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-----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, KFt6bwSIYnwaaRQhqz7p7gPcYDMTDf3CgmPNKdIuG0r2FqwzxHP8Fp6HUdWGsNbY g0ay1VxeL6gwRzBd3jUW6w== 0000950134-05-009086.txt : 20050505 0000950134-05-009086.hdr.sgml : 20050505 20050505151338 ACCESSION NUMBER: 0000950134-05-009086 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050429 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050505 DATE AS OF CHANGE: 20050505 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13003 FILM NUMBER: 05803282 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 8-K 1 d24813e8vk.htm FORM 8-K e8vk

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

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

Date of Report: May 5, 2005

(Date of earliest event reported): April 29, 2005

Silverleaf Resorts, Inc.

(Exact name of registrant as specified in its charter)

Texas

(State or other jurisdiction of incorporation)


1-13003		75-2259890

(Commission File Number)		(IRS Employer Identification Number)


1221 River Bend Drive, Suite 120, Dallas, Texas		75247

(Address of principal executive offices)		(Zip Code)

214-631-1166

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a.12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

On April 29, 2005, Silverleaf Resorts, Inc. (the “Registrant”) entered into a $15 million Inventory Loan Agreement and a $50 million Receivables Loan Agreement with CapitalSource Finance, LLC (“CapitalSource”). Under the terms of the Inventory Loan Agreement, the Registrant may from time to time borrow up to $15 million which will be secured by a portion of the Registrant’s inventory of unsold timeshare intervals. The Inventory Loan Agreement will mature on April 29, 2008 and bears interest at the rate of the prime rate charged by Citibank, N.A., plus 3%. Under the terms of the Receivables Loan Agreement the Registrant may from time to time borrow up to an aggregate of $50 million which will be secured by notes receivable from timeshare interval purchasers at an advance rate of 75% of the aggregate outstanding principal balance of all eligible notes receivable pledged to CapitalSource as security for the Loan. The Receivables Loan Agreement will mature on April 29, 2008 and bears interest at a rate equal to the LIBOR Rate, plus 4.25%. The proceeds from each of the CapitalSource loans will be used by the Registrant for general working capital purposes.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

As described in Item 1.01 above, Registrant became obligated on direct financial obligations up to a maximum of $15 million in connection with the Inventory Loan to CapitalSource and up to a maximum of $50 million in connection with the Receivables Loan Agreement. The Registrant’s responses to Item 1.01 is of this Form 8-K are hereby incorporated by reference into this Item 2.03.

Item 9.01 Financial Statements and Exhibits


Exhibit No.		Description of Exhibit
*10.1		Inventory Loan and Security Agreement between the Registrant and CapitalSource Finance, LLC dated as of April 29, 2005.
*10.2		Receivables Loan and Security Agreement between the Registrant and CapitalSource Finance, LLC dated as of April 29, 2005.

filed herewith

SIGNATURE

      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 hereunto duly authorized.

DATE: May 5, 2005 SILVERLEAF RESORTS, INC.

By:   /S/ HARRY J. WHITE, JR.
Name:   Harry J. White, Jr.
Title:   Chief Financial Officer

Exhibit Index


Exhibit No.		Description of Exhibit
*10.1		Inventory Loan and Security Agreement between the Registrant and CapitalSource Finance, LLC dated as of April 29, 2005.
*10.2		Receivables Loan and Security Agreement between the Registrant and CapitalSource Finance, LLC dated as of April 29, 2005.

filed herewith

EX-10.1 2 d24813exv10w1.txt INVENTORY LOAN AND SECURITY AGREEMENT Ex. 10.1 INVENTORY LOAN AND SECURITY AGREEMENT BETWEEN SILVERLEAF RESORTS, INC. AND CAPITALSOURCE FINANCE LLC DATED AS OF APRIL 29, 2005 TABLE OF CONTENTS

LOAN AND SECURITY AGREEMENT i 4.8 Transaction Is Legal and Authorized............................... 41 4.9 No Defaults....................................................... 41 4.10 Governmental Consent.............................................. 41 4.11 Taxes............................................................. 41 4.12 Use of Proceeds................................................... 42 4.13 Compliance with Law............................................... 42 4.14 Restrictions of Borrower.......................................... 43 4.15 Brokers' Fees..................................................... 43 4.16 Deferred Compensation Plans....................................... 43 4.17 Labor Relations................................................... 43 4.18 Validity of Liens Granted to Lender............................... 43 4.19 Solvency.......................................................... 43 4.20 Timeshare Interest Regime Reports................................. 44 4.21 Sale of Timeshare Interests....................................... 44 4.22 Indebtedness...................................................... 44 4.23 Affiliate Transactions............................................ 45 4.24 Applicable Laws................................................... 45 4.25 Leases............................................................ 45 5. CONDITIONS PRECEDENT TO INITIAL ADVANCE.................................... 45 5.1 Opinions of Counsel............................................... 45 5.2 Warranties and Representations True as of Initial Advance Date.... 45 5.3 Compliance with this Agreement.................................... 45 5.4 Borrower's Secretary's Certificates; Good-Standing Certificates... 45 5.5 Uniform Commercial Code Financing Statements...................... 46 5.6 Hazardous Substance Indemnity Agreement........................... 46 5.7 Expenses.......................................................... 46 5.8 Mortgage.......................................................... 46 5.9 Title Insurance; Casualty Insurance............................... 46 5.10 Environmental Site Assessment Report.............................. 47 5.11 Taxes............................................................. 47 5.12 Inspection........................................................ 47 5.13 Delivery of:...................................................... 47 5.14 Proceedings Satisfactory.......................................... 47 5.15 Minimum Amount.................................................... 48 6. SUBSEQUENT ADVANCES CLOSING CONDITIONS..................................... 48 6.1 Special Submissions............................................... 48 6.2 Requests for Subsequent Advance................................... 50 6.3 Defaults; Expenses; Miscellaneous................................. 51 6.4 Disbursements..................................................... 51 6.5 Proceedings Satisfactory.......................................... 51 7. COVENANTS.................................................................. 52 7.1 Payment of Taxes and Claims....................................... 52 7.2 Maintenance of Properties; Borrower Existence; Indebtedness; Liens; Business................................................... 52

LOAN AND SECURITY AGREEMENT ii 7.3 Payment of Notes and Maintenance of Office.............. 54 7.4 Sale of Properties...................................... 54 7.5 Consolidation and Merger................................ 54 7.6 Intentionally Deleted................................... 54 7.7 Intentionally Omitted................................... 54 7.8 Compliance with Environmental Laws...................... 54 7.9 Transactions with Affiliates; Principal Properties...... 56 7.10 Use of Lender Name...................................... 56 7.11 Intentionally Deleted................................... 56 7.12 Notice of Legal Proceedings............................. 56 7.13 Further Assurances...................................... 56 7.14 Financial Statements.................................... 57 7.15 Officer's Certificate................................... 59 7.16 Inspection.............................................. 60 7.17 Sales................................................... 60 7.18 Minimum Tangible Net Worth.............................. 60 7.19 Leverage Ratio.......................................... 60 7.20 Minimum Net Income...................................... 60 7.21 Consolidated Net Income................................. 60 7.22 Maximum Delinquency..................................... 60 7.23 Marketing and Sales Expenses............................ 60 7.24 Debt Service Coverage Ratio............................. 61 7.25 Textron Facility, Sovereign Facility, and DZ Facility... 61 7.26 Maintaining Affiliation with Exchange Companies......... 61 7.27 Sales................................................... 61 8. EVENTS OF DEFAULT................................................ 61 8.1 Default................................................. 61 8.2 Default Remedies........................................ 63 9. REVIVAL OF OBLIGATIONS AND LIENS................................. 66 10. MISCELLANEOUS.................................................... 66 10.1 Governing Law........................................... 66 10.2 Expenses and Closing Fees............................... 66 10.3 Parties, Successors and Assign.......................... 67 10.4 Notices................................................. 67 10.5 Total Agreement......................................... 68 10.6 Survival................................................ 68 10.7 Litigation.............................................. 68 10.8 Power of Attorney; Substitution......................... 69 10.9 Survival of Indemnities................................. 70 10.10 Conflicting Obligations; Rights and Remedies............ 70 10.11 Duplicate Originals, Execution in Counterpart........... 70 10.12 No Joint Venture........................................ 70 10.13 Indemnity............................................... 70 10.14 Release................................................. 71

LOAN AND SECURITY AGREEMENT iii 10.15 Custodian................................................... 71 10.16 Certain Waivers............................................. 71 10.17 Confidentiality and Publicity............................... 71

Schedule 1 -- Indebtedness Schedule 2 -- Permitted Exceptions Schedule 3 -- Intentionally Omitted Schedule 4 -- Retail Value Schedule 5 -- Resorts Schedule 6 -- Affiliate Transactions Schedule 7 -- Use Agreements and Management Agreements Schedule 8 -- Subsidiaries Schedule 9 -- Resort Facilities Schedule 10 -- Litigation Schedule 11 -- Compensation Payable to Brokers Schedule 12 -- Payment Instructions Schedule 13 -- Address of Borrower for Notices Schedule 14 -- Address of Lender for Notices Schedule 15 -- Deferred Corporate Plans and Collective Bargaining Agreements Schedule 16 -- Description of Blue and Vintage Timeshare Interests Exhibit A -- Intentionally Omitted Exhibit B -- Form of Request for Release Exhibit C -- Intentionally Omitted Exhibit D -- Intentionally Omitted Exhibit E -- Form of Initial Advance Request Exhibit F -- Form of Subsequent Advance Request Exhibit G -- Form of Borrowing Base Certificate Exhibit H -- Form of Promissory Note LOAN AND SECURITY AGREEMENT iv INVENTORY LOAN AND SECURITY AGREEMENT THIS INVENTORY LOAN AND SECURITY AGREEMENT (as amended from time to time, this "AGREEMENT"), made and executed as of the 29th day of April, 2005, by and between CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as secured party (herein referred to as the "LENDER") and SILVERLEAF RESORTS, INC., a Texas corporation, as debtor (herein referred to as the "BORROWER"). 1. INTERPRETATION OF THIS AGREEMENT 1.1 TERMS DEFINED. As used in this Agreement, the following terms shall have the following respective meanings set forth below or set forth in the Section referred to following such term: ADVANCE -- as defined in Section 2.1 of this Agreement. AFFILIATE -- means any Person: (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; (b) which beneficially owns or holds 5% or more of any class of the Voting Equity of such Person; or (c) 5% or more of the Voting Equity of which is beneficially owned or held by such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Equity, other voting Securities, by contract or otherwise. AGREEMENT OR THIS AGREEMENT -- as defined in the preamble hereto. AMORTIZATION TRIGGERING EVENT -- means the occurrence of any of the following: (a) commencing June 30, 2005 and tested at the end of each calendar quarter thereafter, if Borrower's Consolidated Net Income less any extraordinary gains falls below $5,000,000 for the immediately preceding twelve (12) calendar month period, or (b) if after thirty (30) days following the end of each calendar month after the Closing Date, greater than twenty percent (20.00%) of all Pledged Intervals constitute Blue-Season Timeshare Interests, or (c) if after thirty (30) days following the end of each calendar month following the Closing Date, greater than thirty percent (30.00%) of all Pledged Intervals constitute Vintage-type Timeshare Interests, or (d) if after thirty (30) days following the end of each calendar month following the Closing Date, greater than ten percent (10.00%) of all Pledged Intervals are located at the Resort known as Holly Lake Resort and the Resort known as Lake O' the Woods Resort, or (e) commencing December 31, 2005, and at the end of each calendar quarter thereafter, if Borrower shall have sold less than thirty percent (30%) of the total amount of Pledged Intervals securing the Loan pledged as Collateral to Lender pursuant to the terms of this Agreement and the Loan Documents for the immediate twelve (12) calendar months prior to the applicable test date, or (f) a Change in Management shall have occurred, or (g) the occurrence and continuance of any Default or Event of Default. APPLICABLE LAW -- means any and all 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 applicable to the Loan, this Agreement, the Loan Documents and other Security Documents, Borrower, any Resort or any portion thereof including, without limitation, those regarding access and facilities for handicapped or disabled persons and any required by any Applicable State or any of their administrative agencies. APPLICABLE STATES -- means (i) Texas, (ii) Missouri, (iii) Georgia, (iv) Illinois, (v) Florida and (v) any other state in which Borrower is or becomes qualified to sell Timeshare Interests located at a Resort, provided, that acceptable proof of such qualification (including all applicable licenses and permits) or an exemption therefrom has been delivered to Lender. BANKRUPTCY CODE -- means the Bankruptcy Reform Act of 1978, as codified under Title 11 of the United States Code, and the Bankruptcy Rules promulgated thereunder, as the same may be amended from time to time. BI-ANNUAL TIMESHARE INTEREST -- has the meaning given to such term in the definition of Timeshare Interest. BLUE-SEASON TIMESHARE INTERESTS -- means the off-season Timeshare Interest at each Resort more particularly described in Schedule 16 attached hereto. BOND HOLDER EXCHANGE TRANSACTION -- means those certain senior subordinate note holder exchange transactions consummated pursuant to (a) that certain Indenture dated as of May 2, 2002 between Silverleaf Resorts, Inc. and Wells Fargo Bank Minnesota, NA., and all documents related thereto, and (b) that certain Indenture dated as of July 7, 2004 between Silverleaf Resorts, Inc. and Wells Fargo Bank, NA., and all documents related thereto, as amended, supplemented and modified from time to time. LOAN AND SECURITY AGREEMENT 2 BOOKS AND RECORDS -- means all books, records, computer tapes, disks, software and micro-fiche records of Borrower solely related to the Pledged Intervals and other Collateral. BORROWER -- as defined in the preamble to this Agreement. BORROWING BASE -- means, at any date, a maximum outstanding Loan amount equal to the lesser of (i) $15,000,000 or (ii) fifteen percent (15%) of the Retail Value of all Pledged Intervals located in any Resort. BORROWING BASE CERTIFICATE -- means a certificate duly executed by an officer of Borrower appropriately completed and in substantially the form of Exhibit G hereto. BROKER -- as defined in Section 10.14 of this Agreement. BUSINESS DAY -- means a day other than a Saturday or Sunday or a day on which banks in the State of Maryland are required or authorized by law to be closed (other than for a general banking moratorium or holiday for a period exceeding 4 consecutive days). CAPITAL LEASE -- means, as to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a "capital lease" in accordance with GAAP. CHANGE IN MANAGEMENT -- means a change of more than fifty percent (50%), in the aggregate, of the following members of the executive management team of Borrower: Robert Mead, Sharon Brayfield, David O'Connor, Harry White, Edward Lahart and Joe Conner (each an "EXECUTIVE MANAGEMENT MEMBER"). CLOSING DATE -- means April 29, 2005. COLLATERAL -- as defined in Section 3.1 of this Agreement. COMMITMENT PERIOD -- means the period commencing on the Closing Date and ending on the earliest to occur of: (a) the date on which Lender's obligations hereunder to make Advances are terminated pursuant to this Agreement, (b) the date on which the Obligations are accelerated pursuant to Section 8.2(a) of this Agreement, (c) the date on which any of the Events of Default set forth in Section 8.1 shall have occurred (d) the date on which any Amortization Triggering Event occurs, and (e) April 29, 2008. COMMON ELEMENTS -- has the meaning set forth in each Declaration, and includes all recreational and service facilities as well as the land (excluding real property constituting all LOAN AND SECURITY AGREEMENT 3 or a part a Timeshare Unit), which are included within each Resort and owned by Borrower, for the common use and enjoyment of a Purchaser of Timeshare Interests. COMPENSATION -- as defined in Section 3.1(g) of this Agreement. CONDEMNATION COMPENSATION -- as defined in Section 3.6(a) of this Agreement. CONSOLIDATED NET INCOME -- means, with respect to any period, the aggregate stated income statement amount of net income of Borrower and its subsidiaries, after deduction of all expenses, taxes and other proper charges paid during such period, excluding extraordinary profits, gains or losses, determined on a consolidated basis in accordance with GAAP. CONSTRUCTION COSTS -- means any costs and expenses required to be paid by Borrower under any construction contract or otherwise identified as construction costs (including, without limitation, contractor fees, architect fees, engineering fees, site work and landscaping, interest expenses and professional fees) together with any insurance or bonding costs, related to any construction, remodeling, improvement or renovation work in any way related to any Pledged Interval. CONTRACT -- means any purchase contract between one or more unaffiliated natural persons, as purchaser (the "PURCHASER"), and Borrower, as seller, which agreement provides for the sale by Borrower to such Purchaser of one or more Pledged Intervals. DEBT SERVICE COVERAGE RATIO -- means, at any time of determination, the ratio of (a) EBITDA of Borrower and its subsidiaries on a consolidated basis, less capital expenditures for the immediately preceding twelve (12) calendar months to (b) the cash Interest Expenses (including all capitalized interest related to the Bond Holder Exchange Transaction which has been expensed but not yet paid by Borrower in full) of Borrower and its subsidiaries on a consolidated basis for the immediately preceding twelve (12) calendar months. DECLARANT -- means the status of Borrower as the declarant under the applicable Declaration and the Articles of Incorporation and By-Laws of the related Owner's Association, as amended. DECLARATION -- means, collectively, all declarations, covenants, conditions and restrictions, or other restrictive covenants encumbering all or any portion of the real property where a Resort or building in which a Pledged Interval is located, filed in the appropriate official records of the county where such Resort or building is located, and delivered to Lender prior to any Advance being made by Lender to be secured by such Pledged Interval. DEFAULT -- means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. DEFAULT RATE -- means, at any time, the per annum rate of interest equal to the Interest Rate, then in effect, plus 4% per annum; provided, however, that the Default Rate shall in no event exceed the Maximum Rate. LOAN AND SECURITY AGREEMENT 4 DISBURSEMENT AGENT -- means Lender, an affiliate or employee of Lender or any Person as Lender may in its sole discretion select to function as the disbursement agent for the Loan, if any. Any third-party "Disbursement Agent" shall be the exclusive agent of Lender and Borrower shall be required to pay the fees and costs incurred by Lender for Disbursement Agent's administration of the Loan proceeds. DZ FACILITY -- means that certain note purchase facility provided by DZ Bank AG Deutsche Zentral-Genossenschaftsbank ("DZ"), as agent for Autobahn Funding Company, LLC, to Borrower pursuant to that certain Amended and Restated Receivables Loan and Security Agreement dated April 30, 2002, as amended, and all documents and other instruments executed in connection therewith, as amended, supplemented and modified from time to time. ENVIRONMENTAL PROTECTION LAW -- means each federal, state, county, regional or local law, statute, or regulation enacted in connection with or relating to the protection or regulation of the environment, including, without limitation, those laws, statutes, and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing, or transporting of Hazardous Substances, and any regulations issued or promulgated in connection with such statutes by any governmental authority and any orders, decrees or judgments issued by any court of competent jurisdiction in connection with any of the foregoing. ESCROW AGENT -- as defined in Section 2.8(i) hereof. EVENT OF DEFAULT -- as defined in Section 8.1 of this Agreement. EXECUTIVE MANAGEMENT MEMBER -- as defined in the definition of Change in Management. FAIR MARKET VALUE -- at any time with respect to any Pledged Interval means the sale value of such Pledged Interval that would be realized in an arm's-length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. FURNISHINGS -- means the furnishings, furniture, equipment, appliances and fixtures provided by the Silverleaf Club or Borrower at each Resort for use within the Timeshare Units and the Common Elements. GAAP -- means generally accepted accounting principals in the United States of America in effect from time to time as applied by nationally recognized accounting firms. HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized by any Environmental Protection Law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls); provided, however, that "Hazardous Substances" shall not include any substance used by Borrower in the ordinary course of business and in compliance with applicable Environmental Protection Laws. LOAN AND SECURITY AGREEMENT 5 IMPOSITIONS -- as defined in Section 3.7 of this Agreement. IMPROVEMENTS -- means all Timeshare Interests, Timeshare Units, Common Elements and other buildings, structures, recreational facilities and appurtenances now located on the Resort. INDEMNIFIED PERSONS -- as defined in Section 10.14(a) of this Agreement. INDEMNITY AGREEMENT -- means that certain Hazardous Materials Indemnity Agreement of even date herewith executed by Borrower for the benefit of Lender. INSURANCE PREMIUMS -- as defined in Section 3.5(a)(iv) of this Agreement. INTERCREDITOR AGREEMENT -- means, the intercreditor agreements entered into between Borrower, Lender, and each of Textron Financial Corporation, Sovereign Bank, and any other lenders or financial institutions from time to time providing financing to Borrower and its Affiliates. INTEREST EXPENSE -- means total interest expense generated during the period in question (including attributable to conditional sales contracts, capital leases and other title retention agreements in accordance with GAAP) of Borrower and its subsidiaries with respect to all outstanding Indebtedness including accrued interest and interest paid in kind and capitalized interest but excluding commissions, discounts and other fees owed with respect to letters of credit and bankers' acceptance financing. INTEREST RATE -- means, with respect to any calendar month, a per annum rate of interest equal to the sum of (i) 3.00%, plus (ii) the Prime Rate then in effect. LENDER -- as defined in the preamble to this Agreement. LEVERAGE RATIO -- means, as of any date of determination, the ratio of (i) the sum of amounts outstanding under this Agreement plus any other Debt of Borrower and its subsidiaries on a consolidated basis (other than off balance sheet debt that is non-recourse to Borrower and approved by Lender in its Permitted Discretion) to (ii) Borrower's and its subsidiaries' Tangible Net Worth, on a consolidated basis. LIEN -- any interest in any real or personal property or other assets securing an obligation owed to, or a claim by, a Person other than the owner of such real property, personal property or other assets, whether such interest is based on the common law, statute or contract, and including, but not limited to, attachments, judgments or tax liens and the security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting such real or personal property. For the purpose of this Agreement, Borrower shall be deemed to be the owner of any real or personal property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to such real or personal property has been retained by or vested in some other Person for security purposes. LOAN AND SECURITY AGREEMENT 6 LOAN -- means, at any time, the aggregate principal balance of all Advances outstanding at such time. LOAN COSTS -- as defined in Section 10.2 of this Agreement. LOAN DOCUMENTS -- means, collectively, this Agreement, each Note, all Security Documents and all other agreements, instruments and documents executed in connection herewith. MATERIAL ADVERSE EFFECT -- means a material adverse effect on (a) the condition, operations, assets, business or prospects of the applicable Person or Persons, (b) Borrower's ability to pay the Obligations in accordance with the terms thereof, (c) the value of the Collateral, or Lender's Liens on the Collateral or the priority of any such Lien or (d) the practical realization of the benefits of Lender's rights and remedies under this Agreement and the Security Documents. MATURITY DATE -- means April 29, 2008. MAXIMUM RATE -- as defined in Section 2.2(b)(v) of this Agreement. MONTHLY AVERAGE WEIGHTED LOAN BALANCE -- means, for any calendar month, the quotient of (a) the aggregate of the Daily Loan Balances for each of the days of such month in respect of the Loan, divided by (b) the number of days in such month. For purposes of this definition, "DAILY LOAN BALANCE" shall mean, for any day, the amount of the Loan outstanding as of the close of business of Lender for such day after giving effect to all payments received made during such day. MORTGAGE -- means, collectively, (a) each of those certain deeds of trust, mortgages, deeds to secure debt and other security agreements delivered to Lender on the Closing Date, and (b) each and every mortgage, deed of trust, deed to secure debt or other security agreement, each executed by Borrower in favor of Lender, granting a security interest and Lien in and to all Pledged Intervals from time to time, in form and substance satisfactory to Lender, as all of the same may hereafter be amended, restated or modified from time to time. NEGATIVE PLEDGE -- means those certain negative pledge agreements executed by Borrower in favor of Lender related to Borrower's agreement not to grant any Lien on any Resort Facilities, any rights of Borrower as Declarant, or any contracts or management agreements between Borrower and Silverleaf Club, or any other Property-Related Contracts. NET INCOME -- means the net income (or loss) determined in conformity with GAAP. LOAN AND SECURITY AGREEMENT 7 NET WORTH -- means, for any Person, such Person's assets minus liabilities, as determined in accordance with GAAP. NOTE -- means, individually and collectively, one or more Promissory Notes, substantially in the form attached hereto as Exhibit H, executed by Borrower from time to time as requested by Lender evidencing the Loan and all Advances under this Agreement, as the same may be amended, modified, divided, split, supplemented and/or restated from time to time. OBLIGATIONS -- means all indebtedness, liabilities, obligations, and responsibilities, both financial and otherwise, to which Borrower is subject under any of the Loan Documents, including but not limited to all amounts due or becoming due to Lender in respect of the Loan or any of the Loan Documents, including principal, interest, prepayment premiums, contributions, taxes, insurance premiums, loan charges, custodial fees, reasonable attorneys' and paralegals' fees and expenses and other fees or expenses which are incurred by Lender or advanced to or on behalf of Borrowers by Lender, pursuant to any of the Loan Documents or in connection with Lender's enforcement of the prompt and complete payment and performance by Borrowers of all indebtedness, liabilities and obligations pursuant to this Agreement, any of the other Loan Documents, or otherwise, including, without limitation, obligations of payment and interest that accrue after the commencement of any proceeding under the Bankruptcy Code by or against any such Person. ORLANDO BREEZE RESORT CLUB -- means a Texas non-profit corporation established to manage the Resort known as Orlando Breeze Resort in Davenport, Polk County, Florida. OWNER'S ASSOCIATION -- means, collectively, each non-profit established homeowner's or similar owner's association established pursuant to a Declaration related to a Resort where a Pledged Interval is located. PARTICIPATING LENDER -- means any Person which (a) is the holder of one or more (but not all) of the Notes, or (b) shall have been granted the right by Lender to participate in any Note and the Collateral and shall have entered into a participation agreement in form and substance satisfactory to Lender. PERMITTED DISCRETION -- means a determination or judgment made in good faith in the exercise of reasonable (from the perspective of a secured lender) credit or business judgment. PERMITTED EXCEPTIONS -- means those title exceptions, liens and encumbrances affecting all or any portion of the Collateral to which Lender consents, as set forth on Schedule 2 of this Agreement. PERSON -- means an individual, partnership, corporation, trust, unincorporated organization, limited liability company or a government or agency or political subdivision thereof. PLEDGED INTERVAL -- means, individually and collectively, all of Borrower's fee simple ownership interest in and to all real property constituting a completed Timeshare Interest located in a Resort, all to be sold by Borrower to Purchasers and for which a Mortgage has been or will be filed in favor of Lender. LOAN AND SECURITY AGREEMENT 8 PRIME RATE -- means the rate announced from time to time as the "prime rate" by Citibank, N.A., New York, New York; provided, that should Lender be unable to determine such rate, such other indication of the prevailing prime rate of interest as Lender shall reasonably select. PROPERTY-RELATED CONTRACT -- means all franchises, permits, trade names, trademarks (and goodwill associated therewith), approvals, leasehold interests (whether as lessor or lessee or sublessor or sublessee), management contracts, marketing contracts, maintenance contracts, utility contracts, security contracts, other servicing contracts, licensing contracts or other similar contracts, and all guaranties of any of the foregoing, whether existing as of the Closing Date or arising after the date hereof, relating, in each case, to each Resort (and the Timeshare Interests and/or the Timeshare Units related thereto). PURCHASER -- as defined in the definition of "Contract" in this Section 1.1. RECEIVABLES LOAN -- means that certain receivables loan in the aggregate principal amount of $50,000,000 extended to Borrower and certain of its Affiliates by Lender pursuant to the Receivables Loan Documentation. RECEIVABLES LOAN AGREEMENT -- means that certain Receivables Loan and Security Agreement dated as of the date hereof, by and among Borrower, certain of its Affiliates signatory thereto and Lender, as amended, modified or supplemented from time to time. RECEIVABLES LOAN DOCUMENTATION -- means any and all certificates, agreements and documents executed in favor of Lender in connection or pursuant to the Receivables Loan Agreement. RECEIVABLES LOAN OBLIGATIONS -- means all indebtedness, liabilities, obligations, and responsibilities, both financial and otherwise, to which Borrower and certain of its Affiliates party to the Receivables Loan Agreement is subject under any of the Receivables Loan Documentation, including but not limited to all amounts due or becoming due to Lender in respect of the Loan or any of the Receivables Loan Documentation, including principal, interest, prepayment premiums, contributions, taxes, insurance premiums, loan charges, custodial fees, reasonable attorneys' and paralegals' fees and expenses and other fees or expenses which are incurred by Lender or advanced to or on behalf of Borrower (or its Affiliates party thereto) by Lender, pursuant to any of the Receivables Loan Documentation or in connection with Lender's enforcement of the prompt and complete payment and performance by Borrower (or such Affiliates) and any guarantor thereunder of all indebtedness, liabilities and obligations pursuant to the Receivables Loan Agreement, any of the other Receivables Loan Documentation, or otherwise, including, without limitation, obligations of payment and interest that accrue after the commencement of any proceeding under the Bankruptcy Code by or against any such Person. RELEASE FEE-as defined in Section 2.3(f) hereof. RELEASE PRICE -- means, with respect to any Pledged Interval constituting a Timeshare Interest to be sold pursuant to a Contract, an amount in cash equal to the greater of (a) twenty-five percent (25%) of the Retail Value of the Timeshare Interest to be sold or (b) an amount sufficient to fully repay to Lender the Loan and all other Obligations under this LOAN AND SECURITY AGREEMENT 9 Agreement and the other Loan Documents, based upon Borrower's completion of sales of seventy-five percent (75%) of all Pledged Intervals constituting Collateral for the Loan. RELEASED PARTIES -- as defined in Section 10.15 of this Agreement. RELEASING PARTIES -- as defined in Section 10.15 of this Agreement. RESORTS -- means, collectively, each of the resorts listed in Schedule 5 attached hereto, each located in an Applicable State, and each where a Pledged Interval owned by Borrower is located, and is for sale by Borrower to Purchasers, together with all improvements now or hereafter located thereon including, as applicable, all roadways, easements, Common Elements, Furnishings, Resort Facilities, equipment, fixtures, licenses and all other appurtenances thereunto belonging. RESORT FACILITIES -- means those facilities and amenities at a Resort that are available for use by Purchasers of Pledged Intervals in such Resort and that are more particularly described in Schedule 9 attached hereto; in certain cases such facilities and amenities are not located within the boundaries of the timeshare regime at the applicable Resort as established pursuant to the applicable Declaration, but in such cases are subject to a Use Agreement. RESORT MAP -- means the site plan for each Resort recorded as part of the applicable Declaration in the applicable public records. RETAIL VALUE -- means the retail sales price of each type of Timeshare Interest (including Weekly Timeshare Interests and Bi-annual Timeshare Interests) constituting a Pledged Interval, identified by Resort, location, type of Timeshare Interest and season, as set forth on Schedule 4 attached hereto, as the same may be hereafter amended and modified from time to time in a manner acceptable to Lender in writing in its Permitted Discretion; provided, however, that in the event that the sum of all actual sales prices for Pledged Intervals sold by Borrower and released by Lender during any calendar quarter (as disclosed to Lender in the inventory report delivered pursuant to Section 7.14(j) hereof) is less than ninety percent (90%) of the aggregate Retail Value of such Pledged Intervals sold by Borrower and released by Lender during such calendar quarter as set forth on Schedule 4, Lender reserves the right in its Permitted Discretion to reduce the Retail Value for such Timeshare Interests set forth on Schedule 4 in an amount equal to the difference between the actual sales price for the Timeshare Interest(s) sold during such calendar quarter and the then applicable Retail Value. SALES AND MARKETING PROGRAM -- means the existing policies, terms and procedures followed by Borrower in conducting sales and marketing of Timeshare Interests. SALES & MARKETING COSTS -- means all promotion, lead generation, sales commissions and other marketing expenses and costs incurred by Borrower in connection with selling and marketing of the Timeshare Interests (including all Pledged Intervals) in each Resort. SECURITY -- shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. LOAN AND SECURITY AGREEMENT 10 SECURITY DOCUMENTS -- means this Agreement, the Note, each Mortgage, each Negative Pledge, each Intercreditor Agreement, and all assignments, instruments, certificates, notices, requests for advances and other documents now or hereafter executed and delivered in connection with the transactions contemplated herein. SILVERLEAF CLUB -- means the Texas non-profit corporation, which manages all of the Resorts, other than Orlando Breeze Resort. SOVEREIGN FACILITY -- means, individually and collectively, each of those certain credit facilities provided by Sovereign Bank to Borrower pursuant to (a) that certain Second Amended and Restated Revolving Credit Agreement dated as of July 30, 2004, and (b) that certain Inventory and Receivables Revolving Credit Agreement dated as of July 30, 2004, including all other documents and instruments executed in connection therewith, as all of the same have been and may hereafter be amended, supplemented and modified from time to time. SUBSEQUENT ADVANCE -- as defined in Section 6 of this Agreement. SUBSEQUENT ADVANCE DATE -- as defined in Section 6 of this Agreement. SUSPENSION OF SALES ORDER OR SANCTION -- the issuance of any stay order, cease and desist order or similar judicial or nonjudicial sanction prohibiting the sale or marketing of Timeshare Interests. TANGIBLE NET WORTH -- means, for any Person, such Person's tangible assets minus liabilities, plus subordinated debt as approved by Lender, as determined in accordance with GAAP. TAXES -- as defined in Section 2.8 of this Agreement. TEXTRON FACILITY -- means, individually and collectively, those certain credit facilities provided by Textron Financial Corporation to Borrower pursuant to (a) that certain Amended and Restated Loan, Security and Agency Agreement (Tranche A) dated as of April 30, 2002, (b) that certain Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated as of April 30, 2002, (c) that certain Loan and Security Agreement (Tranche C) dated as of April 17, 2001, and (d) that certain Amended and Restated Loan and Security Agreement dated as of March 5, 2004, and all documents and other instruments executed in connection therewith, as all of the same have been and may hereafter be amended, supplemented and modified from time to time. THIRD-PARTY OFFER -- as defined in Section 2.6 of this Agreement. TIMESHARE INTEREST -- means a fee simple ownership interest in a Timeshare Unit located at a Resort to be sold by Borrower to Purchasers comprised of either: (i) a Timeshare Interest which provides a Purchaser with a seven (7) consecutive day right of occupancy in a Timeshare Unit located in a Resort every year ("Weekly Timeshare Interest"); or (ii) any combination of a Timeshare Interest which provides a Purchaser with a seven (7) consecutive day right of occupancy in a Timeshare Unit located in a Resort every other year ("Bi-annual Timeshare Interest"), as set forth in the applicable Declaration, with such interest being entitled LOAN AND SECURITY AGREEMENT 11 to the right to the possession, use and occupancy of a Timeshare Unit located in a Resort during the applicable time periods sold for such Weekly Timeshare Interest or Bi-annual Timeshare Interest, as applicable, and the use of all Resort Facilities. TIMESHARE MORTGAGE -- means, with respect to any Timeshare Note, a mortgage in and to the Timeshare Interest whose purchase is being financed, in whole or part, by such Timeshare Note. TIMESHARE NOTE -- means any promissory note made payable to the order of Borrower (or its Affiliate) or other third party which provides for payment of the deferred purchase price of one or more Timeshare Interests purchased by the Purchaser thereof. TIMESHARE UNIT -- means a residential unit at a Resort. TITLE INSURANCE POLICY -- as defined in Section 5.11 hereof. UNIFORM COMMERCIAL CODE -- means the applicable Uniform Commercial Code as adopted and in force from time to time. UNUSED LINE FEE -- means a fee payable to Lender in an amount calculated as of the last day of each calendar month equal to one quarter of one percent (0.250%) per annum of the difference between (a) $15,000,000 and (b) the average outstanding principal balance of the Loan during such month. USE AGREEMENT -- means each of those certain Recreation and Use Agreements whereby Purchasers have been granted the right to use and enjoy the Resort Facilities as described on Schedule 7 attached hereto. VINTAGE-TYPE TIMESHARE INTERESTS -- means the Timeshare Interests more particularly described in Schedule 16 attached hereto. VOTING EQUITY -- means Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions) of such corporation or, in the case of a Person which is not a corporation, Securities or similar equity or partnership interests which entitle the holder thereof to elect, select or control the management or policies of such Person. WEEKLY TIMESHARE INTEREST -- has the meaning given such term in the definition of Timeshare Interest. 1.2 DIRECTLY OR INDIRECTLY. Where any provision in this 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. 1.3 HEADINGS. Section headings have been inserted in this Agreement as a matter of convenience of reference only; such section headings are not a part of this Agreement and shall not be used in the interpretation of this Agreement. LOAN AND SECURITY AGREEMENT 12 1.4 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 generally accepted accounting principles, procedures and practices consistently applied at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. 2. ADVANCES AND NOTE 2.1 TERMS OF THE ADVANCES. Lender agrees, pursuant to the terms of this Agreement and subject to the satisfaction of the conditions precedent in Article 5 or Article 6 of this Agreement (as the case may be), to make one or more advances (individually, an "ADVANCE" and collectively, the "ADVANCES") to Borrower from time to time during the Commitment Period, subject at all times to the Borrowing Base, provided that (a) no Advance shall be made (i) following the occurrence of any Amortization Triggering Event, unless otherwise agreed to by Lender in its sole discretion; (ii) unless the conditions precedent, as applicable for such Advance, set forth in Sections 5 and 6 hereof, have been satisfied or waived in writing; or (iii) if a Default or Event of Default shall then exist; (iv) unless Lender has approved in its Permitted Discretion the Collateral (including all Pledged Intervals) proposed to secure such Advance; (v) unless, after making such Advance, the aggregate amount of all Blue-season Timeshare Interests which constitute Pledged Intervals securing the Loan is less than twenty percent (20%) of all Pledged Intervals; (vi) unless, after making such Advance, the aggregate amount of all Vintage-type Timeshare Interests which constitute Pledged Intervals securing the Loan is less than thirty percent (30%) of all Pledged Intervals; (vii) unless, after making such Advance, the aggregate amount of all Pledged Intervals securing the Loan located at the Resorts known as Lake O' the Woods and Holly Lake Resort, collectively, is less than ten percent (10%) of all Pledged Intervals; (viii) if the Pledged Interval is located at a Resort where Borrower has received a Suspension of Sales Order or Sanction; and (ix) following delivery by Lender of a notice of the occurrence of a Default or otherwise as set forth in Sections 8.1(a) or 8.1(c) hereof, until such time as the applicable failure to comply or violation subject of such notice is satisfied or cured by Borrower; LOAN AND SECURITY AGREEMENT 13 (b) on the date of the making of any Advance the aggregate original principal amount of all such Advances made hereunder shall not exceed the Borrowing Base, determined as of such date; (c) Lender shall have received a written request for the Advance in the form attached hereto as Exhibit E or Exhibit F, as applicable, together with a completed and executed Borrowing Base Certificate in the form of Exhibit G; (d) unless otherwise agreed to by Lender in its sole discretion, each Advance shall be in a principal amount of not less than $250,000 (provided, if less than $250,000 remains available under the Borrowing Base, the amount of the Advance may equal the balance of the amount under the Borrowing Base then remaining); and (e) no more than one (1) Advance shall be made in any calendar month. Other than as provided in Section 2.3, Section 3.5 and Section 3.6 hereof, Borrower may not prepay the Loan. The Loan shall be payable in the manner set forth in Section 2.3 of this Agreement. The Loan shall be due and payable on the Maturity Date, subject to earlier prepayment as herein provided or as otherwise provided in any other Loan Document, together with any accrued interest thereon then remaining unpaid and any other unpaid amounts outstanding under the Note or under any of the other Loan Documents. The initial Advance shall be disbursed on terms and conditions set forth in Article 5 of this Agreement and otherwise satisfactory to Lender, and each Subsequent Advance hereunder shall be disbursed by Lender in the manner set forth in Article 6 of this Agreement. The Loan is a revolving credit facility, and Borrower shall be permitted, subject to the terms of this Agreement, to reborrow amounts repaid and applied to reduce the Loan. 2.2 THE LOAN; RATE OF INTEREST; RECEIPT OF PAYMENTS. (a) THE LOAN. The aggregate outstanding amounts of all Advances, all other amounts outstanding pursuant to this Agreement, and all other Obligations pursuant to this Agreement shall be due and payable in full, if not earlier in accordance with this Agreement, on the Maturity Date. (b) EVIDENCE OF LOANS. Lender shall maintain true, correct and complete electronic or written records in which it will record (i) the amount of each Advance made hereunder, (ii) the amount of any principal and/or interest due and payable and/or to become due and payable from Borrower and payable to Lender hereunder and (iii) all amounts received by Lender hereunder from Borrower. (c) EVIDENCE OF INDEBTEDNESS. The entries made in the electronic or written records maintained pursuant to subsection (b) of this Section 2.2 (the "REGISTER") shall be prima facie evidence of the existence and amounts of the obligations and indebtedness therein recorded; provided, however, that the failure of the Lender to maintain such records or any error therein shall not in any manner affect the obligations of Borrower to repay the correct amounts LOAN AND SECURITY AGREEMENT 14 owed pursuant to the Loan, including all Advances made by Lender, and all other Obligations in accordance with the terms of this Agreement and all other Loan Documents. (d) MONTHLY STATEMENTS. Lender will account to Borrower monthly with a written statement of Advances under the Loan, and any charges and payments made pursuant to this Agreement, provided, however, that the failure of Lender to provide such written statement shall not constitute a default or breach by Agent of this Agreement or any other Loan Document and in the absence of manifest error, such accounting rendered by Lender shall be deemed final, binding and conclusive unless Lender is notified by Borrower in writing to the contrary within fifteen (15) calendar days of receipt of each accounting, which notice shall be deemed an objection only to items specifically objected to therein. (e) NOTES. Borrower agrees that: (i) upon written notice by Lender to Borrower that a promissory note or other evidence of indebtedness is requested by Lender to evidence the Loan and other Obligations owing or payable to, or to be made by, Lender, Borrower shall promptly (and in any event within ten (10) Business Days of any such request) execute and deliver to Lender an appropriate promissory note or notes in form and substance acceptable to Lender and Borrower and substantially in the form of Exhibit H attached hereto payable to the order of Lender in a principal amount equal to the amount of the Loan owing or payable to Lender; (ii) all references to Notes in the Loan Documents shall mean Notes, if any, to the extent issued (and not returned to the Borrower for cancellation) hereunder, as the same may be amended, modified, divided, supplemented and/or restated from time to time; and (iii) upon Lender's written request, and in any event within ten (10) Business Days of any such request, Borrower shall execute and deliver to Lender new Notes (on substantially the same terms and in substantially the same form) and/or divide the Notes in exchange for then existing Notes in such smaller amounts or denominations as Lender shall specify in its sole and absolute discretion; provided that the aggregate principal amount of such new Notes shall not exceed the aggregate principal amount of the Notes outstanding at the time such request is made; and provided, further, that such Notes that are to be replaced shall then be deemed no longer outstanding hereunder and replaced by such new Notes and returned to Borrower within a reasonable period of time after Lender's receipt of the replacement Notes. (f) RATE OF INTEREST. (i) Interest shall accrue on the Loan, as more particularly provided for in this clause (b), and shall be due monthly in arrears on the first day of the month following the month in respect of which such interest accrued, provided that all accrued and unpaid interest on the Maturity Date shall be due on the Maturity Date, subject to earlier prepayment as provided herein or in any other Loan Document. Interest shall be applied as provided in Section 2.3(a)(ii) of this Agreement. Subject to the accrual of LOAN AND SECURITY AGREEMENT 15 interest on the Loan after the occurrence of a Default or Event of Default, as more particularly provided in this clause (b), the Monthly Average Weighted Loan Balance in respect of the Loan for each calendar month shall bear interest at a rate per annum equal to the Interest Rate. (ii) Interest shall be calculated under this clause (b) on the basis of actual days elapsed over a period of a 360 day year. (iii) Each Advance shall bear interest as of the date of Lender's wiring of funds thereof through the date of the receipt by Lender of the repayment of such Advance (if the repayment of all or any portion of any Advance is received by Lender later than 1:00 pm, Eastern time, then interest accrual thereon shall be through the next Business Day following such receipt). After the occurrence of any Default or Event of Default or after the Maturity Date (if the aggregate principal balance of the Advances and any other sums due under any Security Document or Loan Document is not paid in full on the Maturity Date), the Loan will bear interest at the Default Rate. (iv) Whenever, subsequent to the date of this Agreement, the Prime Rate is increased or decreased, the Interest Rate shall be similarly changed without notice or demand of any kind by an amount equal to the amount of such change in the Prime Rate on and after the day of such change (subject to the Maximum Rate). (v) Borrower and Lender intend to comply at all times with applicable usury laws. All agreements between Borrower and Lender, 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 Lender exceed the maximum amount permissible under Applicable Law (the "MAXIMUM RATE"). Lender may, in determining the Maximum Rate in effect from time to time, take advantage of any law, rule or regulation in effect from time to time available to Lender which exempts Lender from any limit upon the rate of interest it may charge or grants to Lender the right to charge a higher rate of interest than that otherwise permitted by Applicable Law. If, from any circumstance whatsoever, interest would otherwise be payable to Lender in excess of the Maximum Rate, the interest payable to Lender shall be reduced to the Maximum Rate; and if from any circumstance Lender shall ever receive anything of value deemed interest by Applicable Law in excess of the Maximum Rate, an amount equal to any excessive interest shall be applied to the reduction of the principal of the 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 Lender 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 Maximum Rate. Borrower agrees that in determining whether or not any interest payment under the Security Documents or other Loan Documents exceeds the Maximum Rate, any non-principal payment (except payments specifically described in the Security Documents as "interest") including without limitation, late charges, shall to the maximum extent not prohibited by law, be an expense, fee or premium rather than LOAN AND SECURITY AGREEMENT 16 interest. Lender hereby expressly disclaims any intent to contract for, charge or receive interest in an amount which exceeds the Maximum Rate. The provisions of this Agreement, the Note, all other Security Documents and Loan Documents are hereby modified to the extent necessary to conform with the limitations and provisions of this paragraph, and this paragraph shall govern over all other provisions in any document or agreement now or hereafter existing. This paragraph shall never be superseded or waived unless there is a written document executed by Lender and Borrower, expressly declaring the usury limitation set forth in this paragraph to be null and void, and no other method or language shall be effective to supersede or waive this paragraph. (g) INTEREST AND OTHER PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with respect to, this Agreement, any Note or any other Security Document or Loan Document shall fall due on a day other than a Business Day, then such payment shall be made on the 1st Business Day following the day on which such payment shall have so fallen due; provided that if all or any portion of such payment shall consist of a payment of interest, for purposes of calculating such interest, such payment shall be deemed to have been originally due on such first following Business Day, and such interest shall accrue and be payable to (but not including, subject to clause (d) below) the actual date of payment. (h) APPLICATION OF PAYMENTS RECEIVED AFTER 1:00 PM. Any payment actually received by Lender at or before 1:00 pm, Eastern time, by federal funds wire transfer on any Business Day, shall be deemed to have been received by Lender on such day. Any payment actually received by Lender after 1:00 pm, Eastern time, by federal funds wire transfer on any Business Day, shall be deemed to have been received on the next following Business Day. All payments received by Lender on a day other than a Business Day, or in a manner other than by federal funds wire transfer, shall be deemed to have been received by Lender on the Business Day such amounts actually become available to Lender prior to 1:00 pm, Eastern time in immediately available funds. 2.3 MANDATORY PREPAYMENTS OF LOAN; VOLUNTARY PREPAYMENTS OF LOAN. (a) MANDATORY PREPAYMENTS. (i) SALES. (A) Following the occurrence of any Amortization Triggering Event, if elected by Lender in its sole discretion, Borrower agrees to retain one or more nationally recognized title insurance company or other escrow agent (the "Escrow Agent") acceptable to Lender and to use its best efforts to have each Escrow Agent execute and deliver to Lender an escrow account acknowledgment in form and substance satisfactory to Lender. The escrow procedures utilized by the Escrow Agent, following the occurrence of any Amortization Triggering Event, shall be satisfactory to Lender. (B) With respect to each sale of a Pledged Interval, Borrower shall deliver, or cause to be delivered, to Lender the Release Fee required hereunder for such Pledged Interval, and following the occurrence of any LOAN AND SECURITY AGREEMENT 17 Amortization Triggering Event, the Release Price required hereunder for such Pledged Interval. Following the occurrence of any Amortization Triggering Event, upon receipt of payment of the Release Price, Lender shall credit the Release Price payment as provided in Section 2.3(a)(ii) hereof. (C) Lender reserves the right to adjust and re-calculate the Release Price (i) in the event of a reduction in the number of Pledged Intervals then remaining, (ii) if the purchase price under any Contract is less than ninety percent (90%) of the Retail Value set forth in Schedule 4 for such Timeshare Interest constituting a Pledged Interval, or (iii) if Lender determines in its sole discretion that sales of the remaining Pledged Intervals are insufficient to enable all Obligations arising under this Agreement and the other Loan Documents to be repaid in full on or before Borrower's sale of seventy-five percent (75%) of the aggregate number of all Pledged Intervals. (D) Following the occurrence of any Amortization Triggering Event, Borrower shall, or if applicable, shall instruct the Escrow Agent, to deliver the applicable Release Price in respect of each Pledged Interval sold, to be sold or otherwise requested by Borrower to be released from the Liens created by this Agreement and the other Security Documents, received by the Escrow Agent on or before the proposed date by Borrower for releasing the Lien encumbering such Pledged Interval, directly to Lender upon receipt by Borrower or the Escrow Agent, as applicable. Borrower acknowledges, and, as applicable, shall instruct the Escrow Agent that Lender shall not authorize the recording of any partial release of its Lien related to a sold Pledged Interval prior to Lender's receipt of the Release Fee and, following the occurrence of an Amortization Triggering Event, the Release Price. (E) Following the occurrence and during the continuance of an Event of Default, unless otherwise agreed to by Lender, Lender shall not be obligated to release its Lien on any Collateral. (ii) APPLICATION OF PROCEEDS. Following the occurrence of any Amortization Triggering Event, all payments delivered to Lender under this Section 2.3 in good, collected funds in legal tender of the United States of America shall be applied to the Obligations by Lender as follows: first, towards the payment of fees, costs and expenses as set forth in Section 10.2 of this Agreement, second, towards the payment of accrued and unpaid interest under this Agreement in respect of the Loan, third, to the payment of the Loan, and fourth, towards the payment of all other Obligations. LOAN AND SECURITY AGREEMENT 18 Interest which accrues on the Loan in respect of any month shall be due and payable on, and shall be paid by Borrower no later than, the first day of the following calendar month. To the extent that any interest due and payable as of the first day of any month shall not have been previously paid in full by the application of the proceeds of the cash down payments, cash payments, loan proceeds and sales proceeds, as set forth above or by the application of any Release Prices or excess Borrowing Base payments made during such month, as set forth in Section 2.3(d) and (e) hereof, respectively, Borrower shall immediately pay such shortfall. (iii) SUSPENSION OF SALES. If Borrower receives any Suspension of Sales Order or Sanction related to Pledged Intervals located at any Resort which remains outstanding for more than thirty (30) days from the date of its entry, Borrower shall either (a) provided no Event of Default or Amortization Triggering Event has occurred, pledge to Lender unencumbered and unsold Timeshare Interests which shall constitute Pledged Intervals (which comply with all requirements set forth in Section 2.1 and Article VI hereof) sufficient to maintain the Borrowing Base, or (b) promptly pay to Lender an amount equal to all Advances made to Borrower secured by the Pledged Intervals located at such Resort, unless such Suspension of Sales Order or Sanction has been discharged in full or stayed by appeal, bond or otherwise. (b) PREPAYMENTS UNCONDITIONAL. Notwithstanding any other term or provision contained in this Agreement, Borrower's payment obligations are absolute and unconditional without any right of rescission, setoff, counterclaim or defense for any reason. (c) LIMITED VOLUNTARY PREPAYMENTS. Borrower may prepay the Loan in whole and terminate this Agreement prior to the Maturity Date; provided, however, that any such prepayment in full other than through the payments of Release Prices, or any termination of this Agreement, (a) made prior to April 29, 2007, shall be subject to a prepayment premium in an amount equal to $450,000, and (b) made thereafter shall be subject to no prepayment premium. Any prepayments in full other than through the payments of Release Prices or any termination of this Agreement hereunder shall be made only after forty-five (45) days prior written notice from Borrower to Lender. (d) RELEASE PAYMENTS. Payments of Release Prices shall be applied by Lender when received in good, collected funds as set forth in Section 2.3(a)(ii) hereof. To the extent that Borrower delivers, or causes to be delivered, all cash down payments, deposits, cash payments, loan proceeds and sales proceeds in respect of the sale of any Pledged Interval, as provided for under this Section 2.3, and such funds are at least equal to any applicable Release Price for such Pledged Interval, such payments and proceeds shall be deemed to have satisfied the Release Price in respect of such Pledged Interval in an amount of, and to the extent that, such moneys are actually applied under Section 2.3(a)(ii). No Release Price shall be payable prior to the occurrence of an Amortization Triggering Event. (e) BORROWING BASE. If on any date the aggregate original principal amount of all Advances shall exceed the Borrowing Base, determined as of such date, Borrower shall either (i) immediately pay the amount of such excess to Lender together with interest accrued thereon to (but not including) the date of such payment and such amounts shall be applied by LOAN AND SECURITY AGREEMENT 19 Lender when received in good, collected funds as set forth in clauses second and third of Section 2.3(a)(ii) hereof or (ii) provided no Event of Default or Amortization Triggering Event has occurred, pledge to Lender unencumbered and unsold Timeshare Interests which shall constitute Pledged Intervals (which comply with all requirements set forth in Section 2.1 and Article VI hereof) sufficient to cure such Borrowing Base deficiency within fifteen (15) Business Days; provided, however that, unless otherwise agreed to by Lender, Borrower shall not be permitted to pledge additional unsold Timeshare Interests to cure such Borrowing Base deficiency more than once each calendar quarter. If the outstanding principal amount hereunder shall exceed $15,000,000, Borrower shall immediately pay the amount of such excess to Lender together with interest accrued thereon to (but not including) the date of such payment and such amounts shall be applied by Lender when received in good, collected funds as set forth in clauses second and third of Section 2.3(a)(ii) hereof. (f) MANDATORY CONDEMNATION PAYMENTS. Upon the delivery of any Condemnation Compensation to Borrower, any Owner's Association and/or any Purchaser, if such Condemnation Compensation is not required to be used to repair, replace or improve the Pledged Intervals or the Resort in accordance with the terms of this Agreement, the applicable Declaration or Applicable Law, Borrower shall immediately repay the Loan in an amount equal to the amount of such Condemnation Compensation delivered to Borrower, any Owner's Association and/or such Purchaser(s). Such repayments shall be applied in the manner set forth in Section 2.3(a)(ii) hereof. 2.4 PARTICIPATING LENDER. Lender shall have the right, without prior notice to Borrower or the approval of Borrower, to designate one or more Participating Lenders and to grant to such Participating Lenders participations in the Loan, on terms and conditions satisfactory to Lender. Such Participating Lenders shall communicate and deal only with Lender in respect to such Participating Lenders' interests in the Loan, the Collateral and enforcement of remedies with respect to the Collateral and Borrower shall communicate and deal hereunder only with Lender and not with any Participating Lender. Borrower shall not be liable hereunder to make any payment to any Participating Lender; all of Borrower's Obligations hereunder shall run directly to Lender. Nothing in this Agreement shall restrict or limit any Participating Lender from assigning all or any part of the participations acquired by it in the Loan from Lender or from Lender replacing or causing the replacement of one or more Participating Lenders. Unless Lender provides thirty (30) days prior written notice to Borrower to the contrary, no Participating Lender shall have the right to consent to any request of Borrower made pursuant to this Agreement or any Loan Document, and Borrower shall be entitled to make any such consent requests solely to Lender. 2.5 FEES. (a) COMMITMENT FEE. Borrower agrees to pay to Lender a non-refundable commitment fee of $150,000 at the time the initial Advance is made by Lender. (b) UNUSED LINE FEE. Monthly in arrears on the first Business Day of each calendar month until the Maturity Date, Borrower agrees to pay to Lender the Unused Line Fee; provided, however, that the Unused Line Fee shall be waived during the first six (6) months following the Closing Date and, at any time thereafter, in the event the LOAN AND SECURITY AGREEMENT 20 average outstanding principal balance of the Loan is in excess of $10,000,000 during such period of determination. (c) RELEASE FEE. Borrower shall pay to Lender an administrative release fee equal to $10 (the "RELEASE FEE") for each Pledged Interval sold or otherwise released. Such Release Fee shall be due and payable to Lender whether or not a Release Price is due and payable to Lender and whether or not all Obligations have been paid in full. 2.6 COMPUTATION OF FEES; LAWFUL LIMITS. All fees hereunder shall be computed on the basis of a year of 360 days and for the actual number of days elapsed in each calculation period, as applicable. In no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the interest and other charges paid or agreed to be paid to Lender for the use, forbearance or detention of money hereunder exceed the maximum rate permissible under Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If, due to any circumstance whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall exceed any such limit, then, the obligation to be so fulfilled shall be reduced to such lawful limit, and, if Lender shall have received interest or any other charges of any kind which might be deemed to be interest under Applicable Law in excess of the maximum lawful rate, then such excess shall be applied first to any unpaid fees and charges hereunder, then to unpaid principal balance owed by Borrower hereunder, and if the then remaining excess interest is greater than the previously unpaid principal balance, Lender shall promptly refund such excess amount to Borrower and the provisions hereof shall be deemed amended to provide for such permissible rate. The terms and provisions of this Section 2.6 shall control to the extent any other provision of any Loan Document is inconsistent herewith. 2.7 LATE FEE. Notwithstanding any other provision of any Loan Document, if any payment, interest, Obligation, fee, charge or other amount due under any Loan Document is not received by Lender within one (1) Business Day of its due date (other than a final payment due at maturity or upon acceleration of the Obligations), then Borrower shall pay to Lender a late charge equal to 5.0% of the amount not timely made or paid. 2.8 TAXES AND OTHER CHARGES. All payments and reimbursements to Lender made under this Agreement or any Loan Document shall be free and clear of and without deduction for all taxes, levies, imposts, deductions, assessments, charges or withholdings, and all liabilities with respect thereto of any nature whatsoever ("TAXES"), excluding taxes to the extent imposed on Lender's net income. If Borrower shall be required by law to deduct any such amounts from or in respect of any sum payable under this Agreement or any Loan Document to Lender, then the sum payable to Lender shall be increased as may be necessary so that, after making all required deductions, Lender receives an amount equal to the sum it would have received had no such deductions been made. Notwithstanding any other provision of this Agreement or any Loan Document, if at any time after the Closing or the making of any Advance (a) any change in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (b) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (c) compliance by Lender with any Applicable Law: (i) subjects Lender to any tax, levy, impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to this Agreement or any Loan Document, or changes the basis of taxation of payments to Lender of LOAN AND SECURITY AGREEMENT 21 any amount payable thereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment fees or other fees payable hereunder or changes in the rate of tax on the overall net income of Lender), or (ii) imposes on Lender any other condition or increased cost in connection with the transactions contemplated thereby or participations therein; and the result of any of the foregoing is to increase the cost to Lender of making or continuing or maintaining any Loan hereunder or to reduce any amount receivable hereunder, then, in any such case, Borrower shall promptly pay to Lender any additional amounts necessary to compensate Lender, on an after-tax basis, for such additional cost or reduced amount as determined by Lender. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.8 it shall promptly notify, in reasonable detail, Borrower of the event by reason of which Lender has become so entitled, and each such notice of additional amounts payable pursuant to this Section 2.8 submitted by Lender to Borrower shall, absent manifest error, be final, conclusive and binding for all purposes. Notwithstanding the foregoing, in the event Lender requests Borrower pay the amounts required pursuant to this Section 2.8, Borrower shall have the right following ninety (90) Business Days of Borrower's receipt of such request, to prepay the Loan in whole, but not in part, and terminate this Agreement without paying any prepayment premium described in Section 2.3(c) hereof; provided Borrower shall pay to Lender within thirty (30) Business Days of Borrower's receipt of such request all such amounts required pursuant to this Section 2.8 for the period of time prior to Borrower prepaying the Loan in full and terminating this Agreement. 3. COLLATERAL 3.1 SECURITY. For the purpose of securing the prompt and complete payment and performance by Borrower of all of the Obligations, Borrower does unconditionally and irrevocably hereby grant to Lender a first priority security interest in, and a Lien upon the following assets of Borrower, whether now owned or hereafter acquired (such assets being herein referred to as the "COLLATERAL"): (a) all other accounts, contract rights, general intangibles, documents, instruments, chattel paper and proceeds of Borrower related solely to the Pledged Intervals and not other Timeshare Interests or Timeshare Units; (b) all Books and Records; (c) all of Borrower's right, title and interest of whatever character (whether as owner, vendor, mortgagee, chattel lessee, Declarant, Timeshare Unit owner, Timeshare Interest owner or otherwise, whether vested or contingent and whether now owned or hereafter acquired) in and to the Pledged Intervals; (d) all of Borrower's right, title and interest of whatever character (whether as owner, chattel lessee, Declarant, Timeshare Unit owner, Timeshare Interest owner, or otherwise, whether vested or contingent and whether now owned or hereafter acquired) in and to any and all judgments, settlements, claims, awards, insurance proceeds and other proceeds and compensation, and any interest thereon (collectively, "COMPENSATION"), now or hereafter made or payable in connection with (i) any casualty or other damage to all or any part of any Pledged Interval, (ii) any condemnation proceedings affecting any Pledged Interval or any rights thereto LOAN AND SECURITY AGREEMENT 22 or any interest therein, (iii) any damage to or taking of any Pledged Interval or any rights thereto or any interest therein arising from or otherwise relating to any exercise of the power of eminent domain (including, without limitation, any and all Compensation for change of grade of streets or any other injury to or decrease in the value of any Pledged Interval), or any conveyance in lieu of or under threat of any such taking, (iv) any and all proceeds of any sale, assignment or other disposition of any Pledged Interval or any rights thereto or any interest therein, (v) any and all proceeds of any other conversion (whether voluntary or involuntary) of any Pledged Interval or any rights thereto or any interest therein or to cash or any liquidated claim, and (vi) any and all refunds and rebates of or with respect to any Insurance Premium, any Imposition or any other charge for utilities relating to any Pledged Interval (including, without limitation, any and all refunds and rebates of or with respect to any deposit or prepayment relating to any such Insurance Premium, Imposition or charge), and any and all interest thereon, whether now or hereafter payable or accruing; (e) all other "Mortgaged Property," as such term is defined in each Mortgage and all options that Borrower may obtain; and (f) all proceeds arising from the rent or sale of unsold Pledged Intervals; whether such Collateral shall be presently in existence or whether it shall be acquired or created by Borrower at any time hereafter, wherever located, together with the products and proceeds thereof, and any replacements, additions and/or accessions thereto and substitutions thereof and after-acquired property. Borrower consents and agrees that Lender shall be under no obligation to marshal any assets (including, without limitation, any pledged membership interests or any life insurance proceeds) in favor of Borrower, or against or in payment of any or all of the Obligations. 3.2 UNDERTAKINGS REGARDING COLLATERAL. (a) MAINTENANCE OF PERFECTION. Lender shall not be required to take any steps to perfect or maintain the perfection of its first priority security interest in the Collateral and no loss of, or damage to, the Collateral shall release Borrower from any of the Obligations. (b) NO ASSUMPTION OF OBLIGATIONS. The execution and delivery of this Agreement, and the granting of the Liens in and to the Collateral, shall not subject Lender to, or transfer or pass to Lender or in any way affect or modify, the liability of Borrower under any or all of the Contracts, the Property-Related Contracts or in connection with any Resort, any Declaration or any Owner's Association's Articles of Incorporation or By-Laws, it being understood and agreed that notwithstanding this Agreement, and the granting of the Liens in and to the Collateral, all of the obligations of Borrower (whether as owner, chattel lessee, vendor, mortgagee, Declarant, Timeshare Unit owner, Timeshare Interest owner or otherwise) to each and every other party under each and every one of the Contracts and the Property-Related Contracts and/or in connection with any Resort or any Declaration, the Articles of Incorporation and By-Laws of any Owner's Association shall be and remain enforceable by such other party, its successors and assigns, only against Borrower or Persons other than Lender, and Lender has not assumed any of the obligations or duties of Borrower under or with respect to any of the LOAN AND SECURITY AGREEMENT 23 Contracts, or the Property-Related Contracts or otherwise in connection with any Declaration or the Articles of Incorporation and By-Laws of any Owner's Association. (c) NO OBLIGATION TO TAKE ACTION. Borrower hereby agrees and acknowledges that neither the acceptance of this Agreement or any other Security Document by Lender nor the exercise of, or failure to exercise, any right, power or remedy in this Agreement or in any other Security Document conferred upon Lender shall be deemed or construed to obligate Lender to pay any sum of money, take any other action or incur any liability in connection with, or collect or realize upon, any of the Contracts or any other Collateral. It is further agreed and understood by Borrower that Lender shall not be liable in any way for any cost, expense or liability connected with, or any charge or liability arising from, any of the Contracts, any of the contracts of purchase in respect of the Timeshare Units, any of the Property-Related Contracts or any other Collateral. (d) INDEMNIFICATION. Borrower hereby agrees to indemnify Lender, and hold it harmless, from any and all liability, loss or damage which it may or might incur by reason of any and all claims and demands whatsoever which may be asserted against Lender arising out of, as a result of, or otherwise connected with, the Liens hereby granted to Lender by Borrower under or in respect of any of the Contracts or any other Collateral by reason of (i) the failure by Borrower to perform any obligations or undertakings required to be performed by Borrower under or in connection with any of such Contracts, the Property-Related Contracts or any other Collateral, (ii) any failure by Borrower, in connection with any of such Contracts, the Property-Related Contracts or any other Collateral, to comply with any applicable federal, state or local consumer credit, sale rescission or usury statute, including, without limitation, any such statute of any state in which a Purchaser may reside, the Consumer Credit Protection Act, as amended, the Federal Trade Commission Act, as amended, the consumer credit laws and subdivision laws of each Applicable State, as amended, and all rules and regulations promulgated under the foregoing statutes, acts and codes, the Interstate Land Sales Full Disclosure Act, and the rules and regulations promulgated thereunder, and (iii) failure by Borrower to comply with any applicable federal, state or local statutes, ordinances or declarations and the restrictions, rules and regulations promulgated thereunder or contained therein pertaining to the use or operation of any Pledged Interval or any Resort (including, without limitation, the statutes, ordinances, declarations, restrictions, rules and regulations of any Applicable State or its agencies or municipalities), or to otherwise discharge its duties and obligations under Applicable Law, under each Declaration or any Owner's Association's Articles of Incorporation or By-Laws as Declarant, unless such claims or demands were directly a result of Lender's gross negligence or willful misconduct. 3.3 FINANCING STATEMENTS. Borrower hereby authorizes Lender to file any financing statements on Borrower's behalf required by the Uniform Commercial Code together with any and all other instruments or documents and take such other action, as may be necessary to perfect, and to continue the perfection of, Lender's security interest and Liens in the Collateral. The parties agree that a legible carbon, photographic or other reproduction of this Agreement or of a financing statement shall be sufficient as a financing statement. 3.4 LOCATION OF COLLATERAL; BOOKS AND RECORDS. All Books and Records are to remain, at all times, on the premises of Borrower either at 1221 River Bend Drive, Dallas, Texas LOAN AND SECURITY AGREEMENT 24 75247 or at any Resort, and Borrower represents and warrants to Lender that all of the currently existing Books and Records is now located there, and Borrower will not transfer the Books and Records from such premises to other locations without the prior written approval of Lender. Borrower shall, upon receipt of a written request therefor from Lender after the occurrence of an Event of Default, deliver to Lender then current copies of all computer tapes, disks, software and micro-fiche records constituting, in whole or in part, the Books and Records. 3.5 INSURANCE OF COLLATERAL. (a) MAINTENANCE OF INSURANCE. (i) Borrower agrees to maintain or cause to be maintained or, as provided under the applicable Declaration, cause the applicable Owner's Association to maintain, insurance (with financially sound and reputable insurers) with respect to (1) all Pledged Intervals and each Resort, (2) the personal property located at each Resort (including, without limitation, the Resort Facilities and other furniture, fixtures and furnishings thereof), (3) all other equipment and other personal property of every nature whatsoever now or hereafter located in or on, or attached to, and used or intended to be used in connection with each Resort, and (4) the Books and Records and other valuable papers, against casualties, contingencies, hazards and such other risks (including, without limitation, (A) fire, hurricane, tornado, wind damage, and such other risks insured against by a standard all-risk property and fire insurance policy and endorsement for extended coverage, and (B) earthquake and flood insurance, if applicable and required by Lender); provided, however, that such casualty insurance shall (aa) in no case be in an amount less than an amount sufficient to rebuild the applicable Resort or the portions thereof which shall have suffered the loss and replace any of the personal property located therein, (bb) be sufficient to avoid any co-insurance requirements in respect of Borrower and/or any Owner's Association, and (cc) be sufficient to provide funds to fully compensate Borrower or owners of Timeshare Interests for any inability to utilize any units during any period following a loss (e.g., [rent loss or] business interruption insurance). With respect to such insurance, Borrower shall deliver or cause to be delivered, or cause the applicable Owner's Association to deliver (to the extent permitted by Applicable Law and the applicable Declaration), certificates of insurance to Lender, with satisfactory lender's loss payable endorsements naming Lender as loss payee to the extent of its interest and as such interest may appear on the date of the initial advance hereunder. Each policy of such insurance or endorsement with respect thereto shall contain a clause requiring the insurer to give not less than 30 days' prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever and a clause that the interest of Lender shall not be impaired or LOAN AND SECURITY AGREEMENT 25 invalidated by any act or neglect of Borrower or other owner of the Collateral nor by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower shall fail to provide and pay for such insurance, or have the same provided and paid for, Lender may, at Borrower's expense, procure the same, but shall not be required to do so. (ii) Borrower shall maintain or cause to be maintained insurance with financially sound and reputable insurers with respect to each Resort and its business (including, without limitation, the Collateral) covering any public liability of Borrower, its officers, agents or employees (including, without limitation, damage by Borrower or its officers, agents or employees to the Resort of other Persons, any bodily injury caused by Borrower or its officers, agents or employees to any other Person, or any negligent act or other similar liability of Borrower or its officers, agents or employees) and in such amounts as are satisfactory to Lender and to which Borrower has agreed; Lender shall be named as an additional insured thereon. Borrower shall, as provided in each Declaration, cause the applicable Owner's Association to maintain insurance with financially sound and reputable insurers with respect to each Resort covering any public liability of such Owner's Association or its officers, agents or employees to each Resort of other Persons, any bodily injury caused by such Owner's Association or its officers, agents or employees to any other Person, or any negligent act or other similar liability of each Owner's Association or its officers, agents or employees and in such amounts as are provided for in each Declaration. (iii) Borrower shall, prior to renewal, submit, or so long as Borrower is in control of an Owner's Association, cause such Owner's Association to submit, and thereafter shall use its best efforts to cause each Owner's Association to submit, to Lender insurance certificates showing the type and amounts of insurance coverage maintained in respect of each Resort. Borrower shall, to the extent permitted by Applicable Law and the applicable Declaration, cause all casualty policies of insurance provided under the each applicable Declaration to have mortgagee endorsements in respect of Lender's interests in and to the Pledged Intervals that are the subject of any Mortgage or any Timeshare Mortgage in which Lender may have a security interest and Lien hereunder or under the Receivables Loan Documentation. (iv) Borrower shall pay, or cause each of the Silverleaf Club and the Orlando Breeze Resort Club to pay, all premiums on the aforesaid insurance policies and all other fees and charges payable in connection with such insurance policies (such premiums, fees and charges being collectively referred to herein as "INSURANCE PREMIUMS") not later than the due date thereof. If Borrower shall fail to pay, or cause each of Silverleaf Club and the Orlando Breeze Resort Club to pay, any such Insurance Premiums, Lender may (but shall not be obligated to), at Borrower's expense, pay the same. Any such payment shall be subject to Section 3.11 and Section 3.12 hereof. (v) If the Mortgaged Property (as defined in each Mortgage) is sold at a foreclosure sale or if Lender shall acquire title to said Mortgaged Property, Lender shall have all of the right, title and interest of Borrower in and to all insurance policies required under this Section 3.5(a) and the unearned premiums thereon, related to the Mortgaged LOAN AND SECURITY AGREEMENT 26 Property, and in and to the proceeds resulting from any damage to said Mortgaged Property prior to such sale or acquisition. (vi) Anything contained in this Section 3.5(a) to the contrary notwithstanding, any of the undertakings of Borrower in this Section 3.5(a) in respect of insuring each Resort or in respect of causing each Owner's Association to perform any undertaking under this Section 3.5(a) shall be subject to any Applicable Laws and the applicable Declaration. (b) INSURANCE PROCEEDS. (i) Subject to Applicable Law and the provisions of each Declaration, as applicable, and any limitations thereunder, any proceeds of insurance in respect of the Pledged Intervals received by any Owner's Association or any manager retained by it and then further paid by the applicable Owner's Association or such manager to Borrower (whether as Declarant or otherwise), as provided for in the applicable Declaration, shall be promptly paid and/or turned over by Borrower to Lender as proceeds of the Collateral and, subject to Section 3.5(c) hereof, applied to the prepayment of the Loan as provided in Section 2.3(a)(ii) hereof. (ii) Without limiting the immediately preceding paragraph, any proceeds of insurance in respect of any Pledged Interval received by Borrower at a time during which the insurance provisions of the applicable Declaration shall not be in effect as to any Pledged Interval shall be treated as provided in Section 3.5(c) of this Agreement. (c) MISCELLANEOUS APPLICATION OF INSURANCE PROCEEDS. In connection with, and pursuant to, Section 3.5(b)(ii) hereof, Lender and Borrower agree to the following: (i) Following the occurrence of any Default or Event of Default (provided that if such Default or Event of Default is cured by Borrower, then clause (ii) below and not this clause (i) shall thereafter apply), and subject to Applicable Law and the provisions of each Declaration, Lender may direct the proceeds from any such policies to be received and collected by Lender, Borrower, the Silverleaf Club or Orlando Breeze Resort Club, as applicable, or another third party acceptable to Lender. Following the occurrence of any Default or Event of Default, each insurance company is hereby authorized and directed to make payment for all such losses directly to Lender, Borrower, the Silverleaf Club or Orlando Breeze Resort Club, as applicable, or such other third party as directed by Lender. Following the occurrence of any Default or Event of Default (provided that if such Default or Event of Default is cured by Borrower, then clause (ii) below and not this clause (i) shall thereafter apply), and subject to Applicable Law and the provisions of each Declaration and any limitations thereunder, and provided Lender is entitled to receive such insurance proceeds pursuant to the applicable Declaration, after deducting from said insurance proceeds all of its expenses incurred in the collection and administration of such sums, including attorneys' fees, Lender may apply the net proceeds or any part thereof, at its option (i) to payment of the Obligations, whether or not due, as provided in Section 2.3(a)(ii) hereof, (ii) to the repair and/or restoration of the LOAN AND SECURITY AGREEMENT 27 Pledged Intervals, or (iii) for any other purposes or objects for which Lender is entitled to advance funds under this Agreement or any of the other Security Documents; all without affecting the Liens and security interests of this Agreement and the other Security Documents. Lender shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure. (ii) Subject to each Declaration and Applicable Law, prior to the occurrence of any Default or Event of Default and if Borrower gives Lender notice of any casualty as provided in clause (d) below, Borrower or the Silverleaf Club or Orlando Breeze Resort Club, as applicable, shall have the right to adjust and compromise losses under insurance policies and to collect and receive insurance proceeds and shall apply such insurance proceeds with respect to such losses solely and exclusively to the repair and restoration of the Pledged Intervals (and the affected Resort, as applicable) or, if consented to by Lender, to the payment of the Obligations as Borrower deems appropriate in its reasonable discretion. With respect to any such casualty loss, Borrower shall have the right to use any insurance proceeds received on account of such loss to the repair and restoration of the Pledged Intervals (and the affected Resort, as applicable). (d) BORROWER UNDERTAKINGS. In the event of any casualty or loss in respect of any Pledged Intervals or any Resort (including, without limitation, any of the Collateral) that exceeds $250,000 in damages, Borrower shall immediately notify Lender of the same. (e) OTHER LENDERS. To the extent any other timeshare receivable or timeshare inventory lender of Borrower and its Affiliates 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 a Resort to any Owner's 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. 3.6 CONDEMNATION. (a) CONDEMNATION COMPENSATION. (i) Subject to Applicable Law and to the provisions of each Declaration, any compensation, awards, damages, claims, rights of action, proceeds, payment and other relief (collectively, "CONDEMNATION COMPENSATION") of, or on account of, any damage or taking of all or any part of any Pledged Intervals in connection with any condemnation proceedings or any exercise of the power of eminent domain (or any conveyance in lieu of or under threat of any such taking), including, without limitation, any such Condemnation Compensation for change of grade of streets or any other injury to or decrease in the value of all or any part of any Pledged Intervals, payable LOAN AND SECURITY AGREEMENT 28 to any Owner's Association or any manager retained by it and paid further by any Owner's Association or such manager to Borrower (whether as Declarant or otherwise), unless otherwise provided for in the applicable Declaration, shall be promptly paid and/or turned over to Lender as proceeds of the Collateral or otherwise and, applied to the prepayment of the Loan, as provided in Section 2.3(a)(ii) hereof. (ii) Subject to Applicable Law and to the provisions of the applicable Declaration, Lender shall be entitled to receive all Condemnation Compensation in respect of the affected Pledged Intervals payable with respect to any condemnation or taking. The application of such Condemnation Compensation shall be as set forth below in clause (iii) below. Lender is hereby authorized, at its option, to commence, appear in and prosecute, in its own or in Borrower's name, any action or proceeding relating to any condemnation or taking, and to settle or compromise any claim in connection therewith. All Condemnation Compensation in respect of any Pledged Interval and the rights thereto are hereby assigned by Borrower to Lender. (iii) Subject to Applicable Law and to the provisions of the applicable Declaration, after deducting from any Condemnation Compensation in respect of the applicable Pledged Interval, all of its expenses incurred in the collection and administration thereof, including attorney's fees, Lender shall, if no Default or Event of Default shall then exist, or may, in its sole and absolute discretion if a Default or Event of Default shall then exist, make the net Condemnation Compensation available to Borrower, the Silverleaf Club or the Orlando Breeze Resort Club, as applicable, to repair and/or restore the Pledged Intervals and, as applicable, the affected Resort. If Borrower fails to comply with any of the requirements set forth in the immediately preceding sentence or if a Default or Event of Default exists and Lender shall have decided not to make such net Condemnation Compensation available to Borrower, Lender may apply such net Condemnation Compensation or any part thereof, at its option, (A) to the payment of the Obligations, whether or not due, as provided in Section 2.3(a)(ii) hereof, or (B) for any other purposes or objects for which Lender is entitled to advance funds under this Agreement, all without affecting the security interests or Liens of this Agreement or any of the other Security Documents. All net Condemnation Compensation to be disbursed by Lender pursuant to this clause (iii) shall be disbursed in a manner acceptable to Lender as the repair and/or replacement work proceeds. Lender shall not be held responsible for any failure to collect any condemnation regardless of the reason for such failure. Borrower agrees to execute such further assignment of any compensation, awards, damages, claims, rights of action and proceeds as Lender may require. All repair and/or replacement work shall be diligently prosecuted to completion by Borrower and shall be completed prior to the Maturity Date. (b) BORROWER UNDERTAKINGS. In the event of any condemnation or taking in respect of any Pledged Interval or any Resort (including, without limitation, any of the Collateral), Borrower shall immediately notify Lender of the same. 3.7 TAXES AFFECTING COLLATERAL. Borrower shall pay or, as provided in the applicable Declaration, cause the applicable Owner's Association to pay, on or before the last day when LOAN AND SECURITY AGREEMENT 29 they may be paid without interest or penalty, all taxes, assessments, rates, dues, charges, fees, levies, excises, duties, fines, impositions, liabilities, obligations and encumbrances (including, without limitation, water and sewer rents and charges, charges for setting or repairing meters and charges for other utilities or services), general or special, ordinary or extraordinary, foreseen or unforeseen, of every kind whatsoever, now or hereafter imposed, levied or assessed by any public or quasi-public authority or instrumentality (including, without limitation, each Applicable State and its agencies, counties and municipalities), upon or against any of the Collateral or the use, occupancy or possession of any Resort, or upon or against this Agreement, the Note or the other Security Documents, the Obligations or the interest of Lender in the Contracts, any of the contracts of purchase in respect of the Timeshare Units or any Mortgage or any other item of Collateral (provided that this Section 3.7 shall not be construed to require Borrower to pay any income tax imposed upon the general income of Lender), as well as all assessments and other governmental or quasi-governmental charges imposed, levied or assessed in respect of any Collateral, and any and all interest, costs and penalties on or with respect to any of the foregoing (collectively, the "IMPOSITIONS"). Upon request by Lender, Borrower shall deliver, or cause the applicable Owner's Association to deliver, to Lender receipts or other satisfactory proof of payment of any Impositions. Borrower shall not claim, demand or be entitled to receive any reduction of, or credit toward, any Imposition on account of the Obligations. No deduction shall be claimed from the taxable value of any Collateral or by reason of the Obligations, any of the Security Documents or the interest of Lender in the Collateral. If existing laws or procedures governing the taxation of mortgages, security documents or debts secured by deeds of trusts, mortgages or other security documents shall be changed in any manner after the date hereof so as to materially adversely impair the security of any Mortgage or the security interest herein granted or granted in any of the other Security Documents or to reduce the net income to Lender in respect of the Obligations (excluding from any such determination of net income any reduction in such net income attributable to a change in taxes imposed on, or measured by, the net income of Lender), then, upon request by Lender, Borrower shall pay to Lender or to the taxing authority (if so directed by Lender), all taxes, charges and related costs for which Lender may be liable as a result thereof. Borrower shall pay, or cause to be paid, when due, any and all recording (mortgage or personal property), intangible property and documentary stamp taxes, all similar taxes, and all filing, registration and recording fees, which are now or hereafter may become payable in connection with the Obligations, each Mortgage, this Agreement, any of the other Security Documents, the Timeshare Mortgages or any of the other Collateral. Borrower shall pay when due any and all excise, transfer and conveyance taxes which are now or hereafter may become payable in connection with the Obligations, each Mortgage, this Agreement or any of the other Security Documents, or in connection with any foreclosure of any Mortgage, or any other foreclosure of any Collateral under this Agreement or under any of the other Security Documents, or any other transfer of any item of Collateral in extinguishment of all or any part of the Obligations or any other enforcement of the rights of Lender with respect thereto. Borrower shall have the right, at its sole expense, to contest the validity of any such Impositions (other than ad valorum taxes addressed below) by appropriate proceedings diligently LOAN AND SECURITY AGREEMENT 30 and continuously conducted in good faith to final determination, in which event Borrower shall not be required to pay or, as provided in the applicable Declaration, cause the applicable Owner's Association to pay, any such Impositions (other than ad valorum taxes addressed below) in accordance with this section if, and only so long as: (a) no final judicial determination in respect of any foreclosure or other enforcement proceeding in respect of such Impositions (other than ad valorum taxes addressed below) shall have been rendered and no nonjudicial foreclosure proceeding or sale in respect of such Impositions (other than ad valorum taxes addressed below) shall have been commenced; (b) no claim for liability of any kind shall have been asserted against the Lender in connection with such Impositions (other than ad valorum taxes addressed below); and (c) if such Impositions (other than ad valorum taxes addressed below) are in an amount greater than $100,000, Borrower shall have established an escrow with the Lender, or shall have delivered to the Lender a satisfactory bond issued by a surety acceptable to the Lender or a satisfactory letter of credit for the benefit of the Lender issued by a bank acceptable to the Lender, in each case in an amount estimated by the Lender to be adequate to cover (i) the unpaid amount of such required payment, (ii) all interest, penalties and similar charges which reasonably can be expected to accrue by reason of such contest or by reason of such nonpayment, and (iii) all costs, fees and expenses (including, without limitation, attorneys' fees and disbursements) which reasonably can be expected to be incurred in connection therewith by the Lender, which escrow, bond or letter of credit shall be maintained in effect throughout such contest and the amount of which shall be increased from time to time if reasonably required by the Lender to cover the foregoing amounts in subclause (i), subclause (ii) and subclause (iii). Borrower shall inform the Lender, in advance and in writing, of its intention to contest any Impositions (other than ad valorum taxes addressed below) under this Section 3.7 if such required payment shall exceed $100,000. Upon termination of any such contest (whether by final determination or otherwise), or at any time during the course of any such contest that the conditions relieving Borrower of its obligation to make such payment shall no longer be satisfied or shall be discovered not to have been satisfied, Borrower shall make such payment. Following the occurrence and continuance of a Default or Event of Default, at Lender's option, the escrow established or bond or letter of credit, as the case may be, delivered pursuant to this Section 3.7 may be, in the case of the escrow, liquidated, or, in the case of the bond or the letter of credit, drawn upon, at such time and the proceeds thereof may be applied to payment of all or any part of such required payment and the interest, penalties, charges, costs, fees and expenses (including, without limitation, attorneys' fees and disbursements) referred to in subclause (ii) and subclause (iii) of the immediately preceding paragraph. Promptly after such payment has been made, Borrower shall deliver to the Lender evidence reasonably satisfactory to the Lender that such payment has been made. Thereafter, the amount then remaining in the escrow established pursuant to this Section 3.7 or such bond or letter of credit, as the case may be, shall be returned to Borrower free and clear of the Lien of this Agreement or any other Security Document so long as no Event of Default shall have occurred and be continuing or, if an Event of Default shall have occurred and be continuing, shall be retained by the Lender as part of the Collateral. LOAN AND SECURITY AGREEMENT 31 The Borrower or the applicable Owner's Association, as the case may be, shall have the right at their respective sole expense to contest the validity of any ad valorem tax assessment related to any property owned by the Borrower and not subject to the timeshare regime established at each Resort, and in the case of each Owner's Association, to property covered by the applicable Declaration. In connection with any ad valorem tax challenge filed by either the Borrower or any Owner's Association, the Borrower or such Owner's Association, as the case may be, shall be required to deliver written notice of such intention to contest and shall make a "good faith deposit", which shall be in an amount determined in good faith either by the Borrower or such Owner's Association equal to the tax amount owed based upon the admitted fair market value by the party challenging such assessment. Such proceedings may continue if, and only so long as no final judicial determination in respect of any foreclosure or other enforcement proceedings in respect to such ad valorem taxes shall have been rendered, and no claim for liability of any kind shall have been asserted against the Lender in connection with such ad valorem taxes. In the event the amount of the "good faith deposit" made by either the Borrower or any Owner's Association is less than the amount claimed by the Lender, the Tax Collector, the Borrower or any Owner's Association, as the case may be, Borrower or any Owner's Association shall establish an escrow arrangement reasonably satisfactory to Lender equal to the amount of any such deficiency, together with an additional amount sufficient to cover any interest which may accrue during the pendency of such proceeding. Upon the termination of any such proceeding, whether by final determination or otherwise, the Borrower or any Owner's Association, as the case may be, shall make full and final payment of the final amount of ad valorem taxes determined to be owed, together with any additional levies, charges, interest, cost or expenses which may be due. Promptly after such payment has been made, Borrower or any Owner's Association shall deliver to Lender evidence reasonably satisfactory to Lender that any such payment has been made. 3.8 DISCHARGE OF LIENS AFFECTING COLLATERAL. If any mechanic's, laborer's, materialman's, statutory or other Lien shall be filed or otherwise imposed upon or against any item of the Collateral or any Pledged Interval, then Borrower shall, within 30 days after being given notice of the filing of such Lien or otherwise becoming aware of the imposition of such Lien, cause such Lien to be vacated or discharged of record by payment, deposit, bond, final order of a court of competent jurisdiction or otherwise. Borrower shall have the right, at its sole expense, to contest the validity of any such Lien or of the claim evidenced or secured thereby, by appropriate proceedings commenced prior to the expiration of the aforesaid 30-day period and thereafter diligently and continuously conducted in good faith to final determination, in which event Borrower shall not be required to cause any such Lien to be vacated or discharged of record in accordance with the immediately preceding paragraph if, and only so long as: (a) no final judicial determination in respect of any foreclosure or other enforcement proceeding in respect of such Lien or the claim evidenced or secured thereby shall have been rendered and no nonjudicial foreclosure proceeding or sale in respect of such Lien or such claim shall have been commenced; LOAN AND SECURITY AGREEMENT 32 (b) no claim for liability of any kind shall have been asserted against Lender in connection with such Lien or the claim evidenced or secured thereby; and (c) if such Lien shall secure a claim of more than $100,000, Borrower shall have established an escrow with Lender, or shall have delivered to Lender a satisfactory bond issued by a surety acceptable to Lender or a satisfactory letter of credit for the benefit of Lender issued by a bank acceptable to Lender, in each case in an amount estimated by Lender to be adequate to cover (i) the unpaid amount of such claim, (ii) all interest, penalties and similar charges which reasonably can be expected to accrue by reason of such contest or by reason of such nonpayment, and (iii) all costs, fees and expenses (including, without limitation, attorneys' fees and disbursements) which reasonably can be expected to be incurred in connection therewith by Lender, which escrow, bond or letter of credit shall be maintained in effect throughout such contest and the amount of which shall be increased from time to time if reasonably required by Lender to cover the foregoing amounts in subclause (i), subclause (ii) and subclause (iii). Borrower shall inform Lender, in advance and in writing, of its intention to contest any Lien securing a claim, or such claim itself, under this Section 3.8 if such claim shall exceed $100,000. Upon termination of any such contest (whether by final determination or otherwise), or at any time during the course of any such contest that the conditions relieving Borrower of its obligation to cause such Lien to be vacated or discharged shall no longer be satisfied or shall be discovered not to have been satisfied, Borrower shall cause such Lien to be vacated or discharged of record. At Lender's option, the escrow established or bond or letter of credit, as the case may be, delivered pursuant to this Section 3.8 may be, in the case of the escrow, liquidated, or, in the case of the bond or the letter of credit, drawn upon, at such time and the proceeds thereof may be applied to payment of all or any part of the claim evidenced or secured by such Lien and the interest, penalties, charges, costs, fees and expenses (including, without limitation, attorneys' fees and disbursements) referred to in subclause (ii) and subclause (iii) of the immediately preceding paragraph. Promptly after such Lien has been vacated or discharged of record, Borrower shall deliver to Lender evidence reasonably satisfactory to Lender that such Lien has been vacated or discharged of record. Thereafter, the amount then remaining in the escrow established pursuant to this Section 3.8 or such bond or letter of credit, as the case may be, shall be returned to Borrower free and clear of the Lien of this Agreement or any other Security Document so long as no Event of Default shall have occurred and be continuing or, if an Event of Default shall have occurred and be continuing, shall be retained by Lender as part of the Collateral. If any Lien shall not be vacated or discharged as required by this Section, then, in addition to any other right or remedy of Lender, Lender may, but shall not be obligated to, discharge such Lien in such manner as Lender may select, and Lender shall be entitled, if Lender shall so elect, to compel the prosecution of an action for the foreclosure of such Lien by the lienor and, if Lender shall so elect, to pay the amount of any judgment in favor of such lienor with interest, costs and allowances. Upon request by Lender, Borrower shall pay to Lender, or to any other Person designated by Lender, the amount of all payments made by Lender as provided above and all costs, expenses and liabilities (including, without limitation, attorneys' fees and disbursements) incurred by Lender in connection therewith, together with interest thereon at the LOAN AND SECURITY AGREEMENT 33 Default Rate from the date paid or incurred by Lender until the date so paid to, or as directed by, Lender. To the extent permitted by law, Lender shall thereupon be subrogated to the rights of such lienor and any such payments made by Lender pursuant to this Section 3.8 shall be secured by the Collateral. 3.9 USE OF THE RESORTS; VOTING RIGHTS OF BORROWER. (a) CERTAIN RESTRICTIONS. Borrower shall not, as Declarant, Timeshare Interest owner or Timeshare Unit owner, without the prior written consent of Lender, such consent not to be unreasonably withheld, (i) request, consent to or otherwise initiate, consent to or acquiesce in any zoning classification or reclassification of any Resort or the adoption, issuance, imposition or amendment of any other law, ordinance, rule, regulation, order, judgment, injunction or decree relating to the use, occupancy, operation, development, disposition or design of any Resort which would limit the use of the Pledged Intervals therein or reduce its or their Fair Market Value, (ii) request, consent to or otherwise initiate, consent to or acquiesce in the annexation of any part of any Resort by or into any municipality or other governmental or quasi-governmental unit, (iii) enter into, consent to or otherwise cause, permit or suffer to become subject to any covenant, agreement or other arrangement restricting or limiting the use, occupancy, operation, development or disposition thereof (other than any covenant of this Agreement, the other Security Documents, or any Declaration), (iv) except as permitted in the applicable Declaration, permit the Timeshare Interests or the Timeshare Units to be used other than for nonpermanent residential purposes, or (v) consent to any material amendment, modification, alteration or other change to any Declaration without the prior written consent of Lender, or otherwise sell Timeshare Interests not correctly set forth in the applicable Declaration. (b) USE BY PUBLIC. Borrower shall not cause, permit or suffer to be used by the public without restriction (except as required by Applicable Law or as otherwise provided in the applicable Declaration or Resort Map) or in any manner that might tend to impair Borrower's right, title and interest in and to each Resort or in any manner that might make possible any claim of adverse usage or adverse possession by the public or any claim of implied dedication of all or any part of any Resort. (c) VOTING RIGHTS. Except with the prior written consent of Lender, Borrower shall not propose or vote for or consent to any modification of, or amendment to, any Declaration or any Owner's Association's Articles of Incorporation or By-Laws which could have (in the reasonable sole opinion of Lender) a material adverse effect on the Collateral or the operation or prospects of any Resort. In each case under the applicable Declaration and/or the applicable Owner's Association's Articles of Incorporation or By-Laws in which the consent or the vote of LOAN AND SECURITY AGREEMENT 34 a holder of a mortgage or "security interest" in respect of the Timeshare Interests and/or the Timeshare Units (including any such case in which Borrower would be considered to be a holder of a mortgage or "security interest" by virtue of any Timeshare Mortgage) is provided for or is required, or in which Borrower's consent is required (as Declarant or as an owner of a Timeshare Interest or Timeshare Unit or as a vendor or mortgagee or otherwise) for any proposed action, Borrower shall not vote or give such consent without obtaining the prior written consent of Lender if such action (in the reasonable opinion of Lender) could have an material adverse effect on the Collateral or the operation or prospects of any Resort. 3.10 OTHER TIMESHARE COVENANTS. (a) ACCESS. With respect to the consummation of each sale of a Pledged Interval to a Purchaser under a Contract, Borrower shall cause the owner of such Pledged Interval to have access to a publicly dedicated road and shall cause all private roadways, parking lots and rights of way within the applicable Resort or other private areas in such Resort to be Common Elements or Resort Facilities in respect of such Pledged Interval. (b) UTILITIES. With respect to the consummation of each sale of a Pledged Interval to a Purchaser under a Contract, Borrower shall cause electric, gas, sewer, and water service and other necessary utilities to be available to the Timeshare Units in sufficient capacity to service the same and shall pay, or cause to be paid, all tap fees or other connection charges in respect thereof). (c) USE OF AMENITIES. With respect to the consummation of each sale of a Pledged Interval to a Purchaser under a Contract, Borrower shall cause the owner of such Pledged Interval to have access to, and the use of, all of the amenities and public utilities relating to the applicable Resort and such Pledged Interval (consistent with the contractual provisions and rules and regulations existing with respect to such amenities and public utilities), including, without limitation, the Resort Facilities and rights of way. (d) TIMESHARE REGIME. The Borrower shall do all things necessary in order to preserve the timeshare regimes in respect of all Pledged Intervals. (e) LOCAL LEGAL COMPLIANCE. Borrower shall comply, and shall cause each Resort, each Pledged Interval, the other Timeshare Interests and Timeshare Units to comply, with all applicable restrictive covenants, zoning, design and land use ordinances and building codes, all applicable health and environmental laws and regulations and all other Applicable Laws, rules and regulations and all approvals, consents and licenses (including, without limitation, the applicable Declaration). Borrower shall cause all Timeshare Interests (including the Pledged Intervals) and the sales thereof to comply with all Applicable Laws, rules and regulations, and all approvals, consents and licenses (including without limitation, each Declaration). (f) REGISTRATION COMPLIANCE. Borrower shall diligently pursue the obtaining of, and, after the obtainment thereof, shall maintain, or cause to be maintained, all necessary consents, franchises, approvals, and exemption certificates in connection with, and Borrower will make, or cause to be made, all registrations or declarations with any government or any agency LOAN AND SECURITY AGREEMENT 35 or department thereof required in connection with, the occupancy, use and operation of each resort and the marketing and sale of the Timeshare Interests (including all Pledged Intervals). (g) RECORDS. Borrower shall maintain accurate and complete files relating to the Contracts and the other Collateral to the reasonable satisfaction of Lender, and such files will contain copies of each Contract, the Timeshare Note, Timeshare Mortgage, all relevant credit memoranda, and all collection information and correspondence in respect thereof, as the case may be. (h) FORMS OF TIMESHARE DOCUMENTS. Instruments in substantially the form of the Contract, the form of statement of rescission rights required by Applicable Laws, and the form of other instruments and documents related thereto, including, if applicable, any Timeshare Note and/or Timeshare Mortgage, in each case in form and substance reasonably acceptable to Lender, shall be used by Borrower for all purchase and sale transactions of Pledged Intervals. Borrower shall not materially modify, amend or otherwise alter any of the terms of such forms without Lender's prior written consent, except as may be required by any regulatory agency or Applicable Law. Notwithstanding Lender's review and determination of acceptability, if any, of such forms, Borrower shall remain solely liable for all aspects of such forms and their use; any determination of acceptability, if any, by Lender relating to such forms shall only be for Lender's benefit and no other Person shall be entitled to rely thereon in any manner. Instruments in substantially the form of the Timeshare Note, the form of the Timeshare Mortgage, the form of the grant deed, the form of the Truth-in-Lending Statement and the form of the other instruments and documents related thereto set forth, in each case, in form and substance reasonably acceptable to Lender, shall be used by Borrower for all sales of Timeshare Interests which are financed by Borrower or Lender after the Closing Date and for so long as any Obligation remains outstanding. Borrower shall not materially modify, amend or otherwise alter such forms or any of the terms of such forms without Lender's prior written consent, such consent not to be unreasonably withheld, except as may be required by any regulatory agency or Applicable Law. Notwithstanding Lender's review and determination of acceptability, if any, of such forms, Borrower shall remain solely liable for all aspects of such forms and their use; any determination of acceptability, if any, by Lender relating to such forms shall only be for Lender's benefit and no other Person shall be entitled to rely thereon in any manner. (i) PROPERTY-RELATED CONTRACTS. Except as required by Applicable Law, or if otherwise waived by Lender, and if such amendment to, modification or new Property-Related Contract described below will have, or could reasonably be expected to have a material adverse effect on Borrower's ability to pay the Loan or the value of the Collateral, or Lender's Liens on the Collateral or the priority of any such Lien, Borrower shall not modify, amend, or enter into, or (subject to the rights and obligations of any Owner's Association and its members under any Declaration or any Owner's Association's Articles of Incorporation or By-Laws) permit to be modified, amended, or enter into, any Property-Related Contract without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrower shall perform all of its obligations in a timely fashion under each Property-Related Contract. For purposes of this Section 3.10(i), and for no other purpose, section or reference in this Agreement or any other Loan Document, the term, "Property-Related Contracts" shall not include sales and marketing agreements or contracts related to the sales of Timeshare Interests, or any employment related LOAN AND SECURITY AGREEMENT 36 agreements or contracts between Borrower and either (i) any Executive Management Member and (ii) any member of senior management of Borrower. (j) UNDERTAKING. Borrower shall perform each and every covenant, agreement, and undertaking applicable to Borrower (whether as Declarant, owner of a Timeshare Interest or Timeshare Unit or otherwise) under each Declaration and each Owner's Association's Articles of Incorporation or By-Laws. 3.11 PROTECTION OF COLLATERAL; ASSESSMENTS; REIMBURSEMENT. All Insurance Premiums and all expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, any and all Impositions on any of the Collateral or in respect of the sale or other disposal thereof shall be borne and paid by Borrower. If, by reason of any suit or proceeding of any kind, nature or description against Borrower, or by Borrower or any other party against any other Person, or by reason of any other facts or circumstances, which in Lender's sole discretion makes it advisable for Lender to seek counsel for the protection and preservation of the Collateral, or to defend its own interest, such expenses and counsel fees shall be allowed to Lender and borne and paid by Borrower. 3.12 INTEREST ON LENDER PAID EXPENSES. All sums paid or incurred by Lender under this Section 3, and any and all other sums for which Borrower may become liable hereunder, and all costs and expenses (including payments to other Lien holders and attorneys' fees, legal expenses and court costs) which Lender 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 Security Document or in respect of any of the transactions contemplated herein or therein (a) shall be considered as additional indebtedness owing by Borrower to Lender hereunder and, as such, shall be secured by all of the Collateral, and (b) shall accrue interest at the Default Rate from the date paid by Lender until paid in full by Borrower, provided that any sums paid or incurred by Lender under this Section 3 when no Event of Default shall then exist in respect of the payment of such sums and no other Event of Default shall exist hereunder shall accrue interest at the Interest Rate and not the Default Rate and provided further that such sums paid or incurred by Lender shall accrue interest at the Default Rate when the Default Rate shall otherwise be applicable hereunder. 3.13 LENDER RESPONSIBILITY. Lender shall not be (a) obligated or responsible for, the payment of any of the amounts or sums referred to in this Section 3, or (b) liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto. 3.14 VERIFICATION OF CONTRACTS. Upon prior notification to Borrower following the continuance of an Event of Default, Lender may contact any Purchaser solely for the purpose of verifying the Contract to which such Purchaser is a party and Borrower shall render such assistance to Lender in connection therewith as Lender may reasonably request. 3.15 RELEASE OF LIEN ON TIMESHARE INTERESTS. (a) RELEASE FOR TIMESHARE INTERESTS. Provided no Event of Default has occurred which is continuing, Lender agrees to execute and deliver to Borrower or its escrowee the documents referred to below pursuant to which the security interest and Lien in and to any LOAN AND SECURITY AGREEMENT 37 Pledged Interval constituting a Timeshare Interest created by this Agreement, any Mortgage or any other Security Document will be released if, but only if, all of the following conditions shall have been fully satisfied: (i) the full Release Fee and, as applicable following any Amortization Triggering Event or in the event there is a Borrowing Base deficiency, the full Release Price, in respect of such Pledged Interval shall have been paid to and received by Lender or its agent in good, collected funds; (ii) a request, substantially in the form of Exhibit B attached hereto, shall have been completed and executed by Borrower and submitted to Lender not less than 2 Business Days in advance of the date on which Borrower desires to consummate such release; and (iii) a partial release of mortgage, in form and substance satisfactory to Lender, and a partial release of security interest, in form and substance satisfactory to Lender, shall have been completed by Borrower and submitted to Lender with the aforesaid request. Borrower shall bear the responsibility of recording any and all documents executed by Lender under this Section 3.15(a). Borrower shall pay all escrow costs and recording and transfer costs in respect of such documents. Following the occurrence of an Amortization Triggering Event, if requested by Lender, Borrower shall establish an escrow in respect of any release under this Section 3.15(a). If Lender requests an Escrow Agent be established following the occurrence of an Amortization Trigger Event, Lender shall deposit the documents to be executed by it pursuant to clause (iv) above in such escrow if, but only if, (1) the documentation establishing such escrow is in form and substance satisfactory to Lender and such documentation shall have been submitted to Lender together with the written request referred to in clause (ii) above, (2) the escrowee under such escrow documentation is satisfactory to Lender, (3) such escrow documentation provides that simultaneously with the release from such escrow of the documents referred to in clause (iii) above, the Release Fee, and if applicable, the Release Price, in respect of such Timeshare Interest to be so released shall have been wired via Federal Reserve Bank wire (in immediately available funds) or otherwise credited in immediately available funds to Lender and prior to Lender's authorization to file such partial releases, a confirmation of such wire shall have been obtained, (4) such escrow documentation provides that such escrow will be consummated within 5 Business Days of Lender's depositing of such release documents therein or such release documents shall be returned to Lender by the escrowee of such escrow, and LOAN AND SECURITY AGREEMENT 38 (5) at the time of the depositing of such documentation into such escrow, all of the conditions in clauses (ii) through (iv) above shall have been fully satisfied. (b) FULL RELEASE OF COLLATERAL AND DEEDS OF TRUST. Upon the full, final and indefeasible payment of all Obligations and termination of this Agreement and the Receivables Loan Agreement, Lender shall release its security interests and Liens in and to the Collateral, shall execute in favor of Borrower any UCC release or termination statement in respect thereof, shall release each Mortgage and any other recorded Security Document and shall reassign and deliver to Borrower all Contracts and the other Collateral then in the physical possession of Lender or its agent (without recourse and without representations or warranties of any kind). Borrower shall bear all out-of-pocket expenses (including, without limitation, legal fees and disbursements of Lender) in connection with such release, reassignment and delivery. All such release and/or termination documentation shall be reasonably satisfactory to Lender and its counsel. 3.16 CROSS-COLLATERALIZATION AND DEFAULT. The Collateral shall secure all of the Obligations and the Receivables Loan Obligations. All Liens, pledges, assignments, mortgages, security interests, and other collateral granted to or for the benefit of Lender pursuant hereto or any other documents or instruments (including, but not limited to, the Receivables Loan Documentation) shall secure the Obligations as well as the "Obligations" as defined in the Receivables Loan Agreement, and vice versa. In addition, the Loan and the Receivables Loan shall be further secured by the Liens and security interests in favor of Lender in the properties and interests which serve as collateral security for any other loans or obligations now or hereafter made by Lender to Borrower or any Affiliate of the foregoing ("Additional Collateral"). Borrower agrees to deliver financing statements and other documents, instruments and agreements as may be required by Lender to further evidence and perfect the Liens and cross-collateralization in favor of Lender provided for in this Agreement. In addition, the Loan, the Receivables Loan and all other loans made by Lender to Borrower or any Affiliate of Borrower shall be cross-defaulted such that any event of default with respect to any such loan shall constitute an Event of Default hereunder, and vice versa. Notwithstanding the foregoing, a release of Lender's Lien on Collateral pursuant to the Receivables Loan Documentation shall be deemed to also be a release of Lender's Lien on such Collateral pursuant to the Loan Documents. 3.17 SUBSTITUTION OF COLLATERAL AND MORTGAGES. In addition to the releases pursuant to Sections 2.3 and 3.14 above and as otherwise provided in this Agreement, and subject to the compliance with the Borrowing Base, Borrower may notify Lender that it has determined, in its sole discretion, that, it wishes to substitute (a "Property Substitution") one or more Timeshare Interests for a Pledged Interval currently included in the Collateral (the "Substituted Property"). Borrowers shall identify the new Timeshare Interest to constitute a new Pledged Interval for such Property Substitution, which Timeshare Interest shall be approved by Lender in its sole discretion. Upon Lender's approval of such Pledged Interval, and Borrower's satisfaction (or Lender's waiver) all of the conditions precedent required to be satisfied pursuant to Article 6 of this Agreement with respect to such new Pledged Interval, Lender shall release its security interests and Liens in and to the Substituted Property, shall execute in favor of Borrowers any UCC release or termination statement in respect thereof, shall release the Mortgage and any other recorded Security Document and shall reassign and deliver to Borrower all other Collateral LOAN AND SECURITY AGREEMENT 39 then in the physical possession of Lender or its agent (without recourse and without representations or warranties of any kind) directly related to such Substituted Property. Borrower shall bear all out-of-pocket expenses (including, without limitation, reasonable legal fees and disbursements of Lender and its counsel) in connection with such release, reassignment and delivery. 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS. As an inducement to Lender to make the Loan, Borrower warrants and represents, as of the date hereof, and covenants to Lender as follows: 4.1 SUBSIDIARIES AND CAPITAL STRUCTURE. Except as set forth in Schedule 8, Borrower owns no Voting Equities in any Person. 4.2 CORPORATE BORROWER. Borrower (a) is a corporation duly organized and validly existing under the laws of the State of Texas, (b) has all requisite company power and authority and necessary licenses and permits to own, construct and operate and to carry on its business as now conducted and contemplated to be conducted in the future; (c) has duly qualified and is authorized to do business as a foreign company in each jurisdiction where the character of its Properties or the nature of its activities makes such qualification necessary or desirable; and. (d) has a Tangible Net Worth of not less than $100,000,000. 4.3 FINANCIAL STATEMENTS. Borrower's consolidated financial statements dated as of December 31, 2004, and delivered to Lender are true, correct and accurate. 4.4 FULL DISCLOSURE. Neither this Agreement nor any written statement made by Borrower or any Affiliate in connection with this transaction contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. There is no fact which Borrower or any Affiliate has not disclosed to Lender in writing which materially affects adversely or, so far as Borrower can now foresee, will materially affect adversely any Pledged Interval or any Resort, business, prospects, profits or condition (financial or otherwise) of Borrower or the ability of Borrower to perform its Obligations under this Agreement, the Note or the other Security Documents or Loan Documents. 4.5 PENDING LITIGATION. Except as set forth in Schedule 10 to this Agreement, there are no proceedings pending, or to the knowledge of Borrower threatened, against or affecting Borrower, any Affiliate or any Resort in any court or before any governmental authority or arbitration board or tribunal (a) which either involve the possibility of materially and adversely affecting any Pledged Interval or any Resort, business, prospects, profits or condition (financial or otherwise) of Borrower, or the ability of Borrower to perform its obligations under this LOAN AND SECURITY AGREEMENT 40 Agreement, the Note or the other Security Documents, as applicable, or (b) in respect of which more than $100,000 is sought in damages. Neither Borrower nor any Affiliate of either nor any resort is in default with respect to any order of any court, governmental authority, quasi-governmental authority or arbitration board or tribunal. 4.6 TITLE TO PROPERTIES. Except as set forth on Schedule 2 to this Agreement, Borrower has good and marketable title in fee simple (or its equivalent under Applicable Law) to all Pledged Intervals which it purports to own free from Liens. 4.7 TRADEMARKS, LICENSES AND PERMITS. Borrower owns or possesses all of the trademarks, service marks, trade names, copyrights, franchises and licenses, and rights with respect thereto necessary for the conduct of its business as now conducted and as proposed to be conducted, without any known conflict with the rights of others. Borrower does not own any Furnishings or other tangible personal property in any Timeshare Unit located at any Resort. 4.8 TRANSACTION IS LEGAL AND AUTHORIZED. The execution and delivery of this Agreement, any Note and the other Security Documents by Borrower, and the grant of the Liens to Lender with respect to the Collateral by Borrower and compliance by Borrower with all of the provisions of this Agreement, any Note and the other Security Documents are: (a) within the company powers of Borrower; and (b) valid and legal acts and will not conflict with, or result in any breach in any of the provisions of, or constitute a default under, or result in the creation of any Lien (except Liens contemplated under this Agreement or any other Security Document) upon any Collateral under the provisions of, any agreement, articles of incorporation, by-laws or other instrument to which Borrower is a party or by which such Collateral may be bound. 4.9 NO DEFAULTS. No Default or Event of Default exists, and there is no violation of any term of any agreement, charter instrument, bylaw or other instrument to which Borrower is a party or by which it may be bound that would have a Material Adverse Effect. 4.10 GOVERNMENTAL CONSENT. Neither the nature of Borrower nor its business or Properties, nor any relationship between Borrower and any other Person, or any circumstance in connection with the execution or delivery of this Agreement, the Note or the other Security Documents, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of Borrower, as a condition of the execution, delivery or performance of this Agreement, the Note or any other Security Document. 4.11 TAXES. Borrower is not in default with respect to the payment of any taxes levied or assessed against it or any of its assets. Borrower represents and warrants that (a) all ad valorem taxes and other taxes and assessments levied against the Collateral which are due and payable have been paid in full, and Borrower knows of no basis for any additional taxes or assessments against the Resort or Collateral; and (b) it 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 that are payable by it. No tax audit is pending or threatened with respect to Borrower. LOAN AND SECURITY AGREEMENT 41 4.12 USE OF PROCEEDS. The proceeds of the initial Advance hereunder will be used first to pay for any Loan Costs due on the Closing Date. The proceeds of Subsequent Advances will be used (i) first, to pay any Loan Costs then due at the time of the making of such Subsequent Advances, and (ii) second, for general working capital needs of Borrower. None of the transactions contemplated in this Agreement 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 T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Borrower does not intend to carry or purchase any "margin security" within the meaning of said Regulation U. None of the proceeds will be used to purchase or carry (or refinance any borrowing, the proceeds of which were used to purchase or carry) any "margin security" within the meaning of said Regulation. 4.13 COMPLIANCE WITH LAW. (a) Borrower is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject (including laws, ordinances, governmental rules or regulations relating to the operation of each Resort as a hotel) which violation would materially adversely affect the business, prospects, profits, or condition (financial or otherwise) of Borrower or any Collateral. (b) Borrower shall, in all material respects, comply fully with all Applicable Laws in connection with the Resort, the Collateral and the sale of Timeshare Interests, including but not limited to (i) the Interstate Land Sales Full Disclosure Act; (ii) any applicable condominium and timeshare statutes, rules, and regulations, including but not limited to those governing the administration and operation of each Owner's Association and those requiring registration of the Timeshare Interests as a legal prerequisite to the marketing and sale thereof, (iii) Regulation Z of the Federal Reserve Board; (iv) the Equal Credit Opportunity Act; (v) Regulation B of the Federal Reserve Board; (vi) Section 5 of the Federal Trade Commission Act; (vii) all applicable state and federal securities laws; (viii) all applicable usury laws; (ix) all applicable trade practices, home and telephone solicitation, sweepstakes, lottery, and other consumer credit and protection laws; (x) all applicable real estate sales licensing, disclosure, reporting, and escrow laws; (xi) the Americans with Disabilities Act of 1990 and all other accessibility requirements; (xii) the federal postal laws; (xiii) the Real Estate Settlement Procedures Act; (xiv) the Fair Housing Act of 1968; (xv) the FTC Privacy Act and (xvi) all amendments to and rules and regulations promulgated under the foregoing, all if and as applicable. Borrower has registered or is exempt from registration in each Applicable State. Borrower's marketing and sales practices are in compliance with all Applicable Laws including, without limitation, its lead generation techniques. Borrower has not been contacted or notified of any Federal Trade Commission or similar agency inquiry or investigation or any Department of Justice inquiry or investigation in connection with the marketing and sale of Timeshare Interests. LOAN AND SECURITY AGREEMENT 42 (c) Borrower possesses or will possess, as applicable, and will at all times continue to possess all requisite franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions, and orders as are reasonably necessary or appropriate to carry on its business as it is now being conducted, without any known conflict with the rights of others and, with respect to Borrower and the Collateral, in each case subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title retention agreement, or option other than the Permitted Exceptions. All such franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions, and orders are presently or will be, as applicable, in full force and effect, and there is no action currently pending or threatened effort to revoke or modify any of them. 4.14 RESTRICTIONS OF BORROWER. Other than the Sovereign Facility, Borrower is not a party to any contract or agreement which restricts its right or ability to incur indebtedness, or prohibits the execution of, or compliance with, this Agreement or any of the other Security Documents or Loan Documents by Borrower. Borrower has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any Collateral, whether now owned or hereafter acquired, to be subject to a Lien other than the Liens provided for herein, in the other Security Documents and in each Declaration. 4.15 BROKERS' FEES. Except as set forth on Schedule 11 hereto, there are no brokers or finders which are entitled to receive compensation for their services rendered to Borrower with respect to the transactions described in this Agreement and with which Borrower has had dealings. 4.16 DEFERRED COMPENSATION PLANS. Except as disclosed on Schedule 15 attached hereto, Borrower does not have a pension, profit sharing or other compensatory or similar plan providing for a program of deferred compensation for any employee or officer which is subject to any requirement of the Employee Retirement Income Security Act of 1974, as amended. 4.17 LABOR RELATIONS. Except as disclosed on Schedule 15 attached hereto, Borrower is not a party to any collective bargaining agreement, 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. 4.18 VALIDITY OF LIENS GRANTED TO LENDER. Except with respect to the Permitted Exceptions and as provided for in Sections 3.15 and Section 3.16 hereof, all Liens granted to Lender in respect of the Collateral are, and shall continue to be, prior in right and superior to all other Liens granted to, or held by, any other Person. 4.19 SOLVENCY. Borrower is not entering into this Agreement and the transactions contemplated hereby, and does not intend to incur any obligations hereunder or otherwise make any transfers in connection herewith, with the actual intent to hinder, delay or defraud either present or future creditors. After giving effect to the consummation of the transactions contemplated by this Agreement and the making of the advances hereunder, (a) the assets of Borrower at a fair valuation thereof on a going concern basis will not be less than its debts, (b) LOAN AND SECURITY AGREEMENT 43 Borrower is not currently engaged in or about to engage in a business or transaction for which their remaining assets are unreasonably small in relation to such business or transaction, and (c) Borrower will be able to pay its respective debts as they become due. "Debt" for purposes of this Section 4.20 means any liability on a claim, and "claim" means (i) any right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (ii) any right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 4.20 TIMESHARE INTEREST REGIME REPORTS. Borrower has furnished, or will furnish, to Lender true and correct copies of all formation and enabling documents for each resort and each Owner's Association and all filings and/or recordations in order to establish the condominium and the timeshare ownership regime in respect of each Resort have been or will be done and all Applicable Laws and statutes in connection therewith have been or will be complied with in all material respects. 4.21 SALE OF TIMESHARE INTERESTS. The sale and offering of sale of Timeshare Interests (a) do not and will 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 the blue-sky securities laws of any Applicable State, (b) are done and will only be done in the Applicable States (and no solicitation and no advertising in respect of the sale of Timeshare Interests that would, in either case, be in violation of Applicable Law is done or will be done in any other States), (c) do not violate and will not violate any applicable federal, state or local consumer credit or sale rescission statute, including, without limitation, any such statute of any State in which a Purchaser may reside, and (d) do not violate and will not violate any other applicable federal, state or local law, statute or regulation (including, without limitation, any timeshare or subdivision law applicable to any Resort or to the sale of Timeshare Interests and in effect in any Applicable State or in any other State in which a Purchaser may reside or in which the sale of any such Timeshare Interest may be closed). Without limiting the generality of the immediately preceding paragraph, Borrower has, to the extent required by its activities and businesses, fully complied with and will continue to fully comply with (1) (A) the Federal Trade Commission Act, as amended, (B) the Interstate Land Sales Full Disclosure Act, as amended, (C) all other applicable federal statutes and laws pertaining to the Resort and (D) the rules and regulations promulgated under such applicable Acts, statutes and laws and (2) all of the applicable provisions of any law of any State (and the rules and regulations promulgated thereunder) or municipality or other governmental or quasi-governmental authority relating to the operation of each Resort. The sale and offering of sale of Timeshare Interests are not effected and will not be effected by any home solicitations. 4.22 INDEBTEDNESS. Except for described or Schedule 1 attached hereto, indebtedness owing by Borrower to Lender arising pursuant to this Agreement and the other Loan Documents, or trade payables incurred in the ordinary course of the operation and maintenance of each Resort, as of the Closing Date Borrower has no other indebtedness. LOAN AND SECURITY AGREEMENT 44 4.23 AFFILIATE TRANSACTIONS. Schedule 6 attached hereto contains a true, correct and complete list of all contracts, instruments and other agreements between (a) Borrower and any Affiliate of Borrower and (b) Borrower and any Executive Management Member. A true, complete and current copy of each of such agreements has been previously delivered to Lender. 4.24 APPLICABLE LAWS. All existing Improvements at each Resort are and will be in compliance with all applicable zoning, building, and other Applicable Laws in connection with the establishment of each Resort, the operation of each Resort, the sale, use and marketing, of Timeshare Interests, and the occupancy of Timeshare Units at each Resort. 4.25 LEASES. There are no real property leases encumbering or otherwise affecting any Resort or encumbering any Pledged Interval. 5. CONDITIONS PRECEDENT TO INITIAL ADVANCE The obligation of Lender to make the initial Advance shall be subject to the following conditions precedent (which shall have been satisfied not less than five (5) Business Days prior to the date on which the initial Advance is to be made): 5.1 OPINIONS OF COUNSEL. Lender shall have received from each of (a) Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P., regulatory and Texas counsel for Borrower, (b) Stinson Morrison Hackler, LLP, Missouri counsel for Borrower, (c) Weinstock & Scavo, P.C., Georgia counsel for Borrower, and (d) Mayer, Brown, Rowe & Maw, Illinois counsel for Borrower, a closing and/or enforceability opinion, as applicable, in form and content satisfactory to Lender and its counsel dated the date of the initial Advance. 5.2 WARRANTIES AND REPRESENTATIONS TRUE AS OF INITIAL ADVANCE DATE. The warranties and representations contained in this Agreement shall be true in all material respects on the date of the making of the Advance hereunder. 5.3 COMPLIANCE WITH THIS AGREEMENT. Borrower shall have performed and complied with all covenants, agreements and conditions contained herein which are required to be performed or complied with by it before or on the date of the making of the Advance hereunder and no Default or Event of Default shall exist hereunder on such date. Borrower shall have delivered to Lender executed copies of this Agreement, all Security Documents (except for any Notes) and other Loan Documents (except for any Notes), each in form and substance acceptable to Lender. 5.4 BORROWER'S SECRETARY'S CERTIFICATES; GOOD-STANDING CERTIFICATES. (a) Lender shall have received a certificate, dated as of the date of the initial Advance and signed by an authorized officer of Borrower, certifying that the conditions specified in Section 5.2 and Section 5.3 of this Agreement have been fulfilled. (b) Borrower shall have delivered to Lender its certified Articles of Incorporation and By-laws, certified by Borrower to be true and correct. LOAN AND SECURITY AGREEMENT 45 (c) Borrower shall have delivered to Lender, in form satisfactory to Lender, a recent good standing certificate from the Secretary of State of Texas certifying Borrower's due existence in the State of Texas, and a recent certificate from each of the Secretary of State of Texas, the Secretary of State of Georgia, the Secretary of State of Indiana and the Secretary of State of Missouri certifying Borrower's qualification to do business in such States. (d) Borrower shall have delivered to Lender a certificate of an officer of Borrower, dated as of the date of the making of the Advance, certifying (i) the due authorization of Borrower to enter into this Agreement and the other Loan Documents to which it is a party and the transactions and instruments contemplated thereby, and (ii) the authorization, incumbency and specimen signature of the authorized officer of Borrower, to execute and deliver this Agreement and the other Loan Documents to which it is a party. 5.5 UNIFORM COMMERCIAL CODE FINANCING STATEMENTS. All filings of Uniform Commercial Code financing statements and all other filings and actions necessary to perfect Lender's security interests in and to the Collateral shall have been filed and confirmation thereof received. Uniform Commercial Code, judgment and tax lien searches shall have been performed in respect of Borrower and the results thereof shall be satisfactory to Lender. 5.6 HAZARDOUS SUBSTANCE INDEMNITY AGREEMENT. Borrower shall have executed and delivered to Lender the Indemnity Agreement. 5.7 EXPENSES. Borrower shall have paid all fees and expenses required to be paid by it pursuant to Section 10.2 of this Agreement and shall have paid the commitment fee provided for in Section 2.5 hereof. 5.8 MORTGAGE. Borrower shall have executed and delivered each Mortgage for all Pledged Intervals securing the Loan as of the Closing Date to Lender. Each Mortgage shall have been recorded or delivered to the title company for recordation, on the date of the making of the initial Advance hereunder, in the applicable public real property office, and all taxes, recording fees and other fees and charges required by Applicable Law to be paid in connection therewith shall have been duly paid in full. Each Mortgage shall have created a valid first priority Lien in and to each Pledged Interval in respect of the Obligations subject to no other Liens except for Permitted Exceptions. 5.9 TITLE INSURANCE; CASUALTY INSURANCE. (a) TITLE INSURANCE POLICY. Borrower shall have delivered to Lender a mortgagee's title insurance policy (issued to Agent and in full force and effect) in respect of each Mortgage (each policy being a "TITLE INSURANCE POLICY") together with such endorsements thereto as Lender may require. Each Title Insurance Policy (a) shall have been issued by a title insurance company which is satisfactory to Lender, (b) shall be in form and substance satisfactory to Lender and its special counsel, (c) shall be in such amounts as Lender may require in its sole discretion, (d) shall insure that the applicable Mortgage creates a valid first Lien in and to the applicable Pledged Interval free and clear of all defects, encumbrances and other Liens unacceptable to Lender except for Permitted Exceptions and (e) shall contain such further endorsements and affirmative coverage as Lender may request. All premiums in respect of such LOAN AND SECURITY AGREEMENT 46 Title Insurance Policy shall have been paid in full and evidence thereof shall have been delivered to Lender. (b) INSURANCE. Borrower shall have delivered to Lender certificates of insurance evidencing the insurance policies and endorsements required to be delivered pursuant to Section 3.5 hereof, together with copies of such insurance policies certified by Borrower to be true and correct. All premiums in respect of such insurance policies shall have been paid in full and evidence thereof shall have been delivered to Lender. 5.10 ENVIRONMENTAL SITE ASSESSMENT REPORT. Borrower (at its own expense) shall have delivered to Lender not less than 15 Business Days prior to the date of the making of the Advance the most recent "Phase I" environmental survey in Borrower's possession of each Resort in form and substance acceptable to Lender. 5.11 TAXES. Borrower shall have delivered to Lender copies of the most recent tax receipts for each Resort (or certificates in respect thereof) evidencing no delinquency in the payment thereof. 5.12 INSPECTION. Borrower shall have permitted Lender to make an inspection/audit of its books, accounts and records and such other papers as it may desire and of its premises and each resort, as Lender may in its sole discretion determine. Such inspection/audit shall be satisfactory to Lender (in its sole determination). 5.13 DELIVERY OF: (a) LICENSES. Borrower shall have delivered to Lender copies of all licenses, approvals, consents and permits required for Borrower to comply with all Applicable Laws in the operation of the Resort. (b) FINANCIAL STATEMENTS. Borrower shall have delivered financial statements of Borrower showing a Tangible Net Worth of not less than $100,000,000, in form and substance acceptable to Lender. Additionally, Borrower shall have delivered to Lender a projected balance sheet, income statement, statements of cash flow projections and other financial projection reports and statements requested by Lender for the calendar years 2005, 2006 and 2007. (c) REQUEST. Borrower shall have submitted a written request for the Advance which shall be substantially in the form of Exhibit E hereto. (d) INTERCREDITOR AGREEMENT. Borrower shall have delivered the Intercreditor Agreement executed by Borrower and each financial institution party thereto. (e) NEGATIVE PLEDGE. Borrower shall have delivered each Negative Pledge Agreement executed by Borrower in favor of Lender. 5.14 PROCEEDINGS SATISFACTORY. All actions taken in connection with the execution of this Agreement, the Note, any other Security Document and all documents and papers relating thereto and the with the making of the initial advance shall be satisfactory to Lender and its counsel. LOAN AND SECURITY AGREEMENT 47 5.15 MINIMUM AMOUNT. An amount equal to at least $10,000,000 shall have been advanced by Lender to Borrower under this Agreement and the Receivables Loan Agreement unless otherwise agreed to or waived by Lender. 6. SUBSEQUENT ADVANCES CLOSING CONDITIONS After the making of the initial Advance, the obligation of Lender to make additional Advances (individually a "SUBSEQUENT ADVANCE") on a Business Day of any month (herein referred to as a "SUBSEQUENT ADVANCE DATE") or permit a Property Substitution shall be subject to the satisfaction of all of the following conditions precedent (except that, to the extent (i) a Subsequent Advance represents a re-borrowing under this Agreement, (ii) Borrower has previously delivered the items set forth in this Article 6 in connection with a prior Advance and (iii) such items have not been amended and no material adverse change has occurred with respect to such items, Borrowers need not re-deliver such items): 6.1 SPECIAL SUBMISSIONS. (a) AMENDMENTS TO SILVERLEAF CLUB. Borrower shall have submitted to Lender any material amendments and/or modifications to the Management Agreement between Borrower and Silverleaf Club and Orlando Breeze Resort Club described on Schedule 7 attached hereto, which amendments and modifications shall be acceptable to Lender in its reasonable discretion and not in any manner adverse to Lender or the Collateral. Borrower shall have submitted to Lender any material amendments and/or modifications to each of those certain Master Club Agreements or Silverleaf Club Agreements between Silverleaf Club and each Owners Association or between Orlando Breeze Resort Club and the Owners Association related to the Orlando Breeze Resort located in Orlando, Florida. (b) MORTGAGE(S). Borrower shall have executed and delivered a Mortgage to Lender. Each Mortgage shall be recorded or delivered to a title company acceptable to Lender for recordation in the applicable public real property office, and all taxes, recording fees and other fees and charges required by Applicable Law to be paid in connection therewith shall have been duly paid in full in accordance with Lender's instructions to the title company responsible for such filing. Each Mortgage shall have created a valid Lien in and to the Pledged Interval in respect of the Obligations subject to no other Liens except for Permitted Exceptions. (c) TITLE COMMITMENT(S). Lender shall have received not less than ten (10) Business Days prior to the making of a Subsequent Advance or consummation of the Property Substitution, unless otherwise agreed to by Lender, a commitment for a Title Insurance Policy (to be issued to Lender and in full force and effect) in respect of each Mortgage covering Pledged Intervals constituting Collateral to secure the Obligations, together with such endorsements thereto as Lender may require, which shall (a) have been issued by a title insurance company which is satisfactory to Lender, (b) be in form and substance satisfactory to Lender and its special counsel, (c) be in such amounts as Lender may require in its sole discretion, (d) insure that the new Mortgage to be filed creates a valid first Lien in LOAN AND SECURITY AGREEMENT 48 and to the applicable Pledged Intervals free and clear of all defects, encumbrances and other Liens unacceptable to Lender and (e) contain such further endorsements and affirmative coverage as Lender may request. All premiums in respect of such Title Insurance Policy shall have been paid in full and evidence thereof shall have been delivered to Lender. (d) INSPECTION. Borrower shall have permitted Lender to make an inspection/audit of the additional Pledged Intervals, and such Pledged Intervals and other proposed Colalteral related thereto shall be acceptable to Lender in its Permitted Discretion. (e) OPINIONS OF COUNSEL. Lender shall have received from Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P., related to the due authorization, execution and delivery of the Loan Documents executed in connection with Subsequent Advance and, with respect to Loan Documents governed by Maryland law, the enforceability of such Loan Documents, and from local counsel licensed in the State or foreign jurisdiction where the additional Pledged Intervals are located, a legal opinion in form and content satisfactory to Lender and its counsel dated the date of the Subsequent Advance. (f) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by Borrower in or pursuant to this Agreement and any other Loan Documents to which it is a party, and each of the representations and warranties contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any related agreement shall be true and correct in all material respects on and as of such date as if made on and as of such date. (g) EVENTS OF DEFAULT. No Event of Default or Default shall have occurred and be continuing on such date, or would exist after giving effect to the Subsequent Advance or Property Substitution requested to be made, as applicable, on such date; provided, however, that Lender, in its sole discretion, may continue to make Subsequent Advances or allow Property Substitutions notwithstanding the existence of an Event of Default or Default and that any Subsequent Advances so made or Property Substitutions so allowed shall not be deemed a waiver of any such Event of Default or Default. (h) FINANCING STATEMENTS. All filings of Uniform Commercial Code financing statements and all other filings and actions necessary to perfect Lender's security interests in and to the additional Collateral shall have been filed. If determined necessary by Lender in its Permitted Discretion, Uniform Commercial Code, judgment and tax lien searches shall have been performed in respect of Borrower and the results thereof shall be satisfactory to Lender. (i) INSURANCE. To the extent not already delivered to Lender, Borrower shall have delivered to Lender certificates of insurance evidencing the insurance policies and endorsements required to be delivered pursuant to Section 3.5 hereof, together LOAN AND SECURITY AGREEMENT 49 with copies of such insurance policies certified by Borrower to be true and correct. (j) CERTIFICATE OF OCCUPANCY. Borrower shall have delivered to Lender a certificate of occupancy or other evidence of the completion of any construction of each Pledged Interval acceptable to Lender. (k) INDEMNITY. Borrower shall have executed and delivered to Lender a Hazardous Substance Indemnity Agreement substantially in the form executed as of the Closing Date, acceptable to Lender. (l) TIMESHARE REGIME. Borrower shall have delivered to Lender evidence that the Pledged Intervals are included in the applicable timeshare regime at each Resort and are subject to the applicable Declaration encumbering such Resort, and if requested by Lender, the Recorded Map related to such Pledged Intervals. (m) SECTION 2.1 CONDITIONS. All of the conditions to lending set forth in Section 2.1 shall have been satisfied. 6.2 REQUESTS FOR SUBSEQUENT ADVANCE. A request for such Subsequent Advance (a) shall be in writing and shall state (i) that all conditions set forth in Section 6.1 hereof have been satisfied and (ii) that all construction is competed with respect to each Pledged Interval related to each Subsequent Advance. (b) after giving effect to the Subsequent Advance to be made, the aggregate Advances shall not exceed the maximum amount of Advances permitted under this Agreement, including Section 2.1 hereof, (c) shall have been delivered to the office of Lender at least 10 Business Days in advance of the Subsequent Advance Date, (d) shall be accompanied with an executed Borrowing Base Certificate, (e) shall otherwise be substantially in the form of Exhibit F attached to this Agreement, (f) each of the representations and warranties made by Borrower in or pursuant to this Agreement and any other Loan Documents to which it is a party, and each of the representations and warranties contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any related agreement shall be true and correct in all material respects on and as of such date as if made on and as of such date, (g) no Event of Default or Default shall have occurred and be continuing on such date, or would exist after giving effect to the Subsequent Advances requested to be made, on such date; provided, however, that Lender, in its sole discretion, may continue to make Subsequent Advances notwithstanding the existence of an Event of Default or Default and that LOAN AND SECURITY AGREEMENT 50 any Subsequent Advances so made shall not be deemed a waiver of any such Event of Default or Default, and (h) in the case of any Subsequent Advances requested to be made, after giving effect thereto, the aggregate Advances shall not exceed the maximum amount of Advances permitted under Section 2.1 hereof. All of the requirements in clause (a) through clause (f) and clause (h) shall be satisfactory to Lender. Borrower acknowledges that Lender shall not make Advances in respect of costs which have not been approved by it. 6.3 DEFAULTS; EXPENSES; MISCELLANEOUS. (a) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default shall exist immediately prior to the making of the Subsequent Advance or, after giving effect thereto, immediately after the making of such Subsequent Advance. (b) FEES AND EXPENSES. Borrower shall have paid all fees and expenses required to be paid by Section 10.2 of this Agreement in connection with such requested Subsequent Advance. (c) PRIOR ADVANCES. No other Advance shall been made during the calendar month in which such Subsequent Advance Date falls. 6.4 DISBURSEMENTS. Upon the occurrence of an Event of Default, Lender shall have the right, but not the obligation, to disburse and directly apply the proceeds of any Subsequent Advance to the satisfaction of any of Borrower's obligations hereunder, and any Subsequent Advance by Lender for such purpose shall be considered part of the Loan and shall be secured by the Security Documents. Borrower hereby authorizes Lender to hold, use, disburse and apply the Loan for payment of costs and expenses incident to the Loan, any Pledged Intervals or any Resort, and the payment or performance of any obligation of Borrower hereunder. Borrower hereby assigns, pledges and grants a security interest in the proceeds of the Loan to Lender for such purposes. Upon the occurrence of an Event of Default, (a) Lender may advance and incur such reasonable expenses as Lender deems necessary to preserve the Pledged Interval or any Resort, and any other security for the Loan, and such expenses, even though in excess of the amount of the Loan, shall be secured by the Security Documents, and shall be payable to Lender on demand, and (b) Lender may disburse any portion of any Subsequent Advance at any time, and from time to time, to persons other than Borrower for the purposes specified in this Section 6.5 irrespective of the provisions of Section 2.1 hereof, and the amount of Subsequent Advances to which Borrower would thereafter otherwise be entitled shall be correspondingly reduced. In addition to the foregoing, and whether or not an Event of Default has occurred hereunder, Lender, whether or not requested to do so by Borrower shall have the right, but not the obligation, to disburse and directly apply the proceeds of any Subsequent Advance to the payment of (a) the costs and fees of the Escrow Agent (if applicable); and (b) all reasonable fees and expenses of internal and external counsel to Lender. 6.5 PROCEEDINGS SATISFACTORY. All actions taken in connection with the Subsequent Advance shall be reasonably satisfactory to Lender and its counsel. Lender and its counsel shall LOAN AND SECURITY AGREEMENT 51 receive copies of such documents and papers as Lender or such counsel may reasonably request in connection with any such Subsequent Advance, all in form and substance satisfactory to Lender and its counsel. 7. COVENANTS Borrower covenants and agrees that on and after the date hereof and so long as any Obligation of Borrower to Lender exists as follows: 7.1 PAYMENT OF TAXES AND CLAIMS. Except as otherwise provided for in Section 3.7 and Section 3.8 hereof, Borrower shall pay, or cause to be paid, before they become delinquent: (a) all taxes, assessments and governmental charges or levies imposed upon it, any Pledged Interval, any Resort or other real and personal property of Borrower, including, without limitation, the Collateral; and (b) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, if unpaid, might result in the creation of a Lien upon any Pledged Interval or any Resort, including, without limitation, the Collateral. 7.2 MAINTENANCE OF PROPERTIES; BORROWER EXISTENCE; INDEBTEDNESS; LIENS; BUSINESS. Borrower shall: (a) PROPERTY--maintain each Resort in good repair, working order and condition and make all necessary renewals, repairs, replacements, additions, betterments and improvements thereto and maintain, or cause to be maintained, each resort and each Pledged Interval in good repair, working order and condition and make, or cause to be made, all necessary repairs, replacements, additions, betterments and improvements to each pledged Unit and Resort; (b) INSURANCE--maintain, or cause to be maintained, insurance as required by Section 3.5 of this Agreement; (c) FINANCIAL RECORDS--(i) keep true books of records and accounts (including, without limitation, the Books and Records) in which full and correct entries will be made of all its material business transactions in accordance with GAAP, and (ii) reflect in its financial statements and in the financial statements of Borrower adequate accruals and appropriations to reserves, all in accordance with GAAP, practices and procedures at the time in effect and consistently applied or on a cash basis consistently applied; (d) BORROWER EXISTENCE AND RIGHTS--do or cause to be done all things necessary or required to preserve and keep in full force and effect its company existence, rights, powers and franchises, including, without limitation, its authorization to do business in each Applicable State; (e) COMPLIANCE WITH LAW--not be in violation of (i) any laws, ordinances, governmental rules and regulations to which it is subject, and to that end, Borrower shall not fail to obtain any licenses, permits, franchises or other governmental authorizations necessary to the LOAN AND SECURITY AGREEMENT 52 ownership of its Properties or to the conduct of its business, which violation or failure to obtain might materially and adversely affect the business, prospects, profits, property or condition (financial or otherwise) of Borrower, including, without limitation, any zoning laws, land use, design controls, subdivision controls or Environmental Protection Laws applicable to its real property (including, without limitation, each Resort), (ii) any statutes, rules and regulations, whether now or hereafter in force, in any jurisdiction in which Borrower may make offers to sell or sales of Timeshare Interests relating to the right to do business in such jurisdiction in any material respect and (iii) any applicable federal, state or municipal statutes, rules and regulations relating to sales of Timeshare Interests and the manner of evidencing and financing the same to the end that all of the Contracts shall be valid, binding and legally enforceable in accordance with their respective terms subsequent to the assignment thereof to Lender in any material respect; (f) DEFERRED COMPENSATION PLANS--to the extent that it has one or more pension, profit sharing or other compensatory or similar plans providing for a program of deferred compensation for any employee or officer, be in compliance with all requirements of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated in connection therewith; (g) INDEBTEDNESS--not incur any Indebtedness for borrowed money secured by all or any Collateral, without Lenders' prior written consent; provided, however, that in the event Borrower enters into a credit facility for borrowed money from any other senior lender providing indebtedness to Borrower, Borrower shall use its best efforts to provide to Lender an Intercreditor Agreement related to such credit facility and the collateral granted to such other senior lender related thereto. (h) LIENS--(i) not allow any Liens or encumbrances whatsoever to attach to the Collateral other than the Liens and security interests of Lender created by the Security Documents, any Liens in favor of any Owner's Association under a Declaration and the Permitted Exceptions set forth on Schedule 2 hereto and (ii) cause the Liens and security interests of Lender created by the Security Documents in and to the Collateral to continue to be valid, enforceable, first priority perfected Liens and security interests subject to no other Liens except as set forth in this Agreement or in any other Security Document or in Schedule 2 hereto; (i) MATERIAL ADVERSE EFFECT--not undertake any action that would have a Material Adverse Effect on the operation of any Resort or any of the Collateral; and (j) NOTIFICATION OF CLAIMS--promptly notify Lender of any claim, action or proceeding affecting title to the Collateral, or any part thereof, or any of the security interests granted hereunder, and, at the request of Lender, appear in and defend, at Borrower's expense, any such claim, action or proceeding; (k) ASSIGNMENT--not assign its interest in any Pledged Interval (other than sales of Timeshare Interests the ordinary course of Borrower's business) or this Agreement or any interest herein or therein, or all of any part of any disbursements to be made hereunder, voluntarily, by operation of law or otherwise; LOAN AND SECURITY AGREEMENT 53 (l) SALES--Borrower shall not intentionally or knowingly fail to offer for sale, or discourage the sale of, or not selling any of the Timeshare Interests at any Resort constituting Pledged Intervals; and 7.3 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE. Borrower shall punctually pay or cause to be paid the principal, interest and all other amounts to become due in respect of the Note or hereunder according to the terms thereof and hereof (all of the terms of the Note are hereby incorporated herein by reference). All payments hereunder or under the Note shall be made in accordance with the payment instructions set forth in Schedule 12 to this Agreement. Borrower shall maintain an office at 1221 River Bend Drive, Dallas, Texas 75247, where notices, presentations and demands in respect of this Agreement, the Note or any other Security Document or Loan Document may be made upon Borrower. Such offices shall be maintained at said address of Borrower until such time as Borrower shall so notify Lender, in writing, of any change of location of such offices. The Books and Records of Borrower shall be maintained at said address. Borrower shall not change its name without 30-day prior written notice to Lender. 7.4 SALE OF PROPERTIES. Without the prior written consent of Lender, Borrower shall not sell, lease, transfer or otherwise dispose of any of the Collateral, provided that Borrower (a) may sell the unsold Timeshare Interests in the ordinary course of its business to unaffiliated consumers, and (b) may sell and dispose of (and receive the proceeds thereof) in the ordinary course of its business, free from any Lien created or contemplated by this Agreement, items of Collateral consisting of inventory; and provided further that Borrower may sell Timeshare Notes, subject to the terms of this Agreement on the condition that all cash proceeds thereof not withheld or reserved be delivered to Lender and applied to the payment of the Loan. 7.5 CONSOLIDATION AND MERGER. Without the prior written consent of Lender, which consent shall not be unreasonably withheld, Borrower shall not consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it unless Borrower is the surviving entity; provided, however, that in the event Lender does not consent to such merger or consolidation and Borrower elects to close such transaction, Borrower shall have the right to refinance Lender and pay to Lender in cash in full all outstanding Obligations hereunder (including accrued and unpaid interest thereon), other than the prepayment fee described in Section 2.3(c) hereof. 7.6 INTENTIONALLY DELETED. 7.7 INTENTIONALLY OMITTED. 7.8 COMPLIANCE WITH ENVIRONMENTAL LAWS. Borrower shall comply, and shall cause each Resort and all Pledged Intervals to be in compliance, with (a) all Environmental Protection Laws (including, without limitation, all federal, state and local environmental or pollution-control laws, regulations, orders and decrees LOAN AND SECURITY AGREEMENT 54 governing the emission of waste water effluent, the treatment, transportation, disposal, generation and storage of solid and hazardous waste, hazardous and toxic substances and air pollution, and/or setting forth general environmental conditions), (b) any other applicable requirements for conducting, on a timely basis, periodic tests and monitoring for contamination of ground water, surface water, air and/or land, and for biological toxicity of the aforesaid and (c) the regulations of each relevant federal, state or local authority administering environmental laws, ordinances or regulations, to the extent that the failure to so comply could have a material and adverse effect on the business, prospects, profits, any Pledged Interval or condition (financial or otherwise) of Borrower or any Resort. Without limiting the generality of the foregoing, Borrower shall not release or otherwise dispose of any Hazardous Substance or any other substance regulated, controlled or described as hazardous under any Environmental Protection Law on or beneath any real property owned, leased or otherwise used by Borrower or allow the same to occur with respect to any Resort in violation of any Environmental Protection Law; and no asbestos, urea formaldehyde foam, polychlorinated biphenyls, aluminum wire or lead-containing paint shall be installed or used on any such Pledged Interval or any Resort. Borrower shall not take or suffer to be taken any act or omission that would subject it or any Resort to liability under any Environmental Protection Law which liability could have a material and adverse effect on the business, prospects, profits, any Pledged Interval or condition (financial or otherwise) of Borrower or any Resort. Lender shall have the right, but shall not be obligated, to notify any state, federal or local governmental authority of information which may come to its attention with respect to Hazardous Substances on or emanating from any Resort and Borrower irrevocably releases Lender from any claims of loss, damage, liability, expense or injury relating to or arising from, directly or indirectly, any such disclosure. Lender will notify Borrower prior to or contemporaneously with any action taken by Lender pursuant to this paragraph, provided that the failure by Lender to provide such notification shall not affect any action so taken. Without limiting the scope and the effectiveness of the foregoing undertakings in this Section 7.8, Borrower agrees to indemnify and hold Lender harmless from and against any losses, liabilities, damages, claims, causes of action, costs or expenses (including, without limitation, attorneys' fees and disbursements), arising from, incurred by, or asserted against, Lender in connection with any cleanup, removal or similar protective or remedial action that may be required or undertaken by any governmental authority as a result of the presence of any Hazardous Substances at any Resort, the release of any other Hazardous Substance on or from any Resort or the generation, treatment, storage, handling or disposal of any Hazardous Substances on or from any Resort (unless such presence, release, generation, treatment, storage, handling or disposal is directly caused by Lender or by any agent of Lender acting under Lender's direct orders). The liability of Borrower to Lender under this paragraph shall survive any assignment, transfer, discharge or foreclosure of any Mortgage or any transfer of any Pledged Interval (or any portion thereof) by deed in lieu of foreclosure or otherwise, and any one LOAN AND SECURITY AGREEMENT 55 or more transfers of Pledged Intervals or any Resort (or any portion thereof) by deed or otherwise, by whosoever made. If Borrower fails to diligently take any action required under this Section 7.8 or by any governmental entity with respect to the cleanup, control or reporting of any Hazardous Substances, materials or wastes in, on, from or under any Resort, Lender, at its option, may enter upon the Resort, retain such experts and consultants at the expense of Borrower and take such action as Lender deems advisable, and Lender may advance such sums of money as it deems necessary, with respect to the cleanup, control or reporting of any such substances, materials or wastes in, on or under any Resort. Borrower shall pay to Lender immediately and upon demand, all sums of money so advanced or expended by Lender pursuant to this paragraph, together with interest on each such advance at the Default Rate, and all such sums, and the interest thereon, shall be secured by the Collateral. Lender will notify Borrower prior to or contemporaneously with any action taken by Lender pursuant to this paragraph, provided that the failure by Lender to provide such notification shall not affect any action so taken. 7.9 TRANSACTIONS WITH AFFILIATES; PRINCIPAL PROPERTIES. Borrower shall not enter into any transaction including, without limitation, the purchase, sale or exchange of real or personal property of the Borrower or the rendering of any service with any Affiliate of Borrower or any Executive Management Member (i) except in the ordinary course of, and pursuant to the reasonable requirements of, Borrower's business and upon fair and reasonable terms no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate, and (ii) provided such transaction will not constitute, or will not reasonably be expected to constitute, a Material Adverse Effect. 7.10 USE OF LENDER NAME. Borrower shall not, nor shall it permit any Affiliate to, without the prior written consent of Lender, use the name of Lender or the name of any affiliate of Lender in connection with any of its respective businesses or activities, except in connection with internal business matters and as required in dealings with governmental agencies or as may be required by law. 7.11 INTENTIONALLY DELETED. 7.12 NOTICE OF LEGAL PROCEEDINGS. Promptly upon becoming aware of the existence thereof, Borrower shall deliver to Lender written notification of the institution of any litigation, legal proceeding or dispute with any Person, entity or governmental authority in any way involving Borrower, any Pledged Interval, any Resort, the Collateral or any of Borrower's other assets as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would materially adversely affect Borrower, any Pledged Interval, any Resort, the Collateral or any of Borrower's other assets. 7.13 FURTHER ASSURANCES. Borrower shall from time to time execute and deliver to Lender such other instruments, certificates and documents and shall take such other action and do all other things as may from time to time be reasonably requested by Lender in order to implement or effectuate the provisions of, or more fully perfect the rights granted or intended to be granted by Borrower to Lender pursuant to the terms of, this Agreement, the Note or any other Security Document. Borrower agrees, in its capacity as Declarant (to the extent permitted LOAN AND SECURITY AGREEMENT 56 by Applicable Law, any Declaration, and any Owner's Association's By-Laws), to cause the applicable Owner's Association to take such action and to do all other things as may from time to time be reasonably requested by Lender in order to implement or effectuate the provisions of this Agreement and the other Security Documents. 7.14 FINANCIAL STATEMENTS. Borrower shall submit to Lender the following: (a) ANNUAL STATEMENTS--As soon as practicable after the end of each fiscal year of Borrower, and in any event no later than 90 days thereafter, duplicate copies of: (i) a consolidated balance sheet of Borrower and its subsidiaries and affiliates as at the end of such fiscal year, and (ii) a consolidated statement of income of Borrower and its subsidiaries and affiliates for such fiscal year and an annual sales report for all Pledged Intervals, and (iii) a consolidated statement of changes in cash flows of Borrower and its subsidiaries and affiliates during such fiscal year, (iv) a statement of material changes of accounting policies, presentations or principles during such fiscal year, and (v) notes to such financial statements. Each of the above shall have been audited and prepared in accordance with GAAP by an independent certified public accounting firm, selected by Borrower and acceptable to Lender, in reasonable detail and shall set forth, in each case, in comparative form the figures for the previous fiscal year, and shall be certified as complete and correct by an officer or member of Borrower. The above financial statements shall be accompanied by a certificate of an officer or member of Borrower, which certificate shall be acceptable to Lender and shall, without qualification, state that such financial statements fairly present the financial condition of Borrower and have been prepared consistently with past practices. In addition, Borrower shall, within one hundred twenty (120) days of the end of the fiscal year deliver to Lender similar annual financial statements for the Silverleaf Club and the Orlando Breeze Resort Club. In the event that the aforesaid annual financial statements are not in form and content satisfactory to Lender, in its sole determination, Borrower shall, within 90 days of the receipt of Lender's written request therefor, deliver to Lender duplicate copies of the aforesaid financial statements together with an unqualified opinion thereon of an independent certified public accounting firm, selected by Borrower and satisfactory to Lender, which opinion shall state that such financial statements present fairly the financial condition of Borrower have been prepared in accordance with generally accepted accounting principles, procedures and practices consistently applied (except for changes in application in which such accountants concur) and that the examination of such financial statements by such accountants has been made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as were considered necessary in the LOAN AND SECURITY AGREEMENT 57 circumstances. The aforesaid audited financial statements shall be in form and content satisfactory to Lender. (b) MONTHLY STATEMENTS--As soon as practicable after the end of each calendar month of Borrower, and in any event no later than 30 days thereafter, duplicate copies of: (i) a consolidated balance sheet of Borrower as at the end of such calendar month, (ii) a consolidated statement of income of Borrower for such calendar month, (iii) a consolidated statement of changes in cash flows of Borrower during such calendar month, (iv) a statement of material changes of accounting policies, presentations or principles during such calendar month, (v) a Borrowing Base Certificate, and (vi) such other requests, statements, operation audits or other information as Lender may request from time to time. Each of the above shall have been internally prepared in reasonable detail and in accordance with GAAP and shall be in form and substance acceptable to Lender, subject to changes resulting from year-end adjustments, and shall set forth in each case in comparative form the figures for the corresponding periods in the immediately preceding fiscal year, and shall be certified as complete and correct by an officer or member of Borrower. (c) NOTICE OF PENDING LITIGATION--Within thirty (30) days after the end of each calendar quarter, a statement of any litigation or legal action pending or threatened against Borrower, Silverleaf Club, Orlando Beach Resort Club or any Owner's Association, in which the disputed amount or potential damages are greater that $50,000 individually, or $100,000 in the aggregate. (d) NOTICE OF DEFAULT OR EVENT OF DEFAULT--Promptly upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, a written notice specifying the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto. (e) NOTICE OF CLAIMED DEFAULT--Immediately upon becoming aware that the holder of any obligation or of any evidence of indebtedness or other security of Borrower has given notice or taken any other action with respect to a claimed default or event of default thereunder, a written notice specifying the notice given or action taken by such holder and the nature of the claimed default or event of default and what action Borrower is taking or proposes to take with respect thereto. LOAN AND SECURITY AGREEMENT 58 (f) MATERIAL ADVERSE DEVELOPMENTS--Immediately upon becoming aware of any development or other information which may materially and adversely affect any Collateral, business, prospects, profits or condition (financial or otherwise) of Borrower or the ability of Borrower to perform its obligations under this Agreement, the Note or the other Security Documents, telephonic, telefax or telegraphic notice specifying the nature of such development or information and the anticipated effect. (g) FINANCIAL INFORMATION--As promptly as possible after the receipt thereof, all financial statements, budgets and other information distributed by the Silverleaf Club and Orlando Breeze Resort Club. Borrower, as Declarant or otherwise, shall cause (or use its best efforts to cause, if not Declarant) the Silverleaf Club and Orlando Breeze Resort Club to prepare annual financial statements and an annual budget, and shall thereafter immediately deliver the same to Lender. (h) SALES INFORMATION--On or before the 15th day of each month, a report in a form and substance satisfactory to Lender showing the previous month's reservations and sales of, and cancellations of reservations and sales of Timeshare Interests at each Resort. (i) REVIEW MEETING--If requested by Lender, Borrower shall be available in person or via teleconference on a quarterly basis for a review meeting regarding the status of sales of Timeshare Interests. (j) INVENTORY REPORT--On or before the thirtieth (30th) day following the end of each calendar quarter, an inventory report acceptable to Lender which sets forth the Borrower's cost basis for all Pledged Intervals, and the actual sales price for Pledged Intervals released by Lender and sold by Borrower during such calendar quarter, identified by Resort, location, type of Timeshare Interest and season. (k) REQUESTED INFORMATION--With reasonable promptness, such other data and information as from time to time may be reasonably requested by Lender. 7.15 OFFICER'S CERTIFICATE. The financial statements delivered to Lender pursuant to Section 7.14(a) and Section 7.14(b) of this Agreement shall be accompanied by a certificate of Borrower setting forth: (a) COVENANT COMPLIANCE--the information required in order to establish whether Borrower was in compliance with all covenants contained in Section 7 of this Agreement during the period covered by the financial statements or reports then being furnished; and (b) EVENT OF DEFAULT--a statement that the signer has reviewed the relevant terms of this Agreement (and all other agreements and exhibits between the parties) and has made, or caused to be made, under his 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 LOAN AND SECURITY AGREEMENT 59 period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. 7.16 INSPECTION(n) . Borrower shall permit Lender or its representatives to make such inspections/audits or appraisals of its books, accounts, records, orders, original correspondence and such other papers as it may desire and of its premises, each Resort, any Pledged Interval and the other Collateral, from time to time, as Lender may in its sole discretion determine. Borrower shall supply copies of such records and papers as Lender may reasonably request, and shall permit Lender to discuss Borrower's affairs, finances and accounts with Borrower's officers, employees and independent public accountants (and by this provision Borrower hereby authorizes said accountants to discuss with Lender the finances and affairs of Borrower), all at reasonable times and as often as may be desired by Lender. Borrower further agrees to supply Lender with such other reasonable information relating to Borrower and the Collateral as Lender may request. With respect to any inspections, audits and/or appraisals referred to in this Section 7.16, Borrower shall pay for all out-of-pocket costs and expenses incurred by Lender (including, without limitation, travel expenses, but excluding salaries of employees of Lender) and shall promptly reimburse Lender therefor upon receipt by Borrower of a written demand therefor from Lender. 7.17 SALES. The Sales and Marketing Program shall at all times be acceptable to Lender in its Permitted Discretion. 7.18 MINIMUM TANGIBLE NET WORTH. Borrower shall at all times maintain a minimum Tangible Net Worth in an amount not less than (i) $100,000,000 as of December 31, 2004, and (ii) $100,000,000, plus fifty percent (50%) of Borrower's quarterly Consolidated Net Income for each calendar quarter thereafter. 7.19 LEVERAGE RATIO. Borrower shall maintain a Leverage Ratio of not greater than 6.0 to 1.0 at all times during the term of the Loan. 7.20 MINIMUM NET INCOME. Commencing March 31, 2005, and as of the last day of each calendar quarter thereafter, for the four (4) calendar quarter period ending on such date, Borrower and its subsidiaries shall have, on a consolidated basis, a Net Income of not less than $1.00. 7.21 CONSOLIDATED NET INCOME. Borrower and its subsidiaries shall not have a Consolidated Net Income, of less than $0.00 for any two (2) consecutive fiscal quarters. 7.22 MAXIMUM DELINQUENCY. Borrower will not permit as of the last day of each calendar month, for the immediately preceding twelve (12) calendar months, on a rolling twelve (12) month basis, its over 30-day delinquency rate on its entire Notes Receivable (as defined in the Receivables Loan Agreement) portfolio serviced by Borrower (including, without limitation, all Pledged Notes Receivable pledged to Lender thereunder, under and all Notes Receivable pledged pursuant to the Textron Facility, the DZ Facility and the Sovereign Facility) to be greater than ten percent (10%). 7.23 MARKETING AND SALES EXPENSES. As of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2005, Borrower will not permit the four LOAN AND SECURITY AGREEMENT 60 quarter cumulative ratio of Sales and Marketing Costs to the Borrower's net proceeds from the sale of Timeshare Interests as recorded on the Borrower's financial statements for the immediately preceding four (4) consecutive fiscal quarters of the Borrower to equal or exceed a ratio of .550 to 1; provided, however, that notwithstanding the foregoing, in the event that Borrower delivers written evidence satisfactory to Lender that the ratio in this Section 7.23 is no longer required to be tested under each of the Textron Facility and the Sovereign Facility the covenant contained in this Section 7.23 shall no longer be required. 7.24 DEBT SERVICE COVERAGE RATIO. Borrower shall maintain as of the last day of any fiscal quarter a Debt Service Coverage Ratio of not less than 1.25 to 1.00 for the period of four consecutive fiscal quarters then ended on such day. 7.25 TEXTRON FACILITY, SOVEREIGN FACILITY, AND DZ FACILITY. Borrower will comply with each of the terms and conditions of the Textron Facility, the Sovereign Facility, and the DZ Facility 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. 7.26 MAINTAINING AFFILIATION WITH EXCHANGE COMPANIES. Following the date hereof and thereafter until Borrower has paid to Lender all sums due under this Agreement and all documents delivered pursuant hereto, Borrower shall cause each Resort and the Silverleaf Club to maintain in good standing its membership with RCI or other major internationally recognized timeshare exchange company acceptable to Lender with its corporate headquarters in the United States. 7.27 SALES. Borrower shall not sell more than fifty-two (52) Timeshare Interests in any Timeshare Unit. 8. EVENTS OF DEFAULT 8.1 DEFAULT. Borrower hereby covenants, agrees and acknowledges that an Event of Default shall exist under this Agreement if any of the following events or conditions (each, an "EVENT OF DEFAULT") shall occur and be continuing: (a) PAYMENTS--(i) failure to make any payment of interest on the Note on or before the due date thereof; (ii) failure to make any payment of principal of the Note on or before the due date thereof; or (iii) failure to make any other payment required pursuant to the terms of this Agreement, the Note or any other Loan Document on or before the due date thereof and any such failure remains uncured for three (3) calendar days after Lender has provided Borrower with written or verbal notice thereof; or (b) WARRANTIES OR REPRESENTATIONS--any warranty, representation or other statement made or furnished to Lender by or on behalf of Borrower in this Agreement or any other Loan Document proves to have been false or misleading in any material respect when made or furnished; or (c) OTHER COVENANTS--(i) the failure by Borrower to comply with any covenant or agreement relating to such Person contained in this Agreement or any other Loan Document (other than with respect to the failure to make timely payments in respect of the Loan LOAN AND SECURITY AGREEMENT 61 as provided in Section 8.1(a) hereof or a violation of the covenants and agreements set forth in Sections 7.2(g), (h), or (k), or Sections 7.4, 7.5, 7.9, 7.16, 7.18, 7.19, 7.20, 7.21, 7.22, 7.23 and 7.24 hereof, for which there shall be no cure period) and, such failure shall continue for fifteen (15) days after notice of such failure is provided by Lender, or (ii) the failure by Borrower to comply with any covenant, or agreement, or violation of any of the covenants set forth in Sections 7.2(g), (h) or (k), or Sections 7.4, 7.5, 7.9, 7.16, 7.18, 7.19, 7.20, 7.21, 7.22, 7.23 and 7.24; or (d) MATERIAL ADVERSE CHANGE--any material adverse change in or in respect of any Collateral (including, without limitation, the termination of any applicable timeshare or condominium regime whether by consent of the Timeshare Unit owners or Timeshare Interest owners or otherwise, any modification or amendment to any Declaration which shall, in the reasonable opinion of Lender, adversely affect any Collateral or the operations or prospects of any Resort, or the substantial destruction of any Pledged Interval) or in the financial condition of Borrower; or (e) INSOLVENCY--(i) a receiver, liquidator, custodian or trustee of Borrower, or of all or any of its assets, shall be appointed by court order and such order remains in effect for more than 60 days; or an order for relief shall be entered with respect to Borrower, or Borrower shall be adjudicated a bankrupt or insolvent; or any of the assets of Borrower shall be sequestered by court order and such order remains in effect for more than 60 days; or a petition shall be filed against Borrower, under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, and shall not be dismissed within 60 days after such filing; or (ii) the Borrower shall file a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, or shall consent to the filing of any petition against it under any such law; or (iii) Borrower shall make an assignment for the benefit of its creditors, or shall admit in writing its inability, or shall fail, to pay its debts generally as they become due, or shall consent to the appointment of a receiver, liquidator or trustee of Borrower, or of all or any part of its assets; or (f) JUDGMENT--final judgment or judgments for the payment of money, the aggregate of which exceeds $50,000, shall be outstanding against Borrower and any of such judgments shall have been outstanding for more than 30 days from the date of its entry and shall not have been discharged in full, bonded against or stayed; or (g) DEFAULT IN LENDER AGREEMENTS--any default (after giving effect to the expiration of any applicable grace periods) under, and as defined in, any other agreement, now existing or hereafter entered into, between Borrower and Lender or any affiliate of Lender; or (h) DEFAULT BY BORROWER IN OTHER AGREEMENTS--any default by Borrower in the payment of material indebtedness for borrowed money (including any indebtedness pursuant to the Textron Facility, the DZ Facility, the Sovereign Facility or the Bond Holder-Exchange Transaction); or any other default under such indebtedness which accelerates or permits the acceleration (after the giving of notice or passage of time, or both) of the maturity of such indebtedness, whether or not such default has been waived by the holder of such indebtedness; LOAN AND SECURITY AGREEMENT 62 provided, however that Borrower shall not be in default pursuant to this paragraph 8.1(h) with respect to any securitization transaction in which Borrower serves as a "servicer" rather than as a "borrower" or "issuer", and an event of default in such securitization transaction does not result in any recourse against or direct financial liability to Borrower. (i) SUSPENSION OF SALES--Borrower has received a Suspension of Sales Order or Sanction with respect to all of its Resorts and such Suspension of Sales Order or Sanction shall have been outstanding for more than 60 days from the date of its entry and shall not have been discharged in full or stayed by appeal, bond or otherwise; or (j) ABANDONMENT--Borrower abandons any Resort or any of the Pledged Intervals; (k) LIQUIDATION, ETC.--the liquidation, termination, dissolution, merger, consolidation or failure to maintain good standing in any Applicable State or the state of its formation (or in the case of an individual, the death or legal incapacity) of Borrower or any Person obligated to pay any part of the Obligations; or (l) OTHER DEFAULTS--any material default shall occur in any of the covenants or Obligations set forth in any of the Loan Documents, or any other default or event of default occurs in connection with any other loans or financing arrangements that Borrower, or any of their Affiliates may have with Lender, including but not limited to the Receivables Loan. 8.2 DEFAULT REMEDIES. (a) ACCELERATION OF OBLIGATIONS; RIGHT TO DISPOSE OF COLLATERAL. If an Event of Default under Section 8.1(e) of this Agreement shall occur, then the Obligations shall, automatically and without notice or demand by Lender, become at once due and payable, and Borrower will forthwith pay to Lender, in addition to any and all sums and charges otherwise due in respect of the Obligations and the entire principal of and interest accrued on the Note (calculated as of the date of such acceleration). If any other Event of Default shall occur, all of the Obligations shall, at the option of Lender, and without notice or demand by Lender, become at once due and payable, and Borrower will forthwith pay all sums and charges otherwise due in respect of the Obligations and the entire principal of and interest accrued on the Note (calculated as of the date of such acceleration). Lender shall have all the rights and remedies of a secured party under the Maryland or the Applicable State Uniform Commercial Code, all the rights and remedies under each Mortgage and all other legal and equitable rights to which it may be entitled, including, without limitation and without further notice to Borrower, the right to collect and/or continue to collect all payments being made or to be made on the Contracts and to apply such payments to the Obligations and to sue in its own name (or the name of Borrower) the Purchaser or purchaser under any Contract. Lender shall also have the right to require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Lender at a place to be designated by Lender, which is reasonably convenient to both parties, and Lender shall have the right to take immediate possession of the Collateral and may enter any of the premises of Borrower or wherever the Collateral shall be located, in accordance with Applicable Law, and 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 Lender for storage thereof for a period of at least 90 LOAN AND SECURITY AGREEMENT 63 days after sale or disposition of such Collateral). Borrower and Lender agree that 10 days' notice to Borrower of any public or private sale or other disposition of Collateral shall be reasonable notice thereof and such sale shall be at such location(s) as Lender shall designate in said notice. Lender shall have the right to bid at any such sale on its own behalf. In view of the fact that federal and state securities laws may impose certain restrictions on the methods by which a sale of Collateral, if comprised of Securities, may be effected after an Event of Default, Borrower agrees that, upon the occurrence and continuance or existence of an Event of Default, Lender may, 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 those who will represent and agree that they are purchasing for investment only and not for, or with a view to, distribution. In so doing, and without limiting any other means of private placement, Lender may solicit offers to buy such Collateral, or any part of it for cash, from a limited number of investors deemed by Lender, in its reasonable judgment, to be responsible parties who might be interested in purchasing the Collateral, and if Lender solicits such offers from not less than 4 such investors (and otherwise acts in good faith), then the acceptance by Lender of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral. (b) APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the occurrence of any Event of Default, Lender may, at any time, appropriate and apply (as provided below) to any Obligations any and all Collateral in its possession and any and all balances, credits, deposits, accounts, reserves, indebtedness or other monies due or owing to Borrower held by Lender hereunder or under any other financing agreement or otherwise, whether accrued or not. (c) APPLICATION OF PROCEEDS. The proceeds of any exercise of rights with respect to Collateral or any part thereof shall be paid to and applied as follows: First, to the payment of (i) all costs and charges in connection therewith, including, without limitation, (1) attorneys' fees for advice, counsel or other legal services, (2) costs and expenses incurred as a result of pursuing, reclaiming, seeking to reclaim, taking, keeping, removing, storing, advertising for sale, selling and foreclosing on the Collateral and any and all other charges and expenses in connection therewith, and (3) any costs and expenses (including, without limitation, costs and expenses in the management and operation of any Resort) provided for in any Mortgage or any other Security Document, (ii) all taxes, assessments or Liens superior to the Lien of this Agreement or the other Security Documents, except any taxes, assessments or other superior Liens subject to which any sale of Collateral may have been made, and (iii) all other fees, costs and expenses as set forth in Section 10.2 of this Agreement; Second, towards the payment of accrued and unpaid interest then due and payable, if any, at the Default Rate in respect of the Loan, LOAN AND SECURITY AGREEMENT 64 Third, towards the payment of all other accrued and unpaid interest, if any, then due and payable in respect of the Loan, Fourth, to the payment of the principal amount of the Loan, and Fifth, to all other Obligations, and Sixth, to the payment of the surplus, if any, to Borrower, its successors and assigns, or to whomsoever may be lawfully entitled to receive the same, provided that if any Obligations shall not have been paid in full, any such surplus shall continue to be held as Collateral hereunder and shall continue to be subject to the terms and conditions hereof until such Obligations shall have been paid in full and such surplus may be used by Lender to pay any such Obligations which from time to time become due and payable. Borrower shall remain liable hereunder for payment of any deficiency owing on the Obligations after application of such proceeds. To the extent that any amount allocated to any of the payment categories set forth above is insufficient to fully satisfy all of the Obligations referred to in said category, such amount shall be allocated ratably to each of such Obligations in accordance with the ratio that the amount of such Obligation bears to the aggregate amount of such Obligations referred to in such category. (d) REMEDIES CUMULATIVE. All covenants, conditions, provisions, warranties, guaranties, indemnities and other undertakings of Borrower contained in this Agreement, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule given to Lender or contained in any other agreement between Lender and Borrower, heretofore, concurrently or hereafter entered into, including, without limitation, each Mortgage, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions or agreements of Borrower herein contained. The failure or delay of Lender to exercise or enforce any rights, Liens, powers or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such Liens, rights, powers and remedies, but all such Liens, rights, powers and remedies shall continue in full force and effect until the Loan and all other Obligations shall have been fully satisfied. All Liens, rights, powers and remedies herein provided for are cumulative and none are exclusive. The acceptance by Lender at any time and from time to time of partial payments of the Obligations shall not be deemed to be a waiver of any Event of Default then existing. No waiver by 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 Lender in exercising any right or remedy hereunder or under any of the Security 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 hereunder or under any of the Security Documents or otherwise. LOAN AND SECURITY AGREEMENT 65 9. REVIVAL OF OBLIGATIONS AND LIENS Borrower expressly agrees that if Borrower makes a payment to 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 bankruptcy act, 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. 10. MISCELLANEOUS 10.1 GOVERNING LAW. This Agreement and all transactions, assignments and transfers hereunder, and all the rights of the parties hereto shall be governed as to the validity, construction, enforcement and in all other respects by the internal laws of the State of Maryland; provided, however, that the perfection and enforcement of any security interest granted to Lender hereunder shall be governed by the laws of the State where the Collateral is located. To the extent any provision of this Agreement is not enforceable under Applicable Law, such provision shall be deemed null and void and shall have no effect on the remaining portions of this Agreement. 10.2 EXPENSES AND CLOSING FEES. Whether or not the transactions contemplated hereunder are completed, Borrower shall pay all expenses of Lender relating to negotiating, preparing, documenting, closing, servicing and enforcing this Agreement and relating to the making by Lender of any advances hereunder to Borrower (the "LOAN COSTS"), including, but not limited to: (a) the cost of reproducing this Agreement, the Note, and the other Security Documents; (b) the fees and disbursements of Lender's internal and external counsel; (c) Lender's expenses, including, without limitation, Lender's expenses in connection with any audits in respect of Borrower and/or the Collateral conducted by Lender prior to the date hereof (but excluding salaries of employees of Lender); (d) all fees and expenses (including fees and expenses of Lender's internal and external counsel) relating to any amendments, waivers, consents or review of documents in connection with any subsequent closings or advances pursuant to the provisions of this Agreement; (e) all costs, outlays, attorneys' fees and expenses of every kind and character had or incurred in (i) the enforcement of any of the provisions of, or rights and remedies under, this Agreement, any assignment agreement, or any other Security Document and (ii) the preparation for, negotiations regarding, consultations concerning, or the defense of legal proceedings involving, any claim or claims made or threatened against Lender arising out of this transaction or the protection of the Collateral securing the Obligations, expressly including, without limitation, the defense by Lender of any legal proceedings instituted or threatened by LOAN AND SECURITY AGREEMENT 66 any Person to seek to recover or set aside any payment or setoff theretofore received or applied by Lender with respect to the Obligations; and (f) all taxes levied against or paid by Lender (other than taxes on, or measured by, the income or profits of Lender) and all filing and recording fees, costs and expenses which may be incurred by Lender with respect to the filing or recording of any document or instrument relating to the transactions described in this Agreement. 10.3 PARTIES, SUCCESSORS AND ASSIGN This Agreement and the Loan Documents shall inure to the benefit of Lender, Transferees and all future holders of any Note, the Obligations and/or any of the Collateral, and each of their respective successors and assigns. This Agreement and each Loan Document shall be binding upon the Persons other than Lender that are parties thereto and their respective successors and assigns, and no such Person may assign, delegate or transfer any Loan Document or any of its rights or obligations thereunder without the prior written consent of Lender. No rights are intended to be created under this Agreement or any Loan Document for the benefit of any third party donee, creditor or incidental beneficiary of Borrower. Nothing contained in this Agreement or any Loan Document shall be construed as a delegation to Lender of any other Person's duty of performance. BORROWER ACKNOWLEDGES AND AGREES THAT LENDER AT ANY TIME AFTER THE CLOSING DATE MAY (I) DIVIDE AND RESTATE ANY NOTE, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY LOAN DOCUMENT, NOTE, THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A "TRANSFEREE"). Each Transferee shall have all of the rights and benefits with respect to the Obligations, Note, Collateral, this Agreement and/or Loan Documents held by it as fully as if the original holder thereof, and either Lender or any Transferee may be designated as the sole agent to manage the transactions and obligations contemplated therein; provided that, notwithstanding anything to the contrary in this Agreement or any Loan Document, Borrower shall not be obligated to pay under this Agreement to any Transferee any sum in excess of the sum which Borrower would have been obligated to pay to Lender had such participation, sale, assignment or transfer not been effected. Notwithstanding any other provision of this Agreement or any Loan Document, Lender may disclose to any Transferee all information, reports, financial statements, certificates and documents obtained under any provision of this Agreement or any Loan Document. 10.4 NOTICES. All notices or demands by either party to the other relating to this Agreement shall, except as otherwise provided herein (including, without limitation, Section 8.1(a)), be in writing and (i) sent by certified or registered United States mail, first class postage prepaid and return receipt requested, or (ii) by a nationally recognized overnight courier service with all delivery fees prepaid, or (iii) by facsimile or other electronic transmission (including e-mail). Notices shall be deemed received (a) on the 4th succeeding Business Day following deposit in the United States mail, certified or registered and first class postage prepaid and return receipt requested, or (b) upon delivery if sent by nationally recognized overnight courier with all delivery fees prepaid, or (c) if transmitted by facsimile, when properly transmitted, upon receipt of confirmation of transmission by the tramsmitter (except that, if such LOAN AND SECURITY AGREEMENT 67 notice or other communication is not given during normal business hours for the recipient, such notice or other communication shall be deemed received at the opening of business the next Business Day of the recipient), or (d) if transmitted by other electronic transmission, when properly transmitted, upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, return e-mail or other written acknowledgement), provided that, if such notice or other communication is not given during normal business hours for the recipient, such notice or other communication shall be deemed to have been received at the opening of business on the next Business Day for the recipient. Notices and demands shall be addressed, if to Borrower, at the mailing address or facsimile or other electronic address set forth on Schedule 13 to this Agreement or to such other address as Borrower may from time to time specify in writing or, if to Lender, at the mailing address or facsimile or other electronic address of Lender set forth on Schedule 14 hereto or to such other address as Lender may from time to time specify in writing to Borrower. 10.5 TOTAL AGREEMENT. This Agreement, including the Exhibits, the Schedules and the other agreements referred to herein, is the entire agreement between the parties hereto relating to the subject matter hereof, incorporates or rescinds all prior agreements and understandings between the parties hereto relating to the subject matter hereof, and may not be changed or terminated orally or by course of conduct. This Agreement may be modified or changed only in a writing executed by both Lender and Borrower. The failure or delay of Lender to exercise or enforce any rights, Liens, powers, remedies, conditions or other terms hereunder or under any other agreement or instrument executed in connection herewith shall not operate as a waiver of any such rights, Liens, powers, remedies, conditions or other terms. 10.6 SURVIVAL. All warranties, representations and covenants made by Borrower herein or in any certificate or other instrument delivered by it or on its behalf under this Agreement shall be considered to have been relied upon by Lender and shall survive the delivery to Lender of the Note regardless of any investigation made by Lender or on its behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by Borrower hereunder. 10.7 LITIGATION. EACH OF BORROWER AND LENDER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED ARISING OUT OF THIS AGREEMENT, THE NOTES, ANY OTHER SECURITY DOCUMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN BORROWER AND LENDER OF ANY KIND OR NATURE. BORROWER AND LENDER HEREBY AGREE THAT THE FOLLOWING COURTS: STATE COURT: DISTRICT COURT FOR THE DISTRICT SITTING IN MONTGOMERY COUNTY, MARYLAND; FEDERAL COURT: UNITED STATES DISTRICT COURT FOR THE DISTRICT SITTING IN MONTGOMERY COUNTY, MARYLAND, LOAN AND SECURITY AGREEMENT 68 OR, (TO THE EXTENT PERMITTED BY APPLICABLE MARYLAND LAW) AT THE OPTION OF LENDER, ANY OTHER COURT LOCATED IN THE STATE OF MARYLAND IN WHICH IT SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH SHALL HAVE SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR TO ANY MATTER ARISING HEREFROM. BORROWER AND LENDER EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN ANY SUCH COURT. THE STIPULATIONS OF BORROWER AND LENDER IN THIS SECTION 10.7 SHALL SURVIVE THE FINAL PAYMENT OF ALL OF THE OBLIGATIONS OF BORROWER AND THE RESULTING TERMINATION OF THIS AGREEMENT. 10.8 POWER OF ATTORNEY; SUBSTITUTION. Borrower hereby makes, constitutes and appoints Lender the true and lawful agent and attorney-in-fact of Borrower, with full power of substitution, (a) during the existence of any Event of Default, to receive, open and dispose of all mail addressed to Borrower relating to the Collateral; (b) during the existence of any Event of Default, to open all such mail and remove therefrom any notes, checks, acceptances, drafts, money orders or other instruments constituting Collateral, with full power to endorse the name of Borrower upon any such notes, checks, acceptances, drafts, money orders, instruments or other documents, and to effect the deposit and collection thereof, and Lender shall have the further right and power to endorse the name of Borrower on any documents relating to the Collateral; (c) to execute on behalf of Borrower assignments, notices of assignment, financing statements and other public records and notices in respect of the Collateral; (d) during the existence of any Event of Default, to notify Purchasers to make all payments thereunder directly to Lender at an address to be designated by Lender and to execute and send other notices to such Purchasers and obligors as Lender may deem necessary in order to protect and/or collect the same; and (e) to do any and all things necessary or take action in the name and on behalf of Borrower to carry out the intent of this Agreement, including, without limitation, the grant of the security interest provided herein and to perfect and protect the security interest granted to Lender with respect to the Collateral and Lender's rights created under this Agreement, to act on behalf of Borrower in connection with obtaining funds from any Escrow Account, if applicable, and to endorse any checks or other instruments of payment in respect of any payment, performance or other surety bond made payable to Borrower or to Borrower and Lender jointly. Borrower agrees that neither Lender nor any of its agents, designees or attorneys-in-fact will be liable for any acts of commission or omission, or for any error of judgment or mistake of fact or law with respect to the exercise of the power of attorney or substitution granted under this Section 10.8 except for its own gross negligence or willful misconduct. The power of attorney and substitution granted under this Section 10.8 is coupled with an interest and shall be irrevocable during the term of this Agreement. LOAN AND SECURITY AGREEMENT 69 10.9 SURVIVAL OF INDEMNITIES. All indemnities set forth in this Agreement shall survive the execution and delivery of this Agreement and the execution and delivery of the Note as well as the payment in full of the Note and the otherwise full performance of this Agreement. 10.10 CONFLICTING OBLIGATIONS; RIGHTS AND REMEDIES. To the extent that the terms of any of the Security Documents contain conflicting obligations, the terms set forth in this Agreement shall be deemed to be the controlling terms, provided that all rights and remedies of Lender under the Security Documents are cumulative and in addition to every other right or remedy, and no right or remedy is intended to be exclusive of any other right or remedy. 10.11 DUPLICATE ORIGINALS, EXECUTION IN COUNTERPART. Two or more duplicate originals of this Agreement may be signed by the parties hereto, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts which, collectively, show execution by each party hereto shall constitute one duplicate original. 10.12 NO JOINT VENTURE. The relationship of Borrower and Lender in this Agreement is one of a debtor and a creditor. It is the intention of the parties hereto that this Agreement not be construed to establish or create a partnership or joint venture between Borrower and Lender. 10.13 INDEMNITY. (a) Notwithstanding and without limiting any other provisions of this Agreement or the other Loan Documents, Borrower shall indemnify Lender and its affiliates and their respective managers, members, officers, employees, affiliates, agents, representatives, successors, assigns, accountants and attorneys (collectively, the "INDEMNIFIED PERSONS") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, reasonable fees and disbursements of counsel and in-house documentation and diligence fees and legal expenses) which may be imposed on, incurred by or asserted against any Indemnified Person with respect to or arising out of any willful misrepresentation made hereunder, any acts of fraud by Borrower, any Affiliate of Borrower or any party acting on their behalf, misappropriation of funds by Borrower, any Affiliate of Borrower or any party acting on their behalf, theft by Borrower, any Affiliate of Borrower or any party acting on their behalf, disposition of the Collateral by Borrower, any Affiliate of Borrower or any party acting on their behalf, any unauthorized Change in Management, or in any litigation, proceeding or investigation instituted or conducted by any Person with respect to any aspect of, or any transaction contemplated by or referred to in, or any matter related to, any Security Document or any agreement, document or transaction contemplated thereby, whether or not such Indemnified Person is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of such Indemnified Person. Lender agrees to give Borrower reasonable notice of any event of which Lender becomes aware for which indemnification may be required under this Section 10.14, and Lender may elect (but is not obligated) to direct the defense thereof; provided, that the selection of counsel shall be subject to Borrower's consent, which consent shall not be unreasonably withheld or delayed. Any Indemnified Person may, in its reasonable discretion, take such actions as it deems necessary and appropriate to investigate, LOAN AND SECURITY AGREEMENT 70 defend or settle any event or take other remedial or corrective actions with respect thereto as may be necessary for the protection of such Indemnified Person or the Collateral. (b) Borrower agrees to indemnify, defend and hold Lender free and harmless from and against any and all losses, damages, costs and expenses that Lender may suffer as a result of claims made or suits brought by any broker, finder, agent, sales person or similar individual or entity (a "BROKER") who shall claim to have introduced Borrower to this transaction or who shall claim that he or it negotiated or had discussions with Lender with Borrower's authority with respect to this transaction. Lender is not obligated to pay and has not entered into any agreement to pay any brokerage fee to any Broker with respect to the transactions contemplated by this Agreement. Lender represents and warrants to Borrower that Lender has not engaged any real estate broker, finder, agent, sales person, employee or any other individual and/or entity related to this transaction who is entitled to a commission, finder's fee or remuneration of any kind. 10.14 RELEASE. Notwithstanding any other provision of this Agreement or any Security Document, Borrower voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and its Affiliates and its and their respective heirs, managers, members, directors, officers, employees, shareholders, Affiliates, agents, representatives, accountants, attorneys, successors and assigns and their respective Affiliates (collectively, the "RELEASING PARTIES"), hereby does fully and completely release and forever discharge the Indemnified Parties and any other Person, business or insurer which may be responsible or liable for the acts or omissions of any of the Indemnified Parties, or who may be liable for the injury or damage resulting therefrom (collectively, with the Indemnified Parties, the "RELEASED PARTIES"), of and from any and all actions, causes of action, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity or otherwise, whether matured or unmatured, vested or contingent, whether or not resulting from acts or conduct of any or all of them, that the Releasing Parties or any of them have against the Released Parties or any of them (whether directly or indirectly) as of the date of the Closing. Borrower acknowledges that the foregoing release is a material inducement to Lender's decision to extend to Borrower the financial accommodations hereunder and under the Loan Documents and has been relied upon by Lender in agreeing to make the Loan and in making each Advance and/or Subsequent Advance. 10.15 CUSTODIAN. Lender shall have the right, at its option and at Borrower's expense, to engage the services of a custodian acceptable to Lender for storage of the originals of this Agreement and all other Loan Documents, and all other documents, instruments, due diligence materials and other information in Lender's possession related to the transactions contemplated in this Agreement. 10.16 CERTAIN WAIVERS. Except as expressly provided for herein, Borrower hereby waives (a) demand, presentment, protest, all defenses and (b) any rights of rescission, setoff, counterclaim or defense to payment with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under any Loan Document. LOAN AND SECURITY AGREEMENT 71 10.17 CONFIDENTIALITY AND PUBLICITY. Borrower agrees, and agrees to cause each of its Affiliates, (i) not to transmit or disclose provision of any Loan Document to any Person (other than to Borrower's advisors and officers on a need-to-know basis) without Lender's prior written consent, (ii) to inform all Persons of the confidential nature of the Loan Documents and to direct them not to disclose the same to any other Person and to require each of them to be bound by these provisions. Lender reserves the right to review and approve all materials that Borrower or any of its Affiliates prepares that contain Lender's name or describe or refer to any Loan Document, any of the terms thereof or any of the transactions contemplated thereby. Borrower shall not, and shall not permit any of its Affiliates to, use Lender's name (or the name of any of Lender's Affiliates) in connection with any of its business operations. Nothing contained in any Loan Document is intended to permit or authorize Borrower or any of its Affiliates to contract on behalf of Lender. Further, Borrower hereby agrees that Lender or any Affiliate of Lender may (i) disclose a general description of transactions arising under the Loan Documents for advertising, marketing or other similar purposes and (ii) use Borrower's name, logo or other indicia germane to such party in connection with such advertising, marketing or other similar purposes. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. NEXT PAGE IS SIGNATURE PAGE.] LOAN AND SECURITY AGREEMENT 72 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. Lender: CAPITALSOURCE FINANCE LLC, a Delaware limited liability company By: /s/ PIERRETTE N. BRADSHAW ------------------------- Name: Pierrette N. Bradshaw Title: General Counsel Borrower: SILVERLEAF RESORTS, INC., a Texas corporation By: /s/ HARRY J. WHITE, JR. ------------------------- Name: Harry J. White, Jr. Title: CFO Schedules and Exhibits not filed herewith: Schedule 1: Indebtedness Schedule 2: Permitted Exceptions Schedule 3: Intentionally Omitted Schedule 4: Retail Value Schedule 5: List of Resorts Schedule 6: Affiliate Transactions Schedule 7: Recreation and Use Easements Schedule 8: Subsidiaries Schedule 9: Resort Facilities Schedule 10: Litigation Schedule 11: Compensation Payable to Brokers Schedule 12: Payment Instructions Schedule 13: Address of Borrower for Notices Schedule 14: Address of Lender for Notices Schedule 15: Deferred Corporate Plans and Collective Bargaining Agreements Schedule 16: Description of Blue-Season and Vintage-Type Timeshare Interests Exhibit A: Intentionally Omitted Exhibit B: Form of Request for Release Exhibit C: Intentionally Omitted LOAN AND SECURITY AGREEMENT Exhibit D: Intentionally Omitted Exhibit E: Form of Initial Advance Request Exhibit F: Form of Subsequent Advance Request LOAN AND SECURITY AGREEMENT EX-10.2 3 d24813exv10w2.txt RECEIVABLE LOAN AND SECURITY AGREEMENT Ex. 10.2 RECEIVABLES LOAN AND SECURITY AGREEMENT $50,000,000 Revolving Senior Credit Facility provided by CAPITALSOURCE FINANCE LLC to SILVERLEAF RESORTS, INC. As of April 29, 2005 TABLE OF CONTENTS
PAGE SECTION 1. DEFINITION OF TERMS................................................................ 1 1.1 Advance.......................................................................... 1 1.2 Affiliate........................................................................ 1 1.3 Agreement........................................................................ 2 1.4 Applicable Laws.................................................................. 2 1.5 Approved Escrow Account.......................................................... 2 1.6 Backup Servicer.................................................................. 2 1.7 Backup Servicing Agreement....................................................... 2 1.8 Bond Holder Exchange Transaction................................................. 2 1.9 Borrower......................................................................... 2 1.10 Borrowing Base................................................................... 2 1.11 Business Day..................................................................... 2 1.12 Capital Lease.................................................................... 2 1.13 Cash Flow........................................................................ 2 1.14 Change in Management............................................................. 3 1.15 Closing Date..................................................................... 3 1.16 Code............................................................................. 3 1.17 Collateral....................................................................... 3 1.18 Commitment Fee................................................................... 4 1.19 Common Elements.................................................................. 4 1.20 Consolidated Net Income.......................................................... 4 1.21 Consumer Loan.................................................................... 4 1.22 Credit Files..................................................................... 4 1.23 Custodial Agreement.............................................................. 4 1.24 Custodian........................................................................ 4 1.25 Debt............................................................................. 4 1.26 Debt Service Coverage Ratio...................................................... 5 1.27 Debtor Relief Laws............................................................... 5 1.28 Declaration...................................................................... 5 1.29 Default.......................................................................... 5 1.30 Default Rate..................................................................... 5 1.31 Delinquent Note Receivable....................................................... 5 1.32 DZ Facility...................................................................... 5 1.33 EBITDA........................................................................... 5 1.34 Eligible Deferred Note Receivable................................................ 6 1.35 Eligible Note Receivable......................................................... 6 1.36 Encumbered Timeshare Interest.................................................... 8 1.37 Environmental Laws............................................................... 8 1.38 Event of Default................................................................. 9 1.39 Exchange Company................................................................. 9 1.40 Executive Management Member...................................................... 9
RECEIVABLES LOAN AND SECURITY AGREEMENT i 1.41 FICO............................................................................. 9 1.42 Financial Statements............................................................. 9 1.43 Furnishings...................................................................... 9 1.44 GAAP............................................................................. 9 1.45 Hazardous Materials.............................................................. 9 1.46 Hazardous Materials Indemnity Agreement.......................................... 9 1.47 Improvements..................................................................... 10 1.48 Initial Advance.................................................................. 10 1.49 Interest Expense................................................................. 10 1.50 Interest Rate.................................................................... 10 1.51 Inventory Loan................................................................... 10 1.52 Inventory Loan Agreement......................................................... 10 1.53 Inventory Loan Documents......................................................... 10 1.54 Leverage Ratio................................................................... 10 1.55 LIBOR Rate....................................................................... 10 1.56 Lien............................................................................. 11 1.57 Loan............................................................................. 11 1.58 Loan Documents................................................................... 11 1.59 Lockbox Agent.................................................................... 11 1.60 Lockbox Agreement................................................................ 12 1.61 Loss of License.................................................................. 12 1.62 Mandatory Prepayment............................................................. 12 1.63 Maturity Date.................................................................... 12 1.64 Maximum Loan Amount.............................................................. 12 1.65 Negative Pledge.................................................................. 12 1.66 Net Income....................................................................... 12 1.67 Net Sales........................................................................ 12 1.68 Note Receivable.................................................................. 12 1.69 Oak N' Spruce Resort............................................................. 12 1.70 Obligations...................................................................... 12 1.71 Orlando Breeze Resort Club....................................................... 13 1.72 Payment Authorization Agreement.................................................. 13 1.73 Permitted Discretion............................................................. 13 1.74 Permitted Liens and Encumbrances................................................. 13 1.75 Person........................................................................... 13 1.76 Pledged Note Receivable.......................................................... 13 1.77 Property......................................................................... 13 1.78 PropertyRelated Contracts........................................................ 13 1.79 Purchase Agreement............................................................... 13 1.80 Purchase Price................................................................... 13 1.81 Purchaser........................................................................ 13 1.82 Receivables Loan Approved Resorts................................................ 13 1.83 Resort Facilities................................................................ 14 1.84 Revolving Credit Period.......................................................... 14 1.85 Sales and Marketing Costs........................................................ 14 1.86 Servicing Agreement.............................................................. 14

RECEIVABLES LOAN AND SECURITY AGREEMENT ii 1.87 Silverleaf Club.................................................................. 14 1.88 Sovereign Facility............................................................... 14 1.89 Suspension of Sales Order or Sanction............................................ 14 1.90 Tangible Net Worth............................................................... 14 1.91 Textron Facility................................................................. 14 1.92 Timeshare Act.................................................................... 15 1.93 Timeshare Association............................................................ 15 1.94 Timeshare Documents.............................................................. 15 1.95 Timeshare Interest............................................................... 15 1.96 Timeshare Interest Mortgage...................................................... 15 1.97 Title Insurance Company.......................................................... 15 1.98 Title Policy..................................................................... 15 1.99 Unit............................................................................. 15 1.100 Unused Line Fee.................................................................. 15 1.101 Upgraded Note Receivable......................................................... 16 1.102 Use Agreement.................................................................... 16 1.103 Voting Equity.................................................................... 16 SECTION 2. THE LOAN........................................................................... 16 2.1 Purposes......................................................................... 16 2.2 Advances......................................................................... 16 2.3 Interest Rate.................................................................... 16 2.4 Payments......................................................................... 17 2.5 Prepayments...................................................................... 18 2.6 Reassignment by Lender........................................................... 19 2.7 Breakage Costs................................................................... 19 2.8 Additional Increased Costs....................................................... 19 2.9 Basis For Determining Interest Rate Inadequate or Unfair......................... 20 2.10 Notes. Borrower agrees that:.................................................... 20 SECTION 3. COLLATERAL......................................................................... 21 3.1 Grant of Security Interest....................................................... 21 3.2 Security Interest in All Pledged Notes Receivable................................ 21 3.3 Financing Statements............................................................. 21 3.4 Location of Collateral........................................................... 21 3.5 Protection of Collateral; Reimbursement.......................................... 21 3.6 Cross-Collateralization and Default.............................................. 22 3.7 Liability........................................................................ 22 SECTION 4. CONDITIONS PRECEDENT TO CLOSING AND FUNDING PROCEDURES............................. 23 4.1 Conditions Precedent............................................................. 23 4.2 Funding Procedures............................................................... 26 SECTION 5. GENERAL REPRESENTATIONS AND WARRANTIES............................................. 30 5.1 Organization, Standing, Qualification............................................ 30 5.2 Authorization, Enforceability, Etc............................................... 30

RECEIVABLES LOAN AND SECURITY AGREEMENT iii 5.3 Financial Statements and Business Condition...................................... 32 5.4 Taxes............................................................................ 32 5.5 Title to Collateral and Other Properties; Prior Liens............................ 32 5.6 Litigation, Proceedings, Etc..................................................... 32 5.7 Licenses, Permits, Etc........................................................... 33 5.8 Environmental Matters............................................................ 33 5.9 Full Disclosure.................................................................. 33 5.10 Use of Proceeds/Margin Stock..................................................... 33 5.11 No Defaults...................................................................... 34 5.12 Restrictions on Borrower......................................................... 34 5.13 Broker's Fees.................................................................... 34 5.14 Tax Identification Number........................................................ 34 5.15 Legal Compliance................................................................. 34 5.16 Deferred Compensation Plans...................................................... 35 5.17 Labor Relations.................................................................. 35 5.18 Receivables Loan Approved Resorts................................................ 36 5.19 Timeshare Documents and Reports.................................................. 36 5.20 Reliance by Lender............................................................... 37 5.21 Vacation Club.................................................................... 37 SECTION 6. COVENANTS.......................................................................... 37 6.1 Affirmative Covenants............................................................ 37 6.2 Negative Covenants............................................................... 49 SECTION 7. EVENTS OF DEFAULT.................................................................. 51 7.1 Payment Default.................................................................. 51 7.2 Covenant Defaults................................................................ 51 7.3 Warranties or Representations.................................................... 51 7.4 Enforceability................................................................... 52 7.5 Insolvency....................................................................... 52 7.6 Involuntary Proceedings.......................................................... 52 7.7 Voluntary Proceedings............................................................ 52 7.8 Attachment; Judgment; Tax Liens.................................................. 52 7.9 Failure to Deposit Proceeds...................................................... 52 7.10 Timeshare Documents.............................................................. 52 7.11 Removal of Collateral............................................................ 52 7.12 Other Defaults................................................................... 53 7.13 Material Adverse Change.......................................................... 53 7.14 Default by Borrower in Other Agreements.......................................... 53 7.15 Violation of Negative Covenants.................................................. 53 7.16 Declaration...................................................................... 53 7.17 Transfer of Property............................................................. 53 7.18 Lien Against Collateral.......................................................... 53 7.19 Title............................................................................ 53 7.20 Loss of License.................................................................. 53 7.21 Suspension of Sales.............................................................. 53

RECEIVABLES LOAN AND SECURITY AGREEMENT iv SECTION 8. REMEDIES........................................................................... 54 8.1 Remedies Upon Default............................................................ 54 8.2 Notice of Sale................................................................... 55 8.3 Application of Collateral; Termination of Agreements............................. 56 8.4 Rights of Lender Regarding Collateral............................................ 56 8.5 Delegation of Duties and Rights.................................................. 57 8.6 Waivers.......................................................................... 57 8.7 Cumulative Rights................................................................ 57 8.8 Expenditures by Lender........................................................... 57 8.9 Diminution in Value of Collateral................................................ 58 SECTION 9. CERTAIN RIGHTS OF LENDER........................................................... 58 9.1 Protection of Collateral......................................................... 58 9.2 Performance by Lender............................................................ 58 9.3 No Liability of Lender........................................................... 58 9.4 Right to Defend Action Affecting Security........................................ 59 9.5 Expenses......................................................................... 59 9.6 Lender's Right of SetOff......................................................... 60 9.7 Right of Lender to Extend Time of Payment, Substitute, Release Security, Etc..... 60 9.8 Assignment of Lender's Interest.................................................. 60 9.9 Notice to Purchaser.............................................................. 60 9.10 Collection of Pledged Notes Receivable........................................... 60 9.11 Power of Attorney................................................................ 61 9.12 Relief from Automatic Stay, Etc.................................................. 61 9.13 Investigations and Inquiries..................................................... 61 9.14 Verification of Use.............................................................. 62 SECTION 10. TERM OF AGREEMENT................................................................. 62 SECTION 11. MISCELLANEOUS..................................................................... 62 11.1 Notices.......................................................................... 62 11.2 Survival......................................................................... 63 11.3 Governing Law.................................................................... 63 11.4 Limitation on Interest........................................................... 64 11.5 Invalid Provisions............................................................... 64 11.6 Successors and Assigns........................................................... 65 11.7 Amendment........................................................................ 66 11.8 Counterparts; Effectiveness...................................................... 66 11.9 Lender Not a Fiduciary........................................................... 66 11.10 Release and Return of Notes Receivable........................................... 66 11.11 Accounting Principles............................................................ 67 11.12 Entire Agreement................................................................. 67 11.13 Litigation....................................................................... 67 11.14 Incorporation of Exhibits and Schedules.......................................... 67 11.15 Consent to Advertising and Publicity............................................. 68

RECEIVABLES LOAN AND SECURITY AGREEMENT v 11.16 Directly or Indirectly........................................................... 68 11.17 Captions......................................................................... 68 11.18 Gender........................................................................... 68 11.19 No Duty.......................................................................... 68 11.20 Submissions...................................................................... 68 11.21 Confidentiality.................................................................. 69 11.22 Borrower's Acknowledgment........................................................ 69 11.23 No Offset........................................................................ 69

LIST OF EXHIBITS EXHIBIT "A" - Form of Custodial Agreement EXHIBIT "B" - Form of Master Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages EXHIBIT "C" - Form of Lockbox Agreement EXHIBIT "D" - Resort Facilities EXHIBIT "E" - Permitted Liens and Encumbrances EXHIBIT "F" - Receivables Loan Approved Resorts EXHIBIT "G" - Form of Reassignment EXHIBIT "H" - Description of Pending Litigation EXHIBIT "I" - Form of Advance Request EXHIBIT "J" - Form of Supplemental Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages EXHIBIT "K" - List of States in which Borrower is Registered or Exempt EXHIBIT "L" - List of Timeshare Documents EXHIBIT "M" - Borrowing Base Certificate EXHIBIT "N" - Listing of amounts owed to Timeshare Association RECEIVABLES LOAN AND SECURITY AGREEMENT vi RECEIVABLES LOAN AND SECURITY AGREEMENT THIS RECEIVABLES LOAN AND SECURITY AGREEMENT (the "Agreement") is made and entered into as of April 29, 2005, by and between SILVERLEAF RESORTS INC., a Texas corporation ("Borrower"), and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company ("Lender"). RECITALS WHEREAS, Borrower is the fee owner of the Property, subject to the sale of Timeshare Interests to Purchasers; WHEREAS, Purchasers who finance the acquisition of their Timeshare Interests execute a Note Receivable and a related Timeshare Interest Mortgage in favor of Borrower; WHEREAS, Lender desires to make a Loan to Borrower in an amount not to exceed Fifty Million Dollars ($50,000,000) which is to be secured by certain Pledged Notes Receivable and Timeshare Interest Mortgages pledged and assigned by Borrower to Lender; NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, hereby agree as follows: SECTION 1. DEFINITION OF TERMS The capitalized terms used in this Agreement are defined in this Section 1. The definitions include the singular and plural forms of the terms defined. 1.1 Advance. A portion of the proceeds of the Loan advanced from time to time by Lender to Borrower in accordance with the terms of this Agreement. 1.2 Affiliate. Any Person: (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; (b) which beneficially owns or holds 5% or more of any class of the Voting Equity of such Person; or (c) 5% or more of the Voting Equity of which is beneficially owned or held by such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Equity, other voting securities, by contract or otherwise. RECEIVABLES LOAN AND SECURITY AGREEMENT 1.3 Agreement. This Receivables Loan and Security Agreement by and between Borrower and Lender (including the exhibits and schedules hereto), as it may be amended and/or restated from time to time. 1.4 Applicable Laws. Any and all 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 Borrower or any portion thereof, or all or any portion of the Collateral is or becomes subject from time to time, including but not limited to those governing the marketing and sale of Timeshare Interests at or with respect to the Receivables Loan Approved Resorts, as the same have been or may in the future be amended from time to time. 1.5 Approved Escrow Account. As defined in the Inventory Loan Agreement. 1.6 Backup Servicer. Concord Servicing Corporation, or such other servicer acceptable to Lender in its Permitted Discretion. 1.7 Backup Servicing Agreement. The agreement pursuant to which the Backup Servicer shall provide servicing functions with respect to the Pledged Notes Receivable. 1.8 Bond Holder Exchange Transaction. Those certain senior subordinate note holder exchange transactions consummated pursuant to (a) that certain Indenture dated as of May 2, 2002 between Silverleaf Resorts, Inc. and Wells Fargo Bank Minnesota, NA., and all documents related thereto, and (b) that certain Indenture dated as of July 7, 2004 between Silverleaf Resorts, Inc. and Wells Fargo Bank, NA., and all documents related thereto, as amended, supplemented and modified from time to time. 1.9 Borrower. Silverleaf Resorts Inc., a Texas corporation, together with its successors and assigns. 1.10 Borrowing Base. As applicable, during the Revolving Credit Period, the lesser of (i) the Maximum Loan Amount and (ii) seventyfive percent (75%) of the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Lender as partial security for the Loan as of the date in question. 1.11 Business Day. Each day that is not a Saturday, Sunday, or a legal holiday under the laws of the State of Maryland, State of Texas or the United States, and if the applicable Business Day relates to the Loan, such day must also be a day on which dealings are carried on in the London interbank market. 1.12 Capital Lease. As to any Person, a lease of any interest in any kind of property or asset by that Person as lessee that is, should be or should have been recorded as a "capital lease" in accordance with GAAP. 1.13 Cash Flow. In respect of any period, the sum of (a) Net Income of Borrower for such period and (b) the amount of all depreciation and amortization allowances and other noncash expenses of Borrower, but only to the extent deducted in the determination of Net Income of Borrower for such period. RECEIVABLES LOAN AND SECURITY AGREEMENT 2 1.14 Change in Management. A change of more than fifty percent (50%), in the aggregate, of the following members of the executive management team of Borrower: Robert Mead, Sharon Brayfield, David O'Connor, Harry White, Edward Lahart and Joe Conner. 1.15 Closing Date. The date of this Agreement. 1.16 Code. The version of the Uniform Commercial Code in effect from time to time in the State of Maryland, as amended from time to time. 1.17 Collateral. (a) A first priority security interest in and to the Pledged Notes Receivable and related Credit Files generated from the sale of Timeshare Interests at the Receivables Loan Approved Resorts, together with all accounts, chattel paper and general intangibles related thereto and the cash and noncash proceeds thereof; (b) A first and unconditional collateral assignment of the Timeshare Interest Mortgages encumbering the Timeshare Interests financed by the Pledged Notes Receivable and, to the extent of Borrower's interest as mortgagee with respect to each Timeshare Interest Mortgage assigned to Lender, the Encumbered Timeshare Interests, together with all appurtenant rights and interests, including, without limitation, appurtenant rights and interests in and to the Common Elements, and easement, license and use rights in and to all facilities, all as described, defined and set forth in the Declaration; (c) A first priority security interest in and to all documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable, and related Timeshare Interest Mortgages and the other Collateral (including the cash and noncash proceeds thereof); (d) All rights in, to and under all Payment Authorization Agreements signed and delivered by or on behalf of each Purchaser of an Encumbered Timeshare Interest and all accounts and proceeds relating thereto or deriving therefrom; (e) Any rights inuring to Borrower as a "preferred mortgagee" or a "mortgagee" in connection with any Encumbered Timeshare Interest as provided in the Declaration; (f) 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, 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; and (g) A first priority security interest in and to all books, records, reports, computer tapes, computer disks and software relating to all or any portion of the Collateral; RECEIVABLES LOAN AND SECURITY AGREEMENT 3 (h) All rights of Borrower or its successors or assigns under any Timeshare Documents, relating to any Encumbered Timeshare Interest; and (i) First priority Liens and security interests in and to all documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable and the other Collateral, including the cash and noncash proceeds thereof. 1.18 Commitment Fee. An amount equal to $500,000 which was earned upon execution of this Agreement. 1.19 Common Elements. Common Elements (as such term is defined in the Declaration), including, without limitation, the recreational and service facilities as well as the land (excluding land comprising part of a Unit) which are included within each Receivables Loan Approved Resort all owned by Borrower for the common use and enjoyment of Purchasers of Timeshare Interests. 1.20 Consolidated Net Income. With respect to any period, the aggregate stated income statement amount of net income of Borrower and its subsidiaries, after deduction of all expenses, taxes and other proper charges paid during such period, excluding extraordinary profits, gains or losses, determined on a consolidated basis in accordance with GAAP. 1.21 Consumer Loan. Any purchase money loan that is evidenced by a Pledged Note Receivable, the proceeds of which are applied by the maker of such Pledged Note Receivable toward the Purchase Price of a Timeshare Interest. 1.22 Credit Files. All Notes Receivable, the related mortgages, the related federal truth-in-lending disclosure statements, the Purchase Agreement, all RESPA and related notices. 1.23 Custodial Agreement. That certain Custodial Agreement by and among Borrower, Lender and Custodian in substantially the form of Exhibit "A," attached hereto and incorporated herein by this reference, pursuant to which Custodian will maintain custody of all original Pledged Notes Receivable and Purchase Agreements and certain original and duplicate documents and instruments related thereto and take certain actions in connection therewith. 1.24 Custodian. Wells Fargo Bank, National Association or such other Person as Lender, in its sole discretion, engages from time to time, at Borrower's sole cost and expense pursuant to the terms of the Custodial Agreement, to maintain custody of all original Pledged Notes Receivable and certain original and duplicate documents and instruments related thereto and take certain actions in connection therewith. 1.25 Debt. Of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services, (e) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Debt secured thereby has been RECEIVABLES LOAN AND SECURITY AGREEMENT 4 assumed, (f) all guarantees by such Person of Debt of others, (g) all Capital Leases of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefore. 1.26 Debt Service Coverage Ratio. At any time of determination, the ratio of (a) EBITDA of Borrower and its subsidiaries on a consolidated basis, less capital expenditures for the immediately preceding twelve (12) calendar months to (b) the cash Interest Expenses (including all capitalized interest related to the Bond Holder Exchange Transaction which has been expensed but not yet paid by Borrower in full) of Borrower and its subsidiaries on a consolidated basis for the immediately preceding twelve (12) calendar months. 1.27 Debtor Relief Laws. Any applicable liquidation, conservatorship, receivership, 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. 1.28 Declaration. Collectively, each of the declarations, covenants, conditions and restrictions, or other restrictive covenants encumbering all or any portion of a Receivables Loan Approved Resort where Timeshare Interests owned by Borrower are located, filed in the appropriate official records of the county where such Receivables Loan Approved Resort is located, and delivered to Lender prior to any Advance being made by Lender to finance a Note Receivable related to such Timeshare Interest. 1.29 Default. An event or condition, the occurrence of which immediately is or, with the lapse of time or the giving or notice or both, would become, an Event of Default hereunder. 1.30 Default Rate. As to the Loan, the Interest Rate plus four percent (4%) per annum; provided, however, that the Default Rate shall in no event exceed the highest interest rate permitted to be charged under any applicable usury laws. 1.31 Delinquent Note Receivable. A Note Receivable that is greater than thirty (30) days past due. 1.32 DZ Facility. That certain note purchase facility provided by DZ Bank AG Deutsche ZentralGenossenschaftsbank ("DZ"), as agent for Autobahn Funding Company, LLC, to Borrower pursuant to that certain Amended and Restated Receivables Loan and Security Agreement dated April 30, 2002, as amended, and all documents and other instruments executed in connection therewith, as amended, supplemented and modified from time to time. 1.33 EBITDA. For any date of determination, the sum, without duplication, of the following for Borrower and its subsidiaries on a consolidated basis: Net Income determined in accordance with GAAP, plus, (a) Interest Expense, (b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, (d) amortization expense, and (e) loss from any sale of assets, RECEIVABLES LOAN AND SECURITY AGREEMENT 5 other than sales in the ordinary course of business, minus (a) gains from any sale of assets, other than sales in the ordinary course of business and (b) other extraordinary or nonrecurring gains, all of the foregoing determined in accordance with GAAP. 1.34 Eligible Deferred Note Receivable. An Eligible Note Receivable for which Borrower has allowed a Purchaser to defer payment; provided, however, (i) payment on such Eligible Note Receivable shall not have been deferred more than (a) once in any twelve (12) month period or (b) twice since origination, (ii) no more than six payments shall have been deferred in the aggregate on such Eligible Note Receivable and (iii) the Purchaser shall have made at least two (2) timely payments on such Eligible Note Receivable prior to Borrower accepting any deferment. 1.35 Eligible Note Receivable. A Pledged Note Receivable that satisfies each of the following conditions: (a) The Pledged Note Receivable arises from a bona fide sale by Borrower of one (1) or more Timeshare Interests to a Purchaser; (b) The Timeshare Interest sale from which it arises has not been canceled by the Purchaser or Borrower, any statutory or other applicable cancellation or rescission period has expired, the Timeshare Interest purchased by the Purchaser has not been surrendered in accordance with any applicable terms of the relevant Purchase Agreement, and the related Timeshare Interest sale complies fully with the terms, provisions, and conditions of this Agreement, the other Loan Documents, the Timeshare Documents, and all Applicable Laws; (c) The Pledged Note Receivable is secured by a first priority Timeshare Interest Mortgage on the purchased Timeshare Interest; (d) The Pledged Note Receivable evidences the personal obligation of the applicable Purchaser to pay the balance due on the Purchase Price of the Timeshare Interest being acquired by such Purchaser, all as described and set forth in the Purchase Agreement to which such Pledged Note Receivable pertains; (e) Principal and interest payments on the Pledged Note Receivable are payable to Borrower in legal tender of the United States and are made by the applicable Purchaser and not by Borrower or Affiliate thereof; (f) Scheduled payments of principal and interest on the Pledged Note Receivable are due in equal monthly installments; (g) The Pledged Note Receivable has an original term of no greater than one hundred twenty (120) months; (h) A cash down payment and/or other cash payments have been received from the Purchaser or the maker of the Pledged Note Receivable in an amount equal to at least ten percent (10%) of the original purchase price of the relevant Timeshare Interest, no portion of such down payment has been paid or loaned to the Purchaser by Borrower, and the Purchaser has received no cash or other rebates of any kind; provided, however, if such Purchaser has a FICO RECEIVABLES LOAN AND SECURITY AGREEMENT 6 score below 550, then a cash down payment and/or other cash payments shall have been received from such Purchaser or the maker of such Pledged Note Receivable in an amount equal to at least fifteen percent (15%) of the original purchase price of such relevant Timeshare Interest; (i) No monthly installment due with respect to a Pledged Note Receivable is more than thirty (30) days' contractually past due as of the date of the initial Advance on such Pledged Note Receivable and subsequent to the initial Advance on a Pledged Note Receivable, no monthly installment due with respect to such Pledged Note Receivable is more than sixty (60) days contractually past due; (j) The first monthly installment due with respect to the Pledged Note Receivable is no more than forty-five (45) days after the date of such Pledged Note Receivable. (k) The Purchaser of the relevant Timeshare Interest has, subject to the terms of the Declaration and the other Timeshare Documents, access to a Unit within the Property developed in accordance with the specifications provided in the Purchase Agreement, and a certificate of occupancy has been issued for such Unit; (l) Neither the Purchaser of the relevant Timeshare Interest nor any other maker of the Pledged Note Receivable is an Affiliate of, related to, or employed by Borrower; (m) The Purchaser or other obligor has no bona fide claim against Borrower or any Affiliate of Borrower and no defense, setoff, or counterclaim exists with respect to the Pledged Note Receivable; (n) The maximum outstanding principal balance of any Pledged Note Receivable hereunder does not exceed $30,000 and the maximum aggregate exposure by any one obligor shall not exceed two (2) Pledged Notes Receivable, without the prior written consent of Lender; (o) The Pledged Note Receivable is made by a U.S. resident unless otherwise approved by Lender; provided, however, up to ten percent (10%) of the Loan as measured by aggregate outstanding principal balance may be used to finance Notes Receivable made by an underlying obligor who is not a U.S. resident so long as Lender approves the collection methodology in its sole discretion. (p) The original of the Pledged Note Receivable and all related documents and instruments have been endorsed in the manner prescribed by Lender and delivered to Lender or Custodian as provided herein, and all such related documents and instruments otherwise comply in all respects with all Applicable Laws; (q) The form of promissory note, Timeshare Interest Mortgage, federal truth-in-lending disclosure statement, Purchase Agreement, loan application and all other documents and instruments corresponding to the Timeshare Interest purchase transaction giving rise to such Note Receivable shall be in form and content acceptable to Lender and approved in advance by Lender in writing; RECEIVABLES LOAN AND SECURITY AGREEMENT 7 (r) The Unit corresponding to such Pledged Note Receivable is subject to property insurance acceptable to Lender in its sole discretion; (s) The Unit, and the Lien evidenced by the Timeshare Mortgage, corresponding to such Pledged Note Receivable is subject to title insurance acceptable to Lender in its sole discretion; provided, however, any Pledged Note Receivable relating to Oak N' Spruce Resort shall not be required to be subject to title insurance; (t) If the Timeshare Interest securing such Pledged Note Receivable relates to Oak N' Spruce Resort, then Lender shall have received an Assignment of Certificate of Beneficial Interest securing such Pledged Note Receivable acceptable to Lender in its sole discretion and Borrower shall have filed a UCC1 financing statement in the state where the Purchaser is located naming Borrower as the secured party and Lender as Borrower's assignee; and (u) The portfolio of all Pledged Notes Receivable hereunder shall at all times satisfy the following additional requirements: (i) The average unpaid principal balance shall not exceed $20,000, without Lender's prior written consent; (ii) The minimum weighted average annual interest rate of all Pledged Notes Receivable shall be greater than fourteen percent (14%); (iii) No more than twenty percent (20%) of all Pledged Notes Receivable shall have an interest rate of less than fourteen and onehalf percent (14.5%) per annum; (iv) The weighted average obligor FICO credit score shall be greater than 610, unless otherwise agreed to by Lender in its sole discretion; (v) The weighted average original term until maturity for all Pledged Notes Receivable shall not exceed ninetysix (96) months; (vi) No more than five percent (5%) of the unpaid principal balance of all Pledged Note Receivables shall be related to downgraded Timeshare Interests; and (vii) No more than ten percent (10%) of all Pledged Notes Receivable shall be Eligible Deferred Notes Receivable. 1.36 Encumbered Timeshare Interest. The Timeshare Interest that is encumbered by the Liens of the Timeshare Interest Mortgages which are pledged and assigned to Lender. 1.37 Environmental Laws. 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 RECEIVABLES LOAN AND SECURITY AGREEMENT 8 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 the State of Texas or any other state where a Receivables Loan Approved Resort is located, 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 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, ordinance, regulation, rule, policy, or determination pertaining to health, hygiene, the environment, or environmental conditions. 1.38 Event of Default. Defined in Section 7 of this Agreement. 1.39 Exchange Company. Resort Condominiums International, Inc., Interval International, Inc. or another internationally recognized timeshare exchange company acceptable to Lender. 1.40 Executive Management Member. Each of Robert Mead, Sharon Brayfield, David O'Connor, Harry White, Edward Lahart and Joe Conner. 1.41 FICO. The credit scoring system used by Fair Isaac and Company. 1.42 Financial Statements. The tax returns, balance sheets, and statements of income and expense of Borrower and the related notes and schedules delivered by Borrower prior to the Closing Date; and the monthly, quarterly, and annual financial statements and reports required to be provided to Lender pursuant to Section 6.1(g) hereof. 1.43 Furnishings. The furnishings, furniture, equipment, appliances and fixtures provided by the Silverleaf Club for use within the Units. 1.44 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 under the circumstances as of the date in question. 1.45 Hazardous Materials. "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. 1.46 Hazardous Materials Indemnity Agreement. That certain Hazardous Materials Indemnity Agreement of even date herewith executed by Borrower in favor of Lender. RECEIVABLES LOAN AND SECURITY AGREEMENT 9 1.47 Improvements. All Units, Common Areas and other buildings, structures, recreational facilities, and appurtenances now located on the Property. 1.48 Initial Advance. The first Advance under the Loan which shall occur or be deemed to have occurred on or promptly following the Closing Date. 1.49 Interest Expense. For any date of determination, total interest expense (including attributable to Capital Leases in accordance with GAAP) with respect to all outstanding Debt of Borrower including capitalized interest but excluding commissions, discounts and other fees owed with respect to letters of credit and bankers' acceptance financing and net costs under any interest rate SWAP agreements. 1.50 Interest Rate. On any date, for all Advances and Obligations, unless otherwise set forth in this Agreement, the fluctuating rate of interest per annum equal to the sum of the LIBOR Rate in effect on such day, plus four and one-quarter percent (4.25%) per annum. The Interest Rate shall be calculated based on a three hundred sixty (360) day year and charged for the actual number of days elapsed. 1.51 Inventory Loan. That certain senior mortgage loan provided by Lender to Borrower pursuant to the Inventory Loan Agreement in the maximum principal amount of $15,000,000. 1.52 Inventory Loan Agreement. That certain Inventory Loan and Security Agreement, dated as of the date hereof, by and between Borrower and Lender. 1.53 Inventory Loan Documents. All documents, instruments, agreements and other contracts executed or delivered in connection with the Inventory Loan Agreement. 1.54 Leverage Ratio. As of any date of determination, the ratio of (i) the sum of amounts outstanding under this Agreement plus any other Debt of Borrower and its subsidiaries on a consolidated basis (other than off balance sheet debt that is non-recourse to Borrower and approved by Lender in its Permitted Discretion) to (ii) Borrower's and its subsidiaries' Tangible Net Worth, on a consolidated basis. 1.55 LIBOR Rate. At the time of determination thereof, a variable rate of interest equal to (a) at Lender's election (i) the rate described as the "London Interbank Offered Rate" for three months in the Money Rates section of The Wall Street Journal, or (ii) the rate of interest determined by Lender in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the London interbank offered rate for U.S. Dollars for a three month period based upon the information presented on Telerate Systems at page 3750 as of 11:00 a.m. (London time) on the day of determination of such LIBOR Rate, divided by (b) a number equal to 1.00 minus the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements applicable to Lender in effect on the day of determination of such LIBOR Rate (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum). If the Telerate Systems (or its successor) or The Wall Street Journal ceases to provide such quotes, a comparable replacement, as determined by Lender, may be used by Lender. If on any date of determination (a) more than one "London Interbank Offered Rate" for a three month period is published in The Wall Street Journal, or (b) more than one London RECEIVABLES LOAN AND SECURITY AGREEMENT 10 interbank offered rate for a three month period appears on the Telerate System at Page 3750, the highest of such rates will be the rate used for such day. 1.56 Lien. Any 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. 1.57 Loan. The maximum $50,000,000 credit facility as described in this Agreement and evidenced and secured by the Loan Documents. 1.58 Loan Documents. Collectively, the following documents and instruments, as each may be amended, renewed, extended, restated, or supplemented from time to time: (a) This Agreement; (b) The Note (if any); (c) The Negative Pledge; (d) Each intercreditor agreement entered into pursuant to Section 4.1(p); (e) The Master Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages (in the form of Exhibit "B," attached hereto and incorporated herein by this reference); (f) The Custodial Agreement; (g) The Lockbox Agreement; (h) The Servicing Agreement; (i) The Backup Servicing Agreement; (j) The Hazardous Materials Indemnity Agreement; (k) UCC-1 financing statements covering the Collateral, to be filed with the Texas Secretary of State and in any other jurisdiction deemed appropriate by Lender, in its sole discretion; (l) The Inventory Loan Agreement and the Inventory Loan Documents; (m) All such other assignments, agreements, documents, instruments, certificates, and materials as Lender may require in order to evidence or secure the Obligations, to evidence and perfect the rights, Liens, and security interests of Lender contemplated by the Loan Documents, and otherwise to effectuate the transactions contemplated hereby. 1.59 Lockbox Agent. JPMorgan Chase Bank, N.A., or such other Person as may be approved by Lender in writing from time to time, as Lender's exclusive agent for the collection of all payments made on the Pledged Notes Receivable. RECEIVABLES LOAN AND SECURITY AGREEMENT 11 1.60 Lockbox Agreement. That certain agreement by and among Lender, Borrower, and Lockbox Agent in substantially the form of Exhibit "C," attached hereto and incorporated herein by this reference, pursuant to which Lockbox Agent is engaged, at Borrower's sole cost and expense, as Lender's exclusive agent to receive, deposit, and disburse all amounts paid by each Purchaser or other obligor pursuant to any Pledged Note Receivable to which such Purchaser or other obligor is a party, as well as certain financial reporting services. 1.61 Loss of License. The suspension, loss, revocation, or failure to renew or file for renewal of any legally required registration, approval, license, permit, or franchise now held or hereafter acquired by Borrower with respect to the Receivables Loan Approved Resorts or the marketing or sale of Timeshare Interests thereat or with respect thereto, or the failure to pay any amount which is necessary for the continued operation of the Receivables Loan Approved Resorts in compliance with all Applicable Laws. 1.62 Mandatory Prepayment. Any prepayment of the Loan required by Section 2.5 of this Agreement. 1.63 Maturity Date. April 29, 2008. 1.64 Maximum Loan Amount. The maximum principal balance of the Loan which can be outstanding at any time is Fifty Million Dollars ($50,000,000). 1.65 Negative Pledge. Collectively, those certain negative pledge agreements executed by Borrower in favor of Lender related to Borrower's agreement not to grant any Lien on any Resort Facilities, any rights of Borrower as Declarant, or any contracts or management agreements between Borrower and Silverleaf Club, or any other Property-Related Contracts. 1.66 Net Income. Net income (or loss) determined in conformity with GAAP. 1.67 Net Sales. The contractual purchase price of a Timeshare Interest sale where the recession period has expired. 1.68 Note Receivable. A promissory note made and executed by a Purchaser in favor of Borrower in connection with such Purchaser's acquisition of a Timeshare Interest. 1.69 Oak N' Spruce Resort. That certain Receivables Loan Approved Resort located at Lee, Berkshire County, Massachusetts and part of the Silverleaf Club. 1.70 Obligations. All indebtedness, liabilities, obligations, and responsibilities, both financial and otherwise, to which Borrower is subject under any of the Loan Documents, including but not limited to all amounts due or becoming due to Lender in respect of the Loan or any of the Loan Documents, including principal, interest, prepayment premiums, contributions, taxes, insurance premiums, loan charges, custodial fees, reasonable attorneys' and paralegals' fees and expenses and other fees or expenses which are incurred by Lender or advanced to or on behalf of Borrower by Lender, pursuant to any of the Loan Documents or in connection with Lender's enforcement of the prompt and complete payment and performance by Borrower of all indebtedness, liabilities and obligations pursuant to this Agreement, any of the other Loan Documents, or otherwise. RECEIVABLES LOAN AND SECURITY AGREEMENT 12 1.71 Orlando Breeze Resort Club. Orlando Breeze Resort Club, a Texas non-profit corporation. 1.72 Payment Authorization Agreement. The pre-authorized debit agreement executed by a Purchaser which provides for the payment of a Note Receivable. 1.73 Permitted Discretion. A determination or judgment made on good faith in the exercise of reasonable (from the perspective of a secured lender) credit or business judgment. 1.74 Permitted Liens and Encumbrances. Those Liens and encumbrances affecting all or any portion of the Collateral to which Lender consents, as set forth on Exhibit "E," attached hereto and incorporated herein by this reference. 1.75 Person. An individual, corporation, partnership, limited liability company, association, trust, government or political subdivision or agency thereof, or other legal entity. 1.76 Pledged Note Receivable. A Note Receivable that has been and remains pledged to Lender by Borrower, pursuant to this Agreement or any of the other Loan Documents. 1.77 Property. Collectively, all of Borrower's right, title and interest in and to all Timeshare Interests, all Receivables Loan Approved Resorts, all voting rights with respect to all Declarations, and all other personal property related thereto. 1.78 Property-Related Contracts. All franchises, permits, trade names, trademarks (and goodwill associated therewith), approvals, leasehold interests (whether as lessor or lessee or sublessor or sublessee), management contracts, marketing contracts, maintenance contracts, utility contracts, security contracts, other servicing contracts, licensing contracts or other similar contracts, and all guaranties of any of the foregoing, whether existing as of the Closing Date or arising after the date hereof, relating, in each case, to each Receivables Loan Approved Resort (and the Timeshare Interests and/or the Units related thereto). 1.79 Purchase Agreement. The Contract for Purchase and Sale executed by a Purchaser and Borrower for the Purchaser's acquisition of a Timeshare Interest at the Property. 1.80 Purchase Price. The total purchase price of a Timeshare Interest, as set forth in the Timeshare Documents relating to the purchase of such Timeshare Interest. 1.81 Purchaser. Any individual(s) who acquires one (1) or more Timeshare Interests. 1.82 Receivables Loan Approved Resorts. Collectively, Oak N' Spruce, each of the resorts owned by Borrower or an Affiliate of Borrower located in Habersham County, Georgia, Lake County, Illinois, Comal County, Texas, Taney County, Missouri, Wood County, Texas, Smith County, Texas, Stone County, Missouri, Montgomery County, Texas, Galveston County, Texas and Jefferson County, Missouri, each included in the Silverleaf Club, and Orlando Breeze Resort located in Polk County Florida, all as more particularly described on Exhibit "F" attached hereto, and all additional timeshare resorts or similar real property developments approved from time to time by Lender in its sole discretion where a Timeshare Interest owned by Borrower is located, together with all improvements now or hereafter located thereon including, as RECEIVABLES LOAN AND SECURITY AGREEMENT 13 applicable, all roadways, easements, Common Elements, Furnishings, Resort Facilities, equipment, fixtures, licenses and all other appurtenances thereunto belonging. 1.83 Resort Facilities. Those facilities and amenities at the Receivables Loan Approved Resorts that are available for use by Purchasers of Timeshare Interests in such Receivables Loan Approved Resort and that are more particularly described in Exhibit "D" attached hereto. In certain cases such facilities and amenities are not located within the boundaries of the timeshare regime at the applicable Receivables Loan Approved Resort as established pursuant to the applicable Declaration, but in such cases are subject to a Use Agreement. 1.84 Revolving Credit Period. The period of time commencing on the Closing Date and expiring on the Maturity Date. 1.85 Sales and Marketing Costs. All promotion, lead generation, sales commissions and other marketing expenses and costs incurred by Borrower in connection with selling and marketing of Timeshare Interests in each Receivables Loan Approved Resort. 1.86 Servicing Agreement. That certain servicing agreement dated as of the date hereof, in form and substance satisfactory to Lender in its sole discretion, between Lender and Borrower, as servicer. 1.87 Silverleaf Club. Silverleaf Club, a Texas non-profit corporation. 1.88 Sovereign Facility. Individually and collectively, each of those certain credit facility provided by Sovereign Bank to Borrower pursuant to (a) that certain Second Amended and Restated Revolving Credit Agreement dated as of July 30, 2004, and (b) that certain Inventory and Receivables Revolving Credit Agreement dated as of July 30, 2004, including all other documents and instruments executed in connection therewith, as all of the same have been and may hereafter be amended, supplemented and modified from time to time. 1.89 Suspension of Sales Order or Sanction. The issuance of any stay order, cease and desist order or similar judicial or nonjudicial sanction prohibiting the sale or marketing of Timeshare Interests. 1.90 Tangible Net Worth. For any Person, at a particular date, (a) the aggregate amount of all assets of such Person as may be properly classified as such in accordance with GAAP consistently applied excluding such other assets as are properly classified as intangible assets under GAAP, less (b) the aggregate amount of all liabilities of such Person, plus subordinated debt (excluding accrued interest on such subordinated debt) of such Person as approved by Lender. 1.91 Textron Facility. Individually and collectively, those certain credit facilities provided by Textron Financial Corporation to Borrower pursuant to (a) that certain Amended and Restated Loan, Security and Agency Agreement (Tranche A) dated as of April 30, 2002, (b) that certain Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated as of April 30, 2002, (c) that certain Loan and Security Agreement (Tranche C) dated as of April 17, 2001, and (d) that certain Amended and Restated Loan and Security Agreement dated as of RECEIVABLES LOAN AND SECURITY AGREEMENT 14 March 5, 2004, and all documents and other instruments executed in connection therewith, as all of the same have been and may hereafter be amended, supplemented and modified from time to time. 1.92 Timeshare Act. Any statute, act, regulation, ordinance, rule or law applicable to the establishment and operation of the Receivables Loan Approved Resorts and the sale of Timeshare Interests. 1.93 Timeshare Association. Individually and collectively, those certain non-profit corporations, or any successor associations thereto, created in the Declaration. 1.94 Timeshare Documents. The Declaration, the bylaws and rules and regulations of the Timeshare Association, and all other documents and instruments relating to the Property, the Timeshare Association, and/or the Units, Common Areas, or Timeshare Interests thereat, including but not limited to public offering statements, Purchase Agreements, promissory notes, federal truth-in-lending disclosures, advertising and promotional materials of any and every type, contracts and agreements to which the Timeshare Association is subject, and any and all other documents, instruments, and other materials used, directly or indirectly, in connection with the marketing, sale, and financing of such Timeshare Interests. Each Timeshare Document shall be reviewed by Lender and accepted by Lender as a condition precedent to the Initial Advance. 1.95 Timeshare Interest. A fee simple ownership interest in a Unit located at a Receivables Loan Approved Resort to be sold by Borrower to Purchasers comprised of either: (i) a Timeshare Interest which provides a Purchaser with a seven (7) consecutive day right of occupancy in a Unit located in a Receivables Loan Approved Resort every year ("Weekly Timeshare Interest"); or (ii) any combination of a Timeshare Interest which provides a Purchaser with a seven (7) consecutive day right of occupancy in a Timeshare Unit located in a Receivables Loan Approved Resort every other year ("Bi-annual Timeshare Interest"), as set forth in the applicable Declaration, with such interest being entitled to the right to the possession, use and occupancy of a Unit located in a Receivables Loan Approved Resort during the applicable time periods sold for such Weekly Timeshare Interest or Bi-annual Timeshare Interest, as applicable, and the use of all Common Elements and Resort Facilities. 1.96 Timeshare Interest Mortgage. A recorded, first priority mortgage executed and delivered by each Purchaser to Borrower, securing a Pledged Note Receivable and encumbering all of the right, title and interest of each Purchaser in the related Timeshare Interest. With respect to Oak N' Spruce Resort only, an Assignment of Certificate of Beneficial Interest executed by each Purchaser and delivered to Borrower. 1.97 Title Insurance Company. Chicago Title Insurance Company, or such other title insurance company as is acceptable to Lender, in its sole discretion. 1.98 Title Policy. Defined in Section 4.1(h) of this Agreement. 1.99 Unit. A part of the Property which is designated for occupancy. 1.100 Unused Line Fee. An amount calculated as of the last day of each month equal to one-quarter of one percent (0.25%) per annum of the difference between (i) the Maximum Loan RECEIVABLES LOAN AND SECURITY AGREEMENT 15 Amount and (ii) the average outstanding principal balance of the Loan during such month commencing on the first day of the seventh (7th) month following the Closing Date, payable monthly in arrears by the first Business Day of the following month during the term of the Loan. Notwithstanding the foregoing, the Unused Line Fee shall be waived in the event the average outstanding principal balance of the Loan is in excess of $20,000,000 during such period. 1.101 Upgraded Note Receivable. An Eligible Note Receivable made by the maker of an existing Pledged Note Receivable which is assigned to Lender in replacement of such Pledged Note Receivable and which satisfies the criteria established in this Agreement (other than clause (h) of the definition of Eligible Note Receivable; provided, that the sum of such maker's (i) down payment on such existing Pledged Note Receivable plus (ii) existing equity in such existing Pledged Note Receivable shall be equal to at least ten percent (10%) of the original purchase price of the relevant Timeshare Interest). 1.102 Use Agreement. Each of those certain Recreation and Use Agreements whereby Purchasers have been granted the right to use and enjoy the Resort Facilities. 1.103 Voting Equity. Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions) of such corporation or, in the case of a Person which is not a corporation, securities or similar equity or partnership interests which entitle the holder thereof to elect, select or control the management or policies of such Person. SECTION 2. THE LOAN Lender hereby agrees to make the Loan in accordance with all of the terms, provisions, and conditions hereof and of the other Loan Documents. 2.1 Purposes. The proceeds of the Loan shall be used to pay all indebtedness secured by any liens (other than liens in favor of Lender) encumbering the Timeshare Interests related to the Pledged Notes Receivable and for working capital purposes. In addition, proceeds of the Loan shall be used to pay Borrower's costs associated with the closing of the Loan. 2.2 Advances. So long as (i) no Event of Default exists and is continuing or (ii) Lender has not delivered notice of the occurrence of a Default as set forth in Sections 7.1 or 7.2 hereof and the failure to comply or violation subject of such notice has not been satisfied or cured by Borrower, Lender shall advance to Borrower, and Borrower may borrow, repay and re-borrow principal under the Loan, to be disbursed to Borrower in a series of Advances during the Revolving Credit Period, not to exceed at the time of any Advance an outstanding balance greater than the Borrowing Base. Advances shall be made in amounts of at least $50,000 but not more often than weekly. 2.3 Interest Rate. The aggregate principal amount of all Advances of the Loan that are outstanding from time to time shall bear interest at a rate equal to the Interest Rate. Interest shall be due and payable monthly in arrears on the first Business Day of each month. The average monthly outstanding principal balance of the Loan shall bear interest in arrears as of Lender's wiring of funds through its receipt of repayment of the Loan (if received by Lender later than 1:00 p.m. eastern time, then interest accrual shall be through the next Business Day RECEIVABLES LOAN AND SECURITY AGREEMENT 16 following such receipt). If any statement furnished by Lender for the amount of a monthly payment due exceeded the actual amount that should have been paid because the LIBOR Rate decreased and such decrease was not reflected in the monthly statement, Borrower shall make the payment specified in the monthly statement from Lender and Borrower shall receive a credit for the overpayment, which credit shall be applied towards the next subsequent monthly payment due hereunder. If any statement furnished by Lender for the amount of a monthly payment due was less than the actual amount that should have been paid because the LIBOR Rate increased and such increase was not reflected in the monthly statement, Borrower shall make the payment specified in the monthly statement from Lender and Borrower shall be required to pay any resulting underpayment with the next subsequent monthly payment due hereunder. Immediately upon the occurrence of a Default or Event of Default and after the Maturity Date (if the Loan is not paid in full on the Maturity Date), at Lender's election, in its sole discretion, the Loan shall bear interest at the Default Rate. Lender may assess a late charge equal to five percent (5%) of each delinquent payment due hereunder if such payment is not paid by the time and in the manner required. 2.4 Payments. Borrower agrees punctually to pay or cause to be paid to Lender, via wire transfer, or through application of funds from the Lockbox Account all principal and interest due under the Loan and other payments due hereunder as follows: (a) Weekly Payments From Lockbox Account. (i) Lockbox Account. Borrower shall direct or otherwise cause the makers of each Pledged Note Receivable, in writing, to pay directly to Lockbox Agent all interest, principal, prepayments (both voluntary and mandatory), and other amounts of any and every description payable to Borrower by or on behalf of such maker pursuant to the applicable Pledged Note Receivable, the related Timeshare Interest Mortgage, or any other related documents or instruments. Such amounts shall be deposited by Lockbox Agent into the lockbox account established and maintained by Lockbox Agent in accordance with the provisions of the Lockbox Agreement (the "Lockbox Account") by 5:00 p.m. eastern time on each and every Business Day, prior to the Maturity Date. Lockbox Agent shall be responsible pursuant to the terms of the Lockbox Agreement for remitting to Lender, via wire transfer, 100% of cleared funds collected from the Pledged Notes Receivable in the Lockbox Account. (ii) Application of Funds. All amounts received by Lender shall be applied by Lender on a weekly basis beginning on the last Business Day of each week in the following order of priority (A) first, to reimburse Lender for all costs, expenses, and other amounts due Lender hereunder or pursuant to the other Loan Documents other than principal and interest, including, without limitation, the costs, expenses and other amounts due Custodian; (B) second, to pay Lender all accrued but unpaid interest due under the Note; (C) third, to reduce the outstanding principal balance of the Loan as sufficient to maintain the Borrowing Base; (D) fourth, to reduce the outstanding principal balance of the Loan; and (E) fifth, to the payment of any other Obligations outstanding under this Agreement. If the amount of funds received by Lender from the Lockbox Agent with respect to any week is insufficient to pay in full the amounts provided for in clauses (A), (B) and (C) of the preceding sentence for such week, without notice or RECEIVABLES LOAN AND SECURITY AGREEMENT 17 demand, Borrower shall pay the difference to Lender within the first seven (7) days of the next succeeding week. (iii) Borrower's Receipt of Payments. 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 from 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 by Borrower to Lender and delivered to Lender promptly upon Borrower's receipt thereof. (b) Final Payment. Notwithstanding any term, provision, or condition hereof to the contrary, the entire outstanding principal balance of the Loan, together with any and all accrued but unpaid interest thereon and all other Obligations, shall be paid in full via wire transfer by Borrower to Lender on or before the Maturity Date, as such may be extended pursuant to the terms of this Agreement. (c) Payment of Fees. Borrower agrees to pay Lender each of the following fees: (i) Commitment Fee -- $500,000 is non-refundable and deemed earned at Closing and payable on the Closing Date; and (ii) Unused Line Fee -- which is due commencing on the first day of the seventh (7th) month following the Closing Date and is payable monthly in arrears by the first Business Day of the following month during the term of the Loan; and which at such time shall automatically be paid from the proceeds of the Lockbox Account; provided, that the Unused Line Fee shall cease to accrue during any time the outstanding principal amount of the Loan exceeds $20,000,000. 2.5 Prepayments. (a) Voluntary Prepayments. The Loan may not be prepaid in whole during the Revolving Credit Period; provided, however, subject to the terms of this Agreement, Borrower may prepay the Loan, in whole or in part, upon any whole loan sale, off balance sheet conduit sale or securitization, upon thirty (30) days' prior written notice to Lender, so long as the Loan or this Agreement shall not be terminated. Any such prepayment must include all outstanding principal, accrued but unpaid interest, and all other Obligations. (b) Mandatory Prepayments. If at any time and for any reason, the outstanding unpaid principal balance of the Loan exceeds the aggregate amount of the Borrowing Base, Borrower shall either (A) prepay the principal balance of the Loan in an amount equal to the difference between the then aggregate outstanding principal balance of the Loan and the amount of the Borrowing Base, or (B) increase the aggregate principal amount of Eligible Notes Receivable, pledged to Lender so that the Borrowing Base exceeds the then outstanding principal balance of the Loan. The pledge and delivery to Lender of additional RECEIVABLES LOAN AND SECURITY AGREEMENT 18 Eligible Notes Receivable shall comply with the document delivery and recordation requirements set forth in Section 4.2(b) 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, the outstanding unpaid principal balance of the Loan is equal to or less than the Borrowing Base. Notwithstanding the foregoing, Borrower shall prepay the entire outstanding principal balance of the Inventory Loan upon repayment in full of the Loan and termination of this Agreement prior to the Maturity Date. 2.6 Reassignment by Lender. In the event (a) the obligation under a Pledged Note Receivable and the related Timeshare Interest Mortgage has been satisfied in full by its maker or makers and all amounts paid thereunder actually received in good funds by Lender, (b) Borrower replaces a Pledged Note Receivable with an Eligible Note Receivable in accordance with the terms of this Agreement, or (c) another event occurs pursuant to which Lender in its reasonable discretion agrees with Borrower that a Pledged Note Receivable shall be returned to Borrower and Lender's lien with respect to the related Timeshare Interest Mortgage shall be released, Lender, upon receipt of a written request from Borrower, shall promptly reassign any Timeshare Interest Mortgage and endorse the related Pledged Note Receivable to Borrower, without recourse, in the form attached hereto as Exhibit "G" Lender shall cause all original collateral files related thereto to be returned to Borrower. 2.7 Breakage Costs. Borrower hereby agrees to pay to Lender any amount necessary to compensate Lender for any losses or costs sustained by Lender if the Loan, or any portion thereof, is prepaid for any reason whatsoever on any date other than the Maturity Date or as the consequence of the breaking of any LIBOR contract. 2.8 Additional Increased Costs. In the event that after the date of this Agreement, any applicable law, treaty or governmental regulation, or any change therein or in the interpretation or application thereof, or compliance by Lender (for purposes of this Section 2.9, the term "Lender" shall include Lender and any corporation or bank controlling Lender) and the office or branch where Lender (as so defined) makes or maintains the Loan with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority, shall: (a) subject Lender to any tax of any kind whatsoever with respect to this Agreement or any other Loan Document or change the basis of taxation of payments to Lender of principal, fees, interest or any other amount payable hereunder or under any other Loan Documents (except for changes in the rate of tax on the overall net income of Lender by the jurisdiction in which it maintains its principal office); (b) impose, modify or hold applicable any reserve, special deposit, assessment or similar requirement against assets held by, or deposits in or for the account of, advances or loans by, or other credit extended by, any office of Lender, including (without limitation) pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or (c) impose on Lender or the London interbank Eurodollar market any other condition with respect to this Agreement or any Loan Document; RECEIVABLES LOAN AND SECURITY AGREEMENT 19 and the result of any of the foregoing is to increase the cost to Lender of making, renewing or maintaining the Loan hereunder by an amount that Lender deems to be material or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of the Loan by an amount that Lender deems to be material, then, in any case Borrower shall promptly pay Lender, upon its demand, such additional amount as will compensate Lender for such additional cost or such reduction, as the case may be, provided that the foregoing shall not apply to increased costs which are reflected in the LIBOR Rate. Lender shall certify the amount of such additional cost or reduced amount to Borrower, and such certification shall be conclusive absent manifest error. 2.9 Basis For Determining Interest Rate Inadequate or Unfair. In the event that Lender shall have determined that: (a) reasonable means do not exist for ascertaining the LIBOR Rate for the Loan; (b) dollar deposits for three months are not available in the London interbank Eurodollar market; or (c) any applicable law, treaty, regulation or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for Lender (for purposes of this subsection the term "Lender" shall include the office or branch where Lender or any corporation or bank controlling such Lender makes or maintains the Loans) to make or maintain the Loan; then Lender shall give Borrower prompt written, telephonic or telegraphic notice of such determination. 2.10 Notes. Borrower agrees that: (a) upon written notice by Lender to Borrower that a promissory note or other evidence of indebtedness is requested by Lender to evidence the Loan and other obligations owing or payable to, or to be made by, Lender, Borrower promptly shall (and in any event within three (3) Business Days of any such request) execute and deliver to Lender an appropriate promissory note or notes in form and substance reasonably satisfactory to Lender and Borrower, payable to the order of Lender in a principal amount equal to the amount of the Loan owing or payable to Lender; (b) all references to "Note" or "Notes" in the Loan Documents shall mean Notes, if any, to the extent issued (and not returned to Borrower for cancellation) hereunder, as the same may be amended, supplemented, modified, divided and/or restated and in effect from time to time; and (c) upon Lender's written request, and in any event within three (3) Business Days of any such request, Borrower shall execute and deliver to Lender new Notes and/or split or divide the Notes, or any of them, in exchange for the then existing subject Notes, in such smaller amounts or denominations as Lender shall specify; provided, that the aggregate principal amount of such new, split or divided Notes shall not exceed the aggregate principal amount of the Notes outstanding at the time such request is made; and provided, further, that such Notes RECEIVABLES LOAN AND SECURITY AGREEMENT 20 that are replaced shall then be deemed no longer outstanding hereunder and replaced by such new Notes and returned to Borrower within a reasonable period of time after Lender's receipt of the replacement Notes. (d) Upon receipt of evidence reasonably satisfactory to Borrower of the mutilation, destruction, loss or theft of any Notes and the ownership thereof, Borrower shall, upon the written request of the holder of such Notes, execute and deliver in replacement thereof new Notes in the same form, in the same original principal amount and dated the same date as the Notes so mutilated, destroyed, lost or stolen; and such Notes so mutilated, destroyed, lost or stolen shall then be deemed no longer outstanding hereunder. If the Notes being replaced have been mutilated, they shall be surrendered to Borrower; and if such replaced Notes have been destroyed, lost or stolen, such holder shall furnish Borrower with an indemnity in writing to indemnify, defend and save it harmless in respect of such replaced Notes. SECTION 3. COLLATERAL 3.1 Grant of Security Interest. To secure the payment and performance when due of the Obligations, for value received, Borrower hereby unconditionally and irrevocably assigns, pledges, and grants to Lender a continuing first priority security interest in and to the Collateral. 3.2 Security Interest in All Pledged Notes Receivable. Notwithstanding that Lender is obligated, subject to the terms and conditions set forth herein and in the other Loan Documents, to make an Advance only in respect of Eligible Notes Receivable, Lender shall have a continuing security interest in and to all of the Pledged Notes Receivable and may collect and shall receive all payments made under or in respect of all Pledged Notes Receivable, including Eligible Notes Receivable that may become ineligible, until any of the same are released by Lender, if at all, pursuant to Section 11.10 below. 3.3 Financing Statements. Borrower agrees, at its own expense, to execute the financing statements provided for by the Code, together with any and all other appropriate instruments and documents, and to take such other action as may be required, in Lender's reasonable judgment, in order to perfect and to continue the perfection of Lender's security interests in the Collateral and unless prohibited by law, Borrower hereby authorizes Lender to execute and file any such financing statements on Borrower's behalf. 3.4 Location of Collateral. All tangible Collateral (other than Collateral delivered to Lender or Custodian) shall remain, at all times, within the Property or at the offices of Borrower, and Borrower may not transfer or cause the transfer of any such Collateral from such premises without the prior written approval of Lender. 3.5 Protection of Collateral; Reimbursement. (a) Pledged Notes Receivable and Related Documents. The portion of the Collateral consisting of (i) the original Pledged Notes Receivable; (ii) the original Purchase Agreements (including any addenda thereto) related to such Pledged Notes Receivable; and (iii) originals or true copies of the related Timeshare Interest Mortgages, truth-in-lending disclosure statements and, if required by Lender, loan applications, any related Purchaser's or owner's acknowledgments and understandings, certificates of title, public offering statement and other RECEIVABLES LOAN AND SECURITY AGREEMENT 21 receipts, Payment Authorization Agreements and Exchange Company applications and disclosures shall be delivered, at Borrower's expense, to Lender at its address as set forth in Section 11.1 hereof and, except as otherwise expressly provided herein to the contrary, held in Lender's possession, custody, and control until all of the Obligations have been fully satisfied or Lender expressly agrees to release such documents. Alternatively, Lender, in its sole discretion, may elect for Custodian to accept delivery of and maintain possession, custody, and control of all such documents and instruments on behalf of Lender during such period of time. Each original Pledged Note Receivable in favor of Borrower and delivered by Borrower to Lender shall be duly endorsed by Borrower with the words: "Pay to the order of CAPITALSOURCE FINANCE LLC, together with its successors and assigns, with recourse." (b) Storage; Liability. The portion of the Collateral delivered to Lender or Custodian as described above shall be segregated by Lender or Custodian, as the case may be, and stored in a secure, fire-resistant filing cabinet, access to which is limited in a commercially reasonable manner. Borrower agrees that such storage is and shall be deemed to constitute reasonable care by Lender with respect to such Collateral. Except to the extent expressly included in the Custodian's fee as set forth in the Custodial Agreement, all insurance and other expenses of protecting the Collateral, including, without limitation, storing, warehousing, insuring, handling, maintaining, and shipping the Collateral, and any and all excise, property, intangible, sales, and use taxes imposed by any state, federal, or local governmental authority on any of the Collateral or in respect of the sale thereof shall be paid by Borrower. Provided that Lender or Custodian retains the original Pledged Notes Receivable and related Timeshare Interest Mortgages and originals or copies of the related Timeshare Documents, delivered to it and stores it in a secure, fire-resistant filing cabinet as provided above, Lender shall not be liable or responsible in any way for the safekeeping 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, Custodian, or any other Person whomsoever, excluding damages or losses that occur as a result of Lender's gross negligence or willful misconduct. 3.6 Cross-Collateralization and Default. The Collateral shall secure all of the Obligations. All Liens, pledges, assignments, mortgages, security interests, and other collateral granted to or for the benefit of Lender pursuant hereto or any other related documents or instruments shall also secure the Obligations as well as the "Obligations" as defined in the Inventory Loan Agreement. In addition, the Loan and all other loans made by Lender to Borrower or any Affiliate of Borrower (including, but not limited to, the Inventory Loan) shall be cross-defaulted such that any event of default with respect to any such loan shall constitute an Event of Default hereunder, and vice versa. 3.7 Liability. Any and all amounts for which Borrower may become liable hereunder and all costs and expenses (including reasonable attorneys' and paralegals' fees, legal expenses, and court costs) that Lender actually incurs 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 in respect to any of the transactions to be had hereunder or thereunder, until paid by Borrower to Lender with interest at the Default Rate, shall be included among the Obligations and, as such, shall be secured by all of the Collateral. RECEIVABLES LOAN AND SECURITY AGREEMENT 22 SECTION 4. CONDITIONS PRECEDENT TO CLOSING AND FUNDING PROCEDURES The obligation of Lender to enter into this Agreement and to fund the Loan shall be subject to the complete satisfaction of each of the conditions precedent set forth below and elsewhere in the Loan Documents: 4.1 Conditions Precedent. On or prior to the Closing Date: (a) Execution and Delivery. Borrower shall execute and cause to be notarized, witnessed, and attested, as appropriate, and delivered to Lender the Loan Documents, together with such additional documents and certifications as Lender and its counsel may reasonably require in order to ensure that all conditions precedent to the closing of the Loan and the making of Advances hereunder have been satisfied in all respects. (b) Opinion of Borrower's Counsel. Lender shall have received from duly licensed outside counsel for Borrower acceptable to Lender such legal opinions, in form and substance satisfactory to Lender, covering such items as may be required by Lender, in its sole discretion, including, without limitation, that the Loan Documents are valid, binding, and legally enforceable in accordance with their terms and that they do not violate any applicable usury or other Applicable Laws and the delivery and endorsement by Borrower of such Pledged Notes Receivable in the manner prescribed herein, the execution and delivery to Lender of a Master Pledge and Assignment of Note Receivables and Timeshare Interest Mortgages, and, with respect to Receivables Loan Approved Resorts other than Oak N' Spruce Resort, the recordation of such Master Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages and a corresponding UCC Financing Statement with the Texas Secretary of State will create in favor of Lender a valid and perfected continuing first priority Lien and security interest in and to such Pledged Notes Receivable. (c) Representations, Warranties, Covenants, and Agreements. The representations and warranties contained in the Loan Documents and in any certificates delivered to Lender in connection with the closing shall be true and correct in all material respects, and all covenants and agreements required to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Lender. (d) Borrower's Background Documents. Borrower shall have delivered to Lender and Lender shall have approved each of the following: (i) Borrower's Organizational Documents. Copies of Borrower's organizational documents, including but not limited to its certificate of incorporation and bylaws, together with any amendments thereto, certified to be true and complete by the Secretary of Borrower. (ii) Good Standing Certificate. Current good standing certificate for Borrower issued by the Texas Secretary of State. (iii) Authorizations; Resolutions; Incumbency Certificates. A certified resolution of Borrower authorizing the execution of all Loan Documents and the RECEIVABLES LOAN AND SECURITY AGREEMENT 23 performance of all Obligations thereunder. Such resolution shall be accompanied by a certificate from Borrower, signed by a duly authorized officer of Borrower and dated as of the Closing Date, indicating the incumbency, authority, and signatures of the members or officers of such entity authorized to sign, on behalf of such entity, this Agreement and the other Loan Documents to which such entity is a party. (e) Financial Statements. Lender shall have received and approved the Financial Statements required pursuant hereto, or otherwise required by Lender, for Borrower, all in form and substance satisfactory to Lender. (f) Proceedings Satisfactory. All actions taken in connection with the execution and delivery of the Loan Documents, and all documents and papers related thereto, shall be completely satisfactory to Lender and its counsel. Lender and its counsel shall have received copies of all such documents, instruments, and other items as Lender or its counsel may reasonably request in connection therewith, all in form and substance satisfactory to Lender and its counsel. (g) Expenses. Borrower shall have paid all fees, expenses, and other amounts required to be paid prior to or on the Closing Date, pursuant to this Agreement. (h) Title Insurance. Borrower shall deliver or cause to be delivered to Lender a mortgagee's title insurance commitment at the time of each Advance covering Timeshare Interest Mortgages which are included as part of such Advance (other than Timeshare Interest Mortgages covering Timeshare Interests in Oak N' Spruce Resort), underwritten by a company acceptable to Lender in all respects, to insure the lien of each Timeshare Interest pledged to Lender in an amount not less than the applicable Pledged Notes Receivable balance and containing such affirmative coverage as Lender deems reasonably necessary. A mortgagee title insurance policy consistent with the subject title insurance commitment and naming Borrower, its successors and assigns as insured mortgagee shall be delivered with respect to the Timeshare Interest Mortgages which make up each Advance (other than Timeshare Interest Mortgages covering Timeshare Interests in Oak N' Spruce Resort) within sixty (60) days of the date of the Advance on such Pledged Notes Receivable and must insure that the applicable Timeshare Interest Mortgage creates a first priority lien in and to the financed Timeshare Interest in favor or Lender, as assignee of Borrower, with such exceptions and conditions to title as Lender shall approve in writing. (i) Purchase Agreement. Borrower shall deliver to Lender or, at the option of Lender in its sole discretion, Custodian, each Pledged Note Receivable endorsed to the order of Lender and an original Purchase Agreement, disclosure statement, copy of the Timeshare Interest Mortgage and the Master Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages in respect of each of the Eligible Notes Receivable which Borrower proposes to assign to Lender and upon which Borrower is basing the requested Advance, together with copies of the settlement statement and other documents as further described in the Custodial Agreement. (j) Evidence of Insurance. Lender has received certified copies of all insurance policies and endorsements thereto or other evidence satisfactory to Lender, in its sole RECEIVABLES LOAN AND SECURITY AGREEMENT 24 discretion. In addition, Lender has written evidence that Borrower has obtained and maintained all policies of insurance required by and in accordance with Section 6.1(c) hereof, including but not limited to copies of the most current paid insurance premium invoices for such policies. (k) Applicable Laws. Lender has received evidence satisfactory to Lender that all existing Improvements at the Property are and will be in compliance with all applicable zoning, building, and other Applicable Laws in connection with the establishment of the Property, the operation of the Property, the sale, use and marketing of Timeshare Interests, and the occupancy of Units at the Property. (l) Litigation. Other than those certain matters described in Exhibit "H" hereto, there is no pending or threatened bankruptcy, foreclosure, or other material litigation or judgments outstanding against or with respect to the Property, all or any portion of the Collateral or Borrower (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) Lender determines, in its sole discretion, that such litigation is immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall have obtained an independent search, at Borrower's expense, confirming that no such bankruptcy, foreclosure action, or other material litigation or judgment exists. (m) Code/Other Searches. Lender has obtained such searches of the applicable public records as it deems necessary under all Applicable Laws to verify that it has a first and prior perfected Lien and security interest covering all of the Collateral. (n) Taxes and Assessments. Lender has received copies of the most current tax bills related to the Property, including the real property, and Timeshare Interests, together with evidence satisfactory to it that all taxes and assessments owed by or for which Borrower is responsible for collection have been paid prior to becoming delinquent, which taxes and assessments include, without limitation, sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangible taxes, real property taxes, income taxes, and any assessments related to the Property and/or the real property, or Timeshare Interests. Lender shall also have received information satisfactory to Lender disclosing the tax identification numbers, tax rates, estimated tax values, assessment ratios, and estimated assessment values or amounts with respect to its interest in the Property and the real property and the identities of the taxing authorities having jurisdiction over the real property and the Property as well as the instrumentalities and entities having the power and jurisdiction to impose assessments against the real property or the Property. (o) Intercreditor Agreements. Lender shall have entered into intercreditor agreements, in form and substance satisfactory to Lender, with each of Textron Finance Corporation, Sovereign Bank and any other lenders or financial institutions from time to time providing financing to Borrower and its Affiliates as requested by Lender from time to time. (p) Physical Inspection. Lender may, in its sole discretion, cause to be made its own physical inspection of the Property or its Collateral. If Lender's physical inspection indicates that any structural or mechanical defect exists with respect to all or any portion of the Property or its Collateral (including Units which include Timeshare Interests which are related to RECEIVABLES LOAN AND SECURITY AGREEMENT 25 any Pledged Note Receivable), Lender shall have the right to engage an independent engineering firm to prepare a structural and mechanical engineering report covering the Property confirming that the Property and the improvements thereat are in all material respects mechanically and structurally sound. If the structure is found to be defective, the cost of any requisite remedial work with respect to the mechanical and structural condition of the Property which is required as a result of the findings of such report which raise questions about the structural soundness of the Property shall be borne entirely by Borrower. (q) Permits and Approvals. Lender has received copies of satisfactory evidence that the real property, the Units, and other improvements thereto, and the use of the Property are in compliance with all Applicable Laws, including, without limitation: (i) Environmental Laws; (ii) erosion control ordinances; (iii) doing-business and licensing laws, including those governing alcohol and beverages; (iv) the Americans with Disabilities Act of 1990 and any other laws protecting disabled or handicapped persons; and (v) zoning laws. All such permits and approvals granted to Borrower shall continue to be legally valid and shall remain in full force and effect for so long as any Obligations remain outstanding. (r) Timeshare Interest Sales. Lender has received written evidence to the effect that Borrower has complied in all respects with all Applicable Laws relating to the marketing and sale of Timeshare Interests, including but not limited to any Encumbered Timeshare Interests, at or with respect to the Property, including but not limited to timeshare registration statutes, rules, and regulations. (s) Compliance with Applicable Laws. Lender has received written evidence satisfactory to it, in its Permitted Discretion, that all Units in which Borrower is selling Timeshare Interests have been properly submitted to the Declaration in full compliance with all Applicable Laws. (t) Inventory Loan Conditions. Each of the conditions to the initial advance under the Inventory Loan Agreement shall have been satisfied. (u) 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 Lender or its Counsel prior to the Closing Date. 4.2 Funding Procedures. (a) Initial Advance. Subject to all of the terms, provisions, and conditions hereof and of the other Loan Documents, Lender shall make an Initial Advance to Borrower exclusively for the purposes set forth in Section 2 above promptly following Lender's perfection of its Liens and security interests in all other Collateral, and Borrower's complete satisfaction of all other conditions precedent to such Initial Advance set forth herein and in the other Loan Documents. RECEIVABLES LOAN AND SECURITY AGREEMENT 26 (b) Requests for Advances. Each request for an Advance under the Loan shall be completed on the appropriate form attached hereto as Exhibit "I" attached hereto and incorporated herein by this reference (the "Advance Request") and shall: (i) Be in writing (in the form of Exhibit "I"); (ii) Specify the principal amount of the Advance requested; (iii) Confirm the amount of the then current Borrowing Base (and provide back up as requested by Lender); (iv) Confirm that all representations and warranties of Borrower contained in this Agreement are true and correct as of the date of the Advance Request and, after giving effect to the making of the requested Advance, will be true and correct as of the date on which the Advance is to be made; (v) State that no Default or Event of Default exists as of the date of the Advance Request and, after giving effect to the making of such Advance, no Default or Event of Default would exist as of the date on which the Advance is to be made; (vi) Be delivered to the office of Lender as set forth in Section 11.1 hereof at least five (5) Business Days prior to the date of the requested Advance; (vii) Be signed by a duly authorized officer of Borrower; (viii) Be accompanied by Borrower's sworn written certificate to the effect that, to the best knowledge of Borrower and to the extent applicable, Borrower: (A) Has received no notice of any asserted or threatened defense, offset, counterclaim, discount, or allowance in respect of each Eligible Note Receivable to be pledged to Lender through a collateral assignment of all of Borrower's right, title, and interest therein in connection with such Advance; and (B) Has received no notice of any asserted or threatened defense, offset, counterclaim, discount, or allowance in respect of any Eligible Note Receivable or Pledged Note Receivable. (ix) Be accompanied by such additional items as Lender shall reasonably require, including, without limitation: (A) An aging report, in form and substance satisfactory to Lender in its sole discretion, on the applicable Pledged Notes Receivable; and (B) A delinquency report, in form and substance satisfactory to Lender in its sole discretion, showing which Notes Receivable in connection with the Advance are contractually past due and the duration of each such delinquency. RECEIVABLES LOAN AND SECURITY AGREEMENT 27 (x) Provided that no Default or Event of Default hereunder has occurred and is continuing, each Advance shall be made within three (3) Business Days following the last to occur of (a) Lender's receipt of the Advance Request (as hereinafter defined) and all items required to be submitted to Lender hereunder, including but not limited to those items referenced in this Section 4.2 (to the extent applicable) and (b) Lender's receipt of a written certification from Custodian that confirms that Custodian has in its possession each of the documents, instruments, and other items required to be delivered to Custodian pursuant to the Custodial Agreement (unless Lender, in its sole discretion, has elected to take possession of such documents, instruments, and other items itself). (c) Loan Documents/Collateral. Not less than five (5) days prior to the date of any Advance (unless Lender, in its sole discretion, elects to shorten such time frame), Borrower shall have: (i) Delivered to Lender and Custodian a list of all Eligible Notes Receivable, that are intended 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 Lender may request; (ii) Delivered to Lender and Custodian (or, if Lender shall so instruct, a designee appointed by Lender in writing) all documents, instruments, and other items described in Section 4.1 above and in the Custodial Agreement; (iii) Delivered to Lender (or if Lender shall so instruct, a designee appointed by Lender in writing) for the Initial Advance only an original Master Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages, duly executed and in proper form for recording, assigning to Lender all of Borrower's right, title and interest in and to each Pledged Note Receivable identified in the exhibit or schedule thereto, together with all accounts, chattel paper and general intangibles related thereto and the cash and non-cash proceeds thereof ("Master Collateral Assignment"). Such Master Collateral Assignment shall be recorded in connection with the Initial Advance. In addition, if applicable, Borrower shall have delivered to Lender (or if Lender shall so instruct to Custodian) for each Advance subsequent to the Initial Advance a Supplemental Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages in the form of Exhibit "J" hereto, duly executed and in proper form for recording, assigning to Lender all of Borrower's right, title, and interest in and to each such Pledged Note Receivable and Timeshare Interest Mortgages identified in the exhibit or schedule thereto, together with all accounts, chattel paper, and general intangibles related thereto and the cash and non-cash proceeds thereof ("Supplemental Collateral Assignment"). Such Master Collateral Assignment (for the Initial Advance only) and such Supplemental Collateral Assignment (for each Advance subsequent to the Initial Advance) shall be recorded in the Public Records of Habersham County, Georgia; Lake County, Illinois; Comal County, Texas; Taney County, Missouri; Wood County, Texas; Smith County, Texas; Stone County, Missouri; Montgomery County, Texas; Galveston County, Texas; Jefferson County, Missouri; and Polk County, Florida, as applicable. RECEIVABLES LOAN AND SECURITY AGREEMENT 28 (iv) With respect to any Advance in connection with Pledged Notes Receivable generated at Oak N' Spruce Resort, delivered to Lender an Assignment of Certificate of Beneficial Interest securing such Pledged Note Receivable acceptable to Lender in its sole discretion and evidence that Borrower has filed a UCC-1 financing statement in the state where the Purchaser is located naming Borrower as the secured party and Lender as Borrower's assignee. (v) Lender and Borrower agree that in accordance with the terms herewith, that Lender shall make Advances to Borrower upon receipt of an Advance Request without the requirement that the Borrower submit additional Notes Receivable for funding so long as there is availability under the Borrowing Base at the time of such Advance Request. (vi) For the Initial Advance only, delivered to Lender (or if Lender shall so instruct, a designee appointed by Lender in writing) original UCC-1 financing statements covering the Collateral in general, to be recorded with the Secretary of State of the State of Texas. The Timeshare Interest Mortgages relating to each Pledged Note Receivable collaterally assigned to Lender must have evidence thereon of payment of all required documentary stamps and intangible taxes, if any. (d) Other Conditions. In addition to the other conditions set forth in this Agreement, the making of any Advance shall be subject to the complete satisfaction of all of the following conditions: (i) No Default or Event of Default exists immediately prior to the making of such requested Advance or, after giving effect thereto, immediately after the making of such requested Advance; (ii) The Pledged Note Receivable as to which such Advance is sought is not located at a Receivables Loan Approved Resort where a Loss of License has occurred; (iii) The Pledged Note Receivable as to which such Advance is sought is not located at a Receivables Loan Approved Resort where Borrower has received a Suspension of Sales Order or Sanction; (iv) The date on which any Advance is to be made is a Business Day; (v) Lender has determined that each Pledged Note Receivable as to which such Advance is sought is an Eligible Note Receivable and that such requested Advance will not be in an amount greater than the Borrowing Base; (vi) Lender has determined that the weighted average FICO score for the aggregate Pledged Note Receivables as to which such Advance is sought is greater than 640; RECEIVABLES LOAN AND SECURITY AGREEMENT 29 (vii) Lender has determined that no more than twenty-five percent (25%) of the unpaid principal balance of the aggregate Pledged Note Receivables as to which such Advance is sought shall have makers with FICO scores below 600 (including makers who have no FICO score at all); (viii) Lender has determined that no more than five percent (5%) of the unpaid principal balance for the aggregate Pledged Note Receivables as to which such Advance is sought shall have makers who have no FICO score at all; (ix) Lender has determined that no more than five percent (5%) of the unpaid principal balance of the aggregate Pledged Note Receivables as to which such Advance is sought shall be related to downgraded Timeshare Interests; (x) All representations and warranties contained herein, in the other Loan Documents, and in any certificates delivered to Lender in connection with the Loan are true and correct in all material respects; (xi) Lender has received evidence satisfactory to Lender, in its reasonable discretion, that the Receivables Loan Approved Resorts and the Silverleaf Club are affiliated with the Exchange Company; and (xii) Lender has received evidence satisfactory to Lender, in its Permitted Discretion, that all of Borrower's interest in the Receivables Loan Approved Resort (including the marketing and sale of Timeshare Interests thereat or with respect thereto) and the Collateral is in full compliance with all Applicable Laws. SECTION 5. GENERAL REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender as follows: 5.1 Organization, Standing, Qualification. Borrower is a Texas corporation organized, validly existing, and in good standing under the laws of the State of Texas and as a foreign corporation under the laws of each jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires licensing and qualification. Borrower has all requisite power to conduct its business and to execute, deliver, and perform its obligations under the Loan Documents. 5.2 Authorization, Enforceability, Etc. (a) The execution, delivery and performance by Borrower of the Loan Documents to which it is a party has been duly authorized by all necessary corporate action by Borrower and does not and will not (i) violate any provision of Borrower's certificate of incorporation or bylaws or other agreement, statute, 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 and the Permitted Liens and Encumbrances; 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 RECEIVABLES LOAN AND SECURITY AGREEMENT 30 to which Borrower is a party or by which it or any of its assets are bound or affected, including but not limited to any loan from or agreement of any type with a third party lender. (b) No approval, authorization, order, license, permit, franchise, or consent of, or registration, declaration, qualification, or filing with, any governmental authority or other Person is required in connection with the execution, delivery, and performance by Borrower of any of the Loan Documents to which it is a party in addition to those that have already been obtained. (c) The Loan Documents constitute legal, valid, and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. (d) The execution and delivery of the Loan Documents, the delivery and endorsement to Lender of the Pledged Notes Receivable, the filing of a UCC-1 financing statement with the Secretary of State of the State of Texas, and the recordation (as appropriate) of the Master Collateral Assignment (with respect to the Initial Advance) and the Supplemental Collateral Assignment (with respect to all subsequent Advances) and the other Loan Documents create in favor of Lender valid and perfected first priority Liens and security interests in and to all of the Collateral other than Collateral related to Oak N' Spruce Resort. With respect to Oak N' Spruce Resort, the execution and delivery of the Loan Documents, the delivery and endorsement to Lender of the Pledged Notes Receivable, the filing of a UCC-1 financing statement with the Secretary of State of the State of Texas, the delivery of an Assignment of Certificate of Beneficial Interest securing such Pledged Note Receivable and the filing of a UCC-1 financing statement in the state where the Purchaser is located naming Borrower as the secured party and Lender as Borrower's assignee and the other Loan Documents create in favor of Lender valid and perfected first priority Liens and security interests in and to all of the Collateral related to Oak N' Spruce Resort. The Collateral secures the full payment and performance of the Obligations. (e) To the best of Borrower's knowledge, 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. (f) There have been no material modifications or amendments whatsoever to the Pledged Notes Receivable, other than those expressly approved by Lender in writing, the originals of which have been delivered to Custodian. (g) To the best of Borrower's knowledge, the makers of the Eligible Notes Receivable have no defenses, offsets, claims, or counterclaims, relating thereto or to the related Timeshare Interest Mortgages or any other related documents or instruments. (h) The Pledged Notes Receivable are and shall remain in full force and effect as valid and binding obligations of the respective makers thereof in favor of Lender, as the collateral assignee of Borrower's right, title, and interest therein. (i) The grant of the security interests described herein by Borrower in favor of Lender has not adversely affected and will not adversely affect the validity or enforceability RECEIVABLES LOAN AND SECURITY AGREEMENT 31 of the obligations of the respective makers of the Pledged Notes Receivable thereunder or pursuant to their respective Timeshare Interest Mortgages or any related documents or instruments. (j) Lender is not and shall not be required to take, and Borrower has taken, any and all required steps to perfect and maintain Lender's security interests in the Collateral (other than maintaining or causing Custodian to maintain possession, custody, and control of the portion of the Collateral constituting instruments and timely filing continuation statements for UCC financing statements); and Lender is not and shall not be required to collect or realize upon the Collateral or any distribution of interest or principal, nor shall loss of, or damage to, any Collateral release Borrower from any of the Obligations. 5.3 Financial Statements and Business Condition. The Financial Statements fairly present the respective financial conditions and results of operations of Borrower as of the date or dates thereof and for the periods covered thereby. There are no material liabilities, direct or indirect, fixed or contingent, of Borrower as of the dates of such Financial Statements that are not reflected therein or in the notes thereto that have not otherwise been disclosed to Lender in writing. There has been no material adverse change in the financial condition of Borrower from the financial condition shown in its Financial Statements, nor has Borrower incurred any material liabilities, direct or indirect, fixed or contingent, that are not shown in its Financial Statements. Borrower is able to pay all of its debts as they become due, and Borrower will maintain such solvent financial condition, giving effect to the Obligations, as long as Borrower is obligated to Lender under this Agreement or any of the other Loan Documents. Borrower's Obligations under this Agreement and the other Loan Documents will not render Borrower unable to pay its debts as they become due. 5.4 Taxes. Borrower represents and warrants that (a) it has paid in full all ad valorem taxes and other taxes and assessments levied against the Property which are due and payable, and Borrower knows of no basis for any additional taxes or assessments against the Property or Collateral; and (b) it 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 that are payable by it. No tax audit is pending or threatened with respect to Borrower. 5.5 Title to Collateral and Other Properties; Prior Liens. Borrower has good and marketable title to all of the Collateral, including but not limited to all interest of Borrower, as mortgagee under the Encumbered Timeshare Interests, and Pledged Notes Receivable, together with all rights, properties, and benefits appurtenant or related thereto. Other than those granted in favor of Lender, there are no Liens, security interests, charges, or other encumbrances against all or any portion of the Collateral, except for the Permitted Liens and Encumbrances set forth in Exhibit "E," hereto. No financing statement or other instrument similar in effect covering all or any portion of the Collateral, is on file in any filing or recording office, except such as may have been filed or recorded in favor of Lender. Borrower does not own any Furnishings or other tangible personal property in any Unit located at any Receivables Loan Approved Resort. 5.6 Litigation, Proceedings, Etc. There are no actions, suits, proceedings, orders, or injunctions pending or threatened against or affecting Borrower, its Affiliates, or the Property, at law or in equity, or before or by any governmental authority or other tribunal, which (a) could RECEIVABLES LOAN AND SECURITY AGREEMENT 32 have a material adverse effect on Borrower, any Affiliate of Borrower, or the Property that have not been fully disclosed to Lender in writing; or (b) could have a material adverse effect on all or any portion of the Collateral. Exhibit "H," attached hereto and incorporated herein by this reference, describes all currently pending litigation against Borrower or any Affiliate of Borrower. 5.7 Licenses, Permits, Etc. Borrower possesses and will at all times continue to possess all requisite franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions, and orders as are reasonably necessary or appropriate to carry on its business as it is now being conducted, without any known conflict with the rights of others and, with respect to Borrower and the Collateral, in each case subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title retention agreement, or option other than the Permitted Liens and Encumbrances. All such franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions, and orders are presently in full force and effect, and there is no action currently pending or threatened effort to revoke or modify any of them. 5.8 Environmental Matters. The Property contains no Hazardous Materials, and no Hazardous Materials are used or stored at or transported to or from the Property. Neither Borrower nor any representative of Borrower has received notice from any governmental agency or other Person with regard to Hazardous Materials on, under, or affecting all or any portion of the Collateral, and neither Borrower nor any Collateral are in violation of any Environmental Laws. 5.9 Full Disclosure. NO INFORMATION, EXHIBIT, OR WRITTEN REPORT OR THE CONTENT OF ANY SCHEDULE FURNISHED BY OR ON BEHALF OF BORROWER TO LENDER IN CONNECTION WITH THE LOAN, OR THE COLLATERAL, AND NO REPRESENTATION OR STATEMENT MADE BY BORROWER IN ANY LOAN DOCUMENT, 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. TO THE BEST OF ITS KNOWLEDGE, BORROWER KNOWS OF NO FACT OR CONDITION THAT COULD ADVERSELY AFFECT THE OPERATION OF, AND/OR SALES OF TIMESHARE INTERESTS WITH RESPECT TO, THE PROPERTY IN ACCORDANCE WITH ALL APPLICABLE LAWS OR IMPEDE OR PRECLUDE BORROWER'S PERFORMANCE OF ITS OBLIGATIONS PURSUANT TO THE LOAN DOCUMENTS. Borrower's Initials: /S/ HJW 5.10 Use of Proceeds/Margin Stock. 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 this 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 T, U and X of the Board of Governors of the Federal Reserve RECEIVABLES LOAN AND SECURITY AGREEMENT 33 System, 12 C.F.R. Part 11. The proceeds of the Loan will be disbursed for the purposes set forth in Section 2.1 hereof. 5.11 No Defaults. No Default or Event of Default exists, and there is no breach or violation in any material respect of any term of any document, contract, agreement, charter instrument, bylaws, or other instrument to which Borrower is a party or by which it may be bound. 5.12 Restrictions on Borrower. Borrower is not a party to any contract or agreement, or subject to any Lien, charge, or restriction, that materially and adversely affects its business. Borrower will not be, on or after the Closing Date, a party to any contract or agreement that restricts its right or ability to incur indebtedness (other than the agreements executed in connection with the Sovereign Facility) and Borrower shall not be party to a contract or agreement that prohibits Borrower's execution and delivery of, or compliance with the terms of, this Agreement or the other Loan Documents. Borrower has not agreed or consented to cause or permit in the future (upon the happening of any 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 hereunder and the Permitted Liens and Encumbrances. 5.13 Broker's Fees. Lender and Borrower each represent to each other that neither of them has made any commitment or taken any action that could result in a claim for any broker's, finder's, or other similar fees or commissions with respect to the Loan as contemplated by this Agreement. Borrower agrees to indemnify Lender and save and hold Lender harmless from and against all claims of any Person for any broker's or finder's fee, commission, or similar amount, unless such claim arises as the result of any commitment or action of Lender, and this indemnity shall include reasonable attorneys' fees and legal expenses. Lender agrees to indemnify Borrower and save and hold it harmless from and against all claims of any Person for any broker's or finder's fee, commission, or similar amount, unless such claim arises as the result of any commitment or action of Borrower, and this indemnity shall include reasonable attorneys' fees and legal expenses. 5.14 Tax Identification Number. Borrower's federal taxpayer identification number is 75-2259890. 5.15 Legal Compliance. Borrower has, in all material respects, complied fully with all Applicable Laws in connection with the Property and the Collateral, including but not limited to (i) the Interstate Land Sales Full Disclosure Act; (ii) any applicable condominium and timeshare statutes, rules, and regulations, including but not limited to, those governing the administration and operation of the Timeshare Association and those requiring registration of the Timeshare Interests as a legal prerequisite to the marketing and sale thereof, including, without limitation, the Timeshare Act. (iii) Regulation Z of the Federal Reserve Board; (iv) the Equal Credit Opportunity Act; (v) Regulation B of the Federal Reserve Board; (vi) Section 5 of the Federal Trade Commission Act; (vii) all applicable state and federal securities laws; (viii) all applicable usury laws; (ix) all applicable trade practices, home and telephone solicitation, sweepstakes, lottery, and other consumer credit and protection laws; (x) all applicable real estate sales licensing, disclosure, reporting, and escrow laws; (xi) the Americans with Disabilities Act of 1990 and all other accessibility requirements; (xii) the federal postal laws; (xiii) the Real Estate RECEIVABLES LOAN AND SECURITY AGREEMENT 34 Settlement Procedures Act; (xiv) the Fair Housing Act of 1968;(xv) the FTC Privacy Act and (xvi) all amendments to and rules and regulations promulgated under the foregoing, all if and as applicable. Furthermore, the Property and the improvements (including the Improvements) thereat have been constructed and are and will continue to be operated in compliance with all applicable zoning requirements, building codes, subdivision ordinances, licensing requirements, all covenants, conditions, and restrictions of record, and all other Applicable Laws. Borrower has registered or is exempt from registration in each of the states set forth on Exhibit "K" attached hereto. Borrower's marketing and sales practices are in compliance with all Applicable Laws including, without limitation, its lead generation techniques. Borrower has not been contacted or notified of any Federal Trade Commission or Texas trade commission inquiry or investigation or any Department of Justice or Texas Attorney General inquiry or investigation in connection with the marketing and sale of Timeshare Interests. 5.16 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 (the "Pension Reform Act"), exists or will exist in connection with any Plan of Borrower that 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 this Agreement or the performance by the parties hereto of their respective duties and obligations hereunder. Borrower will (a) 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 their Plans; (b) promptly, after the filing thereof, furnish to Lender 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; (c) notify Lender immediately of any fact, including but not limited to any Reportable Event arising in connection with any Plan that might constitute grounds for the 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 (d) notify Lender 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 that could result in the imposition of a Lien on any asset of Borrower, pursuant to Section 4068 of the Pension Reform Act. 5.17 Labor Relations. Borrower's employees are not parties to any collective bargaining agreement with Borrower and, to the best of Borrower's knowledge, 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. RECEIVABLES LOAN AND SECURITY AGREEMENT 35 5.18 Receivables Loan Approved Resorts. (a) Timeshare Plan. Each Receivables Loan Approved Resort shall be subjected to the Declaration. Each Receivables Loan Approved Resort will remain a timeshare plan and project in full compliance with all Applicable Laws. All Units and Common Elements are subject to the provisions of the Declaration. All Resort Facilities are subject to a Use Agreement. Upon filing of the Declaration, Borrower will not vote and will use its best efforts to ensure that the Timeshare Association does not vote to terminate or amend the Declaration in any material respect without the prior written approval of Lender. (b) Access. Each Receivables Loan Approved Resort and all Units and Common Areas thereat have direct access to publicly dedicated roads, and all roadways inside each Receivables Loan Approved Resort have been completed and are subject to an access and use easement or other dedication or provision that benefits and will continue to benefit all Purchasers. (c) Utilities. Electricity, sanitary and stormwater sewer, telephone, water, and other reasonably necessary utilities are available, and there is sufficient capacity to service the Encumbered Timeshare Interests, including, without limitation, all real property and Units not submitted to the Declaration as of the Closing Date. Any easements necessary to the furnishing of such utility services have been obtained, duly recorded, and inure to the benefit of all Purchasers. (d) Amenities. Each Purchaser of a Timeshare Interest has and will continue to have access to and the full use and enjoyment of all of the Common Areas and public utilities of each Receivables Loan Approved Resort, all in accordance with the Declaration and the other Timeshare Documents, as applicable. Any recreational or other commonly used facilities which are available for use by Purchasers or which may be made available in the future shall also be available for use by short-term renters, transient guests or users of accommodations which may be part of such Receivables Loan Approved Resort and such rights shall continue for the benefit of Lender and any such users in the event Lender or a successor or assign were to obtain title to all or a part of the Property. (e) Assessments. Each Purchaser will automatically be a member of the Timeshare Association, which shall be a non-profit corporation that has the authority to levy annual assessments to cover the costs of maintaining and operating each Receivables Loan Approved Resort. There are no events which currently exist or could reasonably be foreseen by Borrower that could give rise to a material increase in such costs. (f) 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 Receivables Loan Approved Resorts have been paid or will be paid when due. 5.19 Timeshare Documents and Reports. Borrower has furnished Lender with true and correct copies of the Timeshare Documents listed on Exhibit "L" hereto, the form and content of which have been submitted to all applicable governmental authorities, to the extent required, RECEIVABLES LOAN AND SECURITY AGREEMENT 36 prior to the Closing Date. All such filings and/or recordations, and all joinders and consents, necessary in order to establish the plan in respect of the Receivables Loan Approved Resorts, including, without limitation, the Units, the Timeshare Interests, and all appurtenant Common Areas, and all related use and access rights, have been done or obtained and all laws, regulations and statutes, and all agreements and arrangements, in connection therewith have been complied with. 5.20 Reliance by Lender. All representations, warranties, covenants, and agreements made herein or in any certificate or other document delivered to Lender by or on behalf of Borrower, pursuant to or in connection with this Agreement, shall be deemed to have been relied upon by Lender, notwithstanding any investigation heretofore or hereafter conducted by or on behalf of Lender, and shall survive the making of any Advances and payments contemplated hereby. 5.21 Vacation Club. Borrower represents and warrants that the Property is not a part of any vacation club. Prior to converting any Purchasers of a Timeshare Interest which is related to a Pledged Note Receivable to membership in a vacation club, Borrower acknowledges it is required to notify in writing and obtain the written consent of Lender to conversion to such vacation club. SECTION 6. COVENANTS 6.1 Affirmative Covenants. For so long as any of Borrower's Obligations remain unsatisfied, Borrower hereby covenants and agrees with Lender as follows: (a) Payment and Performance of Obligations. Borrower shall repay all of the Loan and all related amounts 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 that are not prohibited by law to prevent the occurrence of any Default or Event of Default hereunder; 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. (b) Maintenance of Existence, Qualification and Assets. Borrower shall at all times (i) maintain its legal existence; (ii) maintain its qualification, where required, to transact business and good standing in the State of Texas and in any other jurisdiction in which it conducts business; and (iii) comply or cause its compliance with all Applicable Laws. (c) Maintenance of Insurance. Borrower shall ensure that policies of insurance with premiums therefor being paid when due, are maintained and shall deliver to Lender originals of insurance policies (together with paid premium invoices in respect thereof) issued by such insurance companies, in such amounts, in such form, in such substance, and with such expiration dates, as are acceptable to Lender, in its sole discretion, and containing waivers of subrogation rights by the insuring company, non-contributory standard mortgagee benefit clauses or their equivalents, and mortgagee loss payable endorsements in favor of and RECEIVABLES LOAN AND SECURITY AGREEMENT 37 satisfactory to Lender and breach of warranty coverage, providing the following types of insurance on and with respect to Borrower and the Property: (i) As to all Improvements that have already been completed as of the date hereof, "All Risk Special Form" insurance coverage (including fire, lightning, wind damage (inclusive of hurricane and tornado), water damage, vandalism, and malicious mischief coverage) covering all real and personal property that comprises the Property, 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, and replacement cost endorsements satisfactory to Lender, and shall not permit co-insurance. All insurance shall specifically cover architectural and engineering fees necessary to repair or replace any insured portion of the Property and shall cover debris removal; (ii) Public liability and property damage insurance covering the Property (including coverage for liquor-related liability) in amounts and on terms satisfactory to Lender, in its sole discretion; and (iii) Such other insurance on the Property or any replacements or substitutions therefor, including, without limitation, rent loss, business interruption, flood insurance (if any Receivables Loan Approved Resort is or becomes located in an area that 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 such terms as may from time to time reasonably be required by Lender. Lender shall expressly be named a mortgagee and loss payee in each insurance policy described in this Section 6.1(c). To the extent that any "institutional mortgagee," "institutional lender," "mortgagee, or "secured party" (as defined or used in the Declaration) other than Lender has any rights to approve the form of insurance policies with respect to the Property, 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 Property 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 or appropriate, in Lender's sole discretion, to ensure that Lender shall at all times have a co-equal right with such other "institutional mortgagee," "institutional lender," or other "mortgagee" (including, without limitation, any third-party lender), to approve all such matters and any proposed changes in respect thereof; and Borrower shall not cause and shall use its best efforts to prohibit any material changes with respect to any insurance policies, insurers, coverage, attorney-in-fact or insurance trustee, if any, without Lender's prior written approval which shall not be unreasonably withheld or delayed. In the event of any insured loss or claim in respect of all or any portion of the Property, Borrower shall cause all proceeds of such insurance policies to be applied in a manner consistent with the Timeshare Documents and/or all Applicable Laws. All insurance policies required pursuant to this Agreement (or the Timeshare Documents) shall provide that the coverage afforded thereby shall not expire or be amended, RECEIVABLES LOAN AND SECURITY AGREEMENT 38 canceled, modified, or terminated without at least thirty (30) days' prior written notice to Lender and contain a provision affirming Lender's rights and benefits thereunder, despite any violation of the applicable policy terms by Borrower or other Person. At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 6.1(c), a certified copy of a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender, along with evidence satisfactory to Lender that the premium therefor has been paid in full. The delivery of any insurance policies hereunder shall constitute an assignment of all unearned premiums as further security for the Obligations. In the event that all required premium payments for all such insurance policies are not paid at least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 6.1(c), Borrower shall, immediately upon receiving notice thereof, notify Lender in writing of such failure to timely pay the required insurance premiums. Borrower shall make a good faith inquiry on a regular basis to the Silverleaf Club to determine whether all insurance premiums for which it is responsible with respect to insurance on all or any portion of the Collateral have been timely paid. If Borrower determines upon such inquiry or otherwise that any required insurance premiums have not been paid, Borrower shall immediately notify Lender of such failure to timely pay the required insurance premium, and Borrower shall have thirty (30) days from receipt of a written request from Lender to cause the required insurance premiums to be paid. If the required insurance premiums are not paid within such thirty (30) day period, Lender may, in its sole discretion, without any obligation to do so, choose to pay such required insurance premiums, in which case Borrower shall pay Lender interest at the Default Rate on any amounts so advanced. Lender may also, in its sole discretion, in the event any required insurance premiums are not paid when due, establish an insurance escrow account from which Lender may make insurance payments when insurance premiums shall become due. If any required insurance premiums are not paid as required and Lender elects not to pay such insurance premiums or establish an escrow account for payment thereof, such failure shall constitute an Event of Default hereunder. In the event of any fire or other casualty to or with respect to all or any portion of the Property, Borrower covenants that it shall use commercially reasonable best efforts to cause the prompt restoration, repair, or replacement of the damaged portion(s) or the Property and the repair or replacement of any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the real and personal property comprising the Property, in accordance with the terms of the Timeshare Documents and/or all Applicable Laws. The insufficiency of any net insurance proceeds shall in no way relieve Borrower from its obligations as set forth herein. In Lender's sole discretion, any and all insurance proceeds payable to or received by Lender pursuant to the Declaration or the applicable insurance policies may be applied to the payment of the Obligations, whether or not due and in whatever order Lender elects, consistent with the terms of the applicable insurance policy and the Declaration. Borrower shall in good faith cooperate with Lender (to the extent Lender's rights are not adverse to the rights of any other lender) in obtaining for Lender the benefits of any insurance or other proceeds lawfully or equitably payable to Borrower in connection with the transactions contemplated hereby and in paying any Obligation (including the payment by Borrower of the expense of an independent appraisal on behalf of Lender in case of a fire or other casualty affecting the Property). RECEIVABLES LOAN AND SECURITY AGREEMENT 39 (d) Maintenance of Collateral. 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 all supplements and amendments thereto, and take all such other actions, as Lender deems necessary or appropriate in order to maintain as valid, enforceable, and perfected first priority Liens and security interests, all Liens and security interests in the Collateral granted to Lender to secure the Obligations. Except as described in Section 1.34, Borrower shall not grant extensions of time for the payment of, or 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 Pledged Note Receivable, or any other instrument, chattel paper, or document that constitutes the Collateral. (e) Payment of Taxes and Claims. Borrower agrees to pay or cause to be paid, prior to becoming delinquent, all taxes, charges, and assessments of any kind imposed on or with respect to the Loan or any of the Loan Documents, the Property or any other Collateral, including but not limited to the Encumbered Timeshare Interests, together with any revenue, income, or profits derived therefrom. To the extent that any such taxes, charges, or assessments are payable by the Silverleaf Club or Orlando Breeze Resort Club, Borrower shall make good faith inquiry on a regular basis to determine whether all such taxes, charges, and assessments have been paid. Borrower shall immediately notify Lender in writing of any failure to timely pay any such taxes, charges, or assessments. In the event that Lender determines (through notice or otherwise) that any such taxes, charges, or assessments have not been paid when due, Borrower shall have thirty (30) days from receipt of a written request for payment from Lender to cause the required taxes, charges, or assessments to be paid. If such required taxes, charges, and assessments (and any applicable late charges and interest) are not paid within such thirty (30) day period, Lender may, in its sole discretion, without any obligation to do so, choose to pay such taxes, charges, or assessments on behalf of Borrower, in which case Borrower shall pay Lender interest at the Default Rate on any amounts so advanced. In the event Lender elects not to pay the required taxes, charges, or assessments and the same are not paid as set forth above, such failure shall constitute an Event of Default hereunder. Borrower shall pay, where applicable, on a timely basis all other charges and assessments levied against Borrower, the Property (to the extent charges and assessments are due from Borrower) or any other Collateral, including but not limited to the Encumbered Timeshare Interests, together with any revenue, income, or profits derived therefrom (including, without limitation, claims for labor, services, materials, or supplies). Except for the Liens in favor of Lender granted pursuant to the Loan Documents, and except as otherwise specifically provided for herein, Borrower covenants and agrees that in the event that any statutory or other Lien (including, without limitation, any mechanics', materialmen's, judgment, or tax liens) attaches to any of the Collateral (except for the Permitted Liens and Encumbrances), Borrower shall, within thirty (30) days after any such Lien attaches, either (i) cause such Lien to be released of record; or (ii) provide Lender with a bond in accordance with the applicable laws of the State of Texas issued by a corporate surety acceptable to Lender, in its sole discretion, in an amount and form acceptable to Lender. (f) Inspections. Borrower shall, at any time and from time to time, upon reasonable notice and at the expense of Borrower, including but not limited to the travel expenses of Lender's agents, permit Lender and its agents and representatives to inspect the Property, any Collateral, or any of Borrower's assets, including but not limited to all documents, RECEIVABLES LOAN AND SECURITY AGREEMENT 40 bank statements, and other records within Borrower's possession, custody, or control, and to examine and make copies and abstracts thereof; and to discuss its affairs, finances, and accounts with any of their officers, employees, Affiliates, contractors, or independent certified public accountants (and by this provision, Borrower authorizes said accountants to discuss with Lender, its agents or representatives, the affairs, finances, and accounts of Borrower). Without limiting the foregoing, Lender shall have the right to make such credit investigations as Lender may deem appropriate, in its sole discretion, in connection with its review of any Notes Receivable. Borrower shall make available to Lender all such credit and other information in its custody, possession, or control or to which it may have access with respect to any Purchasers or other obligors with respect to any Notes Receivable as Lender may request. Unless not required by Lender, Borrower agrees to meet with Lender on a quarterly basis in person or by teleconference. (g) Reporting Requirements. For so long as any of the Obligations remain unsatisfied, Borrower shall furnish (or cause to be furnished, as the case may be) to Lender, in each case certified in writing by Borrower as true and correct, the following items in form and substance acceptable to Lender, as appropriate: (i) Monthly Collateral Reports. As soon as available and in any event within fifteen (15) days after the end of each calendar month: (i) a report showing the trial balance of the Pledged Notes Receivable; (ii) a current aging report on the Pledged Notes Receivable; (iii) a report detailing all amounts of every possible description received by or on behalf of Borrower with respect to each Pledged Note Receivable during the preceding calendar month and how such amounts were allocated between principal, interest, and other categories; (iv) a delinquency report on all Pledged Notes Receivable; (v) monthly reports from Lockbox Agent as required pursuant to the Lockbox Agreement; and (vi) such other monthly reports and other information as shall reasonably be requested by Lender; (ii) Monthly Financial Reports. As soon as available and in any event within thirty (30) days following the end of each calendar month, unaudited statements of income and expense of Borrower and the Timeshare Association for the monthly period in question, balance sheets of Borrower and the Timeshare Association as of the last day of such calendar month and a statement of cash flows of Borrower and the Timeshare Association during such calendar month, all in such detail and scope as may be reasonably required by Lender, prepared in accordance with GAAP and on a basis consistent with prior accounting periods and certified as true and correct by Borrower's chief financial officers. In the event that the aforesaid monthly financial statements are not in form and content satisfactory to Lender, in its sole determination, Borrower shall, within 30 days of the receipt of Lender's written request therefor, deliver to Lender revised financial statements addressing any issues identified by Lender. The aforesaid audited financial statements shall be in form and content satisfactory to Lender; (iii) Annual Audited Financial Reports. As soon as available and in any event within ninety (90) days (one hundred twenty (120) days in the case of Silverleaf Club and Orlando Breeze Resort Club) after the end of each of calendar year or other fiscal year as may be applicable with respect to Borrower, Silverleaf Club and Orlando Breeze Resort Club (as applicable, a "Fiscal Year"), statements of income and RECEIVABLES LOAN AND SECURITY AGREEMENT 41 expense of each such entity (including Borrower and the Timeshare Association) for the annual period ended as of the end of such Fiscal Year, balance sheets of each such entity as of the end of such Fiscal Year and a statement of cash flows of such entity during such Fiscal Year, all in such detail and scope as may be reasonably required by Lender and prepared and audited by an independent certified public accounting firm acceptable to Lender in accordance with GAAP and on a basis consistent with prior accounting periods. The annual financial statements of Borrower shall be certified by the chief financial officer of Borrower to be true, correct, and complete, and shall otherwise be in form acceptable to Lender; (iv) Borrowing Base Certificate. Within fifteen (15) days after the end of each month, Borrower shall deliver to Lender a Borrowing Base Certificate in substantially the form of Exhibit "M" attached hereto. (v) Officer's Certificate. The Financial Statements or reports delivered to the Lender pursuant to Sections 6.1(g)(i), (ii), and (iii) hereof shall be accompanied by a certificate of Borrower setting forth that the signer has reviewed the relevant terms of this Agreement (and all other agreements and exhibits between the relevant parties), has made, or caused to be made, under its 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 that 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; (vi) Audit Reports. Promptly upon receipt thereof, two (2) copies 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. Promptly upon becoming aware of the existence of any condition or event that constitutes a Default or an Event of Default hereunder or pursuant to any of the other Loan Documents, a written notice specifying 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. Promptly upon becoming aware that the holder of any material obligation or of any evidence of material indebtedness of Borrower has given notice or taken any other action with respect to a claimed default or event of default with respect thereto, a written notice specifying the notice given or action taken by such holder and the nature of the claimed default or event of default and what action Borrower is taking or proposes to take with respect thereto; (ix) Hazardous Materials. Borrower shall promptly notify Lender of any change in the nature or extent of any Hazardous Materials maintained on or under any of the real property or used in connection therewith, and will deliver to Lender copies RECEIVABLES LOAN AND SECURITY AGREEMENT 42 of any citation, order, notice, or other governmental or other communication received with respect to any Hazardous Materials or other environmentally regulated substances affecting the Property. In the event Lender has some reason to believe there are Hazardous Materials or other environmentally regulated substances affecting the Property, then Lender shall have the right to require Borrower to perform on an annual basis (at Borrower's expense) an environmental audit of the Property and, if deemed reasonably necessary by Lender, an environmental risk assessment, each of which must be satisfactory to Lender, in its sole discretion. Each such audit and/or risk assessment shall be conducted by a licensed environmental consultant; (x) Material Adverse Developments. Within fifteen (15) days after the end of each fiscal quarter, Borrower shall provide to Lender a report of any pending or threatened claim, action, proceeding, litigation, development, or any other information, whether of the type referenced in Section 5.7 hereof or otherwise, that could materially and adversely affect Borrower, the Receivables Loan Approved Resorts, or all or any portion of the Collateral, including but not limited to the ability of Borrower to perform its Obligations hereunder; (xi) Financial Information. As promptly as possible after the receipt thereof, all financial statements, reserve studies and reports, budgets and other information distributed by Silverleaf Club and Orlando Breeze Resort Club; Borrower, as declarant or otherwise, shall cause Silverleaf Club and Orlando Breeze Resort Club to prepare annual financial statements and an annual budget as provided in the Declaration, as the case may be, and shall thereafter immediately deliver the same to Lender; and (xii) Other Information. Borrower shall promptly deliver to Lender any other available information related to the Loan, the Collateral, Borrower, or the Property as Lender may in good faith request. (h) Records. Borrower shall keep detailed accurate books and records of account in accordance with GAAP and all Applicable Laws reflecting all financial transactions of Borrower with respect to the Property, including but not limited to the marketing and sale of Timeshare Interests thereat and with respect thereto and the rental of Units on a transient basis to members of the general public. (i) Notices. Borrower shall notify Lender within ten (10) Business Days of the occurrence of any event (i) as a result of which any representation or warranty of Borrower contained in any Loan Document would be incorrect or materially misleading if made at that time; (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 other Loan Document; or (iii) which constitutes or, with the passage of time, notice, or a determination by Lender would constitute an Event of Default. (j) Maintenance. Borrower shall use its best efforts to cause Silverleaf Club to maintain the Property in good repair, working order, and condition and to make all necessary replacements and improvements to the Property so that the value and operating efficiency of the RECEIVABLES LOAN AND SECURITY AGREEMENT 43 Property will be maintained at all times and so that the Property remains in full compliance with all Applicable Laws. (k) Claims. Borrower shall promptly notify Lender of any material claim, action, or proceeding affecting the Property or all or any portion of the Collateral, or any of the Liens, security interests, or rights granted in favor of Lender hereunder or pursuant to any of the other Loan Documents. At the request of Lender, Borrower shall appear in and defend in favor of Lender, at Borrower's sole expense, with regard to any such claim, action, or proceeding which might adversely affect the value of all or any portion of the Collateral or any rights and remedies of Lender under this Agreement or pursuant to any of the other Loan Documents. (l) Registration and Regulations. (i) Local Legal Compliance. Borrower will comply with all applicable servitudes, restrictive covenants, and Applicable Laws, including but not limited to, those specified in Section 5.16 hereof. All inspections, licenses, approvals, and permits required to be made or issued in respect of all or any portion of the Property have been made or issued by the appropriate governmental authorities, and the use and occupancy of the Receivables Loan Approved Resorts, including, but not limited, to Timeshare Interests deemed to be owned by Borrower, for their intended purposes is lawful under all Applicable Laws. The use and occupancy of the buildings and Units on a timeshared basis will not violate or constitute a non-conforming use under any private covenant or restriction or any zoning, land use, or similar statute, ordinance, rule, or regulation; and (ii) Registration Compliance. Borrower shall at all times maintain or cause to be maintained all necessary registrations, filings, consents, franchises, approvals, and exemption certificates, and Borrower will make or pay, or cause to be made or paid, all registrations, declaration, or fees with all applicable regulatory authorities and any other governmental agencies or departments thereof, whether in the State of Texas or any other jurisdiction, required in connection with the marketing and sale of Timeshare Interests at or with respect to the Receivables Loan Approved Resorts and the occupancy, use, and operation thereof. 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 Lender upon request. Borrower shall promptly advise Lender of any material changes with respect to its marketing or sales programs in any jurisdiction, including jurisdictions other than the State of Texas, and at Lender's request from time to time, Borrower shall deliver to Lender (A) written statements by any applicable governmental authorities, in form acceptable to Lender, stating that no registration is necessary for the sale of Timeshare Interests in the particular state; (B) an opinion of counsel in form acceptable to Lender and rendered by counsel acceptable to Lender, stating that no such registration is necessary; or (C) such other evidence of compliance with all Applicable Laws as Lender may require. (m) Other Documents. Borrower shall maintain to the satisfaction of Lender, and make available to Lender for inspection, accurate and complete files relating to the Pledged RECEIVABLES LOAN AND SECURITY AGREEMENT 44 Notes Receivable, and all of the other Collateral, and such files shall contain true copies of each Pledged Note Receivable, as amended from time to time (but only with Lender's prior written consent or as provided in Section 1.34), copies of all relevant credit memoranda relating to such Pledged Notes Receivable, and all collection information and correspondence relating thereto. (n) Further Assurances. Borrower shall 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 Lender exercised in good faith, may be necessary or appropriate in order more effectively to evidence or secure, and to ensure the performance of, the Obligations. In addition, Borrower shall deliver to Lender from time to time, upon request by Lender, such documents, instruments, and other materials or items as Lender may reasonably require to evidence Borrower's compliance with the covenants set forth in this Section 6.1. (o) Expenses and Closing Fees. Whether or not the transactions contemplated hereunder are consummated, Borrower shall pay all expenses of Lender relating to negotiating, preparing, documenting, closing, and enforcing this Agreement and the other Loan Documents, including, but not limited to: (i) The actual cost of preparing, reproducing, and binding this Agreement, the other Loan Documents, and all exhibits and schedules thereto; (ii) The reasonable fees and disbursements of Lender's and Borrower's counsel (both internal and external); (iii) Lender's expenses (including audits, credit investigations, inspections and internal legal and accounting); (iv) All fees and expenses (including reasonable fees and expenses of Lender's internal and external counsel) relating to any amendments, waivers, consents, or subsequent closings or other transactions pursuant to the provisions hereof; (v) All costs, outlays, legal fees, and expenses of every kind and character had or incurred by Lender in: (A) the interpretation or enforcement of any of the provisions of, or the creation, preservation, or exercise by Lender of its rights and remedies under, any of the Loan Documents, including the costs of appeal; (B) the preparation for, negotiations regarding, consultations concerning, or the defense or prosecution of legal proceedings involving any claim or claims made or threatened against Lender arising out of this transaction or the preservation or protection of the Collateral securing the Loan or Advances made hereunder, expressly including, without limitation, the defense by Lender of any legal proceedings instituted or threatened by any Person to seek to recover or set aside any payment or set off theretofore received or applied by Lender with respect to the Obligations, and any and all appeals thereof; and (C) the advancement of any expenses provided for under any of the Loan Documents; (vi) All fees and expenses of the Title Insurance Company, Lockbox Agent and Custodian; RECEIVABLES LOAN AND SECURITY AGREEMENT 45 (vii) All costs and expenses incurred by Lender under the Note, and all late charges payable thereunder; and (viii) To the extent the same are not paid by the Timeshare Association, Purchasers or third parties, all real and personal property taxes and assessments attributable to Timeshare Interests owned by Borrower or an Affiliate of Borrower, 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 Lender to conduct inspections or audits. Without limiting any of the foregoing, Borrower shall pay the costs of Code and other searches, Code and other Loan Document recording and filing fees, and applicable taxes and premiums on each mortgagee policy of title insurance delivered to Lender pursuant to this Agreement. (p) Indemnification of Lender. In addition to (and not in lieu of) any other provisions hereof or of any other Loan Document providing for indemnification in favor of Lender, Borrower hereby defends, indemnifies, and holds harmless Lender, its subsidiaries, Affiliates, officers, directors, agents, employees, representatives, consultants, contractors, servants, and attorneys, as well as the respective heirs, personal representatives, successors, and assigns of any or all of them (hereinafter collectively referred to as the "Indemnified Lender Parties"), from and against, and agree promptly to 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, directly or indirectly, related or attributable to: (i) this Agreement, the other Loan Documents or the Collateral; (ii) the transactions contemplated under any of the Loan Documents, including, without limitation, those in any way relating to or arising out of the violation of any Applicable Laws; (iii) any breach of any covenant or agreement or the incorrectness or inaccuracy of any representation or warranty of Borrower contained in this Agreement or any of the other Loan Documents (including, without limitation, any certification of Borrower delivered to Lender), including, but not limited to, the failure of any Pledged Note Receivable to be legally enforceable by Lender in the event that it succeeds to all right, title, and interest of Borrower therein in accordance with the provisions hereof or any of the other Loan Documents; (iv) any and all taxes, including real estate, personal property, sales, mortgage, excise, intangible, or transfer taxes (but excluding all franchise taxes, taxes on capital and net worth, gross receipts taxes, and taxes imposed on gross or net income), and any and all fees or charges that 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 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 Property of any Hazardous Materials (except to the extent that liability of the Indemnified Lender Party with respect to such matter would not exist but for the acts or omissions of such Indemnified Lender Party); (viii) the removal or remediation of any Hazardous Materials from the Property required to be performed pursuant to RECEIVABLES LOAN AND SECURITY AGREEMENT 46 any Environmental Laws or as a result of recommendations of any environmental consultant or as required by Lender; (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 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 Property; (x) the violation or claimed violation of any Environmental Laws in regard to the Property; (xi) the preparation of an environmental audit or report on the Property not to exceed one (1) per calendar year and premised upon the Lender's reasonable belief of the existence of a violation of Environmental Laws, whether conducted by Lender, Borrower, or another Person; (xii) the exercise by Borrower of any rights or remedies under any Timeshare Documents; (xiii) the exercise by Lender of any rights or remedies under this Agreement or any of the other Loan Documents; (xiv) any misappropriation of funds by Borrower, any Affiliate of Borrower or any party acting on their behalf; (xv) any theft by Borrower, any Affiliate of Borrower or any party acting on their behalf; (xvi) any disposition of the Collateral by Borrower, any Affiliate of Borrower or any party acting on their behalf; or (xvii) any unauthorized Change in Management. Such indemnification shall not give Borrower any right to participate in the selection of counsel for Lender or the conduct or settlement of any dispute or proceeding for which indemnification may be claimed. 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. Notwithstanding the foregoing provisions of this Section 6.1(q) to the contrary, Borrower shall not indemnify or hold Lender harmless from and against any liabilities, claims, demands, losses, damages, costs, or expenses incurred by Lender solely as a result of Lender's own gross negligence or willful misconduct. (q) Use of Borrower's Name. Borrower shall at all times during the term of the Loan permit Lender to use the name of Borrower in any press release, advertisement, or other promotional material disseminated regarding the Loan; provided, however, Borrower shall have the prior right to receive and approve such use in writing. (r) No Amounts Due. Borrower shall use its best efforts to cause the Silverleaf Club to deliver a statement to Borrower, which Borrower shall provide to Lender at the end of each calendar year, commencing in the present calendar year and continuing throughout the term of the Loan, indicating that no amounts due and payable to the Silverleaf Club from Borrower, or any Affiliate of Borrower, are delinquent and that all taxes and insurance premiums payable by the Silverleaf Club have been paid prior to becoming delinquent. In the event that any such amount due and owing to the Silverleaf Club by Borrower is delinquent such amount may be paid directly to the Silverleaf Club by Lender as an Advance hereunder. Borrower hereby covenants that as of the date of this Agreement, neither Borrower nor an Affiliate of Borrower owes any amount to the Silverleaf Club except as otherwise disclosed on Exhibit "N" attached hereto. Borrower agrees to use its best efforts to obtain for Lender on an annual basis, within one hundred and twenty (120) days after the end of the fiscal year of the Silverleaf Club, the proposed annual operating and capital budget of the Silverleaf Club for the next fiscal year and the Financial Statements of the Silverleaf Club for such fiscal year, in a format acceptable to Lender in its sole discretion. RECEIVABLES LOAN AND SECURITY AGREEMENT 47 (s) Textron Facility, Sovereign Facility and DZ Facility. Borrower will comply with each of the terms and conditions of any subordinated indebtedness, the Textron Facility, the Sovereign Facility and the DZ Facility 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. (t) Minimum Tangible Net Worth. Borrower shall at all times maintain a minimum Tangible Net Worth in an amount not less than (i) $100,000,000 as of December 31, 2004, and (ii) $100,000,000, plus fifty percent (50%) of Borrower's quarterly Consolidated Net Income for each calendar quarter thereafter. (u) Minimum Net Income. Commencing March 31, 2005, and as of the last day of each calendar quarter thereafter, for the four (4) calendar quarter period ending on such date, Borrower and its subsidiaries shall have, on a consolidated basis, a Net Income of not less than $1.00. (v) Minimum Debt Service Coverage Ratio. Borrower shall maintain as of the last day of any calendar quarter a Debt Service Coverage Ratio of not less than 1.25 to 1.00 for the period of four consecutive calendar quarters then ended on such day. (w) Maximum Leverage Ratio. Borrower shall maintain a Leverage Ratio of not greater than 6.0 to 1.0 at all times during the term of the Loan. (x) Proceeds. Immediately upon Borrower's receipt of proceeds from the sale of any of the Collateral, Borrower shall deliver such proceeds to Lender in their original form and, pending delivery to Lender, Borrower will hold such proceeds as agent for Lender and in trust for Lender. (y) Loan Servicing. Upon an Event of Default, at Lender's sole option, Borrower shall hire a servicing agent acceptable to Lender in its sole discretion who shall then receive compensation from Borrower at a market rate for a servicing agent, and Borrower shall enter into a servicing agreement, in form and substance satisfactory to Lender in its sole discretion, with such servicing agent. All servicing fees, and the costs and expenses of such servicing agent shall be paid by Borrower. (z) Custodian. Lender shall have the right at any time to utilize Custodian to maintain custody of the Collateral. Borrower agrees not to interfere with Custodian's performance of its duties under the Custodial Agreement or to take any action that would be inconsistent in any way with the terms of the Custodial Agreement. All custodial fees, and the costs and expenses of the Custodian, shall be paid by Borrower. (aa) Re-assignment of Delinquent Financed Note Receivables(bb) . As long as Borrower is in compliance with its obligations under this Agreement and the other Loan Documents, including the Borrowing Base, Lender shall release its security interest in the Delinquent Pledged Notes Receivable (as defined below). For purposes of this Section 6.1(aa), the term "Delinquent Pledged Note Receivable" shall mean a Note Receivable for which a payment installment is more than one hundred twenty (120) days past due on a contractual basis. RECEIVABLES LOAN AND SECURITY AGREEMENT 48 (cc) Maintaining Affiliation with Exchange Company. Following the date hereof and thereafter until Borrower has paid to Lender all sums due under this Agreement and all documents delivered pursuant hereto, Borrower shall cause each Receivables Loan Approved Resort and the Silverleaf Club to maintain in good standing its membership with the Exchange Company or other major internationally recognized timeshare exchange company acceptable to Lender with its corporate headquarters in the United States. (dd) Property-Related Contracts. Except as required by Applicable Laws, or if otherwise waived by Lender, and if such amendment to, modification or new Property-Related Contract described below will have, or could reasonably be expected to have a material adverse effect on Borrower's ability to pay the Loan or the value of the Collateral, or Lender's Liens on the Collateral or the priority of any such Lien, Borrower shall not modify, amend, or enter into, or (subject to the rights and obligations of any Timeshare Association and its members under any Declaration or any Timeshare Association's Articles of Incorporation or By-Laws) permit to be modified, amended, or enter into, any Property-Related Contract without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrower shall perform all of its obligations in a timely fashion under each Property-Related Contract. For purposes of this Section 6.1(dd), and for no other purpose, section or reference in this Agreement or any other Loan Document, the term, "Property-Related Contracts" shall not include sales and marketing agreements or contracts related to the sales of Timeshare Interests, or any employment related agreements or contracts between Borrower and either (i) any Executive Management Member or (ii) any member of senior management of Borrower. 6.2 Negative Covenants. For so long as any portion of the Obligations remains unsatisfied, Borrower hereby covenants and agrees with Lender as follows: (a) Limitation on Other Liens/Further Encumbrances of Collateral and Other Property. Without the prior written consent of Lender, which may be granted, withheld, or conditioned, in Lender's sole and absolute discretion, Borrower shall not obtain financing or grant Liens with respect to all or any portion of the Collateral (whether now existing or created hereafter) other than those in favor of Lender and the Permitted Liens and Encumbrances. (b) No Other Indebtedness. Borrower shall not incur any Indebtedness for borrowed money secured by all or any Collateral without Lenders' prior written consent; provided, however, that in the event Borrower enters into a credit facility for borrowed money from any other senior lender providing indebtedness to Borrower, Borrower shall use its best efforts to provide to Lender an Intercreditor Agreement related to such credit facility and the collateral granted to such other senior lender related thereto. (c) Restrictions on Transfers, Consolidations, and Mergers. Except for the Permitted Liens and Encumbrances, Borrower shall not, without obtaining the prior written consent of Lender (which consent may be given, withheld, or conditioned by Lender, in Lender's sole discretion), whether voluntarily or involuntarily, by operation of law or otherwise: (i) transfer, sell, pledge, convey, hypothecate, factor, or assign all or any portion of the Collateral, other than the sale of Timeshare Interests in the ordinary course of Borrower's business; or (ii) lease or license any portion of the Collateral, or change the legal or actual possession or use thereof. Without limiting the generality of the preceding sentence, and subject to the terms of RECEIVABLES LOAN AND SECURITY AGREEMENT 49 this Agreement, the prior written consent of Lender shall be required for (A) any transfer of the Collateral or any part thereof to a subsidiary or other Affiliate of Borrower or otherwise; or (B) any merger or consolidation, disposition, or other reorganization of Borrower other than any such merger or consolidation, disposition, or other reorganization of Borrower after the consummation of which Borrower is the surviving entity and for which Lender has given its consent, such consent not to be unreasonably withheld; provided, however, that in the event Lender does not consent to such merger or consolidation and Borrower elects to close such transaction, Borrower shall have the right to refinance Lender and pay to Lender in cash in full all outstanding Obligations hereunder (including accrued and unpaid interest thereon). In the event that Lender, in its reasonable discretion, is willing to consent to a transfer that would otherwise be prohibited by this Section 6.2(c), Lender may condition its consent on such terms and conditions 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 Lender in connection with the granting of such consent (including, without limitation, attorneys' fees and expenses). If Borrower violates the terms of this Section 6.2(c), in addition to any other rights or remedies that Lender may have hereunder, pursuant to any other Loan Document, or at law or in equity, Lender may, upon written notice to Borrower, increase, effective immediately as of the date of such violation, the Interest Rate to the Default Rate. (d) Transactions with Affiliates. Without the prior written consent of Lender, Borrower shall not enter into any transaction with any Affiliate thereof in connection with all or any portion of the Collateral, except in the ordinary course of Borrower's business with terms equivalent to an otherwise "arms-length" transaction. (e) Name Change. Borrower shall not change its name, its chief executive office, or the locations at which it does business without providing Lender at least thirty (30) days' prior written notice thereof and executing, at Borrower's sole expense, such UCC-3 amendments and all other documents and instruments as Lender, in its sole discretion, deems reasonably necessary or appropriate in order to continue the perfection of its Lien in and to all of the Collateral. (f) Collateral. Borrower shall not take any action (or permit or consent to the taking of any action) that might materially impair the value of all or any portion of the Collateral of the rights of Lender with respect to the Collateral, nor shall Borrower cause or permit any material amendment to or modification of the form or terms of any of the Pledged Notes Receivable (except as provided for in Section 1.34), or Timeshare Documents, including but not limited to the Declaration, without Lender's prior written consent. (g) Timeshare Documents. Without Lender's prior written consent, Borrower shall not in any material respect amend or modify or terminate the Declaration or other Timeshare Documents. (h) Marketing/Sales. Borrower shall not market, attempt to sell or sell or permit or justify any sales or attempted sales of any Timeshare Interests except in compliance with the Timeshare Act and Applicable Laws in the states and other jurisdictions where marketing, sales or solicitation activities occur. Borrower shall not sell more than fifty-two (52) Timeshare Interests in any Unit in the Receivables Loan Approved Resorts. RECEIVABLES LOAN AND SECURITY AGREEMENT 50 (i) Collateral. 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 rights of Lender in the Collateral. (j) Distributions. After the occurrence and during the continuation of any Default or Event of Default, Borrower shall not make or pay any distribution (in cash or property) for so long as any Obligations or other amounts are outstanding under this Agreement or any other Loan Document. (k) Maximum Delinquency. Borrower will not permit as of the last day of each calendar month, for the immediately preceding twelve (12) calendar months, on a rolling twelve (12) month basis, its over 30-day delinquency rate on its entire Notes Receivable portfolio serviced by Borrower (including, without limitation, all Pledged Notes Receivable and all Notes Receivable pledged pursuant to the Textron Facility, the DZ Facility and the Sovereign Facility) to be greater than ten percent (10%). (l) Net Income. Borrower shall not have a Consolidated Net Income of less than $0.00 for any two (2) consecutive calendar quarters. (m) Maximum Sales Costs. As of the last day of each calendar quarter, commencing with the calendar quarter ending June 30, 2005, Borrower will not permit the four quarter cumulative ratio of Marketing and Sales Costs to the Borrower's net proceeds from the sale of Timeshare Interests as recorded on the Borrower's financial statements for the immediately preceding four (4) consecutive fiscal quarters of the Borrower to equal or exceed a ratio of .550 to 1. Notwithstanding the foregoing, in the event that Borrower delivers written evidence satisfactory to Lender that the above-referenced ratio is no longer required to be tested under each of the Textron Facility and the Sovereign Facility, such ratio shall not be tested under this Agreement. SECTION 7. EVENTS OF DEFAULT An "Event of Default" shall exist if any of the following occurs: 7.1 Payment Default. If Borrower fails to make, as and when due, whether by acceleration or otherwise, any payment or mandatory prepayment of principal, interest, or other fees or amounts of any and every kind due hereunder or pursuant to any of the other Loan Documents, and any such failure remains uncured for three (3) calendar days after Lender has provided Borrower with written or verbal notice thereof. 7.2 Covenant Defaults. If Borrower fails fully and timely to perform or observe any non-monetary covenant, agreement, or warranty contained in this Agreement (other than defaults relating to Sections 6.1(f), 6.1(t), 6.1(u), 6.1(v), 6.1(w) and Section 6.2 hereof, for which there shall be no cure period) or in any of the other Loan Documents and such failure shall continue for fifteen (15) days after notice of such failure is provided by Lender to Borrower. 7.3 Warranties or Representations. If any statement or representation made by or on behalf of Borrower in this Agreement, in any of the other Loan Documents, or in any document, RECEIVABLES LOAN AND SECURITY AGREEMENT 51 instrument, certificate, opinion, or other item furnished pursuant to the Loan Documents, is false, misleading, or incorrect in any material respect as of the date made or reaffirmed. 7.4 Enforceability. If (a) any Lien 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 priority Lien in favor of Lender encumbering the asset which it is intended to encumber, and Borrower fails to cause such Lien to become a valid, enforceable, first and prior Lien in a manner satisfactory to Lender, in its sole discretion, within five (5) days after Lender delivers written notice thereof to Borrower; or (b) if any material term, provision, or condition of any Loan Document becomes invalid or unenforceable by Lender and its successors and assigns. 7.5 Insolvency. If Borrower becomes insolvent or otherwise generally unable to pay its debts as and when they become due or payable. 7.6 Involuntary Proceedings. If a case is commenced or a petition is filed against Borrower under any Debtor Relief Law, a receiver, conservator, 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 sixty (60) days. 7.7 Voluntary 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 to or suffers the appointment of a receiver, trustee, liquidator, or conservator for it or any part of its assets. 7.8 Attachment; Judgment; Tax Liens. The issuance, filing, levy, on all or any portion of the Collateral of Borrower, of one (1) or more attachments, injunctions, executions, tax liens, or judgments for the payment of money cumulatively in excess of $50,000, that is not discharged in full or stayed within thirty (30) days after such issuance, filing, levy, or seizure. 7.9 Failure to Deposit Proceeds. If Borrower fails to deliver any payments received under any Pledged Note Receivable directly to Lender or Lockbox Agent as required by Section 2.4 hereof, or if Borrower takes any other action which Lender shall deem to be a conversion of all or any portion of the Collateral or fraudulent with respect to Lender. 7.10 Timeshare Documents. If the Declaration, any of the other documents creating or governing any Receivables Loan Approved Resort, its timeshare regime or the Timeshare Association, or the restrictive covenants with respect to such Receivables Loan Approved Resort, shall be terminated, amended or modified without Lender's prior written consent (except for routine non-substantive modifications which have no impact on the Collateral). 7.11 Removal of Collateral. If Borrower conceals, removes, transfers, conveys, assigns, or permits to be concealed, removed, transferred, conveyed, or assigned, any of the Collateral, other than in the ordinary course of Borrower's business, in violation of the terms of any of the Loan Documents or with the intent to hinder, delay, or defraud their creditors or any of them, including, without limitation, Lender. RECEIVABLES LOAN AND SECURITY AGREEMENT 52 7.12 Other Defaults. If any default or event of default occurs in connection with any other loans or financing arrangements that Borrower, or any of Borrower's Affiliates may have with Lender, including, but not limited to, the Inventory Loan. 7.13 Material Adverse Change. If there occurs any material adverse change in the financial condition of Borrower which is not otherwise reflected in the Financial Statements. 7.14 Default by Borrower in Other Agreements. Any default by Borrower (a) in the payment of any indebtedness to Lender; (b) in the payment or performance of other indebtedness for borrowed money or obligations in excess of $100,000 secured by all or any portion of the Collateral; or (c) in the payment or performance of any other material indebtedness or obligations (including any indebtedness owed pursuant to the Textron Facility, the DZ Facility, the Sovereign Facility of the Bond Holder-Exchange Transaction). 7.15 Violation of Negative Covenants. If Borrower violates any negative covenant set forth in Section 6.2 hereof. 7.16 Declaration. If the Declaration or the timeshare regime created thereby at any Receivables Loan Approved Resort is in any material respect amended or modified or restated, terminated or assigned without Lender's prior written consent. 7.17 Transfer of Property. Except for the sale of Timeshare Interests in the ordinary course of Borrower's business in accordance with the terms hereof and of the other Loan Documents, and except for transfers due to involuntary condemnation that do not render its interest in the Property useless for its intended purpose, if Borrower, without Lender's prior written consent, sells, conveys, or further encumbers all or any part of its interest in the Collateral. 7.18 Lien Against Collateral. Except for the Permitted Liens and Encumbrances or as otherwise specifically provided herein to the contrary, if Borrower grants any Lien, security interest, or other encumbrance upon or all or any portion of the Collateral other than in favor of Lender, unless approved by Lender in writing, in its sole and absolute discretion. 7.19 Title. If any violation or breach shall occur in any agreement, covenant, or restriction affecting title to any Encumbered Timeshare Interests, including but not limited to any Permitted Liens and Encumbrances, and such violation or breach is not cured within any time frame allowed hereunder or thereunder. 7.20 Loss of License. A Loss of License shall have occurred with respect to all of the Receivables Loan Approved Resorts and such Loss of License shall have been outstanding for more than 90 days following such occurrence. 7.21 Suspension of Sales. Borrower has received a Suspension of Sales Order or Sanction with respect to all of the Receivables Loan Approved Resorts and such Suspension of Sales Order or Sanction shall have been outstanding for more than 90 days from the date of its entry and shall not have been discharged in full or stayed by appeal, bond or otherwise. RECEIVABLES LOAN AND SECURITY AGREEMENT 53 SECTION 8. REMEDIES 8.1 Remedies Upon Default. Should a Default or an Event of Default occur, Lender may immediately take any one (1) or more of the actions described in this Section 8, all without notice to Borrower: (a) Acceleration. Declare the unpaid balance of the Loan, or any part thereof, immediately due and payable, whereupon the same shall be due and payable to Lender. (b) Termination of Obligation to Advance. Terminate any commitment or obligation of Lender hereunder to make Advances of the Loan in its entirety, or any portion of any such commitment, and/or terminate Lender's further performance under this Agreement and/or any other document or instrument to which Lender and Borrower (or any Affiliate of Borrower) are parties, without further liability or obligation to Borrower, to the extent Lender shall deem appropriate. (c) Judgment. Reduce Lender's claim to judgment, foreclose, and/or otherwise enforce each Lien and security interest of Lender in and to all or any part of the Collateral by any judicial or other procedure available to Lender. (d) Sale of Collateral. Exercise all the rights and remedies of a secured party under the Code (whether or not the Code applies to the affected Collateral), including (i) require Borrower to, and Borrower hereby agrees that it will, at its expense and upon request of Lender forthwith, assemble all or part of the Collateral as directed by Lender and make it available to Lender at a place to be designated by Lender that is reasonably convenient to both parties; (ii) enter upon any premises of Borrower and take possession of the Collateral; and (iii) sell the Collateral or any part thereof in one (1) or more parcels at public or private sale, at any of Lender's offices or elsewhere, at such time or times, for cash, on credit, or for future delivery, and at such price or prices and upon such other terms as Lender may deem commercially reasonable. Borrower agrees that, to the extent notice of sale shall be required by law, ten (10) days' notice of the time and place of any sale shall constitute reasonable notification. At any sale of the Collateral, if permitted by law, Lender may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Collateral or any portion thereof for the account of Lender. Borrower shall remain liable for any deficiency. Lender shall not be required to proceed against any Collateral but may proceed against any or Borrower directly. To the extent permitted by law, Borrower hereby specifically waives all rights of redemption, stay, or appraisal that it has or may have under any law now existing or hereafter enacted. (e) Retention of Collateral. At its discretion, retain such portion of the Collateral as shall aggregate in value to an amount equal to the total amount owed by Borrower pursuant to the Loan Documents, in satisfaction of the Obligations, whenever the circumstances are such that Lender is entitled and elects to do so under applicable law. (f) Receiver. Apply by appropriate procedures for the appointment of a receiver who shall have the authority to enter upon and take possession of any or all of the Collateral, collect the rents and profits generated therefrom, and apply the same as the court may RECEIVABLES LOAN AND SECURITY AGREEMENT 54 direct. Borrower hereby consents to any such appointment. The receiver shall have all of the rights and powers permitted under the laws of the State of Texas. (g) Purchase of Collateral. Buy all or any part of the Collateral at any public or private sale. (h) Exercise of Other Rights. 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 other maker of any defaulted Pledged Note Receivable. Lender may also exercise any and all other rights or remedies afforded by any other Applicable Laws or by the Loan Documents, as Lender 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 Lender in the Loan Documents. Lender shall also have the right to require Borrower to assemble any of the Collateral not in Lender's possession, at Borrower's expense, and make it available to Lender at a place to be determined by Lender that is reasonably convenient to both parties, and Lender shall have the right to take immediate possession of all or any portion of the Collateral and may enter the Receivables Loan Approved Resorts 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 Lender, 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 Lender for use and occupancy, rent, or storage of the Collateral, for a period of at least sixty (60) days after sale or disposition of the Collateral). 8.2 Notice of Sale. Reasonable notification of the 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, Lender may sell or otherwise dispose of the Collateral without advertisement or other notice of any kind. It is agreed that notice sent not less than ten (10) 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 8.2. Lender shall have the right to bid at any public or private sale on its own behalf. Out of money arising from any such sale, Lender shall retain an amount equal to all costs and charges, including attorneys' fees, that it has incurred or may incur 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 against the Obligations, and in the event of deficiency, Borrower shall remain liable to Lender. 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 Lender, which in Lender's sole discretion makes it advisable for Lender to seek counsel for the protection and preservation of its Liens and security interests, or to defend its own interest, such expenses and RECEIVABLES LOAN AND SECURITY AGREEMENT 55 counsel fees shall be allowed to Lender, and the same shall be made a further charge and Lien upon the Collateral. In view of the fact that federal, state, and other securities laws may impose certain restrictions on the methods by which a sale of certain Collateral may be effected after an Event of Default, Borrower agrees that upon the occurrence or existence of a Default or Event of Default, Lender may, 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 those who will represent and agree that they are purchasing for investment only and not for, or with a view to, distribution. In so doing, Lender may solicit offers to buy such Collateral, or any part of it for cash, from a limited number of investors deemed by Lender, in its reasonable judgment, to be responsible parties who might be interested in purchasing the Collateral, and if Lender solicits such offers from not less than two (2) such investors, then the acceptance by Lender of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral. 8.3 Application of Collateral; Termination of Agreements. Upon the occurrence of any Default or Event of Default, Lender may, with or without proceeding with such sale or foreclosure or demanding payment or performance of the Obligations, without notice, terminate Lender's further performance under this Agreement or any other agreement or agreements between Lender and Borrower or any Affiliate thereof, without further liability or obligation by Lender, and may also, at any time, appropriate and apply on any Obligations any and all Collateral in its, Custodian's or Lockbox Agent's possession, custodian, or control any and all balances, credits, deposits, accounts, reserves, indebtedness, or other monies due or owing to Borrower held by Lender hereunder or under any other financing agreement or otherwise, whether accrued or not. 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 Lender, but they shall, in all events, continue until all of the Obligations have been satisfied in full. 8.4 Rights of Lender Regarding Collateral. In addition to all other rights possessed by Lender, Lender, at its option, may from time to time after there shall have occurred a Default or an Event of Default, and for so long as such Default or Event of Default remains uncured, in its sole discretion, take the following actions: (a) Transfer all or any part of the Collateral into the name of Lender or its nominee; (b) Take control of the 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 RECEIVABLES LOAN AND SECURITY AGREEMENT 56 (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. 8.5 Delegation of Duties and Rights. Lender may perform 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. To the maximum extent practicable in light of all relevant facts and circumstances, Lender will attempt to avoid any duplication of effort and cost to Borrower in connection with any such delegation on Lender's part. 8.6 Waivers. THE ACCEPTANCE BY 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 DEFAULT OR EVENT OF DEFAULT THEN EXISTING. NO WAIVER BY LENDER OF ANY DEFAULT OR EVENT OF DEFAULT SHALL BE DEEMED TO BE A WAIVER OF ANY OTHER OR SUBSEQUENT DEFAULT OR EVENT OF DEFAULT. NO DELAY OR OMISSION BY 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 EXERCISES 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 PERSON LIABLE FOR THE PAYMENT OR PERFORMANCE OF ALL OR ANY PORTION OF THE OBLIGATIONS, SEVERALLY WAIVE NOTICE OF THE OCCURRENCE OF ANY DEFAULT, 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. Borrower's Initials: /S/ HJW 8.7 Cumulative Rights. All rights and remedies available to Lender under the Loan Documents shall be cumulative of and in addition to all other rights and remedies granted to Lender under any of the Loan Documents, at law, or in equity, whether or not the Loan is due and payable and whether or not Lender shall have instituted any suit for collection or other action in connection with or pursuant to the Loan Documents. 8.8 Expenditures by Lender. Any amounts expended by or on behalf of Lender pursuant to the exercise of any right or remedy provided herein or available at law or in equity RECEIVABLES LOAN AND SECURITY AGREEMENT 57 shall be deemed an Advance hereunder, become part of the Obligations, and shall bear interest at the Default Rate from the date of such expenditure until the date repaid. 8.9 Diminution in Value of Collateral. Lender shall not have any liability or responsibility whatsoever for any diminution or loss in value of any of the Collateral. SECTION 9. CERTAIN RIGHTS OF LENDER 9.1 Protection of Collateral. Lender may, at any time and from time to time, take such actions as Lender 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 Lender'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 Lender 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 Lender's reasonable expenses of preserving the Collateral and its Liens and security interests and rights therein shall be added to the principal amount of the Loan and secured by the Collateral. 9.2 Performance by Lender. If Borrower fails to perform any agreement contained herein, subject to any notice or cure periods, Lender may itself perform, or cause the performance of, such agreement, and the expenses of Lender incurred in connection therewith shall be payable by Borrower under Section 9.5 below. In no event, however, shall Lender have any obligation or duty whatsoever to perform any covenant or agreement of Borrower contained herein, in any of the other Loan Documents, or in any Timeshare Documents, and any such performance by Lender shall be wholly discretionary with Lender. The performance by Lender of any agreement or covenant of Borrower on any occasion shall not give rise to any duty on the part of Lender to perform any such agreements or covenants on any other occasion or at any time. In addition, Borrower acknowledges that Lender shall not at any time or under any circumstances whatsoever have any duty to Borrower or to any other Person to exercise any of Lender's rights or remedies hereunder. 9.3 No Liability of Lender. Lender is obligated to perform all covenants and obligations of Lender hereunder, including but not limited to making Advances to Borrower, subject to all of the terms, provisions, and conditions hereof and of the other Loan Documents. However, neither the execution of this Agreement or any of the other Loan Documents by Lender nor the exercise of any rights hereunder or thereunder by Lender shall be construed in any way as an assumption by Lender of any obligations, responsibilities, or duties of Borrower arising in connection with the Property, all or any portion of the Collateral, under any Timeshare Documents, under any Applicable Laws, or in connection with any other business of Borrower or the Collateral, nor shall it otherwise bind Lender to the performance of any obligations with respect to the Property, or the Collateral, it being expressly understood that Lender shall not be obligated to perform, observe, or discharge any obligation, responsibility, duty, or liability of Borrower with respect to the Property, any of the Collateral, under any of the Timeshare Documents, or under any Applicable Laws, including, but not limited to, appearing in or defending any action, expending any money, or incurring any expense in connection therewith. RECEIVABLES LOAN AND SECURITY AGREEMENT 58 Without limiting the foregoing, neither this Agreement, any action or actions on the part of Lender taken hereunder nor the acquisition of the Pledged Notes Receivable, and/or the other Collateral by Lender prior to or following the occurrence of a Default or an Event of Default shall constitute an assumption by Lender of any obligations of Borrower with respect to the Property or such Collateral, 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 hereby agrees to indemnify, protect, defend, and hold Lender harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs, and expenses, including, without limitation, reasonable attorneys' fees and court costs, asserted against or incurred by Lender by reason of, arising out of, or connected in any way with (a) any failure or alleged failure of Borrower to perform any of its covenants or obligations with respect to the Property or all or any portion of the Collateral; (b) a breach of any certification, representation, warranty, or covenant of Borrower set forth in any of the Loan Documents; (c) the ownership of the Pledged Notes Receivable, the other Collateral, and the rights, titles, and interests assigned hereby, or intended so to be; (d) the debtor-creditor relationships between Borrower, on the one hand, and the Purchasers or Lender, as the case may be, on the other; or (e) the Pledged Notes Receivable, or the management or operation of the Property. The obligations of Borrower to indemnify, protect, defend, and hold 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 Lender is indemnified. The indemnity provisions in this Section 9.3 shall survive the complete satisfaction of the Obligations and the termination of this Agreement and remain binding and enforceable against Borrower, together with any of its successors and 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, that might otherwise constitute legal or equitable discharges of its obligations hereunder. If a court of competent jurisdiction should determine that Borrower is entitled to recover damages from Lender for any reason or upon any cause, claim, or counterclaim, in connection with the Loan or the transactions provided for or contemplated pursuant to this Agreement or the other Loan Documents, Borrower stipulates and agrees that any such damages or awards shall be limited to compensatory damages only, and that under no circumstances whatsoever shall Lender be liable to Borrower, or any Affiliate thereof for exemplary or punitive damages, all of which are hereby waived by Borrower. 9.4 Right to Defend Action Affecting Security. Lender may, at Borrower's expense, appear in and defend any action or proceeding, at law or in equity, that Lender in good faith believes may affect the Liens or security interests granted under this Agreement, including, without limitation, with respect to the Pledged Notes Receivable, the Collateral, or Lender's rights under any of the Loan Documents. 9.5 Expenses. All expenses payable by Borrower under any provision of this Agreement shall be Obligations of Borrower, and if paid by Lender, shall be repaid by Borrower to Lender, upon demand, and shall bear interest at the Default Rate from the date of payment of such expense(s) by Lender until repaid by Borrower. RECEIVABLES LOAN AND SECURITY AGREEMENT 59 9.6 Lender's Right of Set-Off. Lender shall have the right to set-off against any or all of the Collateral any Obligations then due and unpaid by Borrower. 9.7 Right of Lender to Extend Time of Payment, Substitute, Release Security, Etc. Without affecting the liability of any Person for the payment of any of the Obligations and without affecting or impairing Lender's Lien and other rights in and to the Collateral, or the remainder thereof, as security for the full amount of the Loan unpaid and the Obligations, Lender 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 as provided herein in such order and manner as it may deem fit; and/or (f) join in any subordination or other agreement affecting this Agreement or the lien or charge thereof. 9.8 Assignment of Lender's Interest. Lender shall have the right to assign the Loan and all or any portion of its rights in or pursuant to this Agreement or any of the other Loan Documents to any subsequent holder or holders of the Note. 9.9 Notice to Purchaser. Borrower hereby authorizes Lender and Lockbox Agent (but neither Lender nor Lockbox 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 the Lender thereon and any other matter relating thereto, and by no later than the Closing Date, Borrower shall deliver to Lender notifications to the Purchasers executed in blank by Borrower and in form acceptable to Lender, pursuant to which such Purchasers (or other obligors) are directed to remit all payments in respect of the Collateral to Lockbox Agent or as Lender may otherwise require. 9.10 Collection of Pledged Notes Receivable. Borrower hereby directs and authorizes each Purchaser and any other Person liable for the payment of any Pledged Note Receivable, and promptly after the Closing Date, shall direct in writing each such Person, to pay each installment due thereon directly to Lockbox Agent, pursuant to the Lockbox Agreement, unless and until directed otherwise by written notice from Lender or, at Lender'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 Lender. Following the occurrence of a Default or Event of Default, Lender shall have the right to require that all payments becoming due under the Pledged Notes Receivable be paid directly to Lender, and Lender is hereby authorized to receive, collect, hold, and apply the same in accordance with the provisions of this Agreement but shall provide Borrower with accountings of all such activity on at least as frequent a basis as Lockbox Agent was obligated to provide accountings to Lender and Borrower, pursuant to the Lockbox Agreement. In the event that following the occurrence of a Default or an Event of Default, Lender 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, Lender may, at its election (but without any obligation to do so), give or cause Lockbox Agent to give notice of such event of default to the defaulting party or parties, and Lender shall have the right (but not the obligation), subject to the terms of such instruments, to accelerate payment of the unpaid balance of any of the Pledged Notes Receivable in default to RECEIVABLES LOAN AND SECURITY AGREEMENT 60 foreclose each of the Timeshare Interest Mortgages securing the payment thereof and to enforce any other remedies available to the holder of such Pledged Notes Receivable, with respect to such event of default. Borrower hereby further authorizes, directs, and empowers Lender (and Lockbox Agent or any other Person as may be designated by Lender 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 had been endorsed by Borrower. 9.11 Power of Attorney. Borrower does hereby irrevocably constitute and appoint Lender 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 Lender as provided in Section 9.10 above; (b) to demand and receive from time to time any and all property, rights, titles, interests, and Liens (which are related to Lender's Collateral) hereby sold, assigned, and transferred, or intended so to be, and to give receipts for same; (c) upon a Default or an Event of Default, to collect all rent, revenues, and income, pursuant to the terms of any Pledged Note Receivable and relocated Timeshare Interest Mortgage; (d) from time to time, to institute and prosecute, in Lender's own name, any and all proceedings at law, in equity, or otherwise, that Lender 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; (e) upon a Default or an Event of Default, to change Borrower's post office mailing addresses in connection with the Collateral; and (f) generally to do all and any such acts and things in relation to the Collateral as Lender shall in good faith deem advisable, subject to the terms, provisions, and conditions hereof. Borrower hereby declares that the appointment made and the powers granted pursuant to this Section 9.11 are coupled with an interest and are and shall be irrevocable by Borrower in any manner, or for any reason. 9.12 Relief from Automatic Stay, Etc. To the fullest extent permitted by law, in the event that Borrower shall make application for or seek relief or protection under the federal bankruptcy code (the "Bankruptcy Code") or any 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 forty-five (45) days, the automatic stay provisions of Section 362 of the Bankruptcy Code are hereby modified as to 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 Lender shall automatically and without demand or notice (each of which is hereby waived by Borrower) 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 Lender as provided in the Loan Documents. 9.13 Investigations and Inquiries. Borrower hereby authorizes Lender to conduct such investigations and inquiries concerning Borrower, the Property, the Purchasers, and the Collateral, as Lender, in its sole discretion, deems necessary or desirable in connection with its RECEIVABLES LOAN AND SECURITY AGREEMENT 61 monitoring of the Loan and the Collateral therefor, and all such Persons of whom Lender may make such inquiry are empowered to cooperate with, and to provide all requested information to, Lender. 9.14 Verification of Use. Lender shall be under no duty or obligation to ascertain the manner in which Borrower has used or will use the proceeds of the Loan. Lender's sole obligation shall be to advance the proceeds of the Loan subject to, and in strict accordance with, the terms, provisions, and conditions of this Agreement and the other Loan Documents. Lender's obligation to fund the Loan is limited to the principal amount set forth herein and in the Note. Borrower is solely responsible for obtaining any other financing that may be necessary in order to enable it to repay the Loan on or prior to the Maturity Date. It is expressly understood that Lender has no responsibility or obligation whatsoever to provide to Borrower any further financing, whether in connection with the Property or otherwise. SECTION 10. TERM OF AGREEMENT This Agreement shall continue in full force and effect, and the Liens and 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 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 and security interests 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 11. MISCELLANEOUS 11.1 Notices. All notices or demands by either party to the other relating to this Agreement shall, except as otherwise provided herein (including, without limitation, Section 7.1), be in writing and (i) sent by certified or registered United States mail, first class postage prepaid and return receipt requested, or (ii) by a nationally recognized overnight courier service with all delivery fees prepaid, or (iii) by facsimile or other electronic transmission (including e-mail). Notices shall be deemed received (a) on the 4th succeeding Business Day following deposit in the United States mail, certified or registered and first class postage prepaid and return receipt requested, or (b) upon delivery if sent by nationally recognized overnight courier with all delivery fees prepaid, or (c) if transmitted by facsimile, when properly transmitted, upon receipt of confirmation of transmission by the tramsmitter (except that, if such notice or other communication is not given during normal business hours for the recipient, such notice or other communication shall be deemed received at the opening of business the next Business Day of the recipient), or (d) if transmitted by other electronic transmission, when properly transmitted, upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, return e-mail or other written acknowledgement), provided that, if such notice or other communication is not given during normal business hours for the recipient, such notice or other communication shall be deemed to RECEIVABLES LOAN AND SECURITY AGREEMENT 62 have been received at the opening of business on the next Business Day for the recipient. Notices and demands shall be addressed, if to Borrower, at the mailing address or facsimile or other electronic address set forth in this Section 11.1 or to such other address as Borrower may from time to time specify in writing or, if to Lender, at the mailing address or facsimile or other electronic address of Lender set forth in this Section 11.1 or to such other address as Lender may from time to time specify in writing to Borrower. If to Borrower: Silverleaf Resorts Inc. 1221 River Bend Drive Dallas, Texas 75247 Attention: Chief Financial Officer Facsimile: (214) 631-4981 E-mail: rmead@silverleafresorts.com With a copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, LLP 901 Main Street, Suite 3700 Dallas, Texas 75202 Attention: George Bedell If to Lender: CapitalSource Finance LLC 4445 Willard Avenue, Twelfth Floor Chevy Chase, Maryland 20815 Attention: SFG - Portfolio Manager Facsimile: (301) 841-2370 Email: brainero@capitalsource.com With a copy to: Patton Boggs LLP 2001 Ross Avenue, Suite 3000 Dallas, Texas 75201 Attention: Scott Wallace 11.2 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 Lender and shall survive the delivery to Lender of such Loan Documents (and each part thereof), regardless of any investigation made by or on behalf of Lender. 11.3 Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, EXCLUSIVE OF ANY CHOICE OF LAW PRINCIPLES THAT WOULD RESULT IN A CHOICE OF LAW OTHER THAN THE LAWS OF SUCH STATE. LENDER AND BORROWER HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN MONTGOMERY COUNTY, MARYLAND OR THE SOUTHERN DIVISION OF THE DISTRICT OF MARYLAND, AND IRREVOCABLY AGREE THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR RECEIVABLES LOAN AND SECURITY AGREEMENT 63 PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. LENDER AND BORROWER EXPRESSLY SUBMIT AND CONSENT TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE ON IT BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO IT AT THE ADDRESS SET FORTH HEREIN, AND SERVICE SO MADE SHALL BE DEEMED COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. Borrower's Initials: /S/ HJW 11.4 Limitation on Interest. Lender and Borrower intend to comply at all times with all applicable usury laws. All agreements between 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 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 Document 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 Lender shall ever receive anything of value deemed interest by applicable law that would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the outstanding principal balance of the Loan and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of the Loan, such excess shall be refunded to Borrower. All interest paid or agreed to be paid to Lender 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 deemed an expense, fee, premium, or penalty rather than interest. Lender hereby expressly disclaims any intent to contract for, charge, or receive interest in an amount that 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 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. 11.5 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 RECEIVABLES LOAN AND SECURITY AGREEMENT 64 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. Any provision of this Agreement or any other Loan Document that is held to be illegal, invalid, or unenforceable in a particular jurisdiction shall remain valid and enforceable in all other jurisdictions. Furthermore, in lieu of any such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement and/or the other 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. 11.6 Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns; provided, however, that Borrower may not transfer or assign any of its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of Lender, which consent may be granted or withheld in Lender's sole and absolute discretion. This Agreement and the transactions provided for or contemplated hereunder or under any of the other 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 or the other Loan Documents except as specifically set forth herein or otherwise provided in a written document signed by Borrower and Lender. No Person other than Borrower shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make Advances in the absence of strict compliance with any or all thereof, and no other Person, other than Borrower, under any circumstances whatsoever, shall be deemed to be a beneficiary of such conditions, any or all of which Lender freely may waive, in whole or in part, at any time if, in its sole discretion, it deems it desirable to do so. In particular, Lender makes no representation and assumes no obligation as to third parties concerning the quality of construction of the Improvements or the absence therefrom of defects. In this connection, Borrower agrees to and shall indemnify Lender from any liability, claim, or loss, together with attorneys' fees and costs, resulting from the disbursement of Loan proceeds or from the condition of the Improvements, whether related to the quality of construction or otherwise, and whether arising during or after the term of the Loan. This provision shall survive the repayment of the Loan and continue in full force and effect so long as the possibility of such liability or claim exists. Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell or otherwise transfer or assign to one (1) or more financial institutions or other entities ("Assignees") all or any portion of its rights hereunder or pursuant to the Note, or any or all of the other Loan Documents. Any such assignment shall be effected by Lender's execution of an assignment in such form as may be agreed to by the parties thereto and may be accompanied by a release by Lender of its right, title, and interest hereunder and pursuant to any of the other Loan Documents in and to all or any portion of the Collateral. Although the consent of Borrower shall not be required prior to any such assignment's becoming effective, Lender agrees to provide Borrower with prompt written notice of any such assignment. In the event of any such assignment by Lender to an Assignee, Lender's obligations under the Loan Documents shall remain unchanged, and Lender shall remain solely responsible to the other parties hereto for the performance of such obligations. The foregoing notwithstanding, Borrower shall be directly obligated to each Assignee with respect to the Obligations assigned to such Assignee and RECEIVABLES LOAN AND SECURITY AGREEMENT 65 shall have no rights of setoff or other remedies against the Assignee as a consequence of Lender's acts or omissions under this Agreement subsequent to such assignment. Upon the consummation of any assignment to an Assignee pursuant to this Section, Lender and Borrower shall, if Lender or Assignee desires that the assignment be evidenced in part by one (1) or more new promissory notes, make appropriate arrangements for such new promissory note(s) or, as appropriate, one (1) or more replacement promissory notes to be issued to Lender and for the new promissory note(s) or, as appropriate, replacement promissory note(s), to be issued to Assignee, in each case in principal amounts reflecting their respective rights to payment. 11.7 Amendment. This Agreement (including all exhibits and schedules hereto) may not be amended or modified, and no term, provision, or condition hereof may be waived, except by a written instrument that is signed by all of the parties hereto. 11.8 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 Lender's receipt of one (1) or more counterparts hereof signed by Borrower and Lender. 11.9 Lender Not a Fiduciary. The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has 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, and Lender to be other than that of debtor and creditor. 11.10 Release and Return of Notes Receivable. (a) In the event that Borrower complies fully with its Obligations under Section 2.5(b) of this Agreement with respect to any Pledged Note Receivable that ceases to be an Eligible Note Receivable, and Borrower thereafter desires to enforce such ineligible Note Receivable against the maker thereof, then provided that no Default or Event of Default then exists and no event has occurred which with notice, the passage of time, or both, would constitute a Default or an Event of Default, within sixty (60) days after its receipt of a written request from Borrower, Lender shall endorse the ineligible Note Receivable using the words "Pay to the order of Silverleaf Resorts Inc., without recourse," and deliver such ineligible Note Receivable to Borrower. (b) In the event that all Obligations hereunder are fully satisfied, then within a reasonable time thereafter, Lender shall endorse the Pledged Notes Receivable using the words "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, free and clear of any Liens or encumbrances by any Person claiming by, through, or under Lender. (c) With respect to any Pledged Note Receivable that is not an Eligible Note Receivable, upon Borrower's request, Lender shall direct Custodian to return the Credit File relating to such Pledged Note Receivable to Borrower at its earliest convenience. RECEIVABLES LOAN AND SECURITY AGREEMENT 66 11.11 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. 11.12 Entire Agreement. This Agreement and the other Loan Documents, including the exhibits and schedules to them, comprise the entire agreement between the parties relating to the subject matter hereof and supersede all prior agreements and understandings, both oral and written, between the parties hereto relating to the subject matter hereof, may not be changed or terminated orally or by course of conduct, and shall be deemed effective as of the Closing Date. 11.13 Litigation. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, BORROWER AND 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 ORAL 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. BORROWER AND LENDER FURTHER WAIVE 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 CERTIFY THAT NO REPRESENTATIVE OR AGENT OF LENDER, INCLUDING LENDER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT 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 LENDER'S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. Borrower's Initials: /S/ HJW The waiver and stipulations of Borrower and Lender in this Section 11.13 shall survive the final payment or performance of all of the Obligations and the resulting termination of this Agreement. 11.14 Incorporation of Exhibits and Schedules. This Agreement, together with all exhibits and schedules hereto, constitute one (1) document and agreement that is referred to herein by the use of the defined term "Agreement." Such exhibits and schedules are incorporated herein as though fully set out in this Agreement. The definitions contained in any part of this Agreement shall apply to all parts of this Agreement. RECEIVABLES LOAN AND SECURITY AGREEMENT 67 11.15 Consent to Advertising and Publicity. Borrower hereby consents to Lender's issuance and dissemination to the public of information describing the credit accommodation entered into pursuant to this Agreement, consisting of the name and address of Borrower, the Loan's principal amount, and the Collateral therefor. 11.16 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. 11.17 Captions. Section captions have been included in this Agreement for convenience of reference only and should not be relied upon or used in interpreting the meaning or intent of any provision hereof. 11.18 Gender. Words of any gender in this Agreement shall include both genders, where appropriate. 11.19 No Duty. All attorneys, accountants, appraisers, consultants, custodians, and other professionals retained by Lender in connection with the Loan shall have the right to act exclusively in the interest of Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any kind or nature whatsoever to Borrower, or any other Person. 11.20 Submissions. (a) All documents, agreements, reports, surveys, appraisals, insurance policies, references, financial information, and other submissions required to be furnished by Borrower to Lender hereunder or pursuant to any of the other Loan Documents (collectively "Submissions") shall be in form and content satisfactory to Lender, in its sole discretion, and prepared at Borrower's sole expense. (b) Lender shall have the prior right of approval of any Person responsible for preparing a Submission (a "Preparer") which approval shall not be unreasonably withheld or delayed. (c) Borrower shall exercise its commercially reasonable best efforts to ensure that all reports and appraisals required to be furnished by Borrower to Lender hereunder or pursuant to any of the other Loan Documents are specifically addressed to Lender and include the following statement: THE UNDERSIGNED ACKNOWLEDGES THAT CAPITALSOURCE FINANCE LLC IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS ADVANCES TO BORROWER ON THE SUBJECT PROPERTY. (d) Whether or not expressly stated herein, all consents and approvals granted by Lender hereunder shall be valid and effective only if contained in a written document or instrument that has been signed by a duly authorized representative of Lender. RECEIVABLES LOAN AND SECURITY AGREEMENT 68 11.21 Confidentiality. Each party hereto acknowledges and agrees that the material terms hereof and of the other Loan Documents are and shall remain strictly confidential. No party hereto shall ever disclose the material terms and provisions hereof without the express prior written consent of the other parties; provided, however, material terms and provisions of this Agreement which appear in recorded or filed documents or which are disclosed to a party's shareholders, officers, directors, principals, Affiliates, attorneys, accountants, or lenders, or if required by law or subpoena, shall not constitute a breach of this Section 11.21. The parties hereto shall take all appropriate measures to prevent the inadvertent or unintentional disclosure of the material terms and provisions hereof. 11.22 Borrower's Acknowledgment. Borrower acknowledges and agrees that Lender is under no obligation to enter into any other agreement or perform any other services for Borrower except as expressly set forth in this Agreement and the other Loan Documents. Any other transaction or relationship between Borrower and Lender shall be evidenced by other documentation, shall be separate and independent from the Loan, and shall have no effect on Borrower's obligations to Lender with respect to the Loan or Lender's remedies under the Loan Documents. Borrower acknowledges and agrees that no discussions or oral agreements heretofore or hereafter occurring between Borrower and Lender shall have any legal effect unless embodied in a written agreement executed by all relevant parties. Furthermore, no other written agreement between the parties and their Affiliates and the performance of the parties thereunder shall have any legal effect whatsoever on Borrower's obligations or Lender's remedies under this Agreement and the other Loan Documents. Borrower's Initials: /S/ HJW 11.23 No Offset. Borrower understands and agrees that Borrower's payment obligations hereunder and under the other Loan Documents are absolute and unconditional without any right of rescission, setoff, counterclaim or defense for any reason against Lender notwithstanding any damage to, defects in or destruction of any Collateral or any other event, including obsolescence of any property or improvements. Except as expressly provided for herein, Borrower hereby waives setoff, counterclaim, demand, presentment, protest, all defenses with respect to any and all instruments and all notices and demands of any description, and the pleading of any statute of limitations as a defense to any demand under this Agreement and any other Loan Document. Borrower hereby waives any and all defenses and counterclaims it may have or could interpose in any action or procedure brought by Lender to obtain an order of court recognizing the assignment of, or lien of Lender in and to, any Collateral. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] RECEIVABLES LOAN AND SECURITY AGREEMENT 69 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 By: /S/ HARRY J. WHITE, JR. -------------------------------- Name: Harry J. White, Jr. Title: CFO LENDER: CAPITALSOURCE FINANCE LLC, a Delaware limited liability company By: /S/ PIERRETTE N. BRADSHAW -------------------------------- Name: Pierrette N. Bradshaw Title: General Counsel List of Exhibits to Agreement not filed herewith: Exhibit "A": Form of Custodial Agreement Exhibit "B": Form of Master Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages Exhibit "C": Form of Lockbox Agreement Exhibit "D": Resort Facilities Exhibit "E": Permitted Liens and Encumbrances Exhibit "F": Receivables Loan Approved Resorts Exhibit "G": Form of Reassignment Exhibit "H": Description Of Pending Litigation Exhibit "I": Form of Advance Request RECEIVABLES LOAN AND SECURITY AGREEMENT Exhibit "J": Form of Supplemental Pledge and Assignment of Notes Receivable and Timeshare Interest Mortgages Exhibit "K": List of States in which Borrower is Registered or Exempt Exhibit "L": List of Timeshare Documents Exhibit "M": Borrowing Base Certificate Exhibit "N": Listing of amounts owed to Timeshare Association RECEIVABLES LOAN AND SECURITY AGREEMENT ~~-----END PRIVACY-ENHANCED MESSAGE-----~~


DATE: May 5, 2005	SILVERLEAF RESORTS, INC.
	By:	/S/ HARRY J. WHITE, JR.
	Name:	Harry J. White, Jr.
	Title:	Chief Financial Officer