval sale from which it arises shall not have been cancelled by Purchaser, and any statutory or other applicable cancellation or rescission period shall have expired and the Interval sale is otherwise in compliance with this Agreement; (iv) it is secured by a Mortgage on the purchased Interval; (v) principal and interest payments on it are payable to Borrower in legal tender of the United States; (vi) payments of principal and interest on it are payable in equal monthly installments; (vii) it shall have an original term of no more than one hundred twenty (120) months; (viii) a cash down payment has been received from Purchaser or the maker in an amount equal to at least ten percent (10%) of the actual purchase price of each Interval, and Purchaser shall have received no cash or other rebates of any kind; (ix) the average number of monthly payments made by all Purchasers pursuant to all Eligible Notes Receivable pledged hereunder shall at all times be at least seven (7) monthly payments; (x) no monthly installment is more than thirty (30) days contractually past due at the time of an Advance in respect of such Eligible Note Receivable, or more than sixty (60) days contractually past due at any time; (xi) the rate of interest payable on the unpaid balance is at least the rate required so that when the Advance is made in respect of such Eligible Note Receivable the average interest rate on all Eligible Notes Receivable in respect of which Advances are outstanding shall not be less than twelve and one-half percent (12.5%) per annum at any time; (xii) Purchaser of the related Interval has immediate access, for the timeshare "unit week" related to such purchase, to the Interval described in the Mortgage securing such Eligible Note Receivable, which Interval has been completed, developed, and furnished in accordance with the specifications provided in the Purchaser's purchase contract, public offering statement and other Timeshare Documents; and Purchaser has, subject to the terms of the Declaration, purchase contract, public offering statement and other Timeshare Documents, complete and unrestricted access to the related Interval and the Resort; (xiii) neither Purchaser of the related Interval or any other maker of the Note is an Affiliate of, or related to, or employed by Borrower; (xiv) Purchaser or other maker has no claim against Borrower and no defense, set-off or counterclaim with respect to the Note Receivable; (xv) the maximum remaining principal balance of any such Note Receivable shall not exceed $25,000 and the total maximum remaining principal balance of the Notes Receivable executed by any one Purchaser or other maker shall not exceed $25,000 in the aggregate (or such greater amount as may be approved in writing in advance by Agent); (xvi) it is executed by a U.S. or Canadian resident; provided, however, that no more than ten percent (10%) of the outstanding principal balance of all Eligible Notes Receivable shall at any time be comprised of Notes Receivable executed by Canadian residents, and, to the extent such outstanding principal balance of such Notes exceeds ten percent (10%), they shall not be considered Eligible Notes Receivable; (xvii) the original of such Note Receivable has been endorsed to Agent and delivered to Agent as provided in this Agreement, and the terms thereof and all instruments related thereto shall comply in all respects with all applicable federal and state laws and the regulations promulgated thereunder; and (xviii) the Unit in which the timeshare Interval being financed or evidenced by such Note Receivable is located, shall not be subject to any Lien which is not previously consented to in writing by Agent. (xix) If the loan is a newly originated Eligible Note Receivable which is replacing an existing Eligible Note Receivable pledged as Collateral under the Agreement and the proceeds have been used to finance the purchase of an Interval which is being upgraded by the Purchaser to a more expensive Interval: (1) the principal balance of the existing Eligible Note Receivable which is being upgraded may still be included for purposes of calculating the Borrowing Base for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Note Receivable becomes thirty (30) or more days past due; (2) on or before the second business day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Note Receivable and in any event within ten (10) days of such upgrade, the Borrower shall deliver to the Agent or its designee the original of the new promissory note, comparable instrument or installment sale contract executed in connection with such upgrade duly endorsed in blank by the Borrower and the Borrower will cause all payments made with respect to such new promissory note, comparable instrument or installment sale contract to be forwarded to the lockbox; and (3) any new upgraded Note Receivable involving a prior Eligible Note Receivable shall only be included as part of the Borrowing Base if the prior Eligible Note Receivable has been removed from the Borrowing Base and the new upgraded Note Receivable satisfies all conditions for an Eligible Note Receivable. Notwithstanding anything herein to the contrary, Lenders shall be under no obligation to make Advances in respect of: (i) Crown Resorts Notes Receivable (i.e. Notes Receivable relating to intervals at the Crown Resorts listed on Schedule 4.5(c)(iii)) if Advances have already been made under this Loan, the Additional Credit Facility and/or the Tranche C Facility, in total, in respect of 681 Crown Resorts Notes Receivable, exclusive of [x] Notes Receivable relating to intervals at the Quail Hollow Resort and [z] any other Crown Resort Notes Receivable for which Borrower shall have delivered to Agent an acceptable Mortgagee Title Insurance Policy insuring the Mortgage securing such Crown Resort Note Receivable; and (ii) Notes Receivable from Oak N' Spruce Resort if any such Advance, together with any prior Advances made in respect of Notes Receivable from Oak N' Spruce Resort under this Loan Agreement, the Additional Credit Facility, the Tranche C Facility and/or the Inventory Loan would exceed, in the aggregate, $32,000,000.00. (cc) ENCUMBERED INTERVALS. The Intervals subject to the Mortgages. (dd) ENVIRONMENTAL LAWS. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended from time to time ("RCRA"), the Superfund Amendments and Reauthorization Act of 1986, as amended, the federal Clean Air Act, the federal Clean Water Act, the federal Safe Drinking Water Act, the federal Toxic Substances Control Act, the federal Hazardous Materials Transportation Act, the federal Emergency Planning and Community Right to Know Act of 1986, the federal Endangered Species Act, the federal Occupational Safety and Health Act of 1970, the federal Water Pollution Control Act, all state and local environmental laws, rules and regulations of each state in which a Resort or any of the Land is located, as all of the foregoing legislation may be amended from time to time, and any regulations promulgated pursuant to the foregoing; together with any similar local, state or federal laws, rules, ordinances or regulations either in existence as of the date hereof, or enacted or promulgated after the date of this Agreement, that concern the management, control, storage, discharge, treatment, containment, removal and/or transport of Hazardous Materials or other substances that are or may become a threat to public health or the environment; together with any common law theory involving Hazardous Materials or substances which are (or alleged to be) hazardous to human health or the environment, based on nuisance, trespass, negligence, strict liability or other tortious conduct, or any other federal, state or local statute, regulation, rule, policy, or determination pertaining to health, hygiene, the environment or environmental conditions. (ee) ENVIRONMENTAL INDEMNIFICATION AGREEMENT. The term "Environmental Indemnification Agreement" shall mean the Environmental Indemnification Agreement, in the form attached as Exhibit A, to be made by Borrower to Lenders pursuant to this Agreement, as the same may be amended from time to time. (ff) EURODOLLAR BUSINESS DAY. Eurodollar Business Day shall mean any day on which commercial banks are open for international business (including dealings in dollar deposits) in London, England. (gg) EXCHANGE COMPANY. Resort Condominiums International, Inc. ("RCI"). (hh) EVENT OF DEFAULT. Defined in Section 8.1 of this Agreement. (ii) FACILITY FEE. The term "Facility Fee" shall mean the facility fee set forth in the Fee Letter, which shall be payable in accordance with Section 2.7. (jj) FEE LETTER. The term "Fee Letter" shall mean that certain fee letter dated March 28, 2001, describing the Facility Fee. (kk) FINAL MATURITY DATE. The term "Final Maturity Date" shall mean, with respect to the Revolving Loan Component Note the earlier of (a) March 31, 2007 or (b) the weighted average maturity date of the Pledged Notes Receivable pledged as Collateral as of the end of the Revolving Loan Term, as determined by the Agent in its reasonable discretion, and with respect to the Term Loan Component Note, March 31, 2007. (ll) FINANCIAL STATEMENTS. The tax returns and balance sheets and statements of income and expense of Borrower, and the related notes and schedules delivered by Borrower to Lenders prior to the date of this Agreement (the "CLOSING DATE") and provided for in Section 4.5(c) of this Agreement; and the monthly, quarterly and annual financial statements and reports required to be provided to Lenders pursuant to Section 7.1(h) (i), (ii) and (iii). (mm) FORBEARANCE AGREEMENT. The term "Forbearance Agreement" shall mean that certain Forbearance Agreement dated April 6, 2001, by and among Borrower and Agent, as amended from time to time. (nn) FORBEARANCE TERMINATION EVENT. The term "Forbearance Termination Event" shall have the same meaning as the term "Termination Event" described in the Forbearance Agreement. (oo) GAAP. Generally accepted accounting principles, applied on a consistent basis, as described in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board which are applicable in the circumstances as of the date in question. (pp) HAZARDOUS MATERIALS. "Hazardous substances," "hazardous waste" or "hazardous constituents," "toxic substances", or "solid waste", as defined in the Environmental Laws, and any other contaminant or any material, waste or substance which is petroleum or petroleum based, asbestos, polychlorinated biphenyls, flammable explosives, or radioactive materials. (qq) HELLER FACILITY. The term "Heller Facility" shall mean, singly and collectively, those certain credit facilities provided by Heller Financial Corporation ("HELLER") to Borrower pursuant to the documents listed on Schedule 1.1 (qq) hereto (the "HELLER DOCUMENTS"). (rr) INELIGIBLE NOTE PORTFOLIO. The term "Ineligible Note Portfolio" shall mean certain of Borrower's Notes Receivable and Mortgages which are not currently pledged to any other Person, which are listed in Exhibit K attached hereto and which shall be held by Borrower, as agent for and on behalf of each Lender, unless and until an Event of Default shall occur, in which case the Ineligible Note Portfolio shall be delivered to Agent in accordance with Section 3.2 hereof. (ss) INTEREST RATE. The Interest Rate on the Revolving Loan Component Note shall be a variable rate, adjusted as of each LIBOR Determination Date, equal to the sum of LIBOR, determined as of each LIBOR Determination Date, plus three percent (3%) per annum, provided, however, that at no time shall the Interest Rate on the Revolving Loan Component Note be less than six percent (6%) per annum. The Interest Rate with respect to the Term Loan Component Note shall be a fixed rate of interest equal to eight percent (8%) per annum. (tt) INTERVAL. With respect to each Resort the undivided fractional fee interval ownership interest as a tenant-in-common (sometime referred to in the Timeshare Documents as a condoshare interest or condoshare week) in a Unit sold to a Purchaser by delivery of a deed for a time-share period per calendar year (or, in the case of a biennial use period, per alternate calendar year) of one week (as defined in the Declaration), together with all appurtenant rights and interests, including, without limitation, appurtenant rights in and to Common Elements, and easement, license, access and use rights in and to all Resort facilities and amenities (as described in the Declaration), all as more particularly described in the Declaration or other Timeshare Documents. Notwithstanding the foregoing, the term "Interval" shall also include, with respect to the Oak N' Spruce Resort only, the beneficial interest in the entity which owns each of the Units at the Oak N' Spruce Resort, as evidenced by the delivery to the Purchaser of any such beneficial interest of a certificate of beneficial interest for a timeshare period per calendar year (or, in the case of biennial use period, per alternate calendar year) of one week (as defined in the Oak N' Spruce Resort Declaration), together with all pertinent rights and interests, including, without limitation, a pertinent right in and to Common Elements, and easements, license, access and use rights in and to all Oak N' Spruce Resort facilities and amenities, all as more particularly described in the Declaration or other Timeshare Documents for the Oak N' Spruce Resort. (uu) INVENTORY LOAN. The term "Inventory Loan" shall mean that certain $10,000,000 time share interval inventory loan provided by TFC to Borrower pursuant to that certain Loan and Security Agreement dated December 16, 1999 by and between TFC and Borrower, as amended by the First Amendment to Loan and Security Agreement dated April 17, 2001 and as further amended by the Second Amendment to Loan and Security Agreement dated of even date herewith (the "INVENTORY LOAN AGREEMENT"). (vv) LAND. The term "Land" shall mean the real property described in Schedule 1.1(vv) hereof. (ww) LAND MORTGAGE OR LAND MORTGAGES. The term "Land Mortgage" or "Land Mortgages" shall mean singly and collectively, a properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument encumbering all of the right, title and interest of Borrower in the Land and securing the Loan, as modified and amended by mortgage modifications, in the form attached hereto as Exhibit A. (xx) LIEN. Any interest in property securing an obligation owed to, or claim by, a Person other than the owner of such property, whether such interest arises in equity or is based on the common law, statute, or contract. (yy) LIBOR shall mean, with respect to any LIBOR Rate Period, the rate per annum (rounded upwards, if necessary, to the nearest one-sixteenth (1/16th) of one percent (1%)) reported at 11:00 a.m. London time on the first day of each LIBOR Rate Period (or if such date is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day) (such date, the "LIBOR DETERMINATION DATE"), on Dow Jones Telerate Service Page 3750 (British Bankers Association Settlement Rate) as the non-reserve adjusted London Interbank Offered Rate for U.S. dollar deposits having a ninety (90) day term (or on such other page as may replace said Page 3750 on that service or such other service or services as may be nominated by the British Bankers Association for the purpose of displaying such rate, all as determined by Agent in its sole but good faith discretion). In the event that (i) more than one such LIBOR is provided, the average of such rates shall apply, or (ii) no such LIBOR is published, then LIBOR shall be determined from such comparable financial reporting company as Agent in its sole but good faith discretion shall determine. LIBOR for any LIBOR Rate Period shall be adjusted from time to time by increasing the rate thereof to compensate Agent and any Lender for any aggregate reserve requirements (including, without limitation, all basic, supplemental, marginal and other reserve requirements and taking into account any transitional adjustments or other scheduled changes in reserve requirements during any LIBOR Rate Period) which are required to be maintained by Agent or any Lender with respect to "Eurocurrency Liabilities" (as presently defined in Regulation D of the Board of Governors of the Federal Reserve System) of the same term under Regulation D, or any other regulations of a Governmental Authority having jurisdiction over Agent or any Lender of similar effect. (zz) LIBOR RATE PERIOD shall mean each successive ninety (90) day period during the Term. The initial LIBOR Rate Period shall commence on the date of the first Advance hereunder (or if such day is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day) and shall terminate on a date which is ninety days thereafter (or if such day is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day). Each LIBOR Rate Period after the initial LIBOR Rate Period shall commence on the first Eurodollar Business Day immediately following the expiration of the immediately preceding LIBOR Rate Period and shall terminate ninety days thereafter (or if such day is not a Eurodollar Business Day, the immediately preceding Eurodollar Business Day). (aaa) LOAN OR LOANS. The terms "Loan" and "Loans" mean, as the context requires, singly each loan and collectively all loans made by TFC to Borrower prior to the date hereof pursuant to the Original Loan Agreement. The term "Loan" shall also mean, as the context requires, collectively all Loans made by all Lenders to Borrower hereunder. From and after the Effective Date, the Loan shall consist of the Revolving Loan Component in the maximum amount of $56,104,200.00 and the Term Loan Component in the maximum amount of $14,895,800.00, which amounts shall be repaid as provided in Section 2.4 hereof. Notwithstanding the foregoing, in the event that TFC shall elect to fund any portion of the Loan without additional Lenders, the terms "Loan" and "Loans" mean singly each loan and collectively all loans previously made pursuant to the Original Loan Agreement and to be made by TFC to Borrower pursuant to this Agreement, subject to the limitations set forth in Section 2.9 hereof. (bbb) LOAN DOCUMENTS. Collectively, this Agreement and the following documents and instruments listed below as such agreements, documents, instruments or certificates may be amended, renewed, extended, restated or supplemented from time to time. (i) THIS AGREEMENT; (ii) THE ORIGINAL LOAN AGREEMENT; (iii) THE REVOLVING LOAN COMPONENT NOTE; (iv) THE TERM LOAN COMPONENT NOTE; (v) THE ENVIRONMENTAL INDEMNIFICATION AGREEMENT; (vi) THE ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES; (vii) BORROWER'S CERTIFICATE AND REQUEST FOR ADVANCE; (viii) THE LOCKBOX AGREEMENT; (ix) THE LAND MORTGAGE; (x) THE ADDITIONAL RESORT COLLATERAL MORTGAGES; (xi) THE ADDITIONAL RESORT COLLATERAL ASSIGNMENT; (xii) THE STOCK PLEDGE AGREEMENT; (xiii) ASSIGNMENT OF MANAGEMENT AGREEMENTS; (xiv) THE STANDBY MANAGEMENT AGREEMENT ASSIGNMENT; (xv) THE STANDBY SERVICING AGREEMENT ASSIGNMENT; (xvi) THE ASSIGNMENT OF MORTGAGES; (xvii) FINANCING STATEMENTS; UCC financing statements covering the Collateral, to be filed with the Texas Secretary of State and the Secretary of State and/or such other office where UCC financing statements are required to be filed pursuant to the Code; and (xviii) OTHER ITEMS; Such other agreements, documents, instruments, certificates and materials as Agent may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Agent, as agent for Lenders, contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, as such agreements, documents, instruments or certificates may be hereafter amended, renewed, extended, restated or supplemented from time to time. (ccc) LOAN YEAR. The period from the date that TFC determines in its sole discretion that all conditions set forth in Section 4 hereof have been satisfied, which date shall not be later than May 31, 2002, through March 31, 2003 and each twelve (12) calendar month period thereafter. (ddd) LOCKBOX AGENT. The JP Morgan Chase Bank, a New York banking association having a place of business at 2200 Ross Avenue, Dallas, Texas 75201, or such other financial institution as may be approved by Agent in writing from time to time. (eee) LOCKBOX AGREEMENT. The Lockbox and Servicing Agreement, dated as of December 16, 1999, by and among Borrower, Lenders, Agent, Servicing Agent and Lockbox Agent, pursuant to which the Lockbox Agent is to provide lockbox, reporting and related services and is to provide for the receipt of payments on the Notes Receivable and the disbursement of such payments to Agent. (fff) MARKETING AND SALES EXPENSES. Shall mean all promotion, lead generation, sales commissions and all other marketing expenses incurred or paid by Borrower pursuant to any marketing agreements or otherwise. (ggg) MANDATORY PREPAYMENT. Any prepayment required by Sections 2.4(a), 2.4(c), 2.4(d), 2.4(e) and 2.5(b) of this Agreement. (hhh) MORTGAGE. A properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument, as applicable, executed and delivered by each Purchaser to Borrower, securing a Pledged Note Receivable and encumbering all of the right, title and interest of such Purchaser in the related Encumbered Interval and Common Elements, and related or appurtenant easement, access and use rights and benefits. (iii) NET SECURITIZATION CASH FLOW. All right, title and interest of Silverleaf Finance I, Inc., a wholly owned subsidiary of Borrower, in any excess cash flow derived from the Notes Receivable sold by Silverleaf Finance I, Inc. to DZ pursuant to the DZ Documents. (jjj) NOTE. Singly and collectively, the Revolving Loan Component Note and the Term Loan Component Note. (kkk) NOTE RECEIVABLE. A promissory note executed in favor of Borrower in connection with a Purchaser's acquisition of an Interval. (lll) OBLIGATIONS. All amounts due or becoming due to each Lender in respect of the Loan or Loans under any of the Loan Documents, the Tranche C Facility, the Additional Credit Facility and the Inventory Loan, including principal, interest, prepayment premiums, contributions, taxes, insurance, loan charges, custodial fees, attorneys' and paralegals' fees and expenses and other fees or expenses incurred by a Lender or advanced to or on behalf of Borrower by a Lender pursuant to any of the Loan Documents, and the prompt and complete payment and performance by Borrower of all obligations, indebtedness and liabilities pursuant to this Agreement or any of the Loan Documents or otherwise (mmm) OPERATING CONTRACT OR OPERATING CONTRACTS. As defined in Section 6.20. (nnn) OPERATING EXPENSES. Shall mean the total of all expenditures, computed in accordance with Generally Accepted Accounting Principles, of whatever kind relating to the ownership, operation, maintenance and management of the Resorts that are incurred on a regular monthly or other periodic basis, including, without limitation, utilities, ordinary and capital repairs and maintenance, insurance premiums, license fees, property taxes and assessments, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Agent, and other similar costs. (ooo) PARTICIPANT. Participant shall mean, singly and collectively, any bank or other entity, which is indirectly or directly funding any Lender with respect to the Loan, in whole or in part, including, without limitation, any direct or indirect assignee of, or participant in, the Loan. (ppp) PAYMENT AUTHORIZATION AGREEMENT. Pre-authorized electronic debit agreement by Purchaser for payment of a Note Receivable. (qqq) PERSON. An individual, partnership, corporation, limited liability company, trust, unincorporated organization, other entity, or a government or agency or political subdivision thereof. (rrr) PLEDGED NOTES RECEIVABLE. Any Note Receivable which at any time has been pledged to Agent on behalf of Lenders by Borrower pursuant to this Agreement or any of the Loan Documents, including an Ineligible Note Receivable. (sss) PROPERTY OR PROPERTIES. Any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. (ttt) PRIME RATE. The highest prime rate of interest from time to time announced or published in the Money Rates column of the Wall Street Journal (Eastern Edition) (the "WSJ"). In the event that the prime rate announced or published in the WSJ shall no longer be available, due to the nonexistence of the WSJ or the WSJ's failure to publish or announce a prime rate, then the Prime Rate shall be the highest prime rate published by a major money center bank selected by Agent. (uuu) PRO RATA PERCENTAGE. The applicable percentage of the Loan that each Lender has agreed to make to Borrower pursuant to this Agreement. (vvv) PURCHASE PRICE. The total purchase price of a timeshare Interval, as set forth in the Timeshare Documents and Note Receivable relating to the purchase of such Interval. (www) PURCHASER. Any Person who purchases one or more Intervals. (xxx) RESORT OR RESORTS (ALSO "ELIGIBLE RESORT" OR "ELIGIBLE RESORTS"). Individually and collectively, as applicable, each or all of the interval ownership and time-share projects consisting of: (i) (A) Holly Lake Ranch, Hawkins, Texas; (B) Piney Shores Resort, Conroe, Texas; (C) Lake O' The Woods, Flint, Texas; (D) Hill Country Resort, Canyon Lake, Texas; (E) Ozark Mountain Resort, Kimberling City, Missouri; (F) Holiday Hills Resort, Branson, Missouri; (G) Fox River Resort, LaSalle County, Illinois; (H) Timber Creek Resort, Jefferson County, Missouri (I) Oak N' Spruce Resort, South Lee, Massachusetts; (J) Apple Mountain Resort, Habersham County, Georgia; (K) The Villages, Flint, Texas; (L) Silverleaf's Seaside Resort, Galveston County, Texas; (M) Tansi Resort-Hiawatha Manor, Cumberland County, Tennessee; (N) Tansi Resort-Hiawatha Manor I, Cumberland County, Tennessee and (O) Tansi Resort-Hiawatha Manor West, Cumberland County, Tennessee (also sometimes individually and collectively referred to herein as the "Existing Resorts") and (ii) subject to Agent's prior written approval and satisfaction by Borrower of the conditions precedent set forth in Sections 3.7 and 4.5 hereof, the Additional Eligible Resorts. The term "Resort" or "Resorts" includes, among other things, the undivided annual or (biennial) timeshare ownership interests (Intervals) in the respective Resorts, and the appurtenant exclusive rights to use Units in one or more buildings or phases and all appurtenant or related properties, amenities, facilities, equipment, appliances, fixtures, easements, licenses, rights and interests, including without limitation, the Common Elements, as established by and more fully defined and described in the respective Declarations, and the other Timeshare Documents. (yyy) REVENUES. Shall mean all proceeds from the sale of Intervals, regardless of whether such proceeds are in the form of cash or Notes Receivable. (zzz) REVOLVING LOAN COMPONENT. Shall mean that portion of the Loan in the amount of $56,104,200.00 on the terms and conditions described in Sections 2.1, 2.3, 2.4 and 2.5 hereof, which amount shall be repaid as provided in Section 2.4 and Section 2.5(b) hereof. (aaaa) REVOLVING LOAN COMPONENT NOTE. Shall mean that certain Amended and Restated Note or Notes, in the form attached hereto as Exhibit A, dated the date hereof, and executed and delivered by Borrower to Agent, as agent on behalf of each Lender (subject to Section 2.1(d) hereof) evidencing the Revolving Loan Component. (bbbb) REVOLVING LOAN TERM. Shall mean the period commencing on the Effective Date and ending on March 31, 2004. (cccc) SECURITY. Shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. (dddd) SERVICING AGENT. Agent's exclusive agent, which shall be such Person or Persons designated by Borrower and approved by Agent in its sole discretion, for the purposes of billing and collecting amounts due on account of the Pledged Notes Receivable, providing reports pursuant to the Lockbox Agreement and performing other servicing functions not performed by the Lockbox Agent. Borrower shall be the Servicing Agent until: (i) an Event of Default shall have occurred and Agent replaces Borrower as Servicing Agent as provided in Section 9.1(i) or (ii) Agent elects to appoint the Standby Servicer in accordance with Section 10.14 hereof. (eeee) SILVERLEAF CLUB. Shall mean Silverleaf Club, a Texas non-profit corporation. (ffff) INTENTIONALLY OMITTED. (gggg) INTENTIONALLY OMITTED. (hhhh) STOCK PLEDGE AGREEMENT. Shall mean the agreement in the form attached hereto as Exhibit A, pursuant to which all issued and outstanding shares of Silverleaf Finance I, Inc.'s capital stock and all right, title and interest in such shares, all certificates, instruments or other documents evidencing or representing the same and all dividends and distributions therefrom, including dividends and distributions paid in stock (the "SILVERLEAF FINANCE I, INC. STOCK") are pledged to Agent, as agent for each Lender, as security for the Loan. (iiii) SOVEREIGN FACILITY. The term "Sovereign Facility" shall mean that certain credit facility provided by Sovereign Bank ("SOVEREIGN") to Borrower pursuant to the documents listed on Schedule 1.1(iiii) hereto (the "SOVEREIGN DOCUMENTS"). (jjjj) STANDBY MANAGER. Shall mean the Person selected by Borrower, and acceptable to Agent, in its sole discretion, to act as standby manager of Borrower's Resorts in accordance with this Agreement. Subject to the review and approval of the Standby Management Agreement by Agent, in its sole discretion, Agent hereby approves J & J Limited, Inc. as the initial Standby Manager. (kkkk) STANDBY MANAGEMENT AGREEMENT. Shall mean the agreement to be entered into between the Standby Manager and Borrower providing for the management of Borrower's Resorts on the occurrence of an Event of Default hereunder. (llll) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Agent, as agent for each Lender, of all of Borrower's rights under the Standby Management Agreement. (mmmm) STANDBY SERVICER. Shall mean the Person selected by Agent to act as standby servicer in accordance with this Agreement. The current Standby Servicer is Concord Servicing Corporation. (nnnn) STANDBY SERVICING AGREEMENT. Shall mean the agreement pursuant to which the Standby Servicer shall provide servicing functions with respect to the Pledged Notes Receivable upon the occurrence of an Event of Default hereunder in accordance with Sections 9.1(i) and 10.14 hereof. (oooo) STANDBY SERVICING AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached hereto as Exhibit A, pursuant to which Borrower assigns to Agent, as agent for each Lender, all of Borrower's rights under the Standby Servicing Agreement. (pppp) SURVEY. A plat or survey of the Resort, the Land and that portion of the Additional Resort Collateral constituting real property, prepared by a licensed surveyor acceptable to Agent and in a form acceptable to Agent. (qqqq) TERM. With respect to the Revolving Loan Component, a period beginning on the Effective Date and ending on the Final Maturity Date. With respect to the Term Loan Component, a period of five (5) years from the Effective Date. (rrrr) TERM LOAN COMPONENT. Shall mean that portion of the Loan in the amount of $14,895,800.00 on the terms and conditions set forth in Sections 2.2, 2.3, 2.4 and 2.5 hereof, which amount shall be repaid as provided in Section 2.4 and Section 2.5(b) hereof. (ssss) TERM LOAN COMPONENT NOTE. Shall mean that Secured Promissory Note or Notes, in the form attached hereto as Exhibit A, dated the date hereof, and executed and delivered by Borrower to Agent, as agent on behalf of each Lender (subject to Section 2.2 hereof) evidencing the Term Loan Component. (tttt) INTENTIONALLY OMITTED. (uuuu) TIMESHARE ACT. Any statute, act, regulation, ordinance, rule or law applicable to the establishment and operation of the Resorts and the sales of the Intervals. (vvvv) TIMESHARE DOCUMENTS. Any registration statement required under any Timeshare Act approving the establishment and operation of the Resorts and the sales of Intervals. (wwww) TIMESHARE OWNERS' ASSOCIATION. With respect to each Resort, the applicable not-for-profit corporations described on Schedule 1.1(wwww). (xxxx) TANGIBLE NET WORTH. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as: (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated debt of such Person and its consolidated subsidiaries, the terms and conditions of which are reasonably satisfactory to Agent, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent to the Effective Date deferred sales are no longer considered an asset under GAAP, Agent agrees, at the request of Borrower, to determine, in its reasonable discretion, whether deferred sales should continue to be considered an asset for purposes of determining Borrower's Tangible Net Worth. (yyyy) TOTAL INTEREST EXPENSE. For any period, the aggregate amount of interest required to be paid or accrued by Borrower and its subsidiaries during such period on all indebtedness of Borrower and its subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease, or any synthetic lease and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. (zzzz) INTENTIONALLY OMITTED. (aaaaa) TRANCHE C FACILITY. The term "Tranche C Facility" shall mean that certain $10,200,000 credit facility provided by TFC to Borrower pursuant to that certain Loan And Security Agreement dated April 17, 2001 (the "TRANCHE C LOAN AGREEMENT") by and between Borrower and TFC, as amended by a First Amendment to Loan and Security Agreement of even date herewith. (bbbbb) TRANSFER ACCOUNT. The account established by Agent, as described in Schedule B hereto, to which all Loans by Lenders will be made. (ccccc) TAX REFUND. The term "Tax Refund" means that certain corporate tax refund of Borrower for the 1998 and 1999 tax years in the estimated amount of $5,000,000.00. (ddddd) INTENTIONALLY OMITTED. (eeeee) UCC FINANCING STATEMENTS. The UCC-1 Financing Statements, naming Borrower as debtor and Agent as secured party on behalf of Lenders, heretofore or hereafter filed in connection with the Loans and all amendments thereto. (fffff) UNIT. With respect to each Resort, one living unit in a building incorporated into the Resort pursuant to the Declaration, together with all related or appurtenant Common Elements and related or appurtenant interests in services, easements and other rights or benefits, as described and provided for in the Declaration, including but not limited to the right to use the Resort amenities and facilities in accordance with the Timeshare Documents. (ggggg) VOLUNTARY PREPAYMENT. Any voluntary prepayment of the Loan permitted to be made by Borrower under the terms of this Agreement. SECTION 2 -- THE LOAN 2.1 REVOLVING LOAN COMPONENT AND LENDING LIMITS. (a) REVOLVING LOAN COMPONENT. Upon the terms and subject to the conditions set forth in this Agreement, each Lender agrees severally, at any time and from time to time during the Revolving Loan Term, to make a loan or loans to Borrower, and Borrower may borrow, repay and reborrow during the Revolving Loan Term, with respect to the Revolving Loan Component only, in an aggregate amount not to exceed at any time the lesser of: (i) each Lender's Pro Rata Percentage of the amount of the Borrowing Base or (ii) the lending limits set forth in section 2.1(b) hereof. Notwithstanding anything herein to the contrary, the aggregate balance of all Advances, shall not exceed $63,022,000.00 less the aggregate outstanding principal balance of the Term Loan Component from time to time (the "MAXIMUM AVAILABLE AMOUNT"). Borrower's right to receive Advances hereunder shall also be subject to the terms and conditions set forth in that certain Intercreditor Agreement between Lender, Borrower, Heller and Sovereign dated of even date herewith. Borrower acknowledges, confirms and agrees that TFC shall have the right to allocate any request for an Advance hereunder to this Loan, the Additional Credit Facility and/or the Tranche C Facility in such manner as TFC may elect in its sole and absolute discretion. Notwithstanding anything herein to the contrary, Borrower acknowledges, confirms and agrees that it shall not be entitled to receive, nor shall any Lender be required to make, any Advance if and to the extent that: (i) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Agent in its sole and absolute discretion; or (ii) the most recent weekly flash report delivered in accordance with Section 7.1(h)(xii) hereof (a "WEEKLY FLASH REPORT"), indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. Borrower acknowledges, agrees and confirms that as provided in the Business Plan, the Commitment and the Maximum Available Amount shall be reduced to the following amounts: (i) on and after March 31, 2004 - approximately $48,657,000, less the outstanding principal balance of the Term Loan Component from time to time; (ii) on and after March 31, 2005 - approximately $34,755,000, less the outstanding principal balance of the Term Loan Component from time to time; and (iii) on and after March 31, 2006 - approximately $32,438,000, less the outstanding principal balance of the Term Loan Component from time to time. On or after the Effective Date, the aggregate amount of the Commitment provided hereunder, under the Additional Credit Facility and the Tranche C Facility shall be equal to $136,000,000.00 less the aggregate principal balance of the Term Loan Components hereunder, under the Additional Credit Facility and under the Tranche C Facility. Borrower further acknowledges, confirms and agrees that the aggregate Commitment under this Agreement, the Additional Credit Facility and the Tranche C Facility shall be reduced to the following amounts: (i) after March 31, 2004 - $105,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time; (ii) after March 31, 2005 - $75,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time; and (iii) after March 31, 2006 - $70,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time. (b) LENDING LIMITS. Borrower acknowledges, agrees and confirms that the obligations of all Lenders, including TFC, to make Loans under this Agreement to Borrower is limited to the lesser of: (i) the Borrowing Base or (ii) the Maximum Available Amount. Borrower further acknowledges, agrees and confirms that the obligation of each Lender, including TFC, to make loans hereunder to Borrower is limited to: (i) with respect to each Advance hereunder, each Lender's Pro Rata Percentage of any such Advance hereunder and (ii) with respect to all Advances made hereunder, such Lender's obligation hereunder shall be limited to its Pro Rata Percentage of the Maximum Available Amount. Notwithstanding anything heretofore to the contrary, Borrower acknowledges, agrees and confirms that Lenders shall have no obligation to make any Advance, nor shall Borrower be entitled to receive any Advance, if at any time, (x) the aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate unpaid principal balance of all Eligible Notes Receivable pledged to Agent hereunder is, or would be as a result of any Advance, be in excess of the Maximum Effective Advance Rate, (y) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Agent in its sole and absolute discretion; or (z) the most recent Weekly Flash Report indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. Borrower acknowledges, agrees and confirms that Lenders' obligation to Borrower and Borrower's right to borrow under this Agreement is subject to the satisfaction of the conditions set forth in Section 4 hereof on or before May 31, 2002. Until such time as Agent determines that the conditions set forth in Section 4 hereof have been satisfied, all of Borrower's rights with respect to Advances shall be governed by and construed in accordance with the terms and conditions of the Original Loan Agreement, as modified by the Forbearance Agreement and the letter agreement dated April 15, 2002 (the "EXTENSION LETTER"). If the conditions set forth in Section 4 are not satisfied on or before May 31, 2002, then this Agreement, and the respective rights and obligations of the parties hereto, shall be null and void AB INITIO and of no further force and effect and the respective rights and obligations of Borrower, TFC and the other Lenders shall be governed by the terms and conditions of the Original Loan Agreement, as modified by the Forbearance Agreement. Anything contained in this Section 2.1(b) to the contrary notwithstanding, the Maximum Available Amount may also be reduced in accordance with Section 13.11 hereof. (c) MAKING OF LOANS. Each Loan under the Revolving Loan Component by a Lender shall be made ratably in accordance with each Lender's respective Pro Rata Percentage, provided, however, that the failure of any Lender to make any required Loan shall not in itself relieve any other Lender of its obligation to make any required Loan hereunder. Likewise, no Lender, including TFC, shall be responsible or liable for the failure of any other Lender to make any Loan required to be made by such other Lender, nor shall any Lender, including TFC, be obligated to make any Loan or Loans in excess of its respective Pro Rata Percentage, but not in excess of its Commitment, in the event that any other Lender fails or refuses to make a Loan or Loans as provided hereunder. As and when additional Lenders, other than TFC, execute and deliver this Agreement, then (A) such additional Lenders shall be deemed to have simultaneously purchased from each of the other Lenders which has previously executed and delivered this Agreement, a share in such other Lenders' Loans so that the amount of the Loans of all Lenders shall be pro rata as otherwise set forth above and (B) such other adjustments shall be made from time to time as shall be equitable to insure that the Advances to Borrower are made ratably by each Lender in accordance with its respective Pro Rata Percentage. (d) NOTE EVIDENCING BORROWER'S OBLIGATIONS. Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balance of the Revolving Loan Component is $56,104,200.00, which amount shall be repaid as provided in Section 2.4 hereof. Borrower's obligations to pay the principal of and interest on the Loan or Loans made by each Lender under the Revolving Loan Component shall be evidenced by a Revolving Loan Component Note to Agent, as agent for each Lender, which Note shall be dated as of the date hereof and be in the stated principal amount of the Revolving Loan Component. The Note will mature on the Final Maturity Date, bear interest as provided in Section 2.3 hereof and be otherwise entitled to the benefits of this Agreement. Notwithstanding the stated principal amount of the Note, the aggregate outstanding principal amount of the Loan at any time shall be the aggregate principal amount owing on the Note at such time. Agent shall and is hereby authorized to record on the grid attached to the Note (or, alternatively, in its internal books and records) the date and amount of each Advance made by Lenders, the interest rate and interest period applicable thereto and each repayment thereof; and such grid or other books and records shall, as between Borrower and each Lender, absent manifest error, constitute prima facie evidence of the accuracy of the information contained therein. Failure by Agent to so record any Advance made by Lenders (or any error in such recordation) or any payment thereon shall not affect the Obligations of Borrower under this Agreement or under the Note and shall not adversely affect Lender's rights under this Agreement with respect to the repayment thereof. At the election of any Lender, Borrower shall execute and deliver to such Lender, a Revolving Loan Component Note in a stated principal amount equal to such Lender's Pro Rata Percentage of the Loan, which such Note or Notes shall be on the same terms and conditions as provided above and which Note or Notes shall be included within the definition of "Revolving Loan Component Note" as such term is used herein. (e) NOTICE OF ADVANCES. (i) Upon receipt by Agent from Borrower of a written request for Advance in accordance with Section 5 hereof and Borrower's satisfaction of the requirements set forth in Section 5 hereof, Agent shall give a written notice (a "NOTICE OF BORROWING") to each Lender, (which Notice of Borrowing shall be given to each Lender not less than two (2) business days prior to the date of the proposed Advance) in the form attached hereto as Exhibit B, setting forth: (i) the total amount of the Advance requested by Borrower; (ii) the aggregate amount of all Loans previously made by each respective Lender; (iii) the outstanding principal balance of the Revolving Loan Component; (iv) the outstanding principal balance of the Term Loan Component; (v) the current Interest Rate as determined in accordance with Section 2.3 hereof; (vi) each such Lender's Pro Rata Percentage of the requested Advance and (vii) the date on which such Advance is to be made: at the option of the Agent: (ii) Agent shall provide to each Lender: (A) each month by the close of business on the fifth (5th) business day following receipt by Agent from Borrower, but in no event later than the 30th day of the month: (i) an updated borrowing base report (a "BORROWING BASE REPORT") in the form attached as Exhibit L; and (ii) an updated trial balance and aging report for the Pledged Notes Receivable (a "COLLATERAL DATA REPORT"); and (B) by the close of business on the tenth (10th) business day following receipt by Agent from Borrower of the documents described in Section 2.1(e)(ii)(A) above: (i) a summary of all Advances made by Agent during the immediately preceding month (a "SUMMARY OF WEEKLY ADVANCES"); and (ii) a summary report of Advances and repayments or collections for the immediately preceding month and a calculation of the net Lender's Advance required of such Lender with respect to all Advances made during the immediately preceding month (a "LENDER ADVANCE REPORT"). (f) DISBURSEMENT OF FUNDS. (i) If notice of Advances is provided in accordance with Section 2.1(e)(i) above, then after receiving a Notice of Borrowing from Agent, each Lender shall, not later than 11:00 a.m., Eastern Standard Time, on the date specified in such Notice of Borrowing on which the proposed Advance is to be made, wire transfer to Agent at the Transfer Account, in immediately available funds, an amount equal to each such Lender's Pro Rata Percentage of the proposed Advance as set forth in the Notice of Borrowing. Upon Agent's receipt of funds from each Lender equal to the amount of the requested Advance, and subject to Borrower's compliance with the terms and conditions of this Agreement, Agent shall disburse the Advance to Borrower by wire transfer of funds as directed in writing by Borrower. If Agent shall not receive funds from any Lender as set forth above, then the amount of the Advance in question shall be automatically reduced by an amount equal to the missing Lender's Pro Rata Percentage of the Advance in question, and Agent shall, subject to Borrower's compliance with the terms and conditions of this Agreement, disburse the Advance in the reduced amount to Borrower by wire transfer of funds as directed in writing by Borrower. Agent, in its sole and absolute discretion, may (but shall not be obligated to) make the full amount of the requested Advance available to Borrower prior to the receipt by Agent from one or more Lenders of funds representing such Lender's or Lenders' Pro Rata Percentage of the Advance in question. If the funds representing such Lender's or Lenders' Pro Rata Percentage of the Advance in question are not received by Agent within two business days of the date of such Advance, Borrower shall immediately, upon demand of Agent, repay such amount to Agent. Nothing herein shall be deemed to relieve any Lender from its obligations hereunder or to prejudice any rights Agent may have against any Lender as a result of any Lender's failure to make any Loan or Loans as provided herein; or (ii) If notice of Advances is provided in accordance with Section 2.1(e)(ii) above, then by the close of business on the third (3rd) business day following such Lender's receipt of the Lender Advance Report, such Lender shall wire transfer to Agent at the Transfer Account, in immediately available funds, the net amount due from such Lender as set forth in the Lender Advance Report. If the funds representing such Lender's amount of the Advance or Advances in question are not received by Agent within five (5) business days of the date of such Lender's receipt of the Lender Advance Report, Borrower shall immediately, upon demand of Agent, repay such amount to Agent. Nothing herein shall be deemed to relieve any Lender from its obligations hereunder or to prejudice any rights Agent may have against any Lender as a result of any Lender's failure to make any Loan or Loans as provided herein. (g) HELLER AND SOVEREIGN OBLIGATION TO FUND. Notwithstanding anything herein to the contrary, the obligation of each Lender to make any Advance under this Agreement shall be subject to and conditioned upon both Heller and Sovereign each making advances to Borrower substantially in accordance with the Business Plan, including the Senior Lender Advance Schedule, which Agent agrees will be determined on a quarterly basis commencing April 1, 2002. Lenders shall have no obligation to make any Advance hereunder in the event that either Sovereign or Heller terminates its respective facility or fails to make advances as provided in the Business Plan, including the Senior Lender Advance Schedule, which Agent agrees will be determined on a quarterly basis commencing April 1, 2002. 2.2 TERM LOAN COMPONENT. Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balance of the Term Loan Component is $14,895,800.00, which amount shall be repaid as provided in Section 2.4. Borrower further acknowledges, agrees and confirms that Borrower shall have no right to re-borrow or borrow, nor shall Lenders have any obligation to make any additional loan or loans to Borrower with respect to the Term Loan Component. Borrower's obligation to repay the principal of and interest on the Loan or Loans comprising the Term Loan Component shall be evidenced by a Term Loan Component Note to Agent, as agent for each Lender, which Note shall be dated as of the date hereof and be in the stated principal amount of the Term Loan Component, increased by the Facility Fee. The Term Loan Component Note will mature on the Final Maturity Date, bear interest as provided in Section 2.3 and be otherwise entitled to the benefits of this Agreement. At the election of any Lender, Borrower shall execute and deliver to such Lender, a Term Loan Component Note in a stated principal amount equal to such Lender's Pro Rata Percentage of the Loan, which Note or Notes shall be on the same terms and conditions as provided above and which Note or Notes shall be included within the definition of "Term Loan Component Note" as such term is used herein. 2.3 INTEREST RATE. From and after the Effective Date, with respect to the Revolving Loan Component, including each Loan hereafter made pursuant to Section 2.1(a) hereof, the Revolving Loan Component shall bear interest at the Interest Rate applicable to the Revolving Loan Component as of the date funds are received by Agent as provided in Section 2.1(f) through each Lender's receipt of repayment of the Revolving Loan Component in accordance with Section 2.4 (if received by a Lender later than 1:00 p.m., Eastern Standard Time, then interest accrual shall be through the next Business Day following such receipt). From and after the Effective Date, the Term Loan Component shall bear interest at the Interest Rate applicable to the Term Loan Component through each Lender's receipt of payment of the Term Loan Component as provided in Section 2.4. Immediately upon the occurrence of an Event of Default and after the Final Maturity Date (if the Loan is not paid in full on the Final Maturity Date), at Agent's election, in its sole discretion, the entire Loan will bear interest at the Default Rate. Prior to the Effective Date, the Loan shall bear interest as provided in the Original Agreement. 2.4 PAYMENTS. From and after the Effective Date, Borrower agrees punctually to pay or cause to be paid to Agent, as agent for each Lender, all principal and interest due under each Note in respect of the Loans. Borrower shall make the following payments on the Loan: (a) INITIAL LOAN PAYDOWN. On or before May 31, 2002, Borrower shall make, from the proceeds of the DZ Facility, a payment on the Revolving Loan Component in the amount of approximately $12,274,000. (b) MONTHLY PAYMENTS. (1) Revolving Loan Component. Borrower shall direct or otherwise cause all makers of all Pledged Notes Receivable to pay all monies due thereunder to the lockbox established pursuant to the Lockbox Agreement, or as otherwise required by Agent. One hundred percent (100%) of the cleared funds collected from the Pledged Notes Receivable each week will be paid to Agent by the Lockbox Agent pursuant to the Lockbox Agreement, and will be applied by Agent first to the payment of costs or expenses incurred by Agent pursuant to this Agreement in creating, maintaining, protecting or enforcing the Liens in and to the Collateral and in collecting any amounts due to any Lender in connection with the Loan ("COLLECTION COSTS") and the balance to each Lender in accordance with the applicable percentage of the outstanding principal balance of the Loan that each Lender has made (the "PRO RATA PAYMENT PERCENTAGE") as provided in Section 2.8 hereof. Each Lender shall apply each such payment in the following order: (i) to any interest accrued at the applicable Default Rate on the Revolving Loan Component; (ii) then to interest at the applicable Interest Rate on the Revolving Loan Component; and (iii) then to principal on the Revolving Loan Component. In the event that the cleared funds received by Agent are insufficient to pay the amounts described in aforementioned clauses (i)-(ii), then Borrower shall pay the difference to Agent on or before the fifth (5th) day of the following month. In the event Borrower receives any payments on any of the Pledged Notes Receivable directly from or on behalf of the maker or makers thereof, Borrower shall receive all such payments in trust for the sole and exclusive benefit of Lenders; and Borrower shall deliver to the Lockbox Agent all such payments (in the form so received by Borrower) as and when received by Borrower, unless Agent shall have notified Borrower to deliver directly to Agent all payments in respect of the Pledged Notes Receivable which may be received by Borrower, in which event all such payments (in the form received) shall be endorsed by Borrower to Agent as agent for Lenders and delivered to Agent promptly upon Borrower's receipt thereof. (2) Term Loan Component. Borrower shall pay to Agent on or before the tenth day of each month an amount equal to: (i) all interest accrued at the applicable Default Rate on the Term Loan Component; plus (ii) all interest due and payable as of the last day of the immediately preceding month; plus (iii) a principal payment sufficient to amortize the Term Loan Component in full on the basis of a twenty (20) year amortization schedule. In the event that Borrower fails to make the payment in question, Agent may, at its option, on or before the tenth day of each month, make an Advance with respect to the Revolving Loan Component and apply such Advance to the payment of amounts due in respect of the Term Loan Component as provided immediately above. (c) MANDATORY TERM LOAN COMPONENT FUND UP PREPAYMENT. If and to the extent that: (i) at the end of each calendar quarter during the first two (2) years of the Term following the Effective Date, commencing the calendar quarter ending June 30,2002 (x) the outstanding principal balance of all Loans made with respect to the Revolving Loan Component is less than seventy percent (70%) of the then outstanding principal balance of the Eligible Notes Receivable pledged to Agent with respect to such Loans (such difference being hereinafter referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided Borrower has available unrestricted cash of five million dollars ($5,000,000.00) or more as indicated in the most recent Weekly Flash Report or (ii) at the end of each calendar quarter commencing the calendar quarter ending June 30, 2004 (x) the outstanding principal balance of all Loans made with respect to the Revolving Loan Component is less than seventy-five percent (75%) of the then outstanding principal balance of the Eligible Notes Receivable pledged to Agent with respect to such Loans (such difference also being referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided Borrower has available unrestricted cash of five million dollars ($5,000,000.00) or more as indicated in the most recent Weekly Flash Report, then Borrower agrees that Agent may, on the last Business Day of each such calendar quarter, make an Advance with respect to the Revolving Loan Component in an amount equal to such Available Fund Up Amount and apply such Advance to the repayment of the Term Loan Component as follows: (i) first to interest at the applicable Default Rate; (ii) then to interest at the applicable Interest Rate and (iii) then to reduction of principal of the Term Loan Component until such time as the Term Loan Component is paid in full. (d) FURTHER QUARTERLY PAYMENTS. If, at the end of any calendar quarter commencing April 1, 2002, Borrower has available unrestricted cash exceeding five million dollars ($5,000,000.00), as indicated on the most recent Weekly Flash Report (the "ADDITIONAL AVAILABLE AMOUNT"), then Borrower agrees to repay the Loan in an amount equal to such Additional Available Amount and such amount will be applied as follows: (i) first to interest at the applicable Default Rate; (ii) then to interest at the applicable Interest Rate; (iii) then to the reduction of principal of the Term Loan Component until such time as the Term Loan Component is paid in full and (iv) then to the repayment of the Revolving Loan Component as provided in Section 2.4(b) above. (e) LOAN BALANCE REDUCTION. Notwithstanding anything hereto to the contrary, Borrower agrees that on and after March 31, 2004, the outstanding principal balance of the Loan shall be reduced in substantial accordance with the Business Plan. (f) FINAL PAYMENT. The entire outstanding principal amount of the Loan, together with all other Obligations hereunder, shall be due and payable on the Final Maturity Date. (g) PAYMENTS TO LENDER. Promptly upon receipt by Agent of any payment from Borrower in accordance with this Section 2.4, and after payment of any Collection Costs, Agent shall promptly wire transfer to each Lender as described in Schedule C hereto, in immediately available funds, each such Lender's Pro Rata Percentage of the payment in question. Prior to the Effective Date, Borrower shall make payments as provided in the Original Loan Agreement. 2.5 PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. Borrower may repay the Loan, either in whole or in part, at any time, provided that any such prepayment shall be in increments of not less than $100,000.00. (b) MANDATORY PREPAYMENTS. If at any time and for any reason: (i) the outstanding unpaid principal balance of the Revolving Loan Component shall exceed the Maximum Available Amount, as reduced in accordance with Section 2.1(a); (ii) the outstanding unpaid principal balance of the Revolving Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder shall exceed the Borrowing Base; or (iii) the outstanding unpaid principal balance of both the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder shall exceed the Maximum Effective Advance Rate (each an "EXCESS FUNDING") then, within five (5) Business Days following Borrower's receipt of telecopied notice from Agent of the occurrence of such excess or, absent such telecopied notice, within fifteen (15) days after the end of the calendar month in which such excess occurred: (x) In the case of an Excess Funding described in (i) above, Borrower shall promptly repay the principal balance of the Revolving Loan Component in an amount equal to such Excess Funding or (y) in the case of an Excess Funding described in (ii) and (iii) above, Borrower shall prepay the principal balance of the Term Loan Component (and if necessary the Revolving Loan Component) in an amount equal to such Excess Funding. If Agent has determined that Notes Receivable have been delivered to Agent and were included in the Borrowing Base, which Notes Receivable did not or no longer qualify as Eligible Notes Receivable ("INELIGIBLE NOTES RECEIVABLE"), provided that an Excess Funding exists, Borrower shall substitute Eligible Notes Receivable for such Ineligible Notes Receivable and thereby increase the aggregate principal amount of Eligible Notes Receivable pledged to Agent as agent for Lenders so that Excess Funding is eliminated. The pledge and delivery to Agent as agent for Lenders of additional Eligible Notes Receivable shall comply with the document delivery and recordation requirements set forth in Section 5.1 of this Agreement and shall be accompanied by a written certification of Borrower to the effect that such additional Pledged Notes Receivable are Eligible Notes Receivable, and that, giving effect to the pledge to Agent as agent for Lenders of such Eligible Note Receivable: (i) the outstanding unpaid principal balance of the Revolving Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder is equal to or less than the Borrowing Base and (ii) the outstanding unpaid principal balance of both the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder is equal to or less than the Maximum Effective Advance Rate. If Borrower elects to prepay the excess principal balance of the Loan pursuant to this Section 2.5(b), no prepayment premium shall be payable in connection with such prepayment. (c) PREMIUMS. Subject to Section 2.6 hereof, no prepayment premium shall be required in connection with any prepayment of the principal balance of the Loan hereunder. 2.6 PAYMENT OF FUNDING LOSSES AND OTHER AMOUNTS RELATING TO LIBOR CONTRACT, ETC. (a) FUNDING LOSSES: BREAKING OF LIBOR CONTRACT, CHANGE IN LAW, ETC. Borrower hereby agrees to pay to Agent on behalf of each Lender any amount necessary to compensate any Lender for any losses or costs (including, without limitation, the costs of breaking any "LIBOR" contract, if applicable, or funding losses determined on the basis of Lender's reinvestment rate and the interest rate thereon) (collectively, "FUNDING LOSSES") sustained by any Lender: (i) if the Loan, or any portion hereof, is prepaid for any reason whatsoever on any date other than the Final Maturity Date (including, without limitation, from condemnation or insurance proceeds); (ii) upon the conversion of the interest rate on the Loan to an interest rate based on the Prime Rate in accordance with Section 2.6(b) hereof; (iii) as a consequence of the reduction of any amounts received or receivable from Borrower, in either case, due to the introduction of, or any change in, law or applicable regulation or treaty (including the administration or interpretation thereof), whether or not having the force of law, or due to the compliance by any Lender with any directive, whether or not having the force of law, or request from any central bank or domestic or foreign governmental authority, agency or instrumentality having jurisdiction; (iv) as a consequence of the breaking of any LIBOR contract and/or (v) any other set of circumstances not attributable to any Lender's acts. Payment of Funding Losses hereunder shall be in addition to any obligation to pay any other amounts due and owing under this Agreement or any other Loan Documents. (b) CONVERSION TO INTEREST RATE BASED ON PRIME RATE. If Agent determines (which determination shall be conclusive and binding upon Borrower, absent manifest error) (i) that dollar deposits in an amount approximately equal to the then outstanding principal balance of the Loan are not generally available at such time in the London Interbank Market for deposits in Eurodollars, (ii) that the rate at which such deposits are being offered will not adequately and fairly reflect the cost to Lenders of maintaining the Interest Rate based on LIBOR, or of funding the same in such market for such Interest Accrual Period, due to circumstances affecting the London Interbank Market generally, (iii) that reasonable means do not exist for ascertaining LIBOR, (iv) that the Interest Rate based on LIBOR would be in excess of the maximum interest rate which Borrower may by law pay, then, in any such event, or (v) any LIBOR contract is broken as a result of the sale, pledge, refinancing or securitization in bulk of Eligible Notes Receivable relating to the Resorts by Borrower, Agent shall so notify Borrower and, as of the date of such notification with respect to an event described in clauses (ii), (iv) or (v) above, or as of the expiration of the applicable LIBOR Rate Period with respect to an event described in clause (i) or (iii) above, interest shall accrue at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), which new rate shall apply until such time as the situations described above are no longer in effect, or as otherwise provided herein; provided, however, if the situation described in clause (ii) above occurs, (x) Borrower shall have the option, to be exercised by written notice to Agent, to pay to Agent on behalf of Lenders (in the manner reasonably required by Agent) for such increased cost of maintaining the Interest Rate based on LIBOR, and (y) if the same only affects a portion of the Loan, then only such portion shall have interest accrue at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), and interest shall continue to accrue on the remaining portion at the Interest Rate based on LIBOR. (c) BACK-UP INTEREST RATE BASED ON PRIME RATE. If the introduction of, or any change in, any law, regulation or treaty, or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof, shall make it unlawful for any Lender to maintain the Interest Rate based on LIBOR with respect to the Loan, or any portion thereof, or to fund the Loan, or any portion thereof, in Eurodollars in the London Interbank Market, then, (i) the Loan (or such portion of the Loan) shall, with respect to such Lender, thereafter bear interest at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), (unless the Default Rate shall be applicable), and (ii) Borrower shall pay to Agent on behalf of any such Lender the amount of Funding Losses (if any) incurred in connection with such conversion. Interest shall accrue at a rate equal to the Prime Rate plus a sufficient spread so that the resulting per annum interest rate is approximately equal to what the rate would have been based on LIBOR plus three percent (3.0%) per annum (but in no event less than six percent (6.0%) per annum), which new rate shall continue until such date, if any, as the situation described in this Section 2.6(c) is no longer in effect. (d) CAPITAL ADEQUACY EVENTS, ETC. If Agent shall have determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards", or the adoption of any other law, rule, regulation or guideline (including, but not limited to, any United States law, rule, regulation or guideline) regarding capital adequacy, or any change becoming effective in any of the foregoing or in the enforcement or interpretation or administration of any of the foregoing by any court or any domestic or foreign governmental authority, central bank or comparable agency charged with the enforcement or interpretation or administration thereof, or compliance by any Lender, with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of any Lender or any Lender's holding company, as the case may be, to a level below that which any Lender or its holding company, as the case may be, could have achieved but for such applicability, adoption, change or compliance (taking into consideration each Lender's or its holding company's, as the case may be, policies with respect to capital adequacy) (the foregoing being hereinafter referred to as "CAPITAL ADEQUACY EVENTS"), then, upon demand by Agent, Borrower shall pay to Agent on behalf of any such Lender, from time to time, such additional amount or amounts as will compensate any such Lender for any such reduction suffered. (e) PAYMENT OF AMOUNTS DUE UNDER SECTION 2.6. Any amount payable by Borrower under Section 2.6(a) or 2.6(d) hereof shall be paid to Agent on behalf of Lenders within five (5) days of receipt by Borrower of a certificate signed by an officer of Agent setting forth the amount due and the basis for the determination of such amount, which statement shall be conclusive and binding upon Borrower, absent manifest error. Failure on the part of Agent to demand payment from Borrower for any such amount attributable to any particular period shall not constitute a waiver of Agent's or any Lender's right to demand payment of such amount for any subsequent or prior period. Agent shall use reasonable efforts to deliver to Borrower prompt notice of any event described in Sections 2.6(a) or 2.6(d) hereof and of the amount to be paid under this Section 2.6(e) as a result thereof; provided, however, any failure by Agent to so notify Borrower shall not affect Borrower's obligation to make the payments to be made under this Section 2.6(e) as a result thereof. All amounts which may become due and payable by Borrower in accordance with the provisions of this Section 2.6(e) shall constitute additional interest hereunder and shall be secured by this Agreement and the other Loan Documents. 2.7 FACILITY FEE. Borrower acknowledges and agrees that a Facility Fee in the amount set forth in the Fee Letter is due and payable exclusively to Lenders. Borrower acknowledges, agrees and confirms that each Lender has earned its respective Pro Rata Percentage of the Facility Fee notwithstanding whether the Loan or any portion is funded and further agrees that the Facility Fee shall be paid at closing from the proceeds of the Term Loan Component and is included in the current outstanding principal balance of the Term Loan Component and shall be repaid by Borrower to Lenders as part of the Term Loan Component Note. 2.8 PRO RATA TREATMENT. Each repayment of principal and interest on the Revolving Loan Component and Term Loan Component shall be allocated among Lenders in accordance with their respective Pro Rata Payment Percentage. Each Lender agrees that in computing such Lender's portion of any Advance to be made hereunder, Agent may, in its discretion, round each Lender's such Advance to the next higher or lower whole dollar amount. If any Lender shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Loans which results in its receiving more than its Pro Rata Payment Percentage of any payments described above, then (A) such Lender shall be deemed to have simultaneously purchased from each of the other Lenders a share in such other Lender's Loans so that the amount of the Loans of all Lenders shall be pro rata as otherwise set forth above, (B) such Lender shall immediately pay to the other Lenders their Pro Rata Payment Percentage of the payments otherwise received as consideration for such purchase and (C) such other adjustments shall be made from time to time as shall be equitable to insure that all Lenders share such payments ratably. If all or any portion of any such excess payment is thereafter recovered from Lender which received the same, the purchase provided in this Section 2.8 shall be deemed to have been rescinded to the extent of such recovery, without interest. Borrower expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of another Lender's loans may exercise all rights of payment (including all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. 2.9 MAXIMUM OBLIGATION OF TEXTRON FINANCIAL CORPORATION UNDER THE LOAN, THE ADDITIONAL CREDIT FACILITY, THE TRANCHE C FACILITY AND THE INVENTORY LOAN. Borrower acknowledges, agrees and confirms that notwithstanding anything to the contrary herein, in any other Loan Document or in any document evidencing or securing the Additional Credit Facility or the Tranche C Facility, TFC, as a Lender, shall not be obligated to fund any Advance hereunder, which when taken together with the loans or advances made by TFC to Borrower under this Agreement, the Additional Credit Facility and the Tranche C Facility, would cause the aggregate amount of such loans and advances by TFC to Borrower to exceed a maximum aggregate amount of $50,200,000.00 prior to the Effective Date and: (i) after the Effective Date and prior to March 31, 2004, $44,567,000.00; (ii) after March 31, 2004 and prior to March 31, 2005, $34,409,000.00; (iii) after March 31, 2005 and prior to March 31, 2006, $24,577,000.00; and (iv) after March 31, 2006, $22,939,000.00. TFC's maximum obligation under the Inventory Loan shall be $10,000,000.00 throughout the term of the Inventory Loan. 2.10 SUSPENSION OF ADVANCES. (a) SUSPENSION OF SALES. If any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction shall be issued limiting or otherwise materially adversely affecting any Interval sales activities, other business operations in respect of the Resorts, or the enforcement of the remedies of Agent and Lenders hereunder, then, in such event, Agent and Lenders shall have no obligation to make any Advances hereunder: (i) in respect of Pledged Notes Receivable from the sale of Intervals which are the subject of any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been issued until the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been lifted or released to the satisfaction of Agent and (ii) in respect of Pledged Notes Receivable from the sale of Intervals at any Resort if: (x) the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction in question has not been lifted or released to the satisfaction of Agent within sixty (60) days of its issuance and (y) there is a reduction in the total number of sales of Intervals by Borrower in any Loan Year of more than twenty percent (20%) from the total number of sales of Intervals in the immediately preceding Loan Year. (b) CHANGE IN CONTROL. If there shall occur a change, singly or in the aggregate, of more than fifty percent (50%) of the executive management of Borrower as described in Schedule 2.10(b) hereto, Lender shall have no obligation to make any Advances hereunder, unless within thirty (30) days prior thereto Borrower provides Lender with written information setting forth the replacement executive management personnel of Borrower together with a description of those Persons' experience, ability and reputation, and Agent, acting in good faith, determines that the replacement management personnel's experience, ability and reputation is equal to or greater than that of Borrower as set forth on Schedule 2.10(b). Notwithstanding the foregoing, the makeup of the Borrower's Board of Directors may be altered in accordance with the Bond Holder Exchange Documents, provided that Agent shall have no obligation to make any Advances hereunder if more than two (2) of the five (5) Board of Directors' positions are controlled by the Bond Holders. (c) FAILURE TO ADHERE TO BUSINESS PLAN/DEFAULT OR EVENT OF DEFAULT. Agent and Lenders shall not be obligated to fund any Advance hereunder if: (i) Borrower shall fail to substantially adhere to the Business Plan (including the Senior Lender Advance Schedule) as determined by Agent in its sole and absolute discretion or (ii) a Default or Event of Default shall have occurred and be continuing. SECTION 3 -- COLLATERAL 3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and grants to Agent, as agent for each Lender, a continuing first priority security interest in and to the Collateral to further secure the payment and performance of the Obligations. To further secure the payment and performance of the Obligations, Borrower shall also execute and deliver to Agent, as agent for each Lender: (i) the modifications to the Land Mortgages in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority mortgage lien on the Land and (ii) the Additional Resort Collateral Mortgages, in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority mortgage lien on that portion of the Additional Resort Collateral consisting of real property. To further secure the payment and performance of the Obligations, Borrower shall further execute and deliver to Agent, as agent for each Lender: (1) the Additional Resort Collateral Assignment, in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority security interest on that portion of the Additional Resort Collateral consisting of personal property; (2) the Stock Pledge Agreement, in the applicable form attached hereto as Exhibit A, granting Agent, as agent for each Lender, a first priority security interest in the Silverleaf Finance I, Inc. Stock; (3) the Standby Management Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Agent, as agent for each Lender, all of Borrower's right, title and interest in the Standby Management Agreement Assignment; and (4) the Standby Servicing Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Agent, as agent for each Lender, all of Borrower's right, title and interest in the Standby Servicing Agreement. For convenience of administration, Agent is acting as agent for Lenders under the Agreement. Agent, as such agent, may execute any of its duties hereunder by or through its agents, officers or employees and shall be entitled to rely upon the advice of counsel as to its duties. Agent, as such agent, shall not be liable to Lenders for any action taken or omitted to be taken by it in good faith and shall neither be responsible to Lenders for the consequences of any oversight or error of judgment nor be answerable to Lenders for any loss unless the same shall happen through Agent's gross negligence or willful misconduct. To the extent that Agent, as such agent, shall not be reimbursed by Borrower for any costs, liabilities or expenses incurred in such capacity, Lenders shall reimburse Agent therefor pro rata in accordance with their respective Pro Rata Percentages (including Agent as one of Lenders for this purpose). Each Lender agrees that Agent shall be entitled to take and shall only be required to take, any action which it is permitted to take under this Agreement. Notwithstanding anything herein to the contrary, Borrower acknowledges and agrees as follows: (a) The Revolving Loan Component shall be secured by: (i) a first priority security interest in the Eligible Notes Receivable pledged to Agent on behalf of Lenders as provided herein, the Mortgages with respect thereto and that portion of the other Collateral related thereto; (ii) a first priority security interest in the Ineligible Note Portfolio, the Mortgages with respect thereto and that portion of the other Collateral related thereto; (iii) a second priority security interest, subject only to the security interest securing the Term Loan Component and the Inventory Loan, in the Silverleaf Finance I, Inc. Stock and the Additional Resort Collateral. (b) The Term Loan Component shall be secured by: (i) a first priority security interest in the Additional Resort Collateral; (ii) a first priority security interest in Borrower's Silverleaf Finance I, Inc. Stock; (iii) Intentionally Omitted; (iv) a second priority security interest, subject only to the security interest securing the Revolving Loan Component, in the Eligible Notes Receivable pledged to Agent on behalf of Lenders as provided herein, the Mortgages with respect thereto and that portion of the other Collateral related thereto; and (v) second priority security interest, subject only to the security interest securing the Revolving Loan Component, in the Ineligible Note Portfolio, the Mortgages with respect thereto and the other Collateral related thereto. In addition to the foregoing, Borrower acknowledges, agrees and confirms that the security interest granted to Agent, on behalf of Lenders, in all other Collateral to secure the Loan, including the Land, the Standby Management Agreement, the Standby Servicing Agreement and the other collateral securing the Heller Facility, the Sovereign Facility, the Additional Credit Facility, the Tranche C Facility and the Inventory Loan shall be equal in priority as between the Revolving Loan Component and the Term Loan Component and, with respect to the collateral securing the Heller Facility, the Sovereign Facility, the Additional Credit Facility, the Tranche C Facility and the Inventory Loan, subject only to the security interests securing such facilities. For purposes hereof, the reference to "collateral securing the Heller Facility" and "collateral securing the Sovereign Facility" shall mean the Notes Receivable and related Mortgages exclusively assigned to Heller or Sovereign in connection with an advance under their respective loan documents. 3.2 SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Notwithstanding that Lenders may be obligated, subject to the conditions of the Loan Documents, to make Advances only in respect of Eligible Notes Receivable pledged to Agent, Lenders shall have a continuing security interest in all of the Pledged Notes Receivable, including all Notes Receivable in the Ineligible Note Portfolio and any Notes Receivable pledged to Heller or Sovereign and Agent may, on behalf of Lenders, collect all payments made under or in respect of all such Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Agent, if at all, pursuant to Section 12.10 or Section 7.2(a) below. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur, Borrower, as agent for and on behalf of Lenders, shall retain possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. By executing this Agreement, Borrower acknowledges and agrees that it is holding such Notes Receivable as bailee and agent for the Agent. Borrower shall hold and designate such Notes Receivable in a manner which clearly indicates that they are being held by Borrower as bailee on behalf of Agent. Upon the occurrence of an Event of Default, Borrower shall promptly deliver to Agent, as agent for each Lender, Sovereign and Heller, all original Notes Receivable comprising the Ineligible Note Portfolio and to the extent not previously delivered to Agent, the documents listed in Section 5.1(b) hereof and with respect thereto and after such Event of Default Agent shall have the right to collect all proceeds therefrom and apply the same to payment of the Obligations as set forth in Section 2.4(b) hereof. To perfect the security interest of Agent, as agent for each Lender, in the Ineligible Note Portfolio, Borrower agrees, subject to Agent's prior approval, to execute and cause to be filed, at Borrower's sole cost and expense, UCC-1 financing statement(s) with the appropriate state and local governmental authorities as requested by Agent. Borrower also shall execute and deliver in escrow to Agent, as agent and on behalf of each Lender, Sovereign and Heller, an assignment of Mortgages in the form attached hereto as Exhibit A (the "ASSIGNMENT OF MORTGAGES") and as approved by Agent, Sovereign and Heller at their sole and absolute discretion, assigning equally to each of Agent, as agent for each Lender, Heller and Sovereign, all of Borrower's rights, title and interests in each and all of the Mortgages relating to the Notes Receivable in the Ineligible Note Portfolio. Borrower further agrees to promptly execute and deliver modifications or additional Assignments of Mortgages requested by Agent, Heller and Sovereign in order to continue the security interests of Agent, Heller and Sovereign in the Ineligible Note Portfolio. Borrower acknowledges and agrees that upon an Event of Default, Agent, or a designee as designated by Agent, Heller and Sovereign pursuant to the terms of the Intercreditor Agreement, shall have the right to automatically record, at Borrower's sole cost and expense, all such Assignments of Mortgages executed by Borrower and delivered to Agent in accordance with the terms of this Section 3.2. 3.3 FINANCING STATEMENTS. Borrower agrees, at its own expense, to execute the financing statements, continuation statements and amendments provided for by the Code together with any and all other instruments or documents and take such other action as may be required to perfect and to continue the perfection of Agent's security interests in the Collateral. Borrower hereby authorizes Agent to execute and/or file on Borrower's behalf any such financing statements, continuation statements and amendments. 3.4 PRIORITY OF EACH LENDER'S LIENS. Each Lender shall have an equal security interest in the Collateral based upon its Pro Rata Percentage and no Lender's security interest in the Collateral shall have priority over any other Lender's security interest in the Collateral. 3.5 INSURANCE. Insurance coverage with respect to the Resort(s) is provided by the Timeshare Owners' Association. Borrower shall furnish Agent, upon request, with satisfactory evidence that the Units, Buildings and Resorts are adequately insured. Borrower shall furnish to Agent evidence of insurance coverage with respect to the Land, that portion of the Additional Resort Collateral constituting real property and such other portion of the Additional Resort Collateral as Agent may reasonably request. Such insurance coverage shall insure against such risks, be in such amounts, with such companies and on such other terms as Agent may reasonably require. Each such policy shall name Agent as an additional insured and loss payee as agent for Lenders, as their respective interests may appear. In the event of a loss or damage to any portion of the Additional Resort Collateral constituting real property, Borrower shall, unless an Event of Default exists, apply the proceeds of any such insurance policy to restoration and repair of the Additional Resort Collateral in question in accordance with the applicable Declaration. If an Event of Default has occurred, Agent may, in its sole discretion, apply the proceeds of any such insurance policy to restoration and repair of such Additional Resort Collateral in question in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof. 3.6 PROTECTION OF COLLATERAL; REIMBURSEMENT. The portion of the Collateral consisting of: (i) the original Pledged Notes Receivable (including, but subject to Section 3.2 hereof, the Ineligible Note Portfolio), (ii) the original Mortgages, (iii) the original purchase contract (including addendum) related to such Pledged Notes Receivable and Mortgages, and (iv) originals or true copies of the related truth-in-lending disclosure, loan application, warranty deed, and if required by Agent, the related Purchaser's acknowledgement receipt and the Exchange Company application and disclosures, shall be delivered at Borrower's expense to Agent, as agent for Lenders, at its East Hartford, Connecticut office, and held in Agent's possession and control until the Obligations are fully satisfied; and Borrower shall pay to Agent at the time of each Advance, to reimburse Agent for Agent's administrative costs, a custodial fee of $10.00 for each Pledged Note Receivable (and related Collateral) delivered into Agent's physical possession. The portion of the Collateral delivered to Agent as described above shall be segregated by Agent and stored in a fire-resistant filing cabinet; and Borrower agrees that such storage is and shall be deemed to constitute reasonable care by Agent with respect to such Collateral. All insurance expenses and all expenses of protecting the Collateral, including without limitation, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, and any and all excise, property, intangibles, sales and use taxes imposed by any state, federal or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrower; and if Borrower fails to promptly pay any portion thereof when due, Agent may, at its option, but shall not be required to, pay the same and charge Borrower's account therefor, and Borrower agrees promptly to reimburse Agent therefor with interest accruing thereon daily at the Default Rate. All sums so paid or incurred by Agent for any of the foregoing and any and all other sums for which Borrower may become liable hereunder and all costs and expenses (including attorneys' and paralegals' fees, legal expenses and court costs) which Agent may incur in enforcing or protecting its Lien on, or rights and interest in, the Collateral or any of its rights or remedies under this Agreement or any other Loan Document or with respect to any of the transactions hereunder or thereunder, until paid by Borrower to Agent with interest at the Default Rate, shall be included among the Obligations, and, as such, shall be secured by all of the Collateral. Provided that Agent retains the original Pledged Notes Receivable and Mortgages, and originals or copies of the related Timeshare Documents delivered to it and listed above, in a fire-resistant filing cabinet as provided above, Agent shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, Lockbox Agent, Servicing Agent or any other Person whomsoever. 3.7 ADDITIONAL ELIGIBLE RESORTS. From time to time during the Term, Borrower may propose to Agent that one or more additional time-share plans and projects owned and operated by Borrower be included among the Eligible Resorts in respect of which Advances may be made. Any such proposal will be in writing, and will be accompanied or supported by the due diligence and supporting Borrower, Affiliate, project, financial and related information identified in Section 4.5 hereto, and such other information as Agent may require. Borrower will reasonably cooperate with Agent's underwriting and due diligence, and Borrower will be responsible for payment upon billing for Agent's out-of-pocket expenses in connection therewith. Subject to: (i) Agent's satisfactory underwriting and due diligence review, including satisfaction of the conditions in Sections 4 and 5 hereof as they relate to such additional time-share resorts, and (ii) consent of such Lenders (including TFC) whose total Pro Rata Payment Percentage is equal to or exceeds sixty-six and two-thirds percent (66 2/3%) of the outstanding principal balance of the Loan, Agent may, but shall not be required to, approve one or more such additional time-share resorts, including future phases or condominiums in an Existing Eligible Resort, as an Eligible Resort qualifying for Advances under and subject to the terms of this Agreement and the other Loan Documents. Notwithstanding the foregoing, in the event that a Lender does not consent to the approval of such additional time-share resort, then such Lender shall not be obligated to fund any Advances hereunder with respect to Pledged Notes Receivable originating from such resort. Subject in each instance to Agent's acceptable underwriting and due diligence review, consent of such Lenders (including TFC) whose total Pro Rata Payment Percentage is equal to or exceeds sixty-six and two-thirds percent (66 2/3%) of the outstanding principal balance of the Loan and Agent's prior written approval, any project as may be approved by Agent and Lenders after the Effective Date, if any, is hereinafter referred to as an "Additional Eligible Resort". Any Advances hereunder with respect to any Additional Eligible Resort will be subject to all terms and conditions of this Agreement and the other Loan Documents. Notwithstanding anything in this Section 3.7 to the contrary, Agent may, in its sole and absolute discretion, require that the Lenders (including TFC) unanimously consent to the approval of any project as an Additional Eligible Resort. 3.8 MODIFICATION OF ELIGIBLE NOTES RECEIVABLE. Notwithstanding anything herein to the contrary, Borrower shall have the right to modify the interest rate and term only of the Eligible Notes Receivable without Agent's prior consent, provided that: (i) any such change in the rate of interest on any one or more Eligible Notes Receivable shall not reduce the average interest rate on all Eligible Notes Receivable to less than twelve and one half percent (12 1/2%) per annum at any time; (ii) the term of no Eligible Notes Receivable shall be increased to a term longer than one hundred twenty (120) months from its original date; (iii) at no time may Borrower so modify the terms of Eligible Notes Receivable constituting more than fifteen percent (15%) of the outstanding principal balance of all Eligible Notes Receivable at any time; (iv) Borrower immediately provides Agent with notice of any such modification together with any original documentation evidencing such modification and (v) no Eligible Note Receivable is modified more than once in any twelve (12) month period or more than twice during the term of such Eligible Note Receivable. 3.9 ASSUMPTION OF OBLIGATIONS UNDER ELIGIBLE NOTES RECEIVABLE. Notwithstanding anything herein to the contrary, upon the sale by a Purchaser of an Interval, the new Purchaser of the Interval may be substituted as obligor under the Eligible Note Receivable in question, provided that: (i) said new Purchaser assumes in writing all of the obligations of the original obligor under the Eligible Note Receivable in question; (ii) the Eligible Note Receivable continues to meet all of the criteria for an Eligible Note Receivable as set forth herein and (iii) the new Purchaser has made a cash down payment equal to at least 10% of the original sales price of the Interval in question, which down payment shall be in addition to the cash down payment made by the original obligor. 3.10 TAX REFUND. Borrower agrees that it shall use the proceeds of the Tax Refund strictly to fund Operating Expenses in accordance with the Business Plan and for no other reason, without Agent's prior written consent. Borrower agrees to use the Tax Refund before requesting any Advance hereunder. Upon request of Agent, Borrower shall promptly provide to Agent such evidence as Agent may request as to the manner in which the proceeds of the Tax Refund are being used. 3.11 PURCHASER/CRITERIA. All Eligible Notes Receivable pledged as Collateral to Agent subsequent to the Effective Date will be underwritten in a manner consistent with the Borrower's general underwriting criteria, as approved in writing by Agent, including, without limitation: (i) the requirement that a majority of sales shall be made to Purchasers with minimum annual income as follows: $35,000 for purchasers residing in the state of Texas, $40,000 for purchasers residing in the state of Illinois, and $45,000 for purchasers residing in the state of Massachusetts, (ii) the requirement that each Purchaser shall have a major credit card issued in his or her name, with a copy of such credit card maintained in Borrower's file for such Purchaser, and (iii) the requirement that the weighted average FICO Credit Bureau Scores of all Purchasers with respect to which a FICO score can be obtained be not less than 640, provided that the aggregate outstanding principal balance of Eligible Notes Receivable pledged to Agent with respect to which a FICO score can not be obtained, does not exceed ten percent (10%) of the aggregate outstanding principal amount of all Eligible Notes Receivable pledged to Agent. Borrower shall not materially alter its general underwriting criteria without the prior written approval of Agent, which approval, Agent may withhold in its sole discretion. 3.12 REPLACEMENT NOTES RECEIVABLE. Except as may be provided in the Business Plan, Ineligible Notes Receivable, as such term is defined in Section 2.5(b), shall be replaced with Eligible Notes Receivable, to the extent available, on a dollar for dollar basis, provided, however, that if Borrower is unable to deliver Eligible Notes Receivable to replace any Ineligible Notes Receivable, Borrower shall deliver additional Notes Receivable, if available, to Agent whether or not such additional Notes Receivable satisfy the criteria for Eligible Notes Receivable. In the event that any Eligible Note Receivable becomes available thereafter, the Borrower shall promptly substitute such Eligible Note Receivable for the Ineligible Note Receivable pledged to Agent. 3.13 CROSS COLLATERALIZATION. The Collateral also secures the Obligations of Borrower under the Additional Credit Facility, the Inventory Loan, and the Tranche C Facility. Upon repayment of this Loan and the satisfaction by Borrower of all of the Obligations under this Loan, the Collateral shall continue to secure the Additional Credit Facility, the Inventory Loan and the Tranche C Facility, as provided in the documents evidencing and securing the Additional Credit Facility, the Inventory Loan and the Tranche C Facility. Borrower further acknowledges and agrees that upon repayment in full of the Heller Facility and/or the Sovereign Facility, Agent's security interest in the collateral securing such facilities shall automatically become a first priority security interest securing the Borrower's Obligations hereunder and under the Additional Credit Facility, the Tranche C Facility and the Inventory Facility and Borrower shall take such steps as Agent may request to deliver such collateral to Agent and to confirm Agent's first priority security interest therein. Notwithstanding the foregoing: (a) when the Term Loan Component and the Inventory Loan are paid in full, the Additional Resort Collateral shall be released from the Lien of the security interest granted to Agent hereunder provided: (i) an Event of Default has not occurred; and (ii) the Additional Resort Collateral is also released from any lien granted to Sovereign pursuant to the Sovereign Documents; (b) when both the Term Loan Component and the Inventory Loan are paid in full, the Silverleaf Finance I, Inc. Stock shall be released from the Lien of the security interest granted to Agent hereunder provided: (i) an Event of Default has not occurred; and (ii) the Silverleaf Finance I, Inc. Stock is also released from any lien granted to Sovereign pursuant to the Sovereign Documents. SECTION 4 -- CONDITIONS PRECEDENT TO THE CLOSING 4.1 CONDITIONS PRECEDENT. The obligation of Agent and Lenders under this Agreement and the obligation to fund any Advance, including the initial Advance, hereunder shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and are correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Agent. (b) NO PROHIBITED ACTS. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of this Agreement or the Loan Documents. (c) NO CHANGES. That all information and documents heretofore delivered by Borrower to Agent with respect to Borrower, the Business Plan or the Existing Resorts, including information and documents delivered in connection with the Additional Credit Facility, the Forbearance Agreement, the Tranche C Facility and the Inventory Loan, remain true and correct in all respects. (d) APPROVAL OF DOCUMENTS PRIOR TO EFFECTIVE DATE. Borrower has delivered to Agent (with copies to Agent's counsel), prior to the Effective Date, and Agent has reviewed and approved, prior to the Effective Date, the form and content of all of the items specified in Subsection 4.1(d)(i) through (vi) below (the "SUBMISSIONS"). Agent shall have the right to review and approve any changes to the form of any of the Submissions. If Agent disapproves of any changes to any of the Submissions, Agent shall have the right to require Borrower either to cure or correct the defect objected to by Agent or to elect not to fund the Loan or any Advance. Under no circumstances shall Agent's failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower's sole cost and expense, unless expressly stated to be an obligation and expense of Agent. Agent shall have the right of prior approval of any Person responsible for preparing a Submission ("PREPARER") and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Agent believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Agent and include the following language: "THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION AS AGENT FOR EACH LENDER IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL." (i) A certificate in the form attached as Exhibit A, to be dated as of the Effective Date and signed by the president, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4.1(a), (b) and (c) above are true; (ii) Copies of any amendments to the articles of incorporation of Borrower not previously delivered to Agent, certified to be true and complete by Borrower and the Secretary of State of the State of Texas and a current certificate of good standing for Borrower, and copies of any amendments to the by-laws of Borrower not previously delivered to Agent, certified to be true, correct and complete by the secretary or assistant secretary of Borrower; (iii) A certificate of the Secretary of Borrower certifying the adoption by the Board of Directors of Borrower of a resolution authorizing Borrower to enter into and execute this Agreement, the Notes, and the other Loan Documents, to borrow the Loan from Lenders, and to grant to Lenders a first priority security interest in and to the Collateral; (iv) A certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign the Agreement, the Notes and the other Loan Documents; and (v) Copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower not previously delivered to Agent. (e) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have delivered to Agent, on or before the Effective Date, the following Loan Documents, each of which shall be in the form of the respective Loan Documents attached hereto as Exhibit A, and each of which when required, shall be in recordable form: (i) THIS AGREEMENT. (ii) CLOSING OPINIONS FOR BORROWER. (iii) REVOLVING LOAN COMPONENT NOTE. (iv) TERM LOAN COMPONENT NOTE. (v) ADDITIONAL RESORT COLLATERAL MORTGAGE. (vi) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. (vii) STOCK PLEDGE AGREEMENT. Together with delivery of all original stock certificates indorsed to Agent, as agent for each Lender and Sovereign. (viii) ASSIGNMENT OF MORTGAGES. (ix) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. (x) ENVIRONMENTAL INDEMNITY AGREEMENT. An Environmental Indemnity Agreement, executed by Borrower in favor of each Lender. (xi) LOCKBOX AGREEMENT CONFIRMATION. The Lockbox Agreement confirmation, executed by Lockbox Agent, Agent, on behalf of each Lender, and Borrower. (xii) MODIFICATION TO LAND MORTGAGES. Borrower shall have executed and delivered to Agent, on or before the date hereof, modifications to the Land Mortgages, each of which shall be in the form attached hereto as Exhibit A, and each of which shall be in recordable form. (xiii) STANDBY SERVICING AGREEMENT ASSIGNMENT. (xiv) INTERCREDITOR AGREEMENT. Borrower, Heller and Sovereign shall have executed and delivered to Agent, on or before the date hereof, the intercreditor agreement, in the form attached hereto as Exhibit A. (xv) FINANCING STATEMENTS. Original UCC financing statements covering the Collateral, filed with the Secretary of State of Texas. (xvi) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. (xvii) ASSIGNMENT OF MANAGEMENT AGREEMENTS. (xviii) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Agent may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Agent as agent for Lenders contemplated by the Loan Documents, and to effectuate the transactions contemplated herein. (f) HELLER FACILITY AND SOVEREIGN FACILITY MODIFICATION. On or before the Effective Date, Borrower shall deliver to Agent, evidence satisfactory to Agent, that the Heller Facility and the Sovereign Facility have each been modified in accordance with the Business Plan and Agent has been provided with copies of all of the executed Heller Documents modifications and the executed Sovereign Documents modifications; (g) EFFECTIVE DATE CONDITIONS. On or before the Effective Date, the following conditions shall be satisfied: (i) PHYSICAL INSPECTION. Agent shall be satisfied with its physical inspection of the Resorts. (ii) UCC SEARCH. Agent shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under Texas, and other applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Agent shall not be obligated to fund any Advance if Agent determines that Lenders do not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein. (iii) LITIGATION SEARCH. Agent shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Resorts, any portion of the Collateral, Borrower, or any Affiliates of Borrower (each a "Material Party"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Agent determines in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lenders shall not be obligated to fund any Advance if Agent determines that any such litigation is pending. (iv) TITLE SEARCHES. Title Searches for each real property comprising the Additional Resort Collateral and each real property comprising the Land, together with legible copies of each exception or matter noted thereon. (v) TITLE INSURANCE POLICIES: (1) Borrower shall deliver to Agent, with respect to each parcel of real property comprising the Land, an endorsement to the existing mortgagee's title insurance policy (the "LAND MORTGAGE TITLE POLICY ENDORSEMENT") updating each applicable policy previously issued with respect to the Land through the date hereof and indicating that the applicable Land Mortgage, as modified to date, is a first priority Lien on the land in question. Such Land Mortgage Title Policy Endorsement shall be an amount equal to the fair market value of the Land, and issued by companies and in form and substance satisfactory to Agent in its sole discretion. (2) Borrower shall deliver to Agent, with respect to each parcel of real property comprising the Additional Resort Collateral, a mortgagee's title insurance policy (the "ADDITIONAL RESORT COLLATERAL TITLE POLICY") in the full amount of the appraised value of each such parcel, indicating that the applicable Additional Resort Mortgage is a first priority Lien on the parcel in question. The title policy shall be in form and substance, and contain such endorsements, as are satisfactory to Agent in its sole discretion, and shall be issued by a title insurance company satisfactory to Agent. (3) Borrower shall be responsible for the payment of all costs and expenses of the foregoing title policies and endorsements. (vi) INTENTIONALLY OMITTED. (vii) SURVEYS. To the extent not previously delivered to Agent, Borrower shall deliver to Agent, at its sole cost and expense: (i) an ALTA survey of each parcel comprising the Additional Resort Collateral and the Land, which surveys shall be in form and substance satisfactory to Agent and the applicable title company, and shall be certified by the surveyor to Agent and the applicable title company, on such form of certification as may be approved by Agent; or (ii) legible recorded plats of the parcel comprising the Additional Resort Collateral and the Land, provided such recorded plats are in form and substance reasonably satisfactory to Agent and Title Company and are sufficient to remove the survey exception from the title policy issued with respect thereto. (viii) RECORDING OF MODIFICATIONS TO LAND MORTGAGES AND ADDITIONAL COLLATERAL MORTGAGES. The Additional Resort Collateral Mortgages and modifications to the Land Mortgages shall have been duly recorded in the applicable land records for each state in which the Land and the Additional Resort Collateral is located. (ix) ENVIRONMENTAL REPORT. To the extent not previously delivered to Agent, an Environmental Report or Reports covering the Land and that portion of the Additional Resort Collateral which is real property confirming: (1) that soil conditions are sufficient to support all existing and any contemplated improvements to such real property; (2) the absence of Hazardous Materials on such real property; (3) that the issuer of the report has obtained, reviewed and included with its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable and state local authorities and such other information as Agent may reasonably require, including without limitation a Phase I environmental audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from the real property in question, or in such proximity thereto as to create a material risk of contamination thereof. (x) INSURANCE. Evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (xi) GOVERNMENTAL PERMITS. To the extent not previously delivered to Agent, copies of all applicable government permits, approvals, consents, licenses and certificates with respect to the use and operation of the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property; (xii) TAXES. Evidence satisfactory to Agent that all taxes and assessments owed by or for which Borrower is responsible for collection had been paid with respect to the Resorts and the Collateral, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangible taxes, real property taxes and any assessments related to the resorts or the Collateral. Copies of the most current tax bills for the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property shall be provided to Agent; (xiii) DZ FACILITY. Evidence satisfactory to Agent that the DZ Facility has closed on terms and conditions set forth in the DZ Letter Agreement and has been documented in form and substance reasonably satisfactory to Agent and Agent has been provided with copies of all of the executed DZ Documents. (xiv) LOAN PAYDOWN FROM THE PROCEEDS OF THE DZ FACILITY. Interest on the Revolving Loan Component and the Term Loan Component shall be paid in full to the Effective Date and approximately $12,274,000 shall be paid down on the principal balance of the Revolving Loan Component. Interest on the Heller Facility shall be paid in full to the Effective Date. Interest on the Sovereign Facility shall be paid in full to the Effective Date and approximately $9,504,000 shall be paid down on the principal balance of the Sovereign Facility. (xv) STANDBY MANAGER. Borrower will have entered into the Standby Management Agreement in form and substance satisfactory to Agent, in its sole discretion, with the Standby Manager. On and after an Event of Default, the Standby Manager shall be responsible for, among other things: (i) managing the operation of the Resorts, the related amenities, the Additional Resort Collateral and any other Collateral that Agent deems necessary, (ii) monitoring or supervising the marketing, sale, resale and financing of Intervals pledged to Agent as Collateral and (iii) such other duties and responsibilities Agent may request, from time to time, in its sole discretion, which are related to the operation of the Resorts and related amenities, the Additional Resort Collateral, the Intervals and any other Collateral that Agent deems necessary. Borrower shall provide Agent with a list in form and substance satisfactory to Agent, in its sole discretion, of the duties and responsibilities associated with the operation of the Resorts. (xvi) FORBEARANCE AGREEMENT. All of the terms and conditions of the Forbearance Agreement shall have been satisfied to the satisfaction of Agent and Agent shall have determined that no Forbearance Termination Event shall have occurred and be continuing. (xvii) BOND HOLDER EXCHANGE TRANSACTION CONSUMMATION. Evidence satisfactory to Agent in its sole discretion that the Bond Holder Exchange Transaction outlined in the Bond Holder Exchange Transaction Letter, a copy of which is attached hereto as Exhibit E, as approved by Agent, has been accepted by the requisite number of bond holders and the Bond Holder Exchange Transaction shall have fully closed. Agent shall be provided with copies of all of the executed Bond Holder Exchange Documents. (xviii) ZONING. To the extent not previously provided by Borrower to Agent, and if requested by Agent, evidence that the use and operation of the portions of the Additional Resort Collateral comprised of real property comply with all applicable zoning, building, health, safety and fire codes and regulations. (xix) RESORT CONSULTANT. The Borrower, at its own expense, shall retain a consultant of recognized standing, acceptable to Agent in its sole discretion (the "Resort Consultant"). The Resort Consultant shall have such duties and responsibilities as Agent may request, in its sole discretion, from time to time, including without limitation: (1) preparation of a report evaluating Borrower's business and the operation of the Resorts to be delivered to Agent within ten (10) days after the Effective Date; (2) on an ongoing basis monitoring: (a) the operations of Borrower, including the offer and sale of Intervals by Borrower and the financing by Borrower of such sales, (b) Borrower's compliance with the Business Plan, (c) Borrower's operation of the Silverleaf Club and (d) Borrower's and/or Silverleaf's Club's management and operation of the Resorts, the related amenities and the Additional Resort Collateral; and (3) submission of weekly written reports to Agent as to the foregoing. The Agreement with the Resort Consultant shall be in form and substance acceptable to Agent in its sole discretion and shall be assigned by Borrower to Agent as security for the Obligations. Notwithstanding the foregoing, Borrower and Agent acknowledge and agree that the Resort Consultant may also perform the duties of the Standby Manager. (xx) ESTOPPEL LETTERS. Borrower shall deliver to Agent, with respect to each Resort, an estoppel letter, executed by the applicable Timeshare Owners' Association in the form attached hereto as Exhibit A. IN THE EVENT THAT AGENT DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT ANY OF THE CONDITIONS SET FORTH IN SECTION 4.1, 4.3, OR 4.4 ARE NOT SATISFIED ON OR BEFORE MAY 31, 2002, THEN THIS AGREEMENT, AND THE OBLIGATIONS OF AGENT AND EACH LENDER HEREUNDER, SHALL BE NULL AND VOID IN ALL RESPECTS AB INITIO. IN SUCH EVENT, THE ORIGINAL LOAN AGREEMENT AND THE TERMS AND CONDITIONS THEREIN SET FORTH, AS MODIFIED BY THE FORBEARANCE AGREEMENT, SHALL GOVERN AND CONTROL BORROWER'S OBLIGATION WITH RESPECT TO REPAYMENT IN FULL OF THE OBLIGATIONS, AS SUCH TERM IS DEFINED IN THE ORIGINAL LOAN AGREEMENT. 4.2 EFFECTIVE DATE ADVANCES. In the event that Borrower desires Lenders to make an Advance on the Effective Date, then, in addition to all of the conditions precedent set forth in this Section 4, Borrower shall have complied with all of the requirements of Section 5 below at least five (5) Business Days prior to the Effective Date. 4.3 EXPENSES. Borrower shall have paid all fees and expenses required to be paid pursuant to this Agreement. Lenders shall have no obligation to fund any Loan or make the initial Advance or any subsequent Advance unless (a) the amount of the initial Advance together with any moneys paid by Borrower is sufficient to satisfy all fees and expenses required to be paid pursuant to this Agreement, and (b) the Advance will not be used for any of the uses set forth in Section 6.11. 4.4 PROCEEDINGS SATISFACTORY. Borrower shall execute all of the Loan Documents approved by Agent on the Effective Date, and all actions taken in connection with the execution or delivery of the Loan Documents, and all documents and papers relating thereto, shall be satisfactory to Agent and its counsel. Agent and its counsel shall have received copies of such documents and papers as Agent or such counsel may reasonably request in connection therewith, all in form and substance satisfactory to Agent and its counsel. 4.5 CONDITIONS PRECEDENT TO FUNDING OF ADVANCES WITH RESPECT TO ADDITIONAL ELIGIBLE RESORTS. As provided in Section 3.7 hereof, Borrower may propose to Agent that Agent approve one or more additional timeshare plans for inclusion hereunder as an Additional Eligible Resort in respect of which Advances may be made. The obligation of Lenders to fund any Advances with respect to an Additional Eligible Resort shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and shall be correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Agent. (b) NO PROHIBITED ACTS. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of the Loan Documents. (c) APPROVAL OF DOCUMENTS PRIOR TO ADVANCE. Borrower has delivered or caused to be delivered to Agent (with copies to Agent's counsel), at least fifteen (15) Business Days prior to the date of each Advance, and Agent has reviewed and approved, at least five (5) Business Days prior to the date of each Advance, the form and content of all of the items specified in each of the Submissions required pursuant to this Section 4.5. Agent shall have the right to review and approve any changes to the form of any of the Submissions. If Agent disapproves of any changes to any of the Submissions, Agent shall have the right to require Borrower either to cure or correct the defect objected to by Agent or to elect on behalf of Lenders not to fund the Loan or any Advance. Under no circumstances shall Agent's failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower's sole cost and expense, unless expressly stated to be an obligation and expense of Agent. Agent shall have the right of prior approval of any Preparer and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Agent believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Agent and include the following language: "THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION AS AGENT FOR EACH LENDER IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL." (i) a certificate in the form attached as Exhibit A, to be dated as of the date of each such Advance and signed by the president, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4.5(a) and (b) above are true; (ii) copies of the articles of incorporation of Borrower, together with any amendments thereto certified to be true and complete by Borrower and the Secretary of State of the State of Texas, a current certificate of good standing for Borrower issued by the Secretary of State of the State of Texas, a current certificate of authority to conduct business issued by the secretary of state in each state in which Borrower conducts business, and copies of the by-laws of Borrower certified to be true, correct and complete by the secretary or assistant secretary of Borrower; (iii) except for the Resorts listed on Schedule 4.5(c)(iii) (the "CROWN RESORTS"), a Survey for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent in connection with the Advance in question; and with respect to each Crown Resort, a legible, full size copy of the recorded plat for each such Resort; (iv) a certificate of the secretary or assistant secretary of Borrower certifying the adoption by the board of directors thereof, respectively, of a resolution authorizing the addition of the Resort in question as an Additional Eligible Resort and to authorize Borrower to enter into, execute and deliver any Documents in connection therewith; (v) a certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign all documents required in connection with such Additional Eligible Resort as required pursuant to this Section 4.5; (vi) an inspection report or reports covering each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent in connection with the Advance in question, including without limitation all real property and personal property subject to the Declaration and all adjacent property, confirming: (1) the absence of Hazardous Materials on the personal property and real property comprising each such Additional Eligible Resort; (2) that the inspection firm has obtained, reviewed and included within its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable state and local authorities and a Phase I Environmental Audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from each such Additional Eligible Resort or in such proximity thereto as to create a material risk of contamination of each such Additional Eligible Resort; (vii) evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (viii) evidence that Borrower and the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question are in compliance with all applicable laws in connection with its sales of Intervals, including without limitation, the Timeshare Acts; (ix) a current preliminary title report or certificate of title for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent in connection with the Advance in question, with copies of all title exceptions; (x) copies of all applicable governmental permits, approvals, consents, licenses, and certificates for the establishment of each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question as timeshare projects in accordance with the applicable Timeshare Act, and for the occupancy and intended use and operation of each such Additional Eligible Resort, including the Units, including a letter certification from Borrower regarding zoning classification and compliance, letters or other satisfactory evidence from utility companies, governmental entities or other persons confirming that water, sewer (sanitary and storm), electricity, solid waste disposal, telephone, police, fire and rescue services are being provided to each Resort, and any business licenses necessary for operation of each such Additional Eligible Resort; (xi) certified true, correct and complete copies of all of the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question; (xii) evidence satisfactory to Agent that all taxes and assessments owed by or for which Borrower is responsible for collection have been paid, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangibles taxes, real property taxes, and income taxes, and any assessments related to each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question and copies of the most current paid tax bills for each such Additional Eligible Resort evidencing that each such Additional Eligible Resort have been segregated from all other property on the applicable municipal taxrolls; (xiii) written confirmation from an architect covering each Additional Eligible Resort, other than a Crown Resort, for which Eligible Notes Receivable are being pledged to Agent as agent for Lenders in connection with the Advance in question as to the physical condition of the improvements at each such Additional Eligible Resort, including that soil conditions are sufficient to support all existing and any contemplated improvements to the real property; which written confirmation shall be in form and substance reasonably acceptable to Agent. Each architect rendering such written confirmation shall be licensed as an architect in the state of Texas; (xiv) such credit references on Borrower as Agent deems necessary in its sole discretion; (xv) copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower, if any; (xvi) a commitment to issue Mortgagee Title Policies from Title Company for each such Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, Agent and each Lender agree that Borrower shall not be required to provide such a commitment or a Mortgagee Title Insurance Policy with respect to any Crown Resort (other than the Quail Hollow Resort), or, until such time as deeded Intervals are permitted under local law governing the Oak N' Spruce Resort, the Oak N' Spruce Resort in order to qualify any such Resort as an Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, if any claim, lien, encumbrance, charge or other matter arises with respect to any Interval or Intervals for which an Eligible Note Receivable has been pledged to Agent as agent for Lenders pursuant to this Agreement, then, in such event: (a) The Note Receivable with respect to the Interval in question shall cease to be an Eligible Note Receivable and Borrower immediately shall either replace the Note Receivable in question or make a Mandatory Prepayment as provided in Section 2.5(b) hereof; and (b) The Resort at which the Interval in question is located shall cease to be an Additional Eligible Resort, unless and until Borrower shall cure any such claim, lien, encumbrance, charge or other matter to the satisfaction of Agent. Furthermore, any and all further requests for Advances in respect of such Resort must be accompanied by satisfactory Mortgagee Title Policies for all Intervals with respect to which such Advances are requested. (xvii) the Financial Statements; (xviii) to the extent not previously delivered hereunder or in connection with the Existing Credit Facility or the Inventory Loan, Borrower will execute, or cause to be executed with respect to each Additional Eligible Resort, a confirmation that the Assignment of Additional Resort Collateral covers any management agreement with respect to such Additional Resort, an Assignment of Notes Receivable and Mortgages, Borrower's Affidavit with Respect to the Additional Eligible Resorts and an Environmental Indemnification Agreement, each in the form attached hereto as Exhibit A; (xix) with respect to any improvements, including any Units, constructed at a Resort within the twenty-four month period prior to any Advance with respect to an Additional Eligible Resort, Borrower shall also deliver to Agent, for its approval, such documents and instruments as Agent may reasonably request in connection with such newly constructed improvements, including, without limitation, copies of building permits, plans and specifications, construction and architectural contracts, title insurance insuring over, among other things, mechanics liens, certificates of occupancy and satisfactory evidence of the completion of such improvements; (xx) such other documents, instruments, agreements, tests, reports and inspections as Agent may require with respect to Borrower or any applicable Affiliate, the Loan or any Resort, including any Additional Eligible Resort; and (xxi) Upon request of Agent, Borrower shall deliver to Agent evidence, satisfactory to Agent, that there is no material litigation, written complaint, suit, action, written claim or written charge pending against Borrower or any Affiliate with any court or with any governmental authority with respect to the Resort, the Timeshare Documents, any Eligible Notes Receivable, any Interval, or any marketing, offer or sale of any Interval. (d) PHYSICAL INSPECTION. Agent shall be satisfied with its physical inspection of the Additional Eligible Resorts. (e) UCC SEARCH. Agent shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under all applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Agent shall not be obligated to fund any Advance if Agent determines that Lenders do not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein. (f) LITIGATION SEARCH. Agent shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Additional Eligible Resorts, any portion of the Collateral, Borrower, or any Affiliate, (each a "MATERIAL PARTY"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Agent determines, in its sole discretion, exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Agent shall not be obligated to fund any Advance if it determines that any such litigation is pending. (g) OPINIONS OF BORROWER'S COUNSEL. Borrower shall deliver to Agent, for the benefit of Agent and each Lender, at Borrower's sole cost and expense, such opinions of counsel, including counsel admitted in each state in which each Additional Eligible Resort is located, as to such matters with respect to Borrower and each Additional Eligible Resort as Agent may request, and in form and substance acceptable to Agent in its sole discretion. (h) FUNDING PROCEDURE. Borrower shall have complied to Agent's satisfaction with each of the conditions precedent to funding of an Advance set forth in Section 5 hereof. (i) MANAGEMENT OF RESORT. Borrower shall provide evidence satisfactory to Agent that Borrower, or an Affiliate, is the manager or operator of each Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Agent, which with respect to all Resorts (other than the Crown Resorts) shall have a term which shall expire no earlier April 1, 2009. With respect to each Crown Resort only, each such Resort may qualify as an Additional Eligible Resort (subject to satisfaction by Borrower of the conditions set forth in this Section 4.5), so long as Borrower, or an Affiliate, is the manager or operator of each such Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Agent. Borrower agrees to provide an estoppel letter, in form and substance acceptable to Agent, from the applicable Timeshare Owner's Association. Each such management agreement constitutes a part of the Additional Resort Collateral and is assigned to Agent, on behalf of Lenders, to secure the Obligations as provided herein. (j) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Agent may request to determine the acceptability of any such Additional Eligible Resort, to evidence the Obligations, to evidence and perfect the rights and Liens and security interests of Agent contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, including, without limitation, true copies of all Resort Documents for each such Additional Eligible Resort, all Timeshare Documents and operating and management contracts and agreements, evidence of compliance with the applicable Timeshare Act and other applicable laws, evidence of all required governmental licenses and permits; title searches; title commitments or policies, including complete and legible copies of each title exception, engineering, environmental and soil reports and evidence of compliance with all applicable zoning and building codes; each of which shall be satisfactory to Agent in its sole and absolute discretion. SECTION 5 -- FUNDING PROCEDURE 5.1 The obligation of any Lender to make any loan shall be subject to the satisfaction of all of the following conditions precedent: (a) REQUESTS FOR ADVANCES. Each request for an Advance shall: (i) be in writing in form attached hereto as Exhibit C and shall certify the amount of the then-current Borrowing Base and the then-current Effective Advance Rate, specify the principal amount of the Advance requested and designate the account to which the proceeds of such Advance are to be transferred; (ii) state that the representations and warranties of Borrower contained in the Agreement and any closing or funding related certifications are true and correct as of the date of the request and, after giving effect to the making of such requested Advance, will be true and correct as of the date on which the requested Advance is to be made; (iii) state that no Default or Event of Default exists as of the date of the request and, after giving effect to the making of such requested Advance, no Default or Event of Default would exist as of the date on which the requested Advance is to be made; (iv) be delivered to the office of Agent at least five (5) Business Days prior to the date of the requested Advance; (v) be signed by a principal financial officer of Borrower; (vi) certify that Borrower has no knowledge of any asserted or threatened defense, offset, counterclaim, discount or allowance in respect of each Note Receivable to be pledged in connection with such requested Advance, or in respect of any of the Pledged Notes Receivable; (vii) contain an aging report of the Pledged Notes Receivable; identifying, among other things, which among them are Eligible Notes Receivable; and (viii) contain a delinquency report which shall be in form and substance satisfactory to Agent and shall show which of such Notes Receivable is delinquent and the duration of such delinquency, and which of such Pledged Notes Receivable is not an Eligible Note Receivable; (b) LOAN DOCUMENTS/COLLATERAL. Not less than five (5) Business Days prior to the date of any Advance, Borrower shall have: (i) delivered to Agent a list of all Eligible Notes Receivable and related Mortgages which are to be the subject of such requested Advance, indicating the unpaid principal balance owing on each of the Pledged Notes Receivable deemed to be an Eligible Note Receivable, together with such additional information as Agent may require; (ii) delivered to Agent (or, if Agent shall so instruct, a designee appointed by Agent in writing) (A) the original of each Pledged Note Receivable (duly endorsed with the words "Pay to the order of Textron Financial Corporation as Agent with recourse"), (B) the original of each Mortgage securing such Pledged Notes Receivable, (C) the original of each purchase contract (including addenda) relating to the Pledged Notes Receivable and Mortgages, (D) originals or true copies of the related truth-in-lending disclosures, loan application, warranty deed, Payment Authorization Agreement and, if required by Agent, the related Purchaser's acknowledgement, receipt and exchange company application, disclosures and materials, and (E) with respect to each Eligible Note Receivable from the sale of Intervals at Oak N' Spruce: (i) the original UCC-1 Financing Statement, naming the Purchaser of the Interval giving rise to the Eligible Note Receivable as debtor and Borrower as secured party (the "PURCHASER FINANCING STATEMENT"), perfecting Borrower's security interest in the applicable Interval to secure the Purchaser's obligations under the Eligible Note Receivable and (ii) a UCC-3 Assignment, naming Borrower as assignor and Agent as assignee on behalf of Lenders, assigning to Agent, on behalf of Lenders, all of Borrower's right, title and interest under each Purchaser Financing Statement. (iii) delivered to Agent a duly executed Assignment of Notes Receivable and Mortgages assigning to Agent all of Borrower's right, title and interest in and to each such Pledged Note Receivable and the related Mortgage; and (iv) subject to Section 4.5(c)(xvi) hereof, delivered to Agent, with respect to each Encumbered Interval, a commitment for a Mortgagee's Title Policy showing that the Mortgage in respect of such Interval has been assigned to Agent and insuring in favor of Agent the first priority Lien of such Mortgage in the amount of the Advance to be made in respect of such Pledged Note Receivable, with a satisfactory title insurance policy to be issued on the date of Advance. The Mortgages and the assignments thereof to Agent shall each have been duly recorded in the applicable land records which are described in Schedule D hereof. The Mortgagee's Title Policies shall be in form and substance satisfactory to Agent and shall be issued by a title insurance company satisfactory to Agent (the "TITLE COMPANY"), and name Agent as the insured party therein as agent for Lenders. The funding of the requested Advance, delivery of the Collateral and issuance of the title insurance policy, and recording of the assignments or any releases may, in Agent's discretion, be effected by way of an escrow arrangement with the Title Company or other fiduciary, the form and substance of which shall be satisfactory to Agent. (c) OTHER CONDITIONS. In addition to the other conditions set forth in this Agreement, the making of the initial or any requested Advance shall be subject to the satisfaction of the following conditions: (i) no Default or Event of Default shall exist immediately prior to the making of such requested Advance or, after giving effect thereto, immediately after the making of such requested Advance; (ii) each agreement required to have been executed and delivered in connection with any prior Advance shall be consistent with the terms of this Agreement and shall be in full force and effect; (iii) the date on which such requested Advance is to be made shall be a Business Day; (iv) Borrower shall have delivered to Agent a certification showing the dollar amount of the requested Advance based on the Eligible Notes Receivable pledged to Agent, and the Notes Receivable being pledged contemporaneously with each requested Advance in the form attached hereto as Exhibit C; (v) not more than one Advance shall have previously been made in the same calendar month in which such requested Advance is to be made, unless Agent, in its sole discretion, agrees to make an additional Advance during such calendar month; (vi) such requested Advance shall be in a principal amount of not less than $50,000, unless Agent, in its sole discretion, agrees to make an Advance in an amount less than $50,000; (vii) Agent shall have determined that the requested Advance, when added to the aggregate outstanding principal amount of all previous Advances, if any, does not, based on the Eligible Notes Receivable that have been duly pledged in favor of Agent: (i) exceed the total amount of the Borrowing Base, or (ii) cause the Effective Advance Rate, determined with respect to the aggregate of the Loan, the Additional Credit Facility and the Tranche C Facility, to exceed 95%; (viii) if Agent shall so require, Agent shall have received an executed closing protection letter issued by the Title Company, which shall be reasonably acceptable to Agent; (ix) each Lender shall have agreed to make and does make an Advance in an amount equal to its respective Pro Rata Percentage; (x) the most recent Weekly Flash Report indicates that Borrower has less than five million dollars ($5,000,000) in available unrestricted cash; (xi) Heller and Sovereign fund their respective portion in accordance with Section 2.1(g) and as provided in the Intercreditor Agreement; and (xii) there are insufficient proceeds from the Tax Refund to pay Operating Expenses as provided in the Business Plan. (d) EXPENSES. Borrower shall have paid all fees and expenses required to be paid by Borrower pursuant to this Agreement in connection with such requested Advance or any conditions related thereto. (e) PROCEEDINGS SATISFACTORY. All actions taken in connection with such requested Advance and all documents and papers relating thereto shall be satisfactory to Agent and its counsel. Agent and its counsel shall have received copies of such documents and papers as Agent or such counsel may reasonably request in connection with such requested Advance, all in form and substance reasonably satisfactory to Agent and its counsel. (f) PARTIAL WAIVER OF REQUIREMENT FOR TITLE INSURANCE POLICIES UPON SATISFACTORY MAINTENANCE OF INVENTORY CONTROL PROCEDURES. Anything in Section 5.1(b)(iv) hereof to the contrary notwithstanding, the delivery of a commitment for a Mortgagee Title Policy and a Mortgagee Title Policy shall be required only with respect to twenty-five percent (25%) of the Eligible Notes Receivable delivered to Agent in respect of each advance, subject to the following requirements and limitations: (i) Borrower shall be in full compliance with the Inventory Control Procedures (as defined in Section 6.23 herein); and (ii) Agent shall have the right in its sole discretion to determine those Eligible Notes Receivable in respect of which commitments for Mortgagee Title Policies and also the Mortgagee Title Policies themselves shall be required. In the event that Borrower fails to satisfy the requirements of Subparagraph 5.1(f)(i), then, immediately upon such failure, the partial waiver provided under this subparagraph shall no longer be effective. SECTION 6 -- GENERAL REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Agent and each Lender as follows: 6.1 ORGANIZATION, STANDING, QUALIFICATION. Borrower: (a) is a duly organized and validly existing Texas corporation duly organized, validly existing and in good standing under the laws of the State of Texas, and (b) has all requisite power, corporate or otherwise, to conduct its business and to execute and deliver, and to perform its obligations under, the Loan Documents. 6.2 AUTHORIZATION, ENFORCEABILITY, ETC (a) The execution, delivery and performance by Borrower of the Loan Documents has been duly authorized by all necessary corporate action by Borrower and does not and will not: (i) violate any provision of the certificate or articles of incorporation of Borrower, bylaws of Borrower, or any agreement, law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect to which Borrower is a party or is subject; (ii) result in, or require the creation or imposition of, any Lien upon or with respect to any asset of Borrower other than Liens in favor of Lenders; or (iii) result in a breach of, or constitute a default by Borrower under, any indenture, loan or credit agreement or any other agreement, document, instrument or certificate to which Borrower is a party or by which it or any of its assets are bound or affected. (b) No approval, authorization, order, license, permit, franchise or consent of, or registration, declaration, qualification or filing with, any governmental authority or other Person, including without limitation, the Division or the Timeshare Owners' Association is required in connection with the execution, delivery and performance by Borrower of any of the Loan Documents. (c) The Loan Documents constitute legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. (d) Borrower has, or will have, good and marketable title to the Collateral, free and clear of any lien, security interest, charge or encumbrance except for the security interests created by this Agreement or any Loan Document or otherwise created in favor of Agent or those specifically consented to in writing by Agent or permitted hereunder. No financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of Lenders hereunder or Agent, Heller or Sovereign as permitted hereunder. (e) The execution and delivery of the Loan Documents, the delivery and endorsement to Agent as agent for Lenders of the Pledged Notes Receivable, the filing of the UCC-1's with the office of the secretary of state of the state in which Borrower is organized and the Assignment of Notes Receivable and Mortgages in the official records of the county in which the applicable Resort is located, create in favor of Agent as agent for Lenders a valid and perfected continuing first or second, as applicable, priority security interest in the Collateral. The Collateral shall secure the full payment and performance of the Obligations. (f) None of the Pledged Notes Receivable is forged or has affixed thereto any unauthorized signatures or has been entered into by any Person without the required legal capacity; and during the term of the Agreement, none will be forged, or will have affixed thereto, any unauthorized signatures. (g) Except as permitted in Sections 3.8 and 3.9 hereof, there have been no modifications or amendments to the Pledged Notes Receivable or Mortgages. (h) The makers of the Eligible Notes Receivable have no defenses, offsets, counterclaims or claims relating to the Eligible Notes Receivable or the Mortgages. (i) The Pledged Notes Receivable and the Mortgages were executed and delivered by Purchasers in favor of Borrower in connection with the purchase of the related Encumbered Intervals. (j) The Mortgages constitute and will constitute valid and enforceable first and prior liens and security interests on the Encumbered Intervals. (k) The Pledged Notes Receivable and the Mortgages are and shall remain in full force and effect, are and will be valid and binding obligations of the respective makers in favor of Agent, as holder on behalf of Lenders; and Borrower further warrants and guarantees the value, quantity, sound condition, grade and quality of the Encumbered Intervals and rights, properties, easements and interests appurtenant or related thereto. (l) The grant of the security interests described herein has not affected and will not affect the validity or enforceability of the obligations of the respective makers of the Pledged Notes Receivable under such Notes Receivable or the respective Mortgages. (m) Neither Agent nor any Lender shall be required to take, and Borrower has taken any and all required steps to protect each Lender's security interest in the Collateral (other than maintaining possession of the portion of the Collateral constituting instruments); and neither Agent nor any Lender is or shall be required to collect or realize upon the Collateral or any distribution of interest or principal, nor shall loss of, or damage to, the Collateral release Borrower from any of the Obligations. 6.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. The Weekly Flash Reports, the Monthly Financial Reports for the first ten (10) months of the calendar year 2001 and the Alternative Financial Models dated December 4, 2001 are, to the best of Borrower's knowledge, accurate and fairly represent the financial condition of the Borrower for the periods in question, subject to the written qualifications set forth therein, including the fact that such statements and reports are preliminary and subject to completion of the audit thereof and that Borrower anticipates adjustments thereto which may significantly affect the results thereof, including an estimated reduction in shareholder equity of $63,000,000. To the best of Borrower's knowledge, there are no material liabilities, direct or indirect, fixed or contingent, of Borrower, except as disclosed to Agent in writing. 6.4 TAXES. In accordance with the requirements set forth in the Declaration, Borrower represents and warrants that Borrower or Timeshare Owners' Association, as required, has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other taxes and assessments against the Resort and the Collateral; and Borrower knows of no basis for any additional taxes or assessments against the Resorts or the Collateral. Borrower or the Timeshare Owners' Association, as the case may be, has filed all tax returns required to have been filed by it and has paid or will pay prior to delinquency, all taxes shown to be due and payable on such returns, including interest and penalties thereon, and all other taxes which are payable by it to the extent the same have become due and payable. Borrower has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other assessments against that portion of the Additional Resort Collateral constituting real property and against the Land, and Borrower knows of no basis for any additional taxes or assessments against the Land or other such real property. 6.5 TITLE TO PROPERTIES: PRIOR LIENS. Borrower has good and marketable title to all of the Collateral and to all unsold Units and Intervals at each Resort, and all rights, properties and benefits appurtenant to or benefiting them. Borrower is not in default under any of the documents evidencing or securing any indebtedness which is secured, wholly or in part, by any portion of any Resort or any portion or all the Collateral and no event has occurred which with the giving of notice, the passage of time or both, would constitute a default under any of the documents evidencing or securing any such indebtedness. Other than the Liens granted in favor of Agent, the Liens granted to secure the Additional Credit Facility, the Tranche C Facility and the Inventory Loan and the Liens described in Schedule 6.5 hereto, there are no liens or encumbrances against the Collateral, or against any Resort. 6.6 SUBSIDIARIES, AFFILIATES AND CAPITAL STRUCTURE. Borrower has no subsidiaries or Affiliates which have any involvement or interest in any Resort in any way. None of the Affiliates of Borrower are parties to any proxies, voting trusts, shareholders agreements or similar arrangements pursuant to which voting authority, rights or discretion with respect to Borrower is vested in any other Person. 6.7 LITIGATION, PROCEEDINGS, ETC. Except for those matters identified in Schedule 6.7 hereto, there are no actions, suits, proceedings, orders or injunctions pending or threatened against or affecting Borrower, the Resort or the Timeshare Owners' Association at law or in equity, or before or by any governmental authority or other tribunal, which (a) could have a material adverse effect on Borrower or (b) relate to the Loan or which could have a material effect on the Collateral or the Resort. Borrower has received no notice from any court, governmental authority or other tribunal alleging that Borrower or the Resort have violated the Timeshare Act, any of the rules or regulations thereunder, the Declaration or any other applicable laws, agreements or arrangements that could have any material effect on the Loan, the Collateral or the Resorts. 6.8 LICENSES, PERMITS, ETC. Borrower, the Resorts, the Timeshare Owners' Associations or Borrower's Affiliates involved in the operations of the Resorts, and, to the best of Borrower's knowledge after diligent inquiry, other Persons involved in the operations of the Resorts, possess all requisite franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions and orders as are necessary to carry on its or their business as now being conducted, without any known conflict with the rights of others and, with respect to Borrower, the Resorts and the Timeshare Owners' Associations, in each case subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title retention agreement or option other than as provided for by this Agreement. Borrower has all permits, licenses and consents for the ownership and use of the Land and the Additional Resort Collateral. 6.9 ENVIRONMENTAL MATTERS. Except as otherwise noted on Schedule 6.9: (a) neither the Land, any portion of the Additional Resort Collateral consisting of real property or any Resort contains any Hazardous Materials, (b) no Hazardous Materials are used or stored at or transported to or from the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, (c) neither Borrower nor the Resorts nor any manager thereof or to Borrower's knowledge, the Timeshare Owners' Associations, have received notice from any governmental agency, entity or other Person with regard to Hazardous Materials on, under or affecting any Resort, the Land or any portion of the Additional Resort Collateral consisting of real property, and (d) neither Borrower nor the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, nor any portion thereof, nor to Borrower's knowledge after diligent inquiry, the Timeshare Owners' Associations, are in violation of any Environmental Laws. 6.10 FULL DISCLOSURE. No information, exhibit or written report or the content of any schedule furnished by or on behalf of Borrower to Agent or any Lender in connection with the Loan or the Resorts contains any material misstatement of fact or omits the statement of a material fact necessary to make the statement contained herein or therein not misleading. Borrower knows of no fact or condition which will prevent the sale of Intervals to Purchasers or prevent the operation of the Resorts in accordance with the Declarations and related public offering statements, and in accordance with applicable law, or prevent Borrower from performing its Obligations pursuant to the Loan Documents. 6.11 USE OF PROCEEDS/MARGIN STOCK. (a) The proceeds of the Loan, the Additional Credit Facility, the Tranche C Facility, the Inventory Loan, the Heller Loan, the Tax Refund, the Sovereign Loan, the DZ Facility and any cash dividend or other cash distribution Borrower receives from Silverleaf Finance I, Inc. will be used strictly in accordance with the Business Plan and for no other purpose and (b) none of the proceeds of the Loan will be used to purchase or carry any "margin stock" (as defined under Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time), and no portion of the proceeds of the Loan will be extended to others for the purpose of purchasing or carrying margin stock. None of the transactions contemplated in the Agreement (including, without limitation, the use of the proceeds from the Loan) will violate or result in the violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. 6.12 DEFAULTS. Except for the Specified Events of Default (as defined in the Forbearance Agreement) during the Forbearance Period (as defined in the Forbearance Agreement), Borrower has no knowledge of any Default or Event of Default not disclosed to Agent in writing. Except for the specified events of default under the forbearance agreement between Borrower and Heller or the forbearance agreement between Borrower and Sovereign, Borrower has no knowledge of any default or event of default under the Heller Documents or the Sovereign Documents, except as disclosed to Agent in writing, and neither Heller nor Sovereign has accelerated any loan obligation of Borrower on account of any such specified default or event of default. 6.13 COMPLIANCE WITH LAW. Borrower (a) is not in violation, nor are any of its Resorts, or the business operations in respect of any of the Resorts, or to Borrower's knowledge after diligent inquiry, the Timeshare Owners' Association, in violation, of the Timeshare Act, or any laws, ordinances, governmental rules or regulations of any state in which a Resort is located, any political subdivision of said states or any other jurisdiction to which Borrower or the Resorts, or the business operations conducted in respect of the Resorts, or the Timeshare Owners' Association, are subject; and (b) has not failed, nor have the Resorts or, to Borrower's knowledge, the Timeshare Owners' Associations failed, to obtain any consents or joinders, or any approvals, licenses, permits, franchises or other governmental authorizations, or to make or cause to be made any filings, submissions, registrations or declarations with any government or agency or department thereof, necessary to the establishment, ownership or operation of the Resorts or any of Borrower's Properties, or to the conduct of Borrower's business, including, without limitation, the operation of the Resorts and the sale, or offering for sale, of Intervals therein; which violation or failure to obtain or register materially adversely affects Borrower, the Resorts or the business, prospects, profits, properties or condition (financial or otherwise) of Borrower or the Resorts. Borrower has, to the extent required by its activities and businesses, and the operations of the Resorts, fully complied with: (1) all of the applicable provisions of (a) the Consumer Credit Protection Act; (b) Regulation Z of the Federal Reserve Board; (c) the Equal Credit Opportunity Act; (d) Regulation B of the Federal Reserve Board; (e) the Federal Trade Commission's 3-day cooling-off Rule for Door-to-Door Sales; (f) Section 5 of the Federal Trade Commission Act; (g) the Interstate Land Sales Full Disclosure Act ("ILSA"); (h) federal postal laws; (i) applicable state and federal securities laws; (j) applicable usury laws; (k) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (l) applicable real estate sales licensing, disclosure, reporting and escrow laws; (m) the Americans With Disabilities Act and related accessibility guidelines ("ADA"); (n) the Real Estate Settlement Procedures Act ("RESPA"); (o) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (p) the Federal Trade Commission's Privacy of Consumer Financial Information Rule and (q) other applicable federal statutes and the rules and regulations promulgated thereunder; and (2) all of the applicable provisions of the Timeshare Acts, any law or laws of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resort, or the sale, offering for sale, or financing of Intervals. 6.14 RESTRICTIONS OF BORROWER. Except for this Agreement and the Loan Documents, the Inventory Loan Documents, the Tranche A Loan Documents, the Tranche C Loan Documents, the Heller Documents and the Sovereign Documents, Borrower will not be, on or after the date hereof, a party to any contract or agreement which restricts its right or ability to incur indebtedness or prohibits Borrower's execution of or compliance with the terms of this Agreement, the other Loan Documents, the Inventory Loan Loan Agreement, the Tranche C Facility Loan Agreement, the Additional Credit Facility Loan Agreement, the Heller Documents, the Bond Holder Exchange Documents, the Sovereign Documents or the DZ Documents. Borrower has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien except in favor of Agent as provided herein, and, with respect to the Land, the Additional Resort Collateral, the Silverleaf Finance I. Inc., Stock and the Ineligible Notes Receivable, in favor of Heller and Sovereign, as applicable. 6.15 BROKER'S FEES. Borrower, Agent and each Lender represent to each other that none of them has made any commitment or taken any action which will result in a claim for any brokers', finders' or other similar fees or commitments with respect to the transactions described in the Agreement. Borrower agrees to indemnify Agent and each Lender and save and hold Agent and each Lender harmless from all claims of any Person for any broker's or finder's fee or commission, and this indemnity shall include reasonable attorneys' fees and legal expenses. 6.16 DEFERRED COMPENSATION PLANS. Borrower has no pension, profit sharing or other compensatory or similar plan (herein called a "Plan") providing for a program of deferred compensation for any employee or officer. No fact or situation, including but not limited to, any "Reportable Event," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974 as the same may be amended from time to time ("Pension Reform Act"), exists or will exist in connection with any Plan of Borrower which might constitute grounds for termination of any Plan by the Pension Benefit Guaranty Corporation or cause the appointment by the appropriate United States District Court of a Trustee to administer any such Plan. No "Prohibited Transaction" within the meaning of Section 406 of the Pension Reform Act exists or will exist upon the execution and delivery of the Agreement or the performance by the parties hereto of their respective duties and obligations hereunder. Borrower will (1) at all times make prompt payment of contributions required to meet the minimum funding standards set forth in Sections 302 through 305 of the Pension Reform Act with respect to each of its Plans; (2) promptly, after the filing thereof, furnish to Agent copies of each annual report required to be filed pursuant to Section 103 of the Pension Reform Act in connection with each Plan for each Plan Year, including any certified financial statements or actuarial statements required pursuant to said Section 103; (3) notify Agent immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any Plan which might constitute grounds for termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a Trustee to administer the Plan; and (4) notify Agent of any "Prohibited Transaction" as that term is defined in Section 406 of the Pension Reform Act. Borrower will not (a) engage in any Prohibited Transaction or (b) terminate any such Plan in a manner which could result in the imposition of a Lien on the Property of Borrower pursuant to Section 4068 of the Pension Reform Act. 6.17 LABOR RELATIONS. The employees of Borrower are not a party to any collective bargaining agreement with Borrower, and, to the best knowledge of Borrower and its officers, there are no material grievances, disputes or controversies with any union or any other organization of Borrower's employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 6.18 RESORT. (a) TIMESHARE PLAN. Each Resort has been established and dedicated, and is and will remain, a time-share plan and project in full compliance with all applicable laws and regulations, including without limitation, the Timeshare Act. (b) ACCESS. Each Resort has direct access to a publicly dedicated road and all roadways inside each Resort are subject to an access and use easement or other dedication or provision that benefits and will continue to benefit all Purchasers. (c) UTILITIES. Electric, sanitary and stormwater sewer, telephone, water facilities and other necessary utilities are available in sufficient capacity to service each Resort and any easements necessary to the furnishing of such utility services have been obtained and duly recorded, and inure to the benefit of each Resort and each Timeshare Owners' Association. (d) AMENITIES. Each Purchaser of an Interval has and will have access to and the full use and enjoyment of all of the Common Elements and public utilities of the Resort in which such interval is located, all in accordance with the Declaration and Timeshare Documents. (e) CONSTRUCTION. All costs arising from the construction or acquisition of any Units and any other improvements and the purchase of any fixtures or equipment, inventory, furnishings or other personalty located in, at, or on the Resorts have been paid or will be paid when due. (f) SALE OF INTERVALS. The marketing, sale, offering of sale, rental, solicitation of Purchasers or, if applicable, lessees, and financing of Intervals in the Resort: (1) do not constitute the sale, or the offering of sale, of Securities subject to the registration requirements of the Securities Act of 1933, as amended, or any state securities law; (2) do not violate the Timeshare Act or any land sales or consumer protection law, statute or regulation of the state where the Resort is located or any other state or jurisdiction in which a Purchaser resides or in which sales or solicitation activities occur; and (3) do not violate any consumer credit or usury statute of state where the Resort is located or any other state or jurisdiction in which a Purchaser resides or in which sales or solicitation activities occur. All marketing and sales activities are performed by employees of Borrower, all of whom are and shall be properly licensed in accordance with applicable laws. (g) TANGIBLE PROPERTY. Except for specific items which may be owned by independent contractors, the machinery, equipment, fixtures, tools and supplies used in connection with the Resort, including without limitation, with respect to the operations and maintenance of the Common Elements, are owned either by Borrower or the applicable Timeshare Owners' Association. (h) OPERATING CONTRACTS. Borrower has entered into the contracts, agreements, and arrangements necessary for the operation of the Resorts, including but not limited to those with respect to utilities, maintenance, management, services, marketing and sales (hereinbelow defined as "Operating Contracts"). 6.19 TIMESHARE REGIMEN REPORTS. Borrower has furnished to Agent true and correct copies of the Timeshare Documents listed on Schedule 6.19, which consist of all those placed on file by Borrower with the Divisions or any federal, state or local regulatory or recording agencies, offices or departments. All such filings and/or recordations, and all joinders and consents, necessary in order to establish the plan in respect of the Resorts, including without limitation, the Units, Intervals, and all appurtenant Common Elements, and all related use and access rights, have been done or obtained and all laws, regulations and statutes, and all agreements or arrangements, in connection therewith have been complied with. 6.20 OPERATING CONTRACTS. The contracts, agreements and arrangements comprising those agreements or arrangements relating to the operation of the Resorts, including without limitation, with respect to utilities, maintenance, management, services, marketing and sales under which the fees to be paid equal or exceed $50,000.00 (collectively, all such agreements and arrangements are referred to herein as the "OPERATING CONTRACTS") are unmodified and in full force and effect and shall remain free and clear of any lien. 6.21 ARCHITECTURAL AND ENVIRONMENTAL CONTROL. All Units, Common Elements and other improvements at, upon or appurtenant to the Resort are and will be in compliance with the design, use, architectural and environmental control provisions, if any, set forth in the Declaration. 6.22 TAX IDENTIFICATION/SOCIAL SECURITY NUMBERS. Borrower's federal taxpayer's identification number is: 75-2259890. 6.23 INVENTORY CONTROL PROCEDURES. Borrower has provided to Agent a true and complete copy of Borrower's Inventory, Sales and Assignments procedures (the "Inventory Control Procedures"), a copy of which is attached hereto as Schedule 6.23. 6.24 LAND. (a) FIRST LIEN. Subject to the other first lien rights of Heller and Sovereign as provided in the Intercreditor Agreement, upon execution and recording of the modification to the Land Mortgages, as modified, Lender will continue to have a valid first lien on the Land. (b) ACCESS. The Land has adequate legal rights of access to a public way. (c) SINGLE TAX LOT. Each portion of the Land constituting real property consists of a single tax lot. No portion of said lot covers property other than the land in question and no portion of the land in question lies in any other tax lot. (d) FLOOD ZONE. Except as is disclosed in the surveys of each portion of the Land that have been or will be provided to Lender, no portion of the land in question is located in a flood hazard area as defined by the Federal Insurance Administration. (e) SEISMIC EXPOSURE. No portion of the Land is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (f) CONDEMNATION. No part of the Land has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of the Land. (g) NO PURCHASE OPTIONS. No person or entity has an option to purchase the Land, or any portion thereof, or any interest therein. 6.25 ADDITIONAL RESORT COLLATERAL. (a) FIRST LIEN. Subject to the other first lien rights of Heller and Sovereign as provided in the Intercreditor Agreement, upon execution and delivery of the Additional Resort Collateral Assignments and execution and recording of the Additional Resort Collateral Mortgages, Lender will have a valid first lien in the Additional Resort Collateral. (b) ACCESS. The portion of the Additional Resort Collateral constituting real property has adequate legal rights of access to a public way. (c) INTENTIONALLY OMITTED. (d) FLOOD ZONE. Except as is disclosed in the surveys of the portion of the Additional Resort Collateral constituting real property that have been or will be provided to Lender, no portion of such land is located in a flood hazard area as defined by the Federal Insurance Administration. (e) SEISMIC EXPOSURE. No portion of the Additional Resort Collateral constituting real property is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (f) CONDEMNATION. No portion of the Additional Resort Collateral constituting real property has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of such land. (g) NO PURCHASE OPTIONS. No person or entity has an option to purchase any portion of the Additional Resort Collateral, or any portion thereof, or any interest therein. 6.26 ADDITIONAL REPRESENTATIONS AND WARRANTIES. This Agreement, the Original Agreement, the Note and the other Loan Documents constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms. Borrower ratifies and confirms each covenant and agreement made under the Original Agreement and the other Loan Documents, except as provided in the Forbearance Agreement. 6.27 HELLER AND SOVEREIGN FACILITIES. The modifications of the Heller Facility and the Sovereign Facility on terms and conditions as provided in the Business Plan, have closed and Agent has been provided with true and correct copies of the Heller Documents and the Sovereign Documents, as so modified. There is no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Heller Facility or the Sovereign Facility and Borrower is in good standing under both of such facilities. 6.28 BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Letter has not been amended, modified or otherwise rescinded. 6.29 DZ FACILITY. The DZ Letter Agreement is in full force and effect and has not been amended, modified or otherwise rescinded. 6.30 STANDBY SERVICER. Borrower has entered into the Standby Servicing Agreement, a copy of which is attached hereto as Exhibit I, with the Standby Servicer, and such agreement is in full force and effect and has not been modified, amended or terminated. SECTION 7 -- COVENANTS 7.1 AFFIRMATIVE COVENANTS. So long as any portion of the Obligations remains unsatisfied, Borrower hereby covenants and agrees with Agent and each Lender as follows: (a) PAYMENT AND PERFORMANCE OF OBLIGATIONS. Borrower shall pay all of the Loan and related expenses when and as the same become due and payable, and Borrower shall strictly observe and perform all of the Obligations, including without limitation, all covenants, agreements, terms, conditions and limitations contained in the Loan Documents, and will do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default hereunder, other than a Specified Event of Default (as defined in the Forbearance Agreement); and Borrower will maintain an office or agency in the State of Texas where notices, presentations and demands in respect of the Loan Documents may be made upon Borrower. Such office or agency and the books and records of Borrower shall be maintained at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221 until such time as Borrower shall so notify Agent, in writing, of any change of location of such office or agency. (b) MAINTENANCE OF EXISTENCE, QUALIFICATION AND ASSETS. Borrower shall at all times (i) maintain its legal existence, (ii) maintain its qualification to transact business and good standing in any state and in any jurisdiction where it conducts business in connection with the Resort, and (iii) comply or cause compliance with all governmental laws, rules, regulations and ordinances applicable to the Resort, Borrower or its business, including, without limitation, the Timeshare Act. (c) CONSOLIDATION AND MERGER. Borrower will not consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, unless: (i) Borrower is the continuing or surviving corporation in any such consolidation or merger and (ii) prior to and immediately after such consolidation or merger, Borrower shall not be in default hereunder. (d) MAINTENANCE OF INSURANCE. Borrower, or if required pursuant to the Declaration, the Timeshare Owners' Association, shall maintain (or Borrower shall cause to be maintained) at all times during the term of this Agreement, policies of insurance with premiums being paid when due, and shall deliver to Agent originals of insurance policies issued by insurance companies, in amounts, in form and in substance, and with expiration dates, all acceptable to Agent and containing a waiver of subrogation rights by the insuring company, a non-contributory standard mortgagee benefit clause, or their equivalents, and a mortgagee loss payable endorsement in favor of and satisfactory to Agent on behalf of each Lender, and breach of warranty coverage, providing the following types of insurance on and with respect to Borrower (or, as appropriate, the respective Associations) and the Resort: (i) Fire and extended coverage insurance (including lightning, hurricane, tornado, wind and water damage, vandalism and malicious mischief coverage) covering the improvements and any personal property located in or on the Resort and any real property constituting part of the Additional Resort Collateral, in an amount not less than the full replacement value of such improvements and personal property, and said policy of insurance shall provide for a deductible acceptable to Agent, breach of warranty coverage, replacement cost endorsements satisfactory to Agent, and shall not permit co-insurance; (ii) Public liability and property damage insurance covering the Resort in amounts and on terms satisfactory to Agent; and (iii) Such other insurance on the Resort and any real property constituting part of the Additional Resort Collateral or any replacements or substitutions therefor including, without limitation, flood insurance (if the Property is or becomes located in an area which is considered a flood risk by the U.S. Emergency Management Agency or pursuant to the National Flood Insurance program), in such amounts and upon terms as may from time to time be reasonably required by Agent. To the extent any other timeshare receivable lender has any rights to approve the form of insurance policies with respect to the Resort, the amounts of coverage thereunder, the insurers under such policies, or the designation of an attorney-in-fact for purposes of dealing with damage to any part of the Resort or insurance claims or matters related thereto, or any successor to such attorney-in-fact, or any changes with respect to any of the foregoing, Borrower shall take all steps as may be necessary (and, after turnover, if any, of control of the Resort to the Timeshare Owners' Association, Borrower shall use its best efforts) to ensure that Agent, on behalf of each Lender, shall at all times have a co-equal right, with such other lender (including, without limitation, Borrower or any third-party lender), to approve all such matters and any proposed changes in respect thereof; and Borrower shall not cause or permit any changes with respect to any insurance policies, insurers, coverage, attorney-in-fact, or insurance trustee, if any, without Agent's prior written approval. In the event of any insured loss or claim in respect of the Resort or any real property comprising the Additional Resort Collateral, Borrower shall apply (or cause to be applied), and Borrower covenants that the Timeshare Owners' Association shall apply (or cause to be applied), all proceeds of such insurance policies in a manner consistent with the Timeshare Documents and the Timeshare Act. All insurance policies required pursuant to this Agreement (or the Timeshare Documents or Timeshare Act) shall provide that the coverage afforded thereby shall not expire or be amended, canceled, modified or terminated without at least thirty (30) days prior written notice to Agent. At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 7.1(d), a renewal or replacement thereof satisfactory to Agent shall be delivered to Agent. Borrower shall deliver or cause to be delivered to Agent receipts evidencing the payment for all such insurance policies and renewals or replacements. In the event of any fire or other casualty to or with respect to the improvements on or at the Resort or any real property comprising the Additional Resort Collateral, Borrower covenants that Borrower or the Timeshare Owners' Association, as the case may be, will promptly restore or repair (or cause to be restored, repaired or replaced) the damaged improvements and repair or replace any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the improvements and personal property on the Resort or any real property comprising the Additional Resort Collateral, in accordance with the terms of the Timeshare Documents or Timeshare Act. The insufficiency of any net insurance proceeds shall in no way relieve Borrower or, as applicable, Borrower and Timeshare Owners' Association, of its obligation to restore, repair or replace such improvements and other personal property in accordance with the terms hereof, of the Declaration or other Timeshare Documents or of the Timeshare Act, and Borrower covenants that Borrower or, as the case may be, the Timeshare Owners' Association, shall promptly comply and cause compliance with the provisions of the Declaration and other Timeshare Documents, or of the Timeshare Act relating to such restoration, repair or replacement. Borrower shall, unless an Event of Default has occurred, apply all insurance proceeds payable to or received by it, in accordance with the applicable Declaration. If an Event of Default has occurred, Agent may, in its sole discretion, apply all insurance proceeds in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof. (e) MAINTENANCE OF SECURITY. Borrower shall execute and deliver (or cause to be executed and delivered) to Agent all security agreements, financing statements, assignments and such other agreements, documents, instruments and certificates, and supplements and amendments thereto, and take such other actions, as Agent deems necessary or appropriate in order to maintain as valid, enforceable and perfected first or second priority liens and security interests, as applicable, all Liens and security interests in the Collateral granted to Agent as agent for Lenders to secure the Obligations. Borrower shall not grant extensions of time for the payment of, compromise for less than the full face value or release in whole or in part, any Purchaser or other Person liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument, chattel paper or document representing the Collateral. (f) PAYMENT OF TAXES AND CLAIMS. Borrower will pay, and, as applicable pursuant to the Declaration, Borrower covenants that the Timeshare Owners' Association will pay, when due, all taxes imposed upon the Resort, the Collateral, Borrower, the Timeshare Owners' Association, or any of its or their property, or with respect to any of its or their franchises, businesses, income or profits, or with respect to the Loan or any of the Loan Documents; and Borrower and the Timeshare Owners' Association, as the case may be, shall pay all other charges and assessments against Borrower, the Collateral and the Resort before any claim (including, without limitation, claims for labor, services, materials and supplies) arises for sums which have become due and payable. Except for the Liens in connection with the Additional Credit Facility, the Tranche C Facility and the Inventory Loan and the Liens in favor of Agent on behalf of Lenders granted pursuant to the Loan Documents, and except as otherwise specifically provided for herein, Borrower covenants that no statutory or other Liens whatsoever (including, without limitation, mechanics', materialmens', judgment or tax liens) shall attach to any of the Collateral or the Resort except for such Liens as are expressly provided for pursuant to the Declaration, which shall, in any event, be subordinate to the Lien of Agent on behalf of Lenders. In the event any such Lien attaches to any of the Collateral or the Resort Borrower shall, within thirty (30) days after any such Lien attaches, either (i) cause such Lien to be released of record or (ii) provide Agent with a bond in accordance with the applicable laws of the State, issued by a corporate surety acceptable to Agent, in an amount and form acceptable to Agent. (g) INSPECTIONS. Borrower shall, at any time and from time to time and at the expense of Borrower, permit Agent or any Lender or their respective agents or representatives (provided such Lender has coordinated such inspection with Agent) to inspect the Resort, the Collateral and if necessary, in Agent's opinion, to ascertain or assure Borrower's compliance with the terms of this Agreement, any of Borrower's other assets or Property, and to examine and make copies of and abstracts from its and, to the extent it has access thereto or possession thereof, the Timeshare Owners' Association's, books, accounts, records, original correspondence, computer tapes, disks, software, and other papers as it may desire; and to discuss its affairs, finances and accounts with any of its officers, employees, Affiliates, contractors or independent public accountants (and by this provision Borrower authorizes said accountants to discuss with Agent, its agents or representatives, the affairs, finances and accounts of Borrower). Agent and each Lender agree to use reasonable efforts not to unreasonably interfere with Borrower's business operations in connection with any such inspections. Without limiting the foregoing, Agent shall have the right to make such credit investigations as Agent may deem appropriate in connection with its review of Notes Receivable, and Borrower shall make available to Agent all credit information in Borrower's possession or under its control or to which it may have access, with respect to Purchasers or other obligors under Notes Receivable as Agent may request. (h) REPORTING REQUIREMENTS. So long as any portion of the Obligations remain unsatisfied, Borrower shall furnish (or cause to be furnished, as the case may be) to Agent the following: (i) MONTHLY FINANCIAL REPORTS. As soon as available and in any event within ten (10) days after the end of each calendar month, a report showing (i) the trial balance of the Pledged Notes Receivable, (ii) an aging report on the Pledged Notes Receivable, (iii) a report detailing the collections on each of the Pledged Notes Receivable, (iv) a Borrowing Base Report, (v) monthly reports from the Lockbox Agent required pursuant to the Lockbox Agreement, and (vi) a report in form satisfactory to Agent indicating, among other things, the conformity of the Borrower's business to the Business Plan and any variances therefrom during the preceding calendar month. (ii) QUARTERLY FINANCIAL REPORTS. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, copies of income statements and balance sheets for the operations of each Resort and for Borrower, certified by the Chief Financial Officer of Borrower. (iii) ANNUAL FINANCIAL REPORTS. As soon as available and in any event within ninety (90) days after the end of each calendar year or other fiscal year as may be applicable with respect to Borrower (a "FISCAL YEAR"), a statement of income and expense of Borrower for the annual period ended as of the end of such Fiscal Year, and a balance sheet of Borrower as of the end of such Fiscal Year, all in such detail and scope as may be reasonably required by Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Notwithstanding the foregoing, Borrower shall deliver its annual financial statements for Fiscal Years 2000 and 2001 within 90 days of the Effective Date. Each annual financial statement of Borrower shall be prepared by an independent certified public accountant and certified by Borrower to be true, correct and complete, and shall otherwise be in form acceptable to Lender. In the event that Lender, acting in good faith, is not satisfied with any such Financial Statement, and if Borrower fails to provide Lender with new Financial Statements acceptable to Lender within fifteen (15) days after Lender delivers written notice of such dissatisfaction to Borrower, then, at Lender's request, Borrower shall furnish to Lender copies of audited income statements and balance sheets certified by an independent certified public accountant acceptable to Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Such audited annual statements shall also be in form and content satisfactory to Lender. If the figures for net and total operating income (as such terms are defined in accordance with GAAP) in the audited annual statements do not vary by more than five percent (5%) from the figures in the unaudited annual statements, Lender shall bear, pro rata based upon its Pro Rata Percentage, the cost of the certified public accountant's audit. If, however, such figures vary by more than five percent (5%), Borrower shall bear the cost of such certified public accountant's audit; (iv) OFFICER'S CERTIFICATE. Each set of annual Financial Statements or reports delivered to Agent pursuant to Sections 7.1(h)(i), (ii) and (iii) of this Agreement will be accompanied by a certificate of the President or the Treasurer of Borrower in the form attached as Exhibit D setting forth that the signers have reviewed the relevant terms of the Agreement (and all other agreements and exhibits between the parties) and have made, or caused to be made, under their supervision, a review of the transactions and conditions of Borrower from the beginning of the period covered by the Financial Statements or reports being delivered therewith to the date of the certificate and that such review has not disclosed the existence during such period of any condition or event which constitutes a Default or Event of Default or, if any such condition or event existed or exists or will exist, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto; (v) SALES REPORTS. Concurrently with the financial statements required pursuant to Section 7.1(h)(i), (ii) and (iii), Borrower shall deliver to Agent, a sales report, detailing the sales of all Intervals at the Resorts for the period covered thereby, certified by Borrower to be true, correct and complete and otherwise in a form approved by Agent; (vi) AUDIT REPORTS. Promptly upon receipt thereof, one (1) copy of each other report submitted to Borrower by independent public accountants or other Persons in connection with any annual, interim or special audit made by them of the books of Borrower; (vii) NOTICE OF DEFAULT OR EVENT OF DEFAULT. Except for a Specified Event of Default identified in the Forbearance Agreement, immediately upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, or upon becoming aware of any acceleration with respect to any Specified Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto; (viii) NOTICE OF CLAIMED DEFAULT. Except for a Specified Event of Default identified in the Forbearance Agreement, immediately upon becoming aware of a claim of Default or Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto; (ix) MAINTENANCE OF INVENTORY CONTROL. Borrower shall maintain and at all times fully comply with the Inventory Control Procedures from the date hereof until the Loan is repaid in full. Borrower shall permit Agent, its officers, employees, auditors, and other agents or designees to review the books and records of Borrower and make such other examinations and inspections as Agent in its sole discretion deems necessary to determine that Borrower is in full compliance with such Inventory Control Procedures. (x) MATERIAL ADVERSE DEVELOPMENTS. Except as provided in the Business Plan, immediately upon becoming aware of any claim, action, proceeding, development or other information which may materially and adversely affect Borrower, the Collateral, the Resorts, the business, prospects, profits or condition (financial or otherwise) of Borrower, or the ability of Borrower to perform its Obligations under the Agreement, Borrower shall provide Agent with telephonic or telegraphic notice, followed by telefaxed and mailed written confirmation, specifying the nature of such development or information and such anticipated effect; (xi) OTHER INFORMATION. Borrower shall deliver to Agent: (i) within five (5) days of the filing thereof with the United States Securities and Exchange Commission, copies of each Form 8-K, 10-Q and 10-K filed by Borrower; (ii) at least semi-annually during the Term (or more frequently upon request of Agent), current addresses and telephone numbers for each obligor under an Eligible Note Receivable pledged to Agent on behalf of Lenders hereunder and (iii) any other information related to the Loan, the Collateral, the Resort or Borrower as Agent may in good faith request including, without limitation, annually, federal call reports relating to Lockbox Agent; and (xii) WEEKLY FINANCIAL REPORTS. Weekly "flash reports" consisting of the number of showings of the Resorts to prospective purchasers of Intervals, gross sales reports, accounts payable reports, accounts receivable reports and cash balances before 5:00 p.m. (eastern standard time) on each Thursday during the term hereof. (i) RECORDS. Borrower shall keep adequate records and books of account reflecting all financial transactions of Borrower and with respect to the Resort in which complete entries will be made in accordance with GAAP. In addition, Borrower shall keep, and shall promptly deliver to Agent upon Agent's request therefor, complete, timely and accurate records of all sales of Intervals and all payments in respect of Pledged Notes Receivable. (j) MANAGEMENT. Borrower shall: (i) remain engaged in the active management of the Resorts, (ii) unless Borrower notifies Agent in writing at least thirty (30) days in advance of its new location, retain its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221, and (iii) continue to perform duties substantially similar to those presently performed as provided in the management agreement relating to each Resort. No management agreement for any Resort shall be modified, assigned, extended, terminated or entered into nor shall the current method of operation and management of the Resorts be changed in any material manner, without the prior written approval of Agent, except as contemplated in Section 7.1(y) hereof. (k) FICA. Borrower shall furnish to Agent within thirty (30) days after the expiration of each calendar quarter proof reasonably satisfactory to Agent that Borrower's obligations to make deposits for F.I.C.A., social security and withholding taxes have been satisfied. (l) OPERATING CONTRACTS. Subject to the rights of the Timeshare Owners' Association as set forth in the Timeshare Documents, no Operating Contract shall be modified, extended, terminated or entered into, without the prior written approval of Agent, if any such modification, extension, termination or new agreement could have a material adverse impact on the operation of the Resort or the Collateral. (m) NOTICES. Borrower shall notify Agent within five (5) Business Days of the occurrence of any event (i) as a result of which any representation or warranty of Borrower contained in any Loan Documents would be incorrect or materially misleading if made at that time, or (ii) as a result of which Borrower is not in full compliance with all of its covenants and agreements contained in this Agreement or any Loan Document, or (iii) which constitutes or, with the passage of time, notice or a determination by Agent would constitute, an Event of Default. (n) MAINTENANCE. Borrower shall maintain, or shall cause to be maintained, or to the extent provided for pursuant to the Declaration, shall use its best efforts to cause the Timeshare Owners' Association to maintain, the Resort and that portion of the Additional Resort Collateral consisting of real property in good repair, working order and condition and shall make all necessary replacements and improvements to the Resort and that portion of the Additional Resort Collateral consisting of real property so that the value and operating efficiency of the Resort and that portion of the Additional Resort Collateral consisting of real property will be maintained at all times and so that the Resort and that portion of the Additional Resort Collateral consisting of real property remains in compliance in all respects with the Timeshare Act, the Timeshare Documents and other applicable law. (o) CLAIMS. Borrower shall promptly notify Agent of any claim, action or proceeding affecting the Resort or Collateral, or any part thereof, or Agent, any Lender or any of the security interests or rights granted in favor of Agent hereunder or under any of the Loan Documents. At the request of Agent, Borrower shall appear in and defend in favor of each Lender, at Borrower's sole expense, any such claim, action or proceeding. (p) REGISTRATION AND REGULATIONS. (i) LOCAL LEGAL COMPLIANCE. Borrower will comply, and will cause the Resort, the Land and each portion of the Additional Resort Collateral constituting real property to comply, with all applicable servitudes, restrictive covenants, applicable planning, zoning or land use ordinances and building codes, all applicable health and Environmental Laws and regulations, and all other applicable laws, rules, regulations, agreements or arrangements. (ii) REGISTRATION COMPLIANCE. Borrower will maintain, or cause to be maintained, all necessary registrations, current filings, consents, franchises, approvals, and exemption certificates, and Borrower will make or pay, or cause to be made or paid, all registrations, declarations or fees with the Division and any other government or any agency or department thereof, whether in the state or another jurisdiction, required in connection with the Resort and the occupancy, use and operation thereof, the incorporation of Units into the time-share plan established pursuant to the Declaration and the other Timeshare Documents, and the sale, advertising, marketing, and offering for sale of Intervals. All such registrations, filings and reports will be truthfully completed; and true and complete copies of such registrations, applications, consents, licenses, permits, franchises, approvals, exemption certificates, filings and reports will be delivered to Agent. Borrower shall advise Agent of any changes with respect to its marketing or sales programs in any jurisdiction, including jurisdictions other than the state, and at Agent's request from time to time, Borrower shall deliver to Agent: (A) written statements by the applicable state authorities, in form acceptable to Agent, stating that no registration is necessary for the sale of Intervals in the particular state, (B) an opinion of counsel in form acceptable to Agent and rendered by counsel acceptable to Agent, stating that no such registration is necessary, or (C) such other evidence of compliance with applicable laws as Agent may require; and (iii) OTHER COMPLIANCE. Borrower has, in all material respects, complied with and will comply with all laws and regulations of the United States, the State of Texas, the each state in which an applicable Resort, the Land or Collateral is located, any political subdivision of either such state and any other governmental, quasi-governmental or administrative jurisdiction in which Intervals have been sold or offered for sale, or in which sales, offers of sale or solicitations with respect to the Resort have been or will be conducted, including to the extent applicable, but not limited to: (1) the Timeshare Act; (2) the Consumer Credit Protection Act; (3) Regulation Z of the Federal Reserve Board; (4) the Equal Credit Opportunity Act; (5) Regulation B of the Federal Reserve Board; (6) the Federal Trade Commission's 3-day cooling-off Rule for Door-to-Door Sales; (7) Section 5 of the Federal Trade Commission Act; (8) ILSA; (9) federal postal laws; (10) applicable state and federal securities laws; (11) applicable usury laws; (12) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (13) applicable real estate sales licensing, disclosure, reporting and escrow laws; (14) the ADA; (15) RESPA; (16) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (17) the Federal Trade Commission's Privacy of Consumer Financial Information Rule; (18) other applicable federal statutes and the rules and regulations promulgated thereunder; and (19) any state law or law of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resort, or the sale, offering for sale, or financing of Intervals. (r) OTHER DOCUMENTS. Borrower will maintain to the satisfaction of Agent and make available to Agent and the other Lenders, accurate and complete files relating to the Resort, the Pledged Notes Receivable and other Collateral, and such files will contain true copies of each Pledged Note Receivable, as amended from time to time, copies of all relevant credit memoranda relating to such Notes Receivable and all collection information and correspondence relating thereto. Without limiting the foregoing, Borrower shall maintain evidence of its compliance with the requirements of Section 3.11. (s) FURTHER ASSURANCES. Borrower will execute and deliver, or cause to be executed and delivered, such other and further agreements, documents, instruments, certificates and assurances as, in the judgment of Agent exercised in good faith may be necessary or appropriate to more effectively evidence or secure, and to ensure the performance of, the Obligations. In addition, Borrower shall deliver to Agent from time to time upon each request by Agent such documents, instruments or other matters or items as Agent may require to evidence Borrower's compliance with the covenants set forth in this Section 7.1 and Section 3.11. (t) UTILITIES. Borrower will cause, or to the extent provided for pursuant to the Declaration, covenants to use its best efforts to ensure that the Timeshare Owners' Association, or the manager of the Resort, as applicable, will cause, electric, sanitary and stormwater sewer, water facilities, drainage facilities, solid waste disposal, telephone and other necessary utilities to be available to the Resort in sufficient capacity to service the Resort. (u) AMENITIES. Borrower will cause, or to the extent provided for pursuant to the Declarations, will use its best efforts to ensure that the Timeshare Owners' Association, or the manager of the Resort, as applicable, will cause, the Resort to be maintained in good condition and repair, and in accordance with the provisions of the applicable Timeshare Documents, and Borrower will cause each Purchaser of an Interval at the Resort to have continuing access to, and the use of, to the extent of such Purchaser's time-share periods, all of the Common Elements and related or appurtenant services, rights and benefits, all as provided in the Declaration and the Timeshare Documents. (v) EXPENSES AND CLOSING FEES. Whether or not the transactions contemplated hereunder are completed, Borrower shall pay all expenses of Agent, each Lender and each of TFC's participants relating to negotiating, preparing, documenting, closing and enforcing this Agreement, including, but not limited to: (i) the cost of preparing, reproducing and binding this Agreement, the other Loan Documents and all Exhibits and Schedules thereto; (ii) the fees and disbursements of Agent's, each Lender's and each of TFC's participants' counsel; (iii) Agent's, each Lender's and each of TFC's participants' out-of-pocket expenses; (iv) all fees and expenses (including fees and expenses of Agent's, each Lender's and each of TFC's participants' counsel) relating to any amendments, waivers, consents or subsequent closings pursuant to the provisions hereof; (v) all costs, outlays, legal fees and expenses of every kind and character had or incurred in (1) the interpretation or enforcement of any of the provisions of, or the creation, preservation or exercise of rights and remedies under, any of the Loan Documents including the costs of appeal (2) the preparation for, negotiations regarding, consultations concerning, or the defense or prosecution of legal proceedings involving any claim or claims made or threatened against Agent arising out of this transaction or the protection of the Collateral securing the Loan or Advances made hereunder, expressly including, without limitation, the defense by Agent, each Lender and each of TFC's participants of any legal proceedings instituted or threatened by any Person to seek to recover or set aside any payment or setoff theretofore received or applied by Agent, each Lender and each of TFC's participants with respect to the Obligations, and any and all appeals thereof; and (3) the advancement of any expenses provided for under any of the Loan Documents; (vi) all expenses relating to the maintenance and administration of the Lockbox and Lockbox Account by the Lockbox Agent and Servicing and any escrow by the Title Company or any other escrow agent; (vii) the custodial fees payable to Agent with respect to the original Pledged Notes Receivable and related Collateral; (viii) all costs and expenses incurred by Agent under the Note, and all late charges under the Note; and (ix) all real and personal property taxes and assessments, documentary stamp and intangible taxes, sales taxes, recording fees, title insurance premiums and other title charges, document copying, transmittal and binding costs, appraisal fees, lien and judgment search costs, fees of architects, engineers, environmental consultants, surveyors and any special consultants, construction inspection fees, brokers fees, escrow fees, wire transfer fees, and all travel and out-of-pocket expenses of Agent, each Lender and each of TFC's participants to conduct inspections or audits. Without limitation of the foregoing, Borrower shall pay the costs of UCC and other searches, UCC and other Loan Document recording fees and applicable taxes, and premiums on each Mortgagee Title Policy delivered to Agent pursuant to this Agreement. (w) INDEMNIFICATION OF AGENT AND LENDERS. In addition to (and not in lieu of) any other provisions of any Loan Document providing for indemnification in favor of Agent or Lenders, Borrower shall defend, indemnify and hold harmless Agent and each Lender, their respective subsidiaries, affiliates, officers, directors, agents, employees, representatives, consultants, contractors, servants, and attorneys, as well as the respective heirs, personal representatives, successors or assigns of any or all of them (hereafter collectively the "Indemnified Lender Parties"), from and against, and promptly pay on demand or reimburse each of them with respect to, any and all liabilities, claims, demands, losses, damages, costs and expenses (including without limitation, reasonable attorneys' and paralegals' fees and costs), actions or causes of action of any and every kind or nature whatsoever asserted against or incurred by any of them by reason of or arising out of or in any way related or attributable to (i) this Agreement, the Loan Documents, or the Collateral; (ii) the transactions contemplated under any of the Loan Documents or any of the Timeshare Documents, including without limitation, those in any way relating to or arising out of the violation of any federal or state laws, including the Timeshare Act; (iii) any breach of any covenant or agreement or the incorrectness or inaccuracy of any representation and warranty of Borrower contained in this Agreement or any of the Loan Documents (including without limitation any certification of Borrower delivered to any Lender or Agent); (iv) any and all taxes, including real estate, personal property, sales, mortgage, excise, intangible or transfer taxes, and any and all fees or charges, including, without limitation under the Timeshare Act, which may at any time arise or become due prior to the payment, performance and discharge in full of the Obligations; (v) the breach of any representation or warranty as set forth herein regarding any Environmental Laws; (vi) the failure of Borrower to perform any obligation or covenant herein required to be performed pursuant to any Environmental Laws; (vii) the use, generation, storage, release, threatened release, discharge, disposal or presence on, under or about the Resort of any Hazardous Materials; (viii) the removal or remediation of any Hazardous Materials from the Resort required to be performed pursuant to any Environmental Laws or as a result of recommendations of any environmental consultant or as required by Agent; (ix) claims asserted by any Person (including without limitation any governmental or quasi-governmental agency, commission, department, instrumentality or body, court, arbitrator or administrative board (collectively, a "GOVERNMENTAL AGENCY"), in connection with or any in any way arising out of the presence, use, storage, disposal, generation, transportation, release, or treatment of any Hazardous Materials on, in, under or affecting the Resort; (x) the violation or claimed violation of any Environmental Laws in regard to the Resort; or (xi) the preparation of an environmental audit or report on the Resort, whether conducted by a Lender, Agent, Borrower or a third-party, or the implementation of environmental audit recommendations. Such indemnification shall not give Borrower any right to participate in the selection of counsel for Agent or any Lender or the conduct or settlement of any dispute or proceeding for which indemnification may be claimed. Agent and each Lender agree to give Borrower written notice of the assertion of any claim or the commencement of any action or lawsuit described in this Section. It is the express intention of the parties hereto that the indemnity provided for in this Section, as well as the disclaimers of liability referred to in this Agreement, are intended to and shall protect and indemnify Agent and each Lender from the consequences of Agent's and each Lender's own negligence, whether or not that negligence is the sole or concurring cause of any liability, obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense or disbursement provided, however, that Borrower shall not be required to protect and indemnify Agent or any Lender from the consequences of Agent's or any such Lender's gross negligence, where that gross negligence is the sole cause of the liability, obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense or disbursement for which indemnification or protection would otherwise be required. The provisions of this Section shall survive the full payment, performance and discharge of the Obligations and the termination of this Agreement, and shall continue thereafter in full force and effect. (x) OPERATION OF BORROWER'S BUSINESS. Borrower will operate its business in substantial compliance with the Business Plan, including the Senior Lender Advance Schedule. (y) STANDBY MANAGER, RESORT CONSULTANT AND STANDBY SERVICER. Borrower will enter into agreements for the Standby Manager and the Resort Consultant on or before the Effective Date and will maintain such agreements in full force and effect. Borrower will maintain the agreement for the Standby Servicer in full force and effect. Borrower agrees that upon the occurrence of a Default or Event of Default hereunder: (1) Agent may, with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, terminate any then existing management agreements and replace any existing manager with such manager as Agent may select, provided however, if: (x) the obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Agent elects to have J & J Limited, Inc. act as Standby Manager, then no such approval of Borrower's Board of Directors shall be required; and (2) the Standby Servicer will assume full control over the servicing of all Pledged Notes Receivable, reporting solely to Agent, as provided in Sections 9.1(i) and 10.14 hereof. (z) DZ FACILITY. The DZ Letter Agreement remains in full force and effect and has not been amended, modified or rescinded and Borrower will diligently commence and proceed to close the DZ Facility on or before May 31, 2002 as contemplated in the DZ Letter Agreement and the Business Plan, and will promptly provide Agent with true and correct copies of the DZ Documents. (aa) BOND HOLDER EXCHANGE TRANSACTION. Borrower will act diligently and in good faith to cause the requisite number of bond holders to accept the offer to participate in the Bond Holder Exchange Transaction on the terms set forth in the Bond Holder Exchange Letter and to close the Bond Holder Exchange Transaction on or before May 31, 2002, and promptly provide Agent with true and correct copies of all documents executed and/or delivered in connection with the Bond Holder Exchange Transaction. (bb) HELLER FACILITY, SOVEREIGN FACILITY, DZ FACILITY AND BOND HOLDER EXCHANGE TRANSACTION. Borrower will comply with each of the terms and conditions of the Heller Facility, the Sovereign Facility, the DZ Facility and the Bond Holder Exchange Documents and will promptly deliver to Agent, upon receipt by Borrower, copies of any notices received by Borrower in connection with any of the forgoing credit facilities. (cc) FINANCIAL COVENANTS. (i) TANGIBLE NET WORTH. Borrower shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of Borrower as of September 30, 2001 plus (B) one hundred percent (100%) of the aggregate amount of proceeds received by Borrower after January 1, 2002 in connection with (1) each issuance by Borrower of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Indebtedness after January 1, 2002, other than Indebtedness which shall be the most senior Indebtedness of Borrower plus (C) one hundred percent (100%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after January 1, 2002. (ii) MARKETING AND SALES EXPENSES. Borrower will not permit as of March 31, 2002 and as of the last day of each calendar quarter thereafter the ratio of Marketing and Sales Expenses for any calendar quarter, singly and on a cumulative basis, during the specified period below (the "REFERENCE PERIOD") to Borrower's net proceeds from the sale of Intervals for such Reference Period to equal or exceed the ratio set forth opposite such period described in the table below during such Reference Period:
Period Ratio ------ ----- 4/1/02 - 12/31/02 .550 to 1 1/1/03 - thereafter .525 to 1
(iii) MINIMUM LOAN DELINQUENCY. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Agent under the Agreement and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) to be greater than twenty-five percent (25%). If, as of the last day of each calendar quarter, Borrower's over 30-day delinquency on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Agent under the Agreement and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) is greater than twenty percent (20%), then Agent shall have the right to conduct an audit, at Borrower's sole cost and expense, of all Borrower's Notes Receivable pledged to the Lenders hereunder. (iv) INTEREST COVERAGE. (i) For the calendar quarter of Borrower ending June 30, 2002, the Interest Coverage Ratio for Borrower shall be at least 1.1:1; (ii) for the calendar quarter of Borrower ending September 30, 2002, the average of the Interest Coverage Ratio of Borrower of such calendar quarter and the Interest Coverage Ratio for the immediately preceding calendar quarter shall be at least 1.1:1, (iii) for the calendar quarter of Borrower ending December 31, 2002, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for the two immediately preceding calendar quarters shall be at least 1.1:1; (iv) for each calendar quarter of Borrower beginning with, and including, the calendar quarter ending March 31, 2003 and for each calendar quarter of Borrower thereafter, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for each of the three immediately preceding calendar quarters shall be at least 1.25:1. The term Interest Coverage Ratio means with respect to any Person for any calendar quarter, the ratio of (a) EBITDA for such period less capital expenditures as determined in accordance with GAAP, for such period to (b) the interest expense minus all non-cash items constituting interest expense for such period. (v) PROFITABLE OPERATIONS. Borrower will not permit Consolidated Net Income (a) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (b) for any two consecutive fiscal quarters (treated as a single accounting period) to be less than $1.00. (dd) NET SECURITIZATION CASH FLOW. Borrower will cause Silverleaf Finance I, Inc. to declare, at least quarterly, a cash dividend payable to Borrower, in an amount equal to the Net Securitization Cash Flow for such quarter. If no Default or Event of Default has occurred, Borrower agrees to use such dividends for payment of Operating Expenses as provided in the Business Plan and for no other purpose. If a Default or Event of Default has occurred, then all such dividends shall be paid directly to Agent, as agent for each Lender, and applied by Agent in repayment of the Term Loan Component as provided in Section 2.4(b). Borrower shall provide Agent with notice of Silverleaf Finance I, Inc.'s declaration of a cash dividend, together with a certification that: (i) states whether a Default or Event of Default exists, and (ii) contains a calculation of the Net Securitization Cash Flow. (ee) SALE OR SECURITIZATIONS OF NOTES RECEIVABLE. Borrower shall use its best efforts to sell and/or securitize the Notes Receivable pledged to Agent as security for the Loan, and the proceeds of any such sale or securitization shall be applied first to repayment of the Revolving Loan Component as provided in Section 2.4(b), and then after the Revolving Loan Component has been paid in full, to repayment of the Term Loan Component as provided in Section 2.4(b). Borrower agrees to provide Agent with written notice prior to any such sale or securitization and agrees to deliver to Agent copies of all documents executed in connection therewith. Any such sale or securitization shall be acceptable to Agent in its sole and absolute discretion. The proceeds received from any such securitization shall be used to pay down the Loan in accordance with the Business Plan. 7.2 NEGATIVE COVENANTS. So long as any portion of the Obligations remain unsatisfied, Borrower hereby covenants and agrees with Agent and each Lender as follows: (a) LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES. Borrower will not obtain financing and grant liens with respect to the Collateral or any of its other assets or property, except as hereafter provided. Prior to March 31, 2003, Borrower will not obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable, except as provided in this Agreement, the Additional Credit Facility, the Tranche C Facility, the Inventory Loan, the Heller Facility, and the Sovereign Facility, without the Agent's prior written consent, which consent will not be unreasonably withheld. As a condition to such consent, Agent may require that all proceeds of such financing be applied in repayment of the Loan as provided in Section 2.4 hereof so as to reduce the Effective Advance Rate, and may require advances to be funded from the Revolving Loan Component prior to advances from such other financing. At any time after March 31, 2003, Borrower may obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable in an amount not to exceed twenty million dollars ($20,000,000.00), without Agent's consent provided that: (i) no Default or Event of Default has occurred; (ii) and such financing does not result in (x) Borrower's failure to substantially adhere to the Business Plan or (y) an Event of Default; and (iii) Agent may require advances to be funded from the Revolving Loan Component prior to advances from such other financing. At any time after March 31, 2003, if Borrower wishes to obtain financing in excess of twenty million dollars ($20,000,000.00) which will be secured by any of Borrower's unpledged Notes Receivable, Borrower will obtain Agent's written consent, which consent will not be unreasonably withheld. Borrower may obtain unsecured financing provided: (i) Borrower provides prior written notice to Agent setting forth the terms and conditions thereof; (ii) Agent is provided a copy of the loan documents thereof; and (iii) such financing does not result in Borrower's inability to substantially adhere to the Business Plan, as determined by Agent in its sole and absolute discretion. (b) RESTRICTIONS ON TRANSFERS. Except as hereinafter specifically provided, Borrower shall not, whether voluntarily or involuntarily, by operation of law or otherwise, (i) without obtaining the prior written consent of Agent (which consent may be given, withheld or conditioned by Agent in Agent's sole discretion), transfer, sell, pledge, convey, hypothecate, factor or assign all or any portion of the Collateral, the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities, or contract to do any of the foregoing, including, without limitation, pursuant to options to purchase, and so-called "installment sales contracts", "land contracts", or "contracts for deed", (ii) without obtaining the prior written consent of Agent (which consent may be given, withheld or conditioned by Agent in Agent's sole discretion), lease or license all or any portion of the Collateral, the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities, or change the legal or actual possession or use thereof, (iii) permit the assignment, transfer, delegation, change, modification or diminution of the duties or responsibilities of Borrower, of any manager of the Resort approved by Agent as manager of the Resort (except for an assignment of such duties to a professional management company or companies reasonably acceptable to Agent in advance) without obtaining the prior written consent of Agent (which consent shall not be unreasonably withheld), or (iv) without obtaining the prior written consent of Agent (which consent may be given, withheld or conditioned by Agent in Agent's sole discretion), cause or permit the assignment, pledge or other encumbrance of any of the Operating Contracts or all or any portion of Borrower's right, title or interest in the Declaration. Without limiting the generality of the preceding sentence, and subject to the terms of this Agreement, the prior written consent of Agent (as specified above) shall be required for (A) any transfer of the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities or any part thereof made to a subsidiary or Affiliate or otherwise, (B) any transfer of all or any part of the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities by Borrower to its stockholders or Affiliates or vice versa, and (C) any corporate merger or consolidation, disposition or other reorganization, except as permitted in Section 7.1(c). In the event that Agent is willing to consent to a transfer which would otherwise be prohibited by this Section 7.2(b) Agent may condition its consent on such terms as it desires, including, without limitation, an increase in the Interest Rate and the requirement that Borrower pay a transfer fee, together with any expenses incurred by Agent in connection with the granting of such consent (including, without limitation, attorneys' fees and expenses). If Borrower violates the terms of this Section 7.2(b), in addition to any other rights or remedies which Agent may have herein, in any other Loan Document, or at law or in equity, Agent may by written notice to Borrower increase, effective immediately as of the date of such violation, the Interest Rate to the Default Rate. (c) USE OF A LENDER'S OR AGENT'S NAME. Borrower will not, and will not permit any Affiliate to, without the prior written consent of Agent, such Lender or such TFC participant, use the name of Agent, any Lender or any TFC participant or the name of any affiliate of Agent, any Lender or any TFC participant in connection with any of their respective businesses or activities, except in connection with internal business matters and as required in dealings with governmental agencies. (d) TRANSACTIONS WITH AFFILIATES. Without the prior written consent of Agent, which shall not unreasonably be withheld, Borrower will not enter into any transaction with any Affiliate in connection with the Resorts, including, without limitation, relating to the purchase, sale or exchange of any assets or properties or the rendering of any service, except in the ordinary course of, and pursuant to the reasonable requirements of, the operations of the Resorts and upon fair and reasonable terms. (e) RESTRICTIVE COVENANTS. Borrower will not without Agent's prior written consent seek, consent to, or otherwise acquiesce in, any change in any private restrictive covenant, planning or zoning law or other public or private restriction, which would limit or alter the use of the Resort. (f) SUBORDINATED OBLIGATIONS. Borrower will not, directly or indirectly, (i) permit any payment to be made in respect of any indebtedness, liabilities or obligations, direct or contingent, (the "SUBORDINATED DEBT") to any of its shareholders or their affiliates or which are subordinated by the terms thereof or by separate instrument to the payment of principal of, and interest on, the Note; (ii) permit the amendment, rescission or other modification of any such subordination provisions of any of Borrower's subordinated obligations in such a manner as to affect adversely the Lien in and to the Collateral or Lenders' senior priority position and entitlement as to payment and rights with respect to the Note and the Obligations, or (iii) permit the prepayment or redemption, except for mandatory prepayments, of all or any part of Borrower's obligations to its shareholders, or of any subordinated obligations of Borrower except in accordance with the terms of such subordination. (g) TIMESHARE REGIME. Without Agent's prior written consent, which consent shall not be unreasonably withheld as to changes necessary to implement the Business Plan, Borrower shall not amend, modify or terminate the Declarations or other Timeshare Documents, or any other restrictive covenants, agreements or easements regarding the Resorts (except for routine non-substantive modifications which have no impact on the Collateral). Except as otherwise provided herein or in the Sovereign Documents, Borrower shall not assign its rights as "developer" under the Declarations without Agent's prior written consent, or file or permit to be filed any additional covenants, conditions, easements or restrictions against or affecting the Resorts (or any portion thereof) without Agent's prior written consent, which consent shall not be unreasonably withheld. (h) NAME CHANGE. Borrower will not change its name. (i) COLLATERAL. Borrower shall not take any action (nor permit or consent to the taking of any action) which might impair the value of the Collateral or any of the rights of Lenders in the Collateral, nor shall Borrower cause or permit any amendment to or modification of the form or terms of any of the Pledged Notes Receivable, Mortgages or, except as specifically provided herein above, the other Timeshare Documents. (j) MARKETING/SALES. Borrower shall not market, attempt to sell or sell or permit or justify any sales or attempted sales of any Intervals except in compliance with the Timeshare Act and applicable laws in state and other jurisdictions where marketing, sales or solicitation activities occur. (k) MODIFICATIONS OF HELLER DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Borrower shall not amend or modify the Heller Documents, the Sovereign Documents, DZ Documents, Bond Holder Exchange Documents or the documents evidencing any other indebtedness of Borrower, nor shall Borrower extend, modify, increase or terminate the Heller Facility, DZ Facility, the Bond Holder Exchange Transaction, the Sovereign Facility or any other credit facility or loan, without the prior written consent of Lender, which consent shall not be unreasonably withheld. (l) COMPENSATION OF SENIOR MANAGEMENT. The compensation payable to the senior management of Borrower, as a group, shall not be increased by more than twenty-five percent (25%) each year, with the increase in the first year following the Effective Date being measured against the compensation payable to the senior management of Borrower as of December 31, 2001, which compensation is set forth on Schedule 7.2(l). The Borrower represents and warrants that Schedule 7.2(l) accurately sets forth such compensation. (m) NO NEW CONSTRUCTION. Borrower will not, without Agent's prior written approval, construct any improvements (excluding resort amenities) on any Resorts, Land or any portion of the Additional Resort Collateral constituting real property, unless such improvements are contemplated in the Business Plan. (n) MODIFICATION OF OTHER DOCUMENTS. Borrower shall not amend or modify the Standby Management Agreement or the Standby Servicing Agreement, without the prior written consent of Agent, which consent shall not be unreasonably withheld. SECTION 8 -- EVENTS OF DEFAULT 8.1 NATURE OF EVENTS. An "Event of Default" shall exist if any of the following shall occur: (a) PAYMENTS. If Borrower shall fail to make, as and when due, any payment or mandatory prepayment of principal, interest, fees or other amounts with respect to the Loan and such failure shall continue for five (5) days after notice of such failure is provided by Agent. (b) COVENANT DEFAULTS. If Borrower shall fail to perform or observe any covenant, agreement or warranty contained in this Agreement or in any of the Loan Documents, (other than with respect to: (i) the failure to make timely payments in respect of the Loan as provided in Section 8.1(a); (ii) the failure to deliver payments made under the Pledged Notes Receivable directly to Agent as required pursuant to Section 2.4 above as provided in Section 8.1(h); or (iii) violation of (x) the financial covenants in Section 7.1(cc) or (y) any negative covenants in Section 7.2) and, such failure shall continue for fifteen (15) days after notice of such failure is provided by Agent, provided however, that if Borrower commences to cure such failure within such 15 day period, but, because of the nature of such failure, cure cannot be completed within 15 days notwithstanding diligent effort to do so, then, provided Borrower diligently seeks to complete such cure, an Event of Default shall not result unless such failure continues for a total of thirty (30) days. (c) WARRANTIES OR REPRESENTATIONS. If any representation or other statement made by or on behalf of Borrower in this Agreement, in any of the Loan Documents or in any instrument furnished in compliance with or in reference to the Loan Documents, is false, misleading or incorrect in any material respect as of the date made or reaffirmed. (d) ENFORCEABILITY OF LIENS. If any lien or security interest granted by Borrower to Lenders in connection with the Loan is or becomes invalid or unenforceable or is not, or ceases to be, a perfected first or second priority lien or security interest, as applicable, in favor of Agent, for itself and as agent for the Lenders, encumbering the asset which it is intended to encumber, and Borrower fails to cause such lien or security interest to become a valid, enforceable, first or second, as applicable, and prior lien or security interest in a manner satisfactory to Agent within ten (10) days after Agent delivers written notice thereof to Borrower. (e) INVOLUNTARY PROCEEDINGS. If a case is commenced or a petition is filed against Borrower under any Debtor Relief Law; a receiver, liquidator or trustee of Borrower or of any material asset of Borrower is appointed by court order and such order remains in effect for more than forty-five (45) days; or if any material asset of Borrower is sequestered by court order and such order remains in effect for more than forty-five (45) days. (f) PROCEEDINGS. If Borrower voluntarily seeks, consents to or acquiesces in the benefit of any provision of any Debtor Relief Law, whether now or hereafter in effect; consents to the filing of any petition against it under such law; makes an assignment for the benefit of its creditors; admits in writing its inability to pay its debts generally as they become due; or consents or suffers to the appointment of a receiver, trustee, liquidator or conservator for it, or any part of its, assets. (g) ATTACHMENT, JUDGMENT, TAX LIENS. The issuance, filing, levy or seizure against the Collateral, or, with respect to the Resort or the Obligations, against Borrower of one or more attachments, injunctions, executions, tax liens or judgments for the payment of money cumulatively in excess of $100,000.00, which is not discharged in full or stayed within thirty (30) days after issuance or filing. (h) FAILURE TO DEPOSIT PROCEEDS. If Borrower shall fail to deliver payments made under the Pledged Notes Receivable directly to Agent as required pursuant to Section 2.4 above, or if Borrower shall take any other act which Agent shall deem to be a conversion of the Collateral or fraudulent with respect to any Lender. (i) TIMESHARE DOCUMENTS. If the Declaration, any of the other documents creating or governing the Resort, its timeshare regime, or the Timeshare Owners' Association, or the restrictive covenants with respect to the Resort, shall be terminated, amended or modified without Agent's prior written consent (except for routine non-substantive modifications which have no impact on the Collateral). (j) REMOVAL OF COLLATERAL. If Borrower conceals, removes, transfers, conveys, assigns or permits to be concealed, removed, transferred, conveyed or assigned, any of the Collateral in violation of the terms of the Loan Documents or with the intent to hinder, delay or defraud its creditors or any of them including, without limitation, any Lender. (k) OTHER DEFAULTS. If a material default shall occur in any of the covenants or Obligations set forth in any of the Loan Documents. (l) MATERIAL ADVERSE CHANGE. Any material adverse change in the financial condition of Borrower or in the condition of the Collateral. For purposes of this provision, a decline in the net worth of Borrower of $100,000.00 or less shall not be considered a material adverse change. (m) DEFAULT BY BORROWER IN OTHER AGREEMENTS. Except for any Specified Event of Default (as provided in the Forbearance Agreement), which Specified Events of Default shall include a prior existing default under the Heller Facility or the Sovereign Facility, any default by Borrower (i) in the payment of any indebtedness to any Lender, including any indebtedness owed to Agent under the Heller Facility, DZ Facility, Sovereign Facility, Bond Holder Exchange Transaction, Tranche C Facility, Additional Credit Facility or the Inventory Loan, (ii) in the payment or performance of other indebtedness for borrowed money or obligations secured by any part of the Resort; (iii) in the payment or performance of other material indebtedness or obligations (material indebtedness or obligations being defined for purposes of this provision as any indebtedness or obligation in excess of $200,000) where such default accelerates or permits the acceleration (after the giving of notice or passage of time or both) of the maturity of such indebtedness, or permits the holders of such indebtedness to elect a majority of the board of directors of Borrower (whether or not such default[s] have been waived by such holder) or (iv) the acceleration by Heller, Sovereign, DZ or the bondholders of their respective credit facilities. (n) LOSS OF LICENSE. The loss, revocation or failure to renew or file for renewal of any registration, approval, license, permit or franchise now held or hereafter acquired by Borrower or with respect to any Resort, or the failure to pay any fee, which is necessary for the continued operation of any Resort or Borrower's business in the same manner as it is being conducted at the time of such loss, revocation, failure to renew or failure to pay. (o) VIOLATION OF NEGATIVE COVENANTS. Borrower violates any negative covenants set forth in Section 7.2. (p) VIOLATION OF FINANCIAL COVENANTS. Borrower violates any financial covenants set forth in Section 7.1(cc). (q) USE OF LOAN PROCEEDS. If the proceeds of any Advance are used for any purpose not set forth in the Business Plan or in contravention of Section 6.11(b). (r) RECEIVABLE ADVANCES IN EXCESS OF BORROWING BASE OR LOAN IN EXCESS OF MAXIMUM EFFECTIVE ADVANCE RATE. If the outstanding aggregate principal balance of all Advances exceeds the Borrowing Base or if the outstanding aggregate principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregated outstanding principal balance of Eligible Notes Receivable pledged to Agent hereunder exceeds the Maximum Effective Advance Rate. (s) FAILURE OF DZ FACILITY AND/OR BOND HOLDER EXCHANGE TRANSACTION TO CLOSE. If either the DZ Facility or the Bond Holder Exchange Transaction shall fail to close on the terms and conditions set forth, respectively, in the DZ Letter Agreement and the Bond Holder Exchange Letter, on or before May 31, 2002. (t) DZ FACILITY NOTES RECEIVABLE PURCHASES. If DZ does not purchase Notes Receivable in substantially the amounts and during the periods specified in the Business Plan or if the proceeds of such purchase are insufficient to make the principal payments described in Section 2.4 hereof or if Borrower fails to apply such proceeds to repayment of the Loan as provided in Section 2.4 hereof. SECTION 9 -- REMEDIES 9.1 REMEDIES UPON DEFAULT. Should an Event of Default occur, Agent, on behalf of each Lender, may, and upon request of Lenders having at the time of such request total Pro Rata Percentages of more than 66 2/3%, Agent shall, take any one or more of the actions described in this Section 9, all without notice to Borrower: (a) ACCELERATION. Without demand or notice of any nature whatsoever, declare the unpaid balance of the Loans, or any part thereof, immediately due and payable, whereupon the same shall be due and payable. (b) TERMINATION OF OBLIGATION TO ADVANCE. Terminate any obligation of Lenders to lend under this Agreement in its entirety, or any portion of any such commitment, to the extent Agent shall deem appropriate, all without notice to Borrower. (c) JUDGMENT. Reduce each Lender's claim to judgment, foreclose or otherwise enforce each Lender's security interest in all or any part of the Collateral by any available judicial or other procedure under law. (d) SALE OF COLLATERAL AND FORECLOSURE OF MORTGAGES. After notification, if any, provided for in Section 9.2 below, Agent may sell or otherwise dispose of, at the office of Agent, or elsewhere, as chosen by Agent, all or any part of the Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Agent's power of sale, but sales may be made from time to time until all of the Collateral has been sold or until the Obligations have been paid in full and fully performed), and at any such sale it shall not be necessary to exhibit the Collateral. Borrower hereby acknowledges and agrees that a private sale or sales of the Collateral, after notification as provided for in Section 9.2, shall constitute a commercially reasonable disposition of the Collateral sold at any such sale or sales, and otherwise, commercially reasonable action on the part of Agent. Agent shall also have the right, in accordance with the laws of the State in which any Collateral consisting of real property is located, to foreclose the lien of the Land Mortgages and/or the Additional Resort Collateral Mortgages. (e) RETENTION OF COLLATERAL. At its discretion, retain such portion of the Collateral as shall aggregate in value to an amount equal to the aggregate amount of the Loans, in satisfaction of the Obligations, whenever the circumstances are such that Agent is entitled on behalf of Lenders and elects to do so under applicable law. (f) RECEIVER. Apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Borrower hereby consents to any such appointment. (g) PURCHASE OF COLLATERAL. Buy the Collateral at any public or private sale. (h) EXERCISE OF OTHER RIGHTS. Agent, on behalf of each Lender, shall have all the rights and remedies of a secured party under the Code and other legal and equitable rights to which it may be entitled, including, without limitation, and without notice to Borrower, the right to continue to collect all payments made on the Pledged Notes Receivable, and to apply such payments to the Obligations, and to sue in its own name the maker of any defaulted Pledged Notes Receivable. Agent may also exercise any and all other rights or remedies afforded by any other applicable laws or by the Loan Documents as Agent shall deem appropriate, at law, in equity or otherwise, including, but not limited to, the right to bring suit or other proceeding, either for specific performance of any covenant or condition contained in the Loan Documents or in aid of the exercise of any right or remedy granted to Agent in the Loan Documents. Agent shall also have the right to require Borrower to assemble any of the Collateral not in Agent's possession, at Borrower's expense, and make it available to Agent at a place to be determined by Agent which is reasonably convenient to both parties, and shall, on behalf of each Lender, have the right to take immediate possession of all of the Collateral, and may enter the Resort or any of the premises of Borrower or wherever the Collateral shall be located, with or without process of law wherever the Collateral may be, and, to the extent such premises are not the property of Agent, to keep and store the same on said premises until sold (and if said premises be the property of Borrower, Borrower agrees not to charge Agent or any Lender for use and occupancy, rent, or storage of the Collateral, for a period of at least ninety (90) days after sale or disposition of the Collateral). (i) REPLACEMENT OF MANAGER AND SERVICER. Without demand or notice of any nature whatsoever, upon an Event of Default, Agent may: (1) terminate any then existing management agreements and with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, replace any existing manager with such manager as Agent may select, provided however, if: (x) the Obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Agent elects to have J & J Limited, Inc. act as Standby Manager , then no such approval shall be required; and (2) terminate any then existing servicing agreement and replace any then existing Servicer with the Standby Servicer or such other servicer as Agent may select in its sole and absolute discretion. Agent shall also have the right to assume management of the Resorts. 9.2 NOTICE OF SALE. Reasonable notification of time and place of any public sale of the Collateral or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made shall be sent to Borrower and to any other person entitled under the Code to notice; provided, however, that if the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Agent may sell or otherwise dispose of the Collateral without notification, advertisement or other notice of any kind. It is agreed that notice sent not less than five (5) calendar days prior to the taking of the action to which such notice relates is reasonable notification and notice for the purposes of this Section 9.2. Agent shall have the right to bid at any public or private sale on behalf of Lenders. Out of money arising from any such sale, Agent shall retain an amount equal to all of its costs and charges, including attorneys' fees for advice, counsel or other legal services or for pursuing, reclaiming, seeking to reclaim, taking, keeping, removing, storing and advertising such Collateral for sale, selling same and any and all other charges and expenses in connection therewith and in satisfying any prior Liens thereon. Any balance shall be applied upon the Obligations, and in the event of deficiency, Borrower shall remain liable to Lenders. In the event of any surplus, such surplus shall be paid to Borrower or to such other Persons as may be legally entitled to such surplus. If, by reason of any suit or proceeding of any kind, nature or description against Borrower, or by Borrower or any other party against Agent or any Lender, which in such Agent's sole discretion makes it advisable for Agent to seek counsel for the protection and preservation of Lenders' security interest, or to defend the interest of Lenders, such expenses and counsel fees shall be allowed to Agent and the same shall be made a further charge and Lien upon the Collateral. In view of the fact that federal and state securities laws may impose certain restrictions on the methods by which a sale of Collateral comprised of Securities may be effected after an Event of Default, Borrower agrees that upon the occurrence or existence of an Event of Default, Agent may, on behalf of Lenders, from time to time, attempt to sell all or any part of such Collateral by means of a private placement restricting the bidding and prospective purchasers to whose who will represent and agree that they are purchasing for investment only and not for, or with a view to, distribution. In so doing, Agent may solicit offers to buy such Collateral, or any part of it for cash, from a limited number of investors deemed by Agent, in its reasonable judgment, to be responsible parties who might be interested in purchasing the Collateral, and if Agent solicits such offers from not less than two (2) such investors, then the acceptance by Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral. 9.3 APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the occurrence of any Event of Default: (i) each Lender may, with or without proceeding with such sale or foreclosure or demanding payment or performance of the Obligations, without notice, terminate each Lender's further performance under this Agreement or any other agreement or agreements between any Lender and Borrower, without further liability or obligation by Agent or any Lender; (ii) Agent may, on behalf of Lenders, at any time, appropriate and apply on any Obligations any and all Collateral in its (or the Lockbox Agent's) possession and (iii) each Lender may apply any and all balances, credits, deposits, accounts, reserves, indebtedness or other moneys due or owing to Borrower held by any Lender hereunder or under any other financing agreement or otherwise, whether accrued or not, subject to Section 2.8 hereof. Neither such termination, nor the termination of this Agreement by lapse of time, the giving of notice or otherwise, shall absolve, release or otherwise affect the liability of Borrower in respect of transactions prior to such termination, or affect any of the Liens, security interests, rights, powers and remedies of Agent or Lenders, but they shall, in all events, continue until all of the Obligations are satisfied. 9.4 RIGHTS OF LENDER REGARDING COLLATERAL. In addition to all other rights possessed by Agent or Lenders, Agent, at its option, may on behalf of each Lender from time to time after there shall have occurred an Event of Default, and so long as such Event of Default remains uncured, at its sole discretion, take the following actions: (a) Transfer all or any part of the Collateral into the name of Agent or its nominee; (b) Take control of any proceeds of any of the Collateral; (c) Extend or renew the Loan and grant releases, compromises or indulgences with respect to the Obligations, any portion thereof, any extension or renewal thereof, or any security therefor, to any obligor hereunder or thereunder; and (d) Exchange certificates or instruments representing or evidencing the Collateral for certificates or instruments of smaller or larger denominations for any purpose consistent with the terms of this Agreement. 9.5 DELEGATION OF DUTIES AND RIGHTS. Agent may execute any of its duties and/or exercise any of its rights or remedies under the Loan Documents by or through its officers, directors, employees, attorneys, agents or other representatives. 9.6 AGENT AND/OR LENDERS NOT IN CONTROL. Except as expressly provided herein or in any Loan Document, none of the covenants or other provisions contained in this Agreement or in any Loan Document shall give Agent or any Lender the right or power to exercise control over the affairs and/or management of Borrower. 9.7 WAIVERS. The acceptance by Agent or any Lender at any time and from time to time of partial payments of the Loan or performance of the Obligations shall not be deemed to be a waiver of any Event of Default then existing. No waiver by Agent or any Lender of any Event of Default shall be deemed to be a waiver of any other or subsequent Event of Default. No delay or omission by Agent or any Lender in exercising any right or remedy under the Loan Documents shall impair such right or remedy or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such right or remedy preclude other or further exercise thereof, or the exercise of any other right or remedy under the Loan Documents or otherwise. Further, except as otherwise expressly provided in this Agreement or by applicable law, Borrower and each and every surety, endorser, guarantor and other party liable for the payment or performance of all or any portion of the Obligations, severally waive notice of the occurrence of any Event of Default, presentment and demand for payment, protest, and notice of protest, notice of intention to accelerate, acceleration and nonpayment, and agree that their liability shall not be affected by any renewal or extension in the time of payment of the Loan, or by any release or change in any security for the payment or performance of the Loan, regardless of the number of such renewals, extensions, releases or changes. 9.8 CUMULATIVE RIGHTS. All rights and remedies available to any Lender or Agent on behalf of Lenders under the Loan Documents shall be cumulative of and in addition to all other rights and remedies granted under any of the Loan Document, at law or in equity, whether or not the Loan is due and payable and whether or not Agent shall have instituted any suit for collection or other action in connection with the Loan Documents. 9.9 EXPENDITURES BY LENDERS OR AGENT. Any sums expended by or on behalf of Agent or Lenders pursuant to the exercise of any right or remedy provided herein shall become part of the Obligations and shall bear interest at the Default Rate, from the date of such expenditure until the date repaid. 9.10 DIMINUTION IN VALUE OF COLLATERAL. Neither Agent nor any Lender shall have any liability or responsibility whatsoever for any diminution or loss in value of any of the Collateral, specifically including that which may arise from Agent or any Lender's negligence or inadvertence, whether such negligence or inadvertence is the sole or concurring cause of any damage, but specifically excluding any diminution or loss in value which is actually and proximately caused by Agent's failure to retain the Pledged Notes Receivable in a fire-resistant filing cabinet as provided in Section 3.6 above. 9.11 AGENT'S KNOWLEDGE. Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default unless Agent has actual knowledge of the Event of Default or has received a notice from a Lender or Borrower referring to this Agreement and describing such Event of Default. Each Lender agrees that upon learning of the existence of an Event of Default, it will promptly notify Agent thereof in writing. Any such notice by a Lender, shall be in writing sufficient to identify the nature of the Event of Default. 9.12 LENDER'S ENFORCEMENT RIGHTS. Each Lender has assigned to Agent its absolute and unconditional right to enforce the payment of its Note. No Lender may unilaterally enforce any Lien or security interest in the Collateral, or bring suit against Borrower to enforce such Lender's rights hereunder or under its Note. SECTION 10 -- CERTAIN RIGHTS OF LENDERS 10.1 PROTECTION OF COLLATERAL. Agent on behalf of each Lender may at any time and from time to time take such actions as it deems necessary or appropriate to protect Lender's Liens and security interests in and to preserve the Collateral, and to establish, maintain and protect the enforceability of Lender's rights with respect thereto, all at the expense of Borrower. Borrower agrees to cooperate fully with all of Agent's efforts to preserve the Collateral and Lender's Liens, security interests and rights and will take such actions to preserve the Collateral and Lender's Liens, security interests and rights as Agent may direct, including, without limitation, by promptly paying upon Lender's demand therefor, all documentary stamp taxes or other taxes that may be or may become due in respect of any of the Collateral. All of Agent's expenses of preserving the Collateral and each Lender's liens and security interests and rights therein shall be added to the Loan. 10.2 PERFORMANCE BY AGENT. If Borrower fails to perform any agreement contained herein, Agent may itself perform, or cause the performance of, such agreement on behalf of Lenders, and the expenses of Agent incurred in connection therewith shall be payable by Borrower under Section 10.5 below. In no event, however, shall Agent or any Lender have any obligation or duties whatsoever to perform any covenant or agreement of Borrower contained herein or in any of the Loan Documents, Timeshare Documents or Operating Contracts, and any such performance by Agent shall be wholly discretionary with Agent. The performance by Agent, of any agreement or covenant of Borrower on any occasion shall not give rise to any duty on the part of Agent to perform any such agreements or covenants on any other occasion or at any time. In addition, Borrower acknowledges that neither Agent nor any Lender shall at any time or under any circumstances whatsoever have any duty to Borrower or to any third party to exercise any of Lender's rights or remedies hereunder. 10.3 NO LIABILITY OF LENDER. Neither the acceptance of this Agreement by Agent and each Lender, nor the exercise of any rights hereunder by Lender or Agent on its behalf, shall be construed in any way as an assumption by Agent or any Lender of any obligations, responsibilities or duties of Borrower arising in connection with any Resort or under the Timeshare Documents or Timeshare Acts, or any of the Operating Contracts, or in connection with any other business of Borrower, or the Collateral, or otherwise bind Agent or any Lender to the performance of any obligations with respect to any Resort or the Collateral; it being expressly understood that neither Agent nor Lender shall be obligated to perform, observe or discharge any obligation, responsibility, duty, or liability of Borrower with respect to any Resort or any of the Collateral, or under any of the Timeshare Documents, the Timeshare Acts or under any of the Operating Contracts, including, but not limited to, appearing in or defending any action, expending any money or incurring any expense in connection therewith. Without limitation of the foregoing, neither this Agreement, any action or actions on the part of Agent taken hereunder, nor the acquisition of the Pledged Notes Receivable and the Mortgages by Agent prior to or following the occurrence of an Event of Default shall constitute an assumption by Agent or any Lender of any obligations of Borrower with respect to any Resort or the Pledged Notes Receivable, the Mortgages or any documents or instruments executed in connection therewith, and Borrower shall continue to be liable for all of its obligations thereunder or with respect thereto. Borrower agrees to indemnify, protect, defend and hold Agent and each Lender harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or incurred by Agent and each Lender by reason of, arising out of, or connected in any way with (i) any failure or alleged failure of Borrower to perform any of its covenants or obligations with respect to each Resort or the Purchasers of any of the Intervals, (ii) a breach of any certification, representation, warranty or covenant of Borrower set forth in any of the Loan Documents, (iii) the ownership of the Pledged Notes Receivable, the Mortgages and the rights, titles and interests assigned hereby, or intended so to be, (iv) the debtor-creditor relationships between Borrower on the one hand, and the Purchasers, Agent or Lender, as the case may be, on the other, or (v) the Pledged Notes Receivable, the Mortgages or the operation of the Resorts or sale of Intervals. The obligations of Borrower to indemnify, protect, defend and hold Agent and each Lender harmless as provided in this Agreement are absolute, unconditional, present and continuing, and shall not be dependent upon or affected by the genuineness, validity, regularity or enforceability of any claim, demand or suit from which Agent or any Lender is indemnified. The indemnity provisions in this Section 10.3 shall survive the satisfaction of the Obligations and termination of this Agreement, and remain binding and enforceable against Borrower, or its successors or assigns. Borrower hereby waives all notices with respect to any losses, damages, liabilities, suits, costs and expenses, and all other demands whatsoever hereby indemnified, and agrees that its obligations under this Agreement shall not be affected by any circumstances, whether or not referred to above, which might otherwise constitute legal or equitable discharges of its obligations hereunder. 10.4 RIGHT TO DEFEND ACTION AFFECTING SECURITY. Agent may, at Borrower's expense, appear in and defend any action or proceeding at law or in equity which Agent in good faith believes may affect the security interests granted under this Agreement, including without limitation, with respect to Pledged Notes Receivable or Mortgages, the value of the Collateral or each Lender's rights under any of the Loan Documents. 10.5 EXPENSES. All expenses payable by Borrower, under any provision of this Agreement shall be an Obligation of Borrower and shall be paid by Borrower to Agent, upon demand, and shall bear interest at the Default Rate from the date of expense until repaid by Borrower. 10.6 LENDER'S RIGHT OF SET-OFF. Subject to Section 2.8 hereof, each Lender shall have the right to set-off against any Collateral any Obligations then due and unpaid by Borrower, provided Borrower is in Default. 10.7 NO WAIVER. No failure or delay on the part of Agent in exercising any right, remedy or power under this Agreement or in giving or insisting upon strict performance by Borrower hereunder or in giving notice hereunder shall operate as a waiver of the same or any other power or right, and no single or partial exercise of any such power or right shall preclude any other or further exercise thereof or the exercise of any other such power or right. Agent, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Borrower of any and all of the terms and provisions of this Agreement to be performed by Borrower. The collection and application of proceeds, the entering and taking possession of the Collateral, and the exercise by Agent of the rights of Lenders contained in the Loan Documents and this Agreement shall not cure or waive any default, or affect any notice of default, or invalidate any acts done pursuant to such notice. No waiver by Agent or any Lender of any breach or default of or by any party hereunder shall be deemed to alter or affect Lender's rights hereunder with respect to any prior or subsequent default. 10.8 RIGHT OF AGENT TO EXTEND TIME OF PAYMENT, SUBSTITUTE, RELEASE SECURITY, ETC. Without affecting the liability of any Person or entity including without limitation, any Purchasers, for the payment of any of the Obligations or without affecting or impairing Lender's Lien on the Collateral, or the remainder thereof, as security for the full amount of the Loan unpaid and the Obligations, subject to Section 13.11 hereof, Agent may from time to time, without notice: (a) release any Person liable for the payment of the Loan, (b) extend the time or otherwise alter the terms of payment of the Loan, (c) accept additional security for the Obligations of any kind, including deeds of trust or mortgages and security agreements, (d) alter, substitute or release any property securing the Obligations, (e) realize upon any collateral for the payment of all or any portion of the Loan in such order and manner as it may deem fit, or (f) join in any subordination or other agreement affecting this Agreement or the lien or charge thereof. 10.9 ASSIGNMENT OF LENDER'S INTEREST. Each Lender shall have the right to assign its Loans and all or any portion of its rights in or pursuant to this Agreement or any of the Loan Documents to any subsequent holder or holders of its Note or the Obligations evidenced thereby, provided that each Lender shall give Agent concurrent written notice of each such assignment. 10.10 NOTICE TO PURCHASER. Borrower authorizes any of Agent, Lockbox Agent or Servicing Agent (but none of Agent, Lockbox Agent nor Servicing Agent shall be obligated) to communicate at any time and from time to time with any Purchaser or any other Person primarily or secondarily liable under a Pledged Note Receivable with regard to the Lien of Agent thereon and any other matter relating thereto, and by no later than the Effective Date, Borrower shall deliver to Agent a notification to the Purchasers executed in blank by Borrower and in form acceptable to Agent, pursuant to which the Purchasers (or other obligors) may be directed to remit all payments in respect of the Collateral as Agent may require. 10.11 COLLECTION OF THE NOTES. Borrower hereby directs and authorizes each party liable for the payment of the Pledged Notes Receivable, and by no later than the Effective Date shall direct in writing each such party, to pay each installment thereon to Lockbox Agent pursuant to the Lockbox Agreement, unless and until directed otherwise by written notice from Agent or, at Agent's direction, from Borrower, after which such parties are and shall be directed to make all further payments on the Pledged Notes Receivable in accordance with the directions of Agent. Following the occurrence of an Event of Default, Agent shall have the right to require that all payments becoming due under the Pledged Notes Receivable be paid directly to Agent as agent for Lenders, and Agent is hereby authorized to receive, collect, hold and apply the same in accordance with the provisions of this Agreement. In the event that following the occurrence of an Event of Default, Agent or Lockbox Agent does not receive any installment of principal or interest due and payable under any of the Pledged Notes Receivable on or prior to the date upon which such installment becomes due, Agent may, at its election (but without any obligation to do so), give or cause Lockbox Agent to give notice of such default to the defaulting party or parties, and Agent shall have the right (but not the obligation), subject to the terms of such Notes, to accelerate payment of the unpaid balance of any of the Pledged Notes Receivable in default and to foreclose each of the Mortgages securing the payment thereof, and to enforce any other remedies available to the holder of such Pledged Notes Receivable with respect to such default. Borrower hereby further authorizes, directs and empowers Agent (and Lockbox Agent or any other Person as may be designated by Agent in writing) to collect and receive all checks and drafts evidencing such payments and to endorse such checks or drafts in the name of Borrower and upon such endorsements, to collect and receive the money therefor. The right to endorse checks and drafts granted pursuant to the preceding sentence is irrevocable by Borrower, and the banks or banks paying such checks or drafts upon such endorsements, as well as the signers of the same, shall be as fully protected as though the checks or drafts have been endorsed by Borrower. 10.12 POWER OF ATTORNEY. Borrower does hereby irrevocably constitute and appoint Agent as Borrower's true and lawful agent and attorney-in-fact, with full power of substitution, for Borrower and in Borrower's name, place and stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in the name of Borrower and in favor of Agent on behalf of each Lender as provided in Section 10.11 above, (b) to demand and receive from time to time any and all property, rights, titles, interests and liens hereby sold, assigned and transferred, or intended so to be, and to give receipts for same, (c) from time to time to institute and prosecute in Agent's own name any and all proceedings at law, in equity, or otherwise, that Agent may deem proper in order to collect, assert or enforce any claim, right or title, of any kind, in and to the property, rights, titles, interests and liens hereby sold, assigned or transferred, or intended so to be, and to defend and compromise any and all actions, suits or proceedings in respect of any of the said property, rights, titles, interests and liens, (d) upon an Event of Default to change Borrower's post office mailing address, and (e) generally to do all and any such acts and things in relation to the Collateral as Agent shall in good faith deem advisable. Borrower hereby declares that the appointment made and the powers granted pursuant to this Section 10.12 are coupled with an interest and are and shall be irrevocable by Borrower in any manner, or for any reason, unless and until a release of the same is executed by Agent and duly recorded in the appropriate public records of Dallas County, Texas. 10.13 RELIEF FROM AUTOMATIC STAY, ETC To the fullest extent permitted by law, in the event Borrower shall make application for or seek relief or protection under the federal bankruptcy code ("Bankruptcy Code") or other Debtor Relief Laws, or in the event that any involuntary petition is filed against Borrower under such Code or other Debtor Relief Laws, and not dismissed with prejudice within 45 days, the automatic stay provisions of Section 362 of the Bankruptcy Code are hereby modified as to Agent and each Lender to the extent necessary to implement the provisions hereof permitting set-off and the filing of financing statements or other instruments or documents; and Agent and each Lender shall automatically and without demand or notice (each of which is hereby waived) be entitled to immediate relief from any automatic stay imposed by Section 362 of the Bankruptcy Code or otherwise, on or against the exercise of the rights and remedies otherwise available to Lenders as provided in the Loan Documents. 10.14 STANDBY SERVICER. Borrower acknowledges and agrees that upon written notice from Agent, to be given at any time during the term of the Loan in Agent's sole and absolute discretion, the Servicing Agent shall be replaced by the Standby Servicer, or such other servicing entity as may be selected by Agent in its sole and absolute discretion, for the purpose of servicing all Notes Receivable comprising the Collateral. SECTION 11 -- TERM OF AGREEMENT This Agreement shall continue in full force and effect and the security interests granted hereby and the duties, covenants and liabilities of Borrower hereunder and all the terms, conditions and provisions hereof relating thereto shall continue to be fully operative until all of the Obligations have been satisfied in full. Borrower expressly agrees that if Borrower makes a payment to Agent on behalf of any Lender, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise required to be repaid to a trustee, receiver or any other party under any Debtor Relief Laws, state or federal law, common law or equitable cause, then to the extent of such repayment, the Obligations or any part thereof intended to be satisfied and the Liens provided for hereunder securing the same shall be revived and continued in full force and effect as if said payment had not been made. SECTION 12 -- MISCELLANEOUS 12.1 NOTICES. All notices, requests and other communications to either party hereunder shall be in writing and shall be given to such party at its address set forth below or at such other address as such party may hereafter specify for the purpose of notice to Agent, any Lender or Borrower. Each such notice, request or other communication shall be effective (a) if given by mail, when such notice is deposited in the United States Mail with first class postage prepaid, addressed as aforesaid, provided that such mailing is by registered or certified mail, return receipt requested, (b) if given by overnight delivery, when deposited with a nationally recognized overnight delivery service such as Federal Express or Airborne with all fees and charges prepaid, addressed as provided below, or (c) if given by any other means, when delivered at the address specified in this Section 12.1. IF TO BORROWER: Silverleaf Resorts, Inc. 1221 Riverbend Drive, Suite 120 Dallas, TX 75221 Attn: Mr. Robert Mead, CEO WITH A COPY TO: Meadows, Owens, Collier, Reed, Cousins and Blau 3700 Nations Bank Plaza 901 Main St. Dallas, TX 75202 Attn: George R. Bedell, Esq. IF TO LENDER: Textron Financial Corporation 40 Westminster Street Providence, Rhode Island 02903 Attention: Accounting Department/Collections Bank of Scotland 566 Fifth Avenue New York, New York 10017 Attention: Webster Bank 344 Main Street Kensington, Connecticut 06037 Attention: Special Assets IF TO AGENT: Textron Financial Corporation 40 Westminster Street Providence, Rhode Island 02903 Attention: Accounting Department/Collections WITH A COPY TO: Textron Financial Corporation P.O. Box 6687 Providence, Rhode Island 02940-6687 Attention: Division Counsel (RRD) AND TO: Textron Financial Corporation 333 East River Drive, Suite 104 East Hartford, Connecticut 06108 Attn: Division President Notwithstanding the foregoing, copies of the requests or notices from Borrower to Lender or Agent which are specified in the Sections of this Agreement listed below shall not be delivered to Providence, Rhode Island as provided above, but rather shall be delivered in accordance with this Section 12.1 to Textron Financial Corporation, 333 East River Drive, Suite 104, East Hartford, Connecticut 06108, Attention: Nicholas L. Mecca, Division President. The applicable Sections of this Agreement are Section 2.4(a) Voluntary Prepayments, Section 5(a) Request for Advances, and Section 12.10 Return of Notes Receivable. In addition, all documents, instruments and other items to be delivered to Lenders from time to time pursuant to this Agreement shall be delivered to Agent's office at 333 East River Drive, Suite 104, East Hartford, Connecticut 06108. 12.2 SURVIVAL. All representations, warranties, covenants and agreements made by Borrower herein, in the other Loan Documents or in any other agreement, document, instrument or certificate delivered by or on behalf of Borrower under or pursuant to the Loan Documents shall be considered to have been relied upon by Lenders and shall survive the delivery to Lenders of such Loan Documents (and each part thereof), regardless of any investigation made by or on behalf of Lenders. 12.3 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF ITS CHOICE OF LAWS PRINCIPLES. 12.4 LIMITATION ON INTEREST. Agent, each Lender and Borrower intend to comply at all times with applicable usury laws. All agreements between Agent, each Lender and Borrower, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to any Lender exceed the highest lawful rate permissible under applicable usury laws. If, from any circumstance whatsoever, fulfillment of any provision hereof, of the Note or of any other Loan Documents shall involve transcending the limit of such validity prescribed by any law which a Court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if from any circumstance Agent or any Lender shall ever receive anything of value deemed interest by applicable law which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal of Loan and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Loan, such excess shall be refunded to Borrower. All interest paid or agreed to be paid to Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal so that the interest on the Loan for such full period shall not exceed the highest lawful rate. Borrower agrees that in determining whether or not any interest payment under the Loan Documents exceeds the highest lawful rate, any non-principal payment (except payments specifically described in the Loan Documents as "interest") including without limitation, prepayment fees and late charges, shall to the maximum extent not prohibited by law, be an expense, fee, premium or penalty rather than interest. Agent and each Lender hereby expressly disclaim any intent to contract for, charge or receive interest in an amount which exceeds the highest lawful rate. The provisions of the Note, this Agreement, and all other Loan Documents are hereby modified to the extent necessary to conform with the limitations and provisions of this Section, and this Section shall govern over all other provisions in any document or agreement now or hereafter existing. This Section shall never be superseded or waived unless there is a written document executed by Agent, each Lender and Borrower, expressly declaring the usury limitation of this Agreement to be null and void, and no other method or language shall be effective to supersede or waive this paragraph. 12.5 INVALID PROVISIONS. If any provision of this Agreement or any of the other Loan Documents is held to be illegal, invalid or unenforceable under present or future laws effective during the term thereof, such provision shall be fully severable, this Agreement and the other Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof or thereof, and the remaining provisions hereof or thereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement and/or the Loan Documents (as the case may be) a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 12.6 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of Borrower, Agent and each Lender and their respective successors and assigns; provided that Borrower may not transfer or assign any of its rights or obligations under this Agreement, the Commitment or the other Loan Documents without the prior written consent of Agent. This Agreement and the transactions provided for or contemplated hereunder or under any of the Loan Documents are intended solely for the benefit of the parties hereto. No third party shall have any rights or derive any benefits under or with respect to this Agreement, the Commitment or the other Loan Documents except as provided in advance in a writing signed on behalf of Agent and each Lender. 12.7 AMENDMENT. This Agreement may not be amended or modified, and no term or provision hereof may be waived, except by written instrument signed by Borrower and Agent on behalf of itself and Lenders. 12.8 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signature thereto and hereto were on the same instrument. This Agreement shall become effective upon Agent's receipt of one or more counterparts hereof signed by Borrower. 12.9 LENDERS AND AGENT NOT FIDUCIARIES. The relationship between Borrower, Agent and each Lender is solely that of debtor and creditor, and Agent and Lenders have no fiduciary or other special relationship with Borrower, and no term or provision of any of the Loan Documents shall be construed so as to deem the relationship between Borrower, Agent and Lenders to be other than that of debtor and creditor. 12.10 RETURN OF NOTES RECEIVABLE. (a) In the event Borrower complies with its Obligations under Section 2.5(b) of this Agreement with respect to Pledged Notes Receivable pursuant to which a default by the Purchaser thereof has occurred, and Borrower thereafter desires to enforce such Note Receivable against the Purchaser thereof, then provided that no Event of Default has occurred which has not been cured to Agent's satisfaction (as evidenced by a written acceptance of such cure executed by Agent), and no event has occurred which with notice, the passage of time or both, would constitute an Event of Default, then within thirty (30) days after its receipt of a written request from Borrower, Agent shall deliver such ineligible Note Receivable to Borrower, provided that such delivery shall be for the sole purpose of enforcing Agent's rights thereunder and Agent, notwithstanding such delivery, shall continue to have, on behalf of Lenders, a first priority security interest in any such note. (b) In the event that all Obligations hereunder are fully satisfied, then within a reasonable time thereafter, Agent shall endorse the Pledged Notes Receivable "Pay to the order of Silverleaf Resorts, Inc. without recourse", and deliver such Pledged Notes Receivable, together with any other nonrecourse Collateral reassignment documents requested and prepared by Borrower, at Borrower's sole cost and expense. 12.11 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be determined or made in accordance with GAAP consistently applied at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. 12.12 TOTAL AGREEMENT. This Agreement and the other Loan Documents, including the Exhibits and Schedules to them, is the entire agreement between the parties relating to the subject matter hereof, incorporates or rescinds all prior agreements and understandings between the parties hereto relating to the subject matter hereof, cannot be changed or terminated orally or by course of conduct, and shall be deemed effective as of the date it is accepted by Agent at the offices set forth above. The documents evidencing the Additional Credit Facility, the Tranche C Facility and the Inventory Loan shall remain in full force and effect. 12.13 LITIGATION. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, BORROWER, AGENT AND EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF BORROWER, AGENT AND EACH LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF AGENT OR ANY LENDER, NOR AGENT'S OR ANY LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO AGENT'S AND EACH LENDER'S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. The waiver and stipulations of Borrower, Agent, and each Lender in this Section 12.13 shall survive the final payment or performance of all of the Obligations of Borrower and the resulting termination of this Agreement. 12.14 INCORPORATION OF EXHIBITS. This Agreement, together with all Exhibits and Schedules hereto, constitute one document and agreement which is referred to herein by the use of the defined term "Agreement." Such Exhibits and Schedules are incorporated herein as to fully set out in this Agreement. The definitions contained in any part of this Agreement shall apply to all parts of this Agreement. 12.15 CONSENT TO ADVERTISING AND PUBLICITY OF TIMESHARE DOCUMENTS. Borrower hereby consents that Agent and each Lender may issue and disseminate to the public information describing the credit accommodation entered into pursuant to this Agreement, including the names and addresses of Borrower and any subsidiaries and Affiliates, the amount and a general description of Borrower's business. 12.16 DIRECTLY OR INDIRECTLY. Where any provision in the Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provisions shall be applicable whether such action is taken directly or indirectly by such Person. 12.17 HEADINGS. Section headings have been inserted in the Agreement as a matter of convenience of reference only; such section headings are not a part of the Agreement and shall not be used in the interpretation of this Agreement. 12.18 GENDER AND NUMBER. Words of any gender in this Agreement shall include each other gender and the singular shall mean the plural and vice versa where appropriate. SECTION 13 - AGENT 13.1 AUTHORIZATION AND ACTION. Each Lender hereby accepts the appointment of and irrevocably (but subject to Section 13.8) authorizes Agent to take such action as Agent on its behalf and to exercise such powers as are expressly delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Agent shall not be required to take any action which exposes Agent to personal liability or which is contrary to this Agreement or applicable law. Agent agrees to give to each Lender prompt notice of each notice given to it by Borrower pursuant to the terms of this Agreement. The appointment and authority of Agent hereunder shall terminate upon the payment of the Obligations in full. 13.2 NATURE OF AGENT'S DUTIES. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any of the Loan Documents, express or implied, is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein or therein. Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect to Borrower, whether coming into its possession before the date hereof or at any time or times thereafter (except as expressly set forth in this Agreement). If Agent seeks the consent or approval of Lenders, to the taking or refraining from taking any action hereunder, Agent shall send notice thereof to each Lender. 13.3 UCC FILINGS. Each of Borrower, Agent and Lender expressly recognizes and agrees that Agent shall be listed as the assignee or secured party of record on the various UCC filings required to be made hereunder in order to perfect the grant of a security interest in the Collateral herein for the benefit of Lenders, that such listing shall be for administrative convenience only in creating a single secured party to take certain actions hereunder on behalf of the holders of the Obligations, and that such listing will not affect in any way the status of such holders as the beneficial holders of such security interest. In addition, such listing shall impose no duties on Agent other than those expressly and specifically undertaken in accordance with this Section 13. 13.4 AGENT'S RELIANCE, ETC. Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement (including Agent's servicing, administering or collecting Receivables) except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, Agent: (i) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of Borrower or to inspect the property (including the books and records) of Borrower (except as otherwise expressly set forth in this Agreement); (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement, or any other instrument or document furnished pursuant hereto, or any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, the Loan Documents, or for any failure of Borrower or any of its Affiliates to perform its obligation under the Loan Documents; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex or telecopier) believed by it to be genuine and to be or to have been signed or sent by the proper party or parties. Agent may, but shall not be required to, at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents Agent is permitted or required to take or to grant, and Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the requisite Lender, as applicable in accordance with this Agreement. Without limiting the foregoing, Lender shall not have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the requisite Lender as applicable in accordance with this Agreement. Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it or them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Agent. 13.5 AGENT AND AFFILIATES. To the extent that Agent or any of its Affiliates are or shall become Lenders hereunder, Agent or such Affiliate, in such capacity, shall have each and every right and power under this Agreement as would any other Lender hereunder (including the right to vote upon any matter upon which any of Lenders are entitled to vote) and, without exception, may exercise the same as though it were not an Agent. Agent and its Affiliates may engage in any kind of business with Borrower, any of its Affiliates and any Person who may do business with or own securities of Borrower or any of its Affiliates, all as if it were not an Agent hereunder and without any duty to account therefor to Lenders. 13.6 CREDIT DECISION. Independently, and without reliance upon Agent, each Lender has, to the extent it deems appropriate, made and shall continue to make (a) its own independent investigation of the financial affairs and business affairs of Borrower in connection with any action or inaction with respect to the transactions contemplated herein, and (b) its own evaluation of the creditworthiness of Borrower and of the value of the Collateral, and, except as expressly provided in this Agreement, Agent has had and shall have no duty or responsibility to provide any Lender with any credit or other information with respect thereto. Agent shall not be responsible to any Lender for any recitals, statements, representation or warranties herein or in any document, certificate or other writing delivered in connection herewith (unless made by Agent) or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement (except with respect to Agent's obligations hereunder) or the Loan Documents or the financial condition of Borrower or the value of the Collateral. Except as expressly herein provided with respect to its duties as agent, Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or the Loan Documents, the financial condition of Borrower, or the existence or possible existence of any Event of Default. 13.7 INDEMNIFICATION. Each Lender agrees to indemnify Agent (to the extent not reimbursed by Borrower), ratably in accordance with each Lender's Pro Rata Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any action taken or omitted by Agent under this Agreement; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from Agent's gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Lender agrees to reimburse Agent (to the extent not reimbursed by Borrower) ratably in accordance with Lender's Pro Rata Percentage, promptly upon demand, for any out-of-pocket expenses (including reasonable counsel fees) incurred by Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement. The rights of Agent under this Section 13.7 shall survive the termination of this Agreement. For purposes of this paragraph, the term "Agent" shall include Agent, its affiliates and their respective officers, directors, employees and agents. 13.8 SUCCESSOR AGENT. Agent may resign at any time by giving thirty days notice thereof to Lenders and Borrower. Upon any such resignation Lenders, including TFC, shall have the right to appoint a successor Agent, and such resignation shall not be effective until such successor Agent is appointed and has accepted such appointment. If no successor Agent shall have been so appointed and accepted such appointment within seventy-five (75) days after Agent's giving of notice of resignation, then Agent may, on behalf of Lenders, appoint a successor Agent, which successor Agent shall be experienced in the types of transactions contemplated by this Agreement. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from all further duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 13 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 13.9 DUTY OF CARE. Agent shall endeavor to exercise the same care in its administration of the Loan Documents as it exercises with respect to similar transactions in which it is involved and where no other co-lenders or participants are involved; provided that the liability of Agent for failing to do so shall be limited as provided in the preceding paragraphs of this Section 13. 13.10 DELEGATION OF AGENCY. (a) If at any time or times it shall be necessary or prudent in connection with the exercise or protection of Agent's rights hereunder in order to conform to any law of any jurisdiction in which any of the Collateral shall be located, or Agent shall be advised by counsel that it is so necessary or prudent in the interest of Lenders, or Agent shall deem it necessary for its own protection in the performance of its duties hereunder Agent and, to the extent required by Agent, Borrower shall execute and deliver all instruments and agreements reasonably necessary or proper to constitute another bank or trust company, or one or more individuals approved by Agent (each an "Approved Delegate"), either to act as co-agent or co-agents or trustee of all or any of the Collateral, jointly with Agent originally named herein or any successor, or to act as separate agent or agents or trustee of any such Collateral. Every separate agent and every co-agent and every trustee, other than any agent which may be appointed as successor to Agent, shall, to the extent permitted by applicable law, be appointed to act and be such, subject to the following provisions and conditions, namely: (i) except as otherwise provided herein, all rights, remedies, powers, duties and obligations conferred upon, reserved or imposed upon Agent in respect of the custody, control and management of moneys, paper or securities shall be exercised solely by Agent hereunder; (ii) all rights, remedies, powers, duties and obligations conferred upon, reserved to or imposed upon Agent hereunder shall be conferred, reserved or imposed and exercised or performed by Agent except to the extent that the instrument appointing such separate agent or separate agents or co-agent or co-agents or trustee shall otherwise provide, and except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, Agent shall be incompetent or unqualified to perform such act or acts, in which event such rights, remedies, powers, duties and obligations shall be exercised and performed by such separate agents or co-agent or co-agents to the extent specifically directed in writing by Agent; (iii) no power given thereby to, or which it is provided hereby may be exercised by, any such separate agent or separate agents or co-agent or co-agents or trustee shall be exercised hereunder by such separate agent or separate agents or co-agent or co-agents or trustee except jointly with, or with the consent in writing of, anything herein contained to the contrary notwithstanding; (iv) no separate agent or co-agent or trustee constituted under this Section 13.10 shall be personally liable by reason of any act or omission of any other agent, separate agent, co-agent or trustee hereunder; and (v) Agent, at any time by an instrument in writing, executed by it, may accept the resignation of or remove any such separate agent or co-agent or trustee of Agent, and in that case, by an instrument in writing executed by Agent and Borrower (to the extent necessary or requested by Agent) jointly may appoint a successor to such separate agent or co-agent or trustee, as the case may be, anything therein contained to the contrary notwithstanding. In the event that Borrower shall not have joined in the execution of any such instrument with a Person or entity within ten (10) days after the receipt of a written request from Agent to do so, Agent, acting alone, may appoint a successor and may execute any instrument in connection therewith, and Borrower hereby irrevocably appoints Agent its agent and attorney to act for it in such connection in either of such contingencies. In the event that Borrower shall not have joined in the execution of such instruments or agreements with any Approved Delegate within thirty (30) Business Days after the receipt of a written request from Agent to do so, Borrower hereby irrevocably appoints Agent as its agent and attorney to act for it under the foregoing provisions of this Section 13.10 in such contingency, it being understood that the power of attorney granted hereunder is coupled with an interest. (b) Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel, and other specialists and advisors (including affiliates of such Agent) selected by it, concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any such agents, attorneys-in-fact, counsel and other specialists and advisors selected by it with reasonable care. 13.11 AGENT'S RESPONSIBILITIES. (a) Each subsequent holder of any Note by its acceptance thereof irrevocably joins in the designation of TFC as agent for Lenders as provided herein with the same force and effect as if it were an original Lender hereunder and signatory hereto. TFC hereby accepts such designation and appointment as agent. Agent, acting as such under the provisions of this Agreement, or under any other instrument or document delivered pursuant hereto, shall not be liable or responsible, directly or indirectly, for any action taken, or omitted to be taken, by it in good faith, nor shall Agent be liable or responsible for the consequences of any oversight or error of judgment on its part, but Agent shall only be liable or responsible for any loss suffered by any of Lenders hereunder provided such loss was caused by Agent's gross negligence or willful misconduct. Agent shall not, by any action or inaction hereunder, be deemed to make any representation or warranty regarding the legality, legal effect or sufficiency of any act of Borrower in connection with, or under any of the provisions of, this Agreement, or any instrument or document delivered pursuant thereto, or the validity or enforceability of any instrument or document furnished to Agent pursuant to this Agreement. Agent shall have no liability or responsibility in connection with the collection or payment of any sums due to Lenders by Borrower, the sole responsibility of Agent being to account to Lenders only for monies actually received by it. Agent shall have no obligation to make any application of any funds received by it until such funds are immediately available at Agent's office. Any monies received by Agent need not be segregated from other funds except to the extent required by law, and Agent shall not be liable for interest on any funds received by it. Agent shall not be charged with knowledge of any facts which would prohibit the making of any payment of monies in accordance with the provisions of this Agreement unless and until Agent shall have received written notice thereof at its office from Borrower or any Lender. The duties of Agent shall be mechanical and administrative in nature, Agent shall not, by reason of this Agreement, be deemed a fiduciary in respect of Lenders, and nothing in this Agreement shall impose upon Agent any obligations in respect of this Agreement except as expressly herein set forth. (b) Agent shall have the right to exercise all the rights granted to, and exercisable by, it under this Agreement and any instrument or document delivered pursuant to this Agreement, in such manner from time to time, as Agent in its sole discretion, shall deem proper. (c) Agent agrees to provide each Lender with notice (and copies of documents, as appropriate) of the following: (i) Agent's actual knowledge that any event or condition exists that would permit a Lender to refuse to make an Advance (including but not limited to those events or conditions provided in Sections 2.1(a) and 2.1(b) hereof); (ii) Agent's receipt of any notice from any party to the Intercreditor Agreement; (iii) Agent's receipt of any notice or request from Borrower regarding a proposed modification, waiver or consent, provided however, Agent shall not be required to provide notice unless Agent finds such proposed modification, waiver or consent acceptable and intends to recommend approval of such proposed modification, waiver or consent to the Lenders; (iv) Failure of any Lender to make a required Advance or other accommodation within ten (10) business days of the time period specified in Section 2.1(f) hereof; (v) Notice of Heller or Sovereign ceasing to make advances under their respective loan facilities, or TFC ceasing or refusing to make advances under the Additional Credit Facility or the Tranche C Facility; (vi) Copies of any information/notices provided to Agent by Borrower pursuant to Sections 5.1(a), 7.1(h), 7.1(i), 7.1(m), 7.1(o), 7.1(s) and 7.1(dd) hereof; and (vii) Reasonable prior written notice of Agent's intent to exercise its rights under Section 7.1(g). The scope of any examination, audit or inspection conducted by Agent pursuant to said Section 7.1(g) (including but not limited to setting the parameters of any sample pool that is the subject of such examination, audit or inspection) shall be reasonably acceptable to each Lender. (d) Except as otherwise provided in this Agreement, Agent shall be entitled, at its option, from time to time and at any time, to enter into any amendment of, or waive compliance with the terms of the Loan Agreement without obtaining prior approval from any Lender, provided that, without the prior approval of each Lender in each instance, Agent may not: (i) reduce the principal amount of the Loan; (ii) change the Borrowing Base (advance rate) (provided, however, Agent may reduce the Borrowing Base for a limited time (not more than sixty (60) days) to adjust an over-advance circumstance); (iii) change the definition of Eligible Notes Receivable; (iv) decrease the Interest Rate; (v) extend the Final Maturity Date of the Loan; (vi) waive or excuse any payment; (vii) release any material Collateral or any material third party obligor (except as expressly authorized by this Agreement in the normal course of Borrower's business); (viii) waive an Event of Default; or (ix) waive any of the Advance requirements set forth in Section 5.1. Notwithstanding the foregoing, Agent may take any such actions referred to in such preceding sentences and each Lender shall be bound thereby, with the consent of such Lenders (including Agent as a Lender for this purpose) whose total Pro Rata Payment Percentage is equal to or exceeds sixty-six and two-thirds percent (66 2/3%) of the outstanding principal balance of the Loan. Notwithstanding the foregoing, in the event that a Lender does not consent to any of the amendments or waivers requiring sixty-six and two-thirds percent (66 2/3%) consent under the previous paragraph, then such Lender shall not be obligated to fund any additional Advances hereunder but it shall continue to receive its Pro Rata Payment Percentage of each repayment of principal and interest on the Loan in accordance with the terms of this Agreement and shall be repaid in full over a period not to exceed the then existing Final Maturity Date under the Loan. Furthermore, in the event a Lender does not consent to any amendment or waivers regarding: (i) reduction of the principal amount of the Loan; (ii) reduction in the release price as to any Collateral or any other change with regard to release of Collateral; (iii) reduction of the Interest Rate; (iv) any express change in the Effective Advance Rate which adversely impacts the Collateral as to such Lender; or (v) any subordination or release of any material Collateral, except as set forth in this Agreement or the Loan Documents, then in any of such events any such modification shall be applicable only to new money advanced by Agent and such changes shall not be applicable in any way to the existing balance due under the Loan as of the date of such change. Notwithstanding anything to the contrary contained in this Section 13.11(d), Agent may, in its sole and absolute discretion, require that the Lenders (including TFC) unanimously consent to the approval of any such action(s) referred to in this Section 13.11(d) before any such action(s) is taken. Borrower acknowledges and agrees that in the event that a Lender does not consent to any of the amendments or waivers requiring sixty-six and two-thirds percent (66 2/3%) consent under the previous paragraph and such Lender is not obligated to fund any additional Advances hereunder, the Maximum Available Amount shall be reduced by an amount equal to the amount of any unused portion of such Lender's Commitment. 13.12 POWER OF ATTORNEY. Each Lender does hereby irrevocably constitute and appoint Agent as its true and lawful agent and attorney-in-fact, with full power of substitution, for and in its name, place and stead, or otherwise, to (a) demand and receive from time to time any and all property, rights, titles, interests and liens hereby sold, assigned and transferred, or intended so to be, and to give receipts for same, (b) from time to time to institute and prosecute in Agent's own name any and all proceedings at law, in equity, or otherwise, that Agent may deem proper in order to collect, assert or enforce any claim, right or title, of any kind, in and to the property, rights, titles, interests and liens hereby sold, assigned or transferred, or intended so to be, and to defend and compromise any and all actions, suits or proceedings in respect of any of the said property, rights, titles, interests and liens, and (c) generally to do all and any such acts and things in relation to the Loans, the Collateral and this Agreement as Agent shall in good faith deem advisable. Each Lender hereby declares that the appointment made and the powers granted pursuant to this Section 13.12 are coupled with an interest and are and shall be irrevocable by it in any manner, or for any reason, unless and until the repayment in full of the Obligation. 13.13 RATIFICATION AND CONFIRMATION. Borrower hereby ratifies, confirms, assumes and agrees to be bound by all statements, covenants and agreements set forth in the Original Agreement and the other Loan Documents. Borrower reaffirms, restates and incorporates by reference all of the covenants and agreements made in the Loan Documents as if the same were made as of this date. Borrower agrees to pay the Loan and all related expenses, as and when due and payable in accordance with this Agreement and the other Loan Documents, and to observe and perform the Obligations, and do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default. In addition, to further secure, and to evidence and confirm the securing of, the prompt and complete payment and performance by Borrower of the Loan and all of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and grants to Agent, and hereby confirms or reaffirm the prior granting to Agent of, a continuing first priority Lien, mortgage and security interest in and to all of the Collateral, whether now existing or hereafter acquired. Also, as provided in the Loan Documents, the Loan is and shall be further secured by the Liens and security interests in favor of Agent in the properties and interests relating to Additional Eligible Resorts, which now or hereafter serve as collateral security for any Obligations. On the date hereof and thereafter upon satisfaction of the requirements for approval by Agent of Additional Resorts, Borrower shall record, or cause to be recorded, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements in the appropriate public records of the state in which each Resort is located to further evidence and perfect Agent's Lien on the Collateral. Borrower agrees to deliver or cause to be delivered by its Affiliates, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements as Agent may deem necessary to further evidence and perfect Agent's Lien on the Collateral. 13.14 ESTOPPEL. Borrower acknowledges, agrees and confirms that: (a) Advances under the Original Agreement have been made prior to the date hereof; (b) all such Advances made prior to the date hereof were made in favor of the Original Borrower and Borrower in respect of the Existing Eligible Resorts; (c) Advances made prior to the date hereof under the Original Agreement are deemed as having been made for the benefit of Borrower and Borrower acknowledges and agrees that Borrower received a direct and substantial financial benefit from such Advances and (d) immediately prior to the date hereof, and without giving effect to any Advances that may be made pursuant to this Agreement, the status of the Loan, including the outstanding principal balance thereof is as reflected in the Loan Funding Report delivered to and approved by Agent, a copy of which is attached as Exhibit J. The Loan constitutes valuable consideration to Borrower, which consideration is uninterrupted and continuous since the dates on which the Loan was first made. This Agreement and the other Loan Documents and the Loan modifications and transactions provided for or contemplated hereunder or thereunder, shall in no way adversely affect the Lien or perfection or priority of any Lien of Agent as of the date hereof in and to any Collateral, and are not intended to constitute, and do not constitute or give rise to, any novation, cancellation or extinguishment of any of Borrower's Obligations existing as of the Closing Date to Agent, or of any interests owned or held by Agent (and not previously released) in and to any of the Collateral; it being the intention of the parties that the transactions provided for or contemplated herein shall be effectuated without any interruption in the continuity of the value and consideration received by Borrower, and of the attachment, perfection, priority and continuation in favor of Agent in and to all Collateral and proceeds. 13.15 PARTICIPATION AGREEMENT. Nothing in this Section 13 shall affect or limit any of the Participants' rights or Agent's obligations under each Participant's respective participation agreement with the Agent. SECTION 14 - SPECIAL CONDITIONS 14.1 EFFECTIVE DATE. BORROWER ACKNOWLEDGES, AGREES AND CONFIRMS THAT THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING ANY OBLIGATION OF LENDERS TO MAKE ANY ADVANCE HEREUNDER, SHALL NOT BECOME EFFECTIVE UNTIL THE EFFECTIVE DATE, AS SUCH TERM IS HEREINAFTER DEFINED. FOR PURPOSES OF THIS AGREEMENT, THE TERM "EFFECTIVE DATE" SHALL MEAN THE DATE ON WHICH AGENT DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT EACH OF THE CONDITIONS SET FORTH IN SECTION 4 HEREOF HAVE BEEN SATISFIED, INCLUDING BUT NOT LIMITED TO: (i) THE CLOSING OF THE DZ FACILITY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE DZ LETTER AGREEMENT AND THE BUSINESS PLAN; (ii) THE CONSUMMATION OF THE BOND HOLDER EXCHANGE TRANSACTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE BOND HOLDER EXCHANGE LETTER AND THE BUSINESS PLAN; (iii) THE APPROVAL OF THIS AGREEMENT (AND THE MODIFICATION OF THE ORIGINAL AGREEMENT AS CONTEMPLATED HEREIN) BY EACH LENDER AND PARTICIPANT; AND (iv) THE CLOSING OF THE SOVEREIGN FACILITY AND HELLER FACILITY IN ACCORDANCE WITH THE BUSINESS PLAN. IN THE EVENT THAT THE EFFECTIVE DATE DOES NOT OCCUR ON OR BEFORE MAY 31, 2002, THEN THIS AGREEMENT, AND ALL OF THE OBLIGATIONS OF AGENT AND LENDERS HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ANY ADVANCE HEREUNDER SHALL BE VOID AB INITIO, AS IF THIS AGREEMENT WAS NEVER ENTERED INTO. IN SUCH EVENT, THE LOAN, AND THE RIGHTS AND OBLIGATIONS OF BORROWER WITH RESPECT THERETO, SHALL BE GOVERNED IN ALL RESPECTS BY THE TERMS AND CONDITIONS SET FORTH IN THE ORIGINAL LOAN AGREEMENT, AS MODIFIED BY THE FORBEARANCE AGREEMENT. BORROWER EXPRESSLY ACKNOWLEDGES, AGREES AND CONFIRMS THAT TIME IS OF THE UTMOST ESSENCE WITH RESPECT TO THE EFFECTIVE DATE OCCURRING ON OR BEFORE MAY 31, 2002. ON THE EFFECTIVE DATE, AND SO LONG AS EACH CONDITION PRECEDENT SET FORTH IN THIS AGREEMENT HAS BEEN SATISFIED, THE LENDERS AGREE TO WAIVE ALL PRIOR DEFAULTS AND EVENTS OF DEFAULT UNDER THE ORIGINAL LOAN AGREEMENT, INCLUDING BUT NOT LIMITED TO THE SPECIFIED EVENTS OF DEFAULT PROVIDED IN THE FORBEARANCE AGREEMENT. 14.2 DZ BANK FACILITY CONDITIONS. Agent, for itself and on behalf of each Lender acknowledges and agrees that: (i) the transfer of Notes Receivable to Silverleaf Finance I, Inc. in connection with the DZ Facility is a true sale and not a financing transaction; (ii) no Lender or Agent will consolidate Silverleaf Finance I, Inc. with the Borrower in the event of a bankruptcy; and (iii) no Lender or Agent will take any action to the contrary in the case of a bankruptcy of Borrower or otherwise. 14.3 RELEASE. IN ORDER TO INDUCE AGENT, LENDERS AND PARTICIPANTS TO ENTER INTO THIS AGREEMENT, BORROWER ACKNOWLEDGES AND AGREES THAT: (i) BORROWER HAS NO CLAIM OR CAUSE OF ACTION AGAINST AGENT, ANY LENDER OR ANY PARTICIPANT (OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS); (ii) BORROWER HAS NO OFFSET RIGHT, COUNTERCLAIM OR DEFENSE OF ANY KIND AGAINST ANY OF ITS OBLIGATIONS, INDEBTEDNESS OR LIABILITIES TO AGENT, ANY LENDER OR ANY PARTICIPANT; AND (iii) EACH OF AGENT, LENDERS AND PARTICIPANTS HAS HERETOFORE PROPERLY PERFORMED AND SATISFIED IN A TIMELY MANNER ALL OF ITS OBLIGATIONS TO BORROWER. BORROWER WISHES TO ELIMINATE ANY POSSIBILITY THAT ANY PAST CONDITIONS, ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS WOULD IMPAIR OR OTHERWISE ADVERSELY AFFECT AGENT'S, ANY OF LENDERS' OR ANY OF PARTICIPANTS' RIGHTS, INTERESTS, CONTRACTS, COLLATERAL SECURITY OR REMEDIES. THEREFORE, BORROWER UNCONDITIONALLY RELEASES, WAIVES AND FOREVER DISCHARGES (A) ANY AND ALL LIABILITIES, OBLIGATIONS, DUTIES, PROMISES OR INDEBTEDNESS OF ANY KIND OF AGENT, ANY LENDER OR ANY PARTICIPANT TO BORROWER, EXCEPT THE OBLIGATIONS TO BE PERFORMED BY AGENT, ANY LENDER OR ANY PARTICIPANT ON OR AFTER THE DATE HEREOF AS EXPRESSLY STATED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) ALL CLAIMS, OFFSETS, CAUSES OF ACTION, SUITS OR DEFENSES OF ANY KIND WHATSOEVER (IF ANY), WHETHER ARISING AT LAW OR IN EQUITY, WHETHER KNOWN OR UNKNOWN, WHICH BORROWER MIGHT OTHERWISE HAVE AGAINST AGENT, ANY LENDER, ANY PARTICIPANT OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, IN EITHER CASE (A) OR (B), ON ACCOUNT OF ANY PAST OR PRESENTLY EXISTING CONDITION, ACT, OMISSION, EVENT, CONTRACT, LIABILITY, OBLIGATION, INDEBTEDNESS, CLAIM, CAUSE OF ACTION, DEFENSE, CIRCUMSTANCE OR MATTER OF ANY KIND. IN WITNESS WHEREOF, Borrower, Bank of Scotland and Agent, for itself and as agent for each of the Lenders, have caused this Agreement to be duly executed and delivered effective as of the date first above written. BORROWER: SILVERLEAF RESORTS, INC., a Texas corporation /s/ Patricia K. Dorey By: /s/ Harry J. White, Jr. --------------------- -------------------------------- Name: Harry J. White, Jr. Title: CFO STATE OF TEXAS ) ) ss: COUNTY OF DALLAS ) The foregoing instrument was acknowledged before me this 24th day of April, 2002 by Harry J. White, CFO of Silverleaf Resorts, Inc., a Texas corporation, on behalf of the Corporation. /s/ Linda S. Wood ---------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: February 11, 2006 LENDER: BANK OF SCOTLAND, a By: /s/ Joseph Fratus - ------------------------- ------------------------------- Name: Joseph Fratus Title: STATE OF NEW YORK ) ) ss: COUNTY OF MANHATTAN ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by Joseph Fratus, VP of Bank of Scotland, a __________, on behalf of the _____________. /s/ Sara G. Alaimo ---------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires:September 25, 2002 LENDER: WEBSTER BANK, a federal savings bank [illegible] By: /s/ Scott A. Silvay - ------------------------------- --------------------------------- Name: Scott A. Silvay Title: Asst. V.P. STATE OF CONNECTICUT ) ) ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 25th day of April, 2002 by Scott Silvay, Asst. V.P. of WEBSTER BANK, a federal savings bank, on behalf of the bank. /s/ Patricia A. Berry -------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: August 31, 2001 LENDER: TEXTRON FINANCIAL CORPORATION, a Delaware corporation [illegible] By: /s/ John T. Dannibale - --------------------------- -------------------------- Name: John T. Dannibale Title: VP STATE OF CONNECTICUT ) ) ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by John T. Dannibale, VP of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Mary F. Rittlinger -------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: August 31, 2004 AGENT: TEXTRON FINANCIAL CORPORATION, a Delaware corporation as Agent for each Financial Institution listed on Schedule A [illegible] By: /s/ John T. Dannibale - ---------------------------- --------------------------- Name: John T. Dannibale Title: VP STATE OF CONNECTICUT ) ) ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by John T. Dannibale, VP of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Mary F. Rittlinger -------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: August 31, 2004 Exhibits: Schedule A Description of Lenders EX-10.6 12 d00253exv10w6.txt 1ST AMENDMENT TO LOAN & SECURITY AGREEMENT EXHIBIT 10.6 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (TRANCHE C) between SILVERLEAF RESORTS, INC. (as Borrower) and TEXTRON FINANCIAL CORPORATION (as Lender) As of April 30, 2002 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of April 30, 2002, entered into by and between SILVERLEAF RESORTS, INC. ("Borrower") and TEXTRON FINANCIAL CORPORATION ("Lender"). WITNESSETH: WHEREAS, Borrower is engaged in the business of acquiring, constructing, developing, owning, managing, selling and otherwise dealing with Intervals at the Resorts (as each such term is hereafter defined); WHEREAS, Borrower and Lender are parties to that certain Loan and Security Agreement dated as of April 17, 2001, (the "ORIGINAL AGREEMENT"), pursuant to which the Borrower executed its Secured Promissory Note in favor of the Lender in the amount of $10,200,000.00, (the "ORIGINAL NOTE"); WHEREAS, Lender and Borrower have agreed to enter into this First Amendment to Loan and Security Agreement dated as of April 30, 2002, (the "FIRST AMENDMENT"), to restructure and modify the Loan, including separating the Loan into two separate components - the Revolving Loan Component in the amount of up to $8,060,00.00 and the Term Loan Component in the amount of up to $2,140,000.00; WHEREAS, pursuant to this Agreement, the Commitment, as such term is hereinafter defined, shall be reduced to $9,058,000.00 less the outstanding principal balance of the Term Loan Component from time to time and the aggregate Commitment hereunder, under the Tranche A Credit Facility and the Tranche B Credit Facility, as such terms are hereinafter defined, shall be reduced to $136,000,000.00 less the outstanding principal balance of the Term Loan Component and the aggregate term loan component of the Tranche A Credit Facility and the Tranche B Credit Facility from time to time; WHEREAS, pursuant to this First Amendment, the Original Note will be replaced by an Amended and Restated Secured Promissory Note in the aggregate original principal amount of $8,060,000.00 in favor of the Lender (the "REVOLVING LOAN COMPONENT NOTE") and a Secured Promissory Note in the aggregate original principal amount of $2,140,000.00 in favor of Lender (the "TERM LOAN COMPONENT NOTE", and together with the Revolving Loan Component Note, sometimes referred to herein singly and collectively as the "NOTE"); WHEREAS, Lender and Borrower have agreed to enter into this First Amendment to amend the Original Agreement; and WHEREAS, Borrower acknowledges, agrees and confirms that if Borrower fails to satisfy any of the conditions set forth in Paragraph 81 hereof, as determined by Lender in its sole and absolute discretion, on or before May 31, 2002, then this Agreement, and the obligations of Lender hereunder, shall be null and void in all respects AB INITIO. In such event, the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter, shall continue to control with respect to the Loan; Borrower further acknowledges, confirms and agrees that until such time as Borrower has satisfied the conditions set forth herein, as determined by Lender in its sole and absolute discretion, the Loan shall continue to be governed by the terms and provisions set forth in the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter and the Extension Letter. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this First Amendment, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties to this First Amendment, intending to be legally bound, agree as follows: 1. AGREEMENT. Section 1.1(d) is hereby restated and amended to read as follows: "(d) AGREEMENT. This Loan and Security Agreement by and among Borrower and Lender as amended by the First Amendment to Loan and Security Agreement dated as of April 30, 2002, (the "FIRST AMENDMENT"), and as it may be further amended from time to time." 2. ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. Section 1.1(f) is hereby restated and amended to read as follows: "(f) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. The term "Assignment of Notes Receivable and Mortgages" shall mean a recordable Collateral Assignment of Notes Receivable and Mortgages, in the form attached hereto as Exhibit A, made by Borrower in favor of Lender, evidencing the assignment to Lender, of all of the Pledged Notes Receivable and Mortgages. Each such assignment shall, from and after the date hereof, indicate by notation on the first page thereof that it is either a "Tranche C-Receiving Loan Component" assignment or a "Tranche C-Term Loan Component" assignment." 3. BORROWING BASE. Section 1.1(g) is hereby restated and amended to read as follows: "(g) BORROWING BASE. With respect to each Eligible Note Receivable, pledged to the Lender hereunder in connection with each Advance under Revolving Loan Component from and after the date hereof, an amount equal to seventy-five percent (75%) of the remaining principal balance of each such Eligible Note Receivable. Notwithstanding anything herein to the contrary, the total aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Lender shall not exceed the Maximum Effective Advance Rate, as such term is defined herein." 4. BUSINESS PLAN. Section 1.1(i) is hereby restated and amended to read as follows: "(i) BUSINESS PLAN. The term "Business Plan" shall mean the five (5) year "Stand Alone" business plan prepared by Borrower and attached hereto as Exhibit F. The Business Plan includes the "Impact on Lenders Worksheet" setting forth the amounts to be advanced by each of the Lenders, Heller and Sovereign pursuant to their respective credit facilities (the "SENIOR LENDER ADVANCE SCHEDULE")." 3 5. COLLATERAL. Section 1.1(l) is hereby restated and amended to read as follows: "(l) COLLATERAL. Collectively, all now owned or hereafter acquired right, title and interest of the Borrower, in all of the following: (i) Pledged Notes Receivable (including all Notes Receivable comprising the Ineligible Note Portfolio) and all proceeds of or from them; (ii) Mortgages and all proceeds of or from them (including the Mortgages securing the Notes Receivable comprising the Ineligible Note Portfolio); (iii) Documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable, (including any relating to the Ineligible Note Portfolio) and the related Mortgages; (iv) the Land; (v) the Additional Resort Collateral; (vi) the Silverleaf Finance I, Inc. Stock; (vii) Intentionally Omitted; (viii) the Standby Servicing Agreement and the rights of Borrower thereunder; (ix) the Standby Management Agreement and the rights of Borrower thereunder; (x) All collateral under the Existing Credit Facilities, the Heller Facility and the Soverign Facility, as each such term is herein defined; (xi) All books, records, reports, computer tapes, disks and software relating to the Collateral; and (xii) Extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof." 6. COMMITMENT. Section 1.1(m) is hereby restated and amended to read as follows: "(m) COMMITMENT. The term "Commitment" shall refer singly to the obligation of Lender to make a Loan or Loans under the Revolving Loan Component to the Borrower in an aggregate amount not to exceed $9,058,000.00 minus the outstanding principal balance of the Term Loan Component from time to time. The Commitment and the Maximum Available Amount shall be subject to reduction as provided in Section 2.1(a). The maximum aggregate Commitment under this Agreement, the Tranche A Credit Facility and the Tranche B Credit Facility shall be $136,000,000.00 less the outstanding principal balance of the Term Loan Component and the aggregate term loan component of the Tranche A Credit Facility and the Tranche B Credit Facility 4 from time to time, which maximum aggregate Commitment shall be reduced as provided in Section 2.1(a)." 7. ELIGIBLE NOTES RECEIVABLE. Section 1.1(t) is hereby restated and amended to read as follows: "(t) ELIGIBLE NOTES RECEIVABLE. Those Pledged Notes Receivable which satisfy each of the following criteria: (i) Borrower shall be the sole payee; (ii) it arises from a bona fide sale by Borrower of one or more Intervals; (iii) the Interval sale from which it arises shall not have been cancelled by Purchaser, and any statutory or other applicable cancellation or rescission period shall have expired and the Interval sale is otherwise in compliance with this Agreement; (iv) it is secured by a Mortgage on the purchased Interval; (v) principal and interest payments on it are payable to Borrower in legal tender of the United States; (vi) payments of principal and interest on it are payable in equal monthly installments; (vii) it shall have an original term of no more than one hundred twenty (120) months; (viii) a cash down payment has been received from Purchaser or the maker in an amount equal to at least ten percent (10%) of the actual purchase price of each Interval, and Purchaser shall have received no cash or other rebates of any kind; (ix) the average number of consecutive monthly payments made by all Purchasers pursuant to all Eligible Notes Receivable pledged hereunder and under the Existing Credit Facilities shall at all times be at least seven (7) consecutive monthly payments; (x) no monthly installment is more than thirty (30) days contractually past due at the time of an Advance in respect of such Eligible Note Receivable, or more than sixty (60) days contractually past due at any time; (xi) the rate of interest payable on the unpaid balance is at least the rate required so that when the Advance is made in respect of such Eligible Note Receivable the average interest rate on all Eligible Notes Receivable in respect of which Advances are outstanding shall not be less than twelve and one-half percent (12.5%) per annum at any time; (xii) Purchaser of the related Interval has immediate access, for the timeshare "unit week" related to such purchase, to the Interval described in the Mortgage securing such Eligible Note Receivable, which Interval has been completed, developed, and furnished in 5 accordance with the specifications provided in the Purchaser's purchase contract, public offering statement and other Timeshare Documents; and Purchaser has, subject to the terms of the Declaration, purchase contract, public offering statement and other Timeshare Documents, complete and unrestricted access to the related Interval and the Resort; (xiii) neither Purchaser of the related Interval or any other maker of the Note is an Affiliate of, or related to, or employed by Borrower; (xiv) Purchaser or other maker has no claim against Borrower and no defense, set-off or counterclaim with respect to the Note Receivable; (xv) the maximum remaining principal balance of any such Note Receivable shall not exceed $25,000 and the total maximum remaining principal balance of the Notes Receivable executed by any one Purchaser or other maker shall not exceed $25,000 in the aggregate (or such greater amount as may be approved in writing in advance by Lender); (xvi) it is executed by a U.S. or Canadian resident; provided, however, that no more than ten percent (10%) of the outstanding principal balance of all Eligible Notes Receivable shall at any time be comprised of Notes Receivable executed by Canadian residents, and, to the extent such outstanding principal balance of such Notes exceeds ten percent (10%), they shall not be considered Eligible Notes Receivable; (xvii) the original of such Note Receivable has been indorsed to Lender and delivered to Lender as provided in this Agreement, and the terms thereof and all instruments related thereto shall comply in all respects with all applicable federal and state laws and the regulations promulgated thereunder; and (xviii) the Unit in which the timeshare Interval being financed or evidenced by such Note Receivable is located, shall not be subject to any Lien which is not previously consented to in writing by Lender. (xix) If the loan is a newly originated Eligible Note Receivable which is replacing an existing Eligible Note Receivable pledged as Collateral under the Agreement and the proceeds have been used to finance the purchase of an Interval which is being upgraded by the Purchaser to a more expensive Interval: (1) the principal balance of the existing Eligible Note Receivable which is being upgraded may still be included for purposes of calculating the Borrowing Base for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Note Receivable becomes thirty (30) or more days past due; (2) on or before the second business day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Note Receivable and in any event within ten (10) days of such upgrade, the Borrower shall deliver to the Lender or its designee the original of the new promissory note, comparable instrument or 6 installment sale contract executed in connection with such upgrade duly endorsed in blank by the Borrower and the Borrower will cause all payments made with respect to such new promissory note, comparable instrument or installment sale contract to be forwarded to the lockbox; and (3) any new upgraded Note Receivable involving a prior Eligible Note Receivable shall only be included as part of the Borrowing Base if the prior Eligible Note Receivable has been removed from the Borrowing Base and the new upgraded Note Receivable satisfies all conditions for an Eligible Note Receivable. Notwithstanding anything herein to the contrary, Lender shall be under no obligation to make Advances in respect of: (i) Crown Resorts Notes Receivable (i.e. Notes Receivable relating to intervals at the Crown Resorts listed on Schedule 4.5(c)(iii)) if Advances have already been made under this Loan, the Tranche A Credit Facility and/or the Tranche B Credit Facility, in total, in respect of 681 Crown Resorts Notes Receivable, exclusive of [x] Notes Receivable relating to intervals at the Quail Hollow Resort and [z] any other Crown Resort Notes Receivable for which Borrower shall have delivered to Lender an acceptable Mortgagee Title Insurance Policy insuring the Mortgage securing such Crown Resort Note Receivable; and (ii) Notes Receivable from Oak N' Spruce Resort if any such Advance, together with any prior Advances made in respect of Notes Receivable from Oak N' Spruce under this Loan Agreement, the Tranche A Credit Facility, the Tranche B Credit Facility and/or the Inventory Loan would exceed, in the aggregate, $32,000,000.00." 8. FACILITY FEE. Section 1.1(aa) is hereby restated and amended to read as follows: "(aa) FACILITY FEE. The facility fee as described and paid in accordance with the Fee Letter, which shall be payable in accordance with Section 2.6." 9. FINAL MATURITY DATE. Section 1.1(cc) is hereby restated and amended to read as follows: "(cc) FINAL MATURITY DATE. The term "Final Maturity Date" shall mean, with respect to the Revolving Loan Component Note the earlier of (a) March 31, 2007 or (b) the weighted average maturity date of the Pledged Notes Receivable pledged as Collateral as of the end of the Revolving Loan Term, as determined by the Lender in its reasonable discretion, and with respect to the Term Loan Component Note, March 31, 2007. 10. INTEREST RATE. Section 1.1(jj) is hereby restated and amended to read as follows: "(jj) INTEREST RATE. The Interest Rate on the Revolving Loan Component Note shall be a variable rate, adjusted as of each Prime Rate Determination Date, equal to the sum of Prime Rate, determined as of each Prime Rate Determination Date, plus three percent (3%) per annum, provided, however, that at no time shall the Interest Rate on the Revolving Loan Component Note be less than six percent (6%) per annum. The Interest Rate with respect to the 7 Term Loan Component Note shall be a fixed rate of interest equal to eight percent (8%) per annum." 11. INVENTORY LOAN. Section 1.1(ll) is hereby restated and amended to read as follows: "(ll) INVENTORY LOAN. The term "Inventory Loan" shall mean that certain $10,000,000 time share interval inventory loan made by Lender to Borrower pursuant to that certain Loan and Security Agreement dated as of December 16, 1999, and all documents executed and/or delivered by Borrower in connection therewith, as amended by the First Amendment to Loan and Security Agreement dated as of April 17, 2001, and as further amended by the Second Amendment to Loan and Security Agreement dated as of April 30, 2002." 12. LAND MORTGAGE OF LAND MORTGAGES. Section 1.1(nn) is hereby restated and amended as follows: "(nn) LAND MORTGAGE OR LAND MORTGAGES. The term "Land Mortgage" or "Land Mortgages" shall mean singly and collectively, a properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument encumbering all of the right, title and interest of Borrower in the Land and securing the Loan, as modified and amended by mortgage modifications, in the form attached hereto as Exhibit A." 13. LOAN OR LOANS. Section 1.1(pp) is hereby restated and amended to read as follows: "(pp) LOAN OR LOANS. The terms "Loan" and "Loans" mean, as the context requires, singly each loan and collectively all loans made by Lender to Borrower prior to the date hereof pursuant to the Original Agreement. The term "Loan" shall also mean, as the context requires, collectively all Loans made by Lender to Borrower hereunder. From and after the Effective Date, the Loan shall consist of the Revolving Loan Component in the maximum amount of $6,917,600.00 and the Term Loan Component in the maximum amount of $2,140,000.00 which amounts shall be repaid as provided in Section 2.4 hereof." 14. LOAN DOCUMENTS. Section 1.1(qq) is hereby restated and amended to read as follows: "(qq) LOAN DOCUMENTS. Collectively, this Agreement and the following documents and instruments listed below as such agreements, documents, instruments or certificates may be amended, renewed, extended, restated or supplemented from time to time." (i) This Agreement, as amended by the First Amendment; (ii) The Revolving Loan Component Note; (iii) The Term Loan Component Note; (iv) The Environmental Indemnification Agreement; (v) The Assignment of Notes Receivable and Mortgages; (vi) Borrower's Certificate and Request for Advance; 8 (vii) The Lockbox Agreement; (viii) The Land Mortgages; (ix) The Additional Resort Collateral Mortgages; (x) The Additional Resort Collateral Assignment; (xi) The Stock Pledge Agreement; (xii) The Standby Management Agreement Assignment; (xiii) The Standby Servicing Agreement Assignment; (xiv) The Assignment of Management Agreements; (xv) The Assignment of Mortgages; (xvi) Financing Statements; UCC financing statements covering the Collateral, to be filed with the Texas Secretary of State and the Secretary of State and/or such other office where UCC financing statements are required to be filed pursuant to the Code; and (xvii) Other Items; Such other agreements, documents, instruments, certificates and materials as Lender may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender, contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, as such agreements, documents, instruments or certificates may be hereafter amended, renewed, extended, restated or supplemented from time to time." 15. LOAN YEAR. Section 1.1(rr) is hereby restated and amended as follows: "(rr) LOAN YEAR. The period from the date that Lender determines in its sole discretion that all conditions set forth in Section 4 hereof have been satisfied, which date shall not be later than May 31, 2002, through March 31, 2003 and each twelve (12) calendar month period thereafter." 16. LOCKBOX AGREEMENT. Section 1.1(tt) is hereby restated and amended to read as follows: "(tt) LOCKBOX AGREEMENT. The Lockbox Agreement, dated as of April 17, 2001, between Borrower, Lender, Servicing Agent and Lockbox Agent pursuant to which Lockbox Agent is to provide lockbox, reporting and related services and is to provide for the receipt of payments on the Notes Receivable and disbursement of such payments to Lender." 17. MANDATORY PREPAYMENT. Section 1.1(uu) is hereby restated and amended to read as follows: "(uu) MANDATORY PREPAYMENT. Any prepayment required by Section 2.4(a), 2.4(c), 2.4(d), 2.4(e), 2.4(f) and 2.5(b) of this Agreement." 18. NOTE. Section 1.1(xx) is hereby restated and amended to read as follows: 9 "(xx) NOTE. Singly and collectively, the Revolving Loan Component Note and the Term Loan Component Note." 19. OBLIGATIONS. Section 1.1(zz) is hereby restated and amended to read as follows: "(zz) OBLIGATIONS. All amounts due or becoming due to Lender in respect of the Loan or Loans under any of the Loan Documents or the Existing Credit Facilities, including principal, interest, prepayment premiums, contributions, taxes, insurance, loan charges, custodial fees, attorneys' and paralegals' fees and expenses and other fees or expenses incurred by Lender or advanced to or on behalf of Borrower by Lender pursuant to any of the Loan Documents, and the prompt and complete payment and performance by the Borrower of all obligations, indebtedness and liabilities pursuant to this Agreement or any of the Loan Documents or otherwise." 20. PLEDGED NOTES RECEIVABLE. Section 1.1(ddd) is hereby restated and amended to read as follows: "(ddd) PLEDGED NOTES RECEIVABLE. Any Note Receivable which at any time has been pledged to Lender by Borrower pursuant to this Agreement or any of the Loan Documents, including an Ineligible Note Receivable." 21. SERVICING AGENT. Section 1.1 (mmm) is hereby restated and amended to read as follows: "(mmm) SERVICING AGENT. Lender's exclusive agent, which shall be such Person or Persons designated by Borrower and approved by Lender in its sole discretion, for the purposes of billing and collecting amounts due on account of the Pledged Notes Receivable, providing reports pursuant to the Lockbox Agreement and performing other servicing functions not performed by the Lockbox Agent. Borrower shall be the Servicing Agent until: (i) an Event of Default shall have occurred and Lender replaces Borrower as Servicing Agent as provided in Section 9.1(i) or (ii) Lender elects to appoint the Standby Servicer in accordance with Section 10.14 hereof." 22. SURVEY. Section 1.1(sss) is hereby restated and amended to read as follows: "(sss) SURVEY. A plat or survey of the Resort, the Land and that portion of the Additional Resort Collateral constituting real property, prepared by a licensed surveyor acceptable to Lender and in form and substance acceptable to Lender." 23. TERM. Section 1.1(ttt) is hereby restated and amended to read as follows: "(ttt) TERM. With respect to the Revolving Loan Component, a period beginning on the Effective Date and ending on the Final Maturity Date. With respect to the Term Loan Component, a period of five (5) years from the Effective Date." 24. TERM SHEET. Section 1.1(uuu) is hereby deleted in its entirety. 25. TRANCHE A CREDIT FACILITY. Section 1.1(yyy) is hereby restated and amended to read as follows: 10 "(yyy) TRANCHE A CREDIT FACILITY. The term "Tranche A Credit Facility" means that certain $75,000,000 credit facility provided by Lender to Borrower pursuant to that certain Amended and Restated Loan and Security Agreement dated of as of even date herewith, as the same may be further amended from time to time" 26. TRANCHE B CREDIT FACILITY. Section 1.1(zzz) is hereby restated and amended to read as follows: "(zzz) TRANCHE B CREDIT FACILITY. The term "Tranche B Credit Facility" means that certain $71,000,000 credit facility provided by Lender to Borrower pursuant to that certain Amended and Restated Loan, Security and Agency Agreement dated as of even date herewith, as the same maybe further amended from time to time." 27. DEFINITIONS. Section 1.1 is hereby amended in part to add the following new paragraphs: "(ffff) ADDITIONAL ELIGIBLE RESORTS OR ADDITIONAL ELIGIBLE RESORT. The terms "Additional Eligible Resorts" and "Additional Eligible Resort" shall have the meanings ascribed to such terms in Section 3.12 hereof. (gggg) ADDITIONAL RESORT COLLATERAL. The term "Additional Resort Collateral" shall mean singly and collectively, the development rights, real property, fixtures and other personal property, including all management agreements for the Resorts, now owned or hereafter acquired by Borrower and listed on Schedule 1.1.(gggg) attached hereto. "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc., that constitute "Pledged Assets" under the DZ Documents. (hhhh) ADDITIONAL RESORT COLLATERAL MORTGAGES. A properly recorded, first priority mortgage, deed of trust, deed to secure debt or other security instrument, as applicable, executed and delivered by the Borrower to Lender, encumbering all of the right, title and interest of Borrower in that portion of the Additional Resort Collateral constituting real property. (iiii) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. The term "Additional Resort Collateral Assignments" shall mean singly and collectively: (i) a first priority security agreement executed and delivered by Borrower to Lender granting to Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting personal property, and (ii) a first priority security agreement executed and delivered by Borrower to Lender, granting to Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting development rights. (jjjj) ASSIGNMENT OF MANAGEMENT AGREEMENTS. The term "Assignment of Management Agreements" shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Lender, of all of Borrower's rights under each management agreement for the Resorts. (kkkk) BOND HOLDER EXCHANGE TRANSACTION. The term "Bond Holder Exchange Transaction" shall mean that certain subordinate bond holder exchange transaction on the terms and conditions outlined in that certain term sheet dated October 19, 2001 (the "BOND HOLDER EXCHANGE TRANSACTION LETTER"), a copy of which is attached hereto as Exhibit E, and which 11 was consummated pursuant to the documents listed on Schedule 1.1(kkkk) hereto (the "BOND HOLDER EXCHANGE DOCUMENTS"). (llll) CASH AND CASH EQUIVALENTS. Unrestricted (i) cash; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Rating Group or P-1 (or better) by Moody's Investor Service, Inc. provided that the maturities of such Cash and Cash Equivalents shall not exceed one year. (mmmm) DZ FACILITY. The term "DZ Facility" shall mean that certain note purchase facility to be provided by DZ Bank AG Deutsche Zentral - Genossenschaftsbank, as agent for Autobahn Funding Company, LLC ("DZ") to Borrower, on the terms outlined in the DZ Letter Agreement, dated December 12, 2001, as supplemented by that certain letter agreement by and between Borrower and DZ dated February 7, 2002, and attached hereto as Exhibit G (the "DZ LETTER AGREEMENT") and evidenced by the documents listed on Schedule 1.1(mmmm) hereto (the "DZ DOCUMENTS"). (nnnn) EBITDA. The term EBITDA means, with respect to any Person for any period: (a) the sum of (i) net income (but excluding any extraordinary gains or losses or any gains or losses from the sale or disposition of assets other than in the ordinary course of business), (ii) interest expense, (iii) depreciation and amortization and other non-cash items properly deducted in determining net income, and (iv) federal, state and local income taxes, in each case for such Person for such period, computed and calculated in accordance with GAAP minus (b) non-cash items properly added in determining net income, in each case for the corresponding period. (oooo) EFFECTIVE DATE. The term "Effective Date" shall have the meaning given in paragraph 84 of this First Amendment. (pppp) EFFECTIVE ADVANCE RATE. The term "Effective Advance Rate" shall mean the aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Lender hereunder. The Effective Advance Rate shall at no time exceed 95% (the "Maximum Effective Advance Rate"). In addition, the Effective Advance Rate determined with respect to the aggregate of the Loan, the Tranche A Credit Facility and the Tranche B Credit Facility (collectively "TFC's Facilities") shall at no time exceed 95% of the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to TFC, as agent or lender as applicable, under TFC's Facilities. (qqqq) EXTENSION LETTER. The term "Extension Letter" shall mean that certain extension letter dated April 15, 2002, which extended the Revolving Loan Period of the Loan to May 31, 2002, subject to the terms and conditions contained therein. 12 (rrrr) FORBEARANCE TERMINATION EVENT. The term "Forbearance Termination Event" shall have the same meaning as the term "Termination Event" described in the Forbearance Agreement. (ssss) INELIGIBLE NOTE PORTFOLIO. The term "Ineligible Note Portfolio" shall mean certain of Borrower's Notes Receivable and Mortgages which are not currently pledged to any other Person, which are listed in Exhibit K attached hereto and which shall be held by Borrower, as agent for and on behalf of Lender, unless and until an Event of Default shall occur in which case the Ineligible Note Portfolio shall be delivered to Lender in accordance with Section 3.2 hereof. (tttt) MANDATORY PREPAYMENT. Any prepayment required by Sections 2.4(a), 2.4(c), 2.4(d), 2.4(e) and 2.5(b) of this Agreement. (uuuu) MARKETING AND SALES EXPENSES. Shall mean all promotion, lead generation, sales commissions and all other marketing expenses incurred or paid by Borrower pursuant to any marketing agreements or otherwise. (vvvv) NET SECURITIZATION CASH FLOW. All right, title and interest of Silverleaf Finance I, Inc., a wholly owned subsidiary of Borrower, in any excess cash flow derived from the Notes Receivable sold by Silverleaf Finance I, Inc. to DZ pursuant to the DZ Documents. (wwww) OPERATING EXPENSES. Shall mean the total of all expenditures, computed in accordance with Generally Accepted Accounting Principles, of whatever kind relating to the ownership, operation, maintenance and management of the Resorts that are incurred on a regular monthly or other periodic basis, including, without limitation, utilities, ordinary and capital repairs and maintenance, insurance premiums, license fees, property taxes and assessments, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by the Lender, and other similar costs. (xxxx) REVENUES. Shall mean all proceeds from the sale of the Units, regardless of whether such proceeds are in the form of cash or Notes Receivable. (yyyy) REVOLVING LOAN COMPONENT. Shall mean that portion of the Loan in the amount of $8,060,00.00 on the terms and conditions described in Sections 2.1, 2.3, 2.4 and 2.5 hereof, which amount shall be repaid as provided in Section 2.4 and Section 2.5(b) hereof. (zzzz) REVOLVING LOAN COMPONENT NOTE. Shall mean that certain Amended and Restated Note, in the form attached hereto as Exhibit A, dated the date hereof, and executed and delivered by Borrower to Lender evidencing the Revolving Loan Component. (aaaaa) REVOLVING LOAN TERM. Shall mean the period commencing on the Effective Date and ending on March 31, 2004. (bbbbb) SILVERLEAF CLUB. Shall mean Silverleaf Club, a Texas non-profit corporation. (ccccc) INTENTIONALLY OMITTED. 13 (ddddd) INTENTIONALLY OMITTED. (eeeee) INTENTIONALLY OMITTED. (fffff) STANDBY MANAGER. Shall mean the Person selected by Borrower, and acceptable to Lender, in its sole discretion, to act as standby manager of Borrower's Resorts in accordance with this Agreement. Subject to the review and approval of the Standby Management Agreement by Lender, in its sole discretion, Lender hereby approves J & J Limited, Inc. as the initial Standby Manager. (ggggg) STANDBY MANAGEMENT AGREEMENT. Shall mean the agreement between the Standby Manager and Borrower providing for the management of Borrower's business and the Resorts on the occurrence of an Event of Default hereunder. (hhhhh) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached here as Exhibit A, by Borrower to Lender, of all of Borrower's rights under the Standby Management Agreement. (iiiii) STANDBY SERVICER. Shall mean the Person selected by Lender to act as standby servicer in accordance with this Agreement. The current Standby Servicer is Concord Servicing Corporation. (jjjjj) STANDBY SERVICING AGREEMENT. Shall mean the agreement pursuant to which the Standby Servicer shall provide servicing functions with respect to the Pledged Notes Receivable upon the occurrence of an Event of Default hereunder in accordance with Sections 9.1(i) and 10.14 hereof. (kkkkk) STANDBY SERVICING AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached hereto as Exhibit A, pursuant to which Borrower assigns to Lender, all of Borrower's rights under the Standby Servicing Agreement. (lllll) STOCK PLEDGE AGREEMENT. Shall mean the agreement in the form attached hereto as Exhibit A, pursuant to which all issued and outstanding shares of Silverleaf Finance I, Inc.'s capital stock and all right, title and interest in such shares, all certificates, instruments or other documents evidencing or representing the same and all dividends and distributions therefrom, including dividends and distributions paid in stock (the "SILVERLEAF FINANCE I, INC. STOCK") are pledged to Lender as security for the Loan. (mmmmm) TANGIBLE NET WORTH. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as: (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated debt of such Person and its consolidated subsidiaries, the terms and conditions of which are reasonably satisfactory to Lender, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent to the Effective Date deferred sales are no longer considered an asset under GAAP, Lender agrees, at the request of Borrower, to determine, in its 14 reasonable discretion, whether deferred sales should continue to be considered an asset for purposes of determining Borrower's Tangible Net Worth. (nnnnn) TAX REFUND. The term "Tax Refund" means that certain corporate tax refund of Borrower for the 1998 and 1999 tax years in the estimated amount of $5,000,000.00. (ooooo) TERM LOAN COMPONENT. Shall mean that portion of the Loan in the amount of $2,140,000.00 on the terms and conditions set forth in Sections 2.2, 2.3, 2.4 and 2.5 hereof, which amount shall be repaid as provided in Section 2.4 and Section 2.5(b) hereof. (ppppp) TERM LOAN COMPONENT NOTE. Shall mean that Secured Promissory Note, in the form attached hereto as Exhibit A, dated the date hereof, and executed and delivered by Borrower to Lender evidencing the Term Loan Component (qqqqq) TOTAL INTEREST EXPENSE. For any period, the aggregate amount of interest required to be paid or accrued by Borrower and its subsidiaries during such period on all indebtedness of Borrower and its subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease, or any synthetic lease and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. 28. LOAN. Section 2 is hereby restated and amended to read as follows: "2.1 REVOLVING LOAN COMPONENT AND LENDING LIMITS. (a) REVOLVING LOAN COMPONENT. Upon the terms and subject to the conditions set forth in this Agreement, Lender agrees at any time and from time to time during the Revolving Loan Term, to make a loan or loans to Borrower, and Borrower may borrow, repay and reborrow during the Revolving Loan Term, with respect to the Revolving Loan Component only, in an aggregate amount not to exceed at any time the lesser of: (i) the amount of the Borrowing Base or (ii) the lending limits set forth in Section 2.1(b) hereof. Notwithstanding anything herein to the contrary, the aggregate balance of all Advances, shall not exceed $9,058,000.00 less the aggregate outstanding principal balance of the Term Loan Component from time to time (the "MAXIMUM AVAILABLE AMOUNT"). Borrower's right to receive Advances hereunder shall also be subject to the terms and conditions set forth in that certain Intercreditor Agreement between Lender, Borrower, Heller and Sovereign dated of even date herewith. Borrower acknowledges, confirms and agrees that Lender shall have the right to allocate any request for an Advance hereunder to this Loan, the Tranche A Credit Facility and/or the Tranche B Credit Facility in such manner as Lender may elect in its sole and absolute discretion. Notwithstanding anything herein to the contrary, Borrower acknowledges, confirms and agrees that it shall not be entitled to receive, nor shall Lender be required to make, any Advance if and to the extent that: (i) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Lender in its sole and absolute discretion; or (ii) the most recent weekly flash report delivered in accordance with Section 7.1(h)(i) hereof (a "WEEKLY FLASH REPORT"), indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. 15 Borrower acknowledges, agrees and confirms that as provided in the Business Plan, the Commitment and the Maximum Available Amount shall be reduced to the following amounts: (i) on and after March 31, 2004 - $6,993,000, less the outstanding principal balance of the Term Loan Component from time to time; (ii) on and after March 31, 2005 - $4,995,000, less the outstanding principal balance of the Term Loan Component from time to time; and (iii) on and after March 31, 2006 - $4,662,000, less the outstanding principal balance of the Term Loan Component from time to time; On or after the Effective Date, the aggregate amount of the Commitment provided hereunder, under the Tranche A Credit Facility and the Tranche B Credit Facility shall be equal to $136,000,000.00 less the aggregate principal balance of the Term Loan Components hereunder, under the Tranche A Credit Facility and under the Tranche B Facility. Borrower further acknowledges, confirms and agrees that the aggregate Commitment under this Agreement, the Tranche A Credit Facility and the Tranche B Facility shall be reduced to the following amounts: (i) after March 31, 2004 - $105,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time; (ii) after March 31, 2005 - $75,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time; and (iii) after March 31, 2006 - $70,000,000.00, less the aggregate outstanding principal balance of the Term Loan Component of each such facility from time to time. (b) LENDING LIMITS. Borrower acknowledges, agrees and confirms that the obligations of Lender to make Loans under this Agreement to Borrower is limited to the lesser of: (i) the Borrowing Base or (ii) the Maximum Available Amount. Notwithstanding anything heretofore to the contrary, Borrower acknowledges, agrees and confirms that Lender shall have no obligation to make any Advance, nor shall Borrower be entitled to receive any Advance, if at any time, (x) the aggregate outstanding principal balance of the Revolving Loan Component and the Term Loan Component divided by the aggregate unpaid principal balance of all Eligible Notes Receivable pledged to Lender hereunder is, or would be as a result of any Advance, be in excess of the Maximum Effective Advance Rate, (y) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Lender in its sole and absolute discretion; or (z) the most recent Weekly Flash Report indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. Borrower acknowledges, agrees and confirms that Lender's obligation to Borrower and Borrower's right to borrow under this Agreement is subject to the satisfaction of the conditions set forth in Paragraph 81 hereof on or before May 31, 2002. Until such time as Lender determines that the conditions set forth in Paragraph 81 hereof have been satisfied, all of Borrower's rights with respect to Advances shall be governed by and construed in accordance with the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter. If the conditions set forth in Paragraph 81 are not satisfied on or before May 31, 2002, then this Agreement, and the respective rights and obligations of the parties hereto, shall be null and void AB INITIO and of no further force and effect and the respective rights and obligations of Borrower and Lender shall be governed by the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter. (c) WORKING CAPITAL ADVANCES. Borrower acknowledges and agrees that it shall not be entitled to receive nor shall Lender be obligated to make any further Working Capital 16 Advances. All other terms and conditions of this Agreement shall continue to apply with respect to any Working Capital Advances previously made by Lender to Borrower under the Original Agreement. Borrower acknowledges, agrees and confirms that the outstanding principal balance of all Working Capital Advances made as of the date hereof is $1,000,000.00 (the "WORKING CAPITAL ADVANCE BALANCE"). (d) NOTE EVIDENCING BORROWER'S OBLIGATIONS. Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balance of the Revolving Loan Component is $8,060,000.00, which amount includes the Working Capital Advance Balance and which amount shall be repaid as provided in Section 2.4 hereof. Borrower's obligations to pay the principal of and interest on the Loan or Loans made by Lender under the Revolving Loan Component shall be evidenced by a Revolving Loan Component Note to Lender, which Note shall be dated as of the date hereof and be in a stated principal amount equal to Lender's Commitment as set forth on Schedule A. The Note will mature on the Final Maturity Date, bear interest as provided in Section 2.3 hereof and be otherwise entitled to the benefits of this Agreement. Notwithstanding the stated principal amount of the Note, the aggregate outstanding principal amount of the Loan at any time shall be the aggregate principal amount owing on the Note at such time. Lender shall and is hereby authorized to record on the grid attached to the Note (or, alternatively, in its internal books and records) the date and amount of Loan made by Lender, the interest rate and interest period applicable thereto and each repayment thereof; and such grid or other books and records shall, as between Borrower and Lender, absent manifest error, constitute prima facie evidence of the accuracy of the information contained therein. Failure by Lender to so record any Advance made by it (or any error in such recordation) or any payment thereon shall not affect the Obligations of Borrower under this Agreement or under the Note and shall not adversely affect Lender's rights under this Agreement with respect to the repayment thereof. (e) HELLER AND SOVEREIGN OBLIGATION TO FUND. Notwithstanding anything herein to the contrary, the obligation of Lender to make any Advance under this Agreement shall be subject to and conditioned upon both Heller and Sovereign each making advances to Borrower substantially in accordance with the Business Plan, including the Senior Lender Advance Schedule, which Lender agrees will be determined on a quarterly basis commencing April 1, 2002. Lender shall have no obligation to make any Advance hereunder in the event that either Sovereign or Heller terminates its respective facility or fails to make advances as provided in the Business Plan, including the Senior Lender Advance Schedule, which Lender agrees will be determined on a quarterly basis commencing April 1, 2002. 2.2 TERM LOAN COMPONENT LOAN. Borrower acknowledges, agrees and confirms that as of the date hereof the outstanding principal balance of the Term Loan Component is $2,140,000.00, which amount shall be repaid as provided in Section 2.4. Borrower further acknowledges, agrees and confirms that Borrower shall have no right to re-borrow or borrow, nor shall Lender have any obligation to make any additional loan or loans to Borrower with respect to the Term Loan Component. Borrower's obligation to repay the principal of and interest on the Loan or Loans comprising the Term Loan Component shall be evidenced by a Term Loan Component Note to Lender, which Note shall be dated as of the date hereof and be in the stated principal amount of the Term Loan Component, increased by the 17 Facility Fee. The Term Loan Component Note will mature on the Final Maturity Date, bear interest as provided in Section 2.3 and be otherwise entitled to the benefits of this Agreement. 2.3 INTEREST RATE. From and after the Effective Date, with respect to the Revolving Loan Component (including the Working Capital Advance Balance), including each Loan hereafter made pursuant to 2.1(a) hereof, the Revolving Loan Component shall bear interest at the Interest Rate applicable to the Revolving Loan Component as of the date funds are wired by Lender to Borrower through Lender's receipt of repayment of the Revolving Loan Component in accordance with Section 2.4 (if received by Lender later than 1:00 p.m., Eastern Standard Time, then interest accrual shall be through the next Business Day following such receipt). From and after the Effective Date, the Term Loan Component shall bear interest at the Interest Rate applicable to the Term Loan Component through Lender's receipt of payment of the Term Loan Component as provided in Section 2.4. Immediately upon the occurrence of an Event of Default and after the Final Maturity Date (if the Loan is not paid in full on the Final Maturity Date), at Lender's election in its sole discretion, the entire Loan will bear interest at the Default Rate. Prior to the Effective Date, the Loan shall bear interest as provided in the Original Agreement. 2.4 PAYMENTS. The Borrower agrees punctually to pay or cause to be paid to Lender, all principal and interest due under the Note in respect of the Loan made by Lender hereunder. The Borrower shall make the following payments on the Loan: (a) INITIAL LOAN PAYDOWN. On or before May 31, 2002, Borrower shall make, from the proceeds of the DZ Facility, a payment on the Revolving Loan Component in the amount of approximately $1,764,000. (b) MONTHLY PAYMENTS. (1) Revolving Loan Component. Borrower shall direct or otherwise cause all makers of all Pledged Notes Receivable to pay all monies due thereunder to the lockbox established pursuant to the Lockbox Agreement, or as otherwise required by Lender. One hundred percent (100%) of the cleared funds collected from the Pledged Notes Receivable each week will be paid to Lender by the Lockbox Agent pursuant to the Lockbox Agreement, and will be applied by Lender first to the payment of costs or expenses incurred by Lender pursuant to this Agreement in creating, maintaining, protecting or enforcing the Liens in and to the Collateral and in collecting any amounts due to Lender in connection with the Loan ("COLLECTION COSTS") and the balance to Lender. Lender shall apply each such payment in the following order: (i) to any interest accrued at the applicable Default Rate on the Revolving Loan Component; (ii) then to interest at the applicable Interest Rate on the Revolving Loan Component; and (iii) then to principal on the Revolving Loan Component. In the event that the cleared funds received by Lender are insufficient to pay the amounts described in aforementioned clauses (i)-(ii), then Borrower shall pay the difference to Lender on or before the fifth (5th) day of the following month. In the event Borrower receives any payments on any of the Pledged Notes Receivable directly from or on behalf of the maker or makers thereof, Borrower shall receive all such payments in trust for the sole and exclusive benefit of Lender; and Borrower shall deliver to the Lockbox Agent all such payments (in the form so received by Borrower) as and when received by Borrower, unless Lender shall have notified Borrower to deliver directly to Lender all payments in respect of the Pledged Notes Receivable which may be received by Borrower, in which event all such payments (in the form received) shall be endorsed 18 by Borrower to Lender and delivered to Lender promptly upon Borrower's receipt thereof. (2) Term Loan Component. Borrower shall pay to Lender on or before the tenth day of each month an amount equal to: (i) all interest accrued at the applicable Default Rate on the Term Loan Component; plus (ii) all interest due and payable as of the last day of the immediately preceding month; plus (iii) a principal payment sufficient to amortize the Term Loan Component in full on the basis of a twenty (20) year amortization schedule. In the event that Borrower fails to make the payment in question, Lender may, at its option, on or before the tenth day of each month, make an Advance with respect to the Revolving Loan Component and apply such Advance to the payment of Term Loan Component as provided immediately above. (c) MANDATORY TERM LOAN COMPONENT FUND UP PREPAYMENT. If and to the extent that: (i) at the end of each calendar quarter during the first two (2) years of the Term following the Effective Date, commencing the calendar quarter ending June 30, 2002 (x) the outstanding principal balance of all Loans made with respect to the Revolving Loan Component is less than seventy percent (70%) of the then outstanding principal balance of the Eligible Notes Receivable pledged to Lender with respect to such Loans (such difference being hereinafter referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided Borrower has available unrestricted cash of five million dollars ($5,000,000.00) or more as indicated in the most recent Weekly Flash Report or (ii) at the end of each calendar quarter commencing the calendar quarter ending June 30, 2004 (x) the outstanding principal balance of all Loans made with respect to the Revolving Loan Component is less than seventy-five percent (75%) of the then outstanding principal balance of the Eligible Notes Receivable pledged to Lender with respect to such Loans (such difference also being referred to as an "AVAILABLE FUND-UP AMOUNT") and (y) provided Borrower has available unrestricted cash of five million dollars ($5,000,000.00) or more as indicated in the most recent Weekly Flash Report, then Borrower agrees that Lender may, on the last Business Day of each such calendar quarter, make an Advance with respect to the Revolving Loan Component in an amount equal to such Available Fund Up Amount and apply such Advance to the repayment of the Term Loan Component as follows: (i) first to interest at the applicable Default Rate; (ii) then to interest at the applicable Interest Rate and (iii) then to reduction of principal of the Term Loan Component until such time as the Term Loan Component is paid in full. (d) FURTHER QUARTERLY PAYMENTS. If, at the end of any calendar quarter commencing April 1, 2002, Borrower has available unrestricted cash exceeding five million dollars ($5,000,000.00), as indicated on the most recent Weekly Flash Report (the "ADDITIONAL AVAILABLE AMOUNT"), then Borrower agrees to repay the Loan in an amount equal to such Additional Available Amount and such amount will be applied as follows: (i) first to interest at the applicable Default Rate; (ii) then to interest at the applicable Interest Rate; (iii) then to the reduction of principal of the Term Loan Component until such time as the Term Loan Component is paid in full and (iv) then to the repayment of the Revolving Loan Component as provided above. (e) LOAN BALANCE REDUCTION. Notwithstanding anything hereto to the contrary, Borrower agrees that on and after March 31, 2004, the outstanding principal balance of the Loan shall be reduced in substantial accordance with the Business Plan. 19 (f) LAND RELEASE PAYMENT. In the event of a sale of all or any portion of the Land by Borrower, Lender agrees to release such portion of the Land from the lien of the Land Mortgages provided that: (i) no Event of Default has occurred; (ii) the purchaser of the Land in question is an unrelated third party; (iii) the purchase price of the Land is equal to or greater than the fair market value of the Land as determined by the Lender in its sole and absolute discretion and (iv) Lender shall receive a payment on the Loan, which payment shall be applied to the outstanding balance of the Revolving Loan Component as follows: (1) to any interest accrued at the Default Rate; (2) to the payment of accrued and unpaid interest at the applicable Interest Rate on the Revolving Loan Component; and (3) then to the principal on the Revolving Loan Component, which payment shall be equal to the greater of: (x) the net sale proceeds (after the payment of reasonable customary closing costs) from the sale of the Land in question or (y) an amount, determined by Lender in its sole discretion, such that after application of such amount to the outstanding principal balance of the Revolving Loan Component, the ratio of the remaining outstanding principal balance of the Working Capital Advance Balance to the then fair market value of the remaining Land is equal to or less than the Working Capital Advance Ratio. (g) FINAL PAYMENT. The entire outstanding principal amount of the Loan, together with all other Obligations hereunder, shall be due and payable on the Final Maturity Date. Prior to the Effective Date, Borrower shall make payments as provided in the Original Loan Agreement. 2.5 PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. Borrower may repay the Loan, either in whole or in part, at any time, provided that any such prepayment shall be in increments of not less than $100,000.00. (b) MANDATORY PREPAYMENTS. If at any time and for any reason: (i) the outstanding unpaid principal balance of the Revolving Loan Component shall exceed the Maximum Available Amount, as reduced in accordance with Section 2.1(a); (ii) the outstanding unpaid principal balance of the Revolving Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder shall exceed the Borrowing Base; or (iii) the outstanding unpaid principal balance of both the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder shall exceed the Maximum Effective Advance Rate (each an "EXCESS FUNDING") then, within five (5) Business Days following Borrower's receipt of telecopied notice from Lender of the occurrence of such excess or, absent such telecopied notice, within fifteen (15) days after the end of the calendar month in which such excess occurred: (x) In the case of an Excess Funding described in (i) above, Borrower shall promptly repay the principal balance of the Revolving Loan Component in an amount equal to such Excess Funding or (y) in the case of an Excess Funding described in (ii) above, Borrower shall prepay the principal balance of the Term Loan Component (and if necessary the Revolving Loan Component) in an amount equal to such Excess Funding. If Lender has determined that Notes Receivable have been delivered to Lender and were included in the Borrowing Base, which Notes Receivable did not or no longer qualify as Eligible Notes Receivable ("INELIGIBLE NOTES RECEIVABLE") provided that an Excess Funding exists, Borrower shall substitute Eligible Notes Receivable for such Ineligible Notes Receivable and thereby 20 increase the aggregate principal amount of Eligible Notes Receivable pledged to Lender so that Excess Funding is eliminated. The pledge and delivery to Lender of additional Eligible Notes Receivable shall comply with the document delivery and recordation requirements set forth in Section 5 of this Agreement and shall be accompanied by a written certification of Borrower to the effect that such additional Pledged Notes Receivable are Eligible Notes Receivable, and that, giving effect to the pledge to Lender of such Eligible Note Receivable: (i) the outstanding unpaid principal balance of the Revolving Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder is equal to or less than the Borrowing Base and (ii) the outstanding unpaid principal balance of both the Revolving Loan Component and the Term Loan Component divided by the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Agent hereunder is equal to or less than the Maximum Effective Advance Rate. If Borrower elects to prepay the excess principal balance of the Loan pursuant to this Section 2.5(b), no prepayment premium shall be payable in connection with such prepayment. In addition, if at any time and for any reason, (1) the ratio of the Working Capital Advance Balance to the fair market value of the Land, as determined by Lender, in its sole and absolute discretion, is greater than the Working Capital Advance Ratio or (2) if the aggregate amount of the Working Capital Advance Balance and all similar working capital advances made by Heller and Sovereign exceed 50% of the fair market value of the Land, as determined by Lender in its sole and absolute discretion (each an "EXCESS AMOUNT"), then within five (5) Business Days following Borrower's receipt of telecopied notice from Lender of the occurrence of such Excess Amount or, absent such telecopied notice, within fifteen (15) days after the end of the calendar month in which such excess occurred, Borrower shall (x) in the case of (1), prepay the outstanding principal balance of the Loan in an amount equal to the Excess Amount, or (y) in the case of (2), repay the outstanding principal of the Loan, the Heller Facility and the Sovereign Facility in equal amounts in an aggregate amount equal to the Excess Amount. (c) PREMIUMS. No prepayment premium shall be required in connection with any prepayment of the principal balance of the Loan hereunder. 2.6 FACILITY FEE. Borrower acknowledges and agrees that a Facility Fee in the amount set forth in the Fee Letter is due and payable exclusively to the Lender. Borrower acknowledges, agrees and confirms that Lender has earned the Facility Fee notwithstanding whether the Loan or any portion is funded and further agrees that the Facility Fee shall be paid at closing from the proceeds of the Term Loan Component and is included in the current outstanding principal balance of the Term Loan Component and shall be repaid by the Borrower to Lender as part of the Term Loan Component Note. 2.7 MAXIMUM OBLIGATION OF TEXTRON FINANCIAL CORPORATION UNDER THE LOAN, THE EXISTING CREDIT FACILITY AND THE INVENTORY LOAN. Borrower acknowledges, agrees and confirms that notwithstanding anything to the contrary herein, in any other Loan Document or in any document evidencing or securing the Tranche A Credit Facility, Tranche B Credit Facility or the Inventory Loan, as Lender shall not be obligated to fund any Advance hereunder, which when taken together with the loans or advances made by Textron Financial Corporation to the Borrower under this Agreement, the Tranche A Credit Facility, Tranche B Credit Facility and the Inventory Loan, would cause the aggregate amount of such loans and advances by Textron Financial Corporation to Borrower to exceed a maximum aggregate amount of $50,200,000.00 prior to the Effective Date and: (i) after the Effective Date and prior to March 31, 2004, 21 $44,567,000.00; (ii) after March 31, 2004 and prior to March 31, 2005, $34,409,000.00; (iii) after March 31, 2005 and prior to March 31, 2006, $24,577,000.00; and (iv) after March 31, 2006, $22,939,000.00. Textron Financial Corporation's maximum obligation under the Inventory Loan shall be $10,000,000.00. 2.8 SUSPENSION OF ADVANCES. (a) If any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction shall be issued limiting or otherwise materially adversely affecting any Interval sales activities, other business operations in respect of the Resorts, or the enforcement of the remedies of Lender hereunder, then, in such event, Lender shall have no obligation to make any Advances hereunder: (i) in respect of Pledged Notes Receivable from the sale of Intervals which are the subject of any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been issued until the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been lifted or released to the satisfaction of Lender and (ii) in respect of Pledged Notes Receivable from the sale of Intervals at any Resort if: (x) the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction in question has not been lifted or released to the satisfaction of Lender within sixty (60) days of its issuance and (y) there is a reduction in the total number of sales of Intervals by Borrower in any Loan Year of more than twenty percent (20%) from the total number of sales of Intervals in the immediately preceding Loan Year. (b) FAILURE TO ADHERE TO BUSINESS PLAN/DEFAULT OR EVENT OF DEFAULT. Lender shall not be obligated to fund any Advance hereunder if: (i) the Borrower shall fail to substantially adhere to the Business Plan (including the Senior Lender Advance Schedule) as determined by Lender in its sole and absolute discretion or (ii) a Default or Event of Default shall have occurred and be continuing. (c) CHANGE IN CONTROL. If there shall occur a change, singly or in the aggregate, of more than fifty percent (50%) of the executive management of the Borrower as described in Schedule 2.8(c) Lender shall have no obligation to make any Advances hereunder, unless within thirty (30) days prior thereto Borrower provides Lender with written information setting forth the replacement executive management personnel of Borrower together with a description of those Persons' experience, ability and reputation, and Lender, acting in good faith, determines that the replacement management personnel's experience, ability and reputation is equal to or greater than that of the Borrower as set forth on Schedule 2.8(c). Notwithstanding the foregoing, the makeup of the Borrower's Board of Directors may be altered in accordance with the Bond Holder Exchange Documents, provided that Lender shall have no obligation to make any Advances hereunder if more than two (2) of the five (5) Board of Directors' positions are controlled by the Bond Holders." 29. GRANT OF SECURITY INTEREST. Section 3.1 is hereby restated and amended to read as follows: "3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and 22 grants to Lender a continuing first priority security interest in and to the Collateral to further secure the payment and performance of the Obligations. To further secure the payment and performance of the Obligations, Borrower shall also execute and deliver Lender: (i) the modifications to the Land Mortgages in the applicable form attached hereto as Exhibit A, granting Lender a first priority mortgage lien on the Land and (ii) the Additional Resort Collateral Mortgages, in the applicable form attached hereto as Exhibit A, granting Lender, a first priority mortgage lien on that portion of the Additional Resort Collateral consisting of real property. To further secure the payment and performance of the Obligations, Borrower shall further execute and deliver to Lender: (1) the Additional Resort Collateral Assignment, in the applicable form attached hereto as Exhibit A, granting Lender a first priority security interest on that portion of the Additional Resort Collateral consisting of personal property; (2) the Stock Pledge Agreement, in the applicable form attached hereto as Exhibit A, granting Lender, a first priority security interest in the Silverleaf Finance I, Inc. Stock; (3) the Standby Management Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Lender, all of Borrower's right, title and interest in the Standby Management Agreement; and (4) the Standby Servicing Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Lender all of Borrower's right, title and interest in the Standby Servicing Agreement. Notwithstanding anything herein to the contrary, Borrower acknowledges and agrees as follows: (a) The Revolving Loan Component shall be secured by: (i) a first priority security interest in the Eligible Notes Receivable pledged to Lender as provided herein, the Mortgages with respect thereto and that portion of the other Collateral related thereto; (ii) a first priority security interest in the Ineligible Note Portfolio, the Mortgages with respect thereto and that portion of the other Collateral related thereto; (iii) a second priority security interest, subject only to the security interest securing the Term Loan Component and the Inventory Loan, in the Silverleaf Finance I, Inc. Stock and the Additional Resort Collateral. (b) The Term Loan Component shall be secured by: (i) a first priority security interest in the Additional Resort Collateral; (ii) a first priority security interest in the Silverleaf Finance I, Inc. Stock. (iii) a second priority security interest, subject only to the security interest securing the Revolving Loan Component, in the Eligible Notes Receivable pledged to Lender as provided herein, the Mortgages with respect thereto and that portion of the other Collateral related thereto; and 23 (iv) second priority security interest, subject only to the security interest securing the Revolving Loan Component, in the Ineligible Note Portfolio, the Mortgages with respect thereto and the other Collateral related thereto. In addition to the foregoing, Borrower acknowledges, agrees and confirms that the security interest granted to Lender, in all other Collateral to secure the Loan, including the Land, the Standby Management Agreement, the Standby Servicing Agreement and the other collateral securing the Heller Facility, the Sovereign Facility and the Existing Credit Facilities shall be equal in priority as between the Revolving Loan Component and the Term Loan Component and, with respect to the collateral securing the Heller Facility, the Sovereign Facility and the Existing Credit Facilities, subject only to the security interests securing such facilities. For purposes hereof, the reference to "collateral securing the Heller Facility" and "collateral securing the Sovereign Facility" shall mean the Notes Receivable and related Mortgages exclusively assigned to Heller or Sovereign in connection with an advance under their respective loan documents." 30. SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Section 3.2 is hereby restated and amended to read as follows: "3.2 SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Notwithstanding that Lender may be obligated, subject to the conditions of the Loan Documents, to make Advances only in respect of Eligible Notes Receivable pledged to Lender, Lender shall have a continuing security interest in all of the Pledged Notes Receivable, including all Notes Receivable in the Ineligible Note Portfolio and any Notes Receivable pledged to Heller or Sovereign and Lender may collect all payments made under or in respect of all such Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Lender, if at all, pursuant to Section 12.10 or Section 7.2(a) below. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur, Borrower, as agent for and on behalf of Lender, shall retain possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. By executing this Agreement, Borrower acknowledges and agrees that it is holding such Notes Receivable as bailee and agent for Lender. Borrower shall hold and designate such Notes Receivable in a manner which clearly indicates that they are being held by Borrower as bailee on behalf of Lender. Upon the occurrence of an Event of Default, Borrower shall promptly deliver to Lender, for itself and as agent for Sovereign and Heller, all original Notes Receivable comprising the Ineligible Note Portfolio and to the extent not previously delivered to Lender, the documents listed in Section 5.1(b) hereof and with respect thereto and after such Event of Default Lender shall have the right to collect all proceeds therefrom and apply the same to payment of the Obligations as set forth in Section 2.4(b) hereof. To perfect the security interest of Lender in the Ineligible Note Portfolio, Borrower agrees, subject to Lender's prior approval, to execute and cause to be filed, at Borrower's sole cost and expense, UCC-1 financing statement(s) with the appropriate state and local governmental authorities as requested by Lender. Borrower also shall execute and deliver in escrow to Lender, for itself and as agent and on behalf of Sovereign and Heller, an assignment of Mortgages in the form attached hereto as Exhibit A (the "ASSIGNMENT OF MORTGAGES") and as approved by Lender, Sovereign and Heller at their sole and absolute discretion, assigning equally to Lender, Heller and Sovereign, all of Borrower's rights, title and interests in each and all of the 24 Mortgages relating to the Notes Receivable in the Ineligible Note Portfolio. Borrower further agrees to promptly execute and deliver modifications or additional Assignments of Mortgages requested by Lender, Heller and Sovereign in order to continue the security interests of Lender, Heller and Sovereign in the Ineligible Note Portfolio. Borrower acknowledges and agrees that upon an Event of Default, Lender, or a designee as designated by Lender, Heller and Sovereign pursuant to the terms of the Intercreditor Agreement, shall have the right to automatically record, at Borrower's sole cost and expense, all such Assignments of Mortgages executed by Borrower and delivered to Lender in accordance with the terms of this Section 3.2." 31. INSURANCE. Section 3.4 is hereby restated and amended to read as follows: "3.4 INSURANCE. Insurance coverage with respect to the Resort(s) is provided by the Timeshare Owners' Association. Borrower shall furnish Lender, upon request, with satisfactory evidence that the Units, Buildings and Resorts are adequately insured. Borrower shall furnish to Lender evidence of insurance coverage with respect to the Land, that portion of the Additional Resort Collateral constituting real property and such other portion of the Additional Resort Collateral as Lender may reasonably request. Such insurance coverage shall insure against such risks, be in such amounts, with such companies and on such other terms as Lender may reasonably require. Each such policy shall name Lender as an additional insured and loss payee, as their respective interests may appear. In the event of a loss or damage to any portion of the Additional Resort Collateral constituting real property. Borrower shall, unless an Event of Default exists, apply the proceeds of any such insurance policy to restoration and repair of the Additional Resort Collateral in question in accordance with the applicable Declaration. If an Event of Default has occurred, Lender may, in its sole discretion, apply the proceeds of any such insurance policy to restoration and repair of such Additional Resort Collateral in question in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof." 32. PURCHASE CRITERIA. Section 3.9 is hereby restated and amended to read as follows: "3.9 PURCHASER/CRITERIA. All Eligible Notes Receivable pledged as Collateral to Lender subsequent to the Effective Date will be underwritten in a manner consistent with the Borrower's general underwriting criteria, as approved in writing by Lender, including, without limitation: (i) the requirement that a majority of sales shall be made to Purchasers with minimum annual income as follows: $35,000 for purchasers residing in the state of Texas, $40,000 for purchasers residing in the state of Illinois, and $45,000 for purchasers residing in the state of Massachusetts, (ii) the requirement that each Purchaser shall have a major credit card issued in his or her name, with a copy of such credit card maintained in Borrower's file for such Purchaser, and (iii) the requirement that the weighted average FICO Credit Bureau Scores of all Purchasers with respect to which a FICO score can be obtained be not less than 640, provided that the aggregate outstanding principal balance of Eligible Notes Receivable pledged to Lender with respect to which a FICO score can not be obtained, does not exceed ten percent (10%) of the aggregate outstanding principal amount of all Eligible Notes Receivable pledged to Lender. Borrower shall not materially alter its general underwriting criteria without the prior written approval of Lender, which approval Lender may withhold in its sole discretion." 25 33. REPLACEMENT NOTES RECEIVABLE. Section 3.12 is hereby restated and amended to read as follows: "3.12 REPLACEMENT NOTES RECEIVABLE. Except as may be provided in the Business Plan, Ineligible Notes Receivable, as such term is defined in Section 2.5(b), shall be replaced with Eligible Notes Receivable, to the extent available, on a dollar for dollar basis, provided, however, that if Borrower is unable to deliver Eligible Notes Receivable to replace any Ineligible Notes Receivable, Borrower shall deliver additional Notes Receivable, if available, to Lender whether or not such additional Notes Receivable satisfy the criteria for Eligible Notes Receivable. In the event that any Eligible Note Receivable becomes available thereafter, the Borrower shall promptly substitute such Eligible Note Receivable for the Ineligible Note Receivable pledged to Lender." 34. CROSS COLLATERALIZATION. Section 3.11 is hereby restated and amended to read as follows: "3.11 CROSS COLLATERALIZATION. The Collateral also secures the Obligations of Borrower under the Existing Credit Facilities. Upon repayment of this Loan and the satisfaction by Borrower of all of the Obligations under this Loan, the Collateral shall continue to secure the Existing Credit Facilities, as provided in the documents evidencing and securing the Existing Credit Facilities. If this Loan is paid in full, any Collateral remaining thereafter shall remain Collateral for the other Existing Credit Facilities. Borrower further acknowledges and agrees that upon repayment in full of the Heller Facility and/or the Sovereign Facility, Lender's security interest in the collateral securing such facilities shall automatically become a first priority security interest securing the Borrower's Obligations hereunder and under the Existing Credit Facilities and Borrower shall take such steps as Lender may request to deliver such collateral to Lender and to confirm Lender's first priority security interest therein. Notwithstanding the foregoing: (a) when the Term Loan Component and the Inventory Loan are paid in full, the Additional Resort Collateral shall be released from the Lien of the security interest granted to Lender hereunder provided: (i) an Event of Default has not occurred; and (ii) the Additional Resort Collateral is also released from any lien granted to Sovereign pursuant to the Sovereign Documents; and (b) when both the Term Loan Component and the Inventory Loan are paid in full, the Silverleaf Finance I, Inc., Stock shall be released from the Lien of the security interest granted to Lender hereunder provided: (i) an Event of Default has not occurred; and (ii) the Silverleaf Finance I, Inc., Stock is also released from any lien granted to Sovereign pursuant to the Sovereign Documents." 35. COLLATERAL. Section 3 is hereby amended in part to add the following new paragraphs: "3.12 ADDITIONAL ELIGIBLE RESORTS. From time to time during the Term, Borrower may propose to Lender that one or more additional time-share plans and projects owned and operated by Borrower be included among the Eligible Resorts in respect of which Advances may be made. Any such proposal will be in writing, and will be accompanied or supported by the due diligence and supporting Borrower, Affiliate, project, financial and related information identified in Section 4.5 hereto, and such other information as Lender may require. Borrower will reasonably cooperate with Lender's underwriting and due diligence, and Borrower will be responsible for payment upon billing for Lender's out-of-pocket expenses in connection 26 therewith. Subject to Lender's satisfactory underwriting and due diligence review, including satisfaction of the conditions in Sections 4 and 5 hereof as they relate to such additional time-share resorts, Lender may, but shall not be required to, approve one or more such additional time-share resorts, including future phases or condominiums in an Existing Eligible Resort, as an Eligible Resort qualifying for Advances under and subject to the terms of this Agreement and the other Loan Documents. Subject in each instance to Lender's acceptable underwriting and due diligence review, and Lender's prior written approval, any project as may be approved by Lender after the Closing Date, if any, is hereinafter referred to as an "ADDITIONAL ELIGIBLE RESORT". Any Advances hereunder with respect to any Additional Eligible Resort will be subject to all terms an conditions of this Agreement and the other Loan Documents. 3.13 TAX REFUND. Borrower agrees that it shall use the proceeds of the Tax Refund strictly to fund Operating Expenses in accordance with the Business Plan and for no other reason, without Lender's prior written consent. Borrower agrees to use the Tax Refund before requesting any Advance hereunder. Upon request of Lender, Borrower shall promptly provide to Lender such evidence as Lender may request as to the manner in which the proceeds of the Tax Refund are being used." 36. TITLE POLICIES. Section 4.1(k) is hereby restated and amended to read as follows: "4.1(k) TITLE POLICIES: (i) Borrower shall deliver to Lender, with respect to each parcel of real property comprising the Land, an endorsement to the existing mortgagee's title insurance policy (the "Land Mortgage Title Policy Endorsement") updating each applicable policy previously issued with respect to the Land through the date hereof and indicating that the applicable Land Mortgage, as amended to date, is a first priority Lien on the land in question. Such Land Mortgage Title Policy Endorsement shall be an amount equal to the fair market value of the Land, and issued by companies and in form and substance satisfactory to Lender in its sole discretion. (ii) Borrower shall deliver to the Lender, with respect to each parcel of real property comprising the Additional Resort Collateral, a mortgagee's title insurance policy (the "Additional Resort Collateral Title Policy") in the full amount of the appraised value of each such parcel, indicating that the applicable Additional Resort Mortgage is a first priority Lien on the parcel in question. The title policy shall be in form and substance, and contain such endorsements, as are satisfactory to Lender in its sole discretion and shall be issued by a title insurance company satisfactory to Lender. (iii) Borrower shall be responsible for the payment of all costs and expenses of the foregoing title policies and endorsements." 37. CONDITIONS PRECEDENT TO FUNDING OF ADVANCES WITH RESPECT TO ADDITIONAL ELIGIBLE RESORTS. Section 4.5 is hereby restated and amended to read as follows: "4.5 CONDITIONS PRECEDENT TO FUNDING OF ADVANCES WITH RESPECT TO ADDITIONAL ELIGIBLE RESORTS. As provided in Section 3.12 hereof, Borrower may propose to Lender that 27 Lender approve one or more additional timeshare plans for inclusion hereunder as an Additional Eligible Resort in respect of which Advances may be made. The obligation of Lender to fund any Advances with respect to an Additional Eligible Resort shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and shall be correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Lender. (b) NO PROHIBITED ACTS. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of the Loan Documents. (c) APPROVAL OF DOCUMENTS PRIOR TO ADVANCE. Borrower has delivered or caused to be delivered to Lender (with copies to Lender's counsel), at least fifteen (15) Business Days prior to the date of each Advance, and Lender has reviewed and approved, at least five (5) Business Days prior to the date of each Advance, the form and content of all of the items specified in each of the Submissions required pursuant to this Section 4.5. Lender shall have the right to review and approve any changes to the form of any of the Submissions. If Lender disapproves of any changes to any of the Submissions, Lender shall have the right to require Borrower either to cure or correct the defect objected to by Lender or to elect not to fund the Loan or any Advance. Under no circumstances shall Lender's failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower's sole cost and expense, unless expressly stated to be an obligation and expense of Lender. Lender shall have the right of prior approval of any Preparer and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Lender believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Lender and include the following language: "THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION AS LENDER IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL." (i) a certificate in the form attached as Exhibit A, to be dated as of the date of each such Advance and signed by the president, vice president, or secretary of the Borrower, certifying that the conditions specified in Sections 4.5(a) and (b) above are true; (ii) copies of the articles of incorporation of Borrower, together with any amendments thereto certified to be true and complete by Borrower and the Secretary of State of the State of Texas, a current certificate of good standing for Borrower issued by the Secretary of State of the State of Texas, a current certificate of authority to conduct business issued by the secretary of state in each state in which the Borrower conducts business, and copies of the by-laws of Borrower certified to be true, correct and complete by the secretary or assistant secretary of Borrower; 28 (iii) except for the Resorts listed on Schedule 4.5(c)(iii) (the "Crown Resorts"), a Survey for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to the Lender in connection with the Advance in question; and with respect to each Crown Resort, a legible, full size copy of the recorded plat for each such Resort; (iv) a certificate of the secretary or assistant secretary of Borrower certifying the adoption by the board of directors thereof, respectively, of a resolution authorizing the addition of the Resort in question as an Additional Eligible Resort and to authorize Borrower to enter into, execute and deliver any Documents in connection therewith; (v) a certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign all documents required in connection with such Additional Eligible Resort as required pursuant to this Section 4.5; (vi) an inspection report or reports covering each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to the Lender in connection with the Advance in question, including without limitation all real property and personal property subject to the Declaration and all adjacent property, confirming: (1) the absence of Hazardous Materials on the personal property and real property comprising each such Additional Eligible Resort; (2) that the inspection firm has obtained, reviewed and included within its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable state and local authorities and a Phase I Environmental Audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from each such Additional Eligible Resort or in such proximity thereto as to create a material risk of contamination of each such Additional Eligible Resort; (vii) evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (viii) evidence that Borrower and the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to the Lender in connection with the Advance in question are in compliance with all applicable laws in connection with its sales of Intervals, including without limitation, the Timeshare Acts; (ix) a current preliminary title report or certificate of title for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question, with copies of all title exceptions; 29 (x) copies of all applicable governmental permits, approvals, consents, licenses, and certificates for the establishment of each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question as timeshare projects in accordance with the applicable Timeshare Act, and for the occupancy and intended use and operation of each such Additional Eligible Resort, including the Units, including a letter certification from Borrower regarding zoning classification and compliance, letters or other satisfactory evidence from utility companies, governmental entities or other persons confirming that water, sewer (sanitary and storm), electricity, solid waste disposal, telephone, police, fire and rescue services are being provided to each Resort, and any business licenses necessary for operation of each such Additional Eligible Resort; (xi) certified true, correct and complete copies of all of the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question; (xii) evidence satisfactory to Lender that all taxes and assessments owed by or for which Borrower is responsible for collection have been paid, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangibles taxes, real property taxes, and income taxes, and any assessments related to each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question and copies of the most current paid tax bills for each such Additional Eligible Resort evidencing that each such Additional Eligible Resort have been segregated from all other property on the applicable municipal taxrolls; (xiii) written confirmation from an architect covering each Additional Eligible Resort, other than a Crown Resort, for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question as to the physical condition of the improvements at each such Additional Eligible Resort, including that soil conditions are sufficient to support all existing and any contemplated improvements to the real property; which written confirmation shall be in form and substance reasonably acceptable to the Lender. Each architect rendering such written confirmation shall be licensed as an architect in the state of Texas; (xiv) such credit references on Borrower as Lender deems necessary in its sole discretion; (xv) copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower, if any; (xvi) a commitment to issue Mortgagee Title Policies from Title Company for each such Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, Lender agrees that Borrower shall not be required to provide such a commitment or a Mortgagee Title Insurance Policy with respect to any Crown Resort (other than the Quail Hollow Resort), or, until such time as deeded Intervals are permitted under local law governing the Oak N' Spruce Resort, the Oak N' Spruce Resort in order to qualify any such Resort as an Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, if any claim, lien, encumbrance, charge or other matter arises with respect to any Interval or Intervals for which an Eligible Note Receivable has been pledged to Lender pursuant to this Agreement, then, in such event: 30 (a) The Note Receivable with respect to the Interval in question shall cease to be an Eligible Note Receivable and the Borrower immediately shall either replace the Note Receivable in question or make a Mandatory Prepayment as provided in Section 2.5(b) hereof; and (b) The Resort at which the Interval in question is located shall cease to be an Additional Eligible Resort, unless and until the Borrower shall cure any such claim, lien, encumbrance, charge or other matter to the satisfaction of Lender. Furthermore, any and all further requests for Advances in respect of such Resort must be accompanied by satisfactory Mortgagee Title Policies for all Intervals with respect to which such Advances are requested. (xvii) the Financial Statements; (xviii) to the extent not previously delivered hereunder or in connection with the Existing Credit Facility or the Inventory Loan, Borrower will execute, or cause to be executed with respect to each Additional Eligible Resort, a confirmation that the Assignment of Additional Resort Collateral covers any management agreement with respect to such Additional Resort, an Assignment of Notes Receivable and Mortgages, Borrower's Affidavit with Respect to the Additional Eligible Resorts and an Environmental Indemnification Agreement, each in the form attached hereto as Exhibit A; (xix) with respect to any improvements, including any Units, constructed at a Resort within the twenty-four month period prior to any Advance with respect to an Additional Eligible Resort, Borrower shall also deliver to Lender, for its approval, such documents and instruments as Lender may reasonably request in connection with such newly constructed improvements, including, without limitation, copies of building permits, plans and specifications, construction and architectural contracts, title insurance insuring over, among other things, mechanics liens, certificates of occupancy and satisfactory evidence of the completion of such improvements; (xx) such other documents, instruments, agreements, tests, reports and inspections as Lender may require with respect to the Borrower or any applicable Affiliate, the Loan or any Resort, including any Additional Eligible Resort; and (xxi) Upon request of Lender, Borrower shall deliver to Lender evidence, satisfactory to Lender, that there is no material litigation, written complaint, suit, action, written claim or written charge pending against the Borrower or any Affiliate with any court or with any governmental authority with respect to the Resort, the Timeshare Documents, any Eligible Notes Receivable, any Interval, or any marketing, offer or sale of any Interval. (d) PHYSICAL INSPECTION. Lender shall be satisfied with its physical inspection of the Additional Eligible Resorts. (e) UCC SEARCH. Lender shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under all applicable law to verify that it has a 31 first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if Lender determines that Lender does not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral. (f) LITIGATION SEARCH. Lender shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Additional Eligible Resorts, any portion of the Collateral, Borrower, or any Affiliate, (each a "MATERIAL PARTY"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Lender determines, in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall not be obligated to fund any Advance if it determines that any such litigation is pending. (g) OPINIONS OF BORROWER'S COUNSEL. Borrower shall deliver to Lender, for the benefit of Lender, at Borrower's sole cost and expense, such opinions of counsel, including counsel admitted in each state in which each Additional Eligible Resort is located, as to such matters with respect to the Borrower and each Additional Eligible Resort as Lender may request, and in form and substance acceptable to Lender in its sole discretion. (h) FUNDING PROCEDURE. Borrower shall have complied to Lender's satisfaction with each of the conditions precedent to funding of an Advance set forth in Section 5 hereof. (i) MANAGEMENT OF RESORT. Borrower shall provide evidence satisfactory to Lender that Borrower, or an Affiliate, is the manager or operator of each Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender, which with respect to all Resorts (other than the Crown Resorts) shall have a term which shall expire no earlier April 1, 2009. With respect to each Crown Resort only, each such Resort may qualify as an Additional Eligible Resort (subject to satisfaction by Borrower of the conditions set forth in this Section 4.5), so long the Borrower, or an Affiliate, is the manager or operator of each such Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender. Borrower agrees to provide an estoppel letter, in form and substance acceptable to Lender, from the applicable Timeshare Owner's Association. Each such management agreement constitutes a part of Additional Resort Collateral and is assigned to Lender to secure the Obligations as provided herein. (j) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Lender may request to determine the acceptability of any such Additional Eligible Resort, to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, including, without limitation, true copies of all Resort Documents for each such Additional Eligible Resort, all Timeshare Documents and operating and management contracts and agreements, evidence of compliance with the applicable Timeshare Act and other applicable laws, evidence of all required governmental licenses and permits; title searches; title commitments or policies, including complete and legible copies of each title exception, engineering, environmental and soil reports and evidence of compliance with all applicable 32 zoning and building codes; each of which shall be satisfactory to Lender in its sole and absolute discretion." 38. FUNDING PROCEDURES. Section 5.1 (a) (i) is hereby restated and amended to read as follows: "(i) be in writing in form attached hereto as Exhibit C and shall certify the amount of the then-current Borrowing Base and the then-current Effective Advance Rate, specify the principal amount of the Advance requested and designate the account to which the proceeds of such Advance are to be transferred;" 39. FUNDING PROCEDURE. Section 5(a)(iv) is hereby restated and amended as follows: "(iv) be delivered to the office of Lender at least five (5) Business Days prior to the date of the requested Advance;" 40. FUNDING PROCEDURE. Section 5(b) is hereby amended in part as follows: "(b) LOAN DOCUMENTS/COLLATERAL. Not less than five (5) Business Days prior to the date of any Advance, the Borrower shall have:" 41. OTHER CONDITIONS. Section 5(c) (vii) is hereby restated and amended to read as follows: "(vii) "Lender shall have determined that the requested Advance, when added to the aggregate outstanding principal amount of all previous Advances, if any, does not, based on the Eligible Notes Receivable that have been duly pledged in favor of Lender: (i) exceed the total amount of the Borrowing Base, or (ii) cause the Effective Advance Rate, determined with respect to the aggregate of the Loan, the Tranche A Credit Facility and the Tranche B Facility, to exceed 95%;" 42. OTHER CONDITIONS. Section 5(c) is hereby amended in part to add the following new paragraphs: "(xii) There are insufficient proceeds from the Tax Refund to pay Operational Expenses as provided in the Business Plan; (xiii) Heller and Sovereign fund their respective portion in accordance with 2.1(e) and as provided in the Intercreditor Agreement; and (xiv) the most recent Weekly Flash Report indicates that Borrower has less than five million dollars ($5,000,000) in available unrestricted cash." 43. AUTHORIZATION, ENFORCEABILITY, ETC. Section 6.2(a) is hereby restated and amended as follows: "(a) The execution, delivery and performance by Borrower of the Loan Documents has been duly authorized by all necessary corporate action by Borrower and does not and will not: (i) violate any provision of the certificate or articles of incorporation of Borrower, bylaws 33 of Borrower, or any agreement, law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect to which Borrower is a party or is subject; (ii) result in, or require the creation or imposition of, any Lien upon or with respect to any asset of Borrower other than Liens in favor of Lender; or (iii) result in a breach of, or constitute a default by Borrower under, any indenture, loan or credit agreement or any other agreement, document, instrument or certificate to which Borrower is a party or by which it or any of its assets are bound or affected." 44. AUTHORIZATION, ENFORCEABILITY, ETC. Section 6.2(e) is hereby restated and amended as follows: "(e) The execution and delivery of the Loan Documents, the delivery and endorsement to Lender of the Pledged Notes Receivable, the filing of the UCC-1's with the office of the secretary of state of the state in which Borrower is organized and the Assignment of Notes Receivable and Mortgages in the official records of the county in which the applicable Resort is located, create in favor of Lender a valid and perfected continuing first or second priority security interest, as applicable, in the Collateral. The Collateral shall secure the full payment and performance of the Obligations." 45. FINANCIAL STATEMENTS AND BUSINESS CONDITION. Section 6.3 is hereby restated and amended to read as follows: "6.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. The Weekly Flash Reports, the Monthly Financial Reports for the first ten (10) months of the calendar year 2001 and the Alternative Financial Models dated December 4, 2001 are, to the best of Borrower's knowledge, accurate and fairly represent the financial condition of the Borrower for the periods in question, subject to the written qualifications set forth therein, including the fact that such statements and reports are preliminary and subject to completion of the audit thereof and that Borrower anticipates adjustments thereto which may significantly affect the results thereof, including an estimated reduction in shareholder equity of $63,000,000. To the best of Borrower's knowledge, there are no material liabilities, direct or indirect, fixed or contingent, of Borrower, except as disclosed to Lender in writing." 46. TAXES. Section 6.4 is hereby restated and amended to read as follows: "6.4 TAXES. In accordance with the requirements set forth in the Declaration, the Borrower represents and warrants that the Borrower or Timeshare Owners' Association, as required, has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other taxes and assessments against the Resort and the Collateral; and the Borrower knows of no basis for any additional taxes or assessments against the Resort or the Collateral. The Borrower or the Timeshare Owners' Association, as the case may be, has filed all tax returns required to have been filed by it and has paid or will pay prior to delinquency, all taxes shown to be due and payable on such returns, including interest and penalties, and all other taxes which are payable by it to the extent the same have become due and payable. Borrower has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other taxes assessments against that portion of the Additional Resort Collateral constituting Resort real property and against the Land, and 34 the Borrower knows of no basis for any additional taxes or assessments against the Land or other such real property." 47. LICENSES, PERMITS, ETC. Section 6.8 is hereby restated and amended to read as follows: "6.8 LICENSES, PERMITS, ETC. The Borrower, the Resorts, the Timeshare Owners' Associations or Borrower's Affiliates, including, but not limited to, Silverleaf Club, Inc., involved in the operations of the Resorts, and, to the best of Borrower's knowledge after diligent inquiry, other Persons involved in the operations of the Resorts, possess all requisite franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions and orders as are necessary to carry on its or their business as now being conducted, without any known conflict with the rights of others and, with respect to the Borrower, the Resorts and the Timeshare Owners' Associations, in each case subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title retention agreement or option other than as provided for by this Agreement. Borrower has all permits, licenses and consents for the ownership and use of the Land and the Additional Resort Collateral." 48. "ENVIRONMENTAL MATTERS. Section 6.9 is hereby restated and amended to read as follows: "6.9 ENVIRONMENTAL MATTERS. Except as otherwise noted on Schedule 6.9, (a) neither the Land, any portion of the Additional Resort Collateral consisting of real property or any Resort contains any Hazardous Materials, (b) no Hazardous Materials are used or stored at or transported to or from the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, (c) neither Borrower nor the Resorts nor any manager thereof or to Borrower's knowledge, the Timeshare Owners' Associations, have received notice from any governmental agency, entity or other Person with regard to Hazardous Materials on, under or affecting any Resort, the Land or any portion of the Additional Resort Collateral consisting of real property, and (d) neither Borrower nor the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, nor any portion thereof, nor to Borrower's knowledge after diligent inquiry, the Timeshare Owners' Associations, are in violation of any Environmental Laws." 49. USE OF PROCEEDS./MARGIN STOCK. Section 6.11 is hereby restated and amended to read as follows: "6.11 USE OF PROCEEDS/MARGIN STOCK. (a) The proceeds of the Loan, the Existing Credit Facilities, the Heller Facility, The Sovereign Facility, the DZ Facility, the Tax Refund and any cash dividend or other cash distribution Borrower receives from Silverleaf Finance I, Inc. will only be used strictly in accordance with the Business Plan and for no other purpose and (b) none of the proceeds of the Loan will be used to purchase or carry any "margin stock" (as defined under Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time), and no portion of the proceeds of the Loan will be extended to others for the purpose of purchasing or carrying margin stock. None of the transactions contemplated in the Agreement (including, without limitation, the use of the proceeds from the Loan) will violate or result in the violation of Section 7 of the Securities Exchange Act of 1934, as 35 amended, or any regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11." 50. NO DEFAULTS. Section 6.12 is hereby restated and amended to read as follows: "6.12 NO DEFAULTS. Except for the Specified Events of Default (as defined in the Forbearance Agreement) during the Forbearance Period (as defined in the Forbearance Agreement), Borrower has no knowledge of any Default or Event of Default not disclosed to Lender in writing. Except for the specified events of default under the forbearance agreement between Borrower and Heller or the forbearance agreement between Borrower and Sovereign, Borrower has no knowledge of any default or event of default under the Heller Documents or the Sovereign Documents, except as disclosed to Lender in writing, and neither Heller nor Sovereign has accelerated any loan obligation of Borrower on account of any such specified default or event of default." 51. RESTRICTION OF BORROWER. Section 6.14 is hereby restated and amended to read as follows: "6.14 RESTRICTIONS OF BORROWER. Except for this Agreement and the Loan Documents, the Inventory Loan Documents, the Tranche A Loan Documents, the Tranche B Loan Documents, the Heller Documents and the Sovereign Documents, the Borrower will not be, on or after the date hereof, a party to any contract or agreement which restricts its right or ability to incur indebtedness or prohibits Borrower's execution of or compliance with the terms of this Agreement, the other Loan Documents, the Inventory Loan Documents, the Tranche A Loan Documents, the Tranche B Loan Documents, the Heller Documents, the Bond Holder Exchange Documents, the Sovereign Documents or the DZ Facility Documents. The Borrower has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien except in favor of Lender as provided herein, and, with respect to the Land, the Additional Resort Collateral, the Silverleaf Finance I. Inc., Stock and the Ineligible Notes Receivable, in favor of Heller and Sovereign, as applicable." 52. GENERAL REPRESENTATIONS AND WARRANTIES. Section 6 is hereby amended in part to add the following new paragraphs: "6.25 ADDITIONAL RESORT COLLATERAL. FIRST LIEN. Subject to the other first lien rights of Heller and Sovereign as provided in the Intercreditor Agreement, upon execution and delivery of the Additional Resort Collateral Assignments and execution and recording of the Additional Resort Collateral Mortgages, Lender will have a valid first lien in the Additional Resort Collateral. (a) ACCESS. The portion of the Additional Resort Collateral constituting real property has adequate legal rights of access to a public way. (b) FLOOD ZONE. Except as is disclosed in the surveys of the portion of the Additional Resort Collateral constituting real property that have been or will be provided to Lender, no 36 portion of such land is located in a flood hazard area as defined by the Federal Insurance Administration. (c) SEISMIC EXPOSURE. No portion of the Additional Resort Collateral constituting real property is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (d) CONDEMNATION. No portion of the Additional Resort Collateral constituting real property has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of such land. (e) NO PURCHASE OPTIONS. No person or entity has an option to purchase any portion of the Additional Resort Collateral, or any portion thereof, or any interest therein. 6.26 ADDITIONAL REPRESENTATIONS AND WARRANTIES. This Agreement, the Original Agreement, the Note and the other Loan Documents constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms. Borrower ratifies and confirms each covenant and agreement made under the Original Agreement and the other Loan Documents, except as provided in the Forbearance Agreement. 6.27 HELLER AND SOVEREIGN FACILITIES. The modifications of the Heller Facility and the Sovereign Facility on terms and conditions as provided in the Business Plan, have closed and Lender has been provided with true and correct copies of the Heller Documents and the Sovereign Documents, as so modified. There is no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Heller Facility or the Sovereign Facility and Borrower is in good standing under both of such facilities. 6.28 BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Letter has not been amended, modified or otherwise rescinded. 6.29 DZ FACILITY. The DZ Letter Agreement is in full force and effect and has not been amended, modified or otherwise rescinded. 6.30 STANDBY SERVICER. Borrower has entered into the Standby Servicing Agreement, a copy of which is attached hereto as Exhibit I, with the Standby Servicer, and such agreement is in full force and effect and has not been modified, amended or terminated." 53. AFFIRMATIVE COVENANTS. Section 7.1(a) is hereby restated and amended as follows: "(a) PAYMENT AND PERFORMANCE OF OBLIGATIONS. Borrower shall pay all of the Loan and related expenses when and as the same become due and payable, and Borrower shall strictly observe and perform all of the Obligations, including without limitation, all covenants, agreements, terms, conditions and limitations contained in the Loan Documents, and will do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default hereunder, other than a Specified Event of Default (as defined in the Forbearance Agreement); and the Borrower will maintain an office or agency in the State of Texas where notices, presentations and demands in respect of the Loan Documents may be made upon the Borrower. Such office or agency and the books and records of the Borrower shall be maintained 37 at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221 until such time as the Borrower shall so notify Lender, in writing, of any change of location of such office or agency." 54. CONSOLIDATION AND MERGER. Section 7.1(c) is hereby restated and amended as follows: "(c) CONSOLIDATION AND MERGER. Borrower will not consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, unless: (i) Borrower is the continuing or surviving corporation in any such consolidation or merger and (ii) prior to and immediately after such consolidation or merger, Borrower shall not be in default hereunder." 55. MAINTENANCE OF INSURANCE. Section 7.1(d) is hereby restated and amended as follows: "(d) MAINTENANCE OF INSURANCE. Borrower, or if required pursuant to the Declaration, the Timeshare Owners' Association, shall maintain (or the Borrower shall cause to be maintained) at all times during the term of this Agreement, policies of insurance with premiums being paid when due, and shall deliver to Lender originals of insurance policies issued by insurance companies, in amounts, in form and in substance, and with expiration dates, all acceptable to Lender and containing a waiver of subrogation rights by the insuring company, a non-contributory standard mortgagee benefit clause, or their equivalents, and a mortgagee loss payable endorsement in favor of and satisfactory to Lender, and breach of warranty coverage, providing the following types of insurance on and with respect to the Borrower (or, as appropriate, the respective Associations), the Land and the Resorts: (i) Fire and extended coverage insurance (including lightning, hurricane, tornado, wind and water damage, vandalism and malicious mischief coverage) covering the improvements at the Resorts and any personal property located in or on the Resorts and any real property constituting part of the Additional Resort Collateral, in an amount not less than the full replacement value of such improvements and personal property, and said policy of insurance shall provide for a deductible acceptable to Lender, breach of warranty coverage, replacement cost endorsements satisfactory to Lender, and shall not permit co-insurance; (ii) Public liability and property damage insurance covering the Land and the Resorts in amounts and on terms satisfactory to Lender; and (iii) Such other insurance on the Resorts and any real property constituting part of the Additional Resort Collateral, or any replacements or substitutions therefor including, without limitation, flood insurance (if any Resort is or becomes located in an area which is considered a flood risk by the U.S. Emergency Management Agency or pursuant to the National Flood Insurance program), in such amounts and upon terms as may from time to time be reasonably required by Lender. To the extent any other timeshare receivable lender has any rights to approve the form of insurance policies with respect to any Resort, the amounts of coverage thereunder, the insurers under such policies, or the designation of an attorney-in-fact for purposes of dealing with damage to any part of any Resort or insurance claims or matters related thereto, or any successor to such attorney-in-fact, or any changes with respect to any of the foregoing, Borrower shall take all steps as may be necessary (and, after turnover, if any, of control of any Resort to the 38 Timeshare Owners' Association, Borrower shall use its best efforts) to ensure that Lender shall at all times have a co-equal right, with such other lender (including, without limitation, Borrower or any third-party lender), to approve all such matters and any proposed changes in respect thereof; and Borrower shall not cause or permit any changes with respect to any insurance policies, insurers, coverage, attorney-in-fact, or insurance trustee, if any, without Lender's prior written approval. In the event of any insured loss or claim in respect of any Resort, Borrower shall apply (or cause to be applied), and Borrower covenants that the Timeshare Owners' Association shall apply (or cause to be applied), all proceeds of such insurance policies in a manner consistent with the Timeshare Documents and the Timeshare Act. All insurance policies required pursuant to this Agreement (or the Timeshare Documents or Timeshare Act) shall provide that the coverage afforded thereby shall not expire or be amended, canceled, modified or terminated without at least thirty (30) days prior written notice to Lender. At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 7.1(d), a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender. Borrower shall deliver or cause to be delivered to Lender receipts evidencing the payment for all such insurance policies and renewals or replacements. In the event of any fire or other casualty to or with respect to the improvements on or at the Resort and/or any real property constituting part of the Additional Resort Collateral, Borrower covenants that Borrower or the Timeshare Owners' Association, as the case may be, will promptly restore or repair (or cause to be restored, repaired or replaced) the damaged improvements and repair or replace any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the improvements and personal property on the Resort, in accordance with the terms of the Timeshare Documents or Timeshare Act. The insufficiency of any net insurance proceeds shall in no way relieve the Borrower or, as applicable, Borrower and Timeshare Owners' Association, of its obligation to restore, repair or replace such improvements and other personal property in accordance, and/or any real property constituting part of the Additional Resort Collateral, with the terms hereof, of the Declaration or other Timeshare Documents or of the Timeshare Act, and Borrower covenants that Borrower or, as the case may be, the Timeshare Owners' Association, shall promptly comply and cause compliance with the provisions of the Declaration and other Timeshare Documents, or of the Timeshare Act relating to such restoration, repair or replacement. Borrower shall, unless an Event of Default has occurred, apply all insurance proceeds payable to or received by it, in accordance with the applicable Declaration. If an Event of Default has occurred, Lender may, in its sole discretion, apply all insurance proceeds in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof." 56. MAINTENANCE OF SECURITY. Section 7.1(e) is hereby restated and amended to read as follows: "(e) MAINTENANCE OF SECURITY. Borrower shall execute and deliver (or cause to be executed and delivered) to Lender all security agreements, financing statements, assignments and such other agreements, documents, instruments and certificates, and supplements and amendments thereto, and take such other actions, as Lender deems necessary or appropriate in order to maintain 39 as valid, enforceable and perfected first or second priority liens and security interests, as applicable, all Liens and security interests in the Collateral granted to Lender to secure the Obligations. Borrower shall not grant extensions of time for the payment of, compromise for less than the full face value or release in whole or in part, any Purchaser or other Person liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument, chattel paper or document representing the Collateral." 57. MONTHLY FINANCIAL REPORTS. Section 7.1(h)(ii) is hereby restated and amended to read as follows: "(ii) MONTHLY FINANCIAL REPORTS. As soon as available and in any event within ten (10) days after the end of each calendar month, a report showing (i) the trial balance of the Pledged Notes Receivable, (ii) an aging report on the Pledged Notes Receivable, (iii) a report detailing the collections on each of the Pledged Notes Receivable, (iv) a Borrowing Base Report, (v) monthly reports from the Lockbox Agent required pursuant to the Lockbox Agreement, and (vi) a report in form satisfactory to Lender indicating, among other things, the conformity of the Borrower's business to the Business Plan and any variances therefrom during the preceding calendar month." 58. NOTICE OF CLAIMED DEFAULT. Section 7.1(h)(ix) is hereby restated and amended to read as follows: "(ix) NOTICE OF CLAIMED DEFAULT. Except for a Specified Event of Default identified in the Forbearance Agreement, immediately upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, or upon becoming aware of any acceleration with respect to any Specified Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action the Borrower is taking or proposes to take with respect thereto;" 59. MANAGEMENT. Section 7.1(j) is hereby restated and amended as follows: "(j) MANAGEMENT. Borrower shall: (i) remain engaged in the active management of the Resorts, (ii) unless Borrower notifies Lender in writing at least thirty (30) days in advance of its new location, retain its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221, and (iii) continue to perform duties substantially similar to those presently performed as provided in the management agreement relating to each Resort. No management agreement for any Resort shall be modified, assigned, extended, terminated or entered into nor shall the current method of operation and management of the Resorts be changed in any material manner, without the prior written approval of Lender, except as contemplated in Section 7.1(w) hereof." 60. MODIFICATIONS OF HELLER DOCUMENTS, DZ DOCUMENTS, BOLD HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Section 7.4(k) is hereby restated and amended as follows: "(k) MODIFICATIONS OF HELLER DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Borrower shall not amend or modify the Heller Documents, the Sovereign Documents, DZ Documents, Bondholder 40 Exchange Documents or the documents evidencing any other indebtedness of Borrower, nor shall Borrower extend, modify, increase or terminate the Heller Facility, DZ Facility, the Bond Holder Exchange Transaction, the Sovereign Facility or any other credit facility or loan, without the prior written consent of Lender, which consent shall not be unreasonably withheld." 61. MAINTENANCE. Section 7.1(n) is hereby restated and amended to read as follows: "(n) MAINTENANCE. Borrower shall maintain, or shall cause to be maintained, or to the extent provided for pursuant to the Declaration, shall use its best efforts to cause the Timeshare Owners' Association to maintain, the Resort and that portion of the Additional Resort Collateral consisting of real property in good repair, working order and condition and shall make all necessary replacements and improvements to the Resort and that portion of the Additional Resort Collateral consisting of real property so that the value and operating efficiency of the Resort and that portion of the Additional Resort Collateral consisting of real property will be maintained at all times and so that the Resort and that portion of the Additional Resort Collateral consisting of real property remains in compliance in all respects with the Timeshare Act, the Timeshare Documents and other applicable law." 62. REGISTRATION AND REGULATIONS. Section 7.1(p)(i) is hereby restated and amended to read as follows: "(i) LOCAL LEGAL COMPLIANCE. The Borrower will comply, and will cause the Resort, the Land and each portion of the Additional Resort Collateral constituting real property to comply, with all applicable servitudes, restrictive covenants, applicable planning, zoning or land use ordinances and building codes, all applicable health and Environmental Laws and regulations, and all other applicable laws, rules, regulations, agreements or arrangements." 63. AFFIRMATIVE COVENANTS. Section 7.1 is hereby amended in part to add the following new paragraphs: "(w) STANDBY MANAGER, RESORT CONSULTANT AND STANDBY SERVICER. Borrower will enter into agreements for the Standby Manager and the Resort Consultant on or before the Effective Date and will maintain such agreements in full force and effect. Borrower will maintain the agreement for the Standby Servicer in full force and effect. Borrower agrees that upon the occurrence of a Default or Event of Default hereunder: (1) Lender may, with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, terminate any then existing management agreements and replace any existing manager with such manager as Lender may select provided however, if: (x) the obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Lender elects to have J & J Limited, Inc. act as Standby Manager, then no such approval of Borrower's Board of Directors shall be required; and (2) The Standby Servicer will assume full control over the servicing of all Pledged Notes Receivable, reporting solely to Lender, as provided in Section 10.14 hereof. (x) DZ FACILITY. The DZ Letter Agreement remains in full force and effect and has not been amended, modified or rescinded and Borrower will diligently commence and proceed to close the DZ Facility on or before May 31, 2002 as contemplated in the DZ Letter Agreement 41 and the Business Plan, and will promptly provide Lender with true and correct copies of the DZ Documents. (y) BOND HOLDER EXCHANGE TRANSACTION. Borrower will act diligently and in good faith to cause the requisite number of bond holders to accept the offer to participate in the Bond Holder Exchange Transaction on the terms set forth in the Bond Holder Exchange Letter and to close the Bond Holder Exchange Transaction on or before May 31, 2002, and promptly provide Lender with true and correct copies of all documents executed and/or delivered in connection with the Bond Holder Exchange Transaction. (z) HELLER FACILITY, SOVEREIGN FACILITY, DZ FACILITY AND BOND HOLDER EXCHANGE TRANSACTION. Borrower will comply with each of the terms and conditions of the Heller Facility, the Sovereign Facility, the DZ Facility and the Bond Holder Exchange Documents and will promptly deliver to Lender, upon receipt by Borrower, copies of any notices received by Borrower in connection with any of the forgoing credit facilities. (aa) FINANCIAL COVENANTS. (i) TANGIBLE NET WORTH. Borrower shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of Borrower as of September 30, 2001 plus (B) one hundred percent (100%) of the aggregate amount of proceeds received by Borrower after January 1, 2002 in connection with (1) each issuance by Borrower of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Indebtedness after January 1, 2002, other than Indebtedness which shall be the most senior Indebtedness of Borrower plus (C) one hundred percent (100%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after January 1, 2002. (ii) MARKETING AND SALES EXPENSES. Borrower will not permit as of March 31, 2002 and as of the last day of each calendar quarter thereafter the ratio of Marketing and Sales Expenses for any calendar quarter, singly and on a cumulative basis, during the specified period below (the "Reference Period") to Borrower's net proceeds from the sale of Intervals for such Reference Period to equal or exceed the ratio set forth opposite such period described in the table below during such Reference Period:
Period Ratio - ------ ----- 4/1/02 - 12/31/02 .550 to 1 1/1/03 - thereafter .525 to 1
(iii) MINIMUM LOAN DELINQUENCY. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Lender under the Agreement and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) to be greater than twenty-five percent (25%). If, as of the last day of each calendar quarter, Borrower's 42 over 30-day delinquency on its entire Notes Receivable portfolio (including, without limitation, all Eligible Notes Receivable pledged to Lender under the Agreement and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) is greater than twenty percent (20%), then Lender shall have the right to conduct an audit, at Borrower's sole cost and expense, of all Borrower's Notes Receivable pledged to Lender hereunder. (iv) INTEREST COVERAGE. (i) For the calendar quarter of Borrower ending June 30, 2002, the Interest Coverage Ratio for Borrower shall be at least 1.1:1; (ii) for the calendar quarter of Borrower ending September 30, 2002, the average of the Interest Coverage Ratio of Borrower of such calendar quarter and the Interest Coverage Ratio for the immediately preceding calendar quarter shall be at least 1.1:1, (iii) for the calendar quarter of Borrower ending December 31, 2002, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for the two immediately preceding calendar quarters shall be at least 1.1:1; (iv) for each calendar quarter of Borrower beginning with, and including, the calendar quarter ending March 31, 2003 and for each calendar quarter of Borrower thereafter, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for each of the three immediately preceding calendar quarters shall be at least 1.25:1. The term Interest Coverage Ratio means with respect to any Person for any calendar quarter, the ratio of (a) EBITDA for such period less capital expenditures as determined in accordance with GAAP, for such period to (b) the interest expense minus all non-cash items constituting interest expense for such period. (v) PROFITABLE OPERATIONS. Borrower will not permit Consolidated Net Income (a) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (b) for any two consecutive fiscal quarters (treated as a single accounting period) to be less than $1.00. (bb) NET SECURITIZATION CASH FLOW. Borrower will cause Silverleaf Finance I, Inc. to declare, at least quarterly, a cash dividend payable to Borrower, in an amount equal to the Net Securitization Cash Flow for such quarter. If no Default or Event of Default has occurred, Borrower agrees to use such dividends for payment of Operating Expenses as provided in the Business Plan and for no other purpose. If a Default or Event of Default has occurred, then all such dividends shall be paid directly to Lender, and applied by Lender in repayment of the Term Loan Component as provided in Section 2.4(b). Borrower agrees to provide Lender with written notice prior to any such sale or securitization and agrees to deliver to Lender copies of all documents executed in connection therewith. Any such sale or securitization shall be acceptable to Lender in its sole and absolute discretion. The proceeds received from any such securitization shall be used to pay down the Loan in accordance with the Business Plan. (cc) SALE OR SECURITIZATIONS OF NOTES RECEIVABLE. Borrower shall use its best efforts to sell and/or securitize the Notes Receivable pledged to Lender as security for the Loan, and the proceeds of any such sale or securitization shall be applied first to repayment of the Revolving Loan Component as provided in Section 2.4(b), and then after the Revolving Loan Component has been paid in full, to repayment of the Term Loan Component as provided in Section 2.4(b). Borrower agrees to provide Lender with written notice prior to any such sale or securitization and agrees to deliver to Lender copies of all documents executed in connection therewith. Any such sale or securitization shall be acceptable to Lender in its sole and absolute 43 discretion. The proceeds received from any such securitization shall be used to pay down the Loan in accordance with the Business Plan." 64. OPERATION OF BORROWER'S BUSINESS. Section 7.2 is hereby restated and amended as follows: "7.2 OPERATION OF BORROWER'S BUSINESS. Borrower will operate its business in substantial compliance with the Business Plan, including the Senior Lender Advance Schedule." 65. LIMITATION ON OTHER DEBT/FURTHER ENCUMBRANCES. Section 7.4(a) is hereby restated and amended as follows: "(a) LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES. Borrower will not obtain financing and grant liens with respect to the Collateral or any of its other assets or property, except as hereafter provided. Prior to March 31, 2003, Borrower will not obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable, except as provided in this Agreement, the Existing Credit Facilities, the Inventory Loan, the Heller Facility, and the Sovereign Facility, without the Lender's prior written consent, which consent will not be unreasonably withheld. As a condition to such consent, Lender may require that all proceeds of such financing be applied in repayment of the Loan as provided in Section 2.4 hereof so as to reduce the Effective Advance Rate, and may require advances to be funded from the Revolving Loan Component prior to advances from such other financing. At any time after March 31, 2003, Borrower may obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable in an amount not to exceed twenty million dollars ($20,000,000.00), without Lender's consent provided that: (i) no Default or Event of Default has occurred; (ii) and such financing does not result in (x) Borrower's failure to substantially adhere to the Business Plan or (y) an Event of Default; and (iii) Lender may require advances to be funded from the Revolving Loan Component prior to advances from such other financing. At any time after March 31, 2003, if Borrower wishes to obtain financing in excess of twenty million dollars ($20,000,000.00) which will be secured by any of Borrower's unpledged Notes Receivable, Borrower will obtain Lender's written consent, which consent will not be unreasonably withheld. Borrower may obtain unsecured financing provided: (i) Borrower provides prior written notice to Lender setting forth the terms and conditions thereof; (ii) Lender is provided a copy of the loan documents thereof; and (iii) such financing does not result in Borrower's inability to substantially adhere to the Business Plan, as determined by Lender in its sole and absolute discretion." 66. TIMESHARE REGIME. Section 7.4(g) is hereby restated and amended as follows: "(g) TIMESHARE REGIME. Without Lender's prior written consent, which consent shall not be unreasonably withheld as to changes necessary to implement the Business Plan, Borrower shall not amend, modify or terminate the Declarations or other Timeshare Documents, or any other restrictive covenants, agreements or easements regarding the Resorts (except for routine non-substantive modifications which have no impact on the Collateral). Except as otherwise provided herein or in the Sovereign Documents, Borrower shall not assign its rights as "developer" under the Declarations without Lender's prior written consent, or file or permit to be filed any additional covenants, conditions, easements or restrictions against or affecting the 44 Resorts (or any portion thereof) without Lender's prior written consent, which consent shall not be unreasonably withheld." 67. NEGATIVE COVENANTS. Section 7.4 is hereby amended in part by adding the following new paragraphs: "(l) COMPENSATION OF SENIOR MANAGEMENT. The compensation payable to the senior management of Borrower, as a group, shall not be increased by more than twenty-five percent (25%) each year, with the increase in the first year following the Effective Date being measured against the compensation payable to the senior management of Borrower as of December 31, 2001, which compensation is set forth on Schedule 7.2(l). The Borrower represents and warrants that Schedule 7.2(l) accurately sets forth such compensation. (m) NO NEW CONSTRUCTION. Borrower will not, without Lender's prior written approval, construct any improvements (excluding resort amenities) on any Resorts, Land or any portion of the Additional Resort Collateral constituting real property, unless such improvements are contemplated in the Business Plan. (n) MODIFICATION OF OTHER DOCUMENTS. Borrower shall not amend or modify the Standby Management Agreement or the Standby Servicing Agreement, without the prior written consent of Lender, which consent shall not be unreasonably withheld" 68. COVENANT DEFAULTS. Section 8.1(b) is hereby restated and amended as follows: "(b) COVENANT DEFAULTS. If Borrower shall fail to perform or observe any covenant, agreement or warranty contained in this Agreement or in any of the Loan Documents, (other than with respect to: (i) the failure to make timely payments in respect of the Loan as provided in Section 8.1(a); (ii) the failure to deliver payments made under the Pledged Notes Receivable directly to Agent as required pursuant to Section 2.4 above as provided in Section 8.1(h); or (iii) violation of (x) the financial covenants in Section 7.1(aa) or (y) any negative covenants in Section 7.4) and, such failure shall continue for fifteen (15) days after notice of such failure is provided by Lender, provided however, that if Borrower commences to cure such failure within such 15 day period, but, because of the nature of such failure, cure cannot be completed within 15 days notwithstanding diligent effort to do so, then, provided Borrower diligently seeks to complete such cure, an Event of Default shall not result unless such failure continues for a total of thirty (30) days." 69. ENFORCEABILITY OF LIENS. Section 8.1(d) is hereby restated and amended as follows: "(d) ENFORCEABILITY OF LIENS. If any lien or security interest granted by Borrower to Lender in connection with the Loan is or becomes invalid or unenforceable or is not, or ceases to be, a perfected first or second priority lien or security interest, as applicable, in favor of Lender encumbering the asset to which it is intended to encumber, and Borrower fails to cause such lien or security interest to become a valid, enforceable, first or second, as applicable, and prior lien or security interest in a manner satisfactory to Lender within ten (10) days after Lender delivers written notice thereof to Borrower." 45 70. MATERIAL ADVERSE CHANGE. Section 8.1(l) is hereby restated and amended as follows: "(l) MATERIAL ADVERSE CHANGE. Any material adverse change in the financial condition of the Borrower in the condition of the Collateral. For purposes of this provision, a decline in the net worth of the Borrower of $100,000.00 or less shall not be considered a material adverse change." 71. DEFAULT BY BORROWER IN OTHER AGREEMENTS. Section 8.1(m) is hereby restated and amended as follows: "(m) DEFAULT BY BORROWER IN OTHER AGREEMENTS. Except for any Specified Event of Default (as provided in the Forbearance Agreement), which Specified Events of Default shall include a prior existing default under the Heller Facility or the Sovereign Facility, any default by the Borrower (i) in the payment of any indebtedness to any Lender, including any indebtedness owed to Lender under the Heller Facility, DZ Facility, Sovereign Facility, Bond Holder Exchange Transaction, or the Existing Credit Facilities, (ii) in the payment or performance of other indebtedness for borrowed money or obligations secured by any part of the Resort; (iii) in the payment or performance of other material indebtedness or obligations (material indebtedness or obligations being defined for purposes of this provision as any indebtedness or obligation in excess of $200,000) where such default accelerates or permits the acceleration (after the giving of notice or passage of time or both) of the maturity of such indebtedness, or permits the holders of such indebtedness to elect a majority of the board of directors of Borrower (whether or not such default[s] have been waived by such holder) or (iv) the acceleration by Heller, Sovereign, DZ or the bondholders of their respective credit facilities." 72. VIOLATION OF NEGATIVE COVENANTS. Section 8.1(o) is hereby restated and amended as follows: "(o) VIOLATION OF NEGATIVE COVENANTS. Borrower violates any negative covenants set forth in Section 7.4." 73. VARIANCE FROM BUSINESS PLAN. Section 8.1(p) is hereby deleted in its entirety. 74. NATURE OF EVENTS. Section 8.1 is hereby amended in part to add the following new paragraphs: "(s) RECEIVABLE ADVANCES IN EXCESS OF BORROWING BASE OR LOAN IN EXCESS OF MAXIMUM EFFECTIVE ADVANCE RATE. If the outstanding aggregate principal balance of all Advances exceeds the Borrowing Base or if the outstanding aggregate principal balance of the Revolving Loan Component Facility and the Term Loan Component divided by the aggregated outstanding principal balance of Eligible Notes Receivable pledged to Lender hereunder exceeds the Maximum Effective Advance Rate. (t) FAILURE OF DZ FACILITY AND/OR BOND HOLDER EXCHANGE TRANSACTION TO CLOSE. If either the DZ Facility or the Bond Holder Exchange Transaction shall fail to close on the terms and conditions set forth, respectively, in the DZ Letter Agreement and the Bond Holder Exchange Letter, on or before May 31, 2002. 46 (u) DZ FACILITY NOTES RECEIVABLE PURCHASES. If DZ does not purchase Notes Receivable in the amounts and during the periods specified in the Business Plan or if the proceeds of such purchase are insufficient to make the principal payments described in Section 2.4(c) hereof or if Borrower fails to apply such proceeds to repayment of the Loan as provided in Section 2.4(c) hereof. (v) VIOLATION OF FINANCIAL COVENANTS. Borrower violates any financial covenants set forth in Section 7.1(aa)." 75. RETENTION OF COLLATERAL. Section 9.1(e) is hereby restated and amended as follows: "(e) RETENTION OF COLLATERAL. At its discretion, retain such portion of the Collateral as shall aggregate in value to an amount equal to the aggregate amount of the Loans, in satisfaction of the Obligations, whenever the circumstances are such that Lender is entitled on behalf of the Lender and elects to do so under applicable law." 76. REMEDIES UPON DEFAULT. Section 9.1 is hereby amended in part to add the following new paragraph: "(i) REPLACEMENT OF MANAGER AND SERVICER. Without demand or notice of any nature whatsoever, upon an Event of Default, Lender may: (1) terminate any then existing management agreements and with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, replace any existing manager with such manager as Lender may select, provided however, if: (x) the Obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Lender elects to have J & J Limited, Inc. act as Standby Manager, then no such approval shall be required; and (2) terminate any then existing servicing agreement and replace any then existing Servicer with the Standby Servicer or such other servicer as Lender may select in its sole and absolute discretion. Lender shall also have the right to assume management of the Resorts." 77. LENDER'S RIGHT TO SET-OFF. Section 10.6 is hereby restated and amended as follows: "10.6 LENDER'S RIGHT OF SET-OFF. Lender shall have the right to set-off against any Collateral any Obligations then due and unpaid by Borrower, provided Borrower is in Default." 78. REPLACEMENT SERVICER. Section 10.14 is hereby restated and amended as follows: "10.14 STANDBY SERVICER. Borrower acknowledges and agrees that upon written notice from Lender, to be given at any time during the term of the Loan in Lender's sole and absolute discretion, the Servicing Lender shall be replaced by the Standby Servicer, or such other servicing entity as may be selected by Lender in its sole and absolute discretion, for the purpose of servicing all Notes Receivable comprising the Collateral." 79. RETURN OF NOTES RECEIVABLE. Section 12.10 is hereby restated and amended as follows: "12.10 RETURN OF NOTES RECEIVABLE. 47 (a) In the event Borrower complies with its Obligations under Section 2.5(b) of this Agreement with respect to Pledged Notes Receivable pursuant to which a default by the Purchaser thereof has occurred, and Borrower thereafter desires to enforce such Note Receivable against the Purchaser thereof, then provided that no Event of Default has occurred which has not been cured to Lender's satisfaction (as evidenced by a written acceptance of such cure executed by Lender), and no event has occurred which with notice, the passage of time or both, would constitute an Event of Default, then within thirty (30) days after its receipt of a written request from Borrower, Lender shall deliver such ineligible Note Receivable to Borrower, provided that such delivery shall be for the sole purpose of enforcing Lender's rights thereunder and Lender, notwithstanding such delivery, shall continue to have, on behalf of Lenders, a first priority security interest in any such note. (b) In the event that all Obligations hereunder are fully satisfied, then within a reasonable thereafter, Lender shall endorse the Pledged Notes Receivable "Pay to the order of Silverleaf Resorts, Inc. without recourse", and deliver such Pledged Notes Receivable, together with any other nonrecourse Collateral reassignment documents requested and prepared by Borrower, at Borrower's sole cost and expense." 80. TOTAL AGREEMENT. Section 12.12 is hereby restated and amended as follows: "12.12 TOTAL AGREEMENT. This Agreement and the other Loan Documents, including the Exhibits and Schedules to them, is the entire agreement between the parties relating to the subject matter hereof, incorporates or rescinds all prior agreements and understandings between the parties hereto relating to the subject matter hereof, cannot be changed or terminated orally or by course of conduct, and shall be deemed effective as of the date it is accepted by Lender at the offices set forth above. The documents evidencing the Existing Credit Facilities shall remain in full force and effect." 81. CONDITIONS PRECEDENT. The obligation of Lender under this Amendment and the obligation to fund any Advance hereunder shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have delivered to Lender, on or before the Closing Date, the following Loan Documents, each of which shall be in the form of the respective Loan Documents attached hereto as Exhibit A, and each of which when required, shall be in recordable form: (i) THIS AGREEMENT, AS AMENDED BY THE FIRST AMENDMENT. (ii) CLOSING OPINIONS FOR BORROWER. (iii) REVOLVING LOAN COMPONENT NOTE. (iv) TERM LOAN COMPONENT NOTE. (v) ADDITIONAL RESORT COLLATERAL MORTGAGES. 48 (vi) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. (vii) STOCK PLEDGE AGREEMENT. Together with delivery of all original stock certificates indorsed to Lender, for itself and as agent for Sovereign. (viii) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. (ix) ENVIRONMENTAL INDEMNITY AGREEMENT. An Environmental Indemnity Agreement, executed by Borrower in favor of Lender. (x) LOCKBOX AGREEMENT CONFIRMATION. The Lockbox Agreement confirmation, executed by Lockbox Agent, Lender and Borrower. (xi) MODIFICATION TO LAND MORTGAGES. Borrower shall have executed and delivered to Lender, on or before the date hereof, modifications to the Land Mortgages, each of which shall be in the form attached hereto as Exhibit A, and each of which shall be in recordable form. (xii) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. (xiii) INTERCREDITOR AGREEMENT. Borrower, Heller and Sovereign shall have executed and delivered to Lender, on or before the date hereof, the intercreditor agreement, in the form attached hereto as Exhibit A. (xiv) ASSIGNMENT OF MORTGAGES. (xv) FINANCING STATEMENTS. Original UCC financing statements covering the Collateral, filed with the Secretary of State of Texas. (xv) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Lender may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein. (b) HELLER FACILITY AND SOVEREIGN FACILITY MODIFICATION. On or before the Effective Date, Borrower shall deliver to Lender, evidence satisfactory to Lender, that the Heller Facility and the Sovereign Facility have each been modified in a manner substantially similar to that set forth in the Business Plan and as previously been approved by Lender has been provided with copies of all of the executed Heller Documents modifications and the executed Sovereign Documents modifications; (c) EFFECTIVE DATE CONDITIONS. On or before the Effective Date, the following conditions shall be satisfied: (i) UCC SEARCH. Lender shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under Texas, and other applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if 49 Lender determines that Lender does not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein. (ii) LITIGATION SEARCH. Lender shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Resorts, any portion of the Collateral, Borrower, or any Affiliates of Borrower (each a "Material Party"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Lender determines, in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall not be obligated to fund any Advance if Lender determines that any such litigation is pending. (iii) TITLE SEARCHES. Title Searches for each real property comprising the Additional Resort Collateral and each real property comprising the Land, together with legible copies of each exception or matter noted thereon. (iv) TITLE INSURANCE POLICIES: (1) Borrower shall deliver to Lender, with respect to each parcel of real property comprising the Land, an endorsement to the existing mortgagee's title insurance policy (the "Land Mortgage Title Policy Endorsement") updating each applicable policy previously issued with respect to the Land through the date hereof and indicating that the applicable Land Mortgage, as modified to date, is a first priority Lien on the land in question. Such Land Mortgage Title Policy Endorsement shall be an amount equal to the fair market value of the Land, and issued by companies and in form and substance satisfactory to Lender in its sole discretion. (2) Borrower shall deliver to Lender, with respect to each parcel of real property comprising the Additional Resort Collateral, a mortgagee's title insurance policy (the "Additional Resort Collateral Title Policy") in the full amount of the appraised value of each such parcel, indicating that the applicable Additional Resort Mortgage is a first priority Lien on the parcel in question. The title policy shall be in form and substance, and contain such endorsements, as are satisfactory to Lender in its sole discretion and shall be issued by a title insurance company satisfactory to Lender. (3) Borrower shall be responsible for the payment of all costs and expenses of the foregoing title policies and endorsements. (v) SURVEYS. To the extent not previously delivered to Lender, Borrower shall deliver to Lender, at its sole cost and expense: (i) an ALTA survey of each parcel comprising the Additional Resort Collateral and the Land, which surveys shall be in form and substance satisfactory to Lender and the applicable title company, and shall be certified by the surveyor to Lender and the applicable title company, on such form of certification as may be approved by 50 Lender; or (ii) legible recorded plats of the parcel comprising the Additional Resort Collateral and the Land, provided such recorded plats are in form and substance reasonably satisfactory to Lender and Title Company and are sufficient to remove the survey exception from the title policy issued with respect thereto. (vi) RECORDING OF MODIFICATIONS TO LAND MORTGAGES AND ADDITIONAL COLLATERAL MORTGAGES. The Additional Resort Collateral Mortgages and modifications to the Land Mortgages shall have been duly recorded in the applicable land records for each state in which the Land and the Additional Resort Collateral is located. (vii) ENVIRONMENTAL REPORT. To the extent not previously delivered to Lender, an Environmental Report or Reports covering the Land and that portion of the Additional Resort Collateral which is real property confirming: (1) that soil conditions are sufficient to support all existing and any contemplated improvements to such real property; (2) the absence of Hazardous Materials on such real property; (3) that the issuer of the report has obtained, reviewed and included with its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable and state local authorities and such other information as Lender may reasonably require, including without limitation a Phase I environmental audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from the real property in question, or in such proximity thereto as to create a material risk of contamination thereof. (viii) INSURANCE. Evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (ix) GOVERNMENTAL PERMITS. To the extent not previously delivered to Lender, copies of all applicable government permits, approvals, consents, licenses and certificates with respect to the use and operation of the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property; (x) TAXES. Evidence satisfactory to Lender that all taxes and assessments owed by or for which Borrower is responsible for collection had been paid with respect to the Resorts and the Collateral, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangible taxes, real property taxes and any assessments related to the resorts or the Collateral. Copies of the most current tax bills for the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property shall be provided to Lender; 51 (xi) DZ FACILITY. Evidence satisfactory to Lender that the DZ Facility has closed on terms and conditions set forth in the DZ Letter Agreement and has been documented in form and substance reasonably satisfactory to Lender and Lender has been provided with copies of all the executed DZ Documents. (xii) LOAN PAYDOWN FROM THE PROCEEDS OF THE DZ FACILITY. Interest on the Revolving Loan Component and the Term Loan Component shall be paid in full to the Effective Date and the principal balance of the Revolving Loan Component shall be paid down to approximately $6,917,600.00. Interest on the Heller Facility shall be paid in full to the Effective Date. Interest on the Sovereign Facility shall be paid in full to the Effective Date and approximately $9,504,000.00 shall be paid down on the principal balance of the Sovereign Facility. (xiii) STANDBY MANAGER. Borrower will have entered into the Standby Management Agreement in form and substance satisfactory to Lender, in its sole discretion, with the Standby Manager. On and after an Event of Default, the Standby Manager shall be responsible for, among other things: (i) managing the operation of the Resorts, the related amenities, the Additional Resort Collateral and any other Collateral that Lender deems necessary, (ii) monitoring and supervising the marketing, sale, resale and financing of pledged Intervals at the Eligible Resorts and (iii) Lender may request, from time to time, in its sole discretion, such other duties and responsibilities related to the operation of the Resorts and related amenities, the Additional Resort Collateral, the Intervals and any other Collateral that Lender deems necessary. Borrower shall provide Lender with a list in form and substance satisfactory to Lender, in its sole discretion, of the duties and responsibilities associated with the operation of the Resorts. (xiv) FORBEARANCE AGREEMENT. All of the terms and conditions of the Forbearance Agreement shall have been satisfied to the satisfaction of Lender and Lender shall have determined that no Forbearance Termination Event shall have occurred and be continuing. (xv) BOND HOLDER EXCHANGE TRANSACTION CONSUMMATION. Evidence satisfactory to Lender in its sole discretion that the Bond Holder Exchange Transaction outlined in the Bond Holder Exchange Transaction Letter, a copy of which is attached hereto as Exhibit E, as approved by Lender, has been accepted by the requisite number of bond holders and the Bond Holder Exchange Transaction shall have fully closed. Lender shall be provided with copies of all of the executed Bond Holder Exchange Documents. (xvi) ZONING. To the extent not previously provided by Borrower to Lender, evidence that the use and operation of the portions of the Additional Resort Collateral comprised of real property comply with all applicable zoning, building, health, safety and fire codes and regulations. (xvii) RESORT CONSULTANT. The Borrower, at its own expense, shall retain a consultant of recognized standing, acceptable to Lender in its sole discretion (the "Resort Consultant"). The Resort Consultant shall have such duties and responsibilities as 52 Lender may request, in its sole discretion, from time to time, including without limitation: (1) preparation of a report evaluating Borrower's business and the operation of the Resorts to be delivered to Lender within ten (10) days after the Effective Date; (2) on an ongoing basis, monitoring: (a) the operations of Borrower including the offer and sale of Intervals by Borrower and the financing by Borrower of such sales, (b) Borrower's compliance with the Business Plan, (c) Borrower's operation of the Silverleaf Club and (d) Borrower's and/or Silverleaf's Club's management and operation of the Resorts, the related amenities and the Additional Resort Collateral; and (3) submission of weekly written reports to Lender as to the foregoing. The Agreement with the Resort Consultant shall be in form and substance acceptable to Lender in its sole discretion and shall be assigned by Borrower to Lender as security for the Obligations. Notwithstanding the foregoing, Borrower and Lender acknowledge and agree that the Resort Consultant may also perform the duties of the Standby Manager. (xviii) ESTOPPEL LETTERS. Borrower shall deliver to Lender, with respect to each Resort, an estoppel letter, executed by the applicable Timeshare Owners' Association, in the form attached hereto as Exhibit A. (d) EFFECTIVE DATE ADVANCES. In the event that Borrower desires Lender to make an Advance on the Effective Date, then, in addition to all of the conditions precedent set forth in this Paragraph 81, Borrower shall have complied with all of the requirements of Section 5 below at least five (5) Business Days prior to the Effective Date. (e) EXPENSES. Borrower shall have paid all fees and expenses required to be paid pursuant to this Agreement. Lender shall have no obligation to fund any Loan or make the initial Advance or any subsequent Advance unless (x) the amount of the initial Advance together with any moneys paid by Borrower is sufficient to satisfy all fees and expenses required to be paid pursuant to this Agreement, and (y) the Advance will not be used for any of the uses set forth in Section 6.11. (f) MANAGEMENT OF RESORT. Borrower shall provide evidence satisfactory to Lender that Borrower, or an Affiliate, is the manager or operator of each Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender, which with respect to all Resorts (other than the Crown Resorts) shall have a term which shall expire no earlier April 1, 2009. With respect to each Crown Resort only, each such Resort may qualify as an Additional Eligible Resort (subject to satisfaction by Borrower of the conditions set forth in this Section 4.5), so long as Borrower, or an Affiliate, is the manager or operator of each such Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender. Borrower agrees to provide an estoppel letter, in form and substance acceptable to Lender, from the applicable Timeshare Owner's Association. Each such management agreement constitutes a part of the Additional Resort Collateral and is assigned to Lender, to secure the Obligations as provided herein. 53 (g) POST CLOSING LETTER. Lender and Borrower shall execute a "Post Closing Letter" specifying which of the conditions set forth in this Paragraph 81 which Lender has agreed may be satisfied after the Effective Date, and by the date specified in the Post Closing Letter. (h) RECORDING OF MODIFICATIONS TO LAND MORTGAGES AND ADDITIONAL COLLATERAL MORTGAGES. Modifications to the Land Mortgages and the Additional Resort Collateral Mortgages shall have been duly recorded in the applicable land records for each state in which the Land and the Additional Resort Collateral is located (i) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Lender may request to determine the acceptability of any such Additional Eligible Resort, to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, including, without limitation, true copies of all Resort Documents for each such Additional Eligible Resort, all Timeshare Documents and operating and management contracts and agreements, evidence of with the applicable Timeshare Act and other applicable laws, evidence of all required governmental licenses and permits; title searches; title commitments or policies, including. Complete and legible copies of each title exception, engineering, environmental and soil reports, evidence of compliance with all applicable zoning and building codes; each of which shall be satisfactory to Lender in its sole and absolute discretion. IN THE EVENT THAT LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT ANY OF THE CONDITIONS SET FORTH ABOVE OR OTHERWISE CONTAINED IN THIS FIRST AMENDMENT OR SET FORTH IN THE TRANCHE A LOAN AGREEMENT, THE TRANCHE B LOAN AGREEMENT OR THE INVENTORY LOAN ARE NOT SATISFIED ON OR BEFORE MAY 31, 2002, THEN THIS FIRST AMENDMENT, AND THE OBLIGATIONS OF LENDER HEREUNDER, SHALL BE NULL AND VOID IN ALL RESPECTS AB INITIO. IN SUCH EVENT, THE ORIGINAL AGREEMENT AND THE TERMS AND CONDITIONS THEREIN SET FORTH, AS MODIFIED BY THE FORBEARANCE AGREEMENT AND THE EXTENSION LETTER, SHALL GOVERN AND CONTROL BORROWER'S OBLIGATION WITH RESPECT TO REPAYMENT IN FULL OF THE OBLIGATIONS, AS SUCH TERM IS DEFINED IN THE ORIGINAL AGREEMENT. 82. FURTHER DOCUMENTATION. Borrower agrees to execute and deliver to Lender any and all additional documentation as Lender may now or hereafter require in order to effectuate the terms and conditions of this Fifth Amendment. 83. LOAN DOCUMENTS. Notwithstanding anything to the contrary in the Loan and Security Agreement, dated as of April 17, 2001, all Loan Documents shall be in a form attached hereto as Exhibit A 84. EFFECT OF AMENDMENT. Except as herein expressly amended, the Agreement shall remain in full force and effect. 85. RATIFICATION AND CONFIRMATION. Except as herein expressly amended, Borrower hereby ratifies, confirms, assumes and agrees to be bound by all statements, covenants and agreements 54 set forth in the Original Agreement and the other Loan Documents. The Borrower reaffirms, restates and incorporates by reference all of the covenants and agreements made in the Loan Documents as if the same were made as of this date. The Borrower agrees to pay the Loan and all related expenses, as and when due and payable in accordance with the Agreement, as amended hereby, and the other Loan Documents, and to observe and perform the Obligations, and do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default. In addition, to further secure, and to evidence and confirm the securing of, the prompt and complete payment and performance by the Borrower of the Loan and all of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and grants to Lender, and hereby confirms or reaffirm the prior granting to Lender of, a continuing first priority Lien, mortgage and security interest in and to all of the Collateral, whether now existing or hereafter acquired. Also, as provided in the Loan Documents, the Loan is and shall be further secured by the Liens and security interests in favor of Lender in the properties and interests relating to Additional Eligible Resorts, which now or hereafter serve as collateral security for any Obligations. On the date of the First Amendment and thereafter upon satisfaction of the requirements for approval by Lender of Additional Resorts, Borrower shall record, or cause to be recorded, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements in the appropriate public records of the state in which each Resort is located to further evidence and perfect the Lender's Lien on the Collateral. Borrower agrees to deliver or cause to be delivered by its Affiliates, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements as Lender may deem necessary to further evidence and perfect the Lender's Lien on the Collateral. 86. ESTOPPEL. Borrower acknowledges, agrees and confirms that: (a) Advances under the Original Agreement have been made prior to the date of the First Amendment; (b) all such Advances made prior to the Effective Date were made in favor of Borrower in respect of the Existing Eligible Resorts; (c) Advances made prior to the date of the First Amendment under the Original Agreement are deemed as having been made for the benefit of the Borrower and Borrower acknowledges and agrees that Borrower received a direct and substantial financial benefit from such Advances and (d) immediately prior to the date of the First Amendment, and without giving effect to any Advances that may be made pursuant to the First Amendment, the status of the Loan, including the outstanding principal balance thereof is as reflected in the Loan Funding Report delivered to and approved by Lender in connection with the closing of the First Amendment, a copy of which is attached as Exhibit B. The Loan constitutes valuable consideration to Borrower, which consideration is uninterrupted and continuous since the dates on which the Loan was first made. This First Amendment and the other Loan Documents and the Loan modifications and transactions provided for or contemplated hereunder or thereunder, shall in no way adversely affect the Lien or perfection or priority of any Lien of Lender as of the date hereof in and to any Collateral, and are not intended to constitute, and do not constitute or give rise to, any novation, cancellation or extinguishment of any of Borrower's Obligations existing as of the First Amendment Closing Date to Lender, or of any interests owned or held by Lender (and not previously released) in and to any of the Collateral; it being the intention of the parties that the transactions provided for or contemplated herein shall be effectuated without any interruption in the continuity of the value 55 and consideration received by Borrower, and of the attachment, perfection, priority and continuation in favor of Lender in and to all Collateral and proceeds. 87. CROSS DEFAULT TO EXISTING CREDIT FACILITIES. Notwithstanding anything to the contrary in the Agreement, any default by the Borrower under the Existing Credit Facility shall also be a default under this Agreement. 88. EFFECTIVE DATE. BORROWER ACKNOWLEDGES, AGREES AND CONFIRMS THAT THE TERMS AND CONDITIONS OF THIS FIRST AMENDMENT, INCLUDING ANY OBLIGATION OF LENDER TO MAKE ANY ADVANCE HEREUNDER, SHALL NOT BECOME EFFECTIVE UNTIL THE EFFECTIVE DATE, AS SUCH TERM IS HEREINAFTER DEFINED. FOR PURPOSES OF THIS FIRST AMENDMENT, THE TERM "EFFECTIVE DATE" SHALL MEAN THE DATE ON WHICH LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT EACH OF THE CONDITIONS SET FORTH IN SECTION 4 HEREOF HAVE BEEN SATISFIED, INCLUDING BUT NOT LIMITED TO: (i) THE CLOSING OF THE DZ FACILITY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE DZ LETTER AGREEMENT AND THE BUSINESS PLAN; (ii) THE CONSUMMATION OF THE BOND HOLDER EXCHANGE TRANSACTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE BOND HOLDER EXCHANGE LETTER AND THE BUSINESS PLAN; AND (iii) THE CLOSING OF THE SOVEREIGN FACILITY AND HELLER FACILITY IN ACCORDANCE WITH THE BUSINESS PLAN. IN THE EVENT THAT THE EFFECTIVE DATE DOES NOT OCCUR ON OR BEFORE MAY 31, 2002, THEN THIS FIRST AMENDMENT, AND ALL OF THE OBLIGATIONS OF LENDER AND LENDER HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ANY ADVANCE HEREUNDER SHALL BE VOID AB INITIO, AS IF THIS FIRST AMENDMENT WAS NEVER ENTERED INTO. IN SUCH EVENT, THE LOAN, AND THE RIGHTS AND OBLIGATIONS OF BORROWER WITH RESPECT THERETO, SHALL BE GOVERNED IN ALL RESPECTS BY THE TERMS AND CONDITIONS SET FORTH IN THE ORIGINAL AGREEMENT, AS MODIFIED BY THE FORBEARANCE AGREEMENT. BORROWER EXPRESSLY ACKNOWLEDGES, AGREES AND CONFIRMS THAT TIME IS OF THE UTMOST ESSENCE WITH RESPECT TO THE EFFECTIVE DATE OCCURRING ON OR BEFORE MAY 31, 2002. ON THE EFFECTIVE DATE, AND SO LONG AS EACH CONDITION PRECEDENT SET FORTH IN THIS AGREEMENT HAS BEEN SATISFIED, LENDER AGREES TO WAIVE ALL PRIOR DEFAULTS AND EVENTS OF DEFAULT UNDER THE ORIGINAL AGREEMENT, INCLUDING BUT NOT LIMITED TO THE SPECIFIED EVENTS OF DEFAULT PROVIDED IN THE FORBEARANCE AGREEMENT. 89. DZ BANK FACILITY CONDITIONS. Lender acknowledges and agrees that: (i) the transfer of Notes Receivable to Silverleaf Finance I, Inc. in connection with the DZ Facility is a true sale and not a financing transaction; (ii) Lender will not consolidate Silverleaf Finance I, Inc. with the Borrower in the event of a bankruptcy; and (iii) Lender will not take any action to the contrary in the case of a bankruptcy of Borrower or otherwise. 56 90. RELEASE. IN ORDER TO INDUCE LENDER TO ENTER INTO THIS AGREEMENT, BORROWER ACKNOWLEDGES AND AGREES THAT (i) BORROWER HAS NO CLAIM OR CAUSE OF ACTION AGAINST LENDER (OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS); (ii) BORROWER HAS NO OFFSET RIGHT, COUNTERCLAIM OR DEFENSE OF ANY KIND AGAINST ANY OF ITS OBLIGATIONS, INDEBTEDNESS OR LIABILITIES TO AND (iii) LENDER HAS HERETOFORE PROPERLY PERFORMED AND SATISFIED IN A TIMELY MANNER ALL OF ITS OBLIGATIONS TO BORROWER. BORROWER WISHES TO ELIMINATE ANY POSSIBILITY THAT ANY PAST CONDITIONS, ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS WOULD IMPAIR OR OTHERWISE ADVERSELY AFFECT LENDER'S RIGHTS, INTERESTS, CONTRACTS, COLLATERAL SECURITY OR REMEDIES. THEREFORE, BORROWER UNCONDITIONALLY RELEASES, WAIVES AND FOREVER DISCHARGES (A) ANY AND ALL LIABILITIES, OBLIGATIONS, DUTIES, PROMISES OR INDEBTEDNESS OF ANY KIND OF LENDER TO BORROWER, EXCEPT THE OBLIGATIONS TO BE PERFORMED BY LENDER ON OR AFTER THE DATE HEREOF AS EXPRESSLY STATED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) ALL CLAIMS, OFFSETS, CAUSES OF ACTION, SUITS OR DEFENSES OF ANY KIND WHATSOEVER (IF ANY), WHETHER ARISING AT LAW OR IN EQUITY, WHETHER KNOWN OR UNKNOWN, WHICH BORROWER MIGHT OTHERWISE HAVE AGAINST LENDER, OR ITS RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, IN EITHER CASE (A) OR (B), ON ACCOUNT OF ANY PAST OR PRESENTLY EXISTING CONDITION, ACT, OMISSION, EVENT, CONTRACT, LIABILITY, OBLIGATION, INDEBTEDNESS, CLAIM, CAUSE OF ACTION, DEFENSE, CIRCUMSTANCE OR MATTER OF ANY KIND. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] 57 IN WITNESS WHEREOF, Borrower and Lender, have caused this Agreement to be duly executed and delivered effective as of the date first above written. BORROWER: SILVERLEAF RESORTS, INC., a Texas corporation George R. Bedell, as witness By: /s/ Harry J. White, Jr. - ------------------------------ ----------------------------- Name: Harry J. White, Jr. Title: CFO STATE OF TEXAS ) )ss: COUNTY OF DALLAS ) The foregoing instrument was acknowledged before me this 19th day of March, 2002 by Harry J. White, Jr., CFO of Silverleaf Resorts, Inc., a Texas corporation, on behalf of the Corporation. /s/ JoAnn Posival ------------------------------------ Commissioner of the Superior Court Notary Public My Commission Expires: July 22, 2004 LENDER: TEXTRON FINANCIAL CORPORATION a Delaware corporation /s/ Ronald H. Messigner By: /s/ John T. Dannibale - ------------------------------ --------------------------------- Name: John T. Dannibale Title: VP STATE OF CONNECTICUT ) )ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by John T. Dannibale, VP of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Christine M. Cordeira ------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: April 30, 2002 Exhibits: Schedule A Land Records Schedule B List of Existing Executive Management Personnel Schedule 1.1(p) Description of Resort Declarations Schedule 1.1(ii) List of Heller Documents Schedule 1.1(mm) Land Description Schedule 1.1(ooo) List of Sovereign Documents Schedule 1.1(xxx) Timeshare Owners' Associations Schedule 6.5 Prior Liens Schedule 6.7 Litigation Schedule 6.9 Environmental Items Schedule 6.19 Time Share Documents Schedule 6.23 Inventory Control Procedures Exhibit A Form of Loan Documents Exhibit B Form of Borrower's Request for Advance and Certification Exhibit C Form of Officer's Certification EX-10.7 13 d00253exv10w7.txt 2ND AMENDMENT TO LOAN & SECURITY AGREEMENT EXHIBIT 10.7 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (INVENTORY LOAN) between SILVERLEAF RESORTS, INC. (as Borrower) and TEXTRON FINANCIAL CORPORATION (as Lender) As of April 30, 2002 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT dated as of April 30, 2002 (the "SECOND AMENDMENT"), is by and between TEXTRON FINANCIAL CORPORATION, a Delaware corporation (the "LENDER"), and SILVERLEAF RESORTS, INC., a Texas corporation (the "BORROWER") WITNESSETH: WHEREAS, Lender and Borrower are parties to that certain Loan and Security Agreement dated as of December 16, 1999 (the "ORIGINAL LOAN AGREEMENT"), pursuant to which the Borrower executed its Secured Promissory Note in favor of the Lender in the amount of $10,000,000.00, (the "Note"); WHEREAS, Lender and Borrower, as a result of certain Events of Default under the Original Agreement, entered into that certain Forbearance Agreement dated as of April 6, 2001 (the "Forbearance Agreement"); WHEREAS, Lender and Borrower are parties to that certain First Amendment to Loan and Security Agreement dated as of April 17, 2001 (the "FIRST AMENDMENT, and together with the Original Loan Agreement, the "ORIGINAL AGREEMENT") which, among other things, incorporated the terms of that certain Forbearance Agreement dated as of April 6, 2001; WHEREAS, Lender and Borrower have agreed to enter into this Second Amendment to Loan and Security Agreement (the "SECOND AMENDMENT") to restructure and modify the Loan; and WHEREAS, Borrower acknowledges, agrees and confirms that if Borrower fails to satisfy any of the conditions set forth in Paragraph 60 hereof, as determined by Lender, in its sole and absolute discretion, on or before May 31, 2002, then this Second Amendment, and the obligations of Lender hereunder, shall be null and void in all respects ab initio. In such event, the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter, shall continue to control with respect to the Loan; Borrower further acknowledges, confirms and agrees that until such time as Borrower has satisfied all of the conditions set forth in Paragraph 60 hereof, as determined by Lender, in its sole and absolute discretion, the Loan shall continue to be governed by the terms and provisions set forth in the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Second Amendment, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties to this Second Amendment, intending to be legally bound, agree as follows: 1. ADDITIONAL CREDIT FACILITY. Section 1.1(a) is hereby restated and amended to read as follows: 2 "(a) ADDITIONAL CREDIT FACILITY. The term "Additional Credit Facility" shall mean that certain $10,200,000 credit facility provided by Lender to Borrower pursuant to that certain Loan and Security Agreement dated April 17, 2001 by and between Borrower and Lender, as amended by the First Amendment to Loan and Security Agreement dated April 30, 2002, and as it may be further amended from time to time (the "ADDITIONAL CREDIT LOAN AGREEMENT")." 2. AGREEMENT. Section 1.1(e) is hereby restated and amended to read as follows: "(e) AGREEMENT. This Loan and Security Agreement by and between the Borrower and the Lender (including the Exhibits and Schedules attached hereto), as amended by the First Amendment to Loan and Security Agreement dated as of April 17, 2001 (the "FIRST AMENDMENT"), as further amended by a Second Amendment to Loan and Security Agreement dated as of April 30, 2002 (the "SECOND AMENDMENT"), and as it may be further amended from time to time." 3. COLLATERAL. Section 1.1(i) is hereby restated and amended to read as follows: "(i) COLLATERAL. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following: (i) The Inventory; (ii) Documents, instruments, accounts, chattel paper, and general intangibles relating to the Inventory; (iii) Pledged Notes Receivable (including all Notes Receivable comprising the Ineligible Notes Portfolio) and all proceeds of or from them; (iv) the mortgages securing such Pledged Notes Receivable and all proceeds of or from them; (v) Documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable, (including any relating to the Ineligible Note Portfolio) and the mortgages securing such Pledged Notes Receivable; (vi) the Land; (vii) the Additional Resort Collateral; (viii) the Silverleaf Finance I, Inc. Stock; (ix) the Standby Servicing Agreement; (x) the Standby Management Agreement; 3 (xi) All collateral under the Additional Credit Facility, the Heller Facility, the Sovereign Facility and the Existing Credit Facilities, as each such term is herein defined; (xii) All books, records, reports, computer tapes, disks and software relating to the Collateral; and (xiii) Extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof." 4. EXISTING CREDIT FACILITY. Section 1.1(u) is hereby restated and amended to read as follows: "(u) EXISTING CREDIT FACILITIES. The term "Existing Credit Facilities" shall mean singly and collectively: (i) that certain $75,000,000 credit facility provided by Lender to Borrower pursuant to that certain Amended and Restated Loan and Security Agreement dated as of April 30, 2002 (the "TRANCHE A LOAN AGREEMENT") and (ii) that certain $71,000,000 credit facility provided by Lender to Borrower pursuant to that certain Amended and Restated Loan, Security and Agency Agreement dated as of April 30, 2002 (the "TRANCHE B LOAN AGREEMENT)." 5. FINAL MATURITY DATE. Section 1.1(x) is hereby restated and amended to read as follows: "(x) FINAL MATURITY DATE. March 31, 2007." 6. LAND MORTGAGES OR LAND MORTGAGES. Section 1.1(qqq) is hereby restated and amended as follows: "(qqq) LAND MORTGAGE OR LAND MORTGAGES. The term "Land Mortgage" or "Land Mortgages" shall mean singly and collectively, a properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument encumbering all of the right, title and interest of Borrower in the Land and securing the Loan, as modified and amended by mortgage modifications, in the form attached hereto as Exhibit A." 7. LOAN DOCUMENTS. Section 1.1(ii) is hereby restated and amended as follows: "(ii) LOAN DOCUMENTS. Collectively, this Agreement and the following documents and instruments listed below as such agreements, documents, instruments or certificates may be amended, renewed, extended, restated or supplemented from time to time. (i) The Original Agreement, as amended by the First Amendment and this Second Amendment; (ii) The Amended and Restated Note; 4 (iii) The Mortgages; (iv) The Environmental Indemnification Agreement; (v) Borrower's Certificate and Request for Advance; (vi) The Land Mortgages; (vii) The Additional Resort Collateral Mortgages; (viii) The Additional Resort Collateral Assignment; (ix) The Stock Pledge Agreement; (x) The Standby Management Agreement Assignment; (xi) The Assignment of Management Agreements; (xii) The Assignment of Mortgages; (xiii) Financing Statements; UCC financing statements covering the Collateral, to be filed with the Texas Secretary of State and the Secretary of State and/or such other office where UCC financing statements are required to be filed pursuant to the Code; and (xiv) Other Items; Such other agreements, documents, instruments, certificates and materials as Agent may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lenders, contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, as such agreements, documents, instruments or certificates may be hereafter amended, renewed, extended, restated or supplemented from time to time." 8. LOAN YEAR. Section 1.1(jj) is hereby restated and amended to read as follows: "(jj) LOAN YEAR. The period from the date that Lender determines in its sole discretion that all conditions set forth in Paragraph 60 hereof have been satisfied, which date shall not be later than May 31, 2002, through March 31, 2003 and each twelve (12) calendar month period thereafter." 9. BUSINESS PLAN. Section 1.1(iii) is hereby restated and amended to read as follows: "(iii) BUSINESS PLAN. The term "Business Plan" shall mean the five (5) year "Stand Alone" business plan prepared by Borrower and attached hereto as Exhibit F. The Business Plan includes the "Impact on Lenders Worksheet" setting forth the amounts to be advanced by each of the Lenders, Heller and Sovereign pursuant to their respective credit facilities (the "Senior Lender Advance Schedule")." 5 10. DEFINITIONS. Section 1.1 (Definitions) is hereby amended in part to add the following new paragraphs: "(ttt) ADDITIONAL ELIGIBLE RESORTS OR ADDITIONAL ELIGIBLE RESORT. The terms "Additional Eligible Resorts" and "Additional Eligible Resort" shall have the meanings ascribed to such terms in Section 3.12 hereof. (uuu) ADDITIONAL RESORT COLLATERAL. The term "Additional Resort Collateral" shall mean singly and collectively, the development rights, real property, fixtures and other personal property, including all management agreements for the Resorts, now or hereafter acquired by Borrower and listed on Schedule 1.1(uuu). For the avoidance of doubt, "Additional Resort Collateral" shall not include the promissory notes and other property of Silverleaf Finance I, Inc., that constitutes "Pledged Assets" under the DZ Documents. (vvv) ADDITIONAL RESORT COLLATERAL MORTGAGES. A properly recorded, first priority mortgage, deed of trust, deed to secure debt or other security instrument, as applicable, executed and delivered by the Borrower to Lender, encumbering all of the right, title and interest of Borrower in that portion of the Additional Resort Collateral constituting real property. (www) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. The term "Additional Resort Collateral Assignments" shall mean singly and collectively: (i) a first priority security agreement executed and delivered by Borrower to Lender granting to Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting personal property, and (ii) a first priority security agreement executed and delivered by Borrower to Lender, granting to Lender, a first priority security interest in that portion of the Additional Resort Collateral constituting development rights. (xxx) ASSIGNMENT OF MANAGEMENT AGREEMENTS. The term "Assignment of Management Agreements" shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Lender, of all of Borrower's rights under each management agreement for the Resorts. (yyy) BOND HOLDER EXCHANGE TRANSACTION. The term "Bond Holder Exchange Transaction" shall mean that certain senior subordinate note holder exchange transaction on the terms and conditions outlined in that certain term sheet dated October 19, 2001 (the "BOND HOLDER EXCHANGE TRANSACTION LETTER"), a copy of which is attached hereto as Exhibit E, and which is to be consummated pursuant to the documents listed on Schedule 1.1(yyy) hereto (the "BOND HOLDER EXCHANGE DOCUMENTS"). (zzz) CASH AND CASH EQUIVALENTS. Unrestricted (i) cash; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; and (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by 6 Standard & Poor's Rating Group or P-1 (or better) by Moody's Investor Service, Inc. provided that the maturities of such Cash and Cash Equivalents shall not exceed one year. (aaaa) DZ FACILITY. The term "DZ Facility" shall mean that certain note purchase facility to be provided by DZ Bank Deutsche Genossenschaftsbank, AG, as agent for Autobahn Funding Company, LLC ("DZ") to Borrower, on the terms outlined in the DZ Letter Agreement, dated December 12, 2001 as supplemented by that certain letter agreement by and between Borrower and DZ dated February 7, 2002, and attached hereto as Exhibit G (collectively, the "DZ LETTER AGREEMENT") and evidenced by the documents listed on Schedule 1.1(aaaa) hereto (the "DZ DOCUMENTS"). (bbbb) EBITDA. The term EBITDA means, with respect to any Person for any period, (a) the sum of (i) net income (but excluding any extraordinary gains or losses or any gains or losses from the sale or disposition of assets other than in the ordinary course of business), (ii) interest expense, (iii) depreciation and amortization and other non-cash items properly deducted in determining net income, and (iv) federal, state and local income taxes, in each case for such Person for such period, computed and calculated in accordance with GAAP minus (b) non-cash items properly added in determining net income, in each case for the corresponding period. (cccc) EFFECTIVE DATE. The term "Effective Date" shall have the meaning given in paragraph 64 of this Second Amendment. (dddd) EXTENSION LETTER. The term "Extension Letter" shall mean that certain extension letter dated April 15, 2002, which extended the Revolving Loan Period of the Loan to May 31, 2002, subject to the terms and conditions contained therein. (eeee) INELIGIBLE NOTE PORTFOLIO. The term "Ineligible Note Portfolio" shall mean certain of Borrower's Notes Receivable and Mortgages which are not currently pledged to any other Person, which are listed in Exhibit K attached hereto and which shall be held by Borrower, as agent for and on behalf of Lender, unless and until an Event of Default shall occur, in which case the Ineligible Note Portfolio shall be delivered to Lender in accordance with Section 3.7 hereof. (ffff) MARKETING AND SALES EXPENSES. Shall mean all promotion, lead generation, sales commissions and all other marketing expenses incurred or paid by Borrower pursuant to any marketing agreements or otherwise. (gggg) NET SECURITIZATION CASH FLOW. All right, title and interest of Silverleaf Finance I, Inc., a wholly owned subsidiary of Borrower, in any excess cash flow derived from the Notes Receivable sold by Silverleaf Finance I, Inc. to DZ pursuant to the DZ Documents. (hhhh) NOTE RECEIVABLE. A promissory note executed in favor of Borrower in connection with a Purchaser's acquisition of an Interval. (iiii) OPERATING EXPENSES. Shall mean the total of all expenditures, computed in accordance with Generally Accepted Accounting Principles, of whatever kind relating to the ownership, operation, maintenance and management of the Resorts that are incurred on a regular 7 monthly or other periodic basis, including, without limitation, utilities, ordinary and capital repairs and maintenance, insurance premiums, license fees, property taxes and assessments, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs. (jjjj) PLEDGED NOTES RECEIVABLE. Any Note Receivable which at any time has been pledged to Lender by Borrower pursuant to this Agreement or any of the Loan Documents, including an Ineligible Note Receivable. (kkkk) REVENUES. Shall mean all proceeds from the sale of Intervals, regardless of whether such proceeds are in the form of cash or Notes Receivable. (llll) STOCK PLEDGE AGREEMENT. Shall mean the agreement in the form attached hereto as Exhibit A, pursuant to which all issued and outstanding shares of Silverleaf Finance I, Inc.'s capital stock and all right, title and interest in such shares, all certificates, instruments or other documents evidencing or representing the same and all dividends and distributions therefrom, including dividends and distributions paid in stock (the "SILVERLEAF FINANCE I, INC. STOCK") are pledged to Lender as security for the Loan. (mmmm) STANDBY MANAGER. Shall mean the Person selected by Borrower, and acceptable to Lender, in its sole discretion, to act as standby manager of Borrower's Resorts in accordance with this Agreement. Subject to the review and approval of the Standby Management Agreement by Lender, in its sole discretion, Lender hereby approves J&J Limited, Inc. as the initial Standby Manager. (nnnn) STANDBY MANAGEMENT AGREEMENT. Shall mean the agreement to be entered into between the Standby Manager and Borrower providing for the management of Borrower's business and the Resorts on the occurrence of an Event of Default hereunder. (oooo) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. Shall mean the assignment, in the form attached hereto as Exhibit A, by Borrower to Lender, of all of Borrower's rights under the Standby Management Agreement. (pppp) TANGIBLE NET WORTH. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated debt of such Person and its consolidated subsidiaries, the terms and conditions of which are reasonably satisfactory to Lender, minus (iii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent to the Effective Date deferred sales are no longer considered an asset under GAAP, Lender agrees, at the request of Borrower, to determine, in its reasonable discretion, whether deferred sales should continue to be considered an asset for purposes of determining Borrower's Tangible Net Worth. 8 (qqqq) TAX REFUND. The term "Tax Refund" means that certain corporate tax refund of Borrower for the 1998 and 1999 tax years in the estimated amount of $5,000,000. (rrrr) TOTAL INTEREST EXPENSE. For any period, the aggregate amount of interest required to be paid or accrued by Borrower and its subsidiaries during such period on all indebtedness of Borrower and its subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease, or any synthetic lease and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money." 11. REVOLVING LOAN AND LENDING LIMITS. Section 2.1 is hereby restated and amended to read as follows: "2.1 REVOLVING LOAN AND LENDING LIMITS. Upon the terms and subject to the conditions set forth in this Agreement, including but not limited to Section 2.8 hereof, the Lender shall make Advances to the Borrower, and the Borrower may borrow, repay and reborrow during the Revolving Loan Period, as such term is hereafter defined, principal under the Loan in an amount not to exceed at any time the lesser of: (i) the Loan to Retail Value Ratio of the Required Retail Value of the Inventory or (ii) $10,000,000.00. The Revolving Loan period shall terminate in all respects on March 31, 2004. Borrower's right to receive Advances hereunder shall also be subject to the terms and conditions set forth in that certain Intercreditor Agreement between Lender, Borrower, Heller and Sovereign dated of even date herewith. Notwithstanding anything herein to the contrary, Borrower acknowledges, confirms and agrees that it shall not be entitled to receive, nor shall any Lender be required to make, any Advance if and to the extent that: (i) Borrower has failed to substantially adhere to the Business Plan, including the Senior Lender Advance Schedule, as determined by Agent in its sole and absolute discretion; or (ii) the most recent weekly flash report delivered in accordance with Section 7.1(h)(vii) hereof (a "WEEKLY FLASH REPORT"), indicates that Borrower has in excess of five million dollars ($5,000,000) in available unrestricted cash. Borrower acknowledges, agrees and confirms that Lender's obligation to Borrower and Borrower's right to borrow under this Agreement is subject to the satisfaction of the conditions set forth in Paragraph 60 hereof on or before May 31, 2002. Until such time as Lender determines that the conditions set forth in Paragraph 60 hereof have been satisfied, all of Borrower's rights with respect to Advances shall be governed by and construed in accordance with the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter. If the conditions set forth in Paragraph 60 are not satisfied on or before May 31, 2002, then this Second Amendment, and the respective rights and obligations of the parties hereto, shall be null and void ab initio and of no further force and effect and the respective rights and obligations of Borrower and Lender shall be governed by the terms and conditions of the Original Agreement, as modified by the Forbearance Agreement and the Extension Letter. Notwithstanding anything herein to the contrary, the obligation of Lender to make any Advance under this Agreement shall be subject to and conditioned upon Heller making advances 9 to Borrower substantially in accordance with the Business Plan, including the Senior Lender Advance Schedule, which Lender agrees will be determined on a quarterly basis commencing March 31, 2002. Lender shall have no obligation to make any Advance hereunder to the extent that Heller terminates its facility or fails to make advances as provided in the Business Plan, including the Senior Lender Advance Schedule, which Lender agrees will be determined on a quarterly basis commencing March 31, 2002." 12. FACILITY FEE. Section 2.6(c) is hereby deleted in its entirety. 13. LOAN TERM. Section 2.7 is hereby restated and amended to read as follows: "2.7 LOAN TERM. The term of the Loan shall commence on the Effective Date and shall terminate on March 31, 2007" 14. MAXIMUM OBLIGATION OF LENDER UNDER THE LOAN, THE ADDITIONAL CREDIT FACILITY AND THE EXISTING CREDIT FACILITIES. Section 2.8 is hereby deleted in its entirety. 15. CHANGE IN CONTROL. Section 2.9(b) is hereby restated and amended to read as follows: "(b) CHANGE IN CONTROL. If there shall occur a change, singly or in the aggregate, of more than fifty percent (50%) of the executive management of Borrower as described in Schedule 2.10(b) hereto, Lender shall have no obligation to make any Advances hereunder, unless within thirty (30) days prior thereto Borrower provides Lender with written information setting forth the replacement executive management personnel of Borrower together with a description of those Persons' experience, ability and reputation, and Lender, acting in good faith, determines that the replacement management personnel's experience, ability and reputation is equal to or greater than that of Borrower as set forth on Schedule 2.10(b). Notwithstanding the foregoing, the makeup of the Borrower's Board of Directors may be altered in accordance with the Bond Holder Exchange Documents, provided that Lender shall have no obligation to make any Advances hereunder if more than two (2) of the five (5) Board of Directors' positions are controlled by the Bond Holders." 16. SUSPENSION OF ADVANCES. Section 2.9 is hereby amended in part to add the following new paragraph: "(c) FAILURE TO ADHERE TO BUSINESS PLAN/DEFAULT OR EVENT OF DEFAULT. Lender shall not be obligated to fund any Advance hereunder if: (i) Borrower shall fail to substantially adhere to the Business Plan (including the Senior Lender Advance Schedule) as determined by Lender in its sole and absolute discretion or (ii) a Default or Event of Default shall have occurred and be continuing." 17. GRANT OF SECURITY INTEREST. Section 3.1 is hereby restated and amended to read as follows: "3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and 10 grants to Lender a continuing first priority security interest in and to the Collateral to further secure the payment and performance of the Obligations. To further secure the payment and performance of the Obligations, Borrower shall also execute and deliver Lender: (i) the modifications to the Land Mortgages in the applicable form attached hereto as Exhibit A, granting Lender a first priority mortgage lien on the Land and (ii) the Additional Resort Collateral Mortgages, in the applicable form attached hereto as Exhibit A, granting Lender, a first priority mortgage lien on that portion of the Additional Resort Collateral consisting of real property. To further secure the payment and performance of the Obligations, Borrower shall further execute and deliver to Lender: (1) the Additional Resort Collateral Assignment, in the applicable form attached hereto as Exhibit A, granting Lender a first priority security interest on that portion of the Additional Resort Collateral consisting of personal property; (2) the Stock Pledge Agreement, in the applicable form attached hereto as Exhibit A, granting Lender, and a first priority security interest in the Silverleaf Finance I, Inc. Stock; and (3) the Standby Management Agreement Assignment, in the applicable form attached hereto as Exhibit A, assigning to Lender, all of Borrower's right, title and interest in the Standby Management Agreement. Notwithstanding anything herein to the contrary, Borrower acknowledges and agrees as follows: The Loan shall be secured by: (i) a first priority security interest in the Inventory; (ii) a second priority security interest in the Silverleaf Finance I, Inc. Stock and the Additional Resort Collateral, subject only to the first priority security interest securing the term loan component of the Additional Credit Facility and the Existing Credit Facilities; and (iii) a second priority security interest in the Pledged Notes Receivable and the Ineligible Note Portfolio and the mortgages securing the same, subject only to the first priority security interest securing the revolving loan component of the Additional Credit Facility and the Existing Credit Facilities. In addition to the foregoing, Borrower acknowledges, agrees and confirms that the security interest granted to Lender, in all other Collateral to secure the Loan, including the Land, the Standby Management Agreement and the other collateral securing the Heller Facility, the Sovereign Facility, the Additional Credit Facility and the Existing Credit Facilities shall be equal in priority as between the Loan, the Additional Credit Facility and the Existing Credit Facilities and, with respect to the collateral securing the Heller Facility, the Sovereign Facility, the Additional Credit Facility and the Existing Credit Facilities, subject only to the security interests securing such facilities. For purposes hereof, the reference to "collateral securing the Heller Facility" and "collateral securing the Sovereign Facility" shall mean the Notes Receivable and related mortgages exclusively assigned to Heller or Sovereign in connection with an advance under their respective loan documents." 18. INSURANCE. Section 3.3 is hereby restated and amended to read as follows: 11 "3.3 INSURANCE. Insurance coverage with respect to the Resort(s) is provided by the Timeshare Owners' Association. Borrower shall furnish Lender, upon request, with satisfactory evidence that the Units, Buildings and Resorts are adequately insured. Borrower shall furnish to Lender evidence of insurance coverage with respect to the Land, that portion of the Additional Resort Collateral constituting real property and such other portion of the Additional Resort Collateral as Lender may reasonably request. Such insurance coverage shall insure against such risks, be in such amounts, with such companies and on such other terms as Lender may reasonably require. Each such policy shall name Lender as an additional insured and loss payee, as their respective interests may appear. In the event of a loss or damage to any portion of the Additional Resort Collateral constituting real property. Borrower shall, unless an Event of Default exists, apply the proceeds of any such insurance policy to restoration and repair of the Additional Resort Collateral in question in accordance with the applicable Declaration. If an Event of Default has occurred, Lender may, in its sole discretion, apply the proceeds of any such insurance policy to restoration and repair of such Additional Resort Collateral in question in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof." 19. CROSS COLLATERALIZATION. Section 3.5 is hereby restated and amended to read as follows: "3.5 CROSS COLLATERALIZATION. The Collateral also secures the Obligations of Borrower under the Additional Credit Facility and the Existing Credit Facilities. Upon repayment of this Loan and the satisfaction by Borrower of all of the Obligations, the Collateral shall continue to secure the Additional Credit Facility and the Existing Credit Facilities, as provided in the documents evidencing and securing the Additional Credit Facility and the Existing Credit Facilities. Borrower further acknowledges and agrees that upon repayment in full of the Heller Facility and/or the Sovereign Facility, Lender's security interest in the collateral securing such facilities shall automatically become a first priority security interest for securing the Borrower's Obligations hereunder and under the Additional Credit Facility and the Existing Credit Facilities and Borrower shall take such steps as Lender may request to deliver such collateral to Lender and to confirm Lender's first priority security interest therein. Notwithstanding the foregoing: (a) when the term loan component of the Additional Credit Facility and the Existing Credit Facilities and the Loan are paid in full, the Additional Resort Collateral shall be released from the Lien of the security interest granted to Lender hereunder provided: (i) an Event of Default has not occurred; and (ii) the Additional Resort Collateral is also released from any lien granted to Sovereign pursuant to the Sovereign Documents; and (b) when both the term loan component of the Additional Credit Facility and the Existing Credit Facilities and the Loan are paid in full, the Silverleaf Finance I, Inc., Stock shall be released from the Lien of the security interest granted to Lender hereunder provided: (i) an Event of Default has not occurred; and (ii) the Silverleaf Finance I, Inc., Stock is also released from any lien granted to Sovereign pursuant to Sovereign Documents." 20. COLLATERAL. Section 3 is hereby amended in part to add the following new paragraphs: 12 "3.6 TAX REFUND. Borrower agrees that it shall use the proceeds of the Tax Refund strictly to fund Operating Expenses in accordance with the Business Plan and for no other reason, without Lender's prior written consent. Borrower further agrees to use the Tax Refund before any Advance hereunder. Upon request of Lender, Borrower shall promptly provide to Lender such evidence as Lender may request as to the manner in which the proceeds of the Tax Refund are being used. 3.7 SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Lender shall have a continuing security interest in all of the Pledged Notes Receivable, including all Notes Receivable in the Ineligible Note Portfolio and any Notes Receivable pledged to Heller or Sovereign and Lender may collect all payments made under or in respect of all such Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Lender, if at all, pursuant to Section 12.10 of the Tranche A Loan Agreement or Section 7.2(a) below. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur, Borrower, as agent for and on behalf of Lender, shall retain possession of and collect all payments under or in respect of all Notes Receivable in the Ineligible Note Portfolio. By executing this Agreement, Borrower acknowledges and agrees that it is holding such Notes Receivable as bailee and agent for Lender. Borrower shall hold and designate such Notes Receivable in a manner which clearly indicates that they are being held by Borrower as bailee on behalf of Lender. Upon the occurrence of an Event of Default, Borrower shall promptly deliver to Lender, for itself and as agent for Sovereign and Heller, all original Notes Receivable comprising the Ineligible Note Portfolio and to the extent not previously delivered to Lender, the documents listed in Section 5.1(b) of the Tranche A Loan Agreement and with respect thereto and after such Event of Default Lender shall have the right to collect all proceeds therefrom and apply the same to payment of the Obligations as set forth in Section 2.3(a) hereof. To perfect the security interest of Lender in the Ineligible Note Portfolio, Borrower agrees, subject to Lender's prior approval, to execute and cause to be filed, at Borrower's sole cost and expense, UCC-1 financing statement(s) with the appropriate state and local governmental authorities as requested by Lender. Borrower also shall execute and deliver in escrow to Lender, for itself and as agent on behalf of Sovereign and Heller, an assignment of Mortgages in the form attached hereto as Exhibit A (the "Assignment of Mortgages") and as approved by Lender, Sovereign and Heller at their sole and absolute discretion, assigning equally to Lender, Heller and Sovereign all of Borrower's rights, title and interests in each and all of the Mortgages relating to the Notes Receivable in the Ineligible Note Portfolio. Borrower further agrees to promptly execute and deliver modifications or additional Assignments of Mortgages requested by Lender, Heller and Sovereign in order to continue the security interests of Lender, Heller and Sovereign in the Ineligible Note Portfolio. Borrower acknowledges and agrees that upon an Event of Default, Lender, or a designee as designated by Lender, Heller and Sovereign pursuant to the terms of the Intercreditor Agreement, shall have the right to automatically record, at Borrower's sole cost and expense, all such Assignments of Mortgages executed by Borrower and delivered to Lender in accordance with the terms of this Section 3.7." 21. UCC SEARCH. Section 4.5(e) is hereby restated and amended to read as follows: 13 "(e) UCC SEARCH. Lender shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under all applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if Lender determines that Lender does not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral." 22. REQUESTS FOR ADVANCES. Section 5(a)(iv) is hereby restated and amended to read as follows: "(iv) be delivered to the office of Lender at least five (5) Business Days prior to the date of the requested Advance;" 23. LOAN DOCUMENTS/COLLATERAL: Section 5(b) is amended in part to read as follows: "(b) LOAN DOCUMENTS/COLLATERAL. Not less than five (5) Business Days prior to the date of any Advance, Borrower shall have:" 24. FUNDING PROCEDURE. Section 5(c) (Other Conditions) is hereby restated and amended in part to add the following new paragraph 5: "(ix) Heller funds its respective portion in accordance with 2.1 and as provided in the Intercreditor Agreement; (x) there are insufficient proceeds from the Tax Refund to pay Operating Expenses as provided in the Business Plan; and (xi) the most recent Weekly Flash Report indicates that Borrower has less than five million dollars ($5,000,000) in available unrestricted cash." 25. FINANCIAL STATEMENTS AND BUSINESS CONDITION. Section 6.3 is hereby restated and amended to read as follows: "6.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. The Weekly Flash Reports, the Monthly Financial Reports for the first ten (10) months of the calendar year 2001 and the Alternative Financial Models dated December 4, 2001 are, to the best of Borrower's knowledge, accurate and fairly represent the financial condition of the Borrower for the periods in question, subject to the written qualifications set forth therein, including the fact that such statements and reports are preliminary and subject to completion of the audit thereof and that Borrower anticipates adjustments thereto which may significantly affect the results thereof, including an estimated reduction in shareholder equity of $63,000,000. To the best of Borrower's knowledge, there are no material liabilities, direct or indirect, fixed or contingent, of Borrower, except as disclosed to Lender in writing." 26. TAXES: Section 6.4 is hereby restated and amended to read as follows: "6.4 TAXES. In accordance with the requirements set forth in the Declaration, Borrower represents and warrants that Borrower or Timeshare Owners' Association, as required, has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other taxes and 14 assessments against the Resort and the Collateral; and Borrower knows of no basis for any additional taxes or assessments against the Resorts or the Collateral. Borrower or the Timeshare Owners' Association, as the case may be, has filed all tax returns required to have been filed by it and has paid or will pay prior to delinquency, all taxes shown to be due and payable on such returns, including interest and penalties thereon, and all other taxes which are payable by it to the extent the same have become due and payable. Borrower has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other assessments against that portion of the Additional Resort Collateral constituting real property and against the Land, and Borrower knows of no basis for any additional taxes or assessments against the Land or other such real property." 27. TITLE TO PROPERTIES: PRIOR LIENS. Section 6.5 is hereby restated and amended to read as follows: "6.5 TITLE TO PROPERTIES: PRIOR LIENS. Borrower has good and marketable title to all of the Collateral, and to all unsold Units and Intervals at each Resort, and all rights, properties and benefits appurtenant to or benefiting them. Borrower is not in default under any of the documents evidencing or securing any indebtedness which is secured, wholly or in part, by any portion of any Resort or any portion or all the Collateral and no event has occurred which with the giving of notice, the passage of time or both, would constitute a default under any of the documents evidencing or securing any such indebtedness. Other than the Liens granted in favor of Lender, Sovereign and Heller, the Liens granted to secure the Additional Credit Facility and the Existing Credit Facility and the Liens described in Schedule 6.5 hereto, there are no liens or encumbrances against the Collateral, or against any Resort." 28. ENVIRONMENTAL MATTERS. Section 6.9 is hereby restated and amended to read as follows: "6.9 ENVIRONMENTAL MATTERS. Except as otherwise noted on Schedule 6.9: (a) neither the Land, any portion of the Additional Resort Collateral consisting of real property or any Resort contains any Hazardous Materials, (b) no Hazardous Materials are used or stored at or transported to or from the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, (c) neither Borrower nor the Resorts nor any manager thereof or to Borrower's knowledge, the Timeshare Owners' Associations, have received notice from any governmental agency, entity or other Person with regard to Hazardous Materials on, under or affecting any Resort, the Land or any portion of the Additional Resort Collateral consisting of real property, and (d) neither Borrower nor the Resorts, the Land or any portion of the Additional Resort Collateral consisting of real property, nor any portion thereof, nor to Borrower's knowledge after diligent inquiry, the Timeshare Owners' Associations, are in violation of any Environmental Laws." 29. USE OF PROCEEDS/MARGIN STOCK. Section 6.11 is hereby restated and amended to read as follows: "6.11 USE OF PROCEEDS/MARGIN STOCK. (a) The proceeds of the Loan, the Heller Loan, the Tax Refund, the Sovereign Loan, the DZ Facility and any cash dividend or other cash distribution Borrower receives from Silverleaf Finance I, Inc. will be used strictly in accordance with the Business Plan and for no other purpose and (b) none of the proceeds of the Loan will be used to 15 purchase or carry any "margin stock" (as defined under Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time), and no portion of the proceeds of the Loan will be extended to others for the purpose of purchasing or carrying margin stock. None of the transactions contemplated in the Agreement (including, without limitation, the use of the proceeds from the Loan) will violate or result in the violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11." 30. NO DEFAULTS Section 6.12 is hereby restated and amended to read as follows: "6.12 DEFAULTS. Except for the Specified Events of Default (as defined in the Forbearance Agreement) during the Forbearance Period (as defined in the Forbearance Agreement), Borrower has no knowledge of any Default or Event of Default not disclosed to Lender in writing except for the specified events of default under the forbearance agreement between Borrower and Heller or the forbearance agreement between Borrower and Sovereign, Borrower has no knowledge of any default or event of default under the Heller Documents or the Sovereign Documents, except as disclosed to Agent in writing, and neither Heller nor Sovereign has accelerated any loan obligation of Borrower on account of any such specified default or event of default." 31. RESTRICTIONS OF BORROWER. Section 6.14 (Restrictions of Borrower) is hereby restated and amended to read as follows: "6.14 RESTRICTIONS OF BORROWER. Except for this Agreement and the Loan Documents, the Tranche A Loan Documents, the Tranche B Loan Documents, the Tranche C Loan Documents, the Heller Documents and the Sovereign Documents, the Borrower will not be, on or after the date hereof, a party to any contract or agreement which restricts its right or ability to incur indebtedness or prohibits Borrower's execution of or compliance with the terms of this Agreement, the other Loan Documents, the Tranche A Loan Documents, the Tranche B Loan Documents, the Tranche C Loan Documents, the Heller Documents, the Bond Holder Exchange Documents, the Sovereign Documents or the DZ Facility Documents. The Borrower has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien except in favor of Lender as provided herein, and, with respect to the Land, the Additional Resort Collateral, the Silverleaf Finance I. Inc., Stock and the Ineligible Notes Receivable, in favor of Heller and Sovereign, as applicable." 32. OPERATING CONTRACTS. Section 6.18(h) is hereby restated and amended to read as follows: "(h) OPERATING CONTRACTS. Borrower has entered into the contracts, agreements, and arrangements necessary for the operation of the Resorts, including but not limited to those with respect to utilities, maintenance, management, services, marketing and sales (hereinbelow defined as "Operating Contracts")." 16 33. ADDITIONAL REPRESENTATION AND WARRANTIES. Section 6.25 is hereby restated and amended to read as follows: "6.25 ADDITIONAL REPRESENTATIONS AND WARRANTIES. This Agreement, the Original Agreement, the Note and the other Loan Documents constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms. Borrower ratifies and confirms each covenant and agreement made under the Original Agreement and the other Loan Documents, except as provided in the Forbearance Agreement." 34. GENERAL REPRESENTATIONS AND WARRANTIES. Section 6 is hereby restated and amended in part to add the following new paragraphs: "6.26 ADDITIONAL RESORT COLLATERAL. (a) FIRST LIEN. Subject to the other first lien rights of Heller and Sovereign as provided in the Intercreditor Agreement, upon execution and delivery of the Additional Resort Collateral Assignments and execution and recording of the Additional Resort Collateral Mortgages, Lender will have a valid first lien in the Additional Resort Collateral. (b) ACCESS. The portion of the Additional Resort Collateral constituting real property has adequate legal rights of access to a public way. (c) FLOOD ZONE. Except as is disclosed in the surveys of the portion of the Additional Resort Collateral constituting real property that have been or will be provided to Lender, no portion of such land is located in a flood hazard area as defined by the Federal Insurance Administration. (d) SEISMIC EXPOSURE. No portion of the Additional Resort Collateral constituting real property is located in a zone 3 or zone 4 of the "Seismic Zone Map of the U.S." (e) CONDEMNATION. No portion of the Additional Resort Collateral constituting real property has been taken in condemnation or other like proceedings nor is any proceeding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of such land. (f) NO PURCHASE OPTIONS. No person or entity has an option to purchase any portion of the Additional Resort Collateral, or any portion thereof, or any interest therein. 6.27 HELLER AND SOVEREIGN FACILITIES. The modifications of the Heller Facility and the Sovereign Facility on terms and conditions as provided in the Business Plan, have closed and Lender has been provided with true and correct copies of the Heller Documents and the Sovereign Documents, as so modified. There is no event of default or event which, with the passage of time, notice or both, would constitute an event of default under either the Heller Facility or the Sovereign Facility and Borrower is in good standing under both of such facilities. 6.28 BOND HOLDER EXCHANGE TRANSACTION. The Bond Holder Exchange Letter has not been amended, modified or otherwise rescinded. 6.29 DZ FACILITY. The DZ Letter Agreement is in full force and effect and has not been 17 amended, modified or otherwise rescinded." 35. PAYMENT AND PERFORMANCE OF OBLIGATIONS. Section 7.1(a) is hereby restated and amended to read as follows: "(a) PAYMENT AND PERFORMANCE OF OBLIGATIONS. Borrower shall pay all of the Loan and related expenses when and as the same become due and payable, and Borrower shall strictly observe and perform all of the Obligations, including without limitation, all covenants, agreements, terms, conditions and limitations contained in the Loan Documents, and will do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default hereunder, other than a Specified Event of Default (as defined in the Forbearance Agreement); and Borrower will maintain an office or agency in the State of Texas where notices, presentations and demands in respect of the Loan Documents may be made upon Borrower. Such office or agency and the books and records of Borrower shall be maintained at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221 until such time as Borrower shall so notify Agent, in writing, of any change of location of such office or agency." 36. CONSOLIDATION AND MERGER. Section 7.1(c) is hereby restated and amended as follows: "(c) CONSOLIDATION AND MERGER. Borrower will not consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, unless: (i) Borrower is the continuing or surviving corporation in any such consolidation or merger and (ii) prior to and immediately after such consolidation or merger, Borrower shall not be in default hereunder." 37. MAINTENANCE OF INSURANCE. Section 7.1(d) is hereby restated and amended to read as follows: "(d) MAINTENANCE OF INSURANCE. Borrower, or if required pursuant to the Declaration, the Timeshare Owners' Association, shall maintain (or Borrower shall cause to be maintained) at all times during the term of this Agreement, policies of insurance with premiums being paid when due, and shall deliver to Lender originals of insurance policies issued by insurance companies, in amounts, in form and in substance, and with expiration dates, all acceptable to Lender and containing a waiver of subrogation rights by the insuring company, a non-contributory standard mortgagee benefit clause, or their equivalents, and a mortgagee loss payable endorsement in favor of and satisfactory to Lender, and breach of warranty coverage, providing the following types of insurance on and with respect to Borrower (or, as appropriate, the respective Associations) and the Resort: (i) Fire and extended coverage insurance (including lightning, hurricane, tornado, wind and water damage, vandalism and malicious mischief coverage) covering the improvements and any personal property located in or on the Resort and any real property constituting part of the Additional Resort Collateral, in an amount not less than the full replacement value of such improvements and personal property, and said policy of insurance shall provide for a deductible acceptable to 18 Lender, breach of warranty coverage, replacement cost endorsements satisfactory to Lender, and shall not permit co-insurance; (ii) Public liability and property damage insurance covering the Resort in amounts and on terms satisfactory to Lender; and (iii) Such other insurance on the Resort and any real property constituting part of the Additional Resort Collateral or any replacements or substitutions therefor including, without limitation, flood insurance (if the Property is or becomes located in an area which is considered a flood risk by the U.S. Emergency Management Agency or pursuant to the National Flood Insurance program), in such amounts and upon terms as may from time to time be reasonably required by Lender. To the extent any other timeshare receivable lender has any rights to approve the form of insurance policies with respect to the Resort, the amounts of coverage thereunder, the insurers under such policies, or the designation of an attorney-in-fact for purposes of dealing with damage to any part of the Resort or insurance claims or matters related thereto, or any successor to such attorney-in-fact, or any changes with respect to any of the foregoing, Borrower shall take all steps as may be necessary (and, after turnover, if any, of control of the Resort to the Timeshare Owners' Association, Borrower shall use its best efforts) to ensure that Lender shall at all times have a co-equal right, with such other lender (including, without limitation, Borrower or any third-party lender), to approve all such matters and any proposed changes in respect thereof; and Borrower shall not cause or permit any changes with respect to any insurance policies, insurers, coverage, attorney-in-fact, or insurance trustee, if any, without Lender's prior written approval. In the event of any insured loss or claim in respect of the Resort or any real property comprising the Additional Resort Collateral, Borrower shall apply (or cause to be applied), and Borrower covenants that the Timeshare Owners' Association shall apply (or cause to be applied), all proceeds of such insurance policies in a manner consistent with the Timeshare Documents and the Timeshare Act. All insurance policies required pursuant to this Agreement (or the Timeshare Documents or Timeshare Act) shall provide that the coverage afforded thereby shall not expire or be amended, canceled, modified or terminated without at least thirty (30) days prior written notice to Lender. At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 7.1(d), a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender. Borrower shall deliver or cause to be delivered to Lender receipts evidencing the payment for all such insurance policies and renewals or replacements. In the event of any fire or other casualty to or with respect to the improvements on or at the Resort or any real property comprising the Additional Resort Collateral, Borrower covenants that Borrower or the Timeshare Owners' Association, as the case may be, will promptly restore or repair (or cause to be restored, repaired or replaced) the damaged improvements and repair or replace any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the improvements and 19 personal property on the Resort or any real property comprising the Additional Resort Collateral, in accordance with the terms of the Timeshare Documents or Timeshare Act. The insufficiency of any net insurance proceeds shall in no way relieve Borrower or, as applicable, Borrower and Timeshare Owners' Association, of its obligation to restore, repair or replace such improvements and other personal property in accordance with the terms hereof, of the Declaration or other Timeshare Documents or of the Timeshare Act, and Borrower covenants that Borrower or, as the case may be, the Timeshare Owners' Association, shall promptly comply and cause compliance with the provisions of the Declaration and other Timeshare Documents, or of the Timeshare Act relating to such restoration, repair or replacement. Borrower shall, unless an Event of Default has occurred, apply all insurance proceeds payable to or received by it, in accordance with the applicable Declaration. If an Event of Default has occurred, Agent may, in its sole discretion, apply all insurance proceeds in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 hereof." 38. MAINTENANCE OF SECURITY. Section 7.1(e) is hereby restated and amended to read as follows: "(e) MAINTENANCE OF SECURITY. Borrower shall execute and deliver (or cause to be executed and delivered) to Lender all security agreements, financing statements, assignments and such other agreements, documents, instruments and certificates, and supplements and amendments thereto, and take such other actions, as Lender deems necessary or appropriate in order to maintain as valid, enforceable and perfected first or second priority liens and security interests, as applicable, all Liens and security interests in the Collateral granted to Lender to secure the Obligations. Borrower shall not grant extensions of time for the payment of, compromise for less than the full face value or release in whole or in part, any Purchaser or other Person liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument, chattel paper or document representing the Collateral." 39. ANNUAL FINANCIAL REPORTS. Section 7.1(h)(ii) is hereby restated and amended to read as follows: "(ii) ANNUAL FINANCIAL REPORTS. As soon as available and in any event within ninety (90) days after the end of each calendar year or other fiscal year as may be applicable with respect to Borrower (a "Fiscal Year"), a statement of income and expense of Borrower for the annual period ended as of the end of such Fiscal Year, and a balance sheet of Borrower as of the end of such Fiscal Year, all in such detail and scope as may be reasonably required by Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Notwithstanding the foregoing, Borrower shall deliver its annual financial statements for Fiscal Years 2000 and 2001 within 90 days of the Effective Date. Each annual financial statement of Borrower shall be prepared by an independent certified public accountant and certified by Borrower to be true, correct and complete, and shall otherwise be in form acceptable to Lender. In the event that Lender, acting in good faith, is not satisfied with any such Financial Statement, and if Borrower fails to provide Lender with new Financial Statements acceptable to Lender within fifteen (15) days after Lender delivers written notice of such dissatisfaction to Borrower, then, at Lender's request, Borrower shall furnish to Lender copies of audited income statements and balance sheets certified by an independent certified public accountant acceptable to Lender 20 and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Such audited annual statements shall also be in form and content satisfactory to Lender. If the figures for net and total operating income (as such terms are defined in accordance with GAAP) in the audited annual statements do not vary by more than five percent (5%) from the figures in the unaudited annual statements, Lender shall bear, pro rata based upon its Pro Rata Percentage, the cost of the certified public accountant's audit. If, however, such figures vary by more than five percent (5%), Borrower shall bear the cost of such certified public accountant's audit;" 40. NOTICE OF CLAIMED DEFAULT. Section 7.1(h)(iii) is hereby restated and amended to read as follows: "(iii) NOTICE OF CLAIMED DEFAULT. Except for a Specified Event of Default identified in the Forbearance Agreement, immediately upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, or upon becoming aware of any acceleration with respect to any Specified Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto;" 41. MATERIAL ADVERSE DEVELOPMENTS. Section 7.1(h)(vi) is hereby amended to read as follows: "(vi) MATERIAL ADVERSE DEVELOPMENTS. Except as provided in the Business Plan , immediately upon becoming aware of any claim, action, proceeding, development or other information which may materially and adversely affect the Borrower, the Collateral, the Resort, the business, prospects, profits or condition (financial or otherwise) of the Borrower, or the ability of the Borrower to perform its Obligations under the Agreement, Borrower shall provide Lender with telephonic or telegraphic notice, followed by telefaxed and mailed written confirmation, specifying the nature of such development or information and such anticipated effect;" 42. REPORTING REQUIREMENTS. Section 7.1(h) is hereby amended in part to add the following new paragraphs: "(viii) MONTHLY FINANCIAL REPORTS. As soon as available and in any event within ten (10) days after the end of each calendar month, a report showing (i) the trial balance of the Pledged Notes Receivable, (ii) an aging report on the Pledged Notes Receivable, (iii) a report detailing the collections on each of the Pledged Notes Receivable, (iv) a Borrowing Base Report, (v) monthly reports from the Lockbox Agent required pursuant to the Lockbox Agreement, and (vi) a report in form satisfactory to Lender indicating, among other things, the conformity of the Borrower's business to the Business Plan and any variances therefrom during the preceding calendar month. (viv) OTHER INFORMATION. Borrower shall deliver to Lender: (i) within five (5) days of the filing thereof with the United States Securities and Exchange Commission, copies of each Form 8-K, 10-Q and 10-K filed by Borrower; and (ii) any other information related to the Loan, the Collateral, the Resort or Borrower as Lender may in good faith request." 21 43. MANAGEMENT. Section 7.1(j) is hereby restated and amended to read as follows: "(j) MANAGEMENT. Borrower shall: (i) remain engaged in the active management of the Resorts, (ii) unless Borrower notifies Lender in writing at least thirty (30) days in advance of its new location, it will retain its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221, and (iii) will continue to perform duties substantially similar to those presently performed as provided in the management agreement relating to each Resort. No management agreement for any Resort shall be modified, assigned, extended, terminated or entered into nor shall the current method of operation and management of the Resorts be changed in any material manner, without the prior written approval of Lender." 44. MAINTENANCE. Section 7.1(n) is hereby restated and amended as follows: "(n) MAINTENANCE. Borrower shall maintain, or shall cause to be maintained, or to the extent provided for pursuant to the Declaration, shall use its best efforts to cause the Timeshare Owners' Association to maintain, the Resort and that portion of the Additional Resort Collateral consisting of real property in good repair, working order and condition and shall make all necessary replacements and improvements to the Resort and that portion of the Additional Resort Collateral consisting of real property so that the value and operating efficiency of the Resort and that portion of the Additional Resort Collateral consisting of real property will be maintained at all times and so that the Resort and that portion of the Additional Resort Collateral consisting of real property remains in compliance in all respects with the Timeshare Act, the Timeshare Documents and other applicable law." 45. LOCAL LEGAL COMPLIANCE. Section 7.1(p)(i) is hereby restated and amended as follows: "(i) LOCAL LEGAL COMPLIANCE. Borrower will comply, and will cause the Resort, the Land and each portion of the Additional Resort Collateral constituting real property to comply, with all applicable servitudes, restrictive covenants, applicable planning, zoning or land use ordinances and building codes, all applicable health and Environmental Laws and regulations, and all other applicable laws, rules, regulations, agreements or arrangements." 46. OTHER COMPLIANCE. Section 7.1(p)(iii) is hereby restated and amended as follows: "(iii) OTHER COMPLIANCE. Borrower has, in all material respects, complied with and will comply with all laws and regulations of the United States, the State of Texas, the each state in which an applicable Resort, the Land or Collateral is located, any political subdivision of either such state and any other governmental, quasi-governmental or administrative jurisdiction in which Intervals have been sold or offered for sale, or in which sales, offers of sale or solicitations with respect to the Resort have been or will be conducted, including to the extent applicable, but not limited to: (1) the Timeshare Act; (2) the Consumer Credit Protection Act; (3) Regulation Z of the Federal Reserve Board; (4) the Equal Credit Opportunity Act; (5) Regulation B of the Federal Reserve Board; (6) the Federal Trade Commission's 3-day cooling-off Rule for Door-to-Door Sales; (7) Section 5 of the Federal Trade Commission Act; (8) ILSA; (9) federal postal laws; 22 (10) applicable state and federal securities laws; (11) applicable usury laws; (12) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (13) applicable real estate sales licensing, disclosure, reporting and escrow laws; (14) the ADA; (15) RESPA; (16) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (17) the Federal Trade Commission's Privacy of Consumer Financial Information Rule; (18) other applicable federal statutes and the rules and regulations promulgated thereunder; and (19) any state law or law of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resort, or the sale, offering for sale, or financing of Intervals." 47. AFFIRMATIVE COVENANTS. Section 7.1 is hereby amended in part to add the following new paragraphs: "(x) STANDBY MANAGER AND RESORT CONSULTANT. Borrower will enter into agreements for the Standby Manager and the Resort Consultant on or before the Effective Date and will maintain such agreements in full force and effect. Borrower will maintain the agreement for the Standby Servicer in full force and effect. Borrower agrees that upon the occurrence of a Default or Event of Default hereunder: (1) Lender may, with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, terminate any then existing management agreements and replace any existing manager with such manager as Lender may select, provided however, if: (x) the obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Lender elects to have J & J Limited, Inc. act as Standby Manager, then no such approval of Borrower's Board of Directors shall be required; and (2) The Standby Servicer will assume full control over the servicing of all Pledged Notes Receivable, reporting solely to Lender, as provided in Section 10.14 hereof." (y) DZ FACILITY. The DZ Letter Agreement remains in full force and effect and has not been amended, modified or rescinded and Borrower will diligently commence and proceed to close the DZ Facility on or before May 31, 2002 as contemplated in the DZ Letter Agreement, the Term Sheet and the Business Plan, and will promptly provide Agent with true and correct copies of the DZ Documents. (z) BOND HOLDER EXCHANGE TRANSACTION. Borrower will act diligently and in good faith to cause the requisite number of bond holders to accept the offer to participate in the Bond Holder Exchange Transaction on the terms set forth in the Bond Holder Exchange Letter and to close the Bond Holder Exchange Transaction on or before May 31, 2002, and promptly provide Lender with true and correct copies of all documents executed and/or delivered in connection with the Bond Holder Exchange Transaction. (aa) HELLER FACILITY, SOVEREIGN FACILITY, DZ FACILITY AND BOND HOLDER EXCHANGE TRANSACTION. Borrower will comply with each of the terms and conditions of the Heller Facility, the Sovereign Facility, the DZ Facility and the Bond Holder Exchange Documents and will promptly deliver to Lender, upon receipt by Borrower, copies of any notices received by Borrower in connection with any of the forgoing credit facilities. (bb) FINANCIAL COVENANTS. 23 (i) TANGIBLE NET WORTH. Borrower shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of Borrower as of September 30, 2001 plus (B) one hundred percent (100%) of the aggregate amount of proceeds received by Borrower after January 1, 2002 in connection with (1) each issuance by Borrower of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Indebtedness after January 1, 2002, other than Indebtedness which shall be the most senior Indebtedness of Borrower plus (C) one hundred percent (100%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after January 1, 2002. (ii) MARKETING AND SALES EXPENSES. Borrower will not permit as of March 31, 2002 and as of the last day of each calendar quarter thereafter the ratio of Marketing and Sales Expenses for any calendar quarter, singly and on a cumulative basis, during the specified period below (the "REFERENCE PERIOD") to Borrower's net proceeds from the sale of Intervals for such Reference Period to equal or exceed the ratio set forth opposite such period described in the table below during such Reference Period:
Period Ratio - ------ ----- 4/1/02 - 12/31/02 .550 to 1 1/1/03 - thereafter .525 to 1
(iii) MINIMUM LOAN DELINQUENCY. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio (including, without limitation, all Pledged Notes Receivable pledged to Lender hereunder, under the Additional Credit Facility and the Existing Credit Facilities and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) to be greater than twenty-five percent (25%). If, as of the last day of each calendar quarter, Borrower's over 30-day delinquency on its entire Pledged Notes portfolio (including, without limitation, all Notes Receivable pledged to Lender under the Additional Credit Facility and the Existing Credit Facilities and all Notes Receivable pledged pursuant to the Heller Facility and the Sovereign Facility) is greater than twenty percent (20%), then Lender shall have the right to conduct an audit, at Borrower's sole cost and expense, of all Borrower's Notes Receivable pledged to Lender hereunder. (iv) INTEREST COVERAGE. (i) For the calendar quarter of Borrower ending June 30, 2002, the Interest Coverage Ratio for Borrower shall be at least 1.1:1; (ii) for 24 the calendar quarter of Borrower ending September 30, 2002, the average of the Interest Coverage Ratio of Borrower of such calendar quarter and the Interest Coverage Ratio for the immediately preceding calendar quarter shall be at least 1.1:1, (iii) for the calendar quarter of Borrower ending December 31, 2002, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for the two immediately preceding calendar quarters shall be at least 1.1:1; (iv) for each calendar quarter of Borrower beginning with, and including, the calendar quarter ending March 31, 2003 and for each calendar quarter of Borrower thereafter, the average of the Interest Coverage Ratio of Borrower for such calendar quarter and the Interest Coverage Ratios for each of the three immediately preceding calendar quarters shall be at least 1.25:1. The term Interest Coverage Ratio means with respect to any Person for any calendar quarter, the ratio of (a) EBITDA for such period less capital expenditures as determined in accordance with GAAP, for such period to (b) the interest expense minus all non-cash items constituting interest expense for such period. (v) PROFITABLE OPERATIONS. Borrower will not permit Consolidated Net Income (a) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (b) for any two consecutive fiscal quarters (treated as a single accounting period) to be less than $1.00. (cc) NET SECURITIZATION CASH FLOW. Borrower will cause Silverleaf Finance I, Inc. to declare, at least quarterly, a cash dividend payable to Borrower, in an amount equal to the Net Securitization Cash Flow for such quarter. If no Default or Event of Default has occurred, Borrower agrees to use such dividends for payment of Operating Expenses as provided in the Business Plan and for no other purpose. If a Default or Event of Default has occurred, then all such dividends shall be paid directly to Lender and applied in accordance with the Additional Credit Facility Loan Agreement, the Tranche A Loan Agreement and the Tranche B Loan Agreement. Borrower agrees to provide Lender with written notice prior to any such sale or securitization and agrees to deliver to Lender copies of all documents executed in connection therewith. Any such sale or securitization shall be acceptable to Lender in its sole and absolute discretion. The proceeds received from any such securitization shall be used to pay down the Loan in accordance with the Business Plan." 48. LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES. Section 7.2(a) is hereby restated and amended as follows: "(a) LIMITATION ON OTHER DEBT, FURTHER ENCUMBRANCES. Borrower will not obtain financing and grant liens with respect to the Collateral or any of its other assets or property, except as hereafter provided. Prior to March 31, 2003, Borrower will not obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable, except as provided in the Additional Credit Facility, the Existing Credit Facilities, the Heller Facility and the Sovereign Facility, without the Lender's prior written consent, which consent will not be unreasonably withheld. As a 25 condition to such consent, Lender may require that all proceeds of such financing be applied in repayment of the Loan as provided in Section 2.3(a) hereof or in repayment of the Additional Credit Facility or the Existing Credit Facilities. At any time after March 31, 2003, Borrower may obtain financing and grant liens with respect to any of Borrower's unpledged Notes Receivable in an amount not to exceed twenty million dollars ($20,000,000.00), without Lender's consent provided that: (i) no Default or Event of Default has occurred; (ii) and such financing does not result in (x) Borrower's failure to substantially adhere to the Business Plan or (y) an Event of Default; and (iii) Lender may require advances to be funded from the Revolving Loan Component of the Additional Credit Facility or the Existing Credit Facilities prior to advances from such other financing. At any time after March 31, 2003, if Borrower wishes to obtain financing in excess of twenty million dollars ($20,000,000.00) which will be secured by any of Borrower's unpledged Notes Receivable, Borrower will obtain Lender's written consent, which consent will not be unreasonably withheld. Borrower may obtain unsecured financing provided: (i) Borrower provides prior written notice to Lender setting forth the terms and conditions thereof; (ii) Lender is provided a copy of the loan documents thereof; and (iii) such financing does not result in Borrower's inability to substantially adhere to the Business Plan, as determined by Lender in its sole and absolute discretion. 49. TIMESHARE REGIME. Section 7.2(g) is hereby restated and amended as follows: "(g) TIMESHARE REGIME. Without Lender's prior written consent, which consent shall not be unreasonably withheld as to changes necessary to implement the Business Plan, Borrower shall not amend, modify or terminate the Declarations or other Timeshare Documents, or any other restrictive covenants, agreements or easements regarding the Resorts (except for routine non-substantive modifications which have no impact on the Collateral). Except as otherwise provided herein or in the Sovereign Documents, Borrower shall not assign its rights as "developer" under the Declarations without Lender's prior written consent, or file or permit to be filed any additional covenants, conditions, easements or restrictions against or affecting the Resorts (or any portion thereof) without Lender's prior written consent, which consent shall not be unreasonably withheld." 50. MODIFICATIONS OF HELLER DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Section 7.2(k) is hereby restated and amended to read as follows: "(k) MODIFICATIONS OF HELLER DOCUMENTS, DZ DOCUMENTS, BOND HOLDER EXCHANGE DOCUMENTS, SOVEREIGN DOCUMENTS AND OTHER DEBT INSTRUMENTS. Borrower shall not amend or modify the Heller Documents, the Sovereign Documents, DZ Documents, Bondholder Exchange Documents or the documents evidencing any other indebtedness of Borrower, nor shall Borrower extend, modify, increase or terminate the Heller Facility, DZ Facility, the Bond Holder Exchange Transaction, the Sovereign Facility or any other credit facility or loan, without the prior written consent of Lender, which consent shall not be unreasonably withheld." 51. NEGATIVE COVENANTS. Section 7.2 is hereby amended in part to add the following new paragraphs: "(l) COMPENSATION OF SENIOR MANAGEMENT. The compensation payable to the senior 26 management of Borrower, as a group, shall not be increased by more than twenty-five percent (25%) each year, with the increase in the first year following the Effective Date being measured against the compensation payable to the senior management of Borrower as of December 31, 2001, which compensation is set forth on Schedule 7.2(l). The Borrower represents and warrants that Schedule 7.2(l) accurately sets forth such compensation. (m) NO NEW CONSTRUCTION. Borrower will not, without Lender's prior written approval, construct any improvements (excluding resort amenities) on any Resorts, Land or any portion of the Additional Resort Collateral constituting real property, unless such improvements are contemplated in the Business Plan." 52. COVENANTS. Section 7.3 is hereby restated and amended to read as follows: "7.3 OPERATION OF BORROWER'S BUSINESS. Borrower will operate its business in substantial compliance with the Business Plan, including the Senior Lender Advance Schedule." 53. EVENTS OF DEFAULT. Section 8.1(b) (Covenant Defaults) is hereby restated and amended to read as follows: "(b) COVENANT DEFAULTS. If Borrower shall fail to perform or observe any covenant, agreement or warranty contained in this Agreement or in any of the Loan Documents, (other than with respect to the failure to make timely payments in respect of the Loan as provided in Section 8.1(a) or violation of (i) the financial covenants in Section 7.1(bb) or (ii) any negative covenants in Section 7.2) and, such failure shall continue for fifteen (15) days after notice of such failure is provided by Lender, provided however, that if Borrower commences to cure such failure within such 15 day period, but, because of the nature of such failure, cure cannot be completed within 15 days notwithstanding diligent effort to do so, then, provided Borrower diligently seeks to complete such cure, an Event of Default shall not result unless such failure continues for a total of thirty (30) days." 54. ENFORCEABILITY OF LIENS. Section 8.1(d) is hereby restated and amended as follows: "(d) ENFORCEABILITY OF LIENS. If any lien or security interest granted by Borrower to Lender in connection with the Loan is or becomes invalid or unenforceable or is not, or ceases to be, a perfected first or second priority lien or security interest, as applicable, in favor of Lender encumbering the asset to which it is intended to encumber, and Borrower fails to cause such lien or security interest to become a valid, enforceable, first or second, as applicable, and prior lien or security interest in a manner satisfactory to Lender within ten (10) days after Lender delivers written notice thereof to Borrower." 55. EVENTS OF DEFAULT. Section 8.1(l) (Default by Borrower in Other Agreements) is hereby restated and amended to read as follows: "(l) DEFAULT BY BORROWER IN OTHER AGREEMENTS. Except for any Specified Event of Default (as provided in the Forbearance Agreement), which Specified Events of Default shall include a prior existing default under the Heller Facility or the Sovereign Facility, any default 27 by Borrower (i) in the payment of any indebtedness to any Lender, including any indebtedness owed to Lender under the Heller Facility, DZ Facility, Sovereign Facility, Bond Holder Exchange Transaction, Additional Credit Facility or the Existing Credit Facilities, (ii) in the payment or performance of other indebtedness for borrowed money or obligations secured by any part of the Resort; (iii) in the payment or performance of other material indebtedness or obligations (material indebtedness or obligations being defined for purposes of this provision as any indebtedness or obligation in excess of $200,000) where such default accelerates or permits the acceleration (after the giving of notice or passage of time or both) of the maturity of such indebtedness, or permits the holders of such indebtedness to elect a majority of the board of directors of Borrower (whether or not such default[s] have been waived by such holder) or (iv) the acceleration by Heller, Sovereign, DZ or the bondholders of their respective credit facilities." 56. EVENTS OF DEFAULT. Section 8.1(o) (Violation of Financial Covenants) is hereby restated and amended to read as follows: "(o) VIOLATION OF FINANCIAL COVENANTS. Borrower violates any financial covenants set forth in Section 7.1(bb):" 57. EVENTS OF DEFAULT. Section 8 is hereby amended in part to add the following new paragraph: "(r) FAILURE OF DZ FACILITY AND/OR BOND HOLDER EXCHANGE TRANSACTION TO CLOSE. If either the DZ Facility or the Bond Holder Exchange Transaction shall fail to close on the terms and conditions set forth, respectively, in the DZ Letter Agreement and the Bond Holder Exchange Letter, on or before May 31, 2002." 58. REMEDIES UPON DEFAULT. Section 9 is hereby amended in part to add the following new paragraph: "(i) REPLACEMENT OF MANAGER. Without demand or notice of any nature whatsoever, upon an Event of Default, Lender may: (1) terminate any then existing management agreements and with the approval of a majority of the Borrower's Board of Directors, which approval shall not be unreasonably withheld or delayed, replace any existing manager with such manager as Lender may select, provided however, if: (x) the Obligations have become immediately due and payable in accordance with Section 9.1 (a) hereof, or (y) Lender elects to have J & J Limited, Inc. act as Standby, then no such approval shall be required; and (2) terminate any then existing servicing agreement and replace any then existing Servicer with the Standby Servicer or such other servicer as Lender may select in its sole and absolute discretion. Lender shall also have the right to assume management of the Resorts." 59. TOTAL AGREEMENT. Section 12.11 (Total Agreement) is hereby restated and amended to read as follows: "12.11 TOTAL AGREEMENT. This Agreement and the other Loan Documents, including the Exhibits and Schedules to them, is the entire agreement between the parties relating to the subject matter hereof, incorporates or rescinds all prior agreements and understandings between the parties hereto relating to the subject matter hereof, cannot be changed or terminated 28 orally or by course of conduct, and shall be deemed effective as of the date it is accepted by Lender at the offices set forth above. The documents evidencing the Existing Credit Facilities and the Additional Credit Facility shall remain in full force and effect." 60. CONDITIONS PRECEDENT. The obligation of Lender under this Second Amendment and the obligation to fund any Advance hereunder shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents: (a) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have delivered to Lender, on or before the Effective Date, the following Loan Documents, each of which shall be in the form of the respective Loan Documents attached hereto as Exhibit A, and each of which when required, shall be in recordable form: (i) THIS SECOND AMENDMENT. (ii) CLOSING OPINIONS FOR BORROWER. (iii) AMENDED AND RESTATED PROMISSORY NOTE. (iv) ADDITIONAL RESORT COLLATERAL MORTGAGE. (v) ADDITIONAL RESORT COLLATERAL ASSIGNMENTS. (vi) STOCK PLEDGE AGREEMENT. Together with delivery of all original stock certificates indorsed to Lender, for itself and as agent for Sovereign. (vii) ENVIRONMENTAL INDEMNITY AGREEMENT. An Environmental Indemnity Agreement, executed by Borrower in favor of Lender. (viii) MODIFICATION TO LAND MORTGAGES. Borrower shall have executed and delivered to Lender, on or before the date hereof, modifications to the Land Mortgages, each of which shall be in the form attached hereto as Exhibit A, and each of which shall be in recordable form. (ix) INTERCREDITOR AGREEMENT. Borrower, Heller and Sovereign shall have executed and delivered to Lender, on or before the date hereof, the intercreditor agreement, in the form attached hereto as Exhibit A. (x) FINANCING STATEMENTS. Original UCC financing statements covering the Collateral, filed with the Secretary of State of Texas and the Secretary of State of each state in which the Collateral is located. (xi) STANDBY MANAGEMENT AGREEMENT ASSIGNMENT. (xii) ASSIGNMENT OF MANAGEMENT AGREEMENTS. (xiii) ASSIGNMENT OF MORTGAGES; 29 (xiv) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Lender may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein. (b) HELLER FACILITY AND SOVEREIGN FACILITY MODIFICATION. On or before the Effective Date, Borrower shall deliver to Lender, evidence satisfactory to Lender, that the Heller Facility and the Sovereign Facility have each been modified in a manner substantially similar to that set forth in the Term Sheet and as previously been approved by Lender has been provided with copies of all of the executed Heller Documents modifications and the executed Sovereign Documents modifications; (c) EFFECTIVE DATE CONDITIONS. On or before the Effective Date, the following conditions shall be satisfied: (i) UCC SEARCH. Lender shall have obtained, at Borrower's cost, such searches of the applicable public records as it deems necessary under Texas, and other applicable law to verify that it has a first or second, as applicable, and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if Lender determines that Lender does not have a first or second, as applicable, and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein. (ii) LITIGATION SEARCH. Lender shall have obtained, at Borrower's cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Resorts, any portion of the Collateral, Borrower, or any Affiliates of Borrower (each a "Material Party"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Lender determines, in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall not be obligated to fund any Advance if Lender determines that any such litigation is pending. (iii) TITLE SEARCHES. Title Searches for each real property comprising the Additional Resort Collateral and each real property comprising the Land, together with legible copies of each exception or matter noted thereon. (iv) TITLE INSURANCE POLICIES: (1) Borrower shall deliver to Lender, with respect to each parcel of real property comprising the Land, an endorsement to the existing mortgagee's title insurance policy (the "Land Mortgage Title Policy Endorsement") updating each applicable policy previously issued with respect to the Land through the date hereof and indicating that the applicable Land Mortgage, as modified to date, is a first priority Lien on the land in question. Such Land Mortgage Title Policy Endorsement shall be an amount equal to the fair market value of the Land, and 30 issued by companies and in form and substance satisfactory to Lender in its sole discretion. (2) Borrower shall deliver to Lender, with respect to each parcel of real property comprising the Additional Resort Collateral, a mortgagee's title insurance policy (the "Additional Resort Collateral Title Policy") in the full amount of the appraised value of each such parcel, indicating that the applicable Additional Resort Mortgage is a first priority Lien on the parcel in question. The title policy shall be in form and substance, and contain such endorsements, as are satisfactory to Lender in its sole discretion and shall be issued by a title insurance company satisfactory to Lender. (3) Borrower shall be responsible for the payment of all costs and expenses of the foregoing title policies and endorsements. (v) SURVEYS. To the extent not previously delivered to Lender, Borrower shall deliver to Lender, at its sole cost and expense: (i) an ALTA survey of each parcel comprising the Additional Resort Collateral and the Land, which surveys shall be in form and substance satisfactory to Lender and the applicable title company, and shall be certified by the surveyor to Lender and the applicable title company, on such form of certification as may be approved by Lender; or (ii) legible recorded plats of the parcel comprising the Additional Resort Collateral and the Land, provided such recorded plats are in form and substance reasonably satisfactory to Lender and Title Company and are sufficient to remove the survey exception from the title policy issued with respect thereto. (vi) RECORDING OF MODIFICATIONS TO LAND MORTGAGES AND ADDITIONAL COLLATERAL MORTGAGES. The Additional Resort Collateral Mortgages and modifications to the Land Mortgages shall have been duly recorded in the applicable land records for each state in which the Land and the Additional Resort Collateral is located. (vii) ENVIRONMENTAL REPORT. To the extent not previously delivered to Lender, an Environmental Report or Reports covering the Land and that portion of the Additional Resort Collateral which is real property confirming: (1) that soil conditions are sufficient to support all existing and any contemplated improvements to such real property; (2) the absence of Hazardous Materials on such real property; (3) that the issuer of the report has obtained, reviewed and included with its report a CERCLIS printout from the Environmental Protection Agency (the "EPA"), statements from the EPA and other applicable and state local authorities and such other information as Lender may reasonably require, including without limitation a Phase I environmental audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from the real property in question, or 31 in such proximity thereto as to create a material risk of contamination thereof. (viii) INSURANCE. Evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices; (ix) GOVERNMENTAL PERMITS. To the extent not previously delivered to Lender, copies of all applicable government permits, approvals, consents, licenses and certificates with respect to the use and operation of the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property; (x) TAXES. Evidence satisfactory to Lender that all taxes and assessments owed by or for which Borrower is responsible for collection had been paid with respect to the Resorts and the Collateral, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangible taxes, real property taxes and any assessments related to the resorts or the Collateral. Copies of the most current tax bills for the Resorts, the Land and that portion of the Additional Resort Collateral constituting real property shall be provided to Lender; (xi) DZ FACILITY. Evidence satisfactory to Lender that the DZ Facility has closed on terms and conditions set forth in the DZ Letter Agreement and has been documented in form and substance reasonably satisfactory to Lender and Lender has been provided with copies of all the executed DZ Documents. (xii) STANDBY MANAGER. Borrower will have entered into the Standby Management Agreement in form and substance satisfactory to Lender, in its sole discretion, with the Standby Manager. On and after an Event of Default, the Standby Manager shall be responsible for, among other things: (i) managing the operation of the Resorts, the related amenities, the Additional Resort Collateral and any other Collateral that Lender deems necessary, (ii) monitoring or supervising the marketing, sale, resale and financing of pledged Intervals at the Eligible Resorts and (iii) Lender may request, from time to time, in its sole discretion, such other duties and responsibilities related to the operation of the Resorts and related amenities, the Additional Resort Collateral, the Intervals and any other Collateral that Lender deems necessary. Borrower shall provide Lender with a list in form and substance satisfactory to Lender, in its sole discretion, of the duties and responsibilities associated with the operation of the Resorts. (xiii) FORBEARANCE AGREEMENT. All of the terms and conditions of the Forbearance Agreement shall have been satisfied to the satisfaction of 32 Lender and Lender shall have determined that no Forbearance Termination Event shall have occurred and be continuing. (xiv) BOND HOLDER EXCHANGE TRANSACTION CONSUMMATION. Evidence satisfactory to Lender in its sole discretion that the Bond Holder Exchange Transaction outlined in the Bond Holder Exchange Transaction Letter, a copy of which is attached hereto as Exhibit E, as approved by Lender, has been accepted by the requisite number of bond holders and the Bond Holder Exchange Transaction shall have fully closed. Lender shall be provided with copies of all of the executed Bond Holder Exchange Documents. (xv) ZONING. To the extent not previously provided by Borrower to Lender, evidence that the use and operation of the portions of the Additional Resort Collateral comprised of real property comply with all applicable zoning, building, health, safety and fire codes and regulations. (xvi) RESORT CONSULTANT. The Borrower, at its own expense, shall retain a consultant of recognized standing, acceptable to Lender in its sole discretion (the "Resort Consultant"). The Resort Consultant shall have such duties and responsibilities as Lender may request, in its sole discretion, from time to time, including without limitation: (1) preparation of a report evaluating Borrower's business and the operation of the Resorts to be delivered to Lender within ten (10) days after the Effective Date; (2) on an ongoing basis, monitoring: (a) the operations of Borrower including the offer and sale of Intervals by Borrower and the financing by Borrower of such sales, (b) Borrower's compliance with the Business Plan, (c) Borrower's operation of the Silverleaf Club and (d) Borrower's and/or Silverleaf's Club's management and operation of the Resorts, the related amenities and the Additional Resort Collateral; and (3) submission of weekly written reports to Lender as to the foregoing. The Agreement with the Resort Consultant shall be in form and substance acceptable to Lender in its sole discretion and shall be assigned by Borrower to Lender as security for the Obligations. Notwithstanding the foregoing, Borrower and Lender acknowledge and agree that the Resort Consultant may also perform the duties of the Standby Manager. (xvi) ESTOPPEL LETTERS. Borrower shall deliver to Lender, with respect to each Resort, an estoppel letter, executed by the applicable Timeshare Owners' Association, in the form attached hereto as Exhibit A. (d) EFFECTIVE DATE ADVANCES. In the event that Borrower desires Lender to make an Advance on the Effective Date, then, in addition to all of the conditions precedent set forth in this Paragraph 60, Borrower shall have complied with all of the requirements of Section 5 below at least five (5) Business Days prior to the Effective Date. 33 (e) EXPENSES. Borrower shall have paid all fees and expenses required to be paid pursuant to this Agreement. Lender shall have no obligation to fund any Loan or make the initial Advance or any subsequent Advance unless (x) the amount of the initial Advance together with any moneys paid by Borrower is sufficient to satisfy all fees and expenses required to be paid pursuant to this Agreement, and (y) the Advance will not be used for any of the prohibited uses set forth in Section 6.11. (f) MANAGEMENT OF RESORT. Borrower shall provide evidence satisfactory to Lender that Borrower, or an Affiliate, is the manager or operator of each Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender, which with respect to all Resorts (other than the Crown Resorts) shall have a term which shall expire no earlier April 1, 2009. With respect to each Crown Resort only, each such Resort may qualify as an Additional Eligible Resort (subject to satisfaction by Borrower of the conditions set forth in this Section 4.5), so long as Borrower, or an Affiliate, is the manager or operator of each such Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender. Borrower agrees to provide an estoppel letter, in form and substance acceptable to Lender, from the applicable Timeshare Owner's Association. Each such management agreement constitutes a part of the Additional Resort Collateral and is assigned to Lender, to secure the Obligations as provided herein. (g) POST CLOSING LETTER. Lender and Borrower shall execute a "Post Closing Letter" specifying which of the conditions set forth in this Paragraph 60 which Lender has agreed may be satisfied after the Effective Date, and by the date specified in the Post Closing Letter. (h) OTHER ITEMS. Such other agreements, documents, instruments, certificates and materials as Lender may request to determine the acceptability of any such Additional Eligible Resort, to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, including, without limitation, true copies of all Resort Documents for each such Additional Eligible Resort, all Timeshare Documents and operating and management contracts and agreements, evidence of with the applicable Timeshare Act and other applicable laws, evidence of all required governmental licenses and permits; title searches; title commitments or policies, including. Complete and legible copies of each title exception, engineering, environmental and soil reports, evidence of compliance with all applicable zoning and building codes; each of which shall be satisfactory to Lender in its sole and absolute discretion. IN THE EVENT THAT LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT ANY OF THE CONDITIONS SET FORTH ABOVE OR OTHERWISE CONTAINED IN THIS SECOND AMENDMENT OR SET FORTH IN THE ADDITIONAL CREDIT FACILITY LOAN AGREEMENT, THE TRANCHE A LOAN AGREEMENT OR THE TRANCHE B LOAN AGREEMENT ARE NOT SATISFIED ON OR BEFORE MAY 31, 2002, THEN THIS SECOND AMENDMENT, AND THE OBLIGATIONS OF LENDER HEREUNDER, SHALL BE NULL AND VOID IN ALL RESPECTS AB INITIO. IN SUCH EVENT, THE ORIGINAL AGREEMENT AND THE TERMS AND CONDITIONS THEREIN SET FORTH, AS MODIFIED BY THE FORBEARANCE AGREEMENT AND THE EXTENSION LETTER, SHALL GOVERN AND CONTROL BORROWER'S OBLIGATION WITH RESPECT TO REPAYMENT IN FULL OF THE OBLIGATIONS, AS SUCH TERM IS DEFINED IN THE ORIGINAL AGREEMENT. 34 61. FURTHER DOCUMENTATION. Borrower agrees to execute and deliver to Lender any and all additional documentation as Lender may now or hereafter require in order to effectuate the terms and conditions of this Second Amendment. 62. LOAN DOCUMENTS. Notwithstanding anything to the contrary in the Loan and Security Agreement dated as of December 16, 1999 as amended, all Loan Documents shall be in a form attached hereto as Exhibit A. 63. EFFECT OF AMENDMENT. Except as herein expressly amended, the Original Agreement shall remain in full force and effect. 64. RATIFICATION AND CONFIRMATION. Except as herein expressly amended, Borrower hereby ratifies, confirms, assumes and agrees to be bound by all covenants and agreements set forth in the Original Agreement and the other Loan Documents. The Borrower reaffirms, restates and incorporates by reference all of the covenants and agreements made in the Loan Documents as if the same were made as of this date. The Borrower agrees to pay the Loan and all related expenses, as and when due and payable in accordance with the Original Agreement as amended hereby, and the other Loan Documents, and to observe and perform the Obligations, and do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default. In addition, to further secure, and to evidence and confirm the securing of, the prompt and complete payment and performance by the Borrower of the Loan and all of the Obligations, for value received, Borrower unconditionally and irrevocably assigns, pledges and grants to Lender, and hereby confirms or reaffirm the prior granting to Lender of, a continuing first priority Lien, mortgage and security interest in and to all of the Collateral, whether now existing or hereafter acquired. Also, as provided in the Loan Documents, the Loan is and shall be further secured by the Liens and security interests in favor of Lender in the properties and interests relating to Additional Eligible Resorts, which now or hereafter serve as collateral security for any Obligations. On the date of the Second Amendment and thereafter upon satisfaction of the requirements for approval by Lender of Additional Resorts, Borrower shall record, or cause to be recorded, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements in the appropriate public records of the state in which each Resort is located to further evidence and perfect the Lender's Lien on the Collateral. Borrower agrees to deliver or cause to be delivered by its Affiliates, such mortgages, deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing Statements as Lender may deem necessary to further evidence and perfect the Lender's Lien on the Collateral. 65. ESTOPPEL. Borrower acknowledges, agrees and confirms that: (a) Advances under the Original Agreement have been made prior to the Effective Date; (b) all such Advances made prior to the Effective Date were made in favor of the Borrower and the Borrower in respect of the Existing Eligible Resorts; (c) Advances made prior to the Effective Date under the Original Agreement are deemed as having been made for the benefit of the Borrower and Borrower acknowledges and agrees that Borrower received a direct and substantial financial benefit from such Advances and (d) immediately prior to the Effective Date, and without giving effect to any Advances that may be made pursuant to the Second Amendment, the status of the Loan, including the outstanding principal balance thereof is as reflected in the Loan Funding Report 35 delivered to and approved by Lender in connection with the closing of the Second Amendment, a copy of which is attached as Exhibit J. The Loan constitutes valuable consideration to the Borrower, which consideration is uninterrupted and continuous since the dates on which the Loan was first made. This Second Amendment and the other Loan Documents and the Loan modifications and transactions provided for or contemplated hereunder or thereunder, shall in no way adversely affect the Lien or perfection or priority of any Lien of Lender as of the date hereof in and to any Collateral, and are not intended to constitute, and do not constitute or give rise to, any novation, cancellation or extinguishment of any of Borrower's Obligations existing as of the Effective Date to Lender, or of any interests owned or held by Lender (and not previously released) in and to any of the Collateral; it being the intention of the parties that the transactions provided for or contemplated herein shall be effectuated without any interruption in the continuity of the value and consideration received by Borrower, and of the attachment, perfection, priority and continuation in favor of Lender in and to all Collateral and proceeds. 66. DEFINITIONS. All capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in the Agreement. 67. CROSS DEFAULT. Notwithstanding anything to the contrary in the Agreement, any default by the Borrower under the Existing Credit Facility, the Additional Credit Facility, the Heller Facility and/or the Sovereign Facility and/or termination of the Forbearance Agreement, Heller forbearance agreement or Sovereign forbearance agreement shall also be a default under this Agreement. 68. EFFECTIVE DATE. BORROWER ACKNOWLEDGES, AGREES AND CONFIRMS THAT THE TERMS AND CONDITIONS OF THIS SECOND AMENDMENT, INCLUDING ANY OBLIGATION OF LENDERS TO MAKE ANY ADVANCE HEREUNDER, SHALL NOT BECOME EFFECTIVE UNTIL THE EFFECTIVE DATE, AS SUCH TERM IS HEREINAFTER DEFINED. FOR PURPOSES OF THIS SECOND AMENDMENT, THE TERM "EFFECTIVE DATE" SHALL MEAN THE DATE ON WHICH LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT EACH OF THE CONDITIONS SET FORTH IN PARAGRAPH 60 HEREOF HAVE BEEN SATISFIED, INCLUDING BUT NOT LIMITED TO: (i) THE CLOSING OF THE DZ FACILITY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE DZ LETTER AGREEMENT AND THE BUSINESS PLAN; (ii) THE CONSUMMATION OF THE BOND HOLDER EXCHANGE TRANSACTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OUTLINED IN THE BOND HOLDER EXCHANGE LETTER AND THE BUSINESS PLAN; AND (iii) THE CLOSING OF THE SOVEREIGN FACILITY AND HELLER FACILITY IN ACCORDANCE WITH THE BUSINESS PLAN. IN THE EVENT THAT THE EFFECTIVE DATE DOES NOT OCCUR ON OR BEFORE MAY 31, 2002, THEN THIS SECOND AMENDMENT, AND ALL OF THE OBLIGATIONS OF LENDER HEREUNDER, INCLUDING THE OBLIGATION TO MAKE ANY ADVANCE HEREUNDER SHALL BE VOID AB INITIO, AS IF THIS SECOND AMENDMENT WAS NEVER ENTERED INTO. IN SUCH EVENT, THE LOAN, AND THE RIGHTS 36 AND OBLIGATIONS OF BORROWER WITH RESPECT THERETO, SHALL BE GOVERNED IN ALL RESPECTS BY THE TERMS AND CONDITIONS SET FORTH IN THE ORIGINAL AGREEMENT, AS MODIFIED BY THE FORBEARANCE AGREEMENT AND THE EXTENSION LETTER. BORROWER EXPRESSLY ACKNOWLEDGES, AGREES AND CONFIRMS THAT TIME IS OF THE UTMOST ESSENCE WITH RESPECT TO THE EFFECTIVE DATE OCCURRING ON OR BEFORE MAY 31, 2002. ON THE EFFECTIVE DATE, AND SO LONG AS EACH CONDITION PRECEDENT SET FORTH IN THIS SECOND AMENDMENT HAS BEEN SATISFIED, LENDER AGREES TO WAIVE ALL PRIOR DEFAULTS AND EVENTS OF DEFAULT UNDER THE ORIGINAL AGREEMENT, INCLUDING BUT NOT LIMITED TO THE SPECIFIED EVENTS OF DEFAULT PROVIDED IN THE FORBEARANCE AGREEMENT. 69. DZ BANK FACILITY CONDITIONS. Lender acknowledges and agrees that: (i) the transfer of Notes Receivable to Silverleaf Finance I, Inc. in connection with the DZ Facility is a true sale and not a financing transaction; (ii) Lender will not consolidate Silverleaf Finance I, Inc. with the Borrower in the event of a bankruptcy; and (iii) Lender will not take any action to the contrary in the case of a bankruptcy of Borrower or otherwise. 70. RELEASE. IN ORDER TO INDUCE LENDER TO ENTER INTO THIS AGREEMENT, BORROWER ACKNOWLEDGES AND AGREES THAT: (i) BORROWER HAS NO CLAIM OR CAUSE OF ACTION AGAINST LENDER (OR ANY OF ITS RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS); (ii) BORROWER HAS NO OFFSET RIGHT, COUNTERCLAIM OR DEFENSE OF ANY KIND AGAINST ANY OF ITS OBLIGATIONS, INDEBTEDNESS OR LIABILITIES TO LENDER; AND (iii) LENDER HAS HERETOFORE PROPERLY PERFORMED AND SATISFIED IN A TIMELY MANNER ALL OF ITS OBLIGATIONS TO BORROWER. BORROWER WISHES TO ELIMINATE ANY POSSIBILITY THAT ANY PAST CONDITIONS, ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS WOULD IMPAIR OR OTHERWISE ADVERSELY AFFECT LENDER'S RIGHTS, INTERESTS, CONTRACTS, COLLATERAL SECURITY OR REMEDIES. THEREFORE, BORROWER UNCONDITIONALLY RELEASES, WAIVES AND FOREVER DISCHARGES (A) ANY AND ALL LIABILITIES, OBLIGATIONS, DUTIES, PROMISES OR INDEBTEDNESS OF ANY KIND OF LENDER TO BORROWER, EXCEPT THE OBLIGATIONS TO BE PERFORMED BY LENDER ON OR AFTER THE DATE HEREOF AS EXPRESSLY STATED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) ALL CLAIMS, OFFSETS, CAUSES OF ACTION, SUITS OR DEFENSES OF ANY KIND WHATSOEVER (IF ANY), WHETHER ARISING AT LAW OR IN EQUITY, WHETHER KNOWN OR UNKNOWN, WHICH BORROWER MIGHT OTHERWISE HAVE AGAINST LENDER, OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, IN EITHER CASE (A) OR (B), ON ACCOUNT OF ANY PAST OR PRESENTLY EXISTING CONDITION, ACT, OMISSION, EVENT, CONTRACT, LIABILITY, OBLIGATION, INDEBTEDNESS, CLAIM, CAUSE OF ACTION, DEFENSE, CIRCUMSTANCE OR MATTER OF ANY KIND 37 IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be duly executed and delivered effective as of the date first above written. Witnessed By: BORROWER: /s/ Patricia K. Dorey SILVERLEAF RESORTS, INC., a Texas - ------------------------------ corporation /s/ Amy B. Merritt By: /s/ Harry J. White, Jr. - ------------------------------ ----------------------------- Name: Harry J. White, Jr. Title: CFO STATE OF TEXAS ) ) ss: COUNTY OF DALLAS ) The foregoing instrument was acknowledged before me this 24th day of April, 2002 by Harry J. White, Jr., CFO of Silverleaf Resorts, Inc., a Texas corporation, on behalf of the Corporation. /s/ Tammy J. Martin -------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: January 6, 2005 LENDER: [illegible] TEXTRON FINANCIAL CORPORATION, - ------------------------------ a Delaware corporation [illegible] By: /s/ John T. Dannibale - ------------------------------ ---------------------------------- Name: John T. Dannibale Title: VP STATE OF CONNECTICUT ) ) ss: COUNTY OF HARTFORD ) The foregoing instrument was acknowledged before me this 26th day of April, 2002 by John T. Dannibale, VP of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation. /s/ Mary F. Rittlinger -------------------------------------- Commissioner of the Superior Court Notary Public My Commission Expires: August 31, 2004 Exhibits: Schedule 1.1 (oo) Heller Documents Schedule 1.1(rrr) Sovereign Documents Schedule 6.7 Litigation EX-10.8 14 d00253exv10w8.txt AMENDED/RESTATED RECEIVABLES LOAN/SECURITY AGRMT EXHIBIT 10.8 ================================================================================ U.S. $100,000,000 AMENDED AND RESTATED RECEIVABLES LOAN AND SECURITY AGREEMENT Dated as of April 30, 2002 Among SILVERLEAF FINANCE I, INC., as the Borrower, SILVERLEAF RESORTS, INC., as the Servicer, AUTOBAHN FUNDING COMPANY LLC, as a Lender, DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, FRANKFURT AM MAIN, as the Agent, U.S. BANK TRUST NATIONAL ASSOCIATION, as the Agent's Bank, and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as the Backup Servicer ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS..................................................................................1 SECTION 1.01 Certain Defined Terms.................................................1 SECTION 1.02 Other Terms..........................................................37 SECTION 1.03 Computation of Time Periods..........................................37 ARTICLE II. THE RECEIVABLES FACILITY....................................................................37 SECTION 2.01 Borrowings...........................................................37 SECTION 2.02 The Initial Borrowing and Subsequent Borrowings......................38 SECTION 2.03 Facility Maturity Date...............................................39 SECTION 2.04 Selection of Fixed Periods...........................................39 SECTION 2.05 Remittance Procedures................................................40 SECTION 2.06 Payments and Computations, Etc.......................................44 SECTION 2.07 Fees.................................................................44 SECTION 2.08 Increased Costs; Capital Adequacy....................................44 SECTION 2.09 Collateral Assignment of Agreements..................................45 SECTION 2.10 Grant of a Security Interest.........................................46 SECTION 2.11 Evidence of Debt.....................................................47 SECTION 2.12 Survival of Representations and Warranties; Repayment Obligations..........................................................47 SECTION 2.13 Release of Pledged Receivables.......................................47 SECTION 2.14 Treatment of Amounts Paid by the Borrower............................48 SECTION 2.15 Termination..........................................................48 SECTION 2.16 Lockbox Arrangements.................................................48 ARTICLE III. CONDITIONS OF LOANS.........................................................................49 SECTION 3.01 Conditions Precedent to Initial Borrowing............................49 SECTION 3.02 Conditions Precedent to All Borrowings...............................49 SECTION 3.03 Advances Do Not Constitute a Waiver..................................54 ARTICLE IV. REPRESENTATIONS AND WARRANTIES..............................................................54 SECTION 4.01 Representations and Warranties of the Borrower and the Servicer.............................................................54 ARTICLE V. GENERAL COVENANTS OF THE BORROWER AND THE SERVICER..........................................59 SECTION 5.01 General Covenants....................................................59 ARTICLE VI. ADMINISTRATION AND SERVICING; CERTAIN COVENANTS.............................................63 SECTION 6.01 Appointment and Designation of the Servicer..........................63 SECTION 6.02 Collection of Receivable Payments; Modification and Amendment of Receivables.............................................65 SECTION 6.03 Realization Upon Receivables.........................................65 SECTION 6.04 Insurance Regarding Intervals........................................66
-i- SECTION 6.05 Maintenance of Security Interests in Intervals.......................66 SECTION 6.06 Pledged Receivable Receipts..........................................67 SECTION 6.07 Unidentified Payments; Lender's Right of Presumption.................67 SECTION 6.08 No Rights of Withdrawal..............................................68 SECTION 6.09 Permitted Investments................................................68 SECTION 6.10 Servicing Compensation...............................................68 SECTION 6.11 Reports to the Agent; Account Statements; Servicing Information......68 SECTION 6.12 Statements as to Compliance; Financial Statements....................70 SECTION 6.13 Access to Certain Documentation; Obligors............................72 SECTION 6.14 Backup Servicer......................................................72 SECTION 6.15 Additional Remedies of Agent Upon Event of Default...................75 SECTION 6.16 Waiver of Defaults...................................................75 SECTION 6.17 Maintenance of Certain Insurance.....................................76 SECTION 6.18 Segregation of Collections...........................................76 SECTION 6.19 UCC Matters; Protection and Perfection of Pledged Assets.............76 SECTION 6.20 Servicer Advances....................................................77 SECTION 6.21 Repurchase of Receivables Upon Breach of Covenant or Representation and Warranty by SRI...................................77 SECTION 6.22 Compliance with Applicable Law.......................................78 SECTION 6.23 The Consulting Agreement.............................................78 ARTICLE VII. EVENTS OF DEFAULT...........................................................................79 SECTION 7.01 Events of Default....................................................79 SECTION 7.02 Additional Remedies of Agent and Lender..............................82 ARTICLE VIII. INDEMNIFICATION.............................................................................83 SECTION 8.01 Indemnities by the Borrower..........................................83 SECTION 8.02 Indemnities by the Servicer..........................................85 ARTICLE IX. MISCELLANEOUS...............................................................................86 SECTION 9.01 Amendments and Waivers...............................................86 SECTION 9.02 Notices, Etc.........................................................86 SECTION 9.03 No Waiver; Remedies..................................................87 SECTION 9.04 Binding Effect; Assignability; Multiple Lenders......................87 SECTION 9.05 Term of This Agreement...............................................88 SECTION 9.06 Governing Law; Jury Waiver...........................................88 SECTION 9.07 Costs, Expenses and Taxes............................................88 SECTION 9.08 No Proceedings.......................................................89 SECTION 9.09 Recourse Against Certain Parties.....................................89 SECTION 9.10 Execution in Counterparts; Severability; Integration.................90
-ii- LIST OF SCHEDULES AND EXHIBITS SCHEDULES SCHEDULE I Condition Precedent Documents SCHEDULE II Credit and Collection Policy SCHEDULE III Prior Names, Tradenames, Fictitious Names and "Doing Business As" Names SCHEDULE IV Litigation SCHEDULE V Eligible Developments SCHEDULE VI Net Eligible Receivables Balance SCHEDULE VII Additional Eligibility Criterion SCHEDULE VIII Applicable Margin Definition EXHIBIT A Form of Borrowing Base Certificate EXHIBITS EXHIBIT B Form of Commercial Paper Remittance Report EXHIBIT C Form of Monthly Remittance Report EXHIBIT D Form of Allonge EXHIBIT E Backup Servicer Letter of Certification EXHIBIT F Custodian's Fee EXHIBIT G Form of Certificate of Beneficial Interest EXHIBIT H Form of Mortgage and Assignment of Beneficial Interest EXHIBIT I Form of UCC Assignment for ONS Intervals EXHIBIT J Form of ONS Title Policy
-iii- THIS AMENDED AND RESTATED RECEIVABLES LOAN AND SECURITY AGREEMENT is made as of April 30, 2002, among: (1) SILVERLEAF FINANCE I, Inc., a Delaware corporation (the "Borrower"); (2) SILVERLEAF RESORTS, INC., a Texas corporation ("SRI"), as the Servicer (as defined herein); (3) AUTOBAHN FUNDING COMPANY LLC ("Autobahn"), as a Lender (as defined herein); (4) DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, FRANKFURT AM MAIN (formerly known as DG Bank Deutsche Genossenschaftsbank AG) ("DZ Bank"), as agent for the Lender (the "Agent"); (5) U.S. BANK TRUST NATIONAL ASSOCIATION, as the Agent's Bank (as such term is defined herein); and (6) WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), as the Backup Servicer (as such term is defined herein). WHEREAS, the Borrower, the Servicer, the Lender, the Agent, the Agent's Bank and the Backup Servicer entered into a Receivables Loan and Security Agreement dated as of October 30, 2000 (the "Original RLSA"); WHEREAS, the parties hereto desire to amend and restate the Original RLSA to effectuate certain amendments related thereto as more particularly set forth hereinbelow; and WHEREAS, the Original RLSA provides in Section 9.01(a) that amendments, including those set forth in or put into effect by the execution and delivery of this Agreement, are permitted and authorized with the consent of the parties hereto; NOW, THEREFORE, it is hereby agreed that the Original RLSA shall be and hereby is amended and restated in its entirety as follows: ARTICLE I. DEFINITIONS SECTION 1.1 Certain Defined Terms. (a) Certain capitalized terms used throughout this Agreement are defined above or in this Section 1.01. (2) As used in this Agreement and its exhibits, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acceptable Environmental Report" means an environmental report or reports certified to the Borrower and SRI, and assigned by the Borrower to the Agent, covering a Development and confirming: (i) the absence of Hazardous Materials on, under, or affecting the Land or any other real property or personal property comprising such Development, (ii) that an engineering or environmental consulting firm has obtained, reviewed, and included within its report a CERCLIS printout from the EPA, statements from the EPA and other applicable state and local authorities, and such other information as the Borrower may reasonably require, including, without limitation, a Phase I Environmental Inspection, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from the Development or in such proximity thereto as to create a risk of contamination of any of the related Applicable Underlying Collateral; and (iii) if such Development, or any part thereof, was constructed prior to 1986, the absence of friable asbestos within the Units, Common Elements, if any, or elsewhere at such Development. If any such environmental report reflects the presence of friable asbestos, regardless of when construction of the Development was completed, such report shall be deemed not to be an Acceptable Environmental Report. To the extent that an environmental report complying with the requirements of this definition has been obtained with respect to a Development, there shall be no requirement to obtain another environmental report or an update of the prior environmental report, in each case, with respect to such Development unless there shall have occurred an event that could make such environmental report materially incorrect or misleading (in which case a new Acceptable Environmental Report with respect to such Development shall be obtained). "Acceptable Insurance Policy" means, in respect of an Interval, one or more fire and extended perils insurance policies in respect of the related Development (i) issued by an insurance company or security bonding company qualified to write such insurance policies in the relevant jurisdiction; (ii) providing coverage against fire and extended perils, general liability and other risks insured against by persons operating like properties in the locality of such Development; (iii) in an aggregate amount not less than the full replacement cost of the Development with respect to fire and extended perils, and for other coverages, such amount necessary to avoid the operation of any coinsurance provisions with respect to the Development but in any event consistent with the amount that would have been required as of the date of origination by SRI in its normal mortgage lending activities with respect to similar properties in the same locality as the Development and covering only the Development; (iv) all premiums in respect of which have been paid; (v) the terms of which require prior notice to the insured of termination or cancellation; (vi) in respect of which no notice of termination or cancellation has been received which is still in effect; (vii) the cost and expense in respect of which shall be paid by Silverleaf Club out of dues paid by Obligors and (viii) with reasonable and customary deductions, if any. "Acceptable Title Policy" means, in respect of an Interval, a title insurance policy (i) issued by a title insurance company qualified to write such title insurance policy in the relevant jurisdiction; (ii) insuring that the Mortgage in respect thereof is a valid first mortgage lien on such Interval, subject only to ordinary and customary exceptions which do not materially interfere with the value or current use of such Interval; (iii) in full force and effect; (iv) freely assignable; 2 (v) which will inure to the benefit of the Agent as mortgagee of record; (vi) in respect of which no prior mortgagee has done, by act or omission, anything which would impair the coverage of any such title insurance policy; (vii) is on an ALTA 1992 form (or the equivalent in the Applicable Jurisdiction, omitting or waiving any arbitration requirement and the "creditor's rights" exclusion) with an effective date as of the date of the recording of the Mortgage; and (viii) containing endorsements (A) insuring that no building restriction, easement, covenant or other similar exception to title disclosed on such title insurance policy has been violated and that any violation thereof would not create or result in any reversion, reverter or forfeiture of title, (B) with respect to zoning in the form typically issued in the Applicable Jurisdiction (unless other evidence of compliance with zoning requirements has been provided to the satisfaction of the Agent); (C) insuring over any environmental superlien or similar lien upon all or any portion of such Development and (D) insuring over violation of usury laws, the fact that interest accrues at a changing or changeable rate and the revolving nature of the Loans. "Accountants' Report" has the meaning assigned to that term in Section 6.12(b). "Additional Deposit" has the meaning assigned thereto in the Sinking Fund Agreement. "Adjusted Eurodollar Rate" means with respect to any Fixed Period for any Loan allocated to such Fixed Period, an interest rate per annum equal to the sum of (i) the Applicable Margin and (ii) the Eurodollar Rate for such Fixed Period. "Adverse Claim" means a lien, security interest, charge, encumbrance or other right or claim of any Person other than, with respect to the Pledged Assets, any lien, security interest, charge, encumbrance or other right or claim in favor of the Lender (or the Agent on behalf of the Lender). "Affected Party" has the meaning assigned to that term in Section 2.08. "Affiliate" when used with respect to a Person means any other Person controlling, controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" has the meaning assigned to that term in the preamble hereto. "Agent's Bank" means U.S. Bank Trust National Association. "Agreement" means this Amended and Restated Receivables Loan and Security Agreement, as the same may be amended, restated, supplemented and/or otherwise modified from time to time hereafter. 3 "Allonge" means an allonge or allonges, substantially in one or more of the forms attached hereto as Exhibit D, endorsing a Receivable from SRI to the Borrower and endorsing such Receivable from the Borrower to the Agent, for the benefit of the Lender. "Amendment Date" means April 30, 2002. "Applicable Declaration" means, with respect to a Development, the declaration of condominium, declaration of covenants, conditions, and restrictions, master deed, or similar document, together with any amendments or restatements thereof, that establishes the underlying form of ownership of such Development and, if required by Applicable Law, is recorded in the appropriate public records of the Applicable Jurisdiction. "Applicable Jurisdiction" means, with respect to a Development, the state, county, municipality, and/or other governmental jurisdiction (including a foreign jurisdiction if applicable) in which such Development is located. "Applicable Laws" means any and all foreign, federal, state, and local statutes, ordinances, rules, regulations, court orders and decrees, administrative orders and decrees, and other legal requirements of any and every conceivable type to which SRI, the Borrower, a Development or any portion thereof, or all or any portion of the Collateral or any Applicable Underlying Collateral is or becomes subject to from time to time. "Applicable Margin" shall have the meaning set forth in Schedule VIII hereto. "Applicable Timeshare Documents" means all Applicable Declarations and other documents and instruments relating to a Development and/or the Units, Common Elements, if any, Common Furnishings, if any, and Intervals thereat, including, but not limited to, the project documents, registrations and other approvals, business licenses, Applicable Timeshare Owners' Association agreements and corporate documents and other documents to the extent used in the marketing, sale, and financing of such Intervals. Each Applicable Timeshare Document shall be in form and content acceptable to the Agent. Promptly upon the request of the Agent, the Servicer shall deliver to the Agent true, correct, and complete copies of all Applicable Timeshare Documents and any material amendments thereto. The Agent's approval of such Applicable Timeshare Documents and any amendments thereto shall be a condition precedent to any Loans being advanced (or, if such documents are delivered to the Agent after such Loans have been advanced, continued) hereunder secured by Receivables related to the Development to which such Applicable Timeshare Documents pertain. "Applicable Timeshare Owners' Association" means, with respect to each Development, a not-for-profit corporation or other legal entity organized under the laws of the Applicable Jurisdiction. "Applicable Underlying Collateral" means any and all collateral granted to SRI by an Obligor to secure the payment of all principal, interest, and other amounts owed to SRI by such Obligor in connection with a Pledged Receivable (all of which Applicable Underlying 4 Collateral shall have been (i) assigned by SRI to the Borrower pursuant to the Receivables Purchase Agreement and (ii) Pledged by the Borrower to the Agent, for the benefit of the Lender, pursuant to the terms hereof). "Assigned Documents" has the meaning assigned to that term in Section 2.09. "Assignment" has the meaning set forth in the Receivables Purchase Agreement. "Assignment and Acceptance" has the meaning assigned to that term in Section 9.04. "Assignment Documents" means each of the following (each in form and substance acceptable to the Agent in its reasonable discretion): (3) An absolute and unconditional assignment or assignments of (i) all of SRI's right, title, and interest in and to all Mortgages that secure the payment of Pledged Receivables to the Borrower (together with evidence of the proper recordation thereof) and (ii) all of the Borrower's right, title, and interest in and to all Mortgages that secure the payment of Pledged Receivables to the Agent, for the benefit of the Lender (together with evidence of the proper recordation thereof); and (4) An absolute and unconditional assignment and pledge in and to all of (i) SRI's right, title, and interest in all documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Receivables, the Mortgages, and the other Applicable Underlying Collateral (including the cash and non-cash proceeds thereof but excluding any dues, fees or other charges payable by the related Obligor in connection with the ownership and/or use of an Interval) to the Borrower and (ii) all of the Borrower's right, title, and interest in all documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Receivables, the Mortgages, and the other Applicable Underlying Collateral (including the cash and non-cash proceeds thereof) to the Agent, for the benefit of the Lender. "Autobahn" has the meaning assigned to that term in the preamble hereto. "Backup Servicer" means Wells Fargo or any substitute Backup Servicer appointed by the Agent pursuant to Section 6.14. "Backup Servicer Delivery Date" has the meaning assigned to that term in Section 6.11(e). "Backup Servicer's Fee" means, for any Remittance Period or portion thereof after the occurrence of a Servicer Default and the appointment of the Backup Servicer as Servicer hereunder, an amount, payable out of Collections on the Pledged Receivables and amounts applied to the payment of, or treated as payments on, the Pledged Receivables, equal to the applicable Backup Servicing Fee Rate multiplied by the Net Eligible Receivables Balance as of the first day of such Remittance Period. 5 "Backup Servicing Fee Rate" means the per annum rate of 1.00%. "Bailee Agreements" means the Bailee Agreements among the Agent, SRI, U.S. Bank Trust National Association and each Previous Lender, and each document required or contemplated to be delivered thereunder. "Bankruptcy Code" means Title 11, United States Code, 11 U.S.C. Sections 101 et seq., as amended. "Bankruptcy Event" shall be deemed to have occurred with respect to a Person if either: (5) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (6) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. "Base Rate" means, on any date, a fluctuating rate of interest per annum equal to the arithmetic average of the rates of interest publicly announced by The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York (or their respective successors) as their respective prime commercial lending rates (or, as to any such bank that does not announce such a rate, such bank's "base" or other rate determined by the Lender to be the equivalent rate announced by such bank), except that, if any such bank shall, for any period, cease to announce publicly its prime commercial lending (or equivalent) rate, the Agent shall, during such period, determine the Base Rate based upon the prime commercial lending (or equivalent) rates announced publicly by the other such banks or, if each such bank ceases to announce publicly its prime commercial lending (or equivalent) rate, based upon the prime commercial lending (or equivalent) rate or rates announced publicly by one or more other banks reasonably acceptable to the Borrower. The prime commercial lending (or equivalent) rates used in computing the Base 6 Rate are not intended to be the lowest rates of interest charged by such banks in connection with extensions of credit to debtors. The Base Rate shall change as and when such banks' prime commercial lending (or equivalent) rates change. "Borrower" has the meaning assigned to that term in the preamble hereto. "Borrowing" means a borrowing of Loans under this Agreement. "Borrowing Base Certificate" means a report, in substantially the form of Exhibit A, prepared by the Servicer for the benefit of Lender pursuant to Section 6.11(c). "Borrowing Base Deficiency" means, at any time that the Capital Limit shall be less than the Facility Amount, an amount equal to the amount of such deficiency. "Borrowing Date" means, with respect to any Borrowing, the date on which such Borrowing is funded, which date, other than in the case of the initial Borrowing, shall be a Subsequent Borrowing Date. "Borrowing Limit" means $100,000,000; provided, that at all times, on or after the Early Amortization Commencement Date, the Borrowing Limit shall mean the aggregate outstanding Loans. "Business Day" means a day of the year other than a Saturday or a Sunday or any other day on which banks are not authorized or required to close in New York City; provided, that, if any determination of a Business Day shall relate to a Loan bearing interest at the Adjusted Eurodollar Rate, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" shall mean all expenditures for the acquisition or leasing (pursuant to a capital lease) of assets or additions to equipment (including replacements, capitalized repairs and improvements) which should be capitalized under GAAP. "Capital Lease Obligation" means an obligation to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with GAAP, and for purposes hereof the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP. 7 "Capital Limit" means, at any time, an amount equal to: NERB + CA where: NERB = the Net Eligible Receivables Balance at such time; and CA = the amount of Collections on deposit in the Collection Account at such time to be applied in accordance with Section 2.05 on the next Remittance Date minus the portion of such Collections which are required to be set aside for the payment of accrued Yield pursuant to Section 2.05(a) hereof. "Cash Interest Expense" means, with respect to any Person for any period, Interest Expense for such period less all non-cash items constituting Interest Expense during such period (including, without limitation, amortization of debt discounts, fees and expenses and payments of interest on Debt by issuance of Debt). "Certificate of Beneficial Interest" means a certificate of beneficial interest, in the form attached hereto as Exhibit G, which evidences an ONS Interval. "Change in Control" means that at any time (i) SRI or any successor to SRI by merger or consolidation shall own less than 100% of all classes of capital stock of the Borrower, or (ii) the Borrower merges or consolidates with any other Person (other than a merger or consolidation as to which the Borrower is the surviving entity). "Closing Date" means October 30, 2000. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral" means, collectively, the Pledged Receivables and all Mortgages related thereto, together with all accounts, chattel paper, and general intangibles related thereto and the cash and non-cash proceeds thereof, and all now owned or hereafter acquired right, title, and interest of the Borrower in and to all Applicable Underlying Collateral for any and all of the Pledged Receivables, Mortgages and all Applicable Underlying Collateral for any and all Pledged Receivables, including but not limited to: (7) The Assignment Documents; (8) First priority Liens in and to all of Borrower's right, title, and interest in and to all books, records, reports, computer tapes, computer disks, and software relating to all or any portion of the Collateral; and (9) Extensions, additions, improvements, betterments, renewals, substitutions, and replacements of, for, or to any of the Collateral, wherever located, together with the 8 products, proceeds, issues, rents, and profits thereof and any replacements, additions, or accessions thereto or substitutions thereof, and all rights in or under insurance policies and to the proceeds of any insurance policies covering any of the other Collateral, all rights to unearned or refunded insurance premiums, and the proceeds of any condemnation awards or any claims regarding any of the other Collateral. "Collateral Receipt" has the meaning assigned to that term in the Custodial Agreement. "Collection Account" means the special trust account (account number 77089602 at the Agent's Bank) in the name of and under the sole dominion and control of the Agent for the benefit of the Lender; provided, that the funds deposited in such account (including any interest and earnings thereon) from time to time shall constitute the property and assets of the Borrower and the Borrower shall be solely liable for any taxes payable with respect to the Collection Account. "Collection Account Securities Account Agreement" means that certain Securities Account Agreement related to the Collection Account dated as of the Closing Date among the Borrower, the Servicer, the Agent's Bank and the Agent, as such agreement may from time to time be amended, supplemented or otherwise modified in accordance with the terms thereof. "Collection Date" means the date on which the aggregate outstanding principal amount of the Loans have been repaid in full and all Yield and Fees and all other Obligations have been paid in full and the Lender shall have no further obligation to make any additional Loans. "Collections" means, without duplication, with respect to any Pledged Receivable, all cash receipts and proceeds in respect of such Pledged Receivable, including, without limitation, all payments of any principal, interest, fees, delinquent payments recovered in subsequent months which have not been advanced by the Servicer, prepaid principal, Liquidation Proceeds or any other proceeds from any disposition of any Collateral related to such Pledged Receivable, late fees, redemption fees, other penalty fees and charges, Servicer Advances, any payments under any insurance policies (including, without limitation, any Acceptable Title Policy) related to such Pledged Receivable or the related Interval or Unit under which SRI, the Borrower, the Agent or the Lender are named as loss payee or insured, as applicable, all cash proceeds of Related Security with respect to such Receivable, all cash proceeds of any other Pledged Assets with respect to such Pledged Receivable, any amounts paid to the Borrower under any Purchased Rate Cap, any interest earned on amounts on deposit in the Collection Account, and any income from the investment in Permitted Investments of amounts deposited into the Collection Account. "Commercial Paper Remittance Report" means a report, in substantially the form of Exhibit B, furnished by the Servicer to the Agent for the Lender pursuant to Section 6.12(d). "Commitment Percentage" has the meaning assigned to that term in Section 9.04(b). 9 "Common Elements" means the common areas and facilities, as defined or provided for in the Applicable Declaration and/or other Applicable Timeshare Documents, including, without limitation, the Land and all improvements thereto except for the Units that have been dedicated to a timeshare regime or comparable form of ownership, as well as any limited common elements, as those terms are defined and used in the Applicable Declaration. "Common Furnishings" means all furniture, furnishings, fixtures, appliances, carpeting, and equipment located in a Unit or elsewhere within a Development and available for use by Obligors in accordance with the terms and conditions of the Applicable Timeshare Documents. "Computer Tape or Listing" means the computer tape or listing (whether in electronic form or otherwise) generated by the Servicer on behalf of the Borrower which provides information relating to the Receivables included in the Net Eligible Receivables Balance. "Consultant" means J & J Limited, Inc. "Consulting Agreement" means the Consulting Agreement dated as of the date hereof, by and between SRI and the Consultant, as such Consulting Agreement may from time to time be amended, restated, supplemented and/or otherwise modified in accordance with the terms thereof. "Coupon Rate" means, with respect to any Receivable, the annual percentage rate set forth in such Receivable. "CP Disruption Event" means, at any time, the inability of the Issuer to raise (whether as a result of a prohibition or any other event or circumstance whatsoever) funds through the issuance of commercial paper notes in the United States commercial paper market, including, without limitation, by virtue of (i) any disruption in the commercial paper market, (ii) insufficient availability under the liquidity or enhancement facility entered into by the Issuer with respect to this Agreement or (iii) a downgrade of the rating of one or more financial institutions extending credit to or for the account of the Issuer or having a commitment to extend credit to the Lender under a liquidity or enhancement facility which relates to this Agreement to a level lower than that required by the Rating Agencies. "CP Rate" means with respect to any Fixed Period for all Loans allocated to such Fixed Period, (i) the per annum rate equivalent to the per annum rate (or if more than one rate, the weighted average of the rates) at which commercial paper notes of the Issuer having a term equal to such Fixed Period and to be issued to fund, in whole or in part, the applicable Loans (and, at the election of the Issuer, other loans by the Issuer) by the Issuer may be sold by any placement agent or commercial paper dealer selected by the Issuer, as agreed between each such agent or dealer and the Issuer and notified by the Issuer to the Agent and the Servicer; provided, however, if the rate (or rates) as agreed between any such agent or dealer and the Issuer with respect to any Fixed Period for the applicable Loans is a discount rate (or rates), the CP Rate for such Fixed Period shall be the rate (or if more than one rate, the weighted average of the rates) resulting from converting such discount rate (or rates) to an interest-bearing equivalent rate per 10 annum; provided, further, however, that such rate (or rates) shall reflect and give effect to borrowings to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market to the extent that such amounts are allocated, in whole or in part, to such Loans, plus (ii) the Applicable Margin. "CP Rollover Fixed Period" means any Fixed Period other than any Fixed Period (i) applicable to the Loan arising as a result of the Borrowing on the initial Borrowing Date, which shall have been requested in the Notice of Borrowing delivered in connection with such Borrowing, (ii) applicable to any new Loan arising as a result of a Borrowing on a Subsequent Borrowing Date which shall have been requested in the Notice of Borrowing delivered in connection with such Borrowing or (iii) applicable to any Loan accruing Yield at the Non-CP Rate. "Credit and Collection Policy" means the guidelines together with all exhibits thereto as annexed hereto as Schedule II, as such policies may hereafter be amended, modified or supplemented from time to time in compliance with this Agreement. "Custodial Agreement" means that certain Custodial Agreement, dated as of the Closing Date, among the Borrower, the Agent and the Custodian, together with all instruments, documents and agreements executed in connection therewith, as such Custodial Agreement may from time to time be amended, restated, supplemented and/or otherwise modified in accordance with the terms thereof. "Custodian" means U.S. Bank Trust National Association or any substitute Custodian appointed by the Agent pursuant to the Custodial Agreement. "Custodian's Fee" means, for any Remittance Period, an amount, payable out of Collections on the Pledged Receivables and amounts applied to the payment of, or treated as payments on, the Pledged Receivables, equal to the aggregate fees listed in Exhibit F hereto which relate to such Remittance Period. "Debt" of any Person means (i) indebtedness of such Person for borrowed money, (ii) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations of such Person to pay the deferred purchase price of property or services, (iv) all Capital Lease Obligations of such Person, (v) obligations secured by an Adverse Claim upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations and (vi) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (v) above. "Default Funding Rate" means an interest rate per annum equal to two percent (2.00%), plus the Base Rate. 11 "Default Rate" means, in respect of any Remittance Period and as of any date of determination, an amount (expressed as a percentage) equal to (i) the aggregate Outstanding Principal Balances of all Pledged Receivables which became Defaulted Receivables during the immediately preceding Remittance Period, divided by (ii) the aggregate Outstanding Principal Balances of all Pledged Receivables as of the first day of the immediately preceding Remittance Period. "Defaulted Receivable" means, as of any time of determination, any Pledged Receivable: (10) with respect to which any amount payable under the terms thereof (other than, in the case of Modified Receivables, amounts payable that have been rescheduled such that they have become payable at the end of the term of such Modified Receivable as such term may have been extended in accordance with the Credit and Collection Policy) remains unpaid for more than one hundred and twenty (120) days after the due date therefor set forth therein; or (11) which has been or should be written off as a result of the occurrence of a Bankruptcy Event with respect to the Obligor obligated to pay such Pledged Receivable or which has been or should otherwise be deemed uncollectible by the Servicer in accordance with the Credit and Collection Policy. "Delinquency Rate" means, in respect of any Remittance Period and as of any date of determination, an amount (expressed as a percentage) equal to (i) the aggregate Outstanding Principal Balances of all Pledged Receivables which were Delinquent Receivables as of the last day of the immediately preceding Remittance Period, divided by (ii) the aggregate Outstanding Principal Balances of all Pledged Receivables as of the last day of the immediately preceding Remittance Period. "Delinquent Receivable" means, as of any time of determination, any Pledged Receivable (i) with respect to which any amount payable thereunder remains unpaid for thirty (30) or more days after the due date therefor set forth therein and (ii) that is not a Defaulted Receivable. "Depository Institution" means a depository institution or trust company, incorporated under the laws of the United States or any State thereof, that is subject to supervision and examination by federal and/or State banking authorities. "Development" means an interval ownership, condominium, timeshare project, and/or vacation ownership project consisting of, among other things, certain Land, Units, Common Elements, if any, and Intervals, whether now existing or hereafter added, in one or more buildings or phases, and all related Common Furnishings, if any, easements, licenses, rights, interests, and other appurtenances, as more fully described in the Applicable Declaration and the other Applicable Timeshare Documents, as the same may be amended from time to time. "Discount Amount" means at any time an amount equal to: 12 BL - BL -- D where: BL = the Borrowing Limit at such time. D = 1.02. "Downgraded" means the process by which an existing Pledged Receivable is deemed to be paid in full in accordance with the Credit and Collection Policy and a new Pledged Receivable in respect of an Interval requiring lower monthly payments in replacement for the Interval relating to such existing Pledged Receivable is created and the Obligor is permitted to make reduced monthly payments in respect of such new Pledged Receivable. "Downgraded Receivable" means a Receivable that has been Downgraded. "DZ Bank" has the meaning assigned to that term in the preamble hereto. "Early Amortization Commencement Date" means the earlier of (i) the date of the declaration or automatic occurrence of the Early Amortization Commencement Date pursuant to Section 7.01 or (ii) at the option of the Lender in its sole discretion, upon written notice to the Borrower, the occurrence of an Early Amortization Event. "Early Amortization Event" means the occurrence of any of the following events: (12) the rolling average of the Delinquency Rates in respect of any three consecutive Remittance Periods exceeds 13.0%; (13) the rolling average of the Default Rates in respect of any three consecutive Remittance Periods exceeds 1.25%. (14) the rolling average of the Excess Spread Rates in respect of any three consecutive Remittance Periods is less than 3.5%; (15) an Event of Default has occurred and is continuing; (16) a Change in Control has occurred and is continuing; (17) a regulatory, tax or accounting body has ordered that the activities of the Lender or any Affiliate of the Lender contemplated hereby be terminated or, as a result of any other event or circumstance, the activities of the Lender contemplated hereby will cause the Lender, the Person, if any, then acting as the administrator or the manager for the Lender, or any of their respective Affiliates to suffer materially adverse regulatory, accounting or tax consequences; 13 (18) the Facility Maturity Date shall have occurred; (19) a Servicer Default has occurred and is continuing at any time that the Servicer is SRI or an Affiliate thereof; or (20) the Weighted Average FICO Score of the Obligors related to all Eligible Receivables that are initially Pledged hereunder (such Weighted Average FICO Score to be determined in respect of such Obligors at the time such Obligors purchased the Intervals related to such Eligible Receivables) at any time on or after the Amendment Date shall be less than 650. "Early Amortization Funding Rate" means during the period commencing on the date of the occurrence of an Early Amortization Event and ending on the earlier of (i) the occurrence of an Event of Default or (ii) the Collection Date, the Eurodollar Rate plus 2.00%. "EBITDA" MEANS, WITH RESPECT TO ANY PERSON FOR ANY PERIOD, (a) THE SUM OF (i) NET INCOME (BUT EXCLUDING any extraordinary gains or losses or any gains or losses from the sale or disposition of assets other than in the ordinary course of business), (ii) INTEREST EXPENSE, (iii) DEPRECIATION AND AMORTIZATION AND OTHER NON-CASH ITEMS PROPERLY DEDUCTED IN DETERMINING NET INCOME, AND (iv) FEDERAL, STATE AND LOCAL INCOME TAXES, IN EACH CASE FOR SUCH PERSON FOR SUCH PERIOD, COMPUTED AND CALCULATED IN ACCORDANCE WITH GAAP MINUS (b) NON-CASH ITEMS PROPERLY ADDED IN DETERMINING NET INCOME, IN EACH CASE FOR THE CORRESPONDING PERIOD. "Eligible Depository Institution" means a Depository Institution, the short term unsecured senior indebtedness of which is rated at least Prime-1 by Moody's and F1 by Fitch, if rated by Fitch. "Eligible Development" means a Development which: (21) is a property developed, owned and managed by SRI; (22) is a Development which satisfies the Credit and Collection Policy; (23) is located in a State; (24) is listed on the attached Schedule V or has been approved in writing by the Agent; (25) is affiliated with Resort Condominiums International, Interval International or another comparable timeshare exchange company approved by the Agent; (26) is not bankrupt or insolvent; (27) has not been suspended by Resort Condominiums International, Interval International or any other timeshare exchange company for more than 60 days or, if so suspended by any such entity, such suspension has been revoked and such Development is presently in good standing with such entity; 14 (28) is not currently uninhabitable due to fire, natural disaster or other causes without other satisfactory accommodations having been put into place within 180 days of such occurrence; and (29) maintains hazard insurance that covers not less than the replacement cost value of the buildings and related common areas and amenities. "Eligible Receivable" means a Pledged Receivable that satisfies each of the following criteria: (30) The relevant Obligor has no claim against SRI or the Borrower, or any Affiliate thereof, or any defense, set-off, or counterclaim with respect to such Pledged Receivable. (31) The original of such Pledged Receivable (the terms of which shall comply in all respects with all Applicable Laws) has been endorsed, and all related documents and instruments (the terms of each of which shall comply in all respects with all Applicable Laws) have been assigned by any party with an interest therein to SRI, by SRI to the Borrower and from the Borrower to the Agent (for the benefit of the Lender) in a manner acceptable to the Agent and have been delivered to Custodian. (32) Such Pledged Receivable represents the genuine, legal, valid and binding payment obligation of the related Obligor, enforceable in accordance with its terms and such Obligor had full legal capacity to execute and deliver such Pledged Receivable, the related Mortgage (if such Pledged Receivable arose in connection with the purchase by such Obligor of a Fee Simple Interval), and any other documents related thereto; and such Pledged Receivable has not been prepaid or repaid in full. (33) Such Pledged Receivable was denominated in United States Dollars and, at the time of its origination and at all times thereafter, conformed to all requirements of the Credit and Collection Policy applicable to such Pledged Receivable and, in any case, no such Pledged Receivable has been specifically reserved against or would be required to be written-off pursuant to the Credit and Collection Policy. (34) All requirements of applicable federal, state and local laws, and regulations thereunder (including, without limitation but only if and to the extent applicable, usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations "B" and "Z", the Soldiers' and Sailors' Civil Relief Act of 1940 and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code, the Interstate Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act and all other consumer credit laws and equal credit opportunity and disclosure laws and any regulations promulgated thereunder) in respect of such Pledged Receivable, the sale of the Intervals related to such Pledged Receivable and the sale of credit life and credit accident and health insurance and any extended service contracts in 15 connection with the sale of the Intervals related to such Pledged Receivable, have been complied with in all material respects. (35) Such Pledged Receivable is not a Defaulted Receivable and, on the date on which such Pledged Receivable was Pledged hereunder, is not a Delinquent Receivable. (36) The Coupon Rate set forth in such Pledged Receivable shall be not less than 10%. (37) Such Pledged Receivable arises from a bona fide sale by SRI of one or more Intervals to an Obligor. (38) The Interval sale from which it arises has not been canceled by the related Obligor, any statutory or other applicable cancellation or rescission period with respect thereto has expired, and the Interval sale otherwise complies fully with the terms, provisions, and conditions of this Agreement, the other Transaction Documents and all Applicable Laws. (39) If such Pledged Receivable is secured by a lien on a Fee Simple Interval, a Mortgage covering such Fee Simple Interval is in full force and effect and such Mortgage and assignments thereof from any Previous Lender to SRI, from SRI to the Borrower, and from the Borrower to the Agent, for the benefit of the Lender shall each have been duly recorded or registered in the Applicable Jurisdiction in accordance with all Applicable Laws (and such Mortgage has evidence thereon of payment of all required documentary stamps and intangible taxes, if any are required). (40) If such Pledged Receivable was executed in connection with the related Obligor's purchase of an ONS Interval, Non-Disturbance Arrangements are in effect with respect to such ONS Interval and an Opinion of Counsel has been delivered to the Borrower and the Agent which shall contain an opinion that such Non-Disturbance Arrangements shall remain in full force and effect notwithstanding the occurrence of a Bankruptcy Event with respect to SRI, the ONS Trust or any of their respective Affiliates. (41) A down payment and/or other payments have been received by SRI from the Obligor who is the maker of the Pledged Receivable in an amount equal to at least ten percent (10%) of the original Purchase Price of the relevant Interval and such Obligor has received no cash or other rebates of any kind with respect to the Purchase Price of such Interval. (42) Upon inclusion of such Pledged Receivable in the Net Eligible Receivables Balance, the Excess Spread Rate shall be not less than 3.50%. (43) Such Pledged Receivable (i) has not been Modified or Downgraded more than one time since its origination and (ii) if such Pledged Receivable results from a Downgraded Receivable, such Pledged Receivable has not been Modified or Downgraded at any time. (44) The Obligor who owns the relevant Interval has access to a Unit within the 16 Development during any use period reserved by and/or assigned to such Obligor, all in accordance with the Applicable Timeshare Documents. (45) The Obligor who owns the relevant Interval (i) is the maker of the related Pledged Receivable and an executed Allonge has been permanently affixed thereto and (ii) is not an Affiliate of, or related to, or employed by SRI or the Borrower. (46) The maximum Outstanding Principal Balance of such Pledged Receivable does not exceed $35,000. (47) (i) The Unit which the relevant Obligor has the right to occupy, pursuant to the Applicable Timeshare Documents, has been completed and furnished in accordance with the terms and provisions of such Obligor's purchase contract, the Development's public offering statement, and the other Applicable Timeshare Documents, (ii) a certificate of occupancy for such Unit (or the building in which the Unit is located) has been issued or the Borrower has provided the Lender with other evidence satisfactory to the Lender that such Unit is completed and available for occupancy, and (iii) such Unit is not subject to any Lien (other than the lien created by the related Mortgage). (48) The forms of promissory note, mortgage, if applicable, federal truth-in-lending disclosure statement, if applicable, purchase contract, and other documents and instruments relating to the Interval purchase transaction giving rise to such Pledged Receivable have been approved in advance by Lender in writing. (49) Such Pledged Receivable has an original term of not more than 120 months; provided that Pledged Receivables representing not more than 20% of the Eligible Receivables Balance on any day may have original terms of 120 months. (50) Such Pledged Receivable had no material provision thereof waived, amended, altered or modified in any respect (including, without limitation, as a result of the application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended) since its origination (other than in connection with a Modification, Downgrade, or Upgrade permitted under this Agreement). (51) Such Pledged Receivable (i) was originated by SRI in its ordinary course of business and in accordance with its underwriting guidelines (and SRI had all necessary licenses and permits to originate Pledged Receivables in the jurisdiction where the related Eligible Development was located), (ii) was sold by SRI to the Borrower under the Receivables Purchase Agreement (and the Borrower has all necessary licenses and permits to own Pledged Receivables under all applicable law), (iii) contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for realization against the collateral security related thereto, (iv) provides for level monthly payments (provided, that the payment in the first month and the final month of the term of the Pledged Receivable may be different from the level payment) which, if made when due, shall fully amortize the debt evidenced by such Pledged Receivable over the original term of such Pledged Receivable and (v) arises in respect of an 17 Interval with respect to a Unit located at an Eligible Development. (52) Such Pledged Receivable was originated by SRI without any fraud or material misrepresentation on the part of SRI or the related Obligor. Such Pledged Receivable was sold by SRI to the Borrower under the Receivables Purchase Agreement without any fraud or material misrepresentation on the part of SRI or the Borrower. (53) Such Pledged Receivable is payable by one or two Obligors, at least one of whom is a natural (and not a corporate) Person, and if a Pledged Receivable is payable by more than one Obligor, each such Obligor is jointly and severally obligated to pay the full amount payable under such Pledged Receivable. (54) The criterion set forth in Schedule VII is true and correct. (55) No such Pledged Receivable is due from the United States or any State or from any agency, department, subdivision or instrumentality thereof. (56) The information pertaining to each such Pledged Receivable set forth in the Schedule of Receivables (as defined in the Receivables Purchase Agreement), the related Assignment and each Borrowing Base Certificate, Commercial Paper Remittance Report and Monthly Remittance Report is true and correct. (57) Each Assignment Document exists with respect to such Pledged Receivable and is duly executed and enforceable in accordance with its terms and has been delivered to the Custodian and duly recorded in the Applicable Jurisdiction in accordance with all Applicable Laws. (58) The Borrower shall have taken all steps necessary under all applicable law in order to cause a valid, subsisting and enforceable first priority ownership interest to exist in its favor in such Pledged Receivable, the Applicable Underlying Collateral and all other Collateral related to such Pledged Receivable (and, in each case, the proceeds thereof) on or before the Borrowing Date that such Pledged Receivable is Pledged hereunder and immediately prior to the Pledge of such Pledged Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall have existed in favor of the Borrower as secured party, a valid, subsisting and enforceable first priority perfected security interest in the Applicable Underlying Collateral and all other such Collateral related to such Receivable (and, in each case, the proceeds thereof), and such security interest is and shall be prior to all other liens upon and security interests in such Applicable Underlying Collateral and other such Collateral (and, in each case, the proceeds thereof) that now exist or may hereafter arise or be created. (59) The Borrower shall have taken all steps necessary under all applicable law in order to cause to exist in favor of the Agent, for the benefit of the Lender, a valid, subsisting and enforceable first priority perfected lien in such Pledged Receivable, the Applicable Underlying Collateral and all other Collateral related to each such Pledged Receivable (and the proceeds thereof) on or before the Borrowing Date such Pledged Receivable is Pledged hereunder and 18 upon the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall exist in favor of the Agent (for the benefit of the Lender) as secured party, a valid, subsisting and enforceable first priority perfected security interest in such Pledged Receivable and in the Borrower's first priority perfected security interest in the Applicable Underlying Collateral and all other Collateral related to such Pledged Receivable (and, in each case, the proceeds thereof) being Pledged hereunder on such Borrowing Date and such security interest is and shall be prior to all other liens upon and security interests therein that now exist or may hereafter arise or be created. (60) SRI owned such Pledged Receivable free and clear of any Adverse Claim immediately prior to its sale of such Pledged Receivable to the Borrower and SRI has taken all steps necessary under all applicable law in order to cause to exist in favor of the Agent, for the benefit of the Lender, a valid, subsisting and enforceable first priority perfected security interest in such Pledged Receivable and the Borrower's valid, subsisting and enforceable first priority perfected security interest in the Applicable Underlying Collateral and all other Collateral related to such Pledged Receivable (and, in each case, the proceeds thereof). (61) All filings (including, without limitation, UCC and real property filings) required to be made by any Person and all other actions required to be taken or performed by any Person in any jurisdiction to give the Agent, for the benefit of the Lender, a first priority perfected lien on such Pledged Receivables and the Borrower's valid, subsisting and enforceable first priority perfected security interest in the Applicable Underlying Collateral and all other Collateral related to such Pledged Receivable (and, in each case, the proceeds thereof) have been made, taken or performed. (1) (62) With respect to each such Pledged Receivable, there exists a Receivable File and a copy of such Receivable File is in the possession of the Custodian. (63) No such Pledged Receivable has been satisfied, subordinated or rescinded, and the Applicable Underlying Collateral securing such Pledged Receivable has not been released from the lien of the Agent, for the benefit of the Lender, in whole or in part. (64) No such Pledged Receivable was originated in, or is subject to the laws of, any jurisdiction the laws of which would make unlawful, void or voidable the sale, transfer and assignment of such Pledged Receivable and none of the related Obligor, SRI or the Borrower has entered into any agreement with any Person that prohibits, restricts or conditions the assignment of such Pledged Receivable. (65) None of the related Obligor, SRI or the Borrower have taken any action to convey any right to any Person that would result in such Person having a right to payments due under such Pledged Receivable or payments received under the related Acceptable Title Policy or otherwise to impair the rights of the Borrower, the Agent or the Lender in such Pledged Receivable, the Applicable Underlying Collateral securing such Pledged Receivable or the proceeds thereof. 19 (66) No such Pledged Receivable is assumable by another Person in a manner which would release the related Obligor from such Obligor's obligations to SRI, the Borrower or the Lender. (67) Such Pledged Receivable is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor and is not subject to any right of rescission, setoff, counterclaim or defense. (68) There has been no default, breach, violation or event permitting acceleration under the terms of such Pledged Receivable, and no condition exists or event has occurred and is continuing that with notice, the lapse of time or both would constitute a default, breach, violation or event permitting acceleration under the terms of such Pledged Receivable, and there has been no waiver of any of the foregoing. (69) No selection procedures adverse to the Borrower, the Agent or the Lender have been utilized in selecting such Pledged Receivable from all other similar receivables originated by SRI. (70) Upon inclusion of such Pledged Receivable in the Net Eligible Receivables Balance, (i) the Weighted Average APR of all Eligible Receivables shall be not less than 12.00% and (ii) the Weighted Average Original Term of all Eligible Receivables shall be no more than 96 months. (71) If such Pledged Receivable was executed in connection with the related Obligor's purchase of an ONS Interval, a title policy in the form of Exhibit J hereto is in effect in favor of the ONS Trust which (i) covers the Oak N' Spruce Development and (ii) is at all times in an amount not less than the acquisition costs incurred by SRI with respect to the Oak N' Spruce Development. (72) If such Pledged Receivable was executed in connection with the related Obligor's purchase of a Fee Simple Interval, an Acceptable Title Policy is in effect in favor of the Agent, for the benefit of the Lender, which (i) covers such Fee Simple Interval and (ii) is at all times in an amount of not less than the principal amount of the Loan in respect of such Pledged Receivable. (73) If such Pledged Receivable was executed in connection with the related Obligor's purchase of an ONS Interval, (i) such Obligor was delivered a Certificate of Beneficial Interest by SRI and such Certificate of Beneficial Interest was (A) pledged and delivered by such Obligor to SRI to secure such Pledged Receivable (and, if such Certificate of Beneficial Interest was pledged and delivered by SRI to a Previous Lender, reassigned and redelivered to SRI), (B) assigned by SRI to the Borrower pursuant to the Receivables Purchase Agreement, (C) Pledged by the Borrower to the Agent, for the benefit of the Lender, and (D) delivered to the Custodian, (ii) such Obligor executed a Mortgage and Assignment of Beneficial Interest and such Mortgage and Assignment of Beneficial Interest was (A) delivered by such Obligor to SRI, (B) if such Mortgage and Assignment of Beneficial Interest was pledged by SRI to a Previous Lender, 20 reassigned by any Previous Lender to SRI, (C) assigned by SRI to the Borrower pursuant to the Receivables Purchase Agreement, (D) assigned by the Borrower to the Agent, for the benefit of the Lender and (E) duly recorded or registered in the Applicable Jurisdiction in accordance with all Applicable Laws and (iii) proper financing statements in the forms attached hereto as Exhibit I have been filed in the Commonwealth of Massachusetts and the jurisdiction of the residence of the Obligor describing and reflecting the pledge of such Pledged Receivable, Related Security and other Pledged Assets by the Obligor to SRI (and, if such Pledged Receivable, Related Security and other Pledged Assets were pledged to a Previous Lender, reassigning and pledging such Pledged Receivable, Related Security and other Pledged Assets to SRI), the assignment thereof from SRI to the Borrower and the Pledge thereof by the Borrower as debtor to the Agent, on behalf of the Lender, as secured party, and other, similar instruments or documents, as may be necessary or, in the opinion of the Agent or the Lender, desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Lender's interest in such Pledged Receivable, Related Security and other Pledged Assets. (74) If such Pledged Receivable was executed in connection with the related Obligor's purchase of a Fee Simple Interval, such Obligor was delivered a deed with respect to such Fee Simple Interval and such deed was duly recorded or registered in the Applicable Jurisdiction in accordance with all Applicable Laws. (75) An Acceptable Environmental Report has been obtained by SRI covering the Development related to such Pledged Receivable. (76) The Borrower has received certified copies of all Acceptable Insurance Policies and endorsements thereto with respect to the Development relating to such Pledged Receivable. In addition, SRI has obtained and is maintaining or has caused the Applicable Timeshare Owners' Association to obtain and maintain all policies of insurance required by and in accordance with the terms of the Credit and Collection Policy and/or which are customary in the timeshare industry in the Applicable Jurisdiction. (77) Such Pledged Receivable constitutes a "general intangible" or an "instrument" within the meaning of the UCC of all jurisdictions which govern the perfection of the Borrower's interest therein. (78) No notice of assessment has been issued to the related Obligor in respect to any dues, fees or other charges payable by the related Obligor in connection with the ownership and/or use of the Interval related to such Pledged Receivable. (79) Such Pledged Receivable arose in connection with the purchase by the related Obligor of (i) an ONS Interval with respect to a Unit located at the Oak N' Spruce Development or (ii) a Fee Simple Interval. (80) If such Pledged Receivable was initially Pledged hereunder at any time on or after the Amendment Date, the Obligor related to such Pledged Receivable shall have had a FICO Score of at least 500 at the time such Obligor purchased the Interval related to such 21 Pledged Receivable. "Eligible Receivables Balance" means, at any time, the sum of the Outstanding Principal Balances of all Eligible Receivables at such time. "Encumbered Interval" means any Interval that is encumbered by the lien of a Mortgage or which otherwise serves as collateral for the payment of a Pledged Receivable. "Environmental Laws" means, if and to the extent applicable, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended from time to time ("RCRA"), the Superfund Amendments and Reauthorization Act of 1986, as amended, the federal Clean Air Act, the federal Clean Water Act, the federal Safe Drinking Water Act, the federal Toxic Substances Control Act, the federal Hazardous Materials Transportation Act, the federal Emergency Planning and Community Right to Know Act of 1986, the federal Endangered Species Act, the federal Occupational Safety and Health Act of 1970, the federal Water Pollution Control Act, and any and all comparable statutes or ordinances enacted in an Applicable Jurisdiction (including any Applicable Jurisdiction outside of the United States), as all of the foregoing laws may be amended from time to time, and any rules or regulations promulgated pursuant to the foregoing; together with any similar local, state or federal statutes, ordinances, rules, or regulations, either in existence as of the Closing Date or enacted or promulgated after the Closing Date, that concern the management, control, storage, discharge, treatment, containment, removal, and/or transport of Hazardous Materials or other substances that are or may become a threat to public health or the environment; together with any common law theory involving Hazardous Materials or substances that are (or alleged to be) hazardous to human health or the environment, based on nuisance, trespass, negligence, strict liability, or other tortious conduct, or any other federal, state, or local statute, ordinance, regulation, rule, policy, or determination pertaining to health, hygiene, the environment, or environmental conditions. "EPA" means the United States Environmental Protection Agency. "ERISA" means the United States Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Disruption Event" means any of the following: (i) a determination by the Lender that it would be contrary to law or to the directive of any central bank or other governmental authority (whether or not having the force of law) to obtain United States dollars in the London interbank market to make, fund or maintain any Loan, (ii) a determination by the Lender that the rate at which deposits of United States dollars are being offered in the London interbank market does not accurately reflect the cost to the Lender of making, funding or maintaining any Loan or (iii) the inability of the Lender to obtain United States dollars in the London interbank market to make, fund or maintain any Loan. "Eurodollar Rate" means with respect to any Fixed Period for any Loan allocated to such Fixed Period, an interest rate per annum equal to the average of the interest rates per 22 annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported during such Fixed Period on Telerate Access Service Page 3750 (British Bankers Association Settlement Rate) as the London Interbank Offered Rate for United States dollar deposits having a term of thirty (30) days and in a principal amount of $1,000,000 or more (or, if such page shall cease to be publicly available or, if the information contained on such page, in the Lender's sole judgment, shall cease to accurately reflect such London Interbank Offered Rate, such rate as reported by any publicly available recognized source of similar market data selected by the Lender that, in the Lender's reasonable judgment, accurately reflects such London Interbank Offered Rate). "Event of Default" has the meaning assigned to that term in Section 7.01. "Excess Spread Rate" means, as of any date of determination, an amount (expressed as a percentage) equal to (i) the Weighted Average APR of all Eligible Receivables on such date minus (ii) the sum of (a) a rate per annum equal to a fraction (expressed as a percentage), the numerator of which is equal to the aggregate amount of Yield accrued during the most recently ended Remittance Period and the denominator of which shall be equal to the average Facility Amount during such Remittance Period and (b) the Servicing Fee Rate and (c) the Applicable Percentage (as defined in the Fee Letter) for the most recently ended Remittance Period (as determined pursuant to the terms of the Fee Letter). "Facility Amount" means at any time, the sum of (i) the face amount of outstanding commercial paper notes (net of the amount of all interest scheduled to accrue thereon through their respective stated maturity if such commercial paper notes are issued on a discount basis) of the Lender issued to fund Loans hereunder, plus (ii) the aggregate Loans Outstanding hereunder bearing interest at the Non-CP Rate, plus (iii) accrued Yield and Fees with respect to the amounts described in the foregoing clauses (i) and (ii). "Facility Financing Statements" has the meaning assigned to that term in Schedule I. "Facility Funding Rate" means, as of the last day of any Remittance Period, a rate per annum equal to a fraction (expressed as a percentage), the numerator of which is equal to the aggregate amount of Yield and Fees accrued during such Remittance Period and the denominator of which shall be equal to the average Facility Amount during such Remittance Period. "Facility Maturity Date" means the fifth anniversary of the Amendment Date. "Fee Letter" has the meaning assigned to that term in Section 2.07(a). "Fee Simple Interval" means an undivided fee simple timeshare interest in a particular Unit or in an entire Development as a whole, as a tenant in common with other owners of undivided interests in such Unit or Development, together with all rights, benefits, privileges, and interests appurtenant thereto, including but not limited to the right to use and occupy a Unit within a Development and the Common Elements and Common Furnishings, if any, appurtenant to such Unit and/or the Development during a reserved or assigned use period, all as more 23 specifically described in the Applicable Declaration and/or other Applicable Timeshare Documents. "Fees" has the meaning assigned to that term in Section 2.07(a). "FICO Score" means a nationally recognized credit rating developed by Fair, Isaac and Co. "Fitch" means Fitch, Inc. (or its successors in interest). "Fixed Period" means for any outstanding Loans, (i) if Yield in respect of all or any part thereof is computed by reference to the CP Rate, a period of up to and including ninety (90) days as determined pursuant to Section 2.04, or (ii) if Yield in respect of all or any part thereof is computed by reference to the Non-CP Rate, the applicable Remittance Period. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States. "Government Entity" means the United States, any State, any political subdivision of a State and any agency or instrumentality of the United States or any State or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Materials" means "hazardous substances," "hazardous waste," "hazardous constituents," "toxic substances," or "solid waste," as defined in the Environmental Laws, and any other contaminant or any material, waste, or substance that is petroleum or petroleum based, asbestos, polychlorinated biphenyls, flammable explosives, or radioactive materials. "Indemnified Amounts" has the meaning assigned to that term in Section 8.01. "Independent Accountants" has the meaning assigned to that term in Section 6.12(b). "Interest Coverage Ratio" means, with respect to any Person for any fiscal quarter, the ratio of (i) EBITDA for such period less Capital Expenditures for such period to (ii) the Cash Interest Expense for such period. "Interest Expense" means, with respect to any Person for any period, the interest expense of such Person during such period determined in accordance with GAAP, and shall in any event include, without limitation, (i) the amortization of debt discounts, (ii) the amortization of all fees payable in connection with the incurrence of Debt to the extent included in interest expense, (iii) the portion of any Capital Lease Obligation allocable to interest expense, (iv) all fixed and all calculable dividend payments on preferred stock, and (v) payments of interest expense in kind. 24 "Interval" means either a Fee Simple Interval or an ONS Interval. "Issuer" means, collectively, Autobahn and any presently existing or future Person administered by DZ Bank whose principal business consists of issuing commercial paper or other securities to fund its acquisition and maintenance of receivables, accounts, instruments, chattel paper, general intangibles and other similar assets. "Land" means the real property upon which any portion of a Development is situated. "Lender" means, collectively, Autobahn and/or any other Person (including, without limitation, any present or future Affiliate of DZ Bank) that agrees, pursuant to the pertinent Assignment and Acceptance, to make Loans secured by Pledged Assets pursuant to Article II of this Agreement. "Lien" means any mortgage, security interest, or other interest in property securing an obligation owed to, or valid claim by, a Person other than the owner of such property, whether such interest arises in equity or is based on common law, statute, or contract. "Liquidation Fee" means, for Loans allocated to any Fixed Period during which such Loans are repaid (in whole or in part) prior to the end of such Fixed Period, the amount, if any, by which (i) Yield (calculated without taking into account any Liquidation Fee) which would have accrued on the amount of the payment of such Loans during such Fixed Period (as so computed) if such payment had not been made, as the case may be, exceeds (ii) the sum of (A) Yield actually received by the Lender in respect of such Loans for such Fixed Period and, if applicable, (B) the income, if any, received by the Lender from the Lender's investing the proceeds of such payments on such Loans. "Liquidation Proceeds" means with respect to a Receivable with respect to which the related Interval has been foreclosed upon by the Servicer, all amounts realized with respect to such Receivable net of reasonable expenses of the Servicer incurred in connection with the collection, repossession and disposition of the related Interval; provided, however, that the Liquidation Proceeds with respect to any Receivable shall in no event be less than zero. "Liquidity/Credit Enhancement Facility" means the Liquidity Purchase Agreement, entered into on the Closing Date among the Issuer, the financial institutions party thereto and the Agent, and/or any additional Liquidity Purchase Agreements, entered into after the Closing Date among the Issuer, the financial institutions party thereto and the Agent and/or a letter of credit or similar instrument or agreement by the financial institutions party thereto in favor of the Issuer, together with any related agreements. "Loan" means a loan made by the Lender to the Borrower pursuant to Article II. "Loans Outstanding" means the sum of the principal amounts loaned to the Borrower for the initial and any subsequent borrowings pursuant to Sections 2.01 and 2.02, 25 reduced from time to time by Collections received and distributed on account of such Loans outstanding pursuant to Section 2.05; provided, however, that such Loans Outstanding shall not be reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or must be returned for any reason. "Lockbox" means a post office box to which Collections are remitted for retrieval by the Lockbox Bank and for deposit by the Lockbox Bank into the Lockbox Account. "Lockbox Account" means the deposit account (initially, account number 08896266431 at The Chase Manhattan Bank) in the name of and under the sole dominion and control of the Agent for the benefit of the Lender; provided, that the funds deposited in such account (including any interest and earnings thereon) from time to time shall constitute the property and assets of the Borrower and the Borrower shall be solely liable for any taxes payable with respect to the Lockbox Account. "Lockbox Agreement" means an agreement relating to lockbox services in connection with the Lockbox and the Lockbox Account which is satisfactory to the Agent in form and substance and among the Borrower, the Agent and the Lockbox Bank, as such agreement may from time to time be amended, supplemented and/or otherwise modified in accordance with the terms thereof. "Lockbox Bank" means The Chase Manhattan Bank or any replacement therefor. "Material Adverse Effect" means a material adverse effect on (i) the ability of the Borrower or SRI (in its capacity as Servicer or otherwise) to conduct its business, (ii) the ability of the Borrower or SRI (in its capacity as Servicer or otherwise) to perform its obligations under this Agreement or any other Transaction Document to which it is a party, (iii) the validity or enforceability of this Agreement or any other Transaction Document to which the Borrower or SRI (in its capacity as Servicer or otherwise), as applicable, is a party, (iv) the rights and remedies of the Lender or the Agent under this Agreement or any of the Transaction Documents or (v) the validity, enforceability or collectibility of all or any portion of the Pledged Receivables. "Modified" means the process by which the payment schedule in respect of a Receivable is modified at any time in accordance with the Credit and Collection Policy to defer the payment of not more than 4 monthly payments until the end of the original term of such Receivable (which payments shall be made either in one installment or in not more than 4 additional monthly payments); provided, that, the related Obligor makes at least 2 monthly payments in respect of past due amounts at such time. "Modified Receivable" means a Receivable that has been Modified. "Monthly Remittance Report" means a report, in substantially the form of Exhibit C, furnished by the Servicer to the Agent for the Lender pursuant to Section 6.11(b). "Moody's" means Moody's Investors Service, Inc. (or its successors in interest). 26 "Mortgage" means a properly recorded or registered mortgage, deed of trust, or other security instrument customary in the timeshare industry in the Applicable Jurisdiction acceptable to the Lender, in its reasonable discretion, that creates a valid and enforceable first priority Lien against the Encumbered Interval identified therein in accordance with all Applicable Laws (which Encumbered Interval relates to a Development) and secures the payment of all principal, interest, and other amounts owed by an Obligor to SRI pursuant to a Pledged Receivable. "Mortgage and Assignment of Beneficial Interest" means, with respect to any ONS Interval, that Mortgage and Assignment of Beneficial Interest, in the form attached hereto as Exhibit H. "Net Eligible Receivables Balance" has the meaning assigned to that term in Schedule VI. "Net Income" means, with respect to any Person for any period, the aggregate income (or loss) of such Person for such period which shall be an amount equal to net revenues and other proper items of income for such Person less the aggregate for such Person of any and all items that are treated as expenses under GAAP, and less federal, state and local income taxes, all computed and calculated in accordance with GAAP. "Non-CP Rate" means with respect to any Fixed Period for any Loan allocated to such Fixed Period, an interest rate per annum equal to the Adjusted Eurodollar Rate; provided, however, that if the Lender shall have notified the Agent that a Eurodollar Disruption Event has occurred, the Non-CP Rate shall be equal to the Base Rate until the Lender shall have notified the Agent that such Eurodollar Disruption Event has ceased, at which time the Non-CP Rate shall again be equal to the Adjusted Eurodollar Rate). "Non-Disturbance Arrangements" means with respect to any ONS Interval, an arrangement such that, by the recording of an appropriate declaration in the appropriate public records of the Applicable Jurisdiction, by operation of Applicable Law, or otherwise, all right, title and interest of the related Obligor in, to and under such ONS Interval shall remain in full force and effect notwithstanding the occurrence of a Bankruptcy Event with respect to SRI, the ONS Trust or any of their respective Affiliates. "Notice of Borrowing" has the meaning assigned to that term in Section 2.02(b) hereof. "Notice of Pledge" has the meaning assigned to that term in the Custodial Agreement. "Oak N' Spruce Development" means SRI's timeshare property located in Lee, Massachusetts, known as Oak N' Spruce Resort. 27 "Obligations" means all present and future indebtedness and other liabilities and obligations (howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or due or to become due) of the Borrower to the Lender or the Agent arising under this Agreement and the other Transaction Documents and shall include, without limitation, all Fees (including, without limitation, any unpaid portion of the Structuring Fee) all liability for principal of and interest on the Loans, indemnifications and other amounts due or to become due under this Agreement and such other documents, including, without limitation, interest, fees and other obligations that accrue after the commencement of an insolvency proceeding (in each case whether or not allowed as a claim in such insolvency proceeding). "Obligor" means any Person (or if more than one Person, Obligor shall mean, collectively, each such Person) who purchases one or more Intervals and is the maker of a Receivable. "Officer's Certificate" means a certificate signed by the president, the secretary, the chief financial officer or any vice president of any Person. "ONS Interval" means a timeshare interest with respect to a Unit located at the Oak N' Spruce Development which is evidenced by a Certificate of Beneficial Interest, together with all rights, benefits, privileges, and interests appurtenant thereto, including but not limited to the right to use and occupy a Unit at the Oak N' Spruce Development and the Common Elements, if any, and Common Furnishings, if any, appurtenant to such Unit and/or such Development during a reserved or assigned use period, all as more specifically described in the Applicable Declaration and/or other Applicable Timeshare Documents. "ONS Trust" means the Oak N' Spruce Resort Trust, a Massachusetts trust. "Opinion of Counsel" means a written opinion of independent counsel acceptable to the Agent in its reasonable discretion, which opinion, if such opinion or a copy thereof is required by the provisions of this Agreement or the Receivables Purchase Agreement to be delivered to the Borrower or the Agent, is reasonably acceptable in form and substance to the Agent. "Original RLSA" has the meaning assigned to that term in the preamble hereto. "Outstanding Principal Balance" means, as of any date, with respect to a Pledged Receivable, the aggregate amount lent to the related Obligor by SRI under the terms of such Pledged Receivable minus that portion of all amounts paid by such Obligor with respect to such Pledged Receivable on or prior to such date which were allocable to principal in accordance with the terms of such Pledged Receivable and any related loan documents. "Overconcentration Amount" means, at any time, without duplication, the sum of: (81) the amount by which the sum of the Outstanding Principal Balances of all Eligible Receivables related to any one Eligible Development at such time exceeds (i) in the case of an Eligible Development at which at such time at least 70% of the completed inventory has 28 been sold, 30% or (ii) in the case of an Eligible Development at which at such time less than 70% of the completed inventory has been sold, 25% (or such higher percentage as the Agent may agree to in writing in respect of such Eligible Development at such time) of the Eligible Receivables Balance at such time; (82) the amount by which the sum of the Outstanding Principal Balances of all Eligible Receivables related to Developments in any one state at such time exceeds 20% (or 50%, in the case of Texas and 50% in the case of Missouri) of the Eligible Receivables Balance at such time; (83) the amount by which the sum of the Outstanding Principal Balances of (i) all Modified Receivables and (ii) all Eligible Receivables resulting from Downgraded Receivables, exceeds 15% of the Eligible Receivables Balance at such time; (84) the amount by which the sum of the Outstanding Principal Balances of all Eligible Receivables related to the Oak N' Spruce Development at such time exceeds 15% of the Eligible Receivables Balance at such time; and (85) the amount by which the sum of the Outstanding Principal Balances of each Eligible Receivable initially Pledged hereunder at any time on or after the Amendment Date the Obligor of which shall have had a FICO Score of at least 500 but not greater than 539 at the time such Obligor purchased the Interval related to such Eligible Receivable exceeds 10% of the Eligible Receivables Balance at such time. "Permitted Investments" means any one or more of the following: (86) direct obligations of, or obligations fully guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, provided such obligations are backed by the full faith and credit of the United States; (87) repurchase obligations (the collateral for which is held by a third party) with respect to any security described in clause (a) above, provided that the long-term unsecured obligations of the party agreeing to repurchase such obligations are at the time rated by Moody's and S&P in one of their two highest long-term rating categories and if rated by Fitch, in one of its two highest long-term rating categories; (88) certificates of deposit, time deposits, demand deposits and bankers' acceptances of any bank or trust company incorporated under the laws of the United States or any State thereof, provided that the short-term commercial paper of such bank or trust company (or, in the case of the principal depository institution in a depository institution holding company, the long-term unsecured debt obligations of the depository institution holding company) at the date of acquisition thereof has been rated by Moody's and S&P in their highest short-term rating category, and if rated by Fitch, in its highest short-term rating category; (89) commercial paper (having original maturities of not more than 270 days) of 29 any corporation incorporated under the laws of the United States or any State thereof, having a rating, on the date of acquisition thereof, of no less than A-1 by Moody's, P-1 by S&P and F-1 if rated by Fitch; and (90) money market mutual funds registered under the Investment Company Act of 1940, as amended, having a rating, at the time of such investment, of no less than Aaa by Moody's, AAA by S&P and AAA if rated by Fitch; provided, that no such instrument shall be a Permitted Investment if such instrument evidences the right to receive either (a) interest only payments with respect to the obligations underlying such instrument or (b) both principal and interest payments derived from obligations underlying such instrument where the principal and interest payments with respect to such instrument provide a yield to maturity exceeding 120% of the yield to maturity at par of such underlying obligation. Each Permitted Investment may be purchased by the Agent's Bank or through an Affiliate of the Agent's Bank and may be Permitted Investments for which the Agent's Bank or its Affiliate is an investment advisor or distributor or for which it derives a fee for support services in relation thereto. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, government (or any agency or political subdivision thereof) or other entity. "Personal Property" means, to the extent applicable, all furniture, furnishings, fixtures, appliances, equipment, inventory, supplies, accounts, chattel paper, and general intangibles at any time located at, arising out of the use of, and/or used or useful in connection with the management or operation of any Encumbered Interval, whether now owned or hereafter acquired by the Borrower, together with all improvements and accessions thereto and replacements thereof and the cash and non-cash proceeds thereof. "Phase I Environmental Inspection" means a Phase I environmental assessment of a Development, including, without limitation, the relevant Land and all improvements thereto which is acceptable to the Agent in its reasonable discretion. "Pledge" means the pledge of any Receivable pursuant to Article II. "Pledged Assets" has the meaning assigned to that term in Section 2.10. "Pledged Lender" means any party to which SRI had pledged a Pledged Receivable relating to an ONS Interval prior to the Closing Date. "Pledged Receivables" has the meaning assigned to that term in Section 2.10(a). "Previous Lender" means a Person to which SRI had pledged a Pledged Receivable prior to the Closing Date. 30 "Purchase Date" has the meaning set forth in the Receivables Purchase Agreement. "Purchase Price" means the total purchase price of an Interval, as set forth in the purchase contract pursuant to which the related Obligor agrees to purchase and SRI agrees to sell such Interval. "Purchased Rate Cap" has the meaning assigned thereto in the Sinking Fund Agreement. "Put" has the meaning assigned to that term in Section 2.17(a). "Put Date" means the second anniversary of the Amendment Date or, if such day is not a Business Day, the first Business Day thereafter. "Put Payment" has the meaning assigned to that term in Section 2.17(a). "Rating Agencies" mean Moody's and Fitch, if and so long as they have rated and are continuing to rate commercial paper notes of the Lender at any time that the Lender is an Issuer, or such other nationally recognized statistical rating organizations as may be designated by the Agent. "Receivable" means a promissory note made and executed by an Obligor in favor of SRI in connection with such Obligor's acquisition of an Interval. "Receivable File" means a file containing each of the following items with respect to each Pledged Receivable: (91) the related original, fully executed Receivable; (92) an original or a true and complete photocopy of the related, fully executed agreement pursuant to which the related Obligor acquired the related Interval; (93) that was generated in connection with an Obligor's purchase of a Fee Simple Interval, within ninety (90) days of such Pledged Receivable being Pledged hereunder, the related original, fully executed Mortgage and original assignments thereof from any Previous Lender to SRI, from SRI to the Borrower and from the Borrower to the Agent together, in each case, with evidence of the recordation thereof in the appropriate public records of the Applicable Jurisdiction in accordance with all Applicable Laws; (94) that was generated in connection with an Obligor's purchase of an ONS Interval, (i) an original, executed Certificate of Beneficial Interest duly pledged (in a manner approved by the Agent) by such Obligor to SRI (and, if such Certificate of Beneficial Interest was pledged by SRI to a Previous Lender, reassigned to SRI), SRI to the Borrower and the Borrower to the Agent; (ii) an original, executed Mortgage and Assignment of Beneficial interest duly executed by such Obligor in favor of SRI, reassigned by any Previous Lender to SRI, assigned by SRI to the Borrower and by the Borrower to the Agent, for the benefit of the Lender; (iii) an 31 acknowledgment copy of proper financing statements describing and reflecting the pledge of such Pledged Receivable, Related Security and other Pledged Assets by the Obligor to SRI (and, if such Pledged Receivable, Related Security and other Pledged Assets were pledged to a Previous Lender, the reassignment and pledge thereof to SRI), the assignment thereof from SRI to the Borrower and the Pledge thereof by the Borrower as debtor to the Agent, on behalf of the Lender, as secured party, and other, similar instruments or documents, as may be necessary or, in the opinion of the Agent or the Lender, desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Lender's interest in such Pledged Receivable, Related Security and other Pledged Assets and (iv) a true and complete updated copy of the title report issued in respect of the Oak N'Spruce Development. (95) (i) within sixty (60) days of the receipt by the Servicer of the Mortgage referred to in paragraph (c) above, an original or a true and complete photocopy of the related, fully executed Acceptable Title Policy and (ii) at all times prior to the related, fully executed Acceptable Title Policy, if any, being included in the Receivable File, a marked up title commitment, a pro forma title policy or an endorsement of a title insurance commitment deleting standard exceptions which, in each case, provides the same coverage as shall be provided by, and commits the title insurance company to deliver, such related, fully executed Acceptable Title Policy, if any; (96) an original or a true and complete photocopy of the related truth-in-lending disclosure statements delivered to the related Obligor (which may be included as part of item (b) of this definition); (97) an original or a true and complete photocopy of the fully executed credit/loan application delivered by the related Obligor; and (98) the related original, fully executed Allonge. "Receivables Purchase Agreement" means that certain Purchase and Contribution Agreement dated as of the Closing Date between SRI, as seller, and the Borrower, as purchaser, together with all instruments, documents and agreements executed in connection therewith, as such Receivables Purchase Agreement may from time to time be amended, restated, supplemented and/or otherwise modified in accordance with the terms hereof. "Receivables Schedule" has the meaning assigned to that term in the Custodial Agreement. "Records" means all documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to Receivables and the related Obligors which the Borrower has itself generated, in which the Borrower has acquired an interest pursuant to the Receivables Purchase Agreement or in which the Borrower has otherwise obtained an interest. "Related Security" means with respect to any Receivable: 32 (99) any and all security interests or liens and property subject thereto (including, without limitation, the related Interval) from time to time purporting to secure payment of such Receivable; (100) all guarantees, indemnities, warranties, letters of credit, insurance policies and proceeds and premium refunds thereof and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; and (101) all proceeds of the foregoing. "Release Price" means with respect to a Pledged Receivable to be released pursuant to Section 2.13(a), an amount equal to the Outstanding Principal Balance of such Pledged Receivable plus all accrued but unpaid interest and fees thereon. "Remittance Date" means the fifteenth day of each month or, if such date is not a Business Day, the next succeeding Business Day; provided, that the final Remittance Date shall occur on the Collection Date. "Remittance Period" means, (i) as to the initial Remittance Date, the period beginning on the Closing Date and ending on the last day of the calendar month in which such date occurred and (ii) as to any subsequent Remittance Date, the period beginning on the first day of the most recently ended calendar month and ending on the last day of the most recently ended calendar month; provided, that the final Remittance Period shall begin on the first day of the most recently ended calendar month and shall end on the Collection Date. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. (or its successors in interest). "Servicer" means at any time the Person then authorized, pursuant to Section 6.01, to service, administer and collect Pledged Receivables. "Servicer Advance" has the meaning assigned to such term in Section 6.20. "Servicer Default" means the occurrence of any of the following events: (102) the failure of the Servicer to deliver any payments, collections or proceeds which it is obligated to deliver under the terms hereof or of any other Transaction Document at the times it is obligated to make such deliveries under the terms hereof or of any other Transaction Document; (103) the inability or failure of the Servicer to satisfy any of its reporting, certification, notification or documentation requirements under the terms hereof or of any other Transaction Document; 33 (104) the failure of the Servicer to observe or perform any covenant under the terms hereof or of any other Transaction Document other than as set forth in clauses (a) or (b) above; (105) any representation, warranty or statement of the Servicer made herein or in any other Transaction Document shall prove to be incorrect; (106) the occurrence of an Early Amortization Event described in clause (a), (b), (c), (d) or (g) of the definition of Early Amortization Events; or (107) the occurrence of any Bankruptcy Event in respect of the Servicer. "Servicing Fee" means, for any Remittance Period, an amount, payable out of Collections on the Pledged Receivables and amounts applied to the payment of, or treated as payments on, the Pledged Receivables, equal to (i) the Servicing Fee Rate multiplied by (ii) the Net Eligible Receivables Balance as of the first day of such Remittance Period. "Servicing Fee Rate" means with respect to the Pledged Receivables, the per annum rate of 1.00%. "Servicing Officer" means any officer of the Servicer involved in, or responsible for, the administration and servicing of the Pledged Receivables, whose name appears on a list of servicing officers furnished to the Agent by the Servicer, as such list may from time to time be amended. "Sinking Fund Account" has the meaning assigned thereto in the Sinking Fund Agreement. "Sinking Fund Account Securities Account Agreement" means that certain Securities Account Agreement related to the Sinking Fund Account dated the Closing Date among the Borrower, the Servicer, the Agent's Bank and the Agent, as such agreement may from time to time be amended, supplemented or otherwise modified in accordance with the terms thereof. "Sinking Fund Agreement" means that certain Sinking Fund Account Agreement dated the Closing Date among the Borrower, SRI, the Agent's Bank and the Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Sinking Fund Collateral" has the meaning assigned thereto in the Sinking Fund Agreement. "SRI" has the meaning assigned to that term in the preamble hereto. "Standby Backup Servicer's Fee" means, for any Remittance Period or portion thereof prior to the occurrence of a Servicer Default and the appointment of the Backup Servicer 34 as Servicer hereunder, an amount, payable out of Collections on the Pledged Receivables and amounts applied to the payment of, or treated as payments on, the Pledged Receivables, equal to the greater of (i) the result obtained by multiplying (A) .0005 times (B) the Net Eligible Receivables Balance as of the first day of such Remittance Period and then dividing such amount by (C) twelve or (ii) $2,500. "State" means one of the fifty states of the United States or the District of Columbia. "Structuring Fee" has the meaning ascribed thereto in the Fee Letter. "Subsequent Borrowing" means a Borrowing which occurs on a Subsequent Borrowing Date. "Subsequent Borrowing Date" means each Business Day occurring after the initial Borrowing Date on which the Borrower determines to request an additional Borrowing from the Lender. "Swap Documents" has the meaning assigned thereto in the Sinking Fund Agreement. "Take-Out Securitization" means a financing transaction undertaken by the Borrower involving the direct or indirect sale or other conveyance of Receivables related thereto to a Person that shall privately or publicly sell securities, notes or certificates backed by such Receivables. "Tangible Net Worth" means with respect to any Person, the amount calculated in accordance with GAAP as (i) the consolidated net worth of such Person and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in such consolidated net worth, unsecured subordinated Debt of such Person and its consolidated subsidiaries the terms and conditions of which are reasonably satisfactory to the Agent, plus (iii) to the extent not considered an asset under GAAP, deferred sales arising from any such Person's conversion to the cash basis of accounting for sales, minus (iv) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangibles in accordance with GAAP. "Transaction Documents" means this Agreement, the Receivables Purchase Agreement, the Lockbox Agreement, the Fee Letter, the Custodial Agreement, the Assignment Agreements, the Bailee Agreements, the Sinking Fund Account Securities Account Agreement, the Collection Account Securities Account Agreement and the Sinking Fund Agreement and each document and instrument related to any of the foregoing. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. 35 "Unit" means an apartment, condominium unit, or other structure that is affixed to real property at a Development and designed and available, pursuant to applicable law, for use and occupancy as a vacation residence by one (1) or more individuals, together with all related Common Elements, if any, and Common Furnishings, if any, easements, and other appurtenances thereto. "United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "Unmatured Event of Default" means any event that, if it continues uncured, will, with lapse of time or notice or lapse of time and notice, constitute an Event of Default. "Upgraded" means the process by which an existing Pledged Receivable is deemed to be paid in full in accordance with the Credit and Collection Policy and a new Pledged Receivable in respect of an Interval requiring higher monthly payments in replacement for the Interval relating to such existing Pledged Receivable is created and the Obligor is required to make increased monthly payments in respect of such new Pledged Receivable. "Upgraded Receivable" means a Receivable that has been upgraded. "Weighted Average APR" means at any time an amount equal to the weighted average (weighted solely based on the Outstanding Principal Balances of the Eligible Receivables at such time) Coupon Rates set forth in the Pledged Receivable at such time. "Weighted Average FICO Score" means, at any time, an amount equal to the weighted average (weighted solely based on the Outstanding Principal Balances of the Eligible Receivables which were initially Pledged hereunder at any time on or after the Amendment Date and which are included in the Eligible Receivables Balance at such time) FICO Score of the Obligors related to the Eligible Receivables which were initially Pledged hereunder at any time on or after the Amendment Date and which are included in the Eligible Receivables Balance at such time. "Weighted Average Original Term" means at any time an amount equal to the weighted average (weighted solely based on the Outstanding Principal Balances of the Eligible Receivables at such time) of the original number of monthly payments owed in respect of the Pledged Receivables at such time. "Yield" means with respect to any Fixed Period for any Loan allocated to such Fixed Period, the product of: YR x L x ED --- 360 where: YR = the Yield Rate for such Fixed Period; 36 L = the principal amount of Loans Outstanding allocated to such Fixed Period; and ED = the actual number of days elapsed during such Fixed Period; provided, however, that (i) no provision of this Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law and (ii) Yield shall not be considered paid by any distribution if at any time such distribution is required to be rescinded by the Lender to the Borrower or any other Person for any reason including, without limitation, such distribution becoming void or otherwise avoidable under any statutory provision or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code. "Yield Rate" means with respect to any Fixed Period for any Loan allocated to such Fixed Period: (108) to the extent the Lender will be funding the applicable Loan on the first day of such Fixed Period through the issuance of commercial paper, a rate equal to the CP Rate for such Fixed Period; and (109) to the extent the Lender will not be funding the applicable Loan through the issuance of commercial paper, (x) a rate equal to the Non-CP Rate for such Fixed Period or (y) such other rate as the Agent and the Borrower shall agree to in writing. SECTION 1.2 Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3 Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." ARTICLE II. THE RECEIVABLES FACILITY SECTION 2.1 Borrowings. On the terms and conditions hereinafter set forth, the Lender shall make loans ("Loans") to the Borrower secured by Pledged Assets from time to time during the period from the Closing Date until the earlier of the Early Amortization Commencement Date, the Put Date or the Facility Maturity Date. Under no circumstances shall the Lender make any Loan if, after giving effect to the Borrowing of such Loan, either (a) an Early Amortization Event or an event that but for notice or lapse of time or both would constitute an Early Amortization Event has occurred and is continuing or (b) the aggregate Facility Amount hereunder would exceed the lesser of (i) the Borrowing Limit minus the Discount Amount and (ii) the Capital Limit. In addition to the foregoing, under no circumstances shall the Lender make 37 any Loan if, after giving effect to the Borrowing of such Loan, the aggregate face amount of all commercial paper issued by the Lender to fund Loans hereunder exceeds the Borrowing Limit. SECTION 2.2 The Initial Borrowing and Subsequent Borrowings. (a) Until the occurrence of the earlier of the Early Amortization Commencement Date, the Put Date and the Facility Maturity Date, the Lender will make Loans on any Business Day (but not more than once on any Business Day) at the request of the Borrower, subject to and in accordance with the terms and conditions of Sections 2.01 and 2.02 and subject to the provisions of Article III hereof. After the Collection Date has occurred, the Lender and the Agent, in accordance with their respective interests, shall re-assign and transfer to the Borrower, for no consideration but at the sole expense of the Borrower, their respective remaining interests in the Pledged Assets, free and clear of any Adverse Claim resulting solely from an act by the Lender or the Agent, but without any other representation or warranty, express or implied, by or recourse against the Lender or the Agent. (110) (i) The initial Borrowing and each Subsequent Borrowing shall be made on at least two Business Day's irrevocable written notice from the Borrower to the Agent (any such written notice, a "Notice of Borrowing"), provided that such Notice of Borrowing is received by the Agent no later than 1:00 P.M. (New York City time) on the Business Day of receipt. Each such Notice of Borrowing shall specify (A) the aggregate amount of such Borrowing, which shall be in an amount equal to or greater than $500,000, (B) the date of such Borrowing, (C) the requested Fixed Period(s) for such Borrowing and the allocations of Loans to each such requested Fixed Period and (D) the Eligible Receivables to be Pledged in connection with such Borrowing (and upon such Borrowing, such Receivables shall be Pledged Receivables hereunder). The Agent shall notify the Borrower whether the duration of the Fixed Period(s) described in such Notice of Borrowing is acceptable or, if not acceptable, the Agent shall advise the Borrower of such Fixed Period(s) as may be acceptable. On the date of each Borrowing, the Lender shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Borrower on the applicable Borrowing Date no later than 4:00 P.M. (New York City time) in same day funds, the amount of such Borrowing (net of amounts payable to or for the benefit of the Lender) by payment into the account which the Borrower has designated in writing. (1) The Notice of Borrowing for each Borrowing delivered to the Agent pursuant to this Section 2.02(b) shall be accompanied by a copy of the Notice of Pledge (and the Receivables Schedule attached thereto) which was sent to the Custodian pursuant to the terms of the Custodial Agreement in connection with the pledge of Eligible Receivables to be made in connection therewith. (111) The Loans shall bear interest at the Yield Rate. (112) Subject to Section 2.15 and the other terms, conditions, provisions and limitations set forth herein, the Borrower may borrow, repay or prepay and reborrow Loans, on and after the Closing Date and prior to the earlier to occur of the Facility Maturity Date, the Put Date and the Early Amortization Commencement Date. (113) Determinations by the Lender of the existence of any CP Disruption Event, 38 or of the effect of any CP Disruption Event on its making or maintaining Loans at the CP Rate, shall be conclusive absent manifest error. (114) Determinations by the Lender of the existence of any Eurodollar Disruption Event, or of the effect of any Eurodollar Disruption Event on its making or maintaining Loans at the Adjusted Eurodollar Rate, shall be conclusive absent manifest error. (115) Only one Borrowing shall be permitted on any Business Day. SECTION 2.3 Facility Maturity Date. Any Loans outstanding on the Facility Maturity Date shall mature on such date. Notwithstanding any other provision hereof, on the Facility Maturity Date, the outstanding principal of all outstanding Loans, if any, and all Yield and all Fees accrued thereon and all other Obligations shall be immediately due and payable (and the Borrower shall pay all such amounts immediately). SECTION 2.4 Selection of Fixed Periods. (a) At all times until the earlier to occur of the Early Amortization Commencement Date and the Facility Maturity Date, the Borrower shall, subject to the Agent's and the Lender's approval and the limitations described below, request Fixed Periods and allocations of a portion of the outstanding Loans to each selected Fixed Period, so that all such outstanding Loans are at all times allocated to one or more Fixed Periods. Subject to Section 2.04(c), the Yield Rate to apply to all Loans outstanding shall be the CP Rate. The requested initial Fixed Period applicable to any new Loan arising as a result of a Borrowing shall be requested in the Notice of Borrowing which shall be delivered in connection with the applicable Subsequent Borrowing. Subject to the next sentence of this Section 2.04, each CP Rollover Fixed Period shall commence on the last day of the immediately preceding Fixed Period, and the duration of such CP Rollover Fixed Period shall be such as the Borrower shall request in a Commercial Paper Remittance Report and the Agent shall approve; provided that such Commercial Paper Remittance Report was received by the Agent not later than 12:30 P.M. (New York City time) on a day at least one Business Day prior to such last day, except that if the Agent shall not have received such report before 12:30 P.M. on such day or the Agent and the Borrower shall not have so mutually agreed before 2:00 P.M. (New York City time) on such day, such CP Rollover Fixed Period shall be one day and the applicable Yield Rate shall be the CP Rate; provided that, notwithstanding the foregoing, upon the occurrence of any Early Amortization Event, the applicable Yield Rate for all Fixed Periods in effect at the time of such occurrence shall convert to, and for all Fixed Periods that come into effect thereafter (but prior to the occurrence of any Event of Default) shall be, the Early Amortization Funding Rate and provided further that, notwithstanding the foregoing, upon the occurrence and during the continuance of any Event of Default, the Lender shall cease to issue commercial paper notes to fund and maintain Loans hereunder and the applicable Yield Rate for all Fixed Periods in effect at the time of such occurrence shall convert to, and for all Fixed Periods that come into effect during the continuance of any Event of Default shall be, the Default Funding Rate. Any Fixed Period (other than a Fixed Period with respect to Loans which accrue Yield at the Non-CP Rate) which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day. Any Fixed Period which commences before the Early Amortization Commencement Date and would otherwise end on a date occurring after the Early Amortization 39 Commencement Date shall end on the Early Amortization Commencement Date. On and after the Early Amortization Commencement Date, the Agent shall have the right to allocate outstanding Loans, if any, to Fixed Periods of such duration as shall be selected by the Agent. The Lender shall, on the first day of each Fixed Period with respect to Loans which accrue Yield at the CP Rate, notify the Agent of the Yield Rate for such Loans. (116) References herein to Loans which accrue Yield at the Non-CP Rate being allocated to a Fixed Period shall mean all such Loans that are outstanding during such Fixed Period or a portion thereof. (117) Each of the Lender and the Agent shall make reasonable efforts to allow Loans to accrue Yield at the CP Rate; provided that neither the Lender nor the Agent shall have any obligation to allow Loans to accrue (or continue to accrue) Yield at the CP Rate upon the occurrence of a CP Disruption Event or upon the occurrence of an Event of Default or Early Amortization Event or event or circumstance which, with the giving of notice or the passage of time, or both, would constitute an Event of Default or Early Amortization Event. SECTION 2.5 Remittance Procedures. The Servicer, as agent for the Agent and the Lender, shall instruct the Agent's Bank, and the Agent may instruct the Agent's Bank, to apply funds on deposit in the Collection Account as described in this Section 2.05, provided, however, that if the Agent's Bank receives a notice from the Lockbox Bank (so long as the Lockbox Bank shall be The Chase Manhattan Bank) that the Lockbox Bank has been unable to recover the amount of any Permitted Debits (as defined in the Lockbox Agreement with The Chase Manhattan Bank) from the Lockbox Account or that the Lockbox Account contains insufficient available balances at the time of any attempted Permitted Debit (the amount of any such unrecovered Permitted Debits, the "Unrecovered Permitted Debits"), the Agent's Bank shall disburse to such Lockbox Bank within 15 days of the receipt of such notice, from amounts then on deposit in the Collection Account, the amount of any such Unrecovered Permitted Debits (without any interest accrued thereon) prior to the disbursement by the Agent's Bank of any of the amounts provided for in Section 2.05. (118) Yield and Liquidation Fees. On each Business Day (including any Remittance Date), the Servicer shall, and the Agent may, direct the Agent's Bank to set aside in the Collection Account for transfer at the further direction of the Lender or the Agent or any other duly authorized agent of the Lender (whether on such day or on a subsequent day) collected funds in an amount equal to Yield through such day on the Loans not so previously set aside and the amount of any unpaid Liquidation Fees owed to the Lender on such day. On the last day of each Fixed Period, the Agent shall notify the Servicer of, and direct the Agent's Bank to pay, such collected funds set aside in respect of Yield pursuant to this Section 2.05(a) to the Lender (or the designee of the Lender) in respect of payment of accrued Yield for such Fixed Period; provided, however, that (i) in the case of any Loan accruing Yield at the CP Rate, the portion of such Yield attributable to the Applicable Margin, and (ii) in the case of any Loan accruing Yield at the Non-CP Rate, all such Yield, shall remain set aside in the Collection Account until the next Remittance Date, at which time, it shall be disbursed pursuant to Section 2.05(c). On any Business Day on which an amount is set aside in respect of Liquidation Fees pursuant to this Section 2.05(a), the 40 Agent shall direct the Agent's Bank to pay such funds to the Lender in payment of such Liquidation Fees. (119) Fixed Period Loan Principal Repayment. The Servicer shall, and the Agent may, on the last day of each Fixed Period that is not a Remittance Date, direct the Agent's Bank to transfer collected funds held by the Agent's Bank in the Collection Account on such date, to pay the Agent for the account of the Lender in payment of the outstanding principal amount of all Loans allocated to such Fixed Period, an amount equal to the lesser of (i) the amount of such collected funds held in the Collection Account or (ii) the aggregate outstanding principal amount of Loans allocated to such Fixed Period or, if no Early Amortization Event shall have occurred and be continuing, if lower, an amount equal to the excess, if any, of the aggregate outstanding principal amount of Loans immediately prior to such distribution over the Capital Limit (after giving effect to any Borrowing made on such date and any distributions of amounts on deposit in the Collection Account made on such date). (120) Remittance Date Transfers from Collection Account. The Servicer shall and the Agent may, on each Remittance Date, direct the Agent's Bank to transfer collected funds held by the Agent's Bank in the Collection Account (in excess of the aggregate amounts (except amounts described in clauses (B) and (C) of sub-paragraph (ii) below) set aside and/or paid on such Remittance Date pursuant to Section 2.05(a)), in the following amounts and priority: (1) to the Custodian in an amount equal to the Custodian's Fees which are accrued and unpaid as of the last day of the preceding month (and expenses of the Custodian which are reimbursable under the terms of the Custodial Agreement and are unpaid as of the last day of the preceding month); (2) to the Agent for the account of the Lender in an amount equal to (and for the pro rata payment of) (A) the Fees which are due and payable on such Remittance Date pursuant to the terms of the Fee Letter, (B) any Yield on any Loan accruing Yield at the CP Rate which is attributable to the Applicable Margin and which is accrued and unpaid as of the last day of the preceding month and (C) any Yield on any Loan accruing Yield at the Non-CP Rate which is accrued and unpaid as of the last day of the preceding month; (3) (A) at any time after the occurrence of a Servicer Default and the appointment of the Backup Servicer as the Servicer hereunder, to the Backup Servicer in an amount equal to the sum of (1) the Backup Servicer's Fees which are accrued and unpaid as of the last day of the preceding month, (2) any documented expenses and allocated cost of personnel reasonably incurred by the Backup Servicer in connection with a transfer of servicing from the Servicer to the Backup Servicer as the successor Servicer (up to a cumulative limit of $50,000) and (3) the reasonable expenses incurred by the Backup Servicer in connection with (a) the foreclosure and disposition of any Interval (at the direction of the Agent) in excess of the costs associated with taking back the deed in respect of such Interval in lieu of foreclosure and (b) enforcing or collecting upon the Acceptable Title Policies in accordance with Section 6.04(b) and (B) at any time prior to 41 the occurrence of a Servicer Default and the appointment of the Backup Servicer as the Servicer hereunder, to the Backup Servicer in an amount equal to the Standby Backup Servicer's Fees which are accrued and unpaid as of the last day of the preceding month; (4) to the Servicer (if the Servicer is SRI or any Affiliate thereof), the amount of any Servicer Advances not previously reimbursed to the Servicer; (5) to the Agent for the account of the Lender in an amount equal to the aggregate amount of all other obligations of the Borrower then due to the Lender, the Agent or any Affected Party hereunder (other than those specified in clauses (vi) and (xi) below); (6) to the Agent for the account of the Lender in an amount equal to the Borrowing Base Deficiency (if any) as of such Remittance Date; (7) to the Sinking Fund Account in the amount of any Additional Deposit required pursuant to Section 2.1(d) of the Sinking Fund Account Agreement; (8) without limiting the obligation of the Borrower under the Sinking Fund Agreement, to the Agent for the account of the Agent in an amount equal to (and for repayment of) any funds expended by the Agent to purchase any Purchased Rate Caps which the Borrower failed to purchase in breach of its obligation to do so under the terms of the Sinking Fund Agreement; (9) without limiting the obligation of the Borrower under the Sinking Fund Agreement and at the election of the Agent, to the applicable counterparty (as set forth in the Sinking Fund Agreement) in an amount equal to (and for payment of) any Purchased Rate Caps which the Borrower failed to purchase in breach of its obligation to do so under the terms of the Sinking Fund Agreement; (10) to the Servicer (if the Servicer is SRI or any Affiliate thereof) in an amount equal to the Servicing Fee which is accrued and unpaid as the last day of the preceding month; (11) on or after the occurrence of the Early Amortization Commencement Date, to the Agent for the account of the Lender for the repayment of Loans outstanding in an amount equal to the lesser of (i) all remaining funds in the Collection Account and (ii) an amount necessary to repay the outstanding principal amount of all Loans in full; and (12) to the Borrower, any remaining amounts. Upon its receipt of funds pursuant to clauses (i), (v), (vi) and (xi), the Agent shall apply such funds as directed by the Lender or as otherwise provided in this Agreement. (121) Transfers from Collection Account Related to the Sinking Fund 42 Agreement. The Servicer (with the approval of the Agent) shall, and if the Servicer fails to do so the Agent may, on any Borrowing Date, direct the Agent's Bank to transfer collected funds held by the Agent's Bank in the Collection Account in the following amounts and priority: (1) to the Sinking Fund Account in the amount of any Additional Deposit required pursuant to Section 2.1(d) of the Sinking Fund Account Agreement; (2) without limiting the obligation of the Borrower under the Sinking Fund Agreement, to the Agent for the account of the Agent in an amount equal to (and for repayment of) any funds expended by the Agent to purchase any Purchased Rate Caps which the Borrower failed to purchase notwithstanding its obligation to do so under the terms of the Sinking Fund Agreement; (3) without limiting the obligation of the Borrower under the Sinking Fund Agreement and at the election of the Agent, to the applicable counterparty (as set forth in the Sinking Fund Agreement) in an amount equal to (and for payment of) any Purchased Rate Caps which the Borrower failed to purchase notwithstanding its obligation to do so under the terms of the Sinking Fund Agreement; and (4) without limiting the obligation of the Borrower under Section 3.2 of the Sinking Fund Agreement, to the Swap Counterparty (as defined in the Sinking Fund Agreement), in an amount equal to (and for payment of) any Swap Obligations (as defined in the Sinking Fund Agreement). (122) Borrower Deficiency Payments. Notwithstanding anything to the contrary contained in this Section 2.05 or in any other provision in this Agreement, if, on any day prior to the Collection Date, the Facility Amount shall exceed the lesser of (i) the Borrowing Limit minus the Discount Amount and (ii) the Capital Limit, then the Borrower shall remit to the Agent, prior to any Borrowing and in any event no later than the close of business of the Agent on such day (or if such day is not a Business Day, no later than the close of business of the Agent on the next succeeding Business Day), a payment (to be applied by the Agent to repay Loans selected by the Agent, in its sole discretion) in such amount as may be necessary to reduce the Facility Amount to an amount less than or equal to the lesser of (x) the Borrowing Limit minus the Discount Amount and (y) the Capital Limit. (123) Instructions to the Agent's Bank. All instructions and directions given to the Agent's Bank by the Servicer or the Agent pursuant to this Section 2.05 shall be in writing (including instructions and directions transmitted to the Agent's Bank by telecopy) and such written instructions and directions shall be delivered with a written certification that such instructions and directions are in compliance with the provisions of this Section 2.05. A copy of all instructions and directions given to the Agent's Bank by the Servicer pursuant to this Section 2.05, shall be immediately transmitted to the Agent by telecopy. A copy of all instructions and directions given to the Agent's Bank by the Agent pursuant to this Section 2.05, shall be immediately transmitted to the Servicer and the Borrower by telecopy. 43 SECTION 2.6 Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Borrower or the Servicer hereunder shall be paid or deposited in accordance with the terms hereof no later than 1:00 P.M. (New York City time) on the day when due in lawful money of the United States in immediately available funds to the Collection Account or such other account as is designated by the Lender. The Borrower shall, to the extent permitted by law, pay to the Agent interest on all amounts not paid or deposited when due hereunder (whether owing by the Borrower or the Servicer) at the Default Funding Rate, payable on demand; provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. Such interest shall be for the account of, and distributed by the Agent to, the Lender. Any Obligation hereunder shall not be reduced by any distribution of any portion of Collections if at any time such distribution is rescinded or returned by the Lender to the Borrower or any other Person for any reason. All computations of interest and all computations of Yield, Liquidation Fee and other fees hereunder (including, without limitation, the Fees, the Backup Servicer's Fee and the Servicing Fee) shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. (124) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of Yield, interest or any fee payable hereunder, as the case may be. (125) If any Borrowing requested by the Borrower and approved by the Lender and the Agent pursuant to Section 2.02 or any selection of any Fixed Period requested by the Borrower and approved by the Agent pursuant to Section 2.04 is not for any reason whatsoever, except as a result of the gross negligence or wilful misconduct of the Lender and/or the Agent, made or effectuated, as the case may be, on the date specified therefor, the Borrower shall indemnify the Lender against any loss, cost or expense incurred by the Lender (other than any such loss, cost or expense solely due to the gross negligence or willful misconduct of the Lender or the Agent), including, without limitation, any loss (including cost of funds and out-of-pocket expenses), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to fund Loans or maintain Loans during such Fixed Period. SECTION 2.7 Fees. (a) The Borrower shall pay the Lender (either directly or through the Agent) certain fees (the "Fees") in the amounts and on the dates set forth in a fee letter (the "Fee Letter"), dated the Closing Date, among SRI, the Borrower, the Agent, and the Lender. (126) All of the Fees payable pursuant to this Section 2.07 (other than the "Structuring Fee" as defined in the Fee Letter) shall be payable solely from amounts available for application pursuant to, and subject to the priority of payment set forth in, Section 2.05. SECTION 2.8 Increased Costs; Capital Adequacy. (a) If, due to either (i) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority 44 (whether or not having the force of law), there shall be any increase in the cost to the Agent, the Lender, or any Affiliate, successor or assign thereof (each of which shall be an "Affected Party") of agreeing to make or making, funding or maintaining any Loan, as the case may be, the Borrower shall, from time to time, upon written demand by such Affected Party (with a copy to the Agent), immediately pay to such Affected Party (as a third party beneficiary, in the case of an Affected Party that is not also the Lender hereunder), additional amounts sufficient to compensate such Affected Party for such increased costs. (127) If either (i) the introduction of or any change in or in the interpretation of any law, guideline, rule or regulation, directive or request or (ii) the compliance by any Affected Party with any law, guideline, rule, regulation, directive or request from any central bank or other governmental authority or agency (whether or not having the force of law), including, without limitation, compliance by an Affected Party with any request or directive regarding capital adequacy, has or would have the effect of reducing the rate of return on the capital of any Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which any such Affected Party could have achieved but for such introduction, change or compliance (taking into consideration the policies of such Affected Party with respect to capital adequacy) by an amount deemed by such Affected Party to be material, then from time to time, within ten days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis of such demand), such Affected Party shall be paid (from Collections pursuant to, and subject to the priority of payment set forth in, Section 2.05) such additional amounts as will compensate such Affected Party for such reduction. (128) In determining any amount provided for in this Section 2.08, the Affected Party may use any reasonable averaging and attribution methods. Any Affected Party making a claim under this Section 2.08 shall submit to the Borrower a certificate setting forth in reasonable detail the computations of such additional or increased costs, which certificate shall be conclusive absent demonstrable error. (129) If, as a result of any event or circumstance similar to those described in Section 2.08(a) or 2.08(b), any Affected Party (that is an Issuer) is required to compensate a bank or other financial institution providing liquidity support, credit enhancement or other similar support to such Affected Party in connection with this Agreement, then, upon demand by such Affected Party, the Borrower shall pay to such Affected Party such additional amount or amounts as may be necessary to reimburse such Affected Party for any amounts paid by it. SECTION 2.9 Collateral Assignment of Agreements. The Borrower hereby collaterally assigns to the Agent, for the benefit of the Lender, all of the Borrower's right, title and interest in, to and under the Receivables Purchase Agreement and all Certificates of Beneficial Interest, all Assignment Documents, all Pledged Receivables, all Mortgages, and all Acceptable Title Policies related to any Pledged Receivable, all other agreements, documents and instruments comprising Collateral or Applicable Underlying Collateral and all other agreements, documents and instruments evidencing, securing or guarantying any Pledged Receivable and all other agreements, documents and instruments related to any of the foregoing (the "Assigned Documents"). The Borrower confirms and agrees that the Agent (or any designee thereof) shall 45 have, following an Event of Default or an Early Amortization Event, the sole right to enforce the Borrower's rights and remedies under each Assigned Document, but without any obligation on the part of the Agent, the Lender or any of their respective Affiliates to perform any of the obligations of the Borrower under any such Assigned Document. In addition, each of the Servicer and the Borrower confirms and agrees that the Servicer or the Borrower will send to the Agent a notice of (i) any breach of any representation, warranty, agreement or covenant under any such Assigned Document or (ii) any event or occurrence that, upon notice to SRI, or upon the passage of time or both, would constitute such a breach. The Borrower further confirms and agrees that such assignment to the Agent shall terminate upon the Collection Date. SECTION 2.10 Grant of a Security Interest. To secure the prompt and complete payment when due of the Obligations and the performance by the Borrower of all of the covenants and obligations to be performed by it pursuant to this Agreement, the Borrower hereby (i) collaterally assigns and pledges to the Agent, on behalf of the Lender (and its successors and assigns) and (ii) grants a security interest to the Agent, on behalf of the Lender (and its successors and assigns), in all of the following property and interests in property, whether tangible or intangible and whether now owned or existing or hereafter arising or acquired and wheresoever located (collectively, the "Pledged Assets") and all of the Borrower's right, title and interest in, to and under the Pledged Assets: (130) all Receivables purchased by (or purportedly purchased by) the Borrower under the Receivables Purchase Agreement (collectively, the "Pledged Receivables"), together with all Collateral and all Related Security related to the Pledged Receivables, all Collections and other monies due and to become due to the Borrower in respect of any Pledged Receivable and any security therefor received on or after the date such Pledged Receivables were purchased by (or purportedly purchased by) the Borrower under the Receivables Purchase Agreement; (131) the Assigned Documents, including in each case, without limitation, all monies due and to become due to the Borrower under or in connection therewith, and all legal opinions delivered or rendered in connection with any item included in clause (a) above or this clause (b) or any transaction related to any of the foregoing; (132) the Lockbox, the Lockbox Account, the Collection Account, the Sinking Fund Account, and all other bank and similar accounts relating to the collection of Pledged Receivables (whether now existing or hereafter established) and all funds held therein or in such other accounts, and all investments in and all income from the investment of such funds in the Lockbox Account (if any), the Collection Account, the Sinking Fund Account, and such other accounts; (133) the Records relating to any Pledged Receivables; (134) all UCC financing statements filed by the Borrower against SRI under or in connection with the Receivables Purchase Agreement; (135) the Sinking Fund Agreement; 46 (136) all Purchased Rate Caps; (137) all Swap Documents; (138) all Liquidation Proceeds relating to any Pledged Receivables; (139) all Acceptable Environmental Reports and similar environmental reports certified or assigned to the Borrower which are related to Pledged Receivables; and (140) all proceeds of the foregoing property described in clauses (a) through (j) above, including interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for or on account of the sale or other disposition of any or all of the then existing Pledged Assets. SECTION 2.11 Evidence of Debt. The Lender shall maintain an account or accounts evidencing the indebtedness of the Borrower to the Lender resulting from each Loan owing to the Lender from time to time, including the amounts of principal and interest payable and paid to the Lender from time to time hereunder. The entries made in such account(s) of the Lender shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.12 Survival of Representations and Warranties; Repayment Obligations. It is understood and agreed that the representations and warranties set forth in Section 4.01 are made on the Closing Date, on the Amendment Date, at the time of the initial Borrowing, and on each Subsequent Borrowing Date and Remittance Date thereafter. If, as a result of the breach of any of the representations and warranties in Section 4.01 or for any other reason there exists or would exist a Borrowing Base Deficiency, the Borrower shall promptly (and, in any case, within one Business Day) prepay to the Agent, for the account of the Lender, the portion of the Loans as is necessary to cure such Borrowing Base Deficiency. The Borrower shall promptly reimburse the Agent and the Lender for any reasonable out-of-pocket expenses incurred by the Agent and the Lender, respectively, in respect of any such prepayment including, without limitation, Liquidation Fees. SECTION 2.13 Release of Pledged Receivables. (a) In connection with the consummation of any Take-Out Securitization, any pay off by the related Obligor or liquidation by the Servicer of any Receivable, or any required repurchase by SRI of Pledged Receivables pursuant to the Receivables Purchase Agreement, the Borrower shall be entitled to obtain the release of any Pledged Receivable subject to any such transaction, pay off, liquidation or repurchase at any time after the Closing Date by depositing into an account designated by the Agent the Release Price therefor on any Remittance Date and upon such deposit the Agent shall execute and deliver, within a reasonable period of time and at the sole expense of the Borrower, such documents as the Borrower determines in its reasonable discretion to be necessary to effect such release; provided, that the foregoing release shall only be available if, at the time of the request for such release and after giving effect thereto and the application of the proceeds thereof in accordance with the terms hereof, there shall not be a Borrowing Base Deficiency, an Early 47 Amortization Event or a default under any Transaction Document. The Borrower shall notify the Agent of any Release Price to be paid pursuant to this Section 2.13(a) on the Business Day on which such Release Price shall be paid specifying the Pledged Receivables to be released and the Release Price. (141) The Borrower shall be entitled to obtain the release of any Defaulted Receivable at any time after the Closing Date and the Agent shall execute and deliver, within a reasonable period of time and at the sole expense of the Borrower, such documents as the Borrower determines in its reasonable discretion to be necessary to effect such release; provided, that such release shall only be available if, at the time of the request for such release and after giving effect to any such release, there shall not be a Borrowing Base Deficiency, an Early Amortization Event or a default under any Transaction Document. SECTION 2.14 Treatment of Amounts Paid by the Borrower. Amounts paid by the Borrower pursuant to Section 2.13(a) on account of Pledged Receivables shall be treated as payments on Pledged Receivables hereunder. SECTION 2.15 Termination. The Borrower shall not terminate this Agreement or any other Transaction Document or reduce the Borrowing Limit, in each instance, prior to the Facility Maturity Date without the Agent's prior written consent, which consent may be withheld in the Agent's sole discretion. SECTION 2.16 Lockbox Arrangements. No later than the date that any Receivable is Pledged hereunder, the Servicer shall (i) direct and otherwise cause the Obligor obligated under such Receivable to mail payments of all monies due under such Receivable to the Lockbox and (ii) to cause the Lockbox Bank to (A) deposit on each Business Day all payments of Collections received in the Lockbox into the Lockbox Account and (B) to remit all Collections deposited into the Lockbox Account to the Collection Account within one (1) Business Day of the deposit of such Collections into the Lockbox Account. Neither SRI, the Servicer nor the Borrower shall change any payment directions referred to in the previous sentence without the prior written consent of the Agent. SECTION 1.2 Put of Pledged Assets. (2) On the Put Date, the Agent, on behalf of the Lender (and its successors and assigns), shall have the right, in its sole discretion, to put, transfer and assign to the Borrower all of the Agent's and Lender's right, title and interest in and to all of the Pledged Assets (the "Put"). On the Put Date, the Borrower shall pay to the Agent, for the benefit of the Lender, an amount (the "Put Payment") equal to the outstanding principal of all outstanding Loans, if any, and all Yield and all Fees accrued thereon and all other Obligations due and payable. The Borrower hereby agrees to accept such Put on the Put Date and to pay the Put Payment on such Put Date to an account designated by the Agent. (3) Upon the indefeasible payment by the Borrower to the Agent of the Put Payment, all such Loans, Yield and Fees accrued thereon and other Obligations due and payable 48 shall be deemed paid in full, and all right, title and interest of the Agent and the Lender in, to and under such Pledged Assets shall terminate and revert to the Borrower and the right, title and interest of the Agent and the Lender in such Pledged Assets shall thereupon cease, terminate and become void; and, upon the request of the Borrower, its successors or assigns, the Agent, if required, shall execute and deliver, within a reasonable period of time and at the sole expense of the Borrower, such UCC-3 financing statements and releases as the Borrower determines in its reasonable discretion to be necessary to effect such release. (4) This Agreement shall survive the Put Date; provided, that, notwithstanding any other provision hereof, the Lender shall have no further obligation to make any additional Loans on or after the Put Date. ARTICLE III. CONDITIONS OF LOANS SECTION 3.1 Conditions Precedent to Initial Borrowing. The initial Borrowing hereunder on the Closing Date was subject to the conditions precedent that: (5) all acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings or registrations) required to be done and performed and to have happened prior to the execution, delivery and performance of the Original RLSA and all related documents and to constitute the same legal, valid and binding obligations, enforceable in accordance with their respective terms, were done and performed and happened in due and strict compliance with all applicable laws; (6) the Agent received on or before the date of such Borrowing the items listed in Schedule I, each in form and substance satisfactory to the Agent and the Lender; and (7) the Sinking Fund Account Agreement was duly executed by each of the parties thereto. SECTION 3.2 Conditions Precedent to All Borrowings. Except as otherwise expressly provided below, each Borrowing (including the initial Borrowing) by the Borrower from the Lender shall be subject to the further conditions precedent that: (8) With respect to any such Borrowing (other than the initial Borrowing), on or prior to the date of such Borrowing, the Servicer shall have delivered to the Agent, in form and substance satisfactory to the Agent, the most recent Monthly Remittance Report required by the terms of Section 6.11(b); (9) With respect to such Borrowing, at least one Business Day prior to the date of such Borrowing, the Servicer shall have delivered to the Agent, in form and substance satisfactory to the Agent, a certificate signed by an officer of the Borrower having responsibility for financial matters of the Borrower which shall demonstrate that, after giving effect to such Borrowing requested by the Borrower, the Facility Amount will not exceed the lesser of the 49 (i) Borrowing Limit minus the Discount Amount and (ii) the Capital Limit; (10) On the Borrowing Date of such Borrowing, the following statements shall be true, and the Borrower by accepting the amount of such Borrowing shall be deemed to have certified that: (1) the representations and warranties contained in Section 4.01 are true and correct in all material respects, before and after giving effect to the Borrowing to take place on such Borrowing Date and to the application of proceeds therefrom, on and as of such day as though made on and as of such date; (2) no event has occurred and is continuing, or would result from such Borrowing, which constitutes an Early Amortization Event hereunder, or an event that but for notice or lapse of time or both would constitute an Early Amortization Event; (3) on and as of such day, after giving effect to such Borrowing, the Facility Amount does not exceed the lesser of (x) the Borrowing Limit minus the Discount Amount and (y) the Capital Limit; (4) (A) the Borrower has delivered to the Agent a timely copy of the Notice of Borrowing and the Notice of Pledge (together with the attached Receivables Schedule) pursuant to Section 2.02, each appropriately completed and executed by the Borrower, (B) (1) the Borrower has delivered or caused to have been delivered to the Custodian the Notice of Pledge (together with the attached Receivables Schedule) related to the Receivables being Pledged hereunder on such Borrowing Date and the Receivable File with respect to each Pledged Receivable being Pledged hereunder on such Borrowing Date, (2) the Pledged Receivables being Pledged hereunder on such Borrowing Date are duly endorsed and duly assigned by any Previous Lender to SRI, by SRI to the Borrower and duly endorsed and duly assigned by the Borrower to the Agent and (3) the Mortgages related to each Receivable being Pledged hereunder on such Borrowing Date, assignments thereof by any Previous Lender to SRI, by SRI to the Borrower and assignments thereof by the Borrower to the Agent have all been duly recorded in the appropriate recording offices, and (C) the Custodian has delivered to the Agent by 11:30 A.M. (New York City time) on such Borrowing Date, a Collateral Receipt from the Custodian confirming that, inter alia, the Receivable Files received on such Borrowing Date conform with the Receivables Schedule delivered to the Custodian and the Agent on such Borrowing Date; (5) all terms and conditions of the Receivables Purchase Agreement required to be satisfied in connection with the transfer and sale of each Receivable being Pledged hereunder on such Borrowing Date, including, without limitation, the perfection of the Borrower's interests therein shall have been satisfied in full, and all filings (including, without limitation, real property and UCC filings) required to be made by any Person and all actions required to be taken or performed by any Person in any jurisdiction to give the Agent, for the benefit of the Lender, a first priority perfected security interest in such Receivables and the proceeds thereof shall have been made, taken or performed; 50 (6) the Borrower shall have taken all steps necessary under all applicable law in order to cause a valid, subsisting and enforceable first priority security interest to exist in its favor in the Applicable Underlying Collateral and all other Collateral related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date and immediately prior to the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall have existed in favor of the Borrower as secured party, a valid, subsisting and enforceable first priority perfected lien in the Applicable Underlying Collateral and all other such Collateral related to such Receivable (and the proceeds thereof), and such security interest is and shall be prior to all other liens upon and security interests in such the Applicable Underlying Collateral and other such Collateral (and the proceeds thereof) that now exist or may hereafter arise or be created; (7) the Borrower shall have taken all steps necessary under all applicable law in order to cause a valid, subsisting and enforceable first priority ownership interest to exist in its favor in the Pledged Receivable (and the proceeds thereof) related to any Receivable being Pledged hereunder on such Borrowing Date and immediately prior to the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall have existed in favor of the Borrower as secured party, a valid, subsisting and enforceable first priority ownership interest in the Pledged Receivable (and the proceeds thereof) related to any such Receivable which is and free of all liens and security interests; (8) the Borrower shall have taken all steps necessary under all applicable law in order to cause to exist in favor of the Agent, for the benefit of the Lender, a valid, subsisting and enforceable first priority perfected lien in (A) the Borrower's perfected security interest in the Applicable Underlying Collateral and all other Collateral (other than the Pledged Receivables) related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date and (B) the Pledged Receivables and any other Pledged Assets related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date, and upon the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall exist in favor of the Agent (for the benefit of the Lender) as secured party, a valid, subsisting and enforceable first priority perfected security interest in (A) the Borrower's perfected security interest in the Applicable Underlying Collateral and all other Collateral (other than the Pledged Receivables) related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date and (B) the Pledged Receivables and any other Pledged Assets related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date, and such security interest is and shall be prior to all other liens upon and security interests therein that now exist or may hereafter arise or be created; and (9) each of (A) a Non-Disturbance Arrangement and (B) an Opinion of Counsel that such Non-Disturbance Arrangement shall remain in full force and effect notwithstanding the occurrence of a Bankruptcy Event with respect to SRI, the ONS Trust or any of their respective Affiliates, remains in effect in respect of the Pledged 51 Receivables relating to each ONS Interval; (11) All Mortgages related to all Receivables (which were originated in connection with the sales of Fee Simple Intervals) being Pledged hereunder on such Borrowing Date and collateral assignments thereof from SRI to the Borrower, and from the Borrower to the Agent, for the benefit of the Lender shall each have been duly recorded or registered in the Applicable Jurisdiction in accordance with all Applicable Laws. All such Mortgages must have evidence thereon of payment of all required documentary stamps and intangible taxes, if any are required; (12) The Borrower has delivered or caused to have been delivered to the Custodian the Notice of Pledge (together with the attached Receivables Schedule) related to the Receivables being Pledged hereunder on the related Borrowing Date and the Receivable File with respect to each Pledged Receivable being Pledged hereunder on such Borrowing Date; (13) No law or regulation shall prohibit, and no order, judgment or decree of any federal, state or local court or governmental body, agency or instrumentality shall prohibit or enjoin, the making of such Loans by the Lender in accordance with the provisions hereof; (14) After giving effect to such Borrowing, the Sinking Fund Account shall be funded in the amount required under the Sinking Fund Account Agreement; (15) The following statements shall be true: (1) The Borrower has received no notice of any asserted or threatened defense, offset, counterclaim, discount, or allowance in respect of any Pledged Receivables being Pledged hereunder on such Borrowing Date; and (2) The Borrower has received such additional items as the Agent shall reasonably require, including, without limitation, an aging report and delinquency reports of any Pledged Receivables being Pledged hereunder on such Borrowing Date; and (16) On the date of each Borrowing that is secured, in part or in whole, by Pledged Receivables relating to Units located at a particular Development, the following conditions shall have been satisfied: (1) Title Policies. If such Borrowing is secured, in part or in whole, by Pledged Receivables related in whole or in part to Fee Simple Intervals relating to Units located at such Development, the Agent, for the benefit of the Lender, has been delivered an Acceptable Title Policy. (2) Background Documents. The Borrower and the Servicer shall have received and approved each of the following: (1) Subdivision Plat. The approved and recorded subdivision 52 plat for all phases of the Developments in which the Encumbered Intervals are located. (2) Environmental Report. An Acceptable Environmental Report covering such Development, including all real property which constitutes part of such Development. (3) Evidence of Insurance. The Borrower and the Servicer have received policies or binders therefor (provided that the Agent shall not be deemed to have knowledge of the contents thereof) of all Acceptable Insurance Policies and endorsements thereto relating to such Development, including but not limited to the Encumbered Intervals. In addition, Borrower and the Servicer have received written evidence that SRI has obtained and is maintaining or has caused the Applicable Timeshare Owners' Association to obtain and maintain all policies of insurance required by and in accordance with the terms of the Credit and Collection Policy hereof and all additional policies of insurance which are customary in the timeshare industry in the Applicable Jurisdiction, together with copies of the most current paid insurance premium invoices for such policies and all other supporting information and documentation. (4) Applicable Laws. Borrower and the Servicer have received evidence satisfactory to Borrower that all Encumbered Intervals at such Development are and will be in compliance with all applicable zoning, building, and other Applicable Laws in connection with the construction, development, establishment, and operation of such Development and the sale, use, marketing, and occupancy of Units and Intervals thereat. (5) Litigation. Borrower and the Servicer have received evidence satisfactory to Borrower, the Servicer and Lender that there exists no pending bankruptcy, foreclosure, or other material litigation or judgments outstanding against or with respect to such Development, the Person managing such Development or SRI (each a "Material Party"). The term "other material litigation" as used herein shall not include matters in which (i) a Material Party is a plaintiff and no counterclaim is pending; or (ii) Borrower and Agent determine, in their reasonable discretion, that such litigation is immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Borrower shall have obtained an independent search, at Borrower's or SRI's expense, confirming that no such bankruptcy, foreclosure action, or other material litigation or judgment exists. (6) Code/Other Searches. Borrower and the Servicer have obtained such searches of the applicable public records as they deem necessary under all Applicable Laws to verify that the Borrower has a first and prior perfected lien and security interest covering all of the Applicable Underlying Collateral with respect to Receivables related to such Development. (7) Taxes and Assessments. Borrower and the Servicer have received copies of the most current tax bills related to the related Development, together with evidence satisfactory to them that all real estate and personal property taxes and 53 assessments owed with respect to such Development by SRI or the Applicable Timeshare Owners' Association, or for which SRI or the Applicable Timeshare Owners' Association is responsible for collection, have been paid except for such taxes as are being disputed in good faith and with respect to which adequate reserves have been established. (8) Miscellaneous. Such other matters as Lender shall reasonably require. True copies or, to the extent required hereby, originals of all of the above-referenced documents, instruments, forms, opinions, and other materials shall be delivered to the Servicer, either prior to or contemporaneously with Borrower's execution and delivery to the Lender of the Notice of Borrowing with respect to a proposed Loan secured by the Receivables related thereto. The delivery by the Borrower of any Notice of Borrowing shall be deemed to be the Borrower's and the Servicer's written representation and acknowledgment of receipt and approval of each item referred to in the previous sentence which are related to the Receivables being Pledged to secure the Loan being requested pursuant to such Notice of Borrowing. SECTION 3.3 Advances Do Not Constitute a Waiver. No advance of a Loan hereunder shall constitute a waiver of any condition to the Lender's obligation to make such an advance unless such waiver is in writing and executed by the Lender. SECTION 1.3 Conditions to Effectiveness of this Agreement. The effectiveness of this Agreement is subject to the satisfaction of each of the conditions set forth in the letter agreement dated December 12, 2001 among the Borrower, SRI, the Agent and the Lender. ARTICLE IV. REPRESENTATIONS AND WARRANTIES SECTION 4.1 Representations and Warranties of the Borrower and the Servicer. Each of the Servicer and the Borrower (each as to itself) hereby represents and warrants, as of the Closing Date, the Amendment Date, on each Borrowing Date, on each Remittance Date and on the first day of each CP Rollover Fixed Period, as follows: (2) Each Pledged Receivable designated as an Eligible Receivable on any Borrowing Base Certificate, Monthly Remittance Report or Commercial Paper Remittance Report is an Eligible Receivable. (3) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the power and all licenses necessary to own its assets and to transact the business in which it is presently engaged, and is duly qualified and in good standing under the laws of each jurisdiction where its ownership of the Pledged Receivables requires such qualification. (4) The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the power and all licenses 54 necessary to own its assets and to transact the business in which it is presently engaged (which includes servicing Receivables on behalf of third parties and itself), and is duly qualified and in good standing under the laws of each jurisdiction where its servicing of the Pledged Receivables requires such qualification. (5) Each of the Servicer and the Borrower has the power, authority and legal right to make, deliver and perform this Agreement and each of the Transaction Documents to which it is a party and all of the transactions contemplated hereby and thereby, and has taken all necessary action to authorize the execution, delivery and performance of this Agreement and each of the Transaction Documents to which it is a party, and, in the case of the Borrower, to grant to the Agent, for the benefit of the Lender, a first priority perfected security interest in the Pledged Assets on the terms and conditions of this Agreement. This Agreement and each of the Transaction Documents to which the Servicer or the Borrower is a party constitutes the legal, valid and binding obligation of the Servicer and the Borrower, as applicable, enforceable against them in accordance with their respective terms except as the enforceability hereof and thereof may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws of general application affecting creditors' rights generally and by general principles of equity (whether such enforceability is considered in a proceeding in equity or at law). No consent of any other party and no consent, license, approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery or performance by the Borrower or the Servicer of this Agreement or any Transaction Document to which it is a party, or the validity or enforceability of this Agreement or any such Transaction Document or the Pledged Receivables, other than such as have been met or obtained. (6) The execution, delivery and performance of this Agreement, the other Transaction Documents and all other agreements and instruments executed and delivered or to be executed and delivered pursuant hereto or thereto will not (i) create any Adverse Claim on the Pledged Assets other than as contemplated herein or (ii) violate any provision of any existing law or regulation or any order or decree of any court, regulatory body or administrative agency or the certificate of incorporation or by-laws of the Servicer or the Borrower or any mortgage, indenture, contract or other agreement to which the Servicer or the Borrower is a party or by which the Servicer or the Borrower or any property or assets of the Servicer or the Borrower may be bound. (7) Except as set forth on Schedule IV hereto, no litigation or administrative proceeding of or before any court, tribunal or governmental body is presently pending or, to the knowledge of the Servicer and the Borrower, threatened against the Servicer or the Borrower or any properties of the Servicer or the Borrower or with respect to this Agreement (x) which, if adversely determined, could reasonably be expected to have a Material Adverse Effect or (y) which purports to affect the legality, validity or enforceability of this Agreement, any Transaction Document to which the Borrower or Servicer is a party, or any of the other applicable documents forming part of the Pledged Assets. (8) In selecting the Receivables to be Pledged pursuant to this Agreement, no selection procedures were employed which are intended to be adverse to the interests of the 55 Lender. (9) The grant of the security interest in the Pledged Assets by the Borrower to the Agent for the benefit of the Lender pursuant to this Agreement is in the ordinary course of business for the Borrower and is not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction. No such Pledged Assets have been sold, transferred, assigned or pledged by the Borrower to any Person other than the Pledge of such Assets to the Agent, for the benefit of the Lender, pursuant to the terms of this Agreement. (10) The Borrower has no Debt or other indebtedness, other than Debt incurred under (or contemplated by) the terms of this Agreement and the Receivables Purchase Agreement. (11) The Borrower has been formed solely for the purpose of engaging in transactions of the types contemplated by this Agreement and the Receivables Purchase Agreement. (12) No injunction, writ, restraining order or other order of any nature adversely affects the Servicer's or the Borrower's performance of their respective obligations under this Agreement or any Transaction Document to which the Servicer or the Borrower is a party. (13) Each of the Servicer and the Borrower has filed (on a consolidated basis or otherwise) on a timely basis all federal, state and other material tax returns required to be filed, is not liable for taxes payable by any other Person and has paid or made adequate provisions for the payment of all taxes, assessments and other governmental charges due from the Servicer or the Borrower, as applicable. No tax lien or similar adverse claim has been filed, and, to the best of the Servicer's and the Borrower's knowledge, no claim is being asserted, with respect to any such tax, assessment or other governmental charge. Any taxes, fees and other governmental charges payable by the Servicer or the Borrower, as applicable in connection with the execution and delivery of the Original RLSA and this Agreement and the other Transaction Documents and the transactions contemplated hereby or thereby have been paid, if due, or shall have been paid prior to delinquency. (14) The chief executive office of the Servicer (and the location of the Servicer's records regarding the Pledged Receivables) is located at Dallas, Texas. The chief executive office of the Borrower (and the location of the Borrower's records regarding the Pledged Receivables) is located at Dallas, Texas. (15) Each of the Servicer's and the Borrower's legal names is as set forth in this Agreement; other than as disclosed on Schedule III hereto (as such schedule may be updated from time to by the Agent upon receipt of a notice delivered to the Agent pursuant to Section 6.19), each of the Servicer and the Borrower has not changed its name since its incorporation; each of the Servicer and the Borrower does not have tradenames, fictitious names, assumed names or "doing business as" names other than as disclosed on Schedule III hereto (as such schedule may be updated from time to by the Agent upon receipt of a notice delivered to the Agent pursuant to 56 Section 6.19). (16) Each of the Servicer and the Borrower is solvent and will not become insolvent after giving effect to the transactions contemplated hereby; each of the Servicer and the Borrower is paying its debts as they become due; and each of the Servicer and the Borrower, after giving effect to the transactions contemplated hereby, will have adequate capital to conduct its business. (17) The Borrower has no subsidiaries. (18) The Borrower has given fair consideration and reasonably equivalent value in exchange for the sale of the Pledged Receivables by SRI under the Receivables Purchase Agreement. (19) No Monthly Remittance Report, Borrowing Base Certificate or Commercial Paper Remittance Report (each if prepared by the Borrower or the Servicer, or to the extent that information contained therein is supplied by the Borrower or the Servicer), information, exhibit, financial statement, document, book, record or report furnished or to be furnished by the Borrower or the Servicer to the Agent or the Lender in connection with this Agreement is or will be inaccurate as of the date it is or shall be dated or (except as otherwise disclosed in writing to the Agent or the Lender, as the case may be, at such time) as of the date so furnished, and no such document contains or will contain any material misstatement of fact or omits or shall omit to state a material fact or any fact necessary to make the statements contained therein not misleading. (20) No proceeds of any Loans will be used by the Borrower to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (21) There are no agreements in effect adversely affecting the rights of the Borrower to make, or cause to be made, the grant of the security interest in the Pledged Assets contemplated by Section 2.10. (22) The Borrower is not an "investment company" or an "affiliated person" of or "promoter" or "principal underwriter" for an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended, nor is the Borrower otherwise subject to regulation thereunder. (23) No Event of Default or Unmatured Event of Default has occurred and is continuing. (24) Each of the Pledged Receivables was underwritten and is being serviced in conformance with SRI's, the Servicer's and the Borrower's standard underwriting, credit, collection, operating and reporting procedures and systems (including, without limitation, the Credit and Collection Policy). 57 (25) Each of the Servicer and the Borrower is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (except for premium payments arising in the ordinary course of business) to the Pension Benefit Guaranty Corporation (or any successor thereto) under ERISA. (26) There is not now, nor will there be at any time in the future, any agreement or understanding between the Servicer and the Borrower (other than as expressly set forth herein) providing for the allocation or sharing of obligations to make payments or otherwise in respect of any taxes, fees, assessments or other governmental charges. (27) (i) All filings (including, without limitation, UCC and real property filings) required to be made by any Person and all other actions required to be taken or performed by any Person in any jurisdiction to give the Borrower a first priority perfected lien on all Applicable Underlying Collateral and all other collateral security for all Pledged Receivables and the proceeds thereof have been made, taken or performed; (ii) all filings (including, without limitation, UCC and real property filings) required to be made by any Person and all other actions required to be taken or performed by any Person in any jurisdiction to give the Borrower a first priority perfected ownership interest in all Pledged Receivables and the proceeds thereof have been made, taken or performed; and (iii) all filings (including, without limitation, UCC and real property filings) required to be made by any Person and all other actions required to be taken or performed by any Person in any jurisdiction to give the Agent, for the benefit of the Lender, a first priority perfected lien on all Pledged Assets have been made, taken or performed. (28) There has been no material change made to the Credit and Collection Policy. (29) Since the Amendment Date (in the case of representations and warranties made as of the Amendment Date, each Borrowing Date after the Amendment Date, each Remittance Date after the Amendment Date and the first day of each CP Rollover Fixed Period after the Amendment Date), there has been no material adverse change in the business, operations or financial condition of the Servicer. (30) The Servicer has directed the Obligor in respect of each Pledged Receivable to make all payments in respect of such Pledged Receivable to the Lockbox. (31) The Servicer is in compliance with all laws applicable to its business; including, without limitation, all consumer lending laws. (32) Each Assignment Document (i) has been duly executed and delivered, (ii) is enforceable in accordance with its terms and (iii) has been delivered to the Custodian. (33) No Previous Lender or other Person has any right, title or interest in any Pledged Receivables or Applicable Underlying Collateral Pledged hereunder from time to time. 58 ARTICLE V. GENERAL COVENANTS OF THE BORROWER AND THE SERVICER SECTION 5.1 General Covenants. (a) The Borrower will observe all corporate procedures required by its Certificate of Incorporation, Bylaws and the laws of its jurisdiction of incorporation. The Borrower will maintain its corporate existence in good standing under the laws of its jurisdiction of incorporation and will promptly obtain and thereafter maintain qualifications to do business as a foreign corporation in any other state in which it does business and in which it is required to so qualify in accordance with applicable law. (34) The Borrower will at all times ensure that (i) its directors act independently and in its interests, (ii) it shall at all times maintain at least one independent director (x) who is not currently and has not been during the five years preceding the Closing Date an officer, director or employee of the Borrower or an Affiliate thereof (other than a limited purpose corporation, business trust, partnership or other entity organized for the purpose of acquiring, financing or otherwise investing, directly or indirectly, in assets or receivables originated, owned or serviced by SRI or an Affiliate thereof), (y) who is not a current or former officer or employee of the Borrower and (z) who is not a stockholder of the Borrower or an Affiliate thereof, (iii) its assets are not commingled with those of SRI or any other Affiliate of the Borrower, (iv) its board of directors duly authorizes all of its corporate actions, (v) it maintains separate and accurate records and books of account and such books and records are kept separate from those of SRI and any other Affiliate of the Borrower, and (vi) it maintains minutes of the meetings and other proceedings of the stockholders and the board of directors. Where necessary, the Borrower will obtain proper authorization from its shareholders for corporate action. (35) The Borrower will pay its operating expenses and liabilities from its own assets; provided, however, that the Borrower's organizational expenses and the expenses incurred in connection with the negotiation and execution of this Agreement and the other Transaction Documents may be paid by SRI. (36) The Borrower will not have any of its indebtedness guaranteed by SRI or any Affiliate of SRI. Furthermore, the Borrower will not hold itself out, or permit itself to be held out, as having agreed to pay or as being liable for the debts of SRI or any Affiliate of SRI and the Borrower will not engage in business transactions with SRI or any Affiliate of SRI, except on an arm's-length basis. The Borrower will not hold SRI or any Affiliate of SRI out to third parties as other than an entity with assets and liabilities distinct from the Borrower. The Borrower will cause any financial statements consolidated with those of SRI or any Affiliate of SRI to state that the Borrower is a separate corporate entity with its own separate creditors who, in any liquidation of the Borrower, will be entitled to be satisfied out of the Borrower's assets prior to any value in the Borrower becoming available to the Borrower's equity holders. The Borrower will not act in any other matter that could foreseeably mislead others with respect to the Borrower's separate identity. (37) In its capacity as Servicer, SRI will, to the extent necessary, maintain separate records on behalf of and for the benefit of the Agent and the Lender, will act in 59 accordance with instructions and directions, delivered in accordance with the terms hereof, from the Borrower, the Agent and/or the Lender in connection with its servicing of the Pledged Receivables hereunder, and will ensure that, at all times when it is dealing with or in connection with the Pledged Receivables in its capacity as Servicer, it holds itself out as Servicer, and not in any other capacity. (38) The Servicer shall, to the extent required by applicable law, disclose all material transactions associated with this transaction in appropriate regulatory filings and public announcements. The annual financial statements of SRI (including any consolidated financial statements) shall disclose the effects of the transactions contemplated by the Receivables Purchase Agreement as a sale of Receivables and the annual financial statements of the Borrower shall disclose the effects of the transactions contemplated by this Agreement as a loan to the extent required by and in accordance with GAAP. (39) Each of the Servicer and the Borrower shall take all other actions necessary to maintain the accuracy of the factual assumptions set forth in the legal opinion of Mayer, Brown & Platt, special counsel to SRI and the Borrower, issued in connection with the Receivables Purchase Agreement and relating to the issues of substantive consolidation and true sale of the Pledged Receivables. (40) Except as otherwise provided herein or in any other Transaction Document, neither the Borrower nor the Servicer shall (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Pledged Receivable, any Collections related thereto or any other Pledged Assets related thereto, or upon or with respect to any account to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereof or (ii) create or suffer to exist any Adverse Claim upon or with respect to any of the Borrower's assets. (41) The Borrower will not merge or consolidate with, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) or acquire all or substantially all of the assets or capital stock or other ownership interest of any Person. (42) The Borrower will not account for or treat (whether in financial statements or otherwise) the transactions contemplated by the Receivables Purchase Agreement in any manner other than the sale of Receivables by SRI to the Borrower. (43) The Borrower will not amend, modify, waive or terminate any terms or conditions of the Receivables Purchase Agreement (including, without limitation, any eligibility criteria thereunder) without the written consent of the Agent (which consent shall not be unreasonably withheld in the case of an amendment curing an ambiguity or correcting any inconsistent provisions of the Receivables Purchase Agreement), and shall perform its obligations thereunder. (44) The Borrower will not amend, modify or otherwise make any change to its 60 Certificate of Incorporation without the consent of the Agent. (45) Neither the Borrower nor the Servicer will make or allow to be made any amendment to the Credit and Collection Policy without the prior written consent of the Agent which would materially negatively impact the collectibility of any Pledged Receivable. (46) If the Borrower or the Servicer receive any Collections, the Borrower or the Servicer, as applicable, will remit such Collections to the Collection Account within two (2) Business Days of the Borrower's or the Servicer's receipt thereof. (47) The Borrower shall deliver or cause to be delivered to the Custodian on or before each Borrowing Date the Receivable File with respect to each Pledged Receivable being Pledged hereunder on such Borrowing Date. (48) The Borrower shall deliver to the Agent on each Purchase Date a copy of the Assignment delivered to it on such Purchase Date. (49) Each of the Servicer and the Borrower shall, at their expense, cooperate and take all actions reasonably requested by the Agent in connection with obtaining a shadow rating with respect to the financing facility provided for hereunder, including, without limitation providing to each of the Rating Agencies all information requested by such Rating Agencies. (50) The Servicer shall provide prompt notice to the Agent of (i) the occurrence of any Event of Default, Servicer Default or Early Amortization Event or any Unmatured Event of Default or other event that, if it continues uncured, will, with the lapse of time or notice or the lapse of time and notice, constitute a Servicer Default or Early Amortization Event, (ii) any amendment or change to the Credit and Collection Policy, (iii) the commencement of any litigation or administrative proceeding described in Section 4.01(f) in respect of the Servicer or the Borrower or (iv) the revocation of or amendment to any Acceptable Title Policy. (51) Subject to Section 6.14, each of the Servicer and the Borrower shall comply in all material respects with (i) the Credit and Collection Policy and (ii) all material agreements to which it is a party. (52) Neither SRI nor the Borrower shall engage, directly or indirectly, in any line of business other than the businesses in which it was engaged on the Closing Date. (53) Each of SRI and the Borrower shall maintain proper and accurate records and books of account. (54) Each of the Servicer and the Borrower shall cause each Obligor to make all payments in respect of Pledged Receivables to the Lockbox. (55) SRI shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an 61 amount equal to 90% of the Tangible Net Worth of SRI as of September 30, 2001 plus (B) seventy-five percent (75%) of the aggregate amount of proceeds received by SRI after January 1, 2002 in connection with (1) each issuance by SRI of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Debt after January 1, 2002, other than Debt which shall be the most senior Debt of SRI plus (C) fifty percent (50%) of the aggregate amount of net income (calculated in accordance with GAAP) of SRI after January 1, 2002. (56) (i) For the fiscal quarter of SRI ending June 30, 2002, the Interest Coverage Ratio for SRI shall be at least 1.1:1; (ii) for the fiscal quarter of SRI ending September 30, 2002, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratio for the immediately preceding fiscal quarter shall be at least 1.1:1, (iii) for the fiscal quarter of SRI ending December 31, 2002, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratios for the two immediately preceding fiscal quarters shall be at least 1.1:1; (iv) for the fiscal quarter of SRI ending March 31, 2003, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratios for the three immediately preceding fiscal quarters shall be at least 1.1:1 and (v) for each fiscal quarter of SRI beginning with, and including, the fiscal quarter ending June 30, 2003 and for each fiscal quarter of SRI thereafter, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratios for each of the three immediately preceding fiscal quarters shall be at least 1.25:1. (57) Neither SRI nor the Borrower shall, and each of SRI and the Borrower shall cause each of its Affiliates (including, in the case of SRI, the Silverleaf Club) to not, permit the creation of any lien (other than liens in favor of a Senior Lender (as defined in the letter agreement dated as of December 12, 2001 among the Borrower, SRI, the Agent and the Lender) under financing facilities contemplated under Section 3(v) of such letter agreement) in respect of any of the following: (1) SRI's or the Borrower's or any of their Affiliates' right, title, and interest in all furniture, furnishings, and fixtures of every kind and description (and all improvements and accessions thereto, including, without limitation, the Common Furnishings, if any,) located in or on or used in connection with any Encumbered Interval; (2) SRI's or the Borrower's or any of their Affiliates' right, title, and interest in all other agreements to which any of SRI, the Borrower or any of their Affiliates is or becomes a party or holds any interest and which in any way relate to the use, occupancy, maintenance, or enjoyment of any Encumbered Intervals or Personal Property, including, but not limited to, utility contracts, maintenance agreements, management agreements, service contracts, and any agreement guaranteeing the performance of the obligations contained in any of the foregoing agreements; (3) SRI's or the Borrower's right, title, and interest in and to any and all easements, contracts, leasehold interests (whether as lessor or lessee), permits, licenses, and approvals in respect of all or any portion of a Development; and 62 (4) SRI's or the Borrower's right, title, and interest in and to any rights inuring to an Obligor related to easements, leasehold interests (whether as lessor or lessee), franchises, permits, approvals, licenses, facilities, and amenities on, affecting, or appurtenant to the Developments and rights to occupy, use, and enjoy any such facilities or amenities and any Encumbered Intervals. (58) SRI shall be in material compliance with the Business Model (as defined in the letter agreement dated as of December 12, 2001 among the Borrower, SRI, the Agent and the Lender). ARTICLE VI. ADMINISTRATION AND SERVICING; CERTAIN COVENANTS SECTION 6.1 Appointment and Designation of the Servicer. (a) The Borrower, the Lender and the Agent hereby appoint the Person designated by the Agent from time to time (with the approval of the Lender) pursuant to this Section 6.01 (the "Servicer"), as their agent to service, administer and collect the Pledged Receivables and otherwise to enforce their respective rights and interests in and under the Pledged Receivables and the other Pledged Assets. Subject to Section 6.14, the Servicer shall collect such Pledged Receivables under the conditions referred to above by means of the collection procedures as set forth in the Credit and Collection Policy, to the extent consistent with the provisions of this Article VI. The Servicer's authorization under this Agreement shall terminate on the Collection Date. Until the Agent gives notice to the Borrower of a designation of a new Servicer upon the occurrence and during the continuance of any Servicer Default, or consents to the appointment by the Borrower of a new Servicer, SRI is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof at all times until the earlier of the Agent's designation of a new Servicer upon the occurrence and during the continuance of any Servicer Default, the delivery by the Agent of its consent to the appointment by the Borrower of a new Servicer or the Collection Date. Upon the occurrence and during the continuance of any Servicer Default, the Agent may at any time (with the approval of the Lender) designate as Servicer any Person to succeed SRI or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. Each of the Borrower and SRI hereby grants to any successor Servicer an irrevocable power of attorney and license to take any and all steps in the Borrower's, SRI's or the Servicer's name, as applicable, and on behalf of the Borrower or SRI, necessary or desirable, in the determination of such successor Servicer, to service, administer or collect any and all Pledged Receivables. (59) The Servicer is hereby authorized to act for the Borrower and the Agent and in such capacity shall manage, service, administer and make collections on the Pledged Receivables, and perform the other actions required by the Servicer under this Agreement for the benefit of the Agent and the Lender. The Servicer agrees that its servicing of the Pledged Receivables shall be carried out in accordance with customary and usual procedures of institutions which service comparable receivables and, to the extent more exacting, the degree of skill and attention that the Servicer exercises from time to time with respect to all comparable receivables 63 that it services for itself or others (and in the case of SRI, in accordance with the Credit and Collection Policy) and, to the extent more exacting, the requirements of this Article VI. The Servicer's duties shall include, without limitation, collection and posting of all payments, responding to inquiries of Obligors on the Pledged Receivables, investigating delinquencies, sending payment statements or payment books to Obligors, reporting any required tax information to Obligors, policing the collateral, complying with the terms of the Lockbox Agreement, accounting for collections, furnishing monthly and annual statements to the Agent with respect to distributions and performing the other duties specified herein. (60) To the extent consistent with the standards, policies and procedures otherwise required hereby, the Servicer shall have full power and authority, acting alone, to do any and all things in connection with such managing, servicing, administration and collection that it may deem necessary or desirable. The Servicer is authorized to release Liens on Intervals in order to collect insurance and condemnation proceeds with respect thereto and to liquidate such Intervals in accordance with its customary standards, policies and procedures; provided, however, that notwithstanding the foregoing, the Servicer shall not, (i) except pursuant to an order from a court of competent jurisdiction, release an Obligor from payment of any unpaid amount under any Pledged Receivable or (ii) waive the right to collect the unpaid balance of any Pledged Receivable from such Obligor, except that, subject to Section 6.02(a), the Servicer may forego collection efforts if the amount which the Servicer, in its reasonable judgment, expects to realize in connection with such collection efforts is determined by the Servicer in its reasonable judgment to be less than the reasonably expected costs of pursuing such collection efforts, and if the Servicer would forego such collection efforts in accordance with its customary procedures. The Servicer is hereby authorized to commence, in its own name or in the name of the Borrower, the Agent or the Lender (provided that if the Servicer is acting in the name of the Borrower, the Agent or the Lender, the Servicer shall have obtained the Borrower's, the Agent's or the Lender's consent, as the case may be, which consent shall not be unreasonably withheld), a legal proceeding to enforce a Pledged Receivable or to commence or participate in any other legal proceeding (including, without limitation, a bankruptcy proceeding) relating to or involving a Pledged Receivable, an Obligor or an Interval. If the Servicer commences or participates in such a legal proceeding in its own name, the Borrower, the Agent or the Lender, as the case may be, shall thereupon be deemed to have automatically assigned such Pledged Receivable to the Servicer solely for purposes of commencing or participating in any such proceeding as a party or claimant, and the Servicer is authorized and empowered by the Borrower, the Agent or the Lender, as the case may be, to execute and deliver in the Servicer's name any notices, demands, claims, complaints, responses, affidavits or other documents or instruments in connection with any such proceeding. The Borrower, the Agent or the Lender, as the case may be, shall furnish the Servicer with any powers of attorney and other documents which the Servicer may reasonably request in writing and which the Servicer deems necessary or appropriate and take any other steps which the Servicer may deem necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement. (61) The Servicer shall not resign from the obligations and duties hereby imposed on it hereunder except upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action 64 which can be taken to make the performance of its duties hereunder permissible under applicable law. Any such determination permitting the resignation of the Servicer pursuant to clause (i) of the previous sentence hereof shall be evidenced by an Opinion of Counsel to such effect delivered to the Agent. Unless otherwise required by applicable law, no such resignation shall be effective until a successor Servicer designated by the Agent and the Lender shall have assumed the responsibilities and obligations of the Servicer hereunder. SECTION 6.02 Collection of Receivable Payments; Modification and Amendment of Receivables. (a) Consistent with the standards, policies and procedures required by this Agreement, the Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Pledged Receivables as and when the same shall become due, and shall follow such collection procedures as it follows with respect to all comparable receivables that it services for itself or others (or that it formerly serviced for itself or others) and otherwise act with respect to the Pledged Receivables and the applicable Acceptable Title Policy in such manner as will, in the reasonable judgment of the Servicer, maximize the amount to be received by the Borrower and the Lender with respect thereto. (2) The Servicer may at any time agree to a modification or amendment of a Pledged Receivable in order to re-amortize the scheduled payments on the Pledged Receivable following a partial prepayment of principal but the Servicer may not grant payment extensions on a Pledged Receivable or permit any other modifications or amendments to a Pledged Receivable except as may be permitted by the Credit and Collection Policy; provided that a Pledged Receivable may only be Modified or Downgraded if it has not previously been Modified or Downgraded since its origination. (3) The Servicer shall remit all payments by or on behalf of the Obligors received directly by the Servicer to the Collection Account, without deposit into any intervening account as soon as practicable, but in no event later than two (2) Business Days after receipt thereof. SECTION 6.03 Realization Upon Receivables. Subject to the provisions of Section 2.13 and consistent with the standards, policies and procedures required by this Agreement, the Servicer shall use its best efforts to foreclose upon (or otherwise comparably convert the ownership of) and liquidate any Interval or other Collateral securing a Pledged Receivable with respect to which the Servicer has determined that payments thereunder have ceased and are not likely to be resumed, as soon as is practicable after default on such Pledged Receivable but in no event later than thirty (30) days after such determination or an earlier date that would be customary under the circumstances involved and, in any case, in a manner as will, in the reasonable judgment of the Servicer, maximize the amount to be received by the Borrower and the Lender with respect thereto; provided that in the case of the foreclosure upon any Interval or other Collateral securing a Pledged Receivable by the Backup Servicer, such Backup Servicer shall take such action only upon the direction of the Agent. The Servicer is authorized to follow such customary practices and procedures as it shall deem necessary or advisable, consistent with the standard of care required by Section 6.01, which practices and procedures may include selling the related Interval or other Collateral at public or private sale, the submission of claims under an 65 Acceptable Title Policy, if applicable, and other actions by the Servicer in order to realize upon such Pledged Receivable. In the event the Servicer elects to liquidate at a public or private sale any Interval or Intervals foreclosed upon or otherwise reacquired on behalf of the Borrower from Obligors of Defaulted Receivables, SRI shall not be precluded from bidding on such Intervals so long as SRI pays an amount equal to the net fair market value of such Intervals, as determined by the next following sentence of this Section 6.03; provided that SRI shall only be permitted to bid on such Intervals if, at such time, there shall not be a Borrowing Base Deficiency, an Early Amortization Event or a default under any Transaction Document. In this regard, the Servicer shall establish, from time to time, a net value for Intervals so liquidated based upon such market data as Servicer deems relevant; provided that in no event will the Liquidation Proceeds derived from an Interval acquired by SRI at public or private sale be less than fifteen percent (15%) of the original acquisition price paid for the Interval by the Obligor under the Defaulted Receivable associated with the Interval. The foregoing is subject to the provision that, in any case in which the related Unit shall have suffered damage, the Servicer shall not expend funds in connection with any repair or towards the foreclosure of such Interval unless it shall determine in its discretion that such repair and/or foreclosure shall increase the proceeds of liquidation of the related Pledged Receivable by an amount greater than the amount of such expenses. All Liquidation Proceeds shall be remitted directly by the Servicer to the Collection Account without deposit into any intervening account as soon as practicable, but in no event later than two (2) Business Days after receipt thereof. The Servicer shall pay on behalf of the Borrower any personal property taxes assessed on foreclosed Intervals, and the Servicer shall be entitled to reimbursement of any such tax as a Servicer Advance. SECTION 6.04 Insurance Regarding Intervals. (a) Without limiting the effect of any other provision hereof, the Servicer shall monitor the status of the Acceptable Title Policies related to the Pledged Receivables in accordance with the Credit and Collection Policy and its customary servicing procedures. If the Servicer shall determine that SRI has failed to obtain or maintain Acceptable Title Policies covering all Mortgages securing all Pledged Receivables related to Fee Simple Intervals, the Servicer shall take all necessary steps to ensure that SRI obtains such Acceptable Title Policy. (2) The Servicer may and, upon the request of the Agent, shall sue to enforce or collect upon the Acceptable Title Policies, in its own name, if possible, or as agent of the Borrower, the Agent and the Lender. If the Servicer elects to commence a legal proceeding to enforce an Acceptable Title Policy, the act of commencement shall be deemed to be an automatic assignment of the rights of the Borrower, the Agent and the Lender under such Acceptable Title Policy to the Servicer for purposes of collection only. If, however, in any enforcement suit or legal proceeding it is held that the Servicer may not enforce an Acceptable Title Policy on the grounds that it is not a real party in interest or a holder entitled to enforce the Acceptable Title Policy, the Borrower shall take such steps as the Servicer deems necessary to enforce such Acceptable Title Policy, including bringing suit in its name. SECTION 6.05 Maintenance of Security Interests in Intervals. (a) If the Borrower has failed to, the Servicer shall take all steps necessary under all applicable law in order to cause a valid, subsisting and enforceable first priority security interest to exist in the Borrower's favor in 66 the Applicable Underlying Collateral and all other Collateral (other than the Pledged Receivables) related to each Receivable (and the proceeds thereof) being Pledged hereunder on any Borrowing Date and immediately prior to the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall have existed in favor of the Borrower as secured party, a valid, subsisting and enforceable first priority perfected lien in the Applicable Underlying Collateral and all other such Collateral related to such Receivable (and the proceeds thereof), and such security interest is and shall be prior to all other liens upon and security interests in such Applicable Underlying Collateral and other such Collateral (and the proceeds thereof) that now exist or may hereafter arise or be created. (2) If the Borrower has failed to, the Servicer shall take all steps necessary under all applicable law in order to cause a valid, subsisting and enforceable first priority ownership interest to exist in the Borrower's favor in the Pledged Receivable (and the proceeds thereof) related to any Receivable being Pledged hereunder on any Borrowing Date and immediately prior to the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall have existed in favor of the Borrower as secured party, a valid, subsisting and enforceable first priority ownership interest in the Pledged Receivable (and the proceeds thereof) related to any such Receivable which is and free of all liens and security interests. (3) If the Borrower has failed to, the Servicer shall take all steps necessary under all applicable law in order to cause to exist in favor of the Agent, for the benefit of the Lender, a valid, subsisting and enforceable first priority perfected lien in (A) the Borrower's perfected security interest in the Applicable Underlying Collateral and all other Collateral (other than the Pledged Receivables) related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date and (B) the Pledged Receivables and any other Pledged Assets related to each Receivable (and the proceeds thereof) being Pledged hereunder on any Borrowing Date, and upon the Pledge of such Receivable by the Borrower to the Agent (for the benefit of the Lender), there shall exist in favor of the Agent (for the benefit of the Lender) as secured party, a valid, subsisting and enforceable first priority perfected security interest (A) the Borrower's first priority perfected security interest in the Applicable Underlying Collateral and all other Collateral (other than the Pledged Receivables) related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date and (B) the Pledged Receivables and any other Pledged Assets related to each Receivable (and the proceeds thereof) being Pledged hereunder on such Borrowing Date, and such security interest is and shall be prior to all other liens upon and security interests therein that now exist or may hereafter arise or be created. SECTION 6.06 Pledged Receivable Receipts. The Servicer shall promptly make a deposit or cause the Borrower or any Affiliate thereof to make a deposit into the Collection Account in an amount equal to the Collections received or made by or on behalf of it, the Borrower or any Affiliate thereof, as the case may be, within two (2) Business Days of receiving any such Collections. SECTION 6.07 Unidentified Payments; Lender's Right of Presumption. 67 The Borrower agrees and consents that the Servicer and/or the Agent may apply any payment it receives (or any such payment the Servicer deposits into the Collection Account) from an Obligor to any Loan secured by a Pledged Receivable if the Servicer and/or the Agent is unable in good faith to determine whether such payment from an Obligor relates to such Pledged Receivable; provided that each of the Borrower, the Agent and the Lender agrees that any payment it receives (or any such payment the Servicer deposits into the Collection Account) from an Obligor which is specifically identifiable as a payment in respect of any dues, fees or other charges payable by the related Obligor in connection with the ownership and/or use of the related Interval shall be paid to SRI. SECTION 6.08 No Rights of Withdrawal. Until the Collection Date, the Borrower shall have no rights of direction or withdrawal with respect to amounts held in the Collection Account, the Lockbox Account or the Lockbox, except as provided for herein. SECTION 6.09 Permitted Investments. The Borrower shall, pursuant to written instruction, direct the Agent's Bank (and if the Borrower fails to do so, the Agent may, pursuant to written instruction, direct the Agent's Bank) to invest, or cause the investment of, funds on deposit in the Collection Account, in Permitted Investments, from the Closing Date until the Collection Date. Absent any such written instruction, the Agent's Bank shall invest, or cause the investment of, such funds in Permitted Investments described in clause (e) of the definition thereof. A Permitted Investment acquired with funds deposited in the Collection Account shall mature not later than the Business Day immediately preceding the last day of the next ending Fixed Period, and shall not be sold or disposed of prior to its maturity. All such Permitted Investments shall be registered in the name of the Agent (in its capacity as such) or its nominee for the benefit of the Lender. All income and gain realized from any such investment as well as any interest earned on deposits in the Collection Account shall be distributed in accordance with the provisions of Article II hereof. The Servicer shall deposit in the Collection Account (with respect to investments made hereunder of funds held therein), an amount equal to the amount of any actual loss incurred in respect of any such investment immediately upon realization of such loss. Neither the Agent's Bank nor the Agent shall be liable for the amount of any loss incurred in respect of any investment, or lack of investment, of funds held in the Collection Account. SECTION 6.10 Servicing Compensation. As compensation for its activities hereunder, the Servicer shall be entitled to be paid the Servicing Fee from the Collection Account as provided in Section 2.05(c). Subject to Section 6.14, the Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor, except with respect to reasonable expenses of the Servicer incurred in connection with the foreclosure and disposition of any Interval (which the Servicer may retain from the proceeds of the disposition of such Interval) and any Servicer Advances made by the Servicer pursuant hereto. The Servicing Fee may not be transferred in whole or in part except in connection with the transfer of all the Servicer's responsibilities and obligations under this Agreement. SECTION 6.11 Reports to the Agent; Account Statements; Servicing Information. (a) The Borrower will deliver to the Agent (i) on the Early Amortization 68 Commencement Date, a report identifying the Pledged Receivables (and any information with respect thereto requested by the Agent) on the day immediately preceding the Early Amortization Commencement Date and (ii) upon the Agent's reasonable request and upon reasonable notice, on any other Business Day, a report identifying the Pledged Receivables (and any information with respect thereto reasonably requested by the Agent) on such day. (4) On the tenth day of each calendar month or, if such day is not a Business Day, the immediately preceding Business Day, the Servicer shall prepare and deliver or have delivered to the Agent for the Lender, (i) a Monthly Remittance Report and any other information reasonably requested by the Agent relating to all Pledged Receivables (including if requested, a Computer Tape or Listing), all information in the Monthly Remittance Report (including, without limitation, the calculation of Weighted Average APR, the Default Rate, the Delinquency Rate and the Excess Spread Rate) and all other such information to be accurate as of the last day of the immediately preceding Remittance Period and (ii) in an electronic format mutually acceptable to the Servicer and the Agent, all information reasonably requested by the Agent relating to all Pledged Receivables. If any Monthly Remittance Report indicates the existence of a Borrowing Base Deficiency, the Borrower shall on the date of delivery of such Monthly Remittance Report prepay to the Agent, for the account of the Lender, a portion of the Loans as is necessary to cure such Borrowing Base Deficiency (or otherwise cure such Borrowing Base Deficiency). (5) By no later than 1:00 P.M. (New York City time) on the Business Day immediately preceding a Borrowing, the Servicer shall also prepare and deliver to the Agent for the Lender a Borrowing Base Certificate containing information accurate as of the date of delivery of such Borrowing Base Certificate. If any Borrowing Base Certificate indicates the existence of a Borrowing Base Deficiency, the Borrower shall on the date of delivery of such Borrowing Base Certificate prepay to the Agent, for the account of the Lender, a portion of the Loans as is necessary to cure such Borrowing Base Deficiency (or otherwise cure such Borrowing Base Deficiency). (6) On the Business Day immediately preceding the last day of each Fixed Period, the Servicer shall prepare and deliver or have delivered to the Agent for the Lender, a Commercial Paper Remittance Report containing information accurate as of the date of delivery of such Commercial Paper Remittance Report. (7) On the tenth day of each calendar month or, if such day is not a Business Day, the immediately preceding Business Day (each such day, a "Backup Servicer Delivery Date"), the Servicer shall prepare and deliver or have delivered to the Backup Servicer, (i) a Monthly Remittance Report in respect of the immediately-preceding Remittance Period and (ii) a computer tape or a diskette or any other electronic transmission in a format acceptable to the Backup Servicer containing the information with respect to the Pledged Receivables during such Remittance Period which was necessary for preparation of such Monthly Remittance Report. (8) The Borrower shall deliver to the Agent all reports it receives pursuant to the Receivables Purchase Agreement within one (1) Business Day of the receipt thereof. 69 SECTION 6.12 Statements as to Compliance; Financial Statements. (a) The Servicer shall deliver to the Agent, the Borrower and the Lender on or before January 15 of each year, beginning with January 15, 2001, an Officers Certificate stating, as to each signatory thereof, that (x) a review of the activities of the Servicer during the preceding calendar year (or the portion thereof commencing on the Closing Date, in the case of the calendar year ending December 31, 2000) and of its performance under this Agreement has been made under such officer's supervision, and (y) to the best of such officers' knowledge, based on such review, the Servicer has fulfilled all of its obligations under this Agreement throughout such calendar year (or portion thereof, as the case may be) or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof and the action being taken to cure such default. (9) The Servicer shall, at its expense, cause Deloitte & Touche or another firm of independent certified public accountants reasonably acceptable to the Agent (the "Independent Accountants"), who may also render other services to the Servicer or to the Borrower to deliver to the Borrower and the Agent, on or before March 31 of each year, beginning on March 31, 2001, with respect to the twelve (12) months ended the immediately preceding December 31, a statement (the "Accountants' Report") addressed to the Board of Directors of the Servicer and to the Agent, to the effect that such firm has performed procedures to be agreed upon by the Servicer and the Agent, solely to assist with evaluating compliance with the Borrowing Base Certificates, Monthly Remittance Reports and Commercial Paper Remittance Reports prepared by the Servicer during the twelve (12) months ended the immediately preceding December 31 and that such agreed upon procedures were performed in accordance with standards established by the American Institute of Certified Public Accountants. The Accountants' Report shall further state that (i) it performed procedures in accordance with such agreed upon procedures; (ii) except as disclosed in the Accountant's Report, no exceptions or errors in the Borrowing Base Certificates, Monthly Remittance Reports and Commercial Paper Remittance Reports examined were found. The Accountants' Report shall also indicate that the firm is independent of the Borrower and the Servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants. (10) As soon as available and no later than forty-five (45) days after the end of each calendar quarter in each fiscal year of SRI, SRI shall deliver to the Lender and the Agent two copies of: (1) a consolidated and consolidating balance sheet of SRI and its consolidated subsidiaries (excluding the Borrower) as of the end of such calendar quarter setting forth in comparative form the corresponding figures for the most recent year-end for which an audited balance sheet has been prepared, which such balance sheet shall be prepared and presented in accordance with, and provide all necessary disclosure required by, GAAP and shall be accompanied by a certificate signed by the financial vice president, treasurer, chief financial officer or controller of SRI stating that such balance sheet presents fairly the financial condition of the companies being reported upon and has been prepared in accordance with GAAP consistently applied; and 70 (2) consolidated and consolidating statements of income, stockholders' equity and cash flow of SRI and its consolidated subsidiaries (excluding the Borrower) for such calendar quarter, in each case and for the portion of the fiscal year ending with such calendar quarter setting forth in comparative form the corresponding figures for the comparable period one year prior thereto (subject to normal year-end adjustments), which such statements shall be prepared and presented in accordance with, and provide all necessary disclosure required by, GAAP and shall be accompanied by a certificate signed by the financial vice president, treasurer, chief financial officer or controller of SRI, stating that such financial statements present fairly the financial condition and results of operations of the companies being reported upon and have been prepared in accordance with GAAP consistently applied. (11) As soon as available and no later than ninety (90) days after the end of each fiscal year of SRI, SRI shall deliver to the Lender and the Agent two copies of: (1) a consolidated and consolidating balance sheet of SRI and its consolidated subsidiaries (excluding the Borrower), all as of the end of the fiscal year, setting forth in comparative form the figures for the previous fiscal year and accompanied by an opinion of the Independent Accountants stating that such balance sheet presents fairly the financial condition of the companies being reported upon and has been prepared in accordance with GAAP consistently applied (except for changes in application in which such accountants concur); and (2) consolidated and consolidating statements of income, stockholders' equity and cash flow of SRI and its consolidated subsidiaries (excluding the Borrower), for such fiscal year; in each case setting forth in comparative form the figures for the previous fiscal year and accompanied by an opinion of the Independent Accountants stating that such financial statements present fairly the financial condition of the companies being reported upon and have been prepared in accordance with GAAP consistently applied (except for changes in application in which such accountants concur). (12) As soon as available and no later than ninety (90) days after the end of each fiscal year of the Borrower, SRI shall deliver to the Lender and the Agent two copies of: (1) a balance sheet of the Borrower, as of the end of the fiscal year, setting forth in comparative form the figures for the previous fiscal year and accompanied by an opinion of the Independent Accountants stating that such balance sheet presents fairly the financial condition of the Borrower and has been prepared in accordance with GAAP consistently applied (except for changes in application in which such accountants concur); (2) statements of income, stockholders' equity and cash flow of the Borrower for such fiscal year; setting forth in comparative form the figures for the previous fiscal year and accompanied by an opinion of the Independent Accountants stating that such financial statements present fairly the financial condition of the Borrower and have been prepared in accordance with GAAP consistently applied (except for 71 changes in application in which such accountants concur); and (3) any reports or filings made by SRI to or with the United States Securities and Exchange Commission. SECTION 6.13 Access to Certain Documentation; Obligors. (a) The Lender or the Agent (and their respective agents or professional advisors) shall at the expense of the Borrower, have the right under this Agreement, once during each calendar year, upon reasonable prior notice to the Servicer, to examine and audit, during business hours or at such other times as might be reasonable under applicable circumstances, any and all of the books, records, or other information of the Servicer, or held by another for the Servicer or on its behalf, concerning this Agreement. The Lender and the Agent (and their respective agents and professional advisors) shall treat as confidential any information obtained during such examination which is not already publicly known or available; provided, however, the Lender or the Agent may disclose such information if required to do so by law or by any regulatory authority. Without limitation of the foregoing, the Servicer and the Borrower acknowledge and agree that at least four (4) times during each calendar year the Agent (and its respective agents or professional advisors) shall, at the Agent's own expense, upon reasonable prior notice to the Servicer and the Borrower, examine and audit, during business hours or at such other times as might be reasonable under applicable circumstances, any and all of the books, records or other information of the Servicer and/or the Borrower or held by another for the Servicer and/or the Borrower or on its behalf concerning this Agreement and compliance therewith. (13) The Lender or the Agent (and their respective agents or professional advisors) shall, at their own expense, have the right under this Agreement to, not more frequently than once each calendar quarter, contact the Obligors with respect to any Receivables which are Pledged hereunder in order to procure such information related to such Obligors and the related Receivables as the Lender or the Agent deems reasonable under the circumstances. The Servicer and the Borrower hereby agree to cooperate with the Lender and the Agent (and their respective agents or professional advisors) in connection with any attempt thereby to contact any such Obligor and shall provide to the Lender and the Agent such information as is needed in order to facilitate such contact. The Lender and the Agent (and their respective agents and professional advisors) shall treat as confidential any information obtained during any such contact with any such Obligor which is not already publicly known or available; provided, however, the Lender or the Agent (and their respective agents or professional advisors) may disclose such information if required to do so by law or by any regulatory authority. SECTION 6.14 Backup Servicer. If a Servicer Default shall occur and is continuing, then the Agent may, by notice to the Servicer, the Borrower and the Backup Servicer, terminate all of the rights and obligations of the Servicer under this Agreement. Upon the delivery to the Servicer and the Backup Servicer of such notice, all authority and power of the Servicer under this Agreement, whether with respect to the Pledged Assets or otherwise, shall pass to and be vested in the Backup Servicer pursuant to and under this Section, and, without limitation, the Backup Servicer is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents and other 72 instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination or to perform the duties of the Servicer under this Agreement. The Servicer agrees to cooperate with the Agent and the Backup Servicer in effecting the termination of the Servicer's responsibilities and rights hereunder, including, without limitation, notification to the Obligors of the assignment of the servicing function, providing the Backup Servicer with all records, in electronic or other form, reasonably requested by it to enable the Backup Servicer to assume the servicing functions hereunder and the transfer to the Backup Servicer for administration by it all cash amounts which at the time should be or should have been deposited by the Servicer in the Collection Account or thereafter be received by the Servicer with respect to the Pledged Receivables. Neither the Agent nor the Backup Servicer shall be deemed to have breached any obligation hereunder as a result of a failure to make or delay in making any distribution as and when required hereunder caused by the failure of the Servicer to remit any amounts received by it or to deliver any documents held by it with respect to the Pledged Assets. The Backup Servicer's Fees and other expenses of the Backup Servicer reimbursable hereunder for any successor Servicer shall be paid out of Collections as set forth in Section 2.05(c) on and after the date, if any, that the Backup Servicer assumes the responsibilities of the Servicer pursuant to this Section. The Backup Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor, except with respect to reasonable out-of-pocket expenses of the Backup Servicer incurred in connection with (i) the foreclosure and disposition of any Interval in excess of the costs associated with the taking back of the deed relating to such Interval in lieu of foreclosure and (ii) enforcing or collecting upon Acceptable Title Policies. Any obligations of SRI hereunder other than in its capacity as Servicer shall continue in effect notwithstanding SRI's termination as Servicer. On and after the time the Servicer receives a notice of termination pursuant to this Section 6.14, the Backup Servicer shall be (and the Backup Servicer hereby agrees to be) the successor in all respects to the Servicer in its capacity as Servicer under this Agreement and the transactions set forth or provided for herein and shall have all the rights and powers and be subject thereafter to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof; provided, however, that any failure to perform such duties or responsibilities caused by the Servicer's failure to provide information required by this Section 6.14 shall not be considered a default by the Backup Servicer hereunder. The Backup Servicer shall have (i) no liability with respect to any obligation which was required to be performed by the terminated Servicer prior to the date that the Backup Servicer becomes the successor to the Servicer or any claim of a third party based on any alleged action or inaction of the terminated Servicer, (ii) no obligation to perform any repurchase or advancing obligations, if any, of the Servicer, (iii) no obligation to pay any taxes required to be paid by the Servicer (provided that the Backup Servicer shall pay any income taxes for which it is liable), (iv) no obligation to pay any of the fees and expenses of any other party to the transactions contemplated hereby, (v) no liability or obligation with respect to any Servicer indemnification obligations of any prior Servicer, including the original Servicer and (vi) no obligation, when the Backup Servicer is Wells Fargo, to comply with the collection procedures set forth in the Credit and 73 Collection Policy, but rather shall service the Pledged Receivables in accordance with the provisions of Section 6.01(b). The indemnification obligations of the Backup Servicer, upon becoming a successor Servicer, are expressly limited to those arising on account of its failure to act in good faith and with reasonable care under the circumstances. In addition, the Backup Servicer shall have no liability relating to the representations and warranties of the Servicer contained in Article IV. Notwithstanding the above, the Agent may, if the Backup Servicer shall be unwilling to so act, or shall, if the Backup Servicer is unable to so act, or if the Lender so requests in writing to the Agent, appoint itself, or appoint any established servicing institution acceptable to the Agent, as the successor to the Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer hereunder. Pending appointment of a successor to the Servicer hereunder, and after the Agent notifies the Servicer to discontinue performing servicing functions under this Agreement, the Backup Servicer (or the Agent if there is no Backup Servicer) shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Agent may make such arrangements for the compensation of such successor out of payments on Pledged Receivables as it and such successor shall agree; provided, however, that, except as provided herein, no such compensation shall be in excess of that permitted the Servicer hereunder, unless otherwise agreed to by the Lender. The Borrower, the Agent and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The Backup Servicer may perform any of its duties hereunder either directly or through an agent reasonably acceptable to the Agent provided that the Backup Servicer shall be responsible to the other parties to this Agreement for the performance of any such agent and such appointment shall in no way affect the primary performance obligation of the Backup Servicer hereunder to the other parties to this Agreement. Prior to each Remittance Date, the Backup Servicer shall compare the information on the computer tape or diskette (or other means of electronic transmission acceptable to the Backup Servicer) most recently delivered to the Backup Servicer by the Servicer pursuant to Section 6.11(e) to the Monthly Remittance Report most recently delivered to the Backup Servicer by the Servicer pursuant to Section 6.11(e) and shall: (14) confirm that such Monthly Remittance Report is complete on its face; (15) confirm the Remittance Date distributions to be made on the next Remittance Date pursuant to Section 2.05(c) hereof. (16) verify the mathematical accuracy of the following fields on such Monthly Remittance Report: (i) "Net Eligible Receivables Balance," (ii) "Delinquency Rate," (iii) "Default Rate," (iv) "Excess Spread Rate" and (v) "Weighted Average APR;" and (17) deliver to the Agent a certification letter with respect to the above substantially in the form of Exhibit E hereto on or before such Remittance Date. In the event of any discrepancy between the information set forth in subpara- 74 graphs (b) or (c) above as calculated by the Servicer from that determined or calculated by the Backup Servicer, the Backup Servicer shall promptly report such discrepancy to the Servicer and the Agent. In the event of a discrepancy as described in the preceding sentence, the Servicer and the Backup Servicer shall attempt to reconcile such discrepancies prior to the related Remittance Date, but in the absence of a reconciliation, distributions on the related Remittance Date shall be made consistent with the information calculated by the Servicer, the Servicer and the Backup Servicer shall attempt to reconcile such discrepancies prior to the next Remittance Date, and the Servicer shall promptly report to the Agent regarding the progress, if any, which shall have been made in reconciling such discrepancies. If the Backup Servicer and the Servicer are unable to reconcile such discrepancies with respect to such Monthly Remittance Report by the next Remittance Date that falls in April, July, October or January, the Servicer shall cause independent accountants acceptable to the Agent, at the Servicer's expense, to examine such Monthly Remittance Report and attempt to reconcile such discrepancies at the earliest possible date (and the Servicer shall promptly provide the Agent with a report regarding such events). The effect, if any, of such reconciliation shall be reflected in the Monthly Remittance Report for the next succeeding Remittance Date. Other than as set forth in this Section 6.14, the Backup Servicer shall have no obligation to supervise, verify, monitor or administer the performance of the Servicer. The Backup Servicer may not resign except upon sixty (60) day's prior written notice to the Agent, the Servicer and the Borrower. In addition, the Backup Servicer may be removed by the Agent or the Lender with or without cause at any time. In the event of any such resignation or removal, the Backup Servicer may be replaced by a new Backup Servicer selected by the Agent upon notice to the Servicer and the Borrower, such new Backup Servicer to be compensated in accordance with the second to last sentence of the fourth paragraph of this Section 6.14. SECTION 6.15 Additional Remedies of Agent Upon Event of Default. During the continuance of any Event of Default, the Agent, in addition to the rights specified in Section 7.01, shall have the right, in its own name and as agent for the Lender, to take all actions now or hereafter existing at law, in equity or by statute to enforce its rights and remedies and to protect the interests, and enforce the rights and remedies, of the Lender (including the institution and prosecution of all judicial, administrative and other proceedings and the filings of proofs of claim and debt in connection therewith). Except as otherwise expressly provided in this Agreement, no remedy provided for by this Agreement shall be exclusive of any other remedy, and each and every remedy shall be cumulative and in addition to any other remedy, and no delay or omission to exercise any right or remedy shall impair any such right or remedy or shall be deemed to be a waiver of any Event of Default. SECTION 6.16 Waiver of Defaults. Upon consent of the Lender, the Agent may waive any default by the Servicer in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall be effective unless it shall be in writing and signed by the 75 Agent on the Lender's behalf and no such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. SECTION 6.17 Maintenance of Certain Insurance. During the term of its service as Servicer, the Servicer shall maintain in force an "errors and omissions" and an employee fidelity insurance policy, in each case, in an amount not less than $2,000,000 in a form that would cover any loss of Collections by the Servicer hereunder caused by employee dishonesty, and with an insurance company reasonably acceptable to the Lender and the Agent. The Servicer shall prepare and present, on behalf of itself, the Agent and the Lender, claims under any such policy in a timely fashion in accordance with the terms of such policy, and upon the filing of any claim on any policy described in this Section, the Servicer shall promptly notify the Agent of such claim. SECTION 6.18 Segregation of Collections. The Servicer shall not commingle funds constituting Collections with any other funds of the Servicer. SECTION 6.19 UCC Matters; Protection and Perfection of Pledged Assets. The Borrower will not make any change to its corporate name or use any tradenames, fictitious names, assumed names, "doing business as" names or other names (other than those listed on Schedule III hereto, as such schedule may be revised from time to time to reflect name changes and name usage permitted under the terms of this Section 6.19 after compliance with all terms and conditions of this Section 6.19 related thereto) unless prior to the effective date of any such name change or use, the Borrower notifies the Agent of such change in writing and delivers to the Agent such executed financing statements as the Agent may reasonably request to reflect such name change or use, together with such other documents and instruments as the Agent may reasonably request in connection therewith. The Borrower will not change the location of its chief executive office or the location of its records regarding the Pledged Receivables unless prior to the effective date of any such change of location, the Borrower notifies the Agent of such change of location in writing and delivers to the Agent such executed financing statements as the Agent may reasonably request to reflect such change of location, together with such Opinions of Counsel, documents and instruments as the Agent may reasonably request in connection therewith. The Borrower agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Agent may reasonably request in order to perfect, protect or more fully evidence the Lender's interest in the Pledged Assets acquired hereunder, or to enable the Lender or the Agent to exercise or enforce any of their respective rights hereunder. Without limiting the generality of the foregoing, the Borrower will upon the request of the Agent: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate or as the Agent may request (provided that the Borrower shall not be required to execute and file such any financing statements against individual Obligors), and (ii) mark its master data processing records evidencing such Pledged Receivables with a legend acceptable to the Agent, evidencing that the Lender has acquired an interest therein as provided in this Agreement. The Borrower hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pledged Receivables and the Related Security related thereto and the proceeds of the foregoing now existing or hereafter arising without the signature of the Borrower where permitted by law. 76 Subject to applicable law, a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Pledged Receivables, or any part thereof shall be sufficient as a financing statement. The Borrower shall, upon the request of the Agent at any time after the occurrence of an Event of Default and at the Borrower's expense, notify the Obligors obligated to pay any Pledged Receivables, or any of them, of the security interest of the Lender in the Pledged Assets. If the Borrower fails to perform any of its agreements or obligations under this Section 6.19, the Agent may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Borrower upon the Agent's demand therefor. For purposes of enabling the Agent to exercise its rights described in the preceding sentence and elsewhere in this Article VI, the Borrower and the Lender hereby authorize each of the Agent and its successors and assigns to take any and all steps in the Borrower's name and on behalf of the Borrower and the Lender necessary or desirable, in the determination of the Agent, to collect all amounts due under any and all Pledged Receivables, including, without limitation, endorsing the Borrower's name on checks and other instruments representing Collections and enforcing such Pledged Receivables and, if any, the related guarantees. SECTION 6.20 Servicer Advances. The Servicer may, in its sole discretion, make an advance in respect of any payment due on a Pledged Receivable to the extent such payment has not been received by the Servicer as of its due date and the Servicer reasonably expects such payment will be ultimately recoverable (a "Servicer Advance"). The Servicer shall deposit into the Collection Account in immediately available funds the aggregate of all Servicer Advances to be made during a Remittance Period on or prior to the Business Day immediately preceding the related Remittance Date. The Servicer shall be entitled to reimbursement for such Servicer Advances from monies in the Collection Account as provided in Section 2.05(c) hereof. SECTION 6.21 Repurchase of Receivables Upon Breach of Covenant or Representation and Warranty by SRI. (a) The Borrower or the Servicer, as the case may be, shall inform the other parties to this Agreement promptly, in writing, upon the discovery of any breach of SRI's representations, warranties and/or covenants pursuant to Section 6.05 or Article V; provided, however, that the failure to provide any such notice shall not diminish, in any manner whatsoever, any obligation of SRI hereunder to repurchase any Pledged Receivable. Unless such breach shall have been cured by the last day of the first full calendar month following the discovery by or notice to SRI of such breach, SRI shall have an obligation, and the Borrower shall and the Agent may, enforce such obligation of SRI, to repurchase any Pledged Receivable materially and adversely affected by such breach. The Borrower shall notify the Agent promptly, in writing, of any failure by SRI to so repurchase any such Pledged Receivable. In consideration of the repurchase of such Pledged Receivable, SRI shall remit funds in an amount equal to the Release Price for such Pledged Receivable to the Collection Account on the date of such repurchase. (18) In addition to the foregoing and notwithstanding whether any Pledged Receivable shall have been repurchased by SRI pursuant to Section 6.21(a), SRI hereby indemnifies the Borrower, the Agent and the Lender against all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel, which may be asserted 77 against or incurred by any of them in connection with any of the events or facts giving rise to a breach of SRI's representations, warranties, agreements and/or covenants set forth in Article V or Article VI. SECTION 6.22 Compliance with Applicable Law. The Servicer and the Borrower shall at all times comply in all material respects with all requirements of applicable federal, state and local laws, and regulations thereunder (including, without limitation but only if and to the extent applicable, usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations "B" and "Z", the Soldiers' and Sailors' Civil Relief Act of 1940 and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code, the Interstate Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act and all other consumer credit laws and equal credit opportunity and disclosure laws and any regulations promulgated thereunder) in the conduct of its business. SECTION 6.23 The Consulting Agreement. SRI: (19) agrees (i) to faithfully abide by, perform and discharge each and every obligation, covenant and agreement of the Consulting Agreement to be performed by SRI thereunder at no cost or expense to the Agent or the Lender, (ii) to enforce or secure the performance of each and every obligation, covenant, condition and agreement of the Consultant thereunder and (iii) not to terminate, modify, extend or in any way alter the terms of the Consulting Agreement or accept a surrender thereof, or to waive, excuse, condone or in any manner release or discharge the Consultant of or from the obligations, covenants, conditions and agreements to be performed by the Consultant in the manner and at the place and time specified thereunder; (20) hereby expressly releases, relinquishes and surrenders unto the Agent all its right, power and authority to amend, modify, cancel, terminate, or in any way alter the terms or provisions of the Consulting Agreement without the prior written consent of the Agent; (21) at no cost or expense to the Agent or the Lender, shall appear in and defend any action or proceeding arising under, growing out of or in any manner connected with the Consulting Agreement or the obligations, duties or liabilities of SRI thereunder, and shall pay all costs and expenses of the Agent or the Lender, including attorneys' fees, in any action or proceeding concerning the Consulting Agreement in which the Agent or the Lender may appear; (22) agrees that if SRI fails to make any payment or to do any act as herein provided or under the Consulting Agreement, the Agent shall have the right, but without the obligation to do so and without notice to or demand on SRI, and without releasing SRI from any obligation hereunder or under the Consulting Agreement, to make such payment or do such act in such manner and to such extent as the Agent may deem necessary to protect the security hereof or the rights or powers of the Agent or the Lender hereunder or under the Consulting Agreement, including, without limitation, the right to appear in and defend any action or proceeding 78 purporting to affect the security hereof or the rights or powers of the Agent or the Lender hereunder or under the Consulting Agreement, to perform and discharge each and every obligation, covenant and agreement of SRI contained in the Consulting Agreement, and, in exercising any such rights or powers, to pay necessary costs and expenses, employ counsel and incur and pay reasonable attorneys' fees (such amounts to be reimbursed to the Agent and the Lender by SRI); and (23) agrees that upon the occurrence of an Event of Default or Early Amortization Event and the declaration by the Agent that the Early Amortization Commencement Date shall have occurred, the Agent shall have the right to direct the Consultant to assume management control of the operations of the Developments. ARTICLE VII. EVENTS OF DEFAULT SECTION 7.1 Events of Default. If any of the following events ("Events of Default") shall occur: (24) the Facility Amount shall at any time be greater than the lesser of (i) the Capital Limit or (ii) the Borrowing Limit minus the Discount Amount; or (25) the occurrence of any Bankruptcy Event with respect to the Borrower or SRI; or (26) any representation or warranty made or deemed to be made by the Borrower or SRI (or any of their respective officers) under or in connection with this Agreement, any remittance report or other information or report delivered pursuant hereto or any other Transaction Document shall prove to have been false or incorrect when made (including, without limitation, any representation or warranty made or deemed to be made by SRI (or any of its officers or agents) under or in connection with the Receivables Purchase Agreement); provided, however, that if any breach described above is cured by the repurchase of Receivables pursuant to Article VI of the Receivables Purchase Agreement or by a repayment pursuant to Section 2.12 or a repurchase pursuant to Section 6.21 hereof, such breach shall cease to constitute an Event of Default; or (27) (i) the Borrower or SRI shall fail to perform or observe any term, covenant or agreement hereunder or under any other Transaction Document (including the failure to make any payment or deposit to be made by it hereunder or under the Fee Letter) when due and such failure remains unremedied for two (2) Business Days after written notice thereof is provided by the Agent; or (28) the Borrower or SRI shall fail to pay any principal of or premium or interest on any Debt (in the case of SRI, in an amount in excess of $250,000) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, 79 demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any Debt or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or (29) the occurrence of any default under any of the terms of, or otherwise in respect of, any agreement, security, note or certificate related to any Take-Out Securitization or other outstanding term securitization serviced by the Servicer and the passage of any applicable grace period without the cure thereof; or (30) (i) the Lender shall at any time fail to have a valid, perfected, first priority security interest in any of the Pledged Assets or (ii) any purchase by the Borrower of a Receivable under the Receivables Purchase Agreement shall, for any reason, cease to create in favor of the Borrower a perfected ownership interest in such Receivable; provided, however, that if an event described in the foregoing clause (i) or (ii) is cured by the repurchase of Receivables pursuant to Article VI of the Receivables Purchase Agreement or by a repayment pursuant to Section 2.12 or a repurchase pursuant to Section 6.21 hereof, such event shall cease to constitute an Event of Default; or (31) the Borrower or SRI shall have suffered any material adverse change to its financial condition or operations which would adversely affect the collectibility of the Pledged Receivables or the Borrower's or SRI's ability to conduct its business; or (32) SRI or the Borrower can no longer conduct business for any reason; or (33) the Receivables Purchase Agreement shall cease to be in full force and effect; or (34) the occurrence of a Servicer Default (if the Servicer is SRI or an Affiliate thereof); or (35) SRI has at any time a Tangible Net Worth in an amount which shall be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of SRI as of September 30, 2001 plus (B) seventy-five percent (75%) of the aggregate amount of proceeds received by SRI after January 1, 2002 in connection with (1) each issuance by SRI of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Debt after January 1, 2002, other than Debt which shall be the most senior Debt of SRI plus (C) fifty percent (50%) of the aggregate amount of net income (calculated in accordance with GAAP) of SRI after January 1, 2002; or (36) any failure shall have occurred on the part of the Borrower or SRI duly to observe or perform in any material respect any covenant or agreement related to any Purchased 80 Rate Cap or any covenant or agreement under the Sinking Fund Agreement; or (37) the Servicer shall fail to deliver to the Agent within 90 days after the Amendment Date, audited financial statements of the type described in Section 6.12(d) and (e) with respect to SRI and the Borrower for the year ended December 31, 2000, in each case, accompanied by Independent Accountants' opinions reasonably acceptable to the Agent and which are otherwise satisfactory to the Agent; or (38) the Consulting Agreement and the letter agreement dated as of the date hereof, by and among the Agent, the Lender, SRI, the Borrower, Textron Financial Corp., Heller Financial, Inc., Sovereign Bank and the Consultant, or a replacement consulting agreement acceptable to the Agent, shall cease to be in full force and effect for greater than 30 days; or (39) (i) For the fiscal quarter of SRI ending June 30, 2002, SRI shall fail to have for such fiscal quarter an Interest Coverage Ratio of at least 1.1:1; (ii) for the fiscal quarter of SRI ending September 30, 2002, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratio for the immediately preceding fiscal quarter shall fail to be at least 1.1:1; (iii) for the fiscal quarter of SRI ending December 31, 2002, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratios for the two immediately preceding fiscal quarters shall fail to be at least 1.1:1; (iv) for the fiscal quarter of SRI ending March 31, 2003, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratios for the three immediately preceding fiscal quarters shall fail to be at least 1.1:1 or (v) for any fiscal quarter of SRI beginning with, and including, the fiscal quarter ending June 30, 2003 and for any fiscal quarter of SRI thereafter, the average of the Interest Coverage Ratio of SRI for such fiscal quarter and the Interest Coverage Ratios for each of the three immediately preceding fiscal quarters shall fail to be at least 1.25:1; or (40) the failure of the Borrower to accept the Put and to make the Put Payment to the Agent on the Put Date; then the Agent may, by notice to the Borrower, declare the Early Amortization Commencement Date to have occurred; provided, that, in the case of any event described in 7.01(b) above, the Early Amortization Commencement Date shall be deemed to have occurred automatically upon the occurrence of such event. Upon any such declaration or automatic occurrence, (i) the Borrower shall cease purchasing Receivables from SRI under the Receivables Purchase Agreement, (ii) the Lender shall cease issuing commercial paper notes to fund or maintain the Loans hereunder, (iii) the Liquidity/Credit Enhancement Facility shall be drawn upon by the Lender from time to time thereafter in order to retire the maturing commercial paper notes issued to fund or maintain the Loans hereunder (and the Loans hereunder maintained by the amounts so drawn under the Liquidity/Credit Enhancement Facility shall bear interest at the Default Funding Rate), (iv) at the option of the Lender in its sole discretion, the Lender may declare the Loans made to the Borrower hereunder and all Yield and all Fees accrued on such Loans and any other Obligations to be immediately due and payable (and the Borrower shall pay such Loans and all such amounts and Obligations immediately); and (v) at the option of the Lender in its sole discretion, the Agent, on behalf of the Lender, may direct the Obligors to make all payments 81 under the Pledged Receivables directly to the Backup Servicer, the Agent, the Lender or any lockbox or account established by any of such parties. In addition, upon any such declaration or upon any such automatic occurrence, the Agent and the Lender shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of the applicable jurisdiction and other applicable laws, which rights shall be cumulative. If any Event of Default shall have occurred, the Non-CP Rate and the CP Rate shall be increased to the Default Funding Rate, effective as of the date of the occurrence of such Event of Default and shall remain at the Default Funding Rate. SECTION 7.2 Additional Remedies of Agent and Lender. (a) If, upon the Lender's declaration that the Loans made to the Borrower hereunder are immediately due and payable pursuant to Section 7.01 or on the Facility Maturity Date, the aggregate outstanding principal amount of the Loans, all accrued Fees and Yield and any other Obligations are not immediately paid in full, then the Agent, in addition to all other rights specified hereunder, shall have the right, in its own name and as agent for the Lender, to immediately sell in a commercially reasonable manner and otherwise in accordance with applicable law, in a recognized market (if one exists) at such price or prices as the Agent may reasonably deem satisfactory, any or all Pledged Assets and apply the proceeds thereof to the Obligations. (41) The parties recognize that it may not be possible to sell all of the Pledged Assets on a particular Business Day, or in a transaction with the same purchaser, or in the same manner because the market for such Pledged Assets may not be liquid. Accordingly, the Agent may elect, in its sole discretion, the time and manner of liquidating any Pledged Assets and nothing contained herein shall obligate the Agent to liquidate any Pledged Assets on the date the Lender declares the Loans made to the Borrower hereunder to be immediately due and payable pursuant to Section 7.01 or to liquidate all Pledged Assets in the same manner or on the same Business Day. (42) Any amounts received from any sale or liquidation of the Pledged Assets pursuant to this Section 7.02 in excess of the Obligations will be returned to the Borrower, its successors or assigns, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may otherwise direct. (43) The Agent and the Lenders shall have, in addition to all the rights and remedies provided herein and provided by applicable federal, state, foreign, and local laws (including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code of any applicable state, to the extent that the Uniform Commercial Code is applicable, and the right to offset any mutual debt and claim), all rights and remedies available to the lenders in law, in equity, or under any other agreement between the Lender and the Borrower. (44) Except as otherwise expressly provided in this Agreement, no remedy provided for by this Agreement shall be exclusive of any other remedy, and each and every remedy shall be cumulative and in addition to any other remedy, and no delay or omission to exercise any right or remedy shall impair any such right or remedy or shall be deemed to be a waiver of any Early Amortization Event or Event of Default. 82 (45) If a Development is no longer an Eligible Development, no additional Receivables related to such Development will be financed under this Agreement until such time as the circumstance which caused such Development to cease to be an Eligible Development no longer exists. ARTICLE VIII. INDEMNIFICATION SECTION 8.1 Indemnities by the Borrower. Without limiting any other rights which the Agent, the Lender, the Backup Servicer or any of their respective Affiliates may have hereunder or under applicable law, the Borrower hereby agrees to indemnify the Agent, the Lender, the Backup Servicer and each of their respective Affiliates (each an "Indemnified Party" for purposes of this Article VIII) from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or as a result of this Agreement or in respect of any Pledged Assets, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Agent, the Lender, the Backup Servicer or such Affiliate. Without limiting the foregoing, the Borrower shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from: (46) any Pledged Receivable treated as or represented by the Borrower to be an Eligible Receivable which is not an Eligible Receivable; (47) reliance on any representation or warranty made or deemed made by the Borrower or any of its agents, including without limitation, the Servicer or any of their respective officers under or in connection with this Agreement, which shall have been false or incorrect in any material respect when made or deemed made or delivered; (48) the failure by the Borrower or any of its agents, including without limitation, the Servicer to comply with any term, provision or covenant contained in this Agreement or any agreement executed in connection with this Agreement, or with any applicable law, rule or regulation with respect to any Pledged Assets, or the nonconformity of any Pledged Assets with any such applicable law, rule or regulation; (49) the failure to vest and maintain vested in the Agent, for the benefit of the Lender, or to transfer to the Agent, for the benefit of the Lender, a first priority perfected security interest in the Receivables which are, or are purported to be, Pledged Receivables, together with all Collections, Related Security and other Pledged Assets related thereto (including, without limitation, any and all Intervals with respect to such Receivables), free and clear of any Adverse Claim whether existing at the time of the related Borrowing or at any time thereafter; (50) the failure to maintain, as of the close of business on each Business Day prior to the Collection Date, a Facility Amount which is less than or equal to the lesser of (x) the 83 Borrowing Limit minus the Discount Amount on such Business Day, or (y) the Capital Limit on such Business Day (provided, that in determining the Capital Limit for purposes of this Section 8.01(e), all information used in such determination must be accurate as of the date of such determination); (1) (51) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC or real property laws of any applicable jurisdiction or other applicable laws with respect to any Receivables which are, or are purported to be, Pledged Receivables or the other Pledged Assets related thereto, whether at the time of any Borrowing or at any subsequent time; (52) any dispute, claim, offset or defense to the payment of any Receivable which is, or is purported to be, a Pledged Receivable (including, without limitation, a defense based on such Receivable not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms); (53) any failure of the Borrower or any of its agents, including without limitation, the Servicer to perform its duties or obligations in accordance with the provisions of this Agreement; (54) the failure to pay prior to delinquency any taxes payable in connection with the Pledged Receivables or the Pledged Assets related thereto; (55) any repayment by the Agent or the Lender of any amount previously distributed in payment of Loans or payment of Yield or Fees or any other amount due hereunder, in each case which amount the Agent or the Lender believes in good faith is required to be repaid; (56) the commingling of Collections of Pledged Receivables at any time with other funds; (57) any investigation, litigation or proceeding related to a Pledged Receivable, this Agreement or the use of proceeds of Loans or the Pledged Assets; (58) any failure by the Borrower to give reasonably equivalent value to SRI in consideration for the transfer by SRI to the Borrower of any Receivable or any attempt by any Person to void or otherwise avoid any such transfer under any statutory provision or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code; (59) any failure of the Borrower or any of its respective agents or representatives, including without limitation, the Servicer (including, without limitation, agents, representatives and employees of the Servicer acting pursuant to authority granted under Section 6.01 hereof) to remit to the Servicer or the Agent, Collections of Pledged Receivables remitted to the Borrower, the Servicer or any such agent or representative; (60) any failure on the part of the Borrower or any of its agents, including 84 without limitation, SRI duly to observe or perform in any material respect any covenant or agreement under the Sinking Fund Agreement; and/or (61) the failure at any time of the Borrower to maintain funds in the Sinking Fund Account in the amount required under the Sinking Fund Account Agreement; provided, that such failure has continued beyond any grace period provided for in the Sinking Fund Agreement. Any amounts subject to the indemnification provisions of this Section 8.01 shall be paid by the Borrower to the Agent within two (2) Business Days following the Agent's written demand therefor. SECTION 8.2 Indemnities by the Servicer. Without limiting any other rights which the Agent, the Lender or any of their respective Affiliates may have hereunder or under applicable law, the Servicer (if SRI or one of its Affiliates) hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or as a result of the Servicer's performance of or failure to perform its obligations under this Agreement excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Agent, the Lender or such Affiliate. Without limiting the foregoing, the Servicer (if SRI or one of its Affiliates) shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from: (62) any Pledged Receivable treated as or represented by the Servicer (if SRI or one of its Affiliates) to be an Eligible Receivable which is not an Eligible Receivable; or (63) reliance on any representation or warranty made or deemed made by the Servicer (if SRI or one of its Affiliates) or any of their respective officers under or in connection with this Agreement, which shall have been false or incorrect in any material respect when made or deemed made or delivered; or (64) the failure by the Servicer (if SRI or one of its Affiliates) to comply with any term, provision or covenant obtained in this Agreement or any agreement executed in connection with this Agreement, or with any applicable law, rule or regulation with respect to any Pledged Assets, or the nonconformity of any Pledged Assets with any such applicable law, rule or regulation; or (65) the failure to vest and maintain vested in the Agent, for the benefit of the Lender, or to transfer to the Agent, for the benefit of the Lender, a first priority perfected security interest in the Receivables which are, or are purported to be, Pledged Receivables, together with all Collections, Related Security and other Pledged Assets related thereto (including, without limitation, any and all Interval's with respect to such Receivables), free and clear of any Adverse Claim (other than Permitted Liens and Encumbrances) whether existing at the time of the related Borrowing or at any time thereafter; or (66) the commingling by the Servicer (if SRI or one of its Affiliates) of Collections of Pledged Receivables at any time with other funds; or 85 (67) any failure of the Servicer (if SRI or one of its Affiliates) or any of its respective agents or representatives (including, without limitation, agents, representatives and employees of the Servicer (if SRI or one of its Affiliates) acting pursuant to authority granted under Section 6.01 hereof) to remit to the Servicer (if SRI or one of its Affiliates) or the Agent, Collections of Pledged Receivables remitted to the Borrower, the Servicer (if SRI or one of its Affiliates) or any such agent or representative; and/or (68) any fees or other costs and expenses payable to any replacement Servicer, to the extent in excess of the servicing fees payable to the Servicer hereunder. Any amounts subject to the indemnification provisions of this Section 8.02 shall be paid by the Servicer (if SRI or one of its Affiliates) to the Agent within two (2) Business Days following the Agent's written demand therefor. Each applicable Indemnified Party shall deliver to the indemnifying party under Section 8.01 and Section 8.02, within a reasonable time after such Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by such Indemnified Party relating to the claim giving rise to the Indemnified Amounts. Each such Indemnified Party will cooperate with the Borrower and the Servicer in connection with any claim giving rise to the Indemnified Amounts to minimize the liability of such indemnifying parties, provided that nothing contained herein shall obligate any such Indemnified Party to take any action which, in the opinion of such Indemnified Party, is unlawful or otherwise disadvantageous to such Indemnified Party. ARTICLE IX. MISCELLANEOUS SECTION 9.1 Amendments and Waivers. (a) Except as provided in Section 9.01(b), no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Borrower, the Servicer, the Backup Servicer, the Agent and the Lender, and no termination or, except as set forth in Section 9.12 hereof, waiver of any provision of this Agreement or consent to any departure therefrom by the Borrower or the Servicer shall be effective without the written concurrence of the Agent and the Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (69) Notwithstanding the provisions of Section 9.01(a), in the event that there is more than one Lender, the written consent of each Lender shall be required for any amendment, modification or waiver (i) reducing any outstanding Loans, or the Yield thereon, (ii) postponing any date for any payment of any Loan, or the Yield thereon, or (iii) modifying the provisions of this Section 9.01, or (iv) increasing the Capital Limit or the Borrowing Limit. SECTION 9.2 Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or 86 delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or specified in such party's Assignment and Acceptance or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of (i) notice by mail, five days after being deposited in the United States mails, first class postage prepaid, (ii) notice by telex, when telexed against receipt of answerback, or (iii) notice by facsimile copy, when verbal communication of receipt is obtained, except that notices and communications pursuant to Article II shall not be effective until received. SECTION 9.3 No Waiver; Remedies. Except as set forth in Section 9.12 hereof, no failure on the part of the Agent or the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.4 Binding Effect; Assignability; Multiple Lenders. (i) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Servicer, the Agent, the Lender, the Backup Servicer and their respective successors and permitted assigns. This Agreement and the Lender's rights and obligations hereunder and interest herein shall be assignable in whole or in part (including by way of the sale of participation interests therein) by the Lender and its successors and assigns. None of the Borrower, the Servicer or the Backup Servicer may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Lender and the Agent. The parties to each assignment or participation made pursuant to this Section 9.04 shall execute and deliver to the Agent for its acceptance and recording in its books and records, an assignment and acceptance agreement (an "Assignment and Acceptance") or a participation agreement or other transfer instrument reasonably satisfactory in form and substance to the Agent and the Borrower. Each such assignment or participation shall be effective as of the date specified in the applicable Assignment and Acceptance or other agreement or instrument only after the execution, delivery, acceptance and recording as described in the preceding sentence. The Agent shall notify the Borrower of any assignment or participation thereof made pursuant to this Section 9.04. The Lender may, in connection with any assignment or participation or any proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower and the Pledged Assets furnished to the Lender by or on behalf of the Borrower or the Servicer. Whenever the term "Lender" is used herein, it shall mean Autobahn and/or any other Person which shall have executed an Assignment and Acceptance; provided, however, that each such party shall have a pro rata share of the rights and obligations of the Lender hereunder in such percentage amount (the "Commitment Percentage") as shall be obtained by dividing such party's commitment to fund Loans hereunder by the total commitment of all parties to fund Loans hereunder. Any right at any time of the Lender to enforce any remedy, or instruct the Agent to take (or refrain from taking) any action hereunder, shall be exercised by the Agent only upon direction by such parties that hold a majority of the Commitment Percentages at such time. 87 SECTION 9.5 Term of This Agreement. This Agreement including, without limitation, the Borrower's obligation to observe its covenants set forth in Articles V and VI, and the Servicer's obligation to observe its covenants set forth in Articles V and VI, shall remain in full force and effect until the Collection Date; provided, however, that the rights and remedies with respect to any breach of any representation and warranty made or deemed made by the Borrower or Servicer pursuant to Articles III and IV and the indemnification and payment provisions of Article VIII and Article IX and the provisions of Section 9.08 and Section 9.09 shall be continuing and shall survive any termination of this Agreement. SECTION 9.6 Governing Law; Jury Waiver. THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDER IN THE PLEDGED RECEIVABLES, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREUNDER. SECTION 9.7 Costs, Expenses and Taxes. (i) In addition to the rights of indemnification granted to the Backup Servicer, the Agent, the Lender and its Affiliates under Article VIII hereof, the Borrower agrees to pay on demand all reasonable costs and expenses of the Backup Servicer, the Lender and the Agent incurred in connection with the preparation, execution, delivery, administration of, or any waiver or consent issued or amendment prepared in connection with, this Agreement, the other Transaction Documents and the other documents to be delivered hereunder or in connection herewith or therewith or incurred in connection with any amendment, waiver or modification of this Agreement, any other Transaction Document, and any other documents to be delivered hereunder or thereunder or in connection herewith or therewith that is necessary or requested by any of the Borrower, the Servicer, the Lender or a Rating Agency or made necessary or appropriate as a result of the actions of any regulatory, tax or accounting body affecting the Lender and its Affiliates, or which is related to an Event of Default including, without limitation, the reasonable fees and reasonable out-of-pocket expenses of counsel for the Backup Servicer, the Agent and the Lender with respect thereto and with respect to advising the Backup Servicer, the Agent and the Lender as to their respective rights and remedies under this Agreement and the other documents to be delivered hereunder or in connection herewith, and all costs and expenses, if any (including reasonable counsel fees and expenses), incurred by the Backup Servicer, the Agent or the Lender in connection with the enforcement of this Agreement and the other documents to be delivered hereunder or in connection herewith. 88 (1) The Borrower shall pay on demand any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the other documents to be delivered hereunder or any agreement or other document providing liquidity support, credit enhancement or other similar support to the Lender which is specific to this Agreement or the funding or maintenance of Loans hereunder. (2) The Borrower shall pay on demand all other costs, expenses and taxes (excluding franchise and income taxes) incurred by any Issuer or incurred by any general or limited partner, or member or shareholder of such Issuer on behalf of such Issuer related to this Agreement ("Other Costs"), including, without limitation, the portion of the cost of rating such Issuer's commercial paper by independent financial rating agencies which is allocable to commercial paper issued to fund Loans hereunder, the cost of obtaining a shadow rating from the Rating Agencies with respect to the financing facility provided for under this Agreement and the other Transaction Documents, the taxes (excluding franchise and income taxes) resulting from such Issuer's operations which are allocable to the provision of Loans hereunder, and the reasonable fees and out-of-pocket expenses of counsel for the Issuer with respect to (i) advising the Issuer as to its rights and remedies under this Agreement and the other documents to be delivered hereunder or in connection herewith, (ii) the enforcement of this Agreement and the other documents to be delivered hereunder or in connection herewith and (iii) advising the Issuer as to the issuance of the Issuer's commercial paper notes to fund Loans hereunder and action in connection with such issuance. SECTION 9.08 No Proceedings. Each of the Borrower, the Agent, the Servicer and the Lender hereby agrees that it will not institute against, or join any other Person in instituting against, any Issuer any proceedings of the type referred to in the definition of Bankruptcy Event so long as any commercial paper issued by such Issuer shall be outstanding or there shall not have elapsed one year and one day since the last day on which any such commercial paper shall have been outstanding. The Servicer hereby agrees that it will not institute against, or join any other Person in instituting against, the Borrower any proceedings of the type referred to in the definition of Bankruptcy Event (a) prior to the Collection Date and (b) so long as any commercial paper issued by a Lender which is an Issuer shall be outstanding or there shall not have elapsed one year and one day since the last day on which any such commercial paper shall have been outstanding. The provisions of this Section 9.08 shall survive the termination of this Agreement. SECTION 9.09 Recourse Against Certain Parties. No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Lender or the Agent as contained in this Agreement or any other agreement, instrument or document entered into by the Lender or the Agent pursuant hereto or in connection herewith shall be had against any administrator of the Lender or the Agent or any incorporator, affiliate, stockholder, officer, employee or director of the Lender or the Agent or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that the agreements of each party hereto contained in this Agreement and all of the 89 other agreements, instruments and documents entered into by the Lender or the Agent pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of such party (and nothing in this Section 9.09 shall be construed to diminish in any way such corporate obligations of such party), and that no personal liability whatsoever shall attach to or be incurred by any administrator of the Lender or the Agent or any incorporator, stockholder, affiliate, officer, employee or director of the Lender or the Agent or of any such administrator, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of the Lender or the Agent contained in this Agreement or in any other such instruments, documents or agreements, or which are implied therefrom, and that any and all personal liability of every such administrator of the Lender or the Agent and each incorporator, stockholder, affiliate, officer, employee or director of the Lender or the Agent or of any such administrator, or any of them, for breaches by the Lender or the Agent of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement. The provisions of this Section 9.09 shall survive the termination of this Agreement. SECTION 9.10 Execution in Counterparts; Severability; Integration. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings other than the Fee Letter. [SIGNATURE PAGE TO FOLLOW.] 90 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWER: SILVERLEAF FINANCE I, INC. By: /s/ Harry J. White, Jr. ------------------------------- Title: CFO 1221 River Bend Drive, Suite 274 Dallas, Texas 75247 Attention: Robert E. Mead Facsimile No.: (214) 688-7067 Confirmation No.: (214) 679-0771 THE SERVICER: SILVERLEAF RESORTS, INC. By: /s/ Robert E. Mead ------------------------------- Title: Chief Executive Officer 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Attention: Robert E. Mead Facsimile No.: (214) 905-0514 Confirmation No.: (214) 631-1166 91 THE AGENT: DZ BANK AG DEUTSCHE ZENTRAL- GENOSSENSCHAFTSBANK, FRANKFURT AM MAIN By: /s/ Patrick Preece ------------------------------- Title: VP By: /s/ Jennifer Wihoff ------------------------------- Title: VP 609 Fifth Avenue New York, New York 10017 Attention: Michael Plunkett Facsimile No.: 212/745-1651 Confirmation No.: 212/745-1658 THE LENDER: AUTOBAHN FUNDING COMPANY LLC By: DZ BANK AG Deutsche Zentral- Genossenschaftsbank, Frankfurt am Main, its attorney-in-fact By: /s/ Patrick Preece ---------------------- Title: VP By: /s/ Jennifer Wihoff ---------------------- Title: VP 609 Fifth Avenue New York, New York 10017 Attention: Michael Plunkett Facsimile No.: 212/745-1651 Confirmation No.: 212/745-1658 92 THE AGENT'S BANK: U.S. BANK TRUST NATIONAL ASSOCIATION By: /s/ Amy S. Robert -------------------------------- Title: Vice President 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Amy Roberts Facsimile No.: 212/514-6808 Confirmation No.: 212/361-2893 THE BACKUP SERVICER: WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ Jennifer C. Davis -------------------------------- Title: Assistant Vice President Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, MN 55479 Attention: Corporate Trust Services - Asset Backed Administration Facsimile No.: 612/667-3464 Telephone No.: 612/667-8058 Exh. J-93 EX-10.9 15 d00253exv10w9.txt AMENDMENT AGREEMENT NO. 1 TO PURCHASE/CONTRIBUTION EXHIBIT 10.9 AMENDMENT AGREEMENT NO. 1 TO PURCHASE AND CONTRIBUTION AGREEMENT AMENDMENT AGREEMENT NO. 1, dated as of April 30, 2002 (this "Amendment"), to PURCHASE AND CONTRIBUTION AGREEMENT dated as of October 30, 2000 (the "Agreement") between Silverleaf Resorts, Inc. (the "Seller") and Silverleaf Finance I, Inc. (the "Purchaser"). Capitalized terms not otherwise defined herein shall have the meanings attributed to them in the Agreement. WHEREAS, the Seller and the Purchaser desire to amend the Agreement as hereinafter provided; NOW THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendments. The parties hereto agree that, as of the date of this Amendment: (a) the definition of "Eligible Receivable" set forth in Article I of the Agreement, is amended by the addition of the following additional item to the definition thereof: "(bbb) If such Receivable was initially conveyed hereunder at any time on or after the Amendment Date, the Obligor related to such Receivable shall have had a FICO Score of at least 500 at the time such Obligor purchased the Interval related to such Receivable." (b) Section 5.7 of the Agreement, is deleted in its entirety and replaced by the following: "SECTION 5.7. Financial Covenant. The Seller shall at all times have and maintain a Tangible Net Worth in an amount which shall not be less than an amount equal to (A) the greater of (i) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of SRI as of September 30, 2001 plus (B) seventy-five percent (75%) of the aggregate amount of proceeds received by Seller after January 1, 2002 in connection with (1) each issuance by Seller of any class or classes of capital stock after January 1, 2002 and (2) each incurrence of Debt after January 1, 2002, other than Debt which shall be the most senior Debt of Seller plus (C) fifty percent (50%) of the aggregate amount of net income (calculated in accordance with GAAP) of Seller after January 1, 2002." SECTION 2. Conditions to Effectiveness. The amendments contained in this Amendment shall not become effective until the following conditions have been satisfied in full or waived by the Purchaser or its assignee: (1) the Purchaser or its assignee shall have received an originally executed counterpart of this Amendment duly executed by the Seller; (2) the conditions precedent to the amendment and restatement of the RLSA, dated as of the date hereof, shall have been satisfied and such agreement shall have been executed by the parties thereto; (3) no event has occurred and is continuing which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse, except as specifically described herein; and (4) the Purchaser or its assignee shall have received such approvals, opinions or documents as the Purchaser or its assignee may reasonably request. SECTION 3. Representations and Warranties. The Purchaser and the Seller each represent and warrant that all of their representations and warranties contained in the Transaction Documents are true and correct in all material respects on the date hereof and with the same force and effect as though such representations and warranties had been made on the date hereof, except to the extent any such representations and warranties relate solely to an earlier date. SECTION 4. Reference to and Effect on the Documents. (1) On and after the date hereof, each reference in the Agreement to "this Agreement" shall refer to the Agreement as amended hereby and each reference in the Agreement to "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Agreement as amended hereby. (2) Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. (3) Except as expressly provided herein, the execution and delivery of this Amendment shall neither operate as a waiver of any right, power or remedy of any party to the Agreement nor constitute a waiver of any provision of the Agreement. SECTION 5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF, THE STATE OF NEW YORK. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which when taken together shall 2 constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER: SILVERLEAF RESORTS, INC. By: /s/ Robert E. Mead --------------------------------- Name: Robert E. Mead ------------------------------- Title: Chief Executive Officer ------------------------------ PURCHASER: SILVERLEAF FINANCE I, INC. By: /s/ Harry J. White, Jr. --------------------------------- Name: Harry J. White, Jr. ------------------------------- Title: CFO ------------------------------ Agreed and Accepted: DZ BANK AG DEUTSCHE ZENTRAL- GENOSSENSCHAFTSBANK, FRANKFURT AM MAIN By: /s/ Patrick Preece --------------------------------- Name: Patrick Preece ------------------------------- Title: VP ------------------------------ By: /s/ Jennifer Wihoff --------------------------------- Name: Jennifer Wihoff ------------------------------- Title: VP ------------------------------ 4 EX-10.10 16 d00253exv10w10.txt EMPLOYMENT AGREEMENT - SHARON K. BRAYFIELD EXHIBIT 10.10 EMPLOYMENT AGREEMENT WITH SILVERLEAF RESORTS, INC. THIS EMPLOYMENT AGREEMENT (the "Agreement") is made between SILVERLEAF RESORTS, INC., a Texas corporation ("Silverleaf"), and SHARON K. BRAYFIELD (the "Employee"). RECITALS: A. Employee is a key executive officer and employee of Silverleaf; and B. Silverleaf and Employee desire to continue the employment of Employee and to agree on the terms of Employee's continued employment. NOW, THEREFORE, in consideration of the premises and terms hereinafter set forth, the parties agree as follows: AGREEMENT: SECTION 1. EMPLOYMENT. Employee's employment with Silverleaf as President is hereby continued, effective as of the Effective Date and for an initial period of two (2) years from the Effective Date (the "Term"), unless sooner terminated pursuant to the termination provisions of this Agreement. Employee may not engage in other employment while he or she is in the employ of Silverleaf pursuant to this Agreement. SECTION 2. DUTIES. Employee agrees to devote such time, attention and energies as are necessary to fulfill his or her duties as specified by the Board of Directors of Silverleaf from time to time. Employee further agrees that he or she will promote the best interests and welfare of Silverleaf and shall perform any and all duties to the best of his or her abilities. The Employee shall: (a) NON-COMPETITION: Not render to others, during his or her employment with Silverleaf, service of any kind for compensation or promote, participate or engage in any other business activity which would conflict or interfere with the performance of his or her duties or loyalty under this Agreement, including, but not limited to, participating in the promotion or sale of products or services for a competitor of Silverleaf or otherwise engage in business with such competitor; (b) REGULATORY LAWS: Abide by all applicable statutes, rules and regulations of each State in which services may be rendered; and (c) SILVERLEAF RULES: Abide by all rules and regulations issued by Silverleaf, which are pertinent to Employee's duties and obligations. SECTION 3. COMPENSATION. As compensation for the services rendered pursuant to this Agreement: (a) BASE COMPENSATION: Silverleaf shall pay Employee base compensation computed at the annual rate of Four Hundred Thirty Five Thousand and No/100 Dollars ($435,000.00), payable in semi-monthly payments on the 1st and 15th days of each month. (b) INCENTIVE COMPENSATION: Employee shall be entitled to participate in any bonus, incentive, stock option or other compensation plans of Silverleaf only to the extent the Board of Directors of Silverleaf may deem appropriate from time to time. (c) COMPANY VEHICLE: Silverleaf shall furnish Employee a company owned vehicle for use by Employee in performing his or her duties, and Silverleaf shall pay all expenses associated therewith. (d) FRINGE BENEFITS: Silverleaf shall provide Employee health insurance under its group plan as it may exist from time to time. The cost of any coverage of any of the Employee's family members under Silverleaf's group plan shall be paid by the Employee. The Employee shall also be entitled to such vacation time, sick leave and other fringe benefits as may be specified by the Board of Directors of Silverleaf from time to time for its executive personnel. SECTION 4. TERMINATION PAYMENTS. If Employee voluntarily terminates his or her employment or if Silverleaf terminates Employee's employment for Good Cause, the payment to Employee of all compensation earned to the date of termination shall be in full satisfaction of all of Employee's claims against Silverleaf under this Agreement and Employee shall be entitled to no other termination pay. If Employee's employment is terminated by Silverleaf, other than for Good Cause, then Employee shall be entitled to termination pay equal to the unpaid amount of the Employee's base compensation set forth in Subsection 3(a), payable in semi-monthly payments on the 1st and 15th days of the remaining months during the Term of this Agreement. For purposes of the preceding provisions: Good Cause shall be deemed to exist if Employee: [1] Willfully breaches or habitually neglects the duties that the Employee is required to perform under the terms of this Agreement; [2] Willfully violates reasonable and substantial rules governing employee performance; [3] Refuses to obey reasonable orders in a manner that amounts to insubordination; or [4] Commits clearly dishonest acts toward Silverleaf. 2 Additionally, no severance pay shall be payable if Employee's employment is terminated because of Employee's death, or Employee's incapacity due to Employee's physical or mental illness. SECTION 5. CONFIDENTIALITY. (a) NONDISCLOSURE AND NONUSE: Employee acknowledges that during his or her employment with Silverleaf, he or she may have access to and become acquainted with Silverleaf Confidential Information, as defined below. Except as Employee's duties during his or her employment with Silverleaf may require or Silverleaf may otherwise consent in writing, Employee agrees that he or she shall not at any time disclose or use, directly or indirectly, either during or subsequent to his or her employment with Silverleaf, any Silverleaf Confidential Information. (b) CONFIDENTIAL INFORMATION: For purposes of the foregoing provisions, "Silverleaf Confidential Information" shall mean (1) any and all confidential and proprietary business information and trade secrets concerning the business and affairs of Silverleaf and its affiliates, including but not limited to all marketing, sales and lead generation techniques, know-how and studies, customer and lead lists, current and anticipated customer requirements, price lists, business plans, training programs, computer software and programs, and computer software and data-base technologies, systems, structures and architectures (and related processes, formulae, compositions, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), (2) any and all information concerning the business and affairs of Silverleaf and its affiliates (including but not limited to their historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials, however documented), and (3) any and all notes, analysis, compilations, studies, summaries, and other material prepared by or for Silverleaf and its affiliates containing or based, in whole or in part, on any information included in the foregoing. SECTION 6. NON-INTERFERENCE. Employee further agrees that during his or her employment and at all times thereafter, Employee shall not, either on his or her own account or jointly with or as a manager, agent, officer, employee, consultant, partner, joint venturer, owner or shareholder or otherwise on behalf of any other person, firm or corporation: (1) carry on or be engaged or interested directly or indirectly in, or solicit, the manufacture or sale of goods or provision of services to any person, firm or corporation which, at any time during his or her employment has been or is a customer or in the habit of dealing with Silverleaf or its affiliates in their business, (2) endeavor, directly or indirectly, to canvas or solicit in competition with Silverleaf or its affiliates or to interfere with the supply of orders for goods or services from or by any person, firm or corporation which during this or her employment has been or is a supplier of 3 goods or services to Silverleaf or its affiliates, or (3) directly or indirectly solicit or attempt to solicit away from Silverleaf or its affiliates any of its officers, employees or independent contractors or offer employment or business to any person who, on or during the 6 months immediately preceding the date of such solicitation or offer, is or was an officer, employee or independent contractor of Silverleaf or its affiliates. SECTION 7. NONCOMPETITION. (a) COVENANT: Employee covenants and agrees that he or she shall not, for a period of two (2) years from and after the effective date of any Termination, working alone or in conjunction with one or more other persons or entities, for compensation or not, permit his or her name to be used by or engage in or carry on, directly or indirectly, either for himself or herself or as a member of a partnership or other entity or as a stockholder, investor, officer or director of a corporation or as an employee, agent, associate or contractor of any person, partnership, corporation or other entity, any business in competition with the business of Silverleaf or its affiliates, as carried on by Silverleaf or its affiliates immediately prior to the effective date of any Termination, but only for as long as such business is carried on by (1) Silverleaf or its affiliates or (2) any person, corporation, partnership, trust or other organization or entity deriving title from Silverleaf or its affiliates to the assets and goodwill of the business being carried on by Silverleaf or its affiliates immediately prior to the effective date of any Termination, in any county of any state of the United States in which Silverleaf or its affiliates conducts such business or markets the products of such business immediately prior to the effective date of any Termination. (b) TOLLING. If Employee violates any covenant contained in this Section, then the term of such violated covenant shall be tolled for the period commencing on the commencement of such violation and ending upon the earlier of (1) such time as such violation shall be cured by Employee to the reasonable satisfaction of Silverleaf, (2) final adjudication (including appeals) of any action filed for injunctive relief or damages arising out of such violation, and (3) the expiration of 24 months after Termination during which no violation of the covenant has occurred. (c) REFORMATION. If, in any judicial proceeding, the court shall refuse to enforce any covenant contained in this Section because the time limit is too long, it is expressly understood and agreed between Silverleaf and Employee that for purposes of such proceeding such time limitation shall be deemed reduced to the extent necessary to permit enforcement of such covenant. If, in any judicial proceeding, the court shall refuse to enforce any covenant contained in this Section because it is more extensive (whether as to geographic area, scope of business or otherwise) than necessary to protect the business and goodwill of Silverleaf and/or its affiliates, it is expressly understood and agreed between Silverleaf and Employee that for purposes of such proceeding the geographic 4 area, scope of business or other aspect shall be deemed reduced to the extent necessary to permit enforcement of such covenant. SECTION 8. INJUNCTIVE RELIEF. Employee acknowledges that a breach of Sections 5, 6, or 7 hereof would cause irreparable damage to Silverleaf and/or its affiliates, and in the event of Employee's breach of the provisions of Sections 5, 6 or 7 hereof, Silverleaf shall be entitled to a temporary restraining order and an injunction restraining Employee from breaching such Sections without the necessity of posting bond or proving irreparable harm, such being conclusively admitted by Employee. Nothing shall be construed as prohibiting Silverleaf from pursuing any other available remedies for such breach, including the recovery of damages from Employee. Employee acknowledges that the restrictions set forth in Sections 5, 6 and 7 hereof are reasonable in scope and duration, given the nature of the business of Silverleaf and its affiliates. Employee agrees that issuance of an injunction restraining Employee from breaching such Sections in accordance with their terms will not pose an unreasonable restriction on Employee's ability to obtain employment or other work following the effective date of any Termination. SECTION 9. EMPLOYEE INVESTMENTS. Anything to the contrary herein notwithstanding, Employee: (1) shall not be prohibited from investing his or her assets in such form or such manner as will not, in the aggregate, detract from the performance by Employee of his or her duties hereunder and will not violate the provisions of Sections 5, 6 or 7 hereof; and (2) shall not be prohibited from purchasing stock in any publicly traded company solely as a stockholder so long as Employee does not own (together or separately or through his or her affiliates) more than two percent (2%) of the stock in any company, other than Silverleaf, which is engaged in the timeshare business. SECTION 10. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that he or she is free to enter into and perform each of the terms and conditions hereof, and that his or her execution and performance of this Agreement does not and will not violate or breach any other Agreement between Employee and any other person or entity. SECTION 11. TERMINATION. This Agreement shall terminate upon the expiration of its Term, or prior thereto: (1) upon written notice by either party, at any time and for any or no reason whatsoever, at least thirty (30) days prior to the effective date of the termination; or (2) as of the end of the month of Employee's death or incapacity due to Employee's physical or mental illness as determined in Silverleaf's sole discretion (the "Termination"). The Term of this Agreement may be extended only by the written agreement of Employee and Silverleaf. SECTION 12. RETURN OF MATERIALS AND VEHICLES: Employee understands and agrees that any training manuals, sales and promotional material, vehicles or other equipment provided to him or her by Silverleaf in connection with this Agreement shall remain the sole property of Silverleaf, and shall be used by the Employee exclusively for Silverleaf's benefit. Upon termination of this Agreement, any such material, vehicles or other equipment shall be immediately returned to Silverleaf. 5 SECTION 13. NON-BINDING ALTERNATE DISPUTE RESOLUTION. Except for actions brought by Silverleaf pursuant to Section 8 hereof: (a) AGREEMENT TO UTILIZE: The parties shall attempt to settle any claim or controversy arising from this Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation prior to the commencement of any legal action. If such attempts fail, then the dispute shall be mediated by a mutually-accepted mediator to be chosen by the parties within forty-five (45) days after written notice demanding mediation is sent by one party to the other party. Neither party may unreasonably withhold consent to the selection of a mediator, and the parties shall share the costs of the mediation equally. By mutual written agreement, however, the parties may postpone mediation until they have completed some specified but limited discovery regarding the dispute. The parties may also agree to replace mediation with any other form of alternate dispute resolution ("ADR") available in Texas, such as a mini-trial or arbitration. (b) FAILURE TO RESOLVE: Any dispute which the Parties cannot resolve through negotiation, mediation or any other form of ADR, within six (6) months of the date of the initial demand for mediation, may then be submitted to the appropriate court for resolution. The use of negotiation, mediation, or any other form of ADR procedures will not be construed under the doctrines of laches, waiver or estoppel to affect adversely the rights of either party. SECTION 14. WAIVER. Silverleaf's failure at any time to require performance by Employee of any of the provisions hereof shall not be deemed to be a waiver of any kind nor in any way affect the rights of Silverleaf thereafter to enforce the provisions hereof. In the event that either party to this Agreement waives any provision of this Agreement or any rights concerning any breach or default of the other party hereto, such waiver shall not constitute a continuing waiver of any such provision or breach or default of the other party hereto. SECTION 15. SUCCESSORS, ASSIGNS, BENEFIT. (a) SILVERLEAF SUCCESSORS: The provisions of this Agreement shall inure to the benefit of and be binding upon Silverleaf, its successors, assigns and other affiliated entities, including, but not limited to, any corporation or other entity which may acquire all or substantially all of Silverleaf's assets or with or into which Silverleaf may be consolidated, merged or reorganized. Upon any such merger, consolidation or reorganization, the term "Silverleaf" as used herein shall be deemed to refer to any such successor. (b) NO ASSIGNMENT BY EMPLOYEE: The parties hereto agree that Employee's services hereunder are personal and unique, and that Silverleaf is executing this Agreement in reliance thereon. This Agreement shall not be assignable by Employee. 6 SECTION 16. SEVERABILITY. If one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but shall be deemed stricken and severed from this Agreement and the remaining terms of this Agreement shall continue in full force and effect. SECTION 17. GOVERNING LAW AND VENUE. This Agreement shall be deemed to have been made and entered into in the State of Texas and its validity, construction, breach, performance and operation shall be governed by the laws of that state. The obligations hereunder of Silverleaf shall be performable in Dallas County, Texas, and venue for any suit involving this Agreement shall lie exclusively in Dallas County, Texas. SECTION 18. ENTIRE UNDERSTANDING. This Agreement sets forth the entire understanding between the parties with respect to the employment of Employee, and no other representations, warranties or agreements whatsoever have been made by Silverleaf to Employee. Further, this Agreement may not be modified or amended except by another instrument in writing executed by both of the parties. SECTION 19. NOTICES. All notices and communications under this Agreement shall be sent to the parties at the following addresses or such other addresses that the parties may subsequently designate in writing. (a) SILVERLEAF: Silverleaf Resorts, Inc. Attention: Robert E. Mead, Chief Executive Officer 1221 Riverbend, Suite 120 Dallas, Texas 75247 (b) EMPLOYEE: SHARON K. BRAYFIELD 2135 Texas Ash Irving, Texas 75063 SECTION 20. SECTION HEADINGS. Section and paragraph headings are inserted herein only for convenience and shall not be used to interpret any of the provisions hereof. SECTION 21. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same original. 7 SECTION 22. EFFECTIVE DATE. This Agreement is executed on the date set forth below, but shall be effective as of _______________________ , 2002 (the "Effective Date"). Executed this 18th day of April , 2002. --- ----- "SILVERLEAF" SILVERLEAF RESORTS, INC. By: /s/ Robert E. Mead --------------------------------------- ROBERT E. MEAD, Chief Executive Officer "EMPLOYEE" /s/ Sharon K. Brayfield ------------------------------------------- SHARON K. BRAYFIELD 8 EX-99.1 17 d00253exv99w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 EXHIBIT 99.1 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 Silverleaf Resorts, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert E. Mead, 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 result of operations of the Company. Dated: November 19, 2002 /s/ ROBERT E. MEAD ------------------ Robert E. Mead EX-99.2 18 d00253exv99w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 99.2 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 Silverleaf Resorts, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harry J. White, Jr., 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 result of operations of the Company. Dated: November 19, 2002 /s/ HARRY J. WHITE, JR. ----------------------- Harry J. White, Jr. -----END PRIVACY-ENHANCED MESSAGE-----