**EXHIBIT 4.24(a)**

 

**KERZNER PALMILLA BEACH PARTNERS,S. de R.L. de C.V.,KERZNER PALMILLA HOTEL PARTNERS, S. de R.L. de C.V.,KERZNER SERVICIOS HOTELEROS, S. de R.L. de C.V.,KERZNER COMPANIA DE SERVICIOS, S. de R.L. de C.V. andKERZNER PALMILLA GOLF PARTNERS, S. de R.L. de C.V.**

(collectively,Issuers)

 

 

 

**and**

 

 

 

**LASALLE BANK NATIONAL ASSOCIATION**

(Trustee)

 

 

 

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**NOTE INDENTURE**

 

 

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| ** ** | **Location:     The  One & Only Palmilla**

**        Los  Cabos, Mexico** | ** ** |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|

 

**Dated as of December 17,2004**

 
|   | **PREPARED BY AND UPON**

**FILING RETURN TO:** |   |
|--------|-------------------------------------------------|--------|

 

**Cadwalader, Wickersham & TaftLLP100 Maiden LaneNew York, New York 10038U.S.A.Attention:  William P. McInerney, Esq.**

 

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**TABLE OF CONTENTS**

 
| ** **                               | ** **                                                 | ** ** |
|------------------------------------------|------------------------------------------------------------|------------|
| ARTICLE 1 -  DEFINITIONS; INTERPRETATION |
|                                     |                                                       |       |
| Section 1.01                             | Definitions                                                | 1          |
| Section  1.02                            | Accounting  Terms                                          | 24         |
| Section  1.03                            | General                                                    | 24         |
|                                     |
| ARTICLE 2 - ISSUE OF NOTES               |
|                                     |                                                       |       |
| Section  2.01                            | No  Limit on Issue                                         | 25         |
| Section  2.02                            | Notes  Deemed to be Outstanding                            | 25         |
| Section  2.03                            | Conditions  Precedent to the Issue of Notes                | 25         |
| Section  2.04                            | Issue  of Notes                                            | 26         |
| Section  2.05                            | Form  of Notes                                             | 27         |
| Section  2.06                            | Registration                                               | 27         |
| Section  2.07                            | Transfers  of Notes                                        | 28         |
| Section  2.08                            | Inspection  of Registers                                   | 28         |
| Section  2.09                            | Title  to Registered Notes                                 | 28         |
| Section  2.10                            | Mutilation,  Loss, Theft or Destruction                    | 28         |
| Section  2.11                            | Cancellation  of Notes                                     | 28         |
|                                     |
| ARTICLE 3 - PAYMENT  MECHANICS           |
|                                     |
| Section  3.01                            | Requirements  of Payment                                   | 29         |
| Section  3.02                            | Additional  Provisions                                     | 29         |
| Section  3.03                            | Priority  of Payments                                      | 29         |
|                                     |                                                       |       |
| ARTICLE 4 -  SECURITY AND ASSET DEALING  |
|                                     |
| Section  4.01                            | Charges  and Security Interest                             | 29         |
| Section  4.02                            | Holders  of Security                                       | 30         |
| Section  4.03                            | Further  Assurances                                        | 30         |
| Section  4.04                            | Power  of Attorney                                         | 30         |
| Section  4.05                            | Dealings  with the Security Trust Agreement and the Pledge | 31         |
| Section  4.06                            | No  Obligation to Advance Funds                            | 31         |
|                                     |                                                       |       |
| ARTICLE 5 -  CANCELLATION AND DISCHARGE  |
|                                     |
| Section  5.01                            | Cancellation  and Destruction                              | 31         |
| Section  5.02                            | Non-Presentation  of Notes                                 | 31         |
| Section  5.03                            | Unclaimed  Moneys                                          | 31         |
| Section  5.04                            | Discharge                                                  | 32         |

 

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| ARTICLE 6 -  REPRESENTATIONS AND WARRANTIES    |
|------------------------------------------------|
|                                           |
| Section  6.01                                  | Issuer  Representations |   |
| Section  6.02                                  | Survival  of Representations | 32 |
|                                           |   | 45 |
| ARTICLE 7 - ISSUER  COVENANTS                  |
|                                           |
| Section  7.01                                  | Affirmative  Covenants | 45 |
| Section  7.02                                  | Negative  Covenants | 57 |
|                                           |   |   |
| ARTICLE 8  - INSURANCE; CASUALTY; CONDEMNATION |
|                                           |
| Section  8.01                                  | Insurance | 65 |
| Section  8.02                                  | Casualty | 69 |
| Section  8.03                                  | Condemnation | 69 |
| Section  8.04                                  | Restoration | 70 |
| Section  8.05                                  | Casualty/Condemnation  Generally | 73 |
|                                           |   |   |
| ARTICLE 9 - DEFAULTS                           |
|                                           |
| Section  9.01                                  | Event  of Default | 74 |
| Section  9.02                                  | Remedies | 76 |
| Section  9.03                                  | Exculpation | 78 |
| Section  9.04                                  | Manager  Termination | 79 |
|                                           |   |   |
| ARTICLE 10 - RESERVE FUNDS                     |
|                                           |
| Section  10.01                                 | Required  Repair Funds | 80 |
| Section  10.02                                 | Tax  and Insurance Escrow Fund | 81 |
| Section  10.03                                 | Replacements  and Replacement Reserve | 81 |
| Section  10.04                                 | Interest  Reserve Interest | 82 |
| Section  10.05                                 | Reserve  LC | 82 |
| Section  10.06                                 | Reserve  Funds, Generally | 83 |
|                                           |   |   |
| ARTICLE 11  - MATTERS CONCERNING THE TRUSTEE   |
|                                           |
| Section  11.01                                 | Duties  of the Trustee | 85 |
| Section  11.02                                 | Rights  of Trustee | 90 |
| Section  11.03                                 | Individual  Rights of Trustee | 91 |
| Section  11.04                                 | Trustee’s  Disclaimer | 91 |
| Section  11.05                                 | Notice  of Defaults | 92 |
| Section  11.06                                 | Compensation  and Indemnity | 92 |
| Section  11.07                                 | Replacement  of Trustee | 92 |
| Section  11.08                                 | Resignation  or Removal of Trustee; Conflict of Interest | 93 |
| Section  11.09                                 | Successor  Trustee | 94 |
| Section  11.10                                 | Authorization  and Duties of Trustee | 94 |
| Section  11.11                                 | Trustee  Not Required to Give Security | 95 |
| Section  11.12                                 | Trustee  May Deal In Notes | 95 |

 

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| Section  11.13                                  | Administration  of the Trust and Protection of the Trustee     | 95     |
|-------------------------------------------------|----------------------------------------------------------------|--------|
| Section  11.14                                  | Service  Providers.                                            | 97     |
|                                            |                                                           |   |
| ARTICLE 12 -  SUPPLEMENTAL INDENTURES           |
|                                            |
| Section  12.01                                  | Supplemental  Trust Indentures                                 | 97     |
| Section  12.02                                  | Further  Assurances                                            | 97     |
| Section  12.03                                  | Amendment  or Modification                                     | 98     |
|                                            |                                                           |   |
| ARTICLE  13 - NOTEHOLDER MEETINGS AND APPROVALS |
|                                            |
| Section  13.01                                  | Conduct  of Meetings                                           | 98     |
| Section  13.02                                  | Extraordinary  Resolution                                      | 99     |
| Section  13.03                                  | Signed  Instruments                                            | 100    |
| Section  13.04                                  | Binding  Effect of Resolutions                                 | 100    |
|                                            |                                                           |   |
| ARTICLE 14 - MISCELLANEOUS                      |
|                                            |
| Section  14.01                                  | Survival                                                       | 100    |
| Section  14.02                                  | Trustee’s  Discretion                                     | 100    |
| Section  14.03                                  | Notices                                                        | 100    |
| Section  14.04                                  | Governing  Law                                                 | 102    |
| Section  14.05                                  | Modification,  Waiver in Writing                               | 103    |
| Section  14.06                                  | Delay  Not a Waiver                                            | 103    |
| Section  14.07                                  | Trial  by Jury                                                 | 104    |
| Section  14.08                                  | Headings                                                       | 104    |
| Section  14.09                                  | Severability                                                   | 104    |
| Section  14.10                                  | Preferences                                                    | 104    |
| Section  14.11                                  | Waiver  of Notice                                              | 104    |
| Section  14.12                                  | Expenses;  Indemnity                                           | 104    |
| Section  14.13                                  | Offsets,  Counterclaims and Defenses                           | 106    |
| Section  14.14                                  | No  Joint Venture or Partnership; No Third Party Beneficiaries | 106    |
| Section  14.15                                  | Publicity                                                      | 106    |
| Section  14.16                                  | Waiver  of Marshalling of Assets                               | 107    |
| Section  14.17                                  | Waiver  of Counterclaim                                        | 107    |
| Section  14.18                                  | Conflict;  Construction of Documents; Reliance                 | 107    |
| Section  14.19                                  | Brokers  and Financial Advisors                                | 107    |
| Section  14.20                                  | Prior  Agreements                                              | 108    |
| Section  14.21                                  | Duplicate  Originals, Counterparts                             | 108    |
| Section  14.22                                  | Joint  and Several Liability                                   | 108    |
|                                            |                                                           |   |
| ARTICLE 15 - EXECUTION                          |
|                                            |
| Section  15.01                                  | Effective  Upon Execution                                      | 108    |

 

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**THIS NOTE INDENTURE**(the “**Indenture**”)made as of the 17th day of December, 2004, between **KERZNERPALMILLA BEACH PARTNERS, S. de R.L. de C.V., KERZNER PALMILLA HOTEL PARTNERS,S. de R.L. de C.V., KERZNER SERVICIOS HOTELEROS, S. de R.L. de C.V., KERZNERCOMPANIA DE SERVICIOS, S. de R.L. de C.V. and KERZNER PALMILLA GOLF PARTNERS,S. de R.L. de C.V.**, each a limited liability company with variablecapital (*sociedad de responsabilidad limitada de capitalvariable*), duly organized and validly existing under the laws of theUnited Mexican States and each having an address at Palmilla Resort & GolfClub Apartado Postal 52, 33400 San Jose Del Cabo, BCS, Mexico****(hereinafter collectively the “**Issuers**”)and **LASALLE BANK NATIONAL ASSOCIATION**,having an address at 35 S. LaSalle Street, Suite 1625, Chicago,Illinois 60603, as note trustee and collateral agent for the benefit of theHolders of the Notes (as such terms are hereinafter defined) (hereinafter the “**Trustee**”).

 

**RECITALS**

 

The parties hereto have duly authorized the executionand delivery of this Indenture to provide for the issuance of the Notes to beissued by the Issuers as provided herein in an aggregate principal amount of$110,000,000.

 

All things necessary to make the Notes when executedby the Issuers and authenticated and delivered by the Trustee hereunder andduly issued by the Issuers, the valid and legally binding obligations of theIssuers enforceable in accordance with their terms, and to make this Indenturea valid and legally binding agreement of the Issuers and the Trustee for thebenefit of the Noteholders enforceable in accordance with its terms, have beendone.

 

**ARTICLE1 - DEFINITIONS; INTERPRETATION**

 

**Section 1.01****  Definitions****.**  For purposesof this Indenture, the Notes, the Security Trust Agreement and the otherFinancing Documents, unless there is something in the subject matter or contextinconsistent therewith, the following terms shall have the following meanings:

 

“**Acceptable Counterparty**” shall meanany counterparty to the Interest Rate Cap Agreement that has and shallmaintain, until the expiration of the applicable Interest Rate Cap Agreement along-term unsecured debt rating of at least “AA” by S&P and “Aa2” fromMoody’s, which rating shall not include a “t” or otherwise reflect atermination risk.

 

“**Additional Insolvency Opinion**”shall have the meaning set forth in Section 6.01(dd)(iii)hereof.

 

“**Affiliate**” shall mean, as to anyPerson, any other Person that, directly or indirectly, is in control of, iscontrolled by or is under common control with such Person or is a director orofficer of such Person or of an Affiliate of such Person.

 

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“**Affiliated Manager**” shall mean,collectively, Kerzner International Management Services, Inc. and KerznerInternational Management Services Mexico, S. de R.L. de C.V. or any Manager inwhich any Issuer, Principal, or Guarantor has, directly or indirectly, anylegal, beneficial or economic interest.

 

“**Annual Budget**” shall mean theoperating budget, including all planned Capital Expenditures, for the Propertyprepared by the Issuers for the applicable Fiscal Year or other period.

 

“**Applicable Interest Rate**” shall having the meaning set forth in the Note.

 

“**Approved Annual Budget**” shall havethe meaning set forth in Section 7.01(k)(iv)hereof.

 

“**Assignment of Golf Management Agreement**”shall mean that certain Assignment of Management Agreement, dated as of thedate hereof, among the Trustee, the Issuers and Golf Manager, as the same maybe amended, restated, replaced, supplemented or otherwise modified from time totime.

 

“**Assignment of Management Agreement**”shall mean that certain Assignment of Management Agreement, dated as of thedate hereof, among the Trustee, the Issuers and Manager, as the same may beamended, restated, replaced, supplemented or otherwise modified from time totime.

 

**“**Assignment of SpaManagement Agreement****” shall mean that certain Assignment of ManagementAgreement, dated as of the date hereof, among the Trustee, the Issuers and SpaManager, as the same may be amended, restated, replaced, supplemented orotherwise modified from time to time.

 

“**Award**” shall mean any compensationpaid by any Governmental Authority in connection with a Condemnation.

 

“**Bankruptcy Action**” shall mean withrespect to any Person (a) such Person filing a voluntary petition underthe Bankruptcy Code or any other foreign or domestic, federal or statebankruptcy or insolvency law; (b) the filing of an involuntary petitionagainst such Person under the Bankruptcy Code or any other foreign or domestic,federal or state bankruptcy or insolvency law, or soliciting or causing to besolicited petitioning creditors for any involuntary petition against suchPerson; (c) such Person filing an answer consenting to or otherwiseacquiescing in or joining in any involuntary petition filed against it, by anyother Person under the Bankruptcy Code or any other foreign or domestic,federal or state bankruptcy or insolvency law, or soliciting or causing to besolicited petitioning creditors for any involuntary petition from any Person;(d) such Person consenting to or acquiescing in or joining in anapplication for the appointment of a custodian, *sindicoconciliador*, receiver, trustee, or examiner for such Person or anyportion of the Property; or (e) such Person making an assignment for thebenefit of creditors, or admitting, in writing or in any legal proceeding, itsinsolvency or inability to pay its debts as they become due.

 

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“**Bankruptcy Code**” shall meanTitle 11 of the United States Code entitled “Bankruptcy”, as amended fromtime to time, and any successor statute or statutes and all rules andregulations from time to time promulgated thereunder, and any comparableforeign laws relating to bankruptcy, insolvency or creditors’ rights(including, but not limited to, the Mexican *Ley de ConcursosMercantiles*).

 

“**Basic Carrying Costs**” shall mean,for any period, the sum of the following costs: (a) Taxes, (b) Other Charges and (c) Insurance Premiums.

 

“**Beach Issuer**” shall mean KerznerPalmilla Beach Partners, S. de R.L. de C.V.

 

“**Business Day**” shall mean any dayother than a Saturday, Sunday or any other day on whichnational banks in Mexico or New York, New York or Chicago, Illinois, UnitedStates of America are not open for business.

 

“**Capital Expenditures**” shall mean,for any period, the amount expended for items capitalized under GAAP (includingexpenditures for building improvements or major repairs and tenantimprovements).

 

“**Cash Management Account**” shall havethe meaning set forth in the Note.

 

“**Cash Management Agreement**” shallmean that certain Cash Management Agreement, dated as of the date hereof, byand among Issuers, Manager and Trustee, as the same may be amended, restated,replaced, supplemented or otherwise modified from time to time.

 

“**Cash Trap Event**” shall have themeaning set forth in the Cash Management Agreement.

 

“**Casualty**” shall have the meaningset forth in Section 8.02 hereof.

 

“**Casualty Consultant**” shall have themeaning set forth in Section 8.04(d) hereof.

 

“**Casualty Retainage**” shall have themeaning set forth in Section 8.04(e) hereof.

 

“**CNBV**” shall mean the Mexican *Comisión Nacional Bancaria y de Valores*.

 

“**Code**” shall mean the InternalRevenue Code of 1986, as amended, as it may be further amended from time totime, and any successor statutes thereto, and applicable U.S. Department ofTreasury regulations issued pursuant thereto in temporary or final form.

 

“**Collateral Assignment of Interest Rate Cap Agreement**”shall mean that certain Collateral Assignment of Interest Rate Cap Agreement,dated as of the date hereof, executed by Issuers in connection with theissuance of the Notes in favor of Trustee for the benefit of the Noteholders,as the same may be amended, restated, replaced, supplemented or otherwisemodified from time to time.

 

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“**Condemnation**” shall mean atemporary or permanent taking (including an expropriation under Mexican law) byany Mexican Governmental Authority of all or any part of the Property, or anyinterest therein or right accruing thereto, including any right of accessthereto or any change of grade affecting the Property or any part thereof.

 

“**Condemnation Proceeds**” shall havethe meaning set forth in Section 8.04(a)(iv)hereof.

 

“**Condominium**” shall mean thatcertain condominium regime created pursuant to the Condominium Documents.

 

“**Condominium Documents**” shall mean,collectively, that certain Public Deed Number 36,681 dated April 10,1991 granted before Mr. Armando Antonio Aguilar Rubial, Notary PublicNo. 1 of La Paz, Baja California Sur, which Public Deed creates thecondominium regime of the Palmilla Tourist Development and contains thecondominium incorporation and subdivision of parcels, together with the lotdescription *(memoria descriptiva)* and the rules andregulations of the Condominium.

 

“**Condominium Laws**” shall have themeaning set forth in Section 6.01(nn).

 

“**Corporate Trust Office**” shall meanthe principal office of the Trustee at which at any particular time itscorporate trust business shall be administered, which as of the Closing Date is135 S. LaSalle Street, Suite 1625, Chicago, Illinois 60603, Attention:  Global Securitization Trust Services Group—PalmillaLos Cabos Notes due January 9, 2007.

 

“**Counterparty**” shall mean, withrespect to the Interest Rate Cap Agreement,            ,and with respect to any Replacement Interest Rate Cap Agreement, any substituteAcceptable Counterparty.

 

“**Debt**” shall mean the outstandingprincipal amount set forth in, and evidenced by, the Notes together with allinterest accrued and unpaid thereon and all other sums due to Trustee orNoteholders in respect of the obligations under the Notes, the Indenture andthe other Financing Documents.

 

“**Debt Service**” shall mean withrespect to any particular period of time, scheduled principal and/or interestpayments under this Indenture, the Notes and the other Financing Documents.

 

“**Default**” shall mean the occurrenceof any event hereunder or under any other Financing Document which, but for thegiving of notice or passage of time, or both, would be an Event of Default.

 

“**Default Rate**” shall have themeaning defined in the Notes.

 

“**Dollars**” or “**$**”shall mean lawful money of the United States of America.

 

“**Eligible Account**” shall mean aseparate and identifiable account from all other funds held by the holdinginstitution that is either (a) an account or accounts maintained with a 

 

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federal or state-chartered depository institution or trust companywhich complies with the definition of Eligible Institution or (b) asegregated trust account or accounts maintained with a federal or statechartered depository institution or trust company acting in its fiduciarycapacity which, in the case of a state chartered depository institution ortrust company, is subject to regulations substantially similar to 12 C.F.R.§9.10(b), having in either case a combined capital and surplus of at least$50,000,000 and subject to supervision or examination by federal and stateauthority.  An Eligible Account will notbe evidenced by a certificate of deposit, passbook or other instrument.

 

“**Eligible Institution**” shall mean(1) LaSalle Bank National Association (provided that the rating byS&P, Moody’s and Fitch for LaSalle Bank National Association’s short termunsecured debt obligations or commercial paper and long term unsecured debtobligations does not decrease below its current rating) or such lower rating asmay be acceptable to the Rating Agencies or (2) any other federal orstate-chartered depository institution or trust company, the short termunsecured debt obligations or commercial paper of which are rated at least “A-1+”by S&P, “P-1” by Moody’s and “F-1+” by Fitch in the case of accounts inwhich funds are held for thirty (30) days or less (or, in the case of accountsin which funds are held for more than thirty (30) days, the long term unsecureddebt obligations of which are rated at least “AA” by Fitch and S&P and “Aa2”by Moody’s).

 

“**Embargoed Person**” shall have themeaning set forth in Section 6.01(KK) hereof.

 

“**ERISA**” shall mean the EmployeeRetirement Income Security Act of 1974, as amended.

 

“**Event**” shall have the meaning setforth in Section 11.01(a)(ix) hereof.

 

“**Event of Default**” shall have themeaning set forth in Section 9.01(a) hereof.

 

“**Excess Cash Flow**” shall have themeaning set forth in the Cash Management Agreement.

 

“**Extraordinary Resolution**” means aresolution passed by Noteholders holding sixty-six and two thirds per cent (662/3%) of the principal amount of the issued and outstanding Notes.

 

“**Financing Documents**” shall mean,collectively, this Indenture, the Notes, the Security Trust Agreement, thePledge, the Assignment of Golf Management Agreement, the Assignment ofManagement Agreement, the Assignment of Spa Management Agreement, the Guaranty,the Cash Management Agreement, the Collateral Assignment of Interest Rate CapAgreement, the Securitization Cooperation Agreement and all other documents executedand/or delivered in connection with the issuance of the Notes.

 

“**Fiscal Year**” shall mean eachtwelve (12) month period commencing on January 1 and ending onDecember 31 during each year of the term of the Notes.

 

“**Fitch**” shall mean Fitch, Inc.

 

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“**GAAP**” shall mean generally acceptedaccounting principles in the United States of America (“**USGAAP**”) as of the date of the applicable financial report; providedthat, with respect to any Issuer’s individual annual financial statementsrequired to be provided to Trustee under this Indenture, the term “GAAP” shallmean generally accepted accounting principles in effect in Mexico (“**MexicanGAAP**”) as of the date of such annual financial statements, provided,further, that such annual financial statements shall be prepared inEnglish (or prepared in Spanish and accompanied by an English translation).

 

“**Goldman**” shall mean Goldman SachsEmerging Markets Real Estate Fund.

 

“**Golf Issuer**” shall mean KerznerPalmilla Golf Partners, S. de R.L. de C.V.

 

“**Golf Management Agreement**” shallmean that certain Golf Facility Management Agreement, dated December 5,2003, between Golf Issuer and Golf Manager, or, if the context requires, theReplacement Golf Management Agreement.

 

“**Golf Manager**” shall mean TroonMexico, S. de R.L. de C.V.

 

“**Governmental Authority**” shall meanany national or federal government, any state, regional, local or otherpolitical subdivision of the United States of America or the United MexicanStates thereof with jurisdiction and any Person with jurisdiction exercisingexecutive, legislative, judicial, regulatory or administrative functions of orpertaining to government or quasi governmental issues (including, withoutlimitation, any court).

 

“**Gross Income from Operations**” shallmean all income and proceeds (whether in cash or on credit, and computed on anaccrual basis, but excluding non-recurring income and proceeds) receivedby any Issuer or Manager for the use, occupancy or enjoyment of the Property,or any part thereof, or received by any Issuer or Manager for the sale of anygoods, services or other items sold on or provided from the Property in theordinary course of the Property operation, including without limitation:  (a) all income and proceeds receivedfrom rental of rooms, Leases and commercial space, meeting, conference and/orbanquet space within the Property including net parking revenue; (b) allincome and proceeds received from food and beverage operations, includingcatering services conducted from the Properties even though rendered outside ofthe Property; (c) all income and proceeds from business interruption,rental interruption and use and occupancy insurance with respect to theoperation of the Property (after deducting therefrom all necessary costs andexpenses incurred in the adjustment or collection thereof); (d) all Awardsfor temporary use (after deducting therefrom all costs incurred in theadjustment or collection thereof and in Restoration of the Property);(e) all income and proceeds from judgments, settlements and otherresolutions of disputes with respect to matters which would be includable inthis definition of “Gross Income from Operations” if received in the ordinarycourse of the Property operation (after deducting therefrom all necessary costsand expenses incurred in the adjustment or collection thereof); and(f) interest on credit accounts, rent concessions or credits, and otherrequired pass-throughs and interest on Reserve Funds to the extent Issuers areentitled to such interest under this Indenture and the Cash ManagementAgreement; but excluding, (1) gross receipts received by lessees,licensees or concessionaires of the Property; (2) consideration receivedat the Property for hotel accommodations, goods and services to be provided atother hotels, although arranged by, for or on behalf of any Issuer or

 

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Manager; (3) income and proceeds from the sale or otherdisposition of goods, capital assets and other items not in the ordinary courseof the Property operation; (4) federal, state and municipal excise, salesand use taxes collected directly from patrons or guests of the Property as apart of or based on the sales price of any goods, services or other items, suchas gross receipts, room, admission, cabaret, value-added or equivalent taxes;(5) Awards (except to the extent provided in clause (d) above);(6) refunds of amounts not included in Operating Expenses at any time anduncollectible accounts; (7) gratuities collected by the Propertyemployees; (8) the proceeds of any financing; (9) other income orproceeds resulting other than from the use or occupancy of the Property, or anypart thereof, or other than from the sale of goods, services or other items soldon or provided from the Property in the ordinary course of business;(10) any credits or refunds made to customers, guests or patrons in theform of allowances or adjustments to previously recorded revenues;(11) payments made to Issuers pursuant to the Interest Rate Cap Agreement;and (12) any disbursements to any Issuer from the Tax and Insurance EscrowFund, the Replacement Reserve Fund, the Interest Reserve Fund, or any otherescrow fund established by the Financing Documents.  Notwithstanding the foregoing, Gross Incomefrom Operations shall not include any unrealized translation profit onremeasuring the Pesos.

 

“**Guarantor**” shall mean,collectively, Goldman and Kerzner.

 

“**Guaranty**” shall mean that certainGuaranty Agreement, dated as of the date hereof, from Guarantor to Trustee forthe benefit of Noteholders, as the same may be amended, restated, replaced,supplemented or otherwise modified from time to time.

 

“**Hotel Issuer**” shall mean KerznerPalmilla Hotel Partners, S. de R.L. de C.V.

 

“**Hotel Service Issuer**” shall meanKerzner Servicios Hoteleros, S. de R.L. de C.V.

 

“**Improvements**” shall mean thebuildings, structures, fixtures, additions, enlargements, extensions,modifications, repairs, replacements and improvements now or hereafter erectedor located on the Land.

 

“**Indebtedness**” of a Person, at aparticular date, means the sum (without duplication) at such date of(a) all indebtedness or liability of such Person (including, withoutlimitation, amounts for borrowed money and indebtedness in the form of mezzaninedebt and preferred equity); (b) obligations evidenced by bonds,debentures, notes, or other similar instruments; (c) obligations for thedeferred purchase price of property or services (including trade obligations);(d) obligations under letters of credit; (e) obligations underacceptance facilities; (f) all guaranties, endorsements (other than forcollection or deposit in the ordinary course of business) and other contingentobligations to purchase, to provide funds for payment, to supply funds, to investin any Person or entity, or otherwise to assure a creditor against loss; and(g) obligations secured by any Liens (other than Liens constitutingPermitted Encumbrances), whether or not the obligations have been assumed.

 

“**Independent Director**” or “**IndependentManager**” shall mean a Person who is not at the time ofinitial appointment, or at any time while serving as a director or manager, asapplicable, and has not been at any time during the preceding five (5)years:  (a) a stockholder,

 

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director (with the exception of serving as the Independent Director orIndependent Manager), officer, employee, partner, member, attorney or counselof any Issuer or Principal or any Affiliate of either of them; (b) a creditor,customer, supplier or other person who derives any of its purchases or revenuesfrom its activities with any Issuer or Principal or any Affiliate of either ofthem; (c) a Person controlling or under common control with any suchstockholder, director, officer, partner, member, customer, supplier or otherPerson; or (d) a member of the immediate family of any such stockholder,director, officer, employee, partner, member, customer, supplier or otherPerson.  Notwithstanding anything to thecontrary contained herein, a natural Personwho satisfies the foregoing definition other than clause (b) shallnot be disqualified from serving as an Independent Director or IndependentManager of the applicable Person if such natural Person is an independent directorprovided by a nationally recognized company that provides professionalindependent directors in the ordinary course of its business.  A natural Person who otherwise satisfies theforegoing definition, except for being the independent director of more thanone Issuer or a “special purpose entity” affiliated with any Issuer orPrincipal, shall not be disqualified from serving as an Independent Director orIndependent Manager if such Person is an independent director provided by anationally-recognized company that provides professional independent directorsin the ordinary course of its business. As used in this definition, the term “control” means thepossession, directly or indirectly, of the power to direct or cause thedirection of management, policies or activities of a Person, whether throughownership of voting securities, by contract or otherwise and a “specialpurpose entity” is an entity, whose organizational documents containrestrictions on its activities substantially similar to those set forth in thedefinition of Special Purpose Entity in this Indenture.

 

“**Individual Parcel**” shall mean theparticular portion of the Land and the Improvements thereon contributed by anIssuer to the Security Trust Agreement, together with all rights pertaining tosuch portion of the Land and Improvements.

 

“**Initial Note**” shall mean,collectively, that certain Promissory Note A and that certain PromissoryNote B in the aggregate principal amount of One Hundred Ten Million andNo/100 Dollars ($110,000,000), in each case issued as of the Note Issuance Dateand made by Issuers, as the same may be amended, restated, replaced,supplemented or otherwise modified from time to time as provided herein.

 

“**Initial Noteholder**” shall meanColumn Financial, Inc., in its capacity as the assignee of Initial Purchaser ofone or more of the Notes.

 

“**Initial Purchaser**” shall meanCredit Suisse First Boston LLC.

 

“**Insolvency Opinion**” shall mean,collectively, that certain non-consolidation opinion letter delivered byCreel, Garcia-Cuellar y Muggenburg, S.C., that certain non-consolidationopinion letter delivered by Cravath, Swaine & Moore LLP and such other non-consolidationopinions as may be required hereunder, in each case dated the date hereof anddelivered in connection with the issuance of the Notes.

 

“**Insurance Premiums**” shall have themeaning set forth in Section 8.01(b) hereof.

 

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“**Insurance Proceeds**” shall have themeaning set forth in Section 8.04(a) hereof.

 

“**Interest Period**” shall have themeaning set forth in the Note.

 

“**Interest Rate Cap Agreement**” shallhave the meaning set forth in the Note.

 

“**Interest Reserve Account**” shallhave the meaning set forth in Section 10.04 hereof.

 

“**Interest Reserve Fund**” shall havethe meaning set forth in Section 10.04 hereof.

 

“**Issuer**” shall mean any of BeachIssuer, Golf Issuer, Hotel Issuer, Hotel Service Issuer or Service CompanyIssuer.

 

“**Issuer Order**” and “**IssuerRequest**” shall mean a written order or request signed in thename of an Issuer by any one of its authorized officers and delivered to theTrustee at least five (5) Business Day prior to the date of the requestedaction specified therein.

 

“**Kerzner**” shall mean KerznerInternational Limited.

 

“**Land**” shall mean the real propertycontributed by Beach Issuer, Golf Issuer and Hotel Issuer to the Security TrustAgreement, as fully described in the Security Trust Agreement.

 

“**Lease**” shall mean any lease,sublease or subsublease, letting, license, concession or other agreement(whether written or oral and whether now or hereafter in effect) pursuant towhich any Person is granted a possessory interest in, or right to use or occupyall or any portion of the Property, and (a) every modification, amendmentor other agreement relating to such lease, sublease, subsublease, or otheragreement entered into in connection with such lease, sublease, subsublease, orother agreement and (b) every guarantee of the performance and observanceof the covenants, conditions and agreements to be performed and observed by theother party thereto, provided that the term “Lease” shall not includeany short-term arrangements with transient guests of the hotel located in theImprovements or the golf course located at the Property pursuant to which suchguests acquire a right to use or occupy all or a portion of the Property.

 

“**Legal Requirements**” shall mean allcountry, federal, state, county, municipal and other governmental statutes,laws, rules, orders, regulations, official standards (*normastecnicas*), ordinances, judgments, decrees and injunctions ofGovernmental Authorities affecting the Property or any part thereof, or theconstruction, use, alteration or operation thereof, or any part thereof,whether now or hereafter enacted and in force, and all permits, licenses andauthorizations and regulations relating thereto, and all covenants, agreements,restrictions and encumbrances contained in any instruments, either of record orknown to any Issuer, at any time in force affecting the Property or any partthereof, including, without limitation, any which may (a) require repairs,modifications or alterations in or to the Property or any part thereof, or(b) in any way limit the use and enjoyment thereof.

 

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“**Letter of Credit**”shall mean an irrevocable, unconditional, transferable, clean sight draftletter of credit reasonably acceptable to Servicer on behalf of Trustee (eitheran evergreen letter of credit or one which does not expire until at leastthirty (30) Business Days after the Maturity Date) in favor of Trustee for thebenefit of Noteholders and entitling Trustee to draw thereon in Chicago,Illinois or New York, New York, issued by a U.S. Eligible Institution or theU.S. agency or U.S. branch of a foreign Eligible Institution.  If at any time the bank issuing any suchLetter of Credit shall cease to be an Eligible Institution, Trustee shall havethe right upon ten (10) Business Days’ prior notice to Issuers to draw down thesame in full and hold the proceeds of such draw in accordance with theapplicable provisions hereof unless within such ten (10) Business Day periodIssuers have delivered an extension thereof or a replacement Letter of Creditissued by an Eligible Institution meeting the requirements set forth herein.

 

“**LIBOR**” shall havingthe meaning set forth in the Notes.

 

“**Licenses**” shall have the meaningset forth in Section 6.01(v) hereof.

 

“**Lien**” shall mean any mortgage, deedof trust, lien, pledge, hypothecation, assignment, security interest, or anyother encumbrance, charge or transfer of, on or affecting any Issuer, theProperty, any portion thereof or any interest therein, including, withoutlimitation, any conditional sale or other title retention agreement, anyfinancing lease having substantially the same economic effect as any of theforegoing, the filing of any financing statement, and mechanic’s, materialmen’sand other similar liens and encumbrances.

 

“**Lockbox Account**” shall have themeaning set forth in the Notes.

 

“**Lockbox Bank**” shall have the meaningset forth in the Notes.

 

“**Management Agreement**” shall meanthe management agreement entered into by and between Issuers and the Manager,pursuant to which the Manager is to provide management and other services withrespect to the Property, or, if the context requires, the ReplacementManagement Agreement.

 

“**Manager**” shall mean, collectively,Kerzner International Management Services, Inc. and Kerzner InternationalManagement Services Mexico, S. de R.L. de C.V., or, if the context requires, aQualified Manager who is managing the Property in accordance with the terms andprovisions of this Indenture.

 

“**Material Adverse Effect**” shall meanany material adverse effect upon (i) the business operations, economicperformance or financial condition of the Issuers taken as a whole or theProperty, (ii) the ability of Issuers to perform, in all materialrespects, their obligations under this Indenture and each of the otherFinancing Documents or (iii) the enforceability or validity of theSecurity Trust Agreement, the Pledge, any other Financing Document, theperfection or priority of any Lien created under any Financing Document or theremedies of Trustee for the benefit of Noteholders under any FinancingDocument.

 

“**Maturity Date**” shall have themeaning defined in the Notes.

 

“**Maximum Legal Rate**” shall have themeaning set forth in the Notes.

 

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“**Mexico**” shall mean the UnitedMexican States.

 

“**Moody’s**” shall mean Moody’sInvestors Service, Inc.

 

“**Net Cash Flow**” shall mean, for anyperiod, the amount obtained by subtracting Operating Expenses and CapitalExpenditures for such period from Gross Income from Operations for such period.

 

“**Net Cash Flow Schedule**” shall havethe meaning set forth in Section 7.01(k)(ii)hereof.

 

“**Net Operating Income**” shall mean,for any period, the amount obtained by subtracting Operating Expenses for suchperiod from Gross Income from Operations for such period.

 

“**Net Proceeds**” shall have themeaning set forth in Section 8.04(a)(iv)hereof.

 

“**Net Proceeds Deficiency**” shall havethe meaning set forth in Section 8.04(g) hereof.

 

“**NOI**” shall have the meaning setforth in Section 10.05(a).

 

“**Note A**” shall mean thatcertain Promissory Note A in the original principal amount of Sixty FiveMillion and No/100 Dollars ($65,000,000), issued as of the Note Issuance Dateand made by Issuers, as the same may be amended, restated, replaced,supplemented or otherwise modified from time to time as provided herein.

 

“**Note B**” shall mean thatcertain Promissory Note B in the original principal amount of Forty FiveMillion and No/100 Dollars ($45,000,000), issued as of the Note Issuance Dateand made by Issuers, as the same may be amended, restated, replaced,supplemented or otherwise modified from time to time as provided herein.

 

“**Note Issuance Date**” means the dateupon which the Notes are issued and signed by the Issuers pursuant to the termsof this Indenture.

 

“**Noteholders**” or “**Holders**”means, at any time, the Persons holding any one or more of the Notes issuedunder the terms of this Indenture and entered in the Register as holders ofsuch Note or Notes.

 

“**Noteholders’ Approval**” means aninstrument signed in one or more counterparts by all the Registered Holders ofNotes at the time of issuance of the approval, or approved pursuant toresolution, in accordance with the provisions of this Indenture.

 

“**Notes**” shall mean, collectively,the Initial Note and all other notes issued hereunder, governed by theprovisions of this Indenture and at the time of determination then beingoutstanding.

 

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“**Obligations**” means all present andfuture debts, expenses and liabilities, direct or indirect, absolute orcontingent, due, owing, or accruing due, or owing, from time to time by theIssuers hereunder or under the Notes and the other Financing Documents.

 

“**Officer’s Certificate**” shall mean acertificate delivered to Initial Purchaser, Initial Noteholder or Trustee byany Issuer or Issuers, as the case may be, which is signed by an authorizedsenior officer of such Issuer (if the Officer’s Certificate is being deliveredby such Issuer) or of any Issuer (if the Owner’s Certificate is being deliveredby Issuers).

 

“**Operating Expenses**” shall mean thesum of all costs and expenses of operating, maintaining, directing, managingand supervising the Property (excluding, (i) depreciation andamortization, (ii) any Debt Service, or (iii) any CapitalExpenditures in connection with the Property, incurred by Issuers or by Manageron behalf of Issuers pursuant to the Management Agreement, or as otherwisespecifically provided therein, which are properly attributable to the periodunder consideration under Issuers’ system of accounting, including withoutlimitation:  (a) the cost of all foodand beverages sold or consumed and of all necessary chinaware, glassware,linens, flatware, uniforms, utensils and other items of a similar nature,including such items bearing the name or identifying characteristics of thehotels as Issuers and/or Manager shall reasonably consider appropriate (“**OperatingEquipment**”) and paper supplies, cleaning materials andsimilar consumable items (“**Operating Supplies**”) placed in use(other than reserve stocks thereof in storerooms).  Operating Equipment and Operating Suppliesshall be considered to have been placed in use when they are transferred fromthe storerooms of the Property to the appropriate operating departments;(b) salaries and wages of personnel of the Property, including costs ofpayroll taxes and employee benefits (which benefits may include, withoutlimitation, a pension plan, medical insurance, life insurance, travel accidentinsurance and an executive bonus program) and the costs of moving employees,personnel, their families and their belongings to the area in which theProperty is located at the commencement of their employment at the Property andother administrative and general operating expenses not otherwise specificallyreferred to in this definition.  Exceptas otherwise expressly provided under the Management Agreement with respect toemployees regularly employed at the Property, the salaries or wages of otheremployees or executives of Manager, Guarantor or any of its Affiliates shall inno event be Operating Expenses, but they shall be entitled to free room andboard and the free use of all facilities at such times as they visit anyIndividual Parcel exclusively in connection with the management of suchIndividual Parcel.  Notwithstanding theforegoing, if it becomes necessary for a Guarantor employee or an employee orexecutive of Guarantor Affiliate to temporarily perform services at anyIndividual Parcel of a nature normally performed by personnel of the Property,his or her salary (including any Issuer’s or Manager’s payroll taxes and employeebenefits) as well as his or her traveling expenses will be Operating Expensesand he or she will be entitled to free room, board and use of the facilities asaforesaid, while performing such services; (c) the cost of all other goodsand services obtained by Issuers or Manager in connection with its operation ofthe Property including, without limitation, heat and utilities, office suppliesincluding any operating leases and all services performed by third parties;(d) the cost of repairs to and maintenance of the Property other thanCapital Expenditures; (e) insurance premiums and losses incurred on anyself-insured risks, provided that Issuers and Manager have specificallyapproved in advance such self-insurance or insurance is unavailable to cover suchrisks.  Insurance premiums on policiesfor more than one year will be pro rated over the period of insurance andpremiums under blanket policies will be allocated

 

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among properties covered; (f) all Taxes and Other Charges (otherthan federal, state or local income taxes and franchise taxes or theequivalent) payable by or assessed against Issuers or Manager with respect tothe operation of the Property; (g) legal fees, administrative and general expenses,security costs, trustee expenses, master condominium association fees and feesof any firm of independent certified public accounts designated from time totime by Issuers (the “**Independent CPA**”) for servicesdirectly related to the operation of the Property; (h) the costs andexpenses of technical consultants and specialized operational experts forspecialized services in connection with non-recurring work onoperational, legal, functional, decorating, design or construction problems andactivities, including the reasonable fees of Guarantor or any Guarantorsubsidiary or division in connection therewith, provided that such costsand expenses are reasonable and customary; (i) all expenses foradvertising for the Property and all expenses of sales promotion, marketing,advertising and public relations activities; (j) all out-of-pocketexpenses and disbursements determined by the Independent CPA to have beenreasonably, properly and specifically incurred by Issuers, Manager, Guarantoror any of their Affiliates pursuant to, in the course of and directly relatedto, the management and operation of the Property under the ManagementAgreement.  Without limiting thegenerality of the foregoing, such charges may include all reasonable travel,telephone, telegram, radiogram, cablegram, air express and other incidentalexpenses, but, excluding costs relating to the offices maintained by anyIssuer, Manager, Guarantor or any of their Affiliates other than any salesoffices maintained off-site or offices maintained at the Individual Parcel forthe management of such Individual Parcel; (k) the cost of any reservationssystem, any accounting services or other group benefits, programs or servicesfrom time to time made available to properties in the Issuers’ system;(l) the cost associated with any retail Leases; (m) any managementfees, basic and incentive fees or other fees and reimbursables paid or payableto Manager under the Management Agreement or Golf Manager under the GolfManagement Agreement; and (n) all costs and expenses of owning,maintaining, conducting and supervising the operation of the Property to theextent such costs and expenses are not included above.  Notwithstanding anything herein contained tothe contrary, Operating Expenses shall not include, and shall not be deemed toinclude, (i) any unrealized translation loss on remeasuring the Pesos and(ii) any costs or expenses, including, but not limited to, the costs andexpenses of technical consultants and other specialized operational workers,incurred in connection with any Capital Expenditure program (includingpre-opening costs), where such costs and expenses are capitalized to theProperty as permitted by GAAP.

 

“**Other Charges**” shall mean allground rents, maintenance charges, Condominium charges and assessments,impositions other than Taxes, and any other charges, including, withoutlimitation, vault charges and license fees for the use of vaults, chutes andsimilar areas adjoining the Property, now or hereafter levied or assessed orimposed against the Property or any part thereof.

 

“**Payment Date**” shall have themeaning set forth in the Notes.

 

“**Permitted Encumbrances**” shall mean,collectively (a) the Liens and security interests created by the FinancingDocuments, (b) all Liens, encumbrances and other matters disclosed in theTitle Insurance Policy or liens that are being contested in accordance withSection 7.01(j)(iii) hereof, (c) Liens, if any, for Taxes imposed byany Governmental Authority not yet due or delinquent or that are being contestedin accordance with Section 7.01(b) hereof, (d) Liens onequipment and other personalty used on the Property, if any, granted inconnection

 

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with the financing of such equipment or other personalty permitted bythe Loan Documents, (e) access and utility easements which do not have aMaterial Adverse Effect, and (f) such other title and survey exceptions asInitial Noteholder or Trustee has approved or may approve in writing in InitialNoteholder’s or Trustee’s sole discretion.

 

“**Permitted Equipment Financing**”shall have the meaning set forth in clause (t) of the definition of theterm “Special Purpose Entity”.

 

“**Permitted Investments**” shall havethe meaning set forth in the Cash Management Agreement.

 

“**Person**” shall mean any individual,corporation, partnership, joint venture, limited liabilitycompany, estate, trust, unincorporated association, any federal, state,county or municipal government or any bureau, department or agency thereof andany fiduciary acting in such capacity on behalf of any of the foregoing.

 

“**Personal Property**” shall mean allthe movable property and rights and interests pledged by the Issuers pursuantto the Pledge and all other personal property owned by any Issuer andencumbered by any of the Financing Documents, together with all rightspertaining to such property.

 

“**Pesos**” shall mean lawful money ofMexico.

 

“**Physical Conditions Report**” shallmean that certain report of a Hotel Resort, dated November 18, 2004,prepared by Merritt & Harris, Inc.

 

“**Pledge****”**shall mean the Pledge Without Transmission of Possession (*Prenda SinTransmision de Posesion*), as the same may be amended, modified,restated or supplemented from time to time, created on the collateral describedtherein and granted by Issuers to secure the payment of the Notes.

 

“**Policies**” shall have the meaningspecified in Section 8.01(b) hereof.

 

“**Prescribed Laws**” shall mean,collectively, (a) the Uniting and Strengthening America by ProvidingAppropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001(Public Law 107-56) (The USA PATRIOT Act), (b) Executive OrderNo. 13224 on Terrorist Financing, effective September 24, 2001, andrelating to Blocking Property and Prohibiting Transactions With Persons WhoCommit, Threaten to Commit, or Support Terrorism, (c) the InternationalEmergency Economic Power Act, 50 U.S.C. §1701 et seq. and (d) all otherLegal Requirements relating to money laundering or terrorism.

 

“**Principal**” shall mean,collectively, Palmilla Holdings I, LLC and Palmilla Holdings II, LLC.

 

“**Property**” shall mean, collectively,each and every Individual Parcel and all Personal Property.

 

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“**Provided Information**” shall meanany and all financial and other information provided at any time by, or onbehalf of, any Issuer or Guarantor with respect to the Property, any Issuer,Principal, Guarantor and/or Manager.

 

“**Qualified Golf Manager**” shall meaneither (a) Golf Manager or (b) a management organization possessing similarreputation and experience as Golf Manager in managing a golf course ofcomparable class, luxury and quality as the golf course at the Property.

 

“**Qualified Manager**” shall meaneither (a) Manager or (b) in the reasonable judgment of Servicer onbehalf of Trustee, a reputable and experienced management organization (whichmay be an Affiliate of an Issuer) possessing experience in managing propertiessimilar in size, scope, use and value as the Property, provided, thatIssuers shall have obtained prior written confirmation from the applicableRating Agencies that management of the Property by such Person will not cause adowngrade, withdrawal or qualification of the then current ratings of theSecurities or any class thereof.

 

“**Qualified Spa Manager**” shall meaneither (a) Spa Manager or (b) a management organization possessingsimilar reputation and experience as Spa Manager in managing a spa facility ofcomparable class, luxury and quality as the spa facility at the Property.

 

“**Rating Agencies**” shall mean each ofS&P, Moody’s and Fitch, or any other nationally recognized statisticalrating agency which has been approved by Trustee.

 

“**Register**” means the register orregisters providing for the registration of Notes and the registration oftransfers and exchanges of Notes, which register the Trustee will cause to bekept.

 

“**Registered Holder**” shall mean anyNoteholder who appears on the Register as the owner and holder of one or moreNotes.

 

“**Related Party**” shall have themeaning set forth in Section 6.01(mm) hereof.

 

“**REMIC Trust**” shall mean a “realestate mortgage investment conduit” within the meaning of Section 860D ofthe Code that holds the Note.

 

“**Rents**” shall mean, with respect toeach Individual Parcel, all rents, rent equivalents, moneys payable as damagesor in lieu of rent or rent equivalents, royalties (including, withoutlimitation, all oil and gas or other mineral royalties and bonuses), income,receivables, receipts, revenues, deposits (including, without limitation,security, utility and other deposits), accounts, cash, issues, profits, chargesfor services rendered, and other consideration of whatever form or naturereceived by or paid to or for the account of or benefit of Issuers or theiragents or employees from any and all sources arising from or attributable tothe Individual Parcel, and proceeds, if any, from business interruption orother loss of income or insurance, including, without limitation, all hotelreceipts, revenues and credit card receipts collected from guest rooms, restaurants,bars, meeting rooms, banquet rooms, golf course and other recreationalfacilities, all receivables, customer obligations, installment paymentobligations and other obligations now existing or hereafter arising or createdout of the sale, lease, sublease, license,

 

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concession or other grant of the right of the use and occupancy ofproperty or rendering of services by any Issuer or any operator or manager ofthe hotel, the golf course or the commercial space located in the Improvementsor at the Property or acquired from others (including, without limitation, fromthe rental of any office space, retail space, guest rooms or other space,halls, stores, and offices, and deposits securing reservations of such space),license, lease, sublease and concession fees and rentals, health clubmembership fees, food and beverage wholesale and retail sales, service charges,vending machine sales.

 

“**Replacement Golf Management Agreement**”shall mean, collectively, either (a) a management agreement with aQualified Golf Manager substantially in the same form and substance as the GolfManagement Agreement, or (b) a management agreement with a Qualified GolfManager, which management agreement shall be reasonably acceptable to theServicer, on behalf of the Trustee in form and substance, provided, withrespect to this clause (b), an assignment of management agreementsubstantially in the form then used by Servicer (or of such other form andsubstance reasonably acceptable to Servicer, on behalf of the Trustee) shall beexecuted and delivered to Trustee by Issuers and such Qualified Golf Manager atIssuers’ expense.

 

**“**Replacement Interest RateCap Agreement****” means an interest rate cap agreement from anAcceptable Counterparty with terms identical to the Interest Rate Cap Agreementexcept that the same shall be effective in connection with replacement of theInterest Rate Cap Agreement following a downgrade, withdrawal or qualificationof the long-term unsecured debt rating of the Counterparty; providedthat to the extent any such interest rate cap agreement does not meet theforegoing requirements, a “Replacement Interest Rate Cap Agreement” shall besuch interest rate cap agreement approved in writing by each of the RatingAgencies with respect thereto.

 

“**Replacement Management Agreement**”shall mean, collectively, (a) either (i) a management agreement witha Qualified Manager substantially in the same form and substance as theManagement Agreement, or (ii) a management agreement with a QualifiedManager, which management agreement shall be reasonably acceptable to theServicer, on behalf of the Trustee in form and substance, provided, withrespect to this subclause (ii), Servicer, at its option, mayrequire that Issuers obtain confirmation from the applicable Rating Agenciesthat such management agreement will not cause a downgrade, withdrawal orqualification of the then current rating of the Securities or any classthereof; and (b) an assignment of management agreement substantially inthe form then used by Servicer (or of such other form and substance reasonablyacceptable to Servicer, on behalf of the Trustee), executed and delivered toTrustee by Issuers and such Qualified Manager at Issuers’ expense.

 

“**Replacement Reserve Account**” shallhave the meaning set forth in Section 10.03(a) hereof.

 

“**Replacement Reserve Fund**” shallhave the meaning set forth in Section 10.03(a) hereof.

 

“**Replacement Reserve Monthly Deposit**”shall have the meaning set forth in Section 10.03(a) hereof.

 

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“**Replacement Spa Management Agreement**”shall mean, collectively, either (a) a management agreement with aQualified Spa Manager substantially in the same form and substance as the SpaManagement Agreement, or (b) a management agreement with a Qualified SpaManager, which management agreement shall be reasonably acceptable to theServicer, on behalf of the Trustee in form and substance, provided, withrespect to this clause (b), an assignment of management agreementsubstantially in the form then used by Servicer (or of such other form andsubstance reasonably acceptable to Servicer, on behalf of the Trustee) shall beexecuted and delivered to Trustee by Issuers and such Qualified Spa Manager atIssuers’ expense.

 

“**Replacements**” shall have themeaning set forth in Section 10.03(a) hereof.

 

“**Required Repair Account**” shall havethe meaning set forth in Section 10.1(a) hereof.

 

“**Required Repair Fund**” shall havethe meaning set forth in Section 10.1(a) hereof.

 

“**Required Repairs**” shall have themeaning set forth in Section 10.1(a) hereof.

 

“**Reserve Funds**” shall mean,collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund,the Interest Reserve Fund, the Required Repair Fund, and any other escrow fundestablished pursuant to the Financing Documents.

 

“**Reserve LC**” shall mean the NOI LCor the Spa LC.

 

“**Responsible Officer**” shall mean aperson designated by Trustee as an authorized officer of Trustee in connectionwith the administration of the Notes in accordance with this Indenture.

 

“**Restaurant Lease**” shall mean thatcertain Agreement, dated May 26, 2003, between Charlie Trotter Enterprises,Inc. and Hotel Issuer.

 

“**Restoration**” shall mean the repairand restoration of any Individual Parcel after a Casualty or Condemnation asnearly as possible to the condition such Individual Parcel was in immediatelyprior to such Casualty or Condemnation, with such alterations as may bereasonably approved by Trustee.

 

“**Restricted Party**” shall mean(a) any Issuer, Principal, Affiliated Manager, Palmilla JV, LLC, GSEMPalmilla LLC and Kerzner Investment Palmilla, Inc. and (b) anyshareholder, partner, member, non-member manager and any direct orindirect legal or beneficial owner of any Issuer, Principal, AffiliatedManager, Palmilla JV, LLC, GSEM Palmilla LLC and Kerzner Investment Palmilla,Inc.

 

“**S&P**” shall mean Standard &Poor’s Ratings Group, a division of the McGraw-Hill Companies.

 

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“**Sale**” **or “**Pledge****”shall mean a voluntary or involuntary sale, conveyance, assignment, transfer,encumbrance or pledge of a legal or beneficial interest.

 

“**Securities**” shall have the meaningset forth in the Securitization Cooperation Agreement.

 

“**Securities Act**” shall mean theSecurities Act of 1933, as amended, and the rules and regulations promulgatedthereunder.

 

“**Securitization**” shall have themeaning set forth in the Securitization Cooperation Agreement.

 

“**Securitization Cooperation Agreement**”shall mean that certain letter agreement dated the date hereof between Issuersand Column Financial, Inc.

 

“**Security Trust Agreement**” shallmean that certain Amended and Restated Trust Agreement Number 0023,established with Security Trust Trustee to secure the payment of the Notes andthe performance of the other Obligations, as the same has been or may beamended, restated or supplemented from time to time.

 

“**Security Trust First Beneficiary**”shall mean Trustee, as first beneficiary under the Security Trust Agreement.

 

“**Security Trust Second Beneficiary**”shall mean, collectively, Beach Issuer, Golf Issuer, Hotel Issuer, Palmilla Holdings I, LLC and Palmilla Holdings II, LLC,each as second beneficiary under the Security Trust Agreement.

 

“**Security Trust Trustee**” shall meanBanco J.P. Morgan, S.A., Institución de Banca Múltiple, J.P. Morgan GrupoFinanciero, División Fiduciaria, as trustee under the Security Trust Agreement.

 

“**Service Company Issuer**” shall meanKerzner Compañía de Servicios, S. de R.L. de C.V.

 

“**Servicer**” shall mean Orix CapitalMarkets, LLC or such other Person designated in writing pursuant to Section 11.14hereof by a majority of the Noteholders to act as Servicer, and who shall haveaccepted in writing such appointment to so act, on behalf of the Trustee forthe benefit of the Noteholders, with power and responsibility to perform allresponsibilities identified as being performed by the Servicer hereunder and asmay be more specifically described in a servicing agreement between theNoteholders and the Servicer, either prior to or upon any Securitization, asshall be determined by the a majority of the Noteholders.  The Servicer may be a Noteholder designatedas such in writing by a majority of the Noteholders.  It is understood and agreed that anyservicing agreement may provide that the Servicer may take certain actions, orrefrain from an action, only with the consent of a specified portion (which maybe all) of the Noteholders.

 

“**Spa LC**” shall have the meaning setforth in Section 10.05(b).

 

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“**Spa Management Agreement**” shallmean that certain Spa Operation Agreement, dated September 19, 2003,between Hotel Issuer and Spa Manager, or, if the context requires, theReplacement Spa Management Agreement.

 

“**Spa Manager**” shall mean Mandara Spade Mexico, S. de R.L. de C.V.

 

“**Special Purpose Entity**” shall meana corporation, limited partnership or limited liability company which at alltimes on and after the date hereof:

 

(a)  isorganized solely for the purpose of (i) acquiring, developing, owning,holding, selling, leasing, transferring, exchanging, managing and operating theProperty or its Individual Parcel, entering into this Indenture with theTrustee, refinancing the Property or its Individual Parcel in connection with apermitted repayment of the Notes, and transacting lawful business that isincident, necessary and appropriate to accomplish the foregoing; or(ii) acting as a general partner of the limited partnership that owns theProperty or an Individual Parcel or member of the limited liability company thatowns the Property or an Individual Parcel;

 

(b)  is notengaged and will not engage in any business unrelated to (i) theacquisition, development, ownership, management or operation of the Property orits Individual Parcel, (ii) acting as general partner of the limitedpartnership that owns the Property or an Individual Parcel; or(iii) acting as a member of the limited liability company that owns theProperty or an Individual Parcel, as applicable;

 

(c)  otherthan, in the case of Hotel Issuer, the ownership of seven (7) residencescurrently utilized as employee housing, does not have and will not have anymaterial assets other than its Individual Parcel and personal propertynecessary or incidental to the ownership and operation of the Property or itsIndividual Parcel or its partnership interest in the limited partnership or themember interest in the limited liability company that owns the Property or anIndividual Parcel or acts as the general partner or managing member thereof, asapplicable;

 

(d)  has not engagedin, sought or consented to and will not engage in, seek or consent to anydissolution, winding up, liquidation, consolidation, merger, sale of all orsubstantially all of its assets, transfer of partnership or membershipinterests (if such entity is a general partner in a limited partnership or amember in a limited liability company) or amendment of its limited partnershipagreement, articles of incorporation, articles of organization, by-laws,certificate of formation or operating agreement (as applicable) with respect tothe matters set forth in this definition;

 

(e)  if suchentity is a limited partnership, has, as its only general partners, SpecialPurpose Entities that are corporations, limited partnerships or limitedliability companies;

 

(f)  if suchentity is a corporation, has at least two (2) Independent Directors, andhas not caused or allowed and will not cause or allow the board of directors ofsuch entity to take any action requiring the unanimous affirmative vote of onehundred percent

 

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(100%) of the members of its board of directors unlesstwo Independent Directors shall have participated in such vote;

 

(g)  if suchentity is a limited liability company with more than one member, has at leastone member that is a Special Purpose Entity that is a corporation that has atleast two Independent Directors and that owns at least one percent (1.0%) ofthe equity of the limited liability company;

 

(h)  if suchentity is a limited liability company with only one member, is a limitedliability company organized in the State of Delaware that has (i) as itsonly member a non-managing member, (ii) at least two (2) IndependentManagers and has not caused or allowed and will not cause or allow the board ofmanagers of such entity to take any action requiring the unanimous affirmativevote of one hundred percent (100%) of the managers unless two (2) IndependentManagers shall have participated in such vote and (iii) at least two (2)springing members that will become the non-managing members of suchentity upon the dissolution of the existing non-managing member;

 

(i)  if suchentity is (i) a limited liability company, has articles of organization, acertificate of formation and/or an operating agreement, as applicable,(ii) a limited partnership, has a limited partnership agreement, or(iii) a corporation, has a certificate of incorporation or articles that,in each case, provide that such entity will not:  (A) dissolve, merge, liquidate,consolidate; (B) sell all or substantially all of its assets or the assetsof the Issuers or any Issuer (as applicable); (C) engage in any otherbusiness activity, or amend its organizational documents with respect to thematters set forth in this definition without the consent of the Servicer onbehalf of Trustee for the benefit of Noteholder; or (D) without theaffirmative vote of two Independent Directors and of all other directors of thecorporation (that is such entity or the general partner or managing or co-managingmember of such entity), file a bankruptcy or insolvency petition or otherwiseinstitute insolvency proceedings with respect to itself or to any other entityin which it has a direct or indirect legal or beneficial ownership interest;

 

(j)  is andwill remain solvent and pay its debts and liabilities (including, asapplicable, shared personnel and overhead expenses) from its assets as the sameshall become due, and is maintaining and will maintain adequate capital for thenormal obligations reasonably foreseeable in a business of its size andcharacter and in light of its contemplated business operations;

 

(k)  will notfail to correct any known misunderstanding regarding the separate identity ofsuch entity;

 

(l)  willmaintain its accounts, books and records separate from any other Person andwill file its own tax returns, except to the extent that it is required to fileconsolidated tax returns by law;

 

(m)  willmaintain its own records, books, resolutions and agreements;

 

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(n)  other thanas provided in the Cash Management Agreement, (i) will not commingle itsfunds or assets with those of any other Person and (2) will notparticipate in any cash management system with any other Person;

 

(o)  will hold its assets in its own name;

 

(p)  willconduct its business in its name, in the name of “One and Only Palmilla” (inthe case of an Issuer) or in a name franchised or licensed to it by an entityother than an Affiliate of Issuers or any Issuer, except for services renderedunder a business management services agreement with an Affiliate that complieswith the terms contained in Subsection (dd) below, so long as themanager, or equivalent thereof, under such business management servicesagreement holds itself out as an agent of the Issuers or the applicable Issuer;

 

(q)  willmaintain its financial statements, accounting records and other entitydocuments separate from any other Person and has not permitted and will notpermit its assets to be listed as assets on the financial statement of anyother entity except as required by GAAP; provided, however, thatany such consolidated financial statement shall contain a note indicating thatits separate assets and liabilities are neither available to pay the debts of theconsolidated entity nor constitute obligations of the consolidated entity;

 

(r)  will payits own liabilities and expenses, including the salaries of its own employees,out of its own funds and assets, and has maintained and will maintain asufficient number of employees in light of its contemplated businessoperations;

 

(s)  willobserve all partnership, corporate or limited liability company formalities, asapplicable;

 

(t)  has andwill have no Indebtedness other than (i) indebtedness evidenced by theNotes and the other Financing Documents, (ii) liabilities incurred in theordinary course of business relating to the ownership and operation of theProperty or its Individual Parcel and the routine administration of Issuers orany Issuer, in amounts not to exceed one percent (1%) of the principalbalance of the Notes which liabilities are not more than sixty (60) days pastthe date incurred, are not evidenced by a note and are paid when due, and whichamounts are normal and reasonable under the circumstances, (iii) in thecase of an Issuer, indebtedness incurred in connection with the financing ofequipment and other personal property used on the Property, providedthat the aggregate amount of such indebtedness from all Issuers does not exceed$512,000 at any one time (the “**Permitted Equipment Financing**”),and (iv) such other liabilities that are permitted pursuant to thisIndenture;

 

(u)  other thanin connection with the Permitted Equipment Financing and the indebtednessevidenced by the Notes and the other Financing Documents, will not assume orguarantee or become obligated for the debts of any other Person or hold out itscredit as being available to satisfy the obligations of any other Person exceptas permitted pursuant to this Indenture or the other Financing Documents;

 

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(v)  will notacquire obligations or securities of its partners, members or shareholders orany other Affiliate;

 

(w)  willallocate fairly and reasonably any overhead expenses that are shared with anyAffiliate, including, but not limited to, paying for shared office space andservices performed by any employee of an Affiliate;

 

(x)  maintainsand uses and will maintain and use separate stationery, invoices and checksbearing its name or, in the case of an Issuer, the name “One and Only Palmilla”.  The stationery, invoices, and checks utilizedby the Special Purpose Entity or utilized to collect its funds or pay itsexpenses shall bear its own name or, in the case of an Issuer, the name “Oneand Only Palmilla” and shall not bear the name of any other entity unless suchentity is clearly designated as being the Special Purpose Entity’s agent;

 

(y)  other thanpursuant to the Financing Documents, will not pledge its assets for the benefitof any other Person;

 

(z)  otherthan, in the case of an Issuer, pursuant to its use of the name “One and OnlyPalmilla,” will hold itself out and identify itself as a separate and distinctentity under its own name or in a name franchised or licensed to it by anentity other than an Affiliate of Issuers and any Issuer and not as a divisionor part of any other Person, except for services rendered under a businessmanagement services agreement with an Affiliate that complies with the termscontained in Subsection (dd) below, so long as the manager, orequivalent thereof, under such business management services agreement holdsitself out as an agent of the Issuers or the applicable Issuer;

 

(aa)  willmaintain its assets in such a manner that it will not be costly or difficult tosegregate, ascertain or identify its individual assets from those of any otherPerson;

 

(bb)  will notmake loans to any Person or hold evidence of indebtedness issued by any otherPerson or entity (other than cash and investment-grade securities issued by anentity that is not an Affiliate of or subject to common ownership with suchentity);

 

(cc)  will notidentify its partners, members or shareholders, or any Affiliate of any of themas a division or part of it, and shall not identify itself as a division of anyother Person;

 

(dd)  will notenter into or be a party to, any contract or agreement with any of itsAffiliates, constituents or owners, or any guarantors of any of its obligationsor any Affiliate of any of the foregoing except (A) in the ordinary courseof its business and on terms which are intrinsically fair, commerciallyreasonable and are no less favorable to it than would be obtained in acomparable arm’s-length transaction with an unrelated third party and(B) in connection with this Indenture and the other Financing Documents;

 

(ee)  except asset forth in the organizational documents of the Issuers as of the NoteIssuance Date, will not have any obligation to, and will not, indemnify itspartners, officers, directors or members, as the case may be, unless such anobligation is fully

 

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subordinated to the Debt and will not constitute aclaim against it in the event that cash flow in excess of the amount requiredto pay the Debt is insufficient to pay such obligation;

 

(ff)  if suchentity is a corporation, it shall consider the interests of its creditors inconnection with all corporate actions;

 

(gg)  otherthan, in the case of an Issuer, the Permitted Equipment Financing, does not andwill not have any of its obligations guaranteed by any Affiliate;

 

(hh)  compliesand will comply with all of the terms and provisions contained in itsorganizational documents.  The statementof facts contained in its organizational documents are true and correct andwill remain true and correct; and

 

(ii)  in thecase of a limited liability company (*sociedad deresponsabilidad limitada de capital variable*) organized in Mexico,observes all formalities in all material respects applicable to such types ofentities in the Mexican General Corporations Law (*Ley Generalde Sociedades Mercantiles*), and has by-laws (*estatutossociales*) which provide that, for so long as the Notes areoutstanding and the limited liability company’s assets continue to be subjectto the Liens securing the Debt, the limited liability company shall not takeany of the following actions:

 

(i)  thedissolution, liquidation, consolidation, merger or sale of all or substantiallyall of the assets of the company, except with the unanimous approval of all ofits members;

 

(ii)  theengagement by any Issuer in any business other than the ownership, leasing,maintenance and operation of the Property or its Individual Parcel; and

 

(iii)  thefiling, or consent to the filing, of a bankruptcy or insolvency petition (*concurso mercantil*), any general assignment for the benefitof creditors or the appointment of a receiver, liquidator, *síndico*,assignee, trustee, sequestrator, custodian or any similar official for anyIssuer or a substantial portion of its properties without the unanimous vote ofall members of the limited liability company.

 

“**State**” shall mean Mexico or theState or Commonwealth in the United States of America, as applicable, in whichthe Property or any part thereof is located.

 

“**Substitute Guarantor**” shall mean aPerson with (a) $250,000,000 in net worth and (b) $20,000,000 inliquidity, including for purposes of determination (i) availability underany existing lines of credit and (ii) outstanding capital commitments by “QualifiedInstitutional Investors” or “Accredited Investors” (as such terms are definedunder the Securities Act) pursuant to subscription or other similar agreementsor arrangements.

 

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“**Survey**” shall mean that certainsurvey of the One & Only Palmilla Hotel located at Los Cabos, BajaCalifornia Sur, Mexico, dated November 30, 2004, by Pedro SotresHernandez, Surveyor.

 

“**Tax and Insurance Escrow Fund**”shall have the meaning set forth in Section 10.02(a) hereof.

 

“**Taxes**” shall mean all real estateand personal property taxes, assessments, water rates or sewer rents, now orhereafter levied or assessed or imposed against the Property or any partthereof.

 

“**Threshold Amount**” shall have themeaning set forth in Section 7.01(v) hereof.

 

“**Title Insurance Policy**” shall meana title insurance policy in a form (acceptable to Initial Purchaser) issuedwith respect to the Property and insuring the Trustee that the Security TrustAgreement creates a valid first lien on the applicable Property.

 

“**Transfer**” shall have the meaningset forth in Section 7.02(j)(ii) hereof.

 

“**Transferee**” shall have the meaningset forth in Section 7.02(j)(v) hereof.

 

“**Transferee Related Entities**” shallhave the meaning set forth in Section 7.02(j)(vi) hereof.

 

“**Trustee**” shall have the meaning setforth on the first page hereof.

 

“**Trustee Indemnified Party**” or “**TrusteeIndemnified Parties**” shall mean the Trustee, any of itsdirectors, officers, shareholders, agents or employees.

 

“**UCC**” or “**Uniform Commercial Code**”shall mean the Uniform Commercial Code as in effect from time to time in theState or Commonwealth of the United States of America in which the Property orany part thereof is located.

 

“**U.S. Obligations**” shall mean non-redeemablesecurities evidencing an obligation to timely pay principal and/or interest ina full and timely manner that are direct obligations of the United States ofAmerica for the payment of which its full faith and credit is pledged.

 

**Section 1.02****  Accounting Terms.** All accounting terms not otherwise defined herein have the meaningsassigned to them in accordance with GAAP.

 

**Section 1.03****  General.** The division of this Indenture into sections and the insertion ofheadings are for convenience of reference only and shall not affect theinterpretation of this Indenture.  Anyreference in this Indenture to any act or statute or any section thereof shallbe deemed to be a reference to such act, statute or section as amended or re-enactedfrom time to time, except as otherwise provided herein.  Words importing the singular number includethe plural and vice versa.  Any definedterm used in the singular preceded by “any” shall be taken to indicate anynumber of the members of the relevant class. Any reference in this

 

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Indenture to any Personshall include the successors and permitted assigns of such Person.  All references to sections and schedules areto sections and schedules in or to this Indenture unless otherwise specified.  All uses of the word “including” shall mean “including,without limitation” unless the context shall indicate otherwise.  Unless otherwise specified, the words “hereof,”“herein” and “hereunder” and words of similar import when used in this Indentureshall refer to this Indenture as a whole and not to any particular provision ofthis Indenture.  Wherever arepresentation, warranty or certificate is based upon the knowledge of anyIssuer or Issuers, the knowledge of each Issuer shall be imputed to each otherIssuer and Issuers.

 

**ARTICLE 2 - ISSUE OFNOTES**

 

**Section 2.01****  No Limit on Issue.** The aggregate principal amount of the Notes authorized to be issuedunder this Indenture and outstanding at any one time shall be limited to theamount of $110,000,000 and subject to compliance with Section 2.03.

 

**Section 2.02****  Notes Deemed to beOutstanding.**  Every Note signed and delivered by theIssuers hereunder shall be deemed to be outstanding until it shall be cancelledor delivered to the Trustee for cancellation, or moneys for the payment thereofshall have been set aside pursuant hereto.

 

**Section 2.03****  ConditionsPrecedent to the Issue of Notes.** (a)  No Note shall be signed by the Trustee and issuedhereunder unless on the Note Issuance Date relating thereto each of thefollowing conditions shall be satisfied:

 

(i)  No Event of Default.  No event shall have occurred and becontinuing which would constitute an Event of Default or, with the giving ofnotice or lapse of time or both, would constitute an Event of Default, norshall the issue of the Note, with the giving of notice or lapse of time orboth, constitute or result in the occurrence of an Event of Default;

 

(ii)  Representations.  The representations and warranties of theIssuers set forth in herein and in the other Financing Documents shall be trueand accurate in all material respects;

 

(iii)  Security Trust Agreement andPledge.  The Issuers shall haveexecuted the Security Trust Agreement and the Pledge, and shall have presentedfor registration the Security Trust Agreement and the Pledge with thecorresponding public registries in Mexico and shall have received stampedcopies thereof confirming receipt of the relevant documentation by such publicregistries;

 

(iv)  No Insolvency.  No Issuer is insolvent within the meaningthereof in the Bankruptcy Code; ands

 

(v)  Conditions Precedent in OtherDocuments.  Any terms, conditions,including conditions precedent, set forth in the Security Trust Agreement andin the Pledge, have been fully and properly satisfied in the judgment anddiscretion of the Initial Purchaser.

 

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(vi)  Appointment of Process Agent.  The Issuers shall have granted theirappointed process agent (as provided in Section 14.04 hereof) apower-of-attorney for lawsuits and collections, in form and substancesatisfactory to Initial Purchaser.

 

(vii)  Registration of Notes with CNBV.  The Notes shall have been approved forregistration with the Special Section (*Sección Especial*)of the National Registry of Securities (*Registro Nacional deValores*) maintained by the CNBV.

 

(b)  The Trustee shall have noresponsibility for determining the satisfaction of any such conditions, nor forthe delivery, receipt or custody of any agreements, documents or othermaterials specified in the Security Trust Agreement, or in the Pledge or inthis Agreement, which are required to be delivered to or received by any partyother than the Trustee.  With respect toany agreements, documents or other materials which are to be received by theTrustee, the Trustee shall have no responsibility for the review of suchdocuments, but shall be responsible only to receive such agreements, documentsor other materials as are actually delivered to it, and any review thereof anddetermination with respect to compliance with the requirements of thisAgreement or the Security Trust Agreement or the Pledge shall be made by theNoteholders.

 

**Section 2.04****  Issue of Notes.** The Notes to be issued hereunder shall be issued subject to thefollowing terms, conditions and attributes:

 

(a)  the Notes shall be issued in the formof the Exhibit A attached hereto and made a part hereof;

 

(b)  the Notes shall bear interest from theNote Issuance Date at the rate specified in the Notes issued and should therebe an Event of Default at any time, including failure to pay in accordance withany stated payment obligation, interest shall be payable on the amount indefault at the Default Rate;

 

(c)  the principal of the Notes, togetherwith interest, if any, thereon, will be payable as specified in the Notesissued;

 

(d)  every Note, whether issued originallyor in exchange for one or more other Notes, shall be entitled to the paymentsas designated in the issued form of Note;

 

(e)  wherever in this Indenture or the Notesthere is mention, in any context, of the payment of interest, such mentionshall be deemed to include the payment of interest on amounts in default;

 

(f)  the Notes may be assigned or otherwisetransferred by Initial Purchaser and thereafter any Noteholder, providedthat such assignment or other transfer in the United States of America iseffected pursuant to an exemption from any applicable federal and statesecurities laws, which may be exemptions provided by Rule 144A under the SecuritiesAct, Regulation D under the Securities Act, Regulation S under the SecuritiesAct or any other exemption from registration available under the applicablefederal and state securities laws in the United States of America; and

 

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(g)  the terms and conditions of thisIndenture are otherwise met.

 

**Section 2.05****  Form of Notes.** (a)  All Notes issued hereunder shall be in substantially theform of Exhibit A hereto, shall be signed by the Issuers, and shall beauthenticated by the Trustee, to be validly issued hereunder.  The Trustee’s certificates of authenticationfor the Notes shall be in substantially the following form:

 

This Note is one of the Notes referred to in theabove-mentioned Indenture.

 
|   | [                                                  ],  as Trustee |               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|   |                                                                                                                                                                                                                                                                                                                        |               |
|   | By:                                                                                                                                                                                                                                                                                                                         |               |   |
|   |                                                                                                                                                                                                                                                                                                                        | Authorized Officer |   |

 

or

 
|   | [                                                    ],  as Trustee |                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
|   |                                                                                                                                                                                                                                                                                                                                    |                    |
|   | By:                                                                                                                                                                                                                                                                                                                                     |                    |   |
|   |                                                                                                                                                                                                                                                                                                                                    | as Authenticating Agent |   |

 

(b)  The following legend shall be placed oneach Note:

 

THIS NOTE MAY BE ASSIGNED OR OTHERWISE TRANSFERRED BYTHE INITIAL PURCHASER THEREOF AND THEREAFTER BY ANY HOLDER THEREOF, PROVIDEDTHAT SUCH ASSIGNMENT OR OTHER TRANSFER IN THE UNITED STATES OF AMERICA ISEFFECTED PURSUANT TO AN EXEMPTION FROM ANY APPLICABLE FEDERAL AND STATESECURITIES LAWS IN THE UNITED STATES OF AMERICA, WHICH MAY BE THE EXEMPTIONSPROVIDED BY RULE 144A UNDER THE UNITED STATES SECURITIES ACT OF 1933, ASAMENDED (THE “**SECURITIESACT**”), REGULATION D UNDER THE SECURITIES ACT,REGULATION S UNDER THE SECURITIES ACT OR ANY OTHER EXEMPTION FROM REGISTRATIONAVAILABLE UNDER ANY SUCH APPLICABLE REGISTRATION REQUIREMENT.

 

**Section 2.06****  Registration.** The Issuers shall cause to be kept at the Corporate Trust Office ofTrustee a register (the “**Register**”), for the registration ortransfer of the Notes.  The Registershall be maintained by the Trustee, acting as the agent of the Issuers for thispurpose, and the Trustee, is hereby appointed as “Registrar” for the purpose ofregistering Notes and transfers of Notes as provided herein.  The name and address of the Holder of eachNote, records of any transfers of the Notes and the name and address of anytransferee of a Note shall be entered in the Register under such reasonableregulations as the Trustee may prescribe, and the Issuers shall be entitled totreat the Person whose name and address is entered in the Register as theHolder of a Note or Notes as the owner of such Note(s) for all purposes.  There shall be no more than one RegisteredHolder for each Note.  The Trustee mayappoint one or more co-registrars, and the term “Registrar” includes anysuch co-registrar.  The Registrarshall (i) at

 

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all reasonable timesduring office hours make the Register available to the Issuers and to anyPerson authorized by the Issuers in writing for inspection and the making ofcopies thereof or extracts therefrom and (ii) mail a copy of the Registerto the Issuers and to any other such Person promptly after request thereforfrom the Issuers.

 

**Section 2.07****  Transfers of Notes.** No transfer of a Note shall be valid unless (a) such Note shallhave been surrendered to the Trustee for cancellation whereupon, a new Note orNotes of an equal aggregate principal amount shall be issued to the transfereein exchange therefor or (b) such Note has been validly endorsed andassigned to the transferee and notice of such assignment and transfer has beengiven to the Trustee for recordation in the Register.  The registered Holder for the time being ofany Note shall be entitled to the principal moneys and interest evidenced bysuch Notes free from all equities or rights of set-off, counterclaim orcompensation between the Issuers and the original or any intermediate Noteholderthereof and all Persons may act accordingly.

 

**Section 2.08****  Inspection ofRegisters.**  The Register maintained by the Issuers at theCorporate Trust Office of Trustee shall, at all reasonable times, be open forinspection by any Noteholders.  Every RegisteredHolder of a Note, by receiving and holding such a Note, agrees with the Trusteethat neither the Issuers, the Trustee, nor any of their respective agents,shall be held accountable by reason of the disclosure of such information as tothe names and addressed of such Noteholders, regardless of the sources fromwhich such information was derived.

 

**Section 2.09****  Title toRegistered Notes.**  The Person in whose name theNotes shall be registered shall be deemed and regarded as the owner thereof forall purposes of this Indenture and payment of or on account of the principal ofor interest on such Notes shall be made only to or upon the order in writing ofsuch Registered Holder thereof.

 

**Section 2.10****  Mutilation, Loss,Theft or Destruction.**  In case any of the Notes issuedhereunder shall become mutilated or be lost, stolen or destroyed, the Issuersshall, at the request of a Noteholder, issue, and thereupon the Trustee shallcertify and deliver, a new Note upon surrender or cancellation of the mutilatedNote, or in the case of a lost, stolen or destroyed Note, in lieu of and insubstitution for the same, and the substituted Note shall be in a form approvedby the Trustee and shall be entitled to the benefit of this Indentureidentically with the Note replaced.  Incase of loss, theft or destruction, the applicant for a substituted Note shallfurnish to the Issuers and to the Trustee such evidence of such loss, theft ordestruction as shall be satisfactory to them in their discretion and shall alsofurnish an indemnity or note satisfactory to them in their discretion.  The applicant shall pay all reasonableexpenses incidental to the issuance of any substituted Note.

 

**Section 2.11****  Cancellation ofNotes.**  Upon payment in full to any Noteholder,pursuant to the terms of the applicable Note, and the delivery by suchNoteholder to the Trustee of the fully repaid Notes then held by suchNoteholder, for cancellation, the Trustee shall cancel such Notes pursuanthereto.  Notes may only be repaid inaccordance with the terms of such Note, the Note shall specifically contemplatewhether repayment may be made by way of prepayment, and will specify the terms,and conditions, of such prepayment.

 

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**ARTICLE3 - PAYMENT MECHANICS**

 

**Section 3.01****  Requirements ofPayment.**  The Notes shall specifically provide for therequirements for payment, including repayment of principal and payment ofinterest and costs and expenses, and the Issuers agree, subject to all of theterms and conditions of this Indenture and the Notes, that payment shall bemade in the manner, at the times, in the amounts, and otherwise, as provided inthe Notes.

 

**Section 3.02****  AdditionalProvisions.**  The Issuers shall be required to honor theterms and conditions, and to make each and every of the payments, required bythe terms of each Note, as issued, in favor of the Trustee for the benefit ofNoteholders, and specifically shall be required to honor each and every of theconditions and provisions of this Indenture and the other Financing Documents,all of such conditions and provisions to be paid, performed and undertaken, infavor of the Trustee for the benefit of the Noteholders.

 

**Section 3.03****  Priority ofPayments.**  (a)  All payments or collectionsreceived under the Notes on or before an Event of Default that are availablepursuant to the Cash Management Agreement for payments on the Notes (after anyamounts payable to the Trustee hereunder) with respect to any Payment Date, orany other unscheduled payments received under the Notes, this Indenture or theother Financing Documents that are so available, will be distributed in thefollowing order of priority (the “**Priority of Payments**”):

 

(i)  First, to the payment of all accruedand unpaid interest on Note A at the Interest Rate provided inNote A;

 

(ii)  Second, to the payment of principal onNote A in an amount equal to Note A’s pro rata portion (based on theprincipal balance outstanding) of the principal portion of the amount that isdue and payable on the Notes on such date;

 

(iii)  Third, to the payment of all accruedand unpaid interest on Note B at the Interest Rate provided inNote B; and

 

(iv)  Fourth, to the payment of principal onNote B in an amount equal to Note B’s pro rata portion (based on theprincipal balance outstanding) of the principal portion of the amount that isdue and payable on the Notes on such date.

 

(b)  Any Prepayment Premium will beallocated between the Notes, *pro rata*, basedon the respective amounts of principal then being prepaid on each Note

 

(c)  On or after an Event of Default, anysuch payments, collections or prepayment shall be applied by Trustee for thebenefit of the Noteholders to any amounts then due and owing in any manner inthe discretion of the Servicer on behalf of Trustee.

 

**ARTICLE4 - SECURITY AND ASSET DEALING**

 

**Section 4.01****  Charges andSecurity Interest.**  In consideration of thepremises and the sum of One Dollar ($1.00) paid to it by the Trustee, thereceipt and sufficiency of which

 

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is hereby acknowledged,and in pursuance of each and every power and authority enabling it to do so,and for the purposes of securing the due payment of the principal amount of theNotes and of the interest thereon (including interest on amounts in default)(the “**Note Amount**”), together with the payment of allother sums, if any, from time to time due hereunder to such Noteholders or tothe Trustee, or their successors and assigns, and the payment of all othermoneys, if any, for the time being and from time to time owing pursuant hereto,the Notes or the other Financing Documents and the performance by the Issuersof their obligations hereunder and thereunder, the Issuers agree to grant, infavor of the Trustee and its successors and assigns in the trust, as trusteeand collateral agent for the benefit of such Noteholders, all of the Issuers’right, title and interest in and to the Property, and the Issuers agree togrant a security interest in and to all such present and after acquired real orimmovable and personal or movable property of every nature and kind used or tobe used in the Property.  The Issuersagree that the Security Trust Agreement and the Pledge are intended to carryout the intent of this provision, and to provide a valid and enforceable lien,charge, encumbrance and security interest in and to the Property, and no Notesshall be issued other than where a valid and perfected first priority securityinterest on the Property has been created by the Issuers in favor of theTrustee for the benefit of the Holders pursuant to the Security Trust Agreementand the Pledge.

 

**Section 4.02****  Holders ofSecurity.**  The Property and security interests,hypothecations, mortgages, pledges and charges, cessions and transfers thereonand thereof and all rights hereby conferred on the Trustee, its successors andassigns under this Indenture, the Notes, the Pledge and the Security TrustAgreement shall be held for the benefit and security of the Holders of Notes assecurity for the payment of the principal of and interest on such Notes in themanner herein and therein provided and of all other sums from time to time duehereunder or under the other Financing Documents to such Holders or to theTrustee and for the purposes and subject to the conditions, provisions,covenants and stipulations herein contained, subject specifically to thesegregation, allocation and priority herein provided.  However, until the Trustee has determined orbecome bound to realize pursuant to the Security Trust Agreement and Pledge,the Issuers shall be suffered and permitted in the same manner and to the sameextent as if these presents had not been executed, but subject to the expressterms hereof, and of the Notes, the Pledge and the Security Trust Agreement topossess, dispose of, operate, and manage the Property, to control the conductof their business and to take and use the rents, income, dividends, profits andissues of the Property, and claims and demand in judgment or otherwise, formingpart of the Property, but subject, always, to the terms of this Indenture andof the Notes, the Pledge and the Security Trust Agreement.

 

**Section 4.03****  Further Assurances.** The Issuers shall forthwith, and from time to time, execute and do alldeeds, documents and things which, in accordance with an opinion of legalcounsel to the Trustee, are reasonably necessary for giving the Trustee thelien and security interest upon the Property intended to be created by theSecurity Trust Agreement and the Pledge and for conferring upon the Trusteesuch power of sale (or the right to cause a sale), and other powers over theProperty as are expressed by the Security Trust Agreement and the Pledge to beconferred.

 

**Section 4.04****  Power of Attorney.** The Trustee hereby agrees to act as the holder of the power of attorneyof the present and future Holders of all Notes to the extent necessary ordesirable for the purposes of creating, maintaining or enforcing the SecurityTrust

 

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Agreement and the Pledgeunder applicable laws.  Each Holder, bythe acceptance of its Note, accepts and confirms, on its own behalf and onbehalf of its successors and assigns, the appointment of the Trustee as theattorney of the present and future Holders for such purposes.  The provisions of this Section shall bedeemed to form part of and be included in any indenture supplemental hereto aswell as in the Notes.

 

**Section 4.05****  Dealings with theSecurity Trust Agreement and the Pledge.**  The Trusteeshall act as first beneficiary under the Security Trust Agreement and aspledgee under the Pledge, for and on behalf of the Holders of the Notes.  The Trustee shall deal with, and shallexercise the rights, under the Security Trust Agreement and the Pledge, at thedirection of the Noteholders.

 

**Section 4.06****  No Obligation toAdvance Funds.**  The Trustee will not be required to paypremiums of insurance, taxes or charges for public utility services and latepayments, or costs of repair or maintenance of the Property or legal fees ordisbursements of counsel except to funds available and provided therefor by theIssuers as provided for in Section 10.02 hereof.

 

**ARTICLE5 - CANCELLATION AND DISCHARGE**

 

**Section 5.01****  Cancellation andDestruction.**  All Notes shall, forthwith after payment asdescribed in this Indenture and the relevant Note, and the Notes have beendelivered to the Trustee, be cancelled by it. All Notes cancelled or required to be cancelled under this or any otherprovision of this Indenture shall be destroyed after the requisite period ofretention by the Trustee, in accordance with the Trustee’s customaryprocedures, and, if required by the Issuers, the Trustee shall furnish to it adestruction certificate setting out the designating numbers of the Notes sodestroyed.

 

**Section 5.02****  Non-Presentationof Notes.**  In case a Holder shall fail to present forpayment any Note on the date due or on the date fixed for redemption thereof oron the maturity date of such Note, as the case may be, or shall not acceptpayment on account thereof and give such receipt therefor, if any, as theTrustee may require, the principal moneys and/or the interest payable, as thecase may be, shall be set aside, either in the deposit department of theTrustee or in financial institution, in trust to be paid to the Holder of suchNote upon due presentation or surrender thereof in accordance with theprovisions of this Indenture; and thereupon the principal moneys and/or theinterest payable on or represented by each Note in respect whereof such moneyshave been set aside, shall be deemed to have been paid, and not to beoutstanding for any purpose hereof, and the Holder thereof shall thereafterhave no right in respect thereof except that of receiving payment of the moneysso set aside by the Trustee upon due presentation and surrender thereof.

 

**Section 5.03****  Unclaimed Moneys.** Any moneys set aside under Section 5.02 and not claimed byand paid to Holders of Notes as provided in Section 5.02 withinthree (3) years (or by the expiry of such lesser period as would result ina claim therefor being statute barred under the laws of the State of New York)after the date of such setting aside shall be repaid to the Issuers by theTrustee on demand and thereupon the Trustee and Trustee shall be released fromall further liability with respect to such moneys and thereafter the Holders ofthe

 

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Notes in respect of whichsuch moneys were so repaid to the Issuers shall have no rights in respectthereof except to obtain payment of the moneys due thereon from the Issuers upto such time as the right to proceed against the Issuers for recovery of suchmoneys has become statute barred under the laws of the State of New York.

 

**Section 5.04****  Discharge.** The Trustee shall, after satisfaction of the obligations hereunder andunder the other Financing Documents, including specifically the payment in fullof the indebtedness evidenced by the Notes and the performance of the otherObligations, at the request and expense of the Issuers take all actionsreasonably necessary to release and discharge this Indenture and execute anddeliver such instruments as it shall be advised by legal counsel are requisitefor that purpose and to release the Issuers from their covenants hereincontained (other than the provisions relating to the indemnification of theTrustee), upon proof being given to the reasonable satisfaction of the Trusteethat the principal and the interest (including interest on amounts in default,if any) on all the Notes and all other moneys payable hereunder have been paidin accordance with the terms of this Indenture and that all the Notes havingmatured have been duly cancelled. Trustee shall, upon the written request and at the expense of Issuers(it being understood and agreed that such expenses shall be limited toreasonable out-of-pocket expenses incurred by Trustee, including, withoutlimitation, applicable recording charges and taxes), cause the securityinterests created by the Security Trust Agreement and the Pledge to beterminated if the other terms and conditions of this Section 5.04have been satisfied.

 

**ARTICLE6 - REPRESENTATIONS AND WARRANTIES**

 

**Section 6.01****  IssuerRepresentations. **Each Issuer represents and warrants (asto itself in each instance where the representation or warranty relates toIssuers or Issuer and as to its Individual Parcel where the representation orwarranty relates to the Property or Individual Parcel) as of the Note IssuanceDate that:

 

(a)  **Organization**.** **Each Issuer has beenduly organized and is validly existing under the laws of Mexico with requisitepower and authority to own its properties and to transact the businesses inwhich it is now engaged.  Each Issuer isduly qualified to do business and is in good standing in each jurisdictionwhere it is required to be so qualified in connection with its properties,businesses and operations.  Each Issuerpossesses all rights, licenses, permits and authorizations, governmental orotherwise, necessary to entitle it to own its properties and to transact thebusinesses in which it is now engaged, and the sole business of each Issuer isthe ownership, management and/or operation of the Property.  The ownership interests of each Issuer are asset forth on the organizational chart attached hereto as Schedule 6.01A.

 

(b)  **Proceedings**.** **Each Issuer hastaken all necessary action to authorize the execution, delivery and performanceof this Indenture and the other Financing Documents to which it is aparty.  This Indenture and such other FinancingDocuments have been duly executed and delivered by or on behalf of Issuers andconstitute legal, valid and binding obligations of Issuers enforceable againstIssuers in accordance with their respective terms, subject only to applicablebankruptcy, insolvency and similar laws affecting rights of creditorsgenerally.

 

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(c)  **No Conflicts**.** **The execution,delivery and performance of this Indenture and the other Financing Documents byIssuers will not conflict with or result in a breach of any of the terms orprovisions of, or constitute a default under, or result in the creation orimposition of any lien, charge or encumbrance (other than pursuant to theFinancing Documents) upon any of the property or assets of any Issuer pursuantto the terms of its by-laws (*estatutos sociales*)or any indenture, mortgage, deed of trust, loan agreement, partnershipagreement, management agreement or other agreement or instrument to which anyIssuer is a party or by which any Issuer’s property or assets is subject, norwill such action result in any violation of the provisions of any statute orany order, rule or regulation of any Governmental Authority having jurisdictionover any Issuer or any Issuer’s properties or assets, and any consent,approval, authorization, order, registration or qualification of or with anysuch Governmental Authority required for the execution, delivery andperformance by Issuers of this Indenture or any other Financing Documents hasbeen obtained and is in full force and effect.

 

(d)  **Litigation**.** **There are noactions, suits or proceedings at law or in equity by or before any GovernmentalAuthority or other agency now pending or, to any Issuer’s knowledge, threatened(i) in writing against any Issuer, Principal, Guarantor or the Property,which actions, suits or proceedings, if determined against such Issuer,Principal, Guarantor or the Property, are reasonably likely to have a MaterialAdverse Effect, or (ii) that are not adequately covered by insurance.

 

(e)  **Agreements**.** **Except as otherwiseset forth on Schedule 6.01E, no Issuer is a party to any agreement orinstrument or subject to any restriction which is reasonably likely to have aMaterial Adverse Effect.  No Issuer is indefault in any material respect in the performance, observance or fulfillmentof any of the obligations, covenants or conditions contained in any agreementor instrument to which it is a party or by which such Issuer or the Property isbound which is reasonably likely to have a Material Adverse Effect.  No Issuer has any material financialobligation under any indenture, mortgage, deed of trust, loan agreement orother agreement or instrument to which such Issuer is a party or by which suchIssuer or the Property is otherwise bound, other than (a) obligationsincurred in the ordinary course of the operation of the Property as permittedpursuant to clause (t) of the definition of “Special Purpose Entity”set forth in Section 1.1 hereof and (b) obligations under theFinancing Documents.

 

(f)  **Title**.** **Security Trustee isthe record owner of the Property and each Issuer owns its Personal Propertyfree and clear of all Liens whatsoever, except the Permitted Encumbrances.  Issuers hold the Security Trust Second Beneficiary’srights free and clear of all Liens whatsoever, except the PermittedEncumbrances.  The Permitted Encumbrancesin the aggregate do not have a Material Adverse Effect.  The Security Trust Agreement and the Pledge,when properly registered in the public registries of the jurisdictions wherethe Land is located and of the domicile of each Issuer, together with anyUniform Commercial Code financing statements required to be filed in connectiontherewith, will create (a) a valid, perfected first priority lien in and tothe Property, subject only to Permitted Encumbrances and (b) perfectedsecurity interests in and to, and perfected collateral assignments of, Issuers’right, title and interest in and to all personalty (including the Leases), allin accordance with the terms thereof, in each case subject only to anyapplicable Permitted Encumbrances.  ToIssuers’ knowledge, there are no claims for payment for work, labor ormaterials affecting the Property which are or

 

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may become a Lien prior to, or of equal priority with, the Lienscreated by the Financing Documents.

 

(g)  **Solvency**.** **Issuers have(a) not entered into the transaction or executed or issued the Notes, thisIndenture or any other Financing Documents with the actual intent to hinder,delay or defraud any creditor and (b) received reasonably equivalent valuein exchange for its obligations under such Financing Documents.  The fair saleable value of Issuers’ assetsexceeds and will, immediately following the issuance of the Notes, exceedIssuers’ total liabilities, including, without limitation, subordinated,unliquidated, disputed and contingent liabilities.  The fair saleable value of Issuers’ assets isand will, immediately following the issuance of the Notes, be greater thanIssuers’ probable liabilities, including the maximum amount of its contingentliabilities on its debts as such debts become absolute and matured.  Issuers’ assets do not and, immediatelyfollowing the issuance of the Notes will not, constitute unreasonably smallcapital to carry out their business as conducted or as proposed to beconducted.  No Issuer intends to, anddoes not believe that it will, incur debt and liabilities (including contingentliabilities and other commitments) beyond its ability to pay such debt andliabilities as they mature (taking into account the timing and amounts of cashto be received by such Issuer and the amounts to be payable on or in respect ofobligations of such Issuer).  No petitionin bankruptcy has been filed against such Issuer or any Affiliate in theimmediately preceding seven (7) years, and neither any Issuer nor any Affiliatehas ever made an assignment for the benefit of creditors or taken advantage ofany insolvency act for the benefit of debtors in the immediately precedingseven (7) years.  Neither any Issuer norany of its Affiliates are contemplating either the filing of a petition by itunder any applicable bankruptcy or insolvency laws or the liquidation of all ora major portion of any Issuer’s assets or properties, and no Issuer hasknowledge of any Person contemplating the filing of any such petition againstit or such Affiliates.

 

(h)  **Full and AccurateDisclosure**.  To eachIssuer’s knowledge, no statement of fact made by Issuer in this Indenture or inany of the other Financing Documents contains any untrue statement of amaterial fact or omits to state any material fact necessary to make statementscontained herein or therein not misleading. There is no material fact presently known to any Issuer which has notbeen disclosed to Initial Noteholder which has, or is reasonably likely tohave, a Material Adverse Effect.

 

(i)  **No Plan Assets**.  No Issuer or Principal is an “employeebenefit plan,” as defined in Section 3(3) of ERISA, subject toTitle I of ERISA, and none of the assets of any Issuer constitutes or willconstitute “plan assets” of one or more such plans within the meaning of29 C.F.R. Section 2510.3-101. In addition, (a) no Issuer or Principal is a “governmental plan”within the meaning of Section 3(32) of ERISA and (b) transactions byor with any Issuer are not subject to any state statute regulating investmentsof, or fiduciary obligations with respect to, governmental plans similar to theprovisions of Section 406 of ERISA or Section 4975 of the Codecurrently in effect, which prohibit or otherwise restrict the transactionscontemplated by this Indenture.

 

(j)  **Compliance**.** **Except as otherwiseset forth in the Physical Conditions Report or environmental report ordisclosed in writing to the Initial Purchaser, Issuers and the Property(including the use thereof) comply in all material respects with all LegalRequirements

 

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applicable to the operation and maintenance of the Property, including,without limitation, building and zoning ordinances and codes and PrescribedLaws.  No Issuer is in material defaultor violation of any order, writ, injunction, decree or demand of anyGovernmental Authority.  To each Issuer’sknowledge, there has not been committed by any Issuer or any other Person inoccupancy of or involved with the operation or use of the Property any act oromission affording the federal government or any other Governmental Authoritythe right of forfeiture as against the Property or any part thereof or anymonies paid in performance of Issuers’ obligations under any of the FinancingDocuments.

 

(k)  **Financial Information**.** **All financial data,including, without limitation, the statements of cash flow and income andoperating expense, that have been delivered to Initial Purchaser (i) aretrue, complete and correct in all material respects, (ii) accuratelyrepresent the financial condition of the Property as of the date of suchreports, and (iii) to the extent prepared or audited by an independentcertified public accounting firm, have been prepared in accordance with GAAPthroughout the periods covered, except as disclosed therein.  Except for Permitted Encumbrances, Issuers donot have any material contingent liabilities, liabilities for taxes, unusualforward or long-term commitments or unrealized or anticipated losses from anyunfavorable commitments that are known to any Issuer and reasonably likely tohave a Material Adverse Effect, except as referred to or reflected in saidfinancial statements.  Since the date ofsuch financial statements, there has been no material adverse change in thefinancial condition, operation or business of any Issuer from that set forth insaid financial statements.

 

(l)  **Condemnation**.** **Except as otherwisedisclosed in the Title Insurance Policy, no Condemnation or other proceedinghas been commenced or, to each Issuer’s knowledge, is threatened orcontemplated with respect to all or any portion of the Property or for therelocation of roadways providing access to the Property.

 

(m)  **Federal ReserveRegulations**.** **No part of the proceeds of theNotes will be used for the purpose of purchasing or acquiring any “margin stock”within the meaning of Regulation U of the Board of Governors of the FederalReserve System or for any other purpose which would be inconsistent with suchRegulation U or any other Regulations of such Board of Governors, or for anypurposes prohibited by Legal Requirements or by the terms and conditions ofthis Indenture or the other Financing Documents.

 

(n)  **Utilities and PublicAccess**.  Except as setforth in the Title Insurance Policy or the survey of the Property provided toInitial Purchaser in connection with the issuance of the Notes, and subject tothe Condominium Documents, the Property has rights of access to public ways andis served by water, sewer, sanitary sewer and storm drain facilities adequateto service the Property for its intended uses. All public utilities necessary or convenient to the full use and enjoymentof the Property are located either in the public right-of-way abutting theProperty (which are connected so as to serve the Property without passing overother property) or in recorded easements serving the Property and sucheasements are set forth in and insured by the Title Insurance Policy.  All roads necessary for the use of theProperty for its current purpose have been completed and dedicated to publicuse and accepted by all Governmental Authorities.

 

(o)  **Payment of Taxes**.** **Issuers have paidall Taxes due and payable on or prior to the date hereof (other than Taxesbeing contested in accordance with the terms set forth

 

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in Section 7.01(b)), including all property taxes *(predial)* relating to the Property and asset taxes *(imperesto al activo)* relating to the Personal Property.

 

(p)  **Separate Lots**.  The Property is comprised of one (1) ormore parcels which constitute a separate tax lot or lots and does notconstitute a portion of any other tax lot not a part of the Property; provided,however, Lot AP-6A and Lot AP-6B have a single cadastralnumber for the payment of property taxes (*impuesto predial*)and Lots APG-1 through APG-18 and AS-4 have a single cadastral number for thepayment of property taxes (*impuesto predial*).

 

(q)  **Assessments**.** **Other thanCondominium charges and assessments, and except as otherwise disclosed in Schedule6.01Q or as set forth in the Title Insurance Policy, there are no pendingor, to each Issuer’s knowledge, proposed special or other assessments forpublic improvements or otherwise affecting the Property, nor are there anycontemplated improvements to the Property that may result in such special orother assessments.

 

(r)  **Enforceability**.** **The FinancingDocuments are not subject to any right of rescission, set-off, counterclaim ordefense by any Issuer, Principal or Guarantor, including the defense of usury,nor would the operation of any of the terms of the Financing Documents, or theexercise of any right thereunder, render the Financing Documents unenforceable(subject to principles of equity and bankruptcy, insolvency and other lawsgenerally affecting creditors’ rights and the enforcement of debtors’obligations), and neither any Issuer, Principal nor Guarantor have asserted anyright of rescission, set-off, counterclaim or defense with respect thereto.

 

(s)  **No Prior Assignment**.  There are no prior assignments of the Leasesor any portion of the Rents due and payable or to become due and payable whichare presently outstanding.

 

(t)  **Insurance**.** **Issuers haveobtained and have delivered to Trustee certified copies of all Policies (orcertificates and other evidence reasonably satisfactory to Trustee evidencingthe existence of the same) reflecting the insurance coverages, amounts andother requirements set forth in this Indenture. Except as set forth in Schedule 6.01T, no outstanding claims havebeen made under any property insurance Policies and no Issuer has done, by actor omission, anything which would materially impair the coverage of anyPolicies.

 

(u)  **Use of Property**.** **The Property is usedexclusively as a hotel and golf course and other appurtenant and related uses.

 

(v)  **Certificate of Occupancy;Licenses**.** **All certifications, permits,licenses and approvals, including without limitation, certificates ofcompletion and occupancy permits and any applicable liquor license requiredunder applicable law for the legal use, occupancy and operation of the Propertyas a hotel (collectively, the “**Licenses**”), have been obtained andare in full force and effect, except where the failure to obtain such Licensesdoes not have, and is not reasonably expected to have, a Material AdverseEffect.  Issuers shall keep and maintainall Licenses necessary for the operation of the Property as a hotel, exceptwhere the failure to keep and maintain such Licenses does not have, and is notreasonably expected to have, a Material

 

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Adverse Effect.  The use beingmade of the Property is in conformity with the certificate of occupancy issuedfor the Property.

 

(w)  **Intentionally Omitted**.

 

(x)  **Physical Condition**.** **To Issuers’knowledge, and except as set forth in the Physical Conditions Report, theProperty, including, without limitation, all buildings, improvements, parkingfacilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVACsystems, fire protection systems, electrical systems, equipment, elevators,exterior sidings and doors, landscaping, irrigation systems and all structuralcomponents, are in good condition, order and repair in all materialrespects.  To Issuers’ knowledge, andexcept as set forth in the Physical Conditions Report, there exists nostructural or other material defects or damages in the Property, whether latentor otherwise, and no Issuer has received notice from any insurance company orbonding company of any defects or inadequacies in the Property, or any partthereof, which would adversely affect the insurability of the same or cause theimposition of extraordinary premiums or charges thereon or of any terminationor threatened termination of any policy of insurance or bond.

 

(y)  **Boundaries**.** **To Issuers’knowledge, except as set forth on the Survey, the Title Insurance Policy or thePhysical Condition Report, all of the improvements which were included indetermining the appraised value of the Property lie wholly within theboundaries and building restriction lines of the Property, and no improvementson adjoining properties encroach upon the Property, and no easements or otherencumbrances upon the Property encroach upon any of the improvements, so as toaffect the value or marketability of the Property except (i) those whichare insured against by the Title Insurance Policy or are Permitted Encumbrancesand (ii) a portion of a staircase giving access from the hotel IndividualParcel to the beach is located within the boundaries of the Federal MaritimeZone under concession by the Federal Government of Mexico.

 

(z)  **Leases**.** **The Property is notsubject to any Leases other than the Leases described in Schedule 6.01Zattached hereto and made a part hereof. Issuers are the owner and lessor of landlord’s interest in theLeases.  No Person has any possessoryinterest in the Property or right to occupy the same except under and pursuantto the provisions of the Leases.  Thecurrent Leases are in full force and effect and, to Issuers’ knowledge, thereare no defaults thereunder by either party and there are no conditions that,with the passage of time or the giving of notice, or both, would constitutedefaults thereunder.  No Rent has beenpaid more than one (1) month in advance of its due date.  All work to be performed prior to the datehereof by Issuers under each Lease has been performed as required and has beenaccepted by the applicable tenant, and any payments, free rent, partial rent,rebate of rent or other payments, credits, allowances or abatements required tobe given by Issuers to any tenant has already been received by suchtenant.  There has been no prior sale,transfer or assignment, hypothecation or pledge of any Lease or of the Rentsreceived therein which is still in effect. To Issuers’ knowledge, no tenant has assigned its Lease or sublet all orany portion of the premises demised and no such tenant holds its leasedpremises under assignment or sublease. To Issuers’ knowledge, no tenant under any Lease has a right or optionpursuant to such Lease or otherwise to purchase all or any part of the leasedpremises or the building of which the leased premises are

 

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a part.  No tenant under anyLease has any right or option to lease additional space in the Improvements.

 

(aa)  **Survey**.** **To Issuers’knowledge, the Survey for the Property delivered in connection with thisIndenture does not fail to reflect any material matter affecting the Propertyor the title thereto.

 

(bb)  **Principal Place ofBusiness; State of Organization**. Each Issuer’s principal place of business as of the date hereof is theaddress set forth in the introductory paragraph of this Indenture.  Each Issuer is organized under the laws ofMexico.

 

(cc)  **Filing and Recording Taxes**.** **All transfer taxes,deed stamps, intangible taxes, value added taxes or other amounts in the natureof transfer taxes required to be paid by any Person under applicable LegalRequirements currently in effect in connection with the transfer of theProperty to Issuers have been paid.  Allmortgage, mortgage recording, stamp, intangible or other similar tax requiredto be paid by any Person under applicable Legal Requirements currently ineffect in connection with the execution, delivery, recordation, filing,registration, perfection or enforcement of any of the Financing Documents,including, without limitation, the Security Trust Agreement and the Pledge,have been paid, and, under current Legal Requirements, the Security TrustAgreement and the Pledge are enforceable against the settlers or pledgors, asthe case may be, in accordance with their respective terms, subject toprinciples of equity, public policy and bankruptcy, insolvency and other lawsgenerally applicable to creditors’ rights and the enforcement of debtors’obligations.

 

(dd)  **Special PurposeEntity/Separateness**. (i)  Until the Debt has been paid in full, each Issuer herebyrepresents, warrants and covenants that (A) such Issuer is, shall be andshall continue to be a Special Purpose Entity, provided that therequirements set forth in the definition of the term “Special Purpose Entity”will not apply to such Issuer’s relationship with the other Issuers, and(B) Principal is, shall be and shall continue to be a Special PurposeEntity.

 

(ii)  The representations, warranties andcovenants set forth in Section 6.01(dd)(i) shall survive for so long asany amount remains payable to Trustee for the benefit of Noteholders under thisIndenture or any other Financing Document.

 

(iii)  All of the assumptions made in theInsolvency Opinion, including, but not limited to, any exhibits attachedthereto, are true and correct in all respects and any assumptions made in anysubsequent non-consolidation opinion required to be delivered inconnection with the Financing Documents (an “**Additional Insolvency Opinion**”),including, but not limited to, any exhibits attached thereto, will have beenand shall be true and correct in all respects. Each Issuer has complied and will comply with, and Principal hascomplied and Issuers will cause Principal to comply with, all of theassumptions made with respect to each Issuer and Principal in the InsolvencyOpinion.  Each Issuer will have compliedand will comply, or cause Principal to comply, with all of the assumptions madewith respect to such Issuer and Principal in any Additional InsolvencyOpinion.  Each entity other than anIssuer or Principal with respect to which an assumption shall be made in anyAdditional Insolvency Opinion will have complied and will comply with all of theassumptions made with respect to it in any Additional Insolvency Opinion.

 

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(ee)  **Management Agreement**.** **As of the datehereof, the Management Agreement is in full force and effect and, to Issuers’knowledge, there is no default thereunder by any party thereto and no event hasoccurred that, with the passage of time and/or the giving of notice wouldconstitute a default by Issuers thereunder that would have a Material AdverseEffect.

 

(ff)  **Golf Management Agreement**.  As of the date hereof, the Golf ManagementAgreement is in full force and effect and, to Issuers’ knowledge, there is nodefault thereunder by any party thereto and no event has occurred that, withthe passage of time and/or the giving of notice would constitute a default byIssuers thereunder that would have a Material Adverse Effect.

 

(gg)  **Spa Management Agreement**.  As of the date hereof, the Spa ManagementAgreement is in full force and effect and, to Issuers’ knowledge, there is nodefault thereunder by any party thereto and no event has occurred that, withthe passage of time and/or the giving of notice would constitute a default byIssuers thereunder that would have a Material Adverse Effect.

 

(hh)  **Illegal Activity**.** **No portion of theProperty has been or will be purchased with proceeds of any illegal activity.

 

(ii)  **No Change in Facts orCircumstances; Disclosure**. To the best of Issuers’ knowledge, all information submitted by anyIssuer to Initial Purchaser and in all financial statements, rent rolls,reports, certificates and other documents submitted in connection with theissuance of the Notes or in satisfaction of the terms thereof and allstatements of fact made by any Issuer in this Indenture or in any otherFinancing Document, are accurate, complete and correct in all materialrespects.  To the best of Issuers’knowledge, there has been no material adverse change in any condition, fact,circumstance or event that would make any such information inaccurate,incomplete or otherwise misleading in any material respect or that otherwisehas, or may reasonably be expected to have, a Material Adverse Effect.  Issuers have disclosed to Trustee allmaterial facts and have not failed to disclose any material fact that couldcause any Provided Information or representation or warranty made herein to bematerially misleading.

 

(jj)  **Investment Company Act**.** **No Issuer is(a) an “investment company” or a company “controlled” by an “investmentcompany,” within the meaning of the Investment Company Act of 1940, as amended;(b) a “holding company” or a “subsidiary company” of a “holding company”or an “affiliate” of either a “holding company” or a “subsidiary company”within the meaning of the Public Utility Holding Company Act of 1935, asamended; or (c) subject to any other federal or state law or regulationwhich purports to restrict or regulate its ability to borrow money.

 

(kk)  **Embargoed Person**.  At all times throughout the term of theNotes, including after giving effect to any Transfers permitted pursuant to theFinancing Documents, (a) none of the funds or other assets of any Issuer,Principal or Guarantor constitute property of, or are beneficially owned,directly or indirectly, by any person, entity or government subject to traderestrictions under U.S. law, including, but not limited to, the InternationalEmergency

 

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Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading withthe Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders orregulations promulgated thereunder with the result that the investment in anyIssuer, Principal or Guarantor, as applicable (whether directly or indirectly),is prohibited by law or the issuance of the Notes by Issuers or the purchase ofthe Notes by Initial Purchaser or Initial Noteholder is in violation of law (“**EmbargoedPerson**”); (b) no Embargoed Person has any interest ofany nature whatsoever in any Issuer, Principal or Guarantor, as applicable,with the result that the investment in any Issuer, Principal or Guarantor, asapplicable (whether directly or indirectly), is prohibited by law or theissuance of the Notes by Issuers or the purchase of the Notes by InitialPurchaser or Initial Noteholder is in violation of law; and (c) none ofthe funds of any Issuer, Principal or Guarantor have been derived from anyunlawful activity by any Issuer, Principal or Guarantor with the result thatthe investment in any Issuer, Principal or Guarantor, as applicable (whetherdirectly or indirectly), is prohibited by law or the issuance of the Notes byIssuers or the purchase of the Notes by Initial Purchaser or Initial Noteholderis in violation of law.

 

(ll)  **Cash Management Account**. (i)  This Indenture, togetherwith the other Financing Documents, creates a valid and continuing lien andsecurity interest (under Mexican law or as such terms are defined under theUniform Commercial Code of the State, as applicable) in the Lockbox Accountsand the Cash Management Account in favor of Trustee, for the benefit ofHolders, which lien and security interest are prior to all other Liens, otherthan Permitted Encumbrances, and are enforceable as such against creditors ofand purchasers from Issuers.  Other thanin connection with the Financing Documents and except for PermittedEncumbrances, Issuers have not sold or otherwise conveyed the Lockbox Accountsand Cash Management Account;

 

(ii)  The Cash Management Accountconstitutes a “deposit account” within the meaning of the Uniform CommercialCode of the State.

 

(iii)  Pursuant and subject to the terms hereof,each Lockbox Bank has agreed to comply with all instructions originated byTrustee, without further consent by any Issuer, directing disposition of theapplicable Lockbox Account and all sums at any time held, deposited or investedtherein, together with any interest or other earnings thereon, and all proceedsthereof (including proceeds of sales and other dispositions), whether accounts,general intangibles, chattel paper, deposit accounts, instruments, documents orsecurities; and

 

(iv)  The Lockbox Accounts and CashManagement Account are not in the name of any Person other than Issuers, aspledgor, or Trustee, for the benefit of Noteholders, as pledgee.

 

(mm)  **SPE Prior ActRepresentations.**  Exceptas set forth on Schedule 6.01MM and subject to the limitation that therequirements set forth below in this Section 6.01(mm) are notapplicable to an Issuer’s relationship with the other Issuers, each Issuerhereby represents and warrants to Trustee for the benefit of Noteholders thatsince its formation or the formation of the applicable Principal, asapplicable:

 

(i)  (i)  neither such Issuer norany Principal has owned any material asset or property other than (A) itsIndividual Parcel, and (B) incidental personal property necessary for

 

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the ownership or operation of the Property or its Individual Parcelother than the Parcel in the Condominium designated as AP-9A which parcel waspreviously owned by the Hotel Issuer and, provided further that, Issuers representand warrant that such parcel was (a) vacant at the time owned by HotelIssuer, (b) there are no continuing obligations or liability with respectto such parcel, and (c) there are no known environmental conditionsexisting with respect to such parcel in violation of applicable law;

 

(ii)  neither such Issuer nor any Principalhas engaged in any business other than the ownership, management and operationof the Property or its Individual Parcel and Issuer has conducted and operatedits business as presently conducted and operated;

 

(iii)  neither such Issuer nor any Principalhas entered into any contract or agreement with any of its Affiliates,constituents, or owners, or any guarantors of any of its obligations or anyAffiliate of any of the foregoing (individually, a “**Related Party**”)except upon terms and conditions that are commercially reasonable andsubstantially similar to those available in an arm’s-length transaction with anunrelated party and in connection with this Indenture;

 

(iv)  neither such Issuer nor any Principalhas incurred any Indebtedness other than (A) subject to clause (xxiv)below, acquisition financing with respect to the Property; constructionfinancing with respect to the Improvements and certain off-site improvementsrequired by municipal and other authorities as conditions to the constructionof the Improvements; and first mortgage financings secured by the Property (orfinancing secured by security trusts holding title to the Property); andIndebtedness pursuant to letters of credit, guaranties, interest rateprotection agreements and other similar instruments executed and delivered inconnection with such financings, (B) unsecured trade payables andoperational debt not evidenced by a note, and (C) Indebtedness incurred inthe financing of equipment and other personal property used on the Property;

 

(v)  neither such Issuer nor any Principalhas made any loans to any Person or held evidence of indebtedness issued by anyother Person or entity (other than cash and investment-grade securities issuedby an entity that is not an Affiliate of or subject to common ownership withsuch entity);

 

(vi)  each of such Issuer and each Principalhas remained solvent and has paid its debts and liabilities from its own assetsand generally as the same have became due;

 

(vii)  each of such Issuer and eachPrincipal has allocated fairly and reasonably any overhead expenses that havebeen shared with an Affiliate, including paying for office space and servicesperformed by any employee of an Affiliate or Related Party;

 

(viii)  each of such Issuer and eachPrincipal has done or caused to be done all things necessary to observe all itsorganizational formalities and to preserve its existence or has promptly takencurative action with respect thereto;

 

(ix)  (A) each of such Issuer and eachPrincipal has maintained all of its accounts (including bank accounts), booksand records separate from those of any other Person; (B) each of suchIssuer and each Principal has maintained separate financial statements and its

 

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assets have not been listed as assets on the financial statement of anyother Person except as required by GAAP and Financial Accounting StandardsBoard Interpretation No. 46R; provided, however, that anysuch consolidated financial statement shall contain a note indicating that itsseparate assets and liabilities are neither available to pay the debts of theconsolidated entity nor constitute obligations of the consolidated entity;(C) each of such Issuer and each Principal has filed its own tax returnsand has not filed a consolidated federal income tax return with any otherPerson, except to the extent that Issuer was required to file consolidated taxreturns by law; and (D) each of such Issuer and each Principal hasmaintained its books, records, resolutions and agreements as official records;

 

(x)  (A) other than in connection withthe operation and management of the Property or, in the case of such Issuer,pursuant to its use of the name “One and Only Palmilla,” each of such Issuerand each Principal has been, and at all times has held itself out andidentified itself as a separate and distinct entity and has conducted businessunder its own name or in a name franchised or licensed to it by an entity otherthan an Affiliate of such Issuer or another Issuer and not as a division orpart of any other Person, except for services rendered under a businessmanagement services agreement with an Affiliate that complies with the termscontained in subsection (iii) above, so long as the manager, orequivalent thereof, under such business management services agreement holdsitself out as an agent of such Issuer; (B) has not identified itself orany of its Affiliates as a division or part of the other; and (C) otherthan in connection with the operation and management of the Property or, in thecase of such Issuer, pursuant to its use of the name “One and Only Palmilla,”has used separate stationery, invoices and checks bearing its own name and notthe name of any Affiliate;

 

(xi)  other than in connection with theoperation and management of the Property or, in the case of such Issuer,pursuant to its use of the name “One and Only Palmilla,” each of such Issuerand each Principal has corrected any known misunderstanding regarding itsstatus as a separate entity;

 

(xii)  each of such Issuer and eachPrincipal has maintained adequate capital for the normal obligations reasonablyforeseeable in a business of its size and character and in light of its contemplatedbusiness operations;

 

(xiii)  neither such Issuer nor anyPrincipal has, nor have any of its constituent parties, sought or effected theliquidation, dissolution, winding up, liquidation, consolidation or merger, inwhole or in part of any Issuer;

 

(xiv)  other than in connection with(A) in the case of such Issuer, acquisition financing with respect to theProperty, (B) in the case of such Issuer, construction financing withrespect to the Improvements and certain off-site improvements required bymunicipal and other authorities as conditions to the construction of theImprovements, (C) in the case of such Issuer, first mortgage financingssecured by the Property (or financing secured by security trusts holding titleto the Property), (D) Indebtedness pursuant to letters of credit,guaranties, interest rate protection agreements and other similar instrumentsexecuted and delivered in connection with such financings described inclauses (A), (B) and (C), and (E) in the case of such Issuer, the PermittedEquipment Financing, neither such Issuer nor any Principal has commingled itsfunds

 

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or other assets with those of any Affiliate or constituent party or anyother Person, and each of such Issuer and each Principal has held all of itsassets in its own name;

 

(xv)  each of such Issuer and each Principalhas maintained its assets in such a manner that it would not be costly ordifficult to segregate, ascertain or identify its individual assets from thoseof any Affiliate or constituent party or any other Person;

 

(xvi)  neither such Issuer nor any Principalhas guaranteed or become obligated for the debts of any other Person, exceptfor the debts of the other Issuers or Issuers, as applicable, pursuant to(A) acquisition financing with respect to the Property,(B) construction financing with respect to the Improvements and certainoff-site improvements required by municipal and other authorities as conditionsto the construction of the Improvements, (C) first mortgage financingssecured by the Property (or financing secured by security trusts holding titleto the Property), (D) Indebtedness pursuant to letters of credit,guaranties, interest rate protection agreements and other similar instruments executedand delivered in connection with such financings described in clauses (A),(B) and (C), and (E) in the case of such Issuer, the Permitted EquipmentFinancing, neither such Issuer nor any Principal has held itself out to beresponsible for or to have its credit available to satisfy the debts orobligations of any other Person;

 

(xvii)  each of such Issuer and eachPrincipal is presently conducting its businesses so that the assumptions madewith respect to such Issuer or Principal, as applicable, in the InsolvencyOpinion are currently true and correct in all material respects;

 

(xviii)  neither such Issuer nor anyPrincipal has permitted any Affiliate or constituent party independent accessto its bank accounts;

 

(xix)  each of such Issuer and each Principalhas paid the salaries of each of its own employees (if any) from its own fundsand has maintained a sufficient number of employees (if any) in light of itscontemplated business operations;

 

(xx)  each of such Issuer and each Principalhas compensated each of its consultants and agents from its own funds forservices provided to it and pay from its own assets all obligations of any kindincurred;

 

(xxi)  neither such Issuer nor any Principalhas acquired any obligations or securities of any of its Affiliates;

 

(xxii)  such Issuer has not acquired or heldany equity interest or subsidiary interest in any entity and, other thanIssuers, no Principal has acquired or held any equity interest or subsidiaryinterest in any entity except that Beach Issuers briefly owned a subsidiaryknown as CP Baja, S.A. de C.V. but such subsidiary engaged in noactivities and has been liquidated;

 

(xxiii)  neither such Issuer nor anyPrincipal has pledged its assets for to secure the obligations of any otherPerson other than with respect to loans or other indebtedness secured by theProperty and no such pledge remains outstanding except in connection with theissuance of the Notes;

 

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(xxiv)  neither such Issuer nor anyPrincipal has incurred any Indebtedness that is still outstanding other than,in the case of an Issuer, the Permitted Equipment Financing, and indebtednessthat is evidenced by the Financing Documents or permitted under the FinancingDocuments;

 

(xxv)  such Issuer is and always has beenduly formed and validly existing under the laws of Mexico, each Principal isand always has been duly formed and validly existing under the laws of theState of Delaware and each of such Issuer and each Principal is and has always beenduly qualified to do business and in good standing in all other jurisdictionswhere it is required to be or to have been qualified to do business;

 

(xxvi)  neither such Issuer nor anyPrincipal has any judgments or liens of any nature against it except for taxliens not yet due or delinquent;

 

(xxvii)  each of such Issuer and eachPrincipal is in material compliance with all laws, regulations, and ordersapplicable to it and has received all permits necessary for it to operate;

 

(xxviii)  neither such Issuer nor anyPrincipal is involved in any material dispute with any taxing authority;

 

(xxix)  subject to clause (xxviii),each of such Issuer and each Principal has paid all taxes which it owes;

 

(xxx)  neither such Issuer nor any Principalis now, nor has ever been, party to any lawsuit, arbitration, summons, or legalproceeding, which has not been settled, dismissed or otherwise proceeded toconclusion and none of which has had or can be reasonably expected to have aMaterial Adverse Effect;

 

(xxxi)  each of such Issuer and eachPrincipal has materially complied with the separateness covenants referred toin the Insolvency Opinion; and

 

(xxxii)  neither such Issuer nor anyPrincipal has any material contingent or actual obligations not related to theProperty.

 

(nn)  **Condominium Documents.**  To Issuer’s knowledge, after inquiry, theCondominium Documents comply with all applicable local, state and federal laws,rules and regulations which affect the establishment and maintenance ofcondominiums in the State relating to condominiums (collectively, the “**CondominiumLaws**”).  To Issuer’sknowledge, after inquiry, the Condominium Documents are in full force andeffect and there are no defaults thereunder by any party.  Each Issuer has paid all common expenses, assessments,maintenance fees and other charges due in connection with the Condominium inaccordance with the Condominium Documents. To Issuer’s knowledge, after inquiry, the Condominium Documents have notbeen amended, modified or supplemented by any document that is not of publicrecord and there is no agreement, document or instrument to which theCondominium is a party that affects the Condominium or any obligations ofIssuers with respect to the Condominium or the Property that is not of publicrecord.

 

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**Section 6.02****  Survival ofRepresentations.**  Each Issuer agrees that all of therepresentations and warranties of Issuers set forth in Section 6.01and elsewhere in this Indenture and in the other Financing Documents shallsurvive for so long as any amount remains outstanding under the Notes.  All representations, warranties, covenantsand agreements made in this Indenture or in the other Financing Documents byany Issuer shall be deemed to have been relied upon by Initial Purchaser,Initial Noteholder and Trustee notwithstanding any investigation heretofore orhereafter made by Initial Purchaser, Initial Noteholder or Trustee or on itsbehalf.

 

**ARTICLE7 - ISSUER COVENANTS**

 

**Section 7.01****  Affirmative Covenants.** From the date hereof and until payment and performance in full of allobligations under the Financing Documents or the earlier reconveyance of titleto the Property held by Security Trust Trustee pursuant to the Security TrustAgreement to Issuers or release and discharge of the security interests createdby the Security Trust Agreement and the Pledge (and all related obligations) inaccordance with the terms of this Indenture and the other Financing Documents,Issuers hereby covenant and agree with Trustee, for the benefit of Noteholders,as set forth in this Section 7.01. All such covenants and agreements shall be enforced, and all associatedrights shall be exercised, by the Servicer on behalf of the Trustee for thebenefit of the Noteholders, and all related documents to be delivered to theTrustee, amounts to be deposited with the Trustee and all accounts to bemaintained by the Trustee shall be so delivered, deposited and maintained inaccordance with the Cash Management Agreement or otherwise by the Servicer onbehalf of the Trustee for the benefit of the Noteholders.

 

(a)  **Existence; Compliance withLegal Requirements**.  Tothe extent necessary to avoid a material adverse change in the financialcondition or business condition of any Issuer, Issuers shall do or cause to bedone with the reasonable promptness all things necessary to preserve, renew andkeep in full force and effect its existence, rights, licenses, permits andfranchises and comply with all material Legal Requirements applicable to Issuersand the Property, including, without limitation, Prescribed Laws.  There shall never be committed by any Issuerand Issuers shall use commercially reasonable efforts not to permit any otherPerson in occupancy of or involved with the operation or use of the Property tocommit any act or omission affording the sovereign or federal government or anystate or local government the right of forfeiture against the Property or anypart thereof or any monies paid in performance of Issuers’ obligations underany of the Financing Documents.  Issuersshall at all times maintain, preserve and protect in all material respects allfranchises and trade names and preserve all the remainder of their propertyused or useful in the conduct of its business and shall keep the Property ingood working order and repair, and from time to time make, or cause to be made,all reasonably necessary repairs, renewals, replacements, betterments andimprovements thereto, all as more fully provided herein, in the Security TrustAgreement and the Pledge.  After priornotice to Trustee, Issuers, at their own expense, may contest by appropriatelegal proceeding promptly initiated and conducted in good faith and with duediligence, the validity of any Legal Requirement, the applicability of anyLegal Requirement to Issuers or the Property or any alleged violation of anyLegal Requirement, provided that (i) no Event of Default hasoccurred and remains uncured; (ii) intentionally omitted; (iii) suchproceeding shall not result in a default under any material agreement to whichany Issuer is subject and such proceeding shall

 

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be conducted in accordance with all applicable statutes, laws andordinances; (iv) neither the Property nor any part thereof or interesttherein will be in imminent danger of being sold, forfeited, terminated,cancelled or lost; (v) Issuers shall promptly upon final determinationthereof comply with any such Legal Requirement determined to be valid orapplicable or cure any violation of any Legal Requirement; (vi) suchproceeding shall suspend the enforcement of the contested Legal Requirementagainst Issuers and the Property; and (vii) Issuers shall furnish suchsecurity as may be required in the proceeding, or as may be reasonablyrequested by Trustee, to insure compliance with such Legal Requirement,together with all interest and penalties payable in connection therewith.  Trustee may apply any such security, asnecessary to cause compliance with such Legal Requirement at any time when, inthe reasonable judgment of Trustee, the validity, applicability or violation ofsuch Legal Requirement is finally established or the Property (or any partthereof or interest therein) shall be in danger of being sold, forfeited, terminated,cancelled or lost.

 

(b)  **Taxes and Other Charges**.  Issuers shall pay all Taxes and Other Chargesnow or hereafter levied or assessed or imposed against the Property or any partthereof as the same become due and payable; provided, however,Issuers’ obligation to directly pay Taxes shall be suspended for so long asIssuers comply with the terms and provisions of Section 2.4 of the Note orcontests such Taxes and Other Charges pursuant to this Section 7.01(b).  Issuers shall furnish to Trustee no later thanten (10) days prior to the date the same shall become delinquent receipts forthe payment of the Taxes and the Other Charges; provided, however,Issuers are not required to furnish such receipts for payment of Taxes in theevent that such Taxes have been paid by Trustee pursuant to Section 10.02hereof.  Issuers shall not suffer andshall promptly cause to be paid and discharged any Lien or charge whatsoeverwhich may be or become a Lien or charge against the Property, and shallpromptly pay for all utility services provided to the Property.  After prior notice to Trustee, Issuers, attheir own expense, may contest by appropriate legal proceeding, promptlyinitiated and conducted in good faith and with due diligence, the amount orvalidity or application in whole or in part of any Taxes or Other Charges, providedthat (a) no Default or Event of Default has occurred and remains uncured;(b) intentionally omitted; (c) such proceeding shall be permittedunder and be conducted in accordance with the provisions of any otherinstrument to which Issuers are subject and shall not constitute a defaultthereunder and such proceeding shall be conducted in accordance with allapplicable statutes, laws and ordinances; (d) neither the Property nor anypart thereof or interest therein will be in imminent danger of being sold,forfeited, terminated, cancelled or lost; (e) Issuers shall promptly uponfinal determination thereof pay the amount of any such Taxes or Other Charges,together with all costs, interest and penalties which may be payable inconnection therewith; (f) such proceeding shall suspend the collection ofsuch contested Taxes or Other Charges from the applicable Individual Parcel;and (g) Issuers shall furnish such security as may be required in theproceeding, or as may be reasonably requested by Trustee, to insure the paymentof any such Taxes or Other Charges, together with all interest and penaltiesthereon.  Trustee may pay over any suchcash deposit or part thereof held by or on behalf of Trustee to the claimantentitled thereto at any time when, in the judgment of Trustee, the entitlementof such claimant is established or the applicable Individual Parcel (or partthereof or interest therein) shall be in imminent danger of being sold,forfeited, terminated, cancelled or lost or there shall be any danger of therights of Trustee under the Security Trust Agreement and/or the Pledge beingprimed by or being subject to any related Lien.

 

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(c)  **Litigation**.  Issuers shall give prompt notice to Trusteeof any litigation or governmental proceedings pending or threatened in writingagainst any Issuer, Principal and Guarantor which might reasonably be expectedto have a Material Adverse Effect.

 

(d)  **Access to Property**.  Issuers shall permit agents, representativesand employees of Trustee to inspect the Property or any part thereof atreasonable hours upon reasonable advance notice, provided such inspections donot materially interfere with the use and operation of the Property.

 

(e)  **Notice of Default**.  Issuers shall promptly advise Trustee of anymaterial adverse change in any Issuer’s, Principal’s or Guarantor’s condition,financial or otherwise, or of the occurrence of any Event of Default of whichany Issuer has knowledge.

 

(f)  **Cooperate in LegalProceedings. **Issuersshall reasonably cooperate with Trustee with respect to any proceedings beforeany court, board or other Governmental Authority which may in any waymaterially and adversely affect the rights of Trustee hereunder or any rightsobtained by Trustee under any of the other Financing Documents and, inconnection therewith, permit Trustee, at its election, to participate in anysuch proceedings.

 

(g)  **Perform FinancingDocuments. **Issuers shallpay when due all costs, fees and expenses to the extent required under theFinancing Documents executed and delivered by, or applicable to, Issuers.

 

(h)  **Award and InsuranceBenefits. **Issuers shallcooperate with Trustee in obtaining for Trustee the benefits of any Awards orInsurance Proceeds lawfully or equitably payable in connection with theProperty to the extent Trustee is entitled to same under the terms of thisIndenture, the Security Trust Agreement or the Pledge, and Trustee shall bereimbursed for any expenses incurred in connection therewith (includingattorneys’ fees and disbursements, and the payment by Issuers of the expense ofan appraisal on behalf of Trustee in case of Casualty or Condemnation affectingthe Property or any part thereof) out of such Insurance Proceeds.

 

(i)  **Further Assurances. **Issuers shall, at Issuers’ sole cost andexpense:

 

(i)  furnish to Trustee all instruments,documents, boundary surveys, footing or foundation surveys, certificates, plansand specifications, appraisals, title and other insurance reports andagreements, and each and every other document, certificate, agreement andinstrument required to be furnished by Issuers pursuant to the terms of theFinancing Documents or which are reasonably requested by Trustee in connectiontherewith;

 

(ii)  execute and deliver to Trustee suchdocuments, instruments, certificates, assignments and other writings, and dosuch other acts reasonably necessary, to evidence, preserve and/or protect thecollateral at any time securing or intended to secure the obligations ofIssuers under the Financing Documents, as Trustee may reasonably require;

 

(iii)  do and execute all and such furtherlawful and reasonable acts, conveyances and assurances for the better and moreeffective carrying out of the intents and

 

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purposes of this Indenture and the other Financing Documents, asTrustee shall reasonably require from time to time; and

 

(iv)  pay all taxes, filing, registration orrecording fees, and all expenses incident to the preparation, execution,acknowledgment and/or recording of the Security Trust Agreement, the Pledge,the other Financing Documents, any mortgage supplemental thereto, any securityinstrument with respect to the Property and any instrument of furtherassurance, and any modification or amendment of any of the foregoing documents,and all federal, state, county and municipal taxes, duties, imposts,assessments and charges arising out of or in connection with the execution anddelivery of the Security Trust Agreement, the Pledge, any mortgage supplementalthereto, any security instrument with respect to the Property or any instrumentof further assurance, and any amendment or other modification of any of theforegoing documents, except where prohibited by law so to do.

 

(j)  **Maintenance of Property.**  (i)  Issuers shall cause theProperty to be maintained in a good and safe condition and repair.  The Improvements and the Personal Propertyshall not be removed, demolished or materially altered (except for replacementof the Personal Property in the ordinary course of business) without the priorconsent of Trustee.

 

(ii)  Issuers shall not commit or suffer anywaste of the Property or make any change in the use of the Property which willin any way materially increase the risk of fire or other hazard arising out ofthe operation of the Property, or take any action that might invalidate orallow the cancellation of any Policy, or do or permit to be done thereonanything that may in any way materially impair the value of the Property or thesecurity of the Security Instrument or the Pledge.  Issuers will not, without the prior writtenconsent of Trustee, permit any drilling or exploration for or extraction,removal, or production of any minerals from the surface or the subsurface ofthe Land, regardless of the depth thereof or the method of mining or extractionthereof.

 

(iii)  Issuers will promptly pay when dueall bills and costs for labor, materials, and specifically fabricated materialsincurred in connection with the Property and never permit to exist beyond thedue date thereof in respect of the Property or any part thereof any lien orsecurity interest, even though inferior to the liens and the security interestshereof, and in any event never permit to be created or exist in respect of theProperty or any part thereof any other or additional lien or security interestother than the liens or security interests hereof except for the PermittedEncumbrances.  After prior notice toTrustee, Issuers, at their own expense, may contest by appropriate legalproceeding, promptly initiated and conducted in good faith and with duediligence, the amount or validity or application such liens or securityinterests, provided that (a) no Default or Event of Default hasoccurred and remains uncured; (b) intentionally omitted; (c) suchproceeding shall be permitted under and be conducted in accordance with theprovisions of any other instrument to which Issuers are subject and shall notconstitute a default thereunder and such proceeding shall be conducted inaccordance with all applicable statutes, laws and ordinances; (d) neitherthe Property nor any part thereof or interest therein will be in imminentdanger of being sold, forfeited, terminated, cancelled or lost;(e) Issuers shall promptly upon final determination thereof pay the amountof any such liens or security interests, together with all costs, interest andpenalties which may be payable in connection therewith; (f) suchproceeding shall suspend the collection of such contested liens or securityinterests from the

 

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applicable Individual Parcel; and (g) Issuers shall furnish suchsecurity as may be required in the proceeding, or as may be reasonablyrequested by Trustee, to insure the payment of any such liens or securityinterests, together with all interest and penalties thereon.  Trustee may pay over any such cash deposit orpart thereof held by or on behalf of Trustee to the claimant entitled theretoat any time when, in the judgment of Trustee, the entitlement of such claimantis established or the applicable Individual Parcel (or part thereof or interesttherein) shall be in imminent danger of being sold, forfeited, terminated,cancelled or lost or there shall be any danger of the rights of Trustee underthe Security Trust Agreement and/or the Pledge being primed by or being subjectto any related Lien.

 

(k)  **Financial Reporting**.  (i)  Issuers will keep and maintainor will cause to be kept and maintained on a Fiscal Year basis, in accordancewith GAAP (or such other accounting basis reasonably acceptable to Trustee),proper and accurate books, records and accounts reflecting all of the financialaffairs of each Issuer and all items of income and expense in connection withthe operation of the Property.  Trusteeshall have the right from time to time at all reasonable times during normalbusiness hours upon reasonable prior notice to examine such books, records andaccounts at the office of any Issuer or any other Person maintaining suchbooks, records and accounts and to make such copies or extracts thereof asTrustee may reasonably require.  Afterthe occurrence and during the continuance of an Event of Default, Issuers shallpay any costs and expenses incurred by Trustee to examine Issuers’ accountingrecords with respect to the Property, as Trustee shall determine to benecessary or appropriate in the protection of Trustee’s interest.

 

(ii)  Issuers will furnish, or cause to befurnished, to Trustee annually, within one hundred twenty (120) days followingthe end of each Fiscal Year of Issuers, (A) a complete copy of each Issuer’sindividual annual financial statements prepared in Pesos and audited by a “BigFour” accounting firm or other independent certified public accountantacceptable to Trustee in accordance with GAAP (or such other accounting basisacceptable to Trustee) covering such Issuer’s Individual Parcel for such FiscalYear and containing statements of profit and loss for such Issuer and itsIndividual Parcel and a balance sheet for such Issuer and (B) a completedcopy of a consolidated annual financial statements prepared in Dollars for thePrincipals and Palmilla JV LLC audited by a “Big Four” accounting firm or otherindependent certified public accountant acceptable to Trustee in accordancewith GAAP (or such other accounting basis acceptable to Trustee) covering theProperty for such Fiscal Year and containing consolidated statements of profitand loss for Issuers and the Property and a consolidated balance sheet forIssuers.  Such statements shall set forththe financial condition and the results of operations for an Individual Parcel(in case of financial statements furnished pursuant to clause (A) above) or theProperty (in case of financial statements furnished pursuant to clause (B)above) for such Fiscal Year, and shall include, but not be limited to, amountsrepresenting annual Net Cash Flow, Net Operating Income, Gross Income fromOperations and Operating Expenses.  Theconsolidated annual financial statements shall be accompanied by (i) acomparison of the budgeted income and expenses and the actual income andexpenses for the prior Fiscal Year, (ii) a list of tenants, if any,occupying more than twenty percent (20%) of the total floor area of theImprovements as of the last day of the Fiscal Year, (iii) if there areLeases in the aggregate affecting more than twenty percent (20%) of the totalfloor area of the Improvements, a breakdown showing the year in which each Leasethen in effect expires and the percentage of total rentable area of theImprovements and the base rent with respect to which

 

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Leases shall expire in each such year, (iv) a schedule audited by suchindependent certified public accountant reconciling Net Operating Income to NetCash Flow (the “**Net Cash Flow Schedule**”), which shall itemize alladjustments made to Net Operating Income to arrive at Net Cash Flow deemedmaterial by such independent certified public accountant, (v) occupancyreports, room rate reports, RevPAR calculations, STR reports (or other marketcompetition reports) for the Property, and (vi) an Officer’s Certificatecertifying that, to such officer’s knowledge, each annual financial statementpresents fairly the financial condition and the results of operations ofIssuers and the Property being reported upon and that such financial statementshave been prepared in accordance with GAAP or such other accounting basis asTrustee shall reasonably accept and as of the date thereof whether, to suchofficer’s knowledge, there exists an event or circumstance which constitutes aDefault or Event of Default under the Financing Documents executed anddelivered by, or applicable to, Issuers, and if such Default or Event ofDefault exists, the nature thereof, the period of time it has existed and theaction then being taken to remedy the same.

 

(iii)  Issuers will furnish, or cause to befurnished, to Trustee on or before forty-five (45) days after the end of eachcalendar month the following items, accompanied by an Officer’s Certificatestating that, to such officer’s knowledge such items are true, correct,accurate, and complete in all material respects and fairly present thefinancial condition and results of the operations of Issuers and the Propertyas of such date (subject to normal year-end adjustments):  (i) an occupancy report for the subjectmonth, including an average daily rate during such month; (ii) monthly andyear-to-date operating statements (including Capital Expenditures) prepared foreach calendar month, noting Net Operating Income, Gross Income from Operations,and Operating Expenses (not including any contributions to the ReplacementReserve Fund), and, upon Trustee’s request, other information necessary andsufficient to fairly represent the financial position and results of operationof the Property during such calendar month, and containing a comparison ofbudgeted income and expenses and the actual income and expenses, all in form satisfactoryto Trustee; (iii) a reconciliation of the monthly statement as prepared onan accrual basis with a monthly statement prepared on a cash basis; and(iv) a Net Cash Flow Schedule.

 

(iv)  For the partial year period commencingon the date hereof, and for each Fiscal Year thereafter, Issuers shall submitto Trustee an Annual Budget not later than forty-five (45) days prior to thecommencement of such period or Fiscal Year in form reasonably satisfactory toTrustee.  At all times during the term ofthe Notes when there is a Cash Trap Event in effect, the Annual Budget sosubmitted to Trustee (and the applicable expenses budgeted or projected to beincurred during the period when a Cash Trap Event is in effect) shall besubject to the approval of Servicer on behalf of Trustee, which shall not beunreasonably withheld or delayed (each such Annual Budget, an “**ApprovedAnnual Budget**”). Notwithstanding anything to the contrary contained herein, the approvalby Servicer on behalf of Trustee of any Annual Budget shall not be required ifsuch Annual Budget submitted by Issuers provide for projected Net Cash Flowwhich is in excess of an amount determined by subtracting the CapitalExpenditures for the preceding Fiscal Year from $8.0 million (with respect toan Annual Budget for Fiscal Year 2008) or $9.0 million (with respect to anAnnual Budget for Fiscal Year 2009), as applicable, and provides for expensesthat are comparable to the expenses for the preceding year (with increases forfixed costs) and with such other changes as are reasonably consistent withincome growth, marketing conditions and other variable items that

 

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fluctuate with occupancy levels. Servicer on behalf of Trustee shall use good faith efforts to respondwithin five (5) Business Daysafter Trustee’s receipt of Issuers’ proposed Annual Budget.  If Servicer on behalf of Trustee fails torespond to such request within five (5)Business Days, and Issuers send a second request for approval of such AnnualBudget containing a legend clearly marked in not less than fourteen (14) pointbold face type, underlined, in all capital letters “**REQUESTDEEMED APPROVED IF NO RESPONSE WITHIN 5 BUSINESS DAYS**”, the approvalof Servicer on behalf of Trustee shall be deemed given if no objection is madeby Servicer within five (5) Business Days after receipt thereof.  In the event that Servicer objects to aproposed Annual Budget submitted by Issuers which requires the approval ofServicer on behalf of Trustee hereunder, Servicer on behalf of Trustee shalladvise Issuers of such objections within five (5) Business Days after receipt thereof (and deliver to Issuersa reasonably detailed description of such objections) and Issuers shallpromptly revise such Annual Budget and resubmit the same to Trustee.  Servicer on behalf of Trustee shall adviseIssuers of any objections to such revised Annual Budget within five (5)Business Days after receipt thereof (and deliver to Issuers a reasonablydetailed description of such objections) and Issuers shall promptly revise thesame in accordance with the process described in this subsection until Servicerapproves or is deemed to have approved the Annual Budget.  Until such time that Servicer approves or isdeemed to have approved a proposed Annual Budget which requires the approval ofServicer on behalf of Trustee hereunder, the most recently Approved AnnualBudget shall apply; provided that such Approved Annual Budget shall beadjusted to reflect actual increases in Taxes, Insurance Premiums, utilitiesexpenses, union labor and fixed increases under previously executed agreements;provided,further, that the Approved Annual Budget shall beadjusted to reflect increased variable expenses as a result of increasedoccupancy levels from the prior year.

 

(v)  In the event that a Cash Trap Event isin effect, if Issuers must incur an extraordinary Operating Expense or CapitalExpenditure (other than an Emergency Expense) not set forth in the ApprovedAnnual Budget (each, an “**Extraordinary Expense**”), thenIssuers shall promptly deliver to Trustee a reasonably detailed explanation ofsuch proposed Extraordinary Expense for the approval of Servicer on behalf ofTrustee, which approval shall not be unreasonably withheld or delayed.  Notwithstanding anything to the contrarycontained herein, no approval from Servicer shall be required if (i) asingle Extraordinary Expense is equal to or less than five percent (5%) of theamount set forth in the Approved Annual Budget for such expense, or (ii) ifno sum was budgeted for such expense in the Approved Annual Budget, theExtraordinary Expense is less than or equal to five percent (5%) of theApproved Annual Budget, provided that all Extraordinary Expenses in anyFiscal Year do not exceed five percent (5%) of the Approved Annual Budget or(iii) an emergency exists which requires the immediate expenditure of theExtraordinary Expense to preserve the value of the Property or to protect thehealth and safety of persons located on the Property or adjacent to theProperty or (iv) such expense is an expense required to be made to causethe Property to comply with the terms of this Agreement or the other FinancingDocuments.

 

(vi)  Any reports, statements or otherinformation required to be delivered under this Indenture shall be delivered(i) in paper form, (ii) on a diskette, and (iii) if requested byTrustee and within the capabilities of Issuers’ data systems without change ormodification thereto, in electronic form and prepared using a Microsoft Wordfor Windows or WordPerfect

 

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for Windows files (which files may be prepared using a spreadsheetprogram and saved as word processing files).

 

(l)  **Business and Operations.**  Each Issuer will continue to engage in thebusinesses presently conducted by it as and to the extent the same arenecessary for the ownership, maintenance, management and operation of theProperty.  Each Issuer will qualify to dobusiness and will remain in good standing under the laws of each jurisdictionas and to the extent the same are required for the ownership, maintenance,management and operation of the Property, except to the extent that the failureto do so would not have a Material Adverse Effect.

 

(m)  **Title to the Property. **Issuers will warrant and defend(a) the title to the Property and every part thereof, subject only toPermitted Encumbrances, and (b) the validity and priority of the SecurityTrust Agreement and the Pledge, subject only to Permitted Encumbrances, in eachcase against the claims of all Persons whomsoever.  Issuers shall reimburse Trustee for anylosses, costs, damages or expenses (including reasonable attorneys’ fees andcourt costs) incurred by Trustee if an interest in the Property, other than aspermitted hereunder, is claimed by another Person.

 

(n)  **Costs of Enforcement. **In the event (a) that a foreclosureprocedure is initiated under the Security Trust Agreement or the Pledge,(b) of the foreclosure of any mortgage, deed of trust, trust agreement orpledge prior to or subsequent to the Security Trust Agreement or the Pledge inwhich proceeding Trustee is made a party, or (c) of the bankruptcy, *concurso mercantil*, insolvency, rehabilitation or othersimilar proceeding in respect of any Issuer or any of its Affiliates or anassignment by any Issuer or any of its constituent Persons for the benefit ofits creditors, or (d) Trustee, on behalf of any Issuer, attempts to remedyany Event of Default hereunder, Issuers, their respective successors orpermitted assigns, shall be chargeable with and agrees to pay all costs ofcollection and defense, including attorneys’ fees and costs, incurred byTrustee or Issuers in connection therewith and in connection with any appellateproceeding or post-judgment action involved therein, together with all requiredservice or use taxes.

 

(o)  **Estoppel Statement. **(i)  Trustee and Issuers shallwithin thirty (30) days of a written request furnish the other party with astatement, duly acknowledged and certified, setting forth (i) the originalprincipal amount of the Notes, (ii) the unpaid principal amount of theNotes, (iii) the Applicable Interest Rate of the Notes, (iv) the dateinstallments of interest and/or principal were last paid, (v) any offsetsor defenses to the payment of the Debt, if any, and (vi) that the Notes,this Indenture, the Security Trust Agreement, the Pledge and the otherFinancing Documents are valid, legal and binding obligations and have not beenmodified or if modified, giving particulars of such modification.

 

(ii)  At Trustee’s request (which may bemade no more than one (1) time in any calendar year), Issuers shall requesttenant estoppel certificates from each commercial tenant leasing space at theProperty in the form required by such tenant’s lease or, at Issuers’ election,in the form previously accepted by Trustee.

 

(iii)  Issuers shall use commerciallyreasonable efforts (but shall not be required to expend any money), withinforty-five (45) Business Days after request, to furnish Trustee with

 

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a statement, duly executed, acknowledged and certified by the Board ofSurveillance of the Condominium setting forth (i) whether or not there areany defaults or conditions that, with the passage of time or the giving ofnotice, or both, would constitute a default under the Condominium Documents,(ii) whether or not all common expenses, assessments, maintenance fees andother charges due in connection with the Condominium Documents have been paidand (iii) such other statements as Trustee may reasonably require.

 

(p)  **Construction Cost; Use ofProceeds. **The aggregatecost of construction incurred by Issuers in the development, redevelopment andrenovation of the Property was not less than $102,000,000 (includingpre-opening expenses).  Issuers shall usethe proceeds of the Notes received by them on the Note Issuance Date to(a) refinance the Property and/or repay and discharge any existing loansrelating to the Property, (b) pay all past-due Basic Carrying Costs, ifany, with respect to the Property, (c) make initial deposits into theReserve Funds on the Note Issuance Date in the amounts provided herein,(d) pay costs and expenses incurred in connection with the issuance of theNotes, (e) fund any working capital requirements of the Property,(f) repayment of subordinated debt and guaranty fees and obligations infavor of Kerzner International North America, Inc., (g) payment of accruedmanagement fees payable to Manager and (h) distribute the balance, if any,to Issuers.

 

(q)  **Performance by Issuers. **Issuers shall in a timely manner observe,perform and fulfill each and every covenant, term and provision of eachFinancing Document executed and delivered by Issuers subject to all applicablenotice, grace and cure periods therein.

 

(r)  **CNBV Fees.** Issuers shall (i) comply at all timeswith the requirements imposed by CNBV while this Indenture shall remain in fullforce and effect or the Notes shall remain outstanding and (ii) pay anyand all fees or other charges payable to CNBV in connection with the Notes andpromptly forward to Trustee an original official receipt or a copy thereof orother documentation issued by CNBV evidencing the payment of such fees orcharges.

 

(s)  **No Joint Assessment. **No Issuer shall suffer, permit orinitiate the joint assessment of the Property (a) with any other realproperty constituting a tax lot separate from the Property, and (b) whichconstitutes real property with any portion of the Property which may be deemedto constitute personal property, or any other procedure whereby the lien of anytaxes which may be levied against such personal property shall be assessed orlevied or charged to such real property portion of the Property.

 

(t)  **Leasing Matters.**  Any Leases with respect to the Propertyexecuted after the date hereof, for more than 1,600 square feet shall beapproved by Trustee, which approval shall not be unreasonably withheld andshall be deemed granted if Trustee shall not have disapproved same in writingwithin fifteen (15) Business Days after Issuers’ request for approval, so longas the written request to Trustee for approval contains a legend clearly markedin not less than fourteen (14) point bold face type, underlined, in all capitalletters **“REQUEST DEEMED APPROVED IF NORESPONSE WITHIN 15 BUSINESS DAYS”**. Upon request, Issuers shall furnish Trustee with executed copies of allLeases.  All proposed Leases shall be oncommercially reasonable terms and shall not contain any terms which wouldmaterially affect Trustee’s rights under the Financing Documents.  All Leases executed after the date hereofshall provide that they are subordinate to the Security Trust Agreement and the

 

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Pledge and that the lessee agrees to attorn to Trustee or any purchaserat a sale by foreclosure or power of sale. Issuers (i) shall observe and perform the obligations imposed uponthe lessor under the Leases in a commercially reasonable manner; (ii) shallenforce and may amend or terminate the terms, covenants and conditionscontained in the Leases upon the part of the lessee thereunder to be observedor performed in a commercially reasonable manner and in a manner not to impairthe value of the Property involved except that no termination by Issuers oracceptance of surrender by a tenant of any Leases shall be permitted unless byreason of a tenant default and then only in a commercially reasonable manner topreserve and protect the Property; provided, however, that nosuch termination or surrender of any Lease covering more than 1,600 squarefeet will be permitted without the consent of Trustee; provided, further,that notwithstanding anything to the contrary contained in this Section 7.01(t),(A) consent to the termination or surrender of the Restaurant Lease shallnot be withheld if Hotel Issuer shall enter into a new Lease with a replacementtenant that has or has had a restaurant or food establishment operation servinga clientele similar to the clientele frequenting the Property and having astrong regional or national reputation****and(B) Hotel Issuer may, upon not less than fifteen (15) Business Days noticeto, but without the approval of, Trustee, terminate or accept a surrender ofthe Restaurant Lease in the event Issuers shall elect to self manage theapplicable facility and operation; (iii) shall not collect any of therents more than one (1) month in advance (other than security deposits);(iv) shall not execute any other assignment of lessor’s interest in theLeases or the Rents (except as contemplated by the Financing Documents);(v) shall not alter, modify or change the terms of the Leases in a mannerinconsistent with the provisions of the Financing Documents; and(vi) shall execute and deliver at the request of Trustee all such furtherassurances, confirmations and assignments in connection with the Leases asTrustee shall from time to time reasonably require.  Notwithstanding anything to the contrarycontained herein, no Issuer shall enter into a Lease of all or substantiallyall of the Property without Trustee’s prior consent.

 

(u)  **Alterations. **Issuers shall obtain Trustee’s priorconsent to any alterations to any Improvements, which consent shall not beunreasonably withheld or delayed. Notwithstanding the foregoing, Trustee’s consent shall not be requiredin connection with (i) any alterations in connection with RequiredRepairs, Replacements or Restorations performed in accordance with the termsand provisions of this Indenture, (ii) alterations provided for in any AnnualBudget, (iii) (A) any emergency alterations in response to a materialthreat of danger to the safety and well-being of hotels guests and employees ofIssuers or a material threat of injury to or destruction of the Improvements or(B) alterations that are required by a change in the applicable law, providedthat, in the case of clause (A) or (B), Issuers shall give notice thereofto Trustee, together with a reasonably detailed description of the alterationand the emergency or change in law giving rise to such alteration (it beingunderstood and agreed that if the cost of such alterations exceed $2,000,000,the excess costs shall be the liability of the Issuers in accordance with Section 9.03(a)(vi)until such alteration has been approved by Servicer for the Trustee, suchapproval not to be unreasonably withheld, conditioned or delayed); or(iv) alterations that will not have a Material Adverse Effect; providedthat the alterations under clause (iv) above (I) are made inconnection with tenant improvement work performed pursuant to the terms of anyLease executed on or before the date hereof or (II) do not adverselyaffect any structural component of any Improvements, any utility or HVAC systemcontained in any Improvements or the exterior of any building constituting apart of any Improvements and the aggregate cost thereof does not exceed FiveHundred Thousand and 00/100 Dollars ($500,000).

 

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If the total unpaid amounts due and payable with respect to alterationsto the Improvements at the Property (other than such amounts to be paid orreimbursed by tenants under the Leases or to be paid from any applicableReserve Fund) shall at any time exceed Five Hundred Thousand and 00/100 Dollars($500,000) (the “**Threshold Amount**”), Issuers shall promptlydeliver to Trustee as security for the payment of such amounts and asadditional security for Issuers’ obligations under the Financing Documents anyof the following:  (A) cash,(B) U.S. Obligations, (C) other securities having a rating acceptableto Trustee and that the applicable Rating Agencies have confirmed in writingwill not, in and of itself, result in a downgrade, withdrawal or qualificationof the initial, or, if higher, then current ratings assigned to any Securities orany class thereof in connection with any Securitization, or (D) acompletion and performance bond or an irrevocable letter of credit (payable onsight draft only) issued by a financial institution having a rating by S&Pof not less than “A-1+” if the term of such bond or letter of credit is nolonger than three (3) months or, if such term is in excess of three (3) months,issued by a financial institution having a rating that is acceptable to Trusteeand that the applicable Rating Agencies have confirmed in writing will not, inand of itself, result in a downgrade, withdrawal or qualification of theinitial, or, if higher, then current ratings assigned to any Securities or anyclass thereof in connection with any Securitization.  Such security shall be in an amount equal tothe excess of the total unpaid amounts with respect to alterations to theImprovements on the Property (other than such amounts to be paid or reimbursedby tenants under the Leases) over the Threshold Amount and, subject to theterms of Section 10.06, Trustee shall (or, with respect to a letterof credit or performance bond, may) apply such security from time to time topay for such alterations in accordance with the procedures and requirements setforth in Section 10.03 relating to the disbursement of funds fromthe Replacement Reserve Account.

 

(v)  **Operation of Property. **(i)  Issuers shall cause the Property to be operated, in all materialrespects, in accordance with the Management Agreement (or ReplacementManagement Agreement) as applicable; provided, however,that no Issuer shall be deemed to be in default hereunder if Manager, and notIssuers, is in default under the terms of the Management Agreement orReplacement Management Agreement and Issuers are otherwise complying with the provisionsof this Section 7.01(v).  In the event that the Management Agreementexpires or is terminated (without limiting any obligation of Issuers to obtainTrustee’s consent to any termination or modification of the ManagementAgreement in accordance with the terms and provisions of this Indenture),Issuers shall promptly enter into a Replacement Management Agreement withManager or another Qualified Manager, as applicable.  Any breach of the covenants containedin this Section 7.01(v) with respect to the Management Agreementshall not result in an Event of Default as long as Issuers are actively seekingTrustee’s consent to enter into a Replacement Management Agreement with Manageror another Qualified Manager or, in the case of a termination, the Manager isreplaced within thirty (30) days by a Qualified Manager pursuant to Section 9.04.

 

(ii)  Issuersshall:  (A) promptly performand/or observe, in all material respects, all of the covenants and agreementsrequired to be performed and observed by Issuers under the Management Agreementand do all things necessary to preserve and to keep unimpaired their materialrights thereunder; (B) promptly notify Trustee of any material defaultunder the Management Agreement of which they are aware; (C) promptly deliverto Trustee a copy of each material financial statement, business plan, capitalexpenditures plan, notice, report and estimate received by Issuers under theManagement Agreement; and (D) use commercially

 

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reasonable efforts to enforce the performance and observance of all ofthe covenants and agreements required to be performed and/or observed byManager under the Management Agreement, in a commercially reasonable manner.

 

(w)  **Golf Operation**.  (i)  Issuers shall cause the golf course at the Property to be operated, inall material respects, in accordance with the Golf Management Agreement;provided, however, that no Issuer shall be deemed to be indefault hereunder if the Golf Manager, and not Issuers, is in default under theterms of the Golf Management Agreementand Issuers are otherwise complying with the provisions of this Section 7.01(w).  In theevent that the Golf Management Agreement expires or is terminated (withoutlimiting any obligation of Issuers to obtain Trustee’s consent to anytermination or modification of the Golf Management Agreement in accordance withthe terms and provisions of this Indenture), Issuers shall promptly enter intoa Replacement Golf Management Agreement with Golf Manager or with a QualifiedGolf Manager.  Any breach of thecovenants contained in this Section 7.01(w) with respect to theGolf Management Agreement shall not result in an Event of Default as long asIssuers are actively seeking Trustee’s consent to enter into a Replacement GolfManagement Agreement with Golf Manager or Qualified Golf Manager or, in thecase of a termination, Golf Manager is replaced within thirty (30) days byQualified Golf Manager pursuant to Section 9.04.

 

(ii)  Issuersshall:  (A) promptly performand/or observe, in all material respects, all of the covenants and agreementsrequired to be performed and observed by Issuers under the Golf ManagementAgreement and do all things necessary to preserve and to keep unimpaired theirmaterial rights thereunder; (B) promptly notify Trustee of any materialdefault under the Golf Management Agreement of which they are aware;(C) promptly deliver to Trustee a copy of each material financialstatement, business plan, capital expenditures plan, notice, report andestimate received by Issuers under the Golf Management Agreement; and(D) use commercially reasonable efforts to enforce the performance andobservance of all of the covenants and agreements required to be performedand/or observed by Golf Manager under the Golf Management Agreement, in acommercially reasonable manner.

 

(x)  **Spa Operation**.  (i)  Issuers shall cause the spa facility at the Property to be operated, inall material respects, in accordance with the Spa Management Agreement; provided,however, that no Issuer shall be deemed to be in default hereunder ifthe Spa Manager, and not Issuers, is in default under the terms of the Spa Management Agreement and Issuers areotherwise complying with the provisions of this Section 7.01(x).  In theevent that the Spa Management Agreement expires or is terminated (withoutlimiting any obligation of Issuers to obtain Trustee’s consent to anytermination or modification of the Spa Management Agreement in accordance withthe terms and provisions of this Indenture), Issuers shall promptly enter intoa Replacement Spa Management Agreement with Spa Manager or with a Qualified SpaManager.  Any breach of thecovenants contained in this Section 7.01(x) with respect to the SpaManagement Agreement shall not result in an Event of Default as long as Issuersare actively seeking Trustee’s consent to enter into a Replacement SpaManagement Agreement with Spa Manager or Qualified Spa Manager or, in the caseof a termination, Spa Manager is replaced within thirty (30) days by QualifiedSpa Manager pursuant to Section 9.04.

 

(ii)  Issuersshall:  (A) promptly performand/or observe, in all material respects, all of the covenants and agreementsrequired to be performed and observed by Issuers

 

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under the Spa Management Agreement and do all things necessary topreserve and to keep unimpaired their material rights thereunder; (B) promptlynotify Trustee of any material default under the Spa Management Agreement ofwhich they are aware; (C) promptly deliver to Trustee a copy of eachmaterial financial statement, business plan, capital expenditures plan, notice,report and estimate received by Issuers under the Spa Management Agreement; and(D) use commercially reasonable efforts to enforce the performance andobservance of all of the covenants and agreements required to be performedand/or observed by Spa Manager under the Spa Management Agreement, in acommercially reasonable manner.

 

(iii)  Notwithstanding anything to thecontrary contained in this Section 7.01(x), upon fifteen (15) BusinessDays notice to Trustee, Issuers may elect to terminate the Spa ManagementAgreement in accordance with the terms thereof or consent to the termination orsurrender of the Spa Management Agreement and elect to self manage the spafacility and operation at the Property, provided that Kerzner(thereafter, a “**Qualified Spa Manager**”) shall havetheretofore initiated a spa program and is then operating and managing a spafacility of comparable class, luxury and quality as the spa facility located atthe Property on the date hereof.

 

(y)  **Condominium.**  (i)  Issuers shall comply with allof the terms, covenants and conditions of the Condominium Documents applicableto Issuers, as the same shall be in force and effect from time to time.

 

(ii)  Issuers shall pay all assessments forcommon charges and expenses made against the Condominium units owned by Issuerspursuant to the Condominium Documents as the same shall become due and payable.

 

(iii)  Issuers shall comply with any state,local or federal law, rule and regulation applicable to the Condominium as itrelates to the Property.

 

(iv)  Issuers shall take all actions as maybe reasonably necessary from time to time to preserve and maintain theCondominium in accordance with the Condominium Laws.

 

(v)  Issuers (A) irrevocably waive anyapplicable law which grants to Issuers rights in the event of a Casualty or aCondemnation which are inconsistent with the provisions of Article 8hereof and (B) expressly agrees to the application of the insuranceproceeds and condemnation awards in accordance with Article 8 hereof.

 

**Section 7.02****  Negative Covenants.** From the date hereof until payment and performance in full of allobligations of Issuers under the Financing Documents or the earlierreconveyance of title to the Property held by Security Trust Trustee to Issuersor release of the Lien of the Pledge in accordance with the terms of thisIndenture and the other Financing Documents, each of the Issuers covenants andagrees with Trustee that it will not do, directly or indirectly, any of thecovenants or agreements set forth in this Section 7.02.  All such covenants and agreements shall beenforced, and all associated rights shall be exercised, by the Servicer onbehalf of the Trustee for the benefit of the Noteholders, and all relateddocuments to be delivered to the Trustee, amounts to be deposited with theTrustee and all accounts to be maintained by the Trustee shall be so delivered,deposited and maintained in accordance with the Cash

 

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Management Agreement orotherwise by the Servicer on behalf of the Trustee for the benefit of theNoteholders.

 

(a)  **Operation of Property.**  (i)  No Issuer shall, withoutTrustee’s prior consent (which consent shall not be unreasonably withheld ordelayed):  (A) surrender, terminateor cancel the Management Agreement; provided, that Issuers may, withoutTrustee’s consent, replace the Manager so long as the replacement manager is aQualified Manager pursuant to a Replacement Management Agreement;(B) reduce or consent to the reduction of the term of the ManagementAgreement; (C) increase or consent to the increase of the amount of anycharges under the Management Agreement; or (D) otherwise modify, change,supplement, alter or amend, or waive or release any of its rights and remediesunder, the Management Agreement in any material respect.

 

(ii)  Subject to Section 7.01(w)(iii),no Issuer shall, without Trustee’s prior consent (which consent shall not beunreasonably withheld or delayed): (A) surrender, terminate or cancel the Golf Management Agreement; provided,that Issuers may, without Trustee’s consent, replace the Golf Manager so longas the replacement manager is a Qualified Golf Manager pursuant to aReplacement Golf Management Agreement; (B) reduce or consent to thereduction of the term of the Golf Management Agreement; (C) increase orconsent to the increase of the amount of any charges payable to Golf Manager orreduce or consent to the reduction of the amount payable to Issuers under theGolf Management Agreement; or (D) otherwise modify, change, supplement,alter or amend, or waive or release any of its rights and remedies under, theGolf Management Agreement in any material respect.

 

(iii)  Subject to Section 7.01(x)(iii),no Issuer shall, without Trustee’s prior consent (which consent shall not beunreasonably withheld or delayed): (A) surrender, terminate or cancel the Spa Management Agreement; provided,that Issuers may, without Trustee’s consent, replace the Spa Manager so long asthe replacement manager is a Qualified Spa Manager pursuant to a ReplacementSpa Management Agreement; (B) reduce or consent to the reduction of theterm of the Spa Management Agreement; (C) increase or consent to theincrease of the amount of any charges payable to Spa Manager or reduce orconsent to the reduction of the amount payable to Issuers under the ManagementAgreement; or (D) otherwise modify, change, supplement, alter or amend, orwaive or release any of its rights and remedies under, the Spa ManagementAgreement in any material respect.

 

(iv)  Following the occurrence and duringthe continuance of an Event of Default, no Issuer shall exercise any rights,make any decisions, grant any approvals or otherwise take any action under theManagement Agreement without the prior consent of Trustee, which consent may bewithheld in Trustee’s sole discretion.

 

(b)  **Liens**.  No Issuer shall create, incur, assume orsuffer to exist any Lien on any portion of the Property or permit any suchaction to be taken, except:

 

(i)  Permitted Encumbrances; and

 

(ii)  Liens created by or permitted pursuantto the Financing Documents.

 

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(c)  **Dissolution. **No Issuer shall (a) engage in anydissolution, liquidation or consolidation or merger with or into any otherbusiness entity, (b) engage in any business activity not related to theownership and operation of the Property, (c) transfer, lease or sell, inone transaction or any combination of transactions, the assets or all orsubstantially all of the properties or assets of such Issuer except to theextent permitted by the Financing Documents, (d) modify, amend, waive orterminate its organizational documents or its qualification and good standingin any jurisdiction where such qualification is required for such Issuer to ownits assets or conduct its business or (e) cause the Principal to(i) dissolve, wind up or liquidate or take any action, or omit to take anaction, as a result of which the Principal would be dissolved, wound up orliquidated in whole or in part, or (ii) amend, modify, waive or terminatethe certificate of incorporation or bylaws of the Principal, in each case,without obtaining the prior consent of Trustee.

 

(d)  **Intentionally Omitted.**

 

(e)  **Debt Cancellation. **No Issuer shall cancel or otherwiseforgive or release any claim or debt (other than in connection with terminationof Leases in accordance herewith) owed to Issuers by any Person, except foradequate consideration and in the ordinary course of Issuers’ business or ifsuch cancellation, forgiveness or release is prudent and commerciallyreasonable.

 

(f)  **Zoning. **No Issuer shall initiate or consent toany zoning reclassification of any portion of the Property or seek any varianceunder any existing zoning ordinance or use or permit the use of any portion ofthe Property in any manner that could result in such use becoming a non-conforminguse under any zoning ordinance or any other applicable land use law, rule orregulation, without the prior consent of Trustee.

 

(g)  **Intentionally Omitted**.

 

(h)  **Principal Place ofBusiness and Organization. **NoIssuer shall change its principal place of business set forth in theintroductory paragraph of this Indenture without first giving Trustee thirty(30) days prior notice.  No Issuer shallchange the place of its organization as set forth in Section 6.01(cc)without the consent of Trustee, which consent shall not be unreasonablywithheld or delayed.  Upon Trustee’srequest, Issuers shall execute and deliver additional financing statements,security agreements and other instruments which may be necessary to effectivelyevidence or perfect Trustee’s lien or security interest in the Property as aresult of such change of principal place of business or place of organization.

 

(i)  **ERISA. **(i)  No Issuer shall engage inany transaction which would cause any obligation, or action taken or to betaken, hereunder (or the exercise by Trustee of any of its rights under the Note,this Indenture or the other Financing Documents) to be a non-exempt(under a statutory or administrative class exemption) prohibited transactionunder ERISA.

 

(ii)  Each Issuer further covenants andagrees to deliver to Trustee such certifications or other evidence from time totime throughout the term of the Notes, as requested by Trustee in its solediscretion, that (i) such Issuer is not an “employee benefit plan” asdefined in Section 3(3) of ERISA, which is subject to Title I of ERISA, ora “governmental plan” within

 

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the meaning of Section 3(32) of ERISA; (ii) such Issuer isnot subject to any state statute regulating investments of, or fiduciaryobligations with respect to, governmental plans; and (iii) one or more ofthe following circumstances is true:

 

(1)  Equityinterests in each Issuer are publicly offered securities, within the meaning of29 C.F.R. §2510.3-101(b)(2);

 

(2)  Less thantwenty-five percent (25%) of each outstanding class of equity interests in eachIssuer is held by “benefit plan investors” within the meaning of 29 C.F.R.§2510.3-101(f)(2); or

 

(3)  EachIssuer qualifies as an “operating company” or a “real estate operating company”within the meaning of 29 C.F.R. §2510.3-101(c) or (e).

 

(j)  **Transfers**.  (i)  Each Issuer acknowledges thatInitial Noteholder has examined and relied, and each Noteholder will rely, onthe experience of Issuers and their respective general partners, members,principals and (if Issuer is a trust) beneficial owners in owning and operatingproperties such as the Property in agreeing to purchase the Notes, and willcontinue to rely on Issuers’ ownership of the Property as a means ofmaintaining the value of the Property as security for repayment of the Debt andthe performance of the obligations contained in the Financing Documents.  Each Issuer acknowledges that Trustee has avalid interest in maintaining the value of the Property so as to ensure that,should Issuers default in the repayment of the Debt or the performance of theobligations contained in the Financing Documents, Trustee can recover the Debtby a sale of the Property.

 

(ii)  Except to the extent otherwise setforth in this Section 7.02(j), no Issuer shall, nor shall any Issuerpermit any Restricted Party to, (i) sell, convey, mortgage, grant,bargain, encumber, pledge, assign, grant options with respect to, or otherwisetransfer or dispose of (directly or indirectly, voluntarily or involuntarily,by operation of law or otherwise, and whether or not for consideration or ofrecord) the Property or any part thereof or any legal or beneficial interesttherein or (ii) permit a Sale or Pledge of an interest in any RestrictedParty (collectively, a “**Transfer**”), other than pursuant toLeases of space in the Improvements to tenants in accordance with theprovisions of Section 7.01(t). Notwithstanding anything to the contrary contained herein or in theother Financing Documents, Transfers of interests in Guarantor or in any Personhaving any direct or indirect legal or beneficial interest in Guarantor shallnot be prohibited or restricted in any manner whatsoever, including by sale,merger, consolidation or otherwise.

 

(iii)  A Transfer shall include, but not belimited to, (i) an installment sales agreement wherein Issuers agree tosell the Property or any part thereof for a price to be paid in installments;(ii) an agreement by Issuers leasing all or a substantial part of theProperty for other than actual occupancy by a space tenant thereunder or a sale,assignment or other transfer of, or the grant of a security interest in,Issuers’ right, title and interest in and to any Leases or any Rents;(iii) if a Restricted Party is a corporation, any merger, consolidation orSale or Pledge of such corporation’s stock or the creation or issuance of newstock; (iv) if a Restricted Party is a limited or general partnership orjoint venture, any merger or consolidation or the change, removal, resignationor addition of a general partner or the Sale or Pledge of the partnership

 

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interest of any general partner or any profits or proceeds relating tosuch partnership interest, or the Sale or Pledge of limited partnershipinterests or any profits or proceeds relating to such limited partnershipinterest or the creation or issuance of new limited partnership interests;(v) if a Restricted Party is a limited liability company, any merger orconsolidation or the change, removal, resignation or addition of a managing memberor non-member manager (or if no managing member, any member) or the Saleor Pledge of the membership interest of a managing member (or if no managingmember, any member) or any profits or proceeds relating to such membershipinterest, or the Sale or Pledge of non-managing membership interests orthe creation or issuance of new non-managing membership interests;(vi) if a Restricted Party is a trust or nominee trust, any merger,consolidation or the Sale or Pledge of the legal or beneficial interest in aRestricted Party or the creation or issuance of new legal or beneficialinterests; or (vii) the removal or the resignation of the managing agent(including, without limitation, an Affiliated Manager) other than in accordancewith Section 7.02(a) hereof.

 

(iv)  Notwithstanding the provisions of thisSection 7.02(j), the following Transfers shall be permittedhereunder:  (A) the sale ortransfer, in one or a series of transactions, of not more than forty-ninepercent (49%) of the stock in a Restricted Party; provided, however,no such sales or transfers shall result in the change of voting control in theRestricted Party, and (B) the sale or transfer, in one or a series oftransactions, of not more than forty-nine percent (49%) of the limitedpartnership interests or non-managing membership interests (as the case may be)in a Restricted Party; provided, however, no such sales ortransfers shall result in the change of voting control in the Restricted Party,and (C) transfers of direct or indirect ownership interests in theIssuers, Principals or the Property (1) by Goldman to Kerzner or (2) by Kerznerto Goldman, pursuant to which transfer a change of control of the Issuers mayoccur.  Each of the Transfers describedin this Section 7.02(j)(iv) shall satisfy the following conditions:  (a) Trustee shall receive no less thanthirty (30) days’ prior written notice of such proposed Transfer, (b) ifafter giving effect to any of the foregoing Transfers, more than forty-ninepercent (49%) in the aggregate of direct or indirect interests in a RestrictedParty are owned by any Person and its Affiliates that owned less thanforty-nine percent (49%) direct or indirect interest in such Restricted Partyas of the date hereof, Issuers shall, no less than thirty (30) days prior tothe effective date of any such Transfer, deliver to Trustee an AdditionalInsolvency Opinion reasonably acceptable to Trustee and acceptable to theRating Agencies, (c) each Issuer and Principal, if applicable, continue tosatisfy all the representations and covenants set forth in Section 6.01(dd)of this Indenture following such Transfer, (d) in the case of a Transferunder (iv)(C) above, any existing guarantor of the obligations of the Issuersunder any of the Financing Documents shall affirm its obligations under itsapplicable guaranty or one (1) or more substitute guarantors reasonablyacceptable to Trustee shall have assumed all of the liabilities and obligationsof such guarantor, and (e) Issuers covenant and agree to pay allreasonable costs and expenses (including reasonable attorneys’ fees anddisbursements) incurred by Trustee in connection with such Transfer.

 

(v)  Notwithstanding the provisions of this Section7.02(j), Goldman and Kerzner shall each have a collective one-time rightduring the term of the Notes to transfer direct or indirect ownership interestsin the Property (but not the Property) to one or more third parties (eachindividually or collectively, “**Transferee**”), provided thatTrustee receives sixty (60) days prior written notice of such Transfer and noEvent of Default has occurred and is continuing, and further providedthat the following additional requirements are satisfied:

 

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(A)  Issuersare and shall remain Special Purpose Entities that are able to satisfy all therepresentations and covenants set forth in Section 6.01(dd) of thisIndenture;

 

(B)  Transfereeshall assume any applicable obligations of Issuers or the Principals under theFinancing Documents in a manner satisfactory to Trustee in all respects, andIssuers shall provide evidence satisfactory to Trustee that all requiredapprovals, if any, relating to the Transfer and the assumption of suchobligations by Transferee have been obtained;

 

(C)  Issuers orTransferee, at its sole cost and expense, shall deliver to Trustee anAdditional Insolvency Opinion reflecting such Transfer satisfactory in form andsubstance to Trustee;

 

(D)  Transfereeshall be approved by the Rating Agencies, which approval, if required byTrustee, shall take the form of a confirmation in writing from such RatingAgencies to the effect that such Transfer will not result in a requalification,reduction, downgrade or withdrawal of the ratings in effect immediately priorto such assumption or transfer for the Securities or any class thereof issuedin connection with a Securitization which are then outstanding;

 

(E)  Issuersshall pay any and all reasonable out-of-pocket costs incurred byTrustee and the Rating Agencies in connection with such Transfer (including,without limitation, the reasonable fees and disbursements of Trustee’s andRating Agencies’ attorneys);

 

(F)  Transfereeor Transferee’s principals must have demonstrated expertise in owning andoperating hotel properties similar in size, class and operation to theProperty, which expertise shall be reasonably determined by Trustee (orTransferee or Transferee’s Principals employ a Qualified Manager in lieu ofhaving direct managerial experience required hereunder); and

 

(G)  Prior toany release of Guarantor, one (1) or more Substitute Guarantors shall haveassumed all of the liabilities and obligations of Guarantor under the Guarantyexecuted by Guarantor or execute a replacement guaranty reasonably satisfactoryto Trustee.

 

(H)  Immediatelyupon a Transfer to such Transferee and the satisfaction of all of the aboverequirements, the named Issuers and Guarantor herein shall be released from allliability under this Indenture, the Notes, the Security Trust Agreement and theother Financing Documents accruing after such Transfer.  The foregoing release shall be effective uponthe date of such Transfer, but Trustee agrees to provide written evidencethereof reasonably requested by Issuers.

 

(vi)  Notwithstanding the provisions of thisSection 7.02(j), and in addition to other transfer rights under Section7.02, the Issuers shall have the right to transfer the Property to aTransferee, provided that Trustee receives sixty (60) days prior writtennotice of such Transfer

 

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and no Event of Default has occurred and is continuing, and further providedthat the following additional requirements are satisfied:

 

(A)  Issuersshall pay Trustee a transfer fee equal to one percent (1%) of the outstandingprincipal balance of the Notes at the time of such transfer;

 

(B)  Transfereeshall be Special Purpose Entity;

 

(C)  Transfereeand Transferee’s principals must be able to satisfy all the representations andcovenants set forth in Section 6.01(dd) of this Indenture, no Eventof Default shall otherwise occur as a result of such Transfer, and Transfereeand Transferee’s principals shall deliver (1) all organizationaldocumentation reasonably requested by Trustee, which shall be reasonablysatisfactory to Trustee and (2) all certificates, agreements and covenantsreasonably required by Trustee;

 

(D)  Transfereeshall assume all of the obligations of Issuers under the Financing Documents ina manner satisfactory to Trustee in all respects, including, withoutlimitation, by entering into an assumption agreement in form and substancesatisfactory to Trustee and Issuers shall provide evidence satisfactory toTrustee that all required approvals, if any, relating to the Transfer and theassumption of such obligations by Transferee have been obtained;

 

(E)  Issuers orTransferee, at its sole cost and expense, shall deliver to Trustee anAdditional Insolvency Opinion reflecting such Transfer satisfactory in form andsubstance to Trustee;

 

(F)  Transfereeshall be approved by the Rating Agencies, which approval, if required byTrustee, shall take the form of a confirmation in writing from such RatingAgencies to the effect that such Transfer will not result in a requalification,reduction, downgrade or withdrawal of the ratings in effect immediately priorto such assumption or transfer for the Securities or any class thereof issuedin connection with a Securitization which are then outstanding;

 

(G)  Issuersshall pay any and all reasonable out-of-pocket costs incurred byTrustee and the Rating Agencies in connection with such Transfer (including,without limitation, the fees and disbursements of Trustee’s and Rating Agencies’attorneys and all recording fees, title insurance premiums and mortgage andintangible taxes);

 

(H)  Transfereeor Transferee’s principals must have demonstrated expertise in owning andoperating hotel properties similar in size, class and operation to theProperty, which expertise shall be reasonably determined by Trustee (orTransferee or Transferee’s Principals employ a Qualified Manager in lieu ofhaving direct managerial experience required hereunder);

 

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(I)  Transfereeand Transferee’s principals shall, as of the date of such transfer, have anaggregate net worth and liquidity reasonably acceptable to Trustee;

 

(J)  Transferee,Transferee’s principals and all other entities which may be owned or Controlleddirectly or indirectly by Transferee’s principals (“**Transferee RelatedEntities**”) must not have been party to any bankruptcyproceedings, voluntary or involuntary, made an assignment for the benefit ofcreditors or taken advantage of any insolvency act, or any act for the benefitof debtors within seven (7) years prior to the date of the proposed Transfer;

 

(K)  Thereshall be no material litigation or regulatory action pending or threatenedagainst Transferee, Transferee’s principals or Transferee Related Entitieswhich is not reasonably acceptable to Trustee;

 

(L)  Transferee,Transferee’s principals and Transferee Related Entities shall not havedefaulted under its or their obligations with respect to any other Indebtednessin a manner which is not reasonably acceptable to Trustee;

 

(M)  Prior toany release of Guarantor, one (1) or more Substitute Guarantors shall haveassumed all of the liabilities and obligations of Guarantor under the Guarantyexecuted by Guarantor or execute a replacement guaranty reasonably satisfactoryto Trustee; and

 

(N)  (i) Thehotel Individual Parcel shall be managed by a Qualified Manager pursuant to aReplacement Management Agreement; (ii) the golf Individual Parcel shall bemanaged by a Qualified Golf Manager pursuant to a Replacement Golf ManagementAgreement, and (iii) the spa shall be managed by a Qualified Spa Managerpursuant to a Replacement Spa Management Agreement.

 

Immediately upon a Transfer to such Transferee and the satisfaction ofall of the above requirements, the named Issuers and Guarantor herein shall bereleased from all liability under this Indenture, the Notes, the Security TrustAgreement and the other Financing Documents accruing after such Transfer.  The foregoing release shall be effective uponthe date of such Transfer, but Trustee agrees to provide written evidencethereof reasonably requested by Issuers.

 

(k)  **Condominium Documents**.  (i)  Issuers shall not, without theTrustee’s prior written consent, amend, modify or supplement in any materialrespect, or consent to or suffer any material amendment, modification orsupplementation of any of the Condominium Documents.  Issuers shall not, without the Trustee’sprior written consent, terminate or consent to or suffer the termination of anyof the Condominium Documents.

 

(ii)  Issuers shall not, without the Trustee’sprior written consent, transfer any of its rights and obligations to any otherparty to the Condominium Documents, which consent shall not be unreasonablywithheld or delayed.

 

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(iii)  Issuers shall not, without theTrustee’s prior written consent, take (and hereby assigns to Trustee any rightit may have to take) any action to terminate the Condominium, withdraw theCondominium from the Condominium Laws, or cause a partition of the Condominium.

 

(iv)  Issuers shall not, without the Trustee’sprior written consent, exercise any right it may have to vote for, (A) anyadditions or improvements to the common elements of the Condominium, except assuch additions or improvements are completed in accordance with Section 8.04hereof, (B) any borrowing on behalf of the Condominium or (C) theexpenditure of any insurance proceeds or condemnation awards for the repair orrestoration of the related Improvements other than in accordance with Section8.04 hereof.

 

**ARTICLE8 - INSURANCE; CASUALTY; CONDEMNATION**

 

**Section 8.01****  Insurance.** (a)  Issuers shall obtain and maintain, or cause to bemaintained, insurance for Issuers and the Property providing at least thefollowing coverages:

 

(i)  comprehensive all risk insurance on theImprovements and the Personal Property, including contingent liability fromOperation of Building Laws, Demolition Costs and Increased Cost of ConstructionEndorsements, in each case (A) in an amount equal to one hundred percent(100%) of the “Full Replacement Cost,” which for purposes of this Indentureshall mean actual replacement value (exclusive of costs of excavations,foundations, underground utilities and footings) with a waiver of depreciation,but the amount shall in no event be less than the outstanding principal balanceof the Notes; (B) containing an agreed amount endorsement with respect tothe Improvements and Personal Property waiving all co-insuranceprovisions; (C) providing for no deductible in excess of One HundredThousand and No/100 Dollars ($100,000) for all such insurance coverage; and(D) containing an “Ordinance or Law Coverage” or “Enforcement” endorsementif any of the Improvements or the use of the Property shall at any timeconstitute legal non-conforming structures or uses.  In addition, Issuers shall obtain coastalwindstorm insurance in amounts and in form and substance satisfactory toTrustee in the event the Property is located in any coastal region, providedthat the insurance shall be on terms consistent with the comprehensive all riskinsurance policy required under this subsection (i) and providedfurtherthat coastal windstorm insurance shall not be required with respect to the golfcourse located at the Property;

 

(ii)  commercial general liability insuranceagainst claims for personal injury, bodily injury, death or property damageoccurring upon, in or about the Property, such insurance (A) to be on theso-called “occurrence” form with a combined limit of not less than Two Millionand No/100 Dollars ($2,000,000) in the aggregate and One Million and No/100Dollars ($1,000,000) per occurrence (and, if on a blanket policy, containing an“Aggregate Per Location” endorsement); (B) to continue at not less thanthe aforesaid limit until required to be changed by Trustee in writing byreason of changed economic conditions making such protection inadequate; and(C) to cover at least the following hazards:  (1) premises and operations;(2) products and completed operations on an “if any” basis;(3) independent contractors; (4) blanket contractual liability forall legal contracts; and (5) contractual liability covering theindemnities contained herein and in the other Financing Documents to the extentthe same is available;

 

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(iii)  business income insurance(A) with loss payable to Trustee; (B) covering all risks required tobe covered by the insurance provided for in subsection (i) above;(C) containing an extended period of indemnity endorsement which providesthat after the physical loss to the Improvements and Personal Property has beenrepaired, the continued loss of income will be insured until such income eitherreturns to the same level it was at prior to the loss, or the expiration oftwenty-four (24) months from the date that the Property is repaired or replacedand operations are resumed, whichever first occurs, and notwithstanding thatthe policy may expire prior to the end of such period; and (D) in anamount equal to one hundred percent (100%) of the projected gross income fromthe Property for a period of twenty-four (24) months from the date of suchCasualty (assuming such Casualty had not occurred) and notwithstanding that thepolicy may expire at the end of such period. The amount of such business income insurance shall be determined priorto the date hereof and at least once each year thereafter based on Issuers’reasonable estimate of the gross income from the Property for the succeedingtwenty-four (24) month period.  Allproceeds payable to Trustee pursuant to this subsection shall be held byTrustee and shall be applied at Trustee’s sole discretion (but afterconsultation with Issuers) to (I) the obligations secured by the FinancingDocuments from time to time due and payable hereunder and under the Note or(II) Operating Expenses approved by Trustee in its reasonable discretion; provided,however, that nothing herein contained shall be deemed to relieve Issuersof their obligations to pay the obligations secured by the Financing Documentson the respective dates of payment provided for in the Note and the otherFinancing Documents except to the extent such amounts are actually paid out ofthe proceeds of such business income insurance;

 

(iv)  at all times during which structuralconstruction, repairs or alterations are being made with respect to theImprovements, and only if the Property coverage form does not otherwise apply,(A) owner’s contingent or protective liability insurance covering claimsnot covered by or under the terms or provisions of the above mentionedcommercial general liability insurance policy; and (B) the insuranceprovided for in subsection (i) above written in a so-called builder’srisk completed value form (1) on a non-reporting basis,(2) against all risks insured against pursuant to subsection (i)above, (3) including permission to occupy the Property, and (4) withan agreed amount endorsement waiving co-insurance provisions;

 

(v)  if the Property includes commercialproperty, worker’s compensation insurance with respect to any employees ofIssuers, as required by any Governmental Authority or Legal Requirement;

 

(vi)  comprehensive boiler and machineryinsurance, if applicable, in amounts as shall be reasonably required by Trusteeon terms consistent with the commercial property insurance policy requiredunder subsection (i) above;

 

(vii)  umbrella liability insurance in anamount not less than Fifty Million and No/100 Dollars ($50,000,000) peroccurrence on terms consistent with the commercial general liability insurancepolicy required under subsection (ii) above;

 

(viii)  motor vehicle liability coverage forall owned and non-owned vehicles, including rented and leased vehiclescontaining minimum limits per occurrence, including umbrella coverage, of TwoMillion and No/100 Dollars ($2,000,000);

 

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(ix)  if the Property is or becomes a legal “non-conforming”use, ordinance or law coverage and insurance coverage to compensate for thecost of demolition or rebuilding of the undamaged portion of the Property alongwith any reduced value and the increased cost of construction in amounts asrequested by Trustee;

 

(x)  the commercial property and businessincome insurance required under Sections 8.01(a)(i) and (iii)above shall cover perils of terrorism and acts of terrorism and Issuers shallmaintain commercial property and business income insurance for loss resultingfrom such perils and acts on terms (including amounts) consistent with thoserequired under Sections 8.01(a)(i) and (iii) above at all timesduring the term of the Notes so long as Trustee determines that either(I) prudent owners of real estate comparable to the Property in Mexicosecuring non-recourse financings provided by institutional lenders fromthe United States of America are maintaining same or (II) prudent institutionallenders (including, without limitation, investment banks) from the UnitedStates of America to such owners are requiring that such owners maintain suchinsurance in connection with non-recourse financings secured by realestate comparable to the Property in Mexico; provided, however,in the event that losses arising from perils and acts of terrorism(collectively, “**Terrorism Losses**”) are excluded from theinsurance required under Sections 8.01(a)(i) and (iii) above, thenIssuers shall either (A) maintain such coverage through a policy orpolicies covering multiple locations so long as such coverage is on termsconsistent with those required under Sections 8.01(a)(i) and (iii) abovewith a deductible of not greater than $100,000 and such coverage is in anamount equal to, the lesser of (a) the outstanding principal balance ofthe Notes (provided such policy contains a waiver of coinsurance) or(b) the sum of the business income insurance equal to 100% of theprojected gross income from the Property for a period of twenty-four (24)months from the date that the Property is repaired or replaced and operationsare resumed plus the Full Replacement Cost and further provided that ifany claim is made (unless on a per occurrence basis) under such policy or policiesreducing the amount of coverage below that which is required to be maintainedunder this Section 8.01(a)(x), then Issuers shall increase the amount ofsuch policy or policies to an amount that satisfies the requirements of Section8.01(a)(x), or (B) Issuers shall obtain a stand-alone policy orpolicies that covers solely the Property against Terrorism Losses, whichstand-alone policy or policies shall be on terms consistent with those requiredunder Sections 8.01(a)(i) and (iii) above with a deductible of notgreater than $100,000 and such coverage is in an amount equal to, the lesser of(a) the outstanding principal balance of the Notes (provided suchpolicy contains a waiver of coinsurance) or (b) the sum of the businessincome insurance equal to 100% of the projected gross income from the Propertyfor a period of twenty-four (24) months from the date that the Property isrepaired or replaced and operations are resumed plus the Full ReplacementCost.  Notwithstanding the foregoing, inno event shall Issuers be required to pay annual premiums for insurancecovering such Terrorism Losses in excess of an amount equal to two and one-halftimes the cost of a stand-alone policy or policies that covers the Property onthe date hereof (i.e., if the cost exceeds such limit, Issuers shall obtain asmuch coverage as is available at a cost equal to such limit);****and

 

(xi)  upon sixty (60) days’ notice,such other reasonable insurance and in such reasonable amounts as Trustee fromtime to time may reasonably request against such other insurable hazards whichat the time are commonly insured against for property similar to the Propertylocated in or around the region in which the Property is located.

 

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(b)  All insurance provided for in Section 8.01(a)shall be obtained under valid and enforceable policies (collectively, the “**Policies**”or in the singular, the “**Policy**”), and shall be (to theextent not specified in Section 8.01(a)) subject to the approval ofTrustee as to insurance companies, amounts, deductibles, loss payees andinsureds.  The Policies shall be issuedby financially sound and responsible insurance companies authorized to dobusiness in the State and having a claims paying ability rating of “A” or better(and the equivalent thereof) by at least two (2) of the Rating Agenciesrating the Securities (one of which shall be S&P if they are rating theSecurities and one of which will be Moody’s if they are rating the Securities),or if only one Rating Agency is rating the Securities, then only by such RatingAgency.  The Policies described in Section 8.01(a)(other than those strictly limited to liability protection) shall designateTrustee as loss payee.  Not less thanten (10) days prior to the expiration dates of the Policies theretoforefurnished to Trustee, certificates of insurance evidencing the Policiesaccompanied by evidence satisfactory to Trustee of payment of the premiums duethereunder (the “**Insurance Premiums**”), shall be delivered byIssuers to Trustee.

 

(c)  Any blanket insurance Policy shallspecifically allocate to the Property the amount of coverage from time to timerequired hereunder and shall otherwise provide the same protection as would aseparate Policy insuring only the Property in compliance with the provisions ofSection 8.01(a).

 

(d)  All Policies provided for orcontemplated by Section 8.01(a), except for the Policy referencedin Section 8.01(a)(v), shall name Issuers as the insured andTrustee as the additional insured, as its interests may appear, and in the caseof property damage, boiler and machinery, flood and earthquake insurance, shallcontain a so-called New York standard non-contributing mortgagee clausein favor of Trustee providing that the loss thereunder shall be payable toTrustee.

 

(e)  All Policies provided for in Section 8.01shall contain clauses or endorsements to the effect that:

 

(i)  no act or negligence of any Issuer, oranyone acting for any Issuer, or of any tenant or other occupant, or failure tocomply with the provisions of any Policy, which might otherwise result in aforfeiture of the insurance or any part thereof, shall in any way affect thevalidity or enforceability of the insurance insofar as Trustee is concerned;

 

(ii)  the Policies shall not be materiallychanged (other than to increase the coverage provided thereby) or canceledwithout at least thirty (30) days’ notice to Trustee and any other partynamed therein as an additional insured;

 

(iii)  the issuers thereof shall give noticeto Trustee if the Policies have not been renewed fifteen (15) days priorto its expiration; and

 

(iv)  Trustee shall not be liable for anyInsurance Premiums thereon or subject to any assessments thereunder.

 

(f)  If at any time Trustee is not inreceipt of written evidence that all Policies are in full force and effect,Trustee shall have the right, without notice to Issuers (or, upon three (3)Business Days’ notice to Issuers if such notice period shall end not later thanfive (5)

 

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Business Days prior to the date upon which the Policies are to expire),to take such action as Trustee deems necessary to protect its interest in theProperty, including, without limitation, the obtaining of such insurancecoverage as Trustee in its sole discretion deems appropriate.  All premiums incurred by Trustee inconnection with such action or in obtaining such insurance and keeping it ineffect shall be paid by Issuers to Trustee upon demand and, until paid, shallbe secured by the Security Trust Agreement and the Pledge and shall bearinterest at the Default Rate.

 

**Section 8.02****  Casualty.** If the Property shall be damaged or destroyed, in whole or in part, byfire or other casualty (a “**Casualty**”) such that the estimatedcost of Restoration exceeds One Million and No/100 Dollars ($1,000,000),Issuers shall give prompt notice of such damage to Trustee and shall promptlycommence and diligently prosecute the completion of the Restoration of theProperty as nearly as possible to the condition the Property was in immediatelyprior to such Casualty, with such alterations as may be reasonably approved byTrustee and otherwise in accordance with Section 8.04.  Issuers shall pay all costs of suchRestoration whether or not such costs are covered by insurance.  Trustee may, but shall not be obligated to,make proof of loss if not made promptly by Issuers.  In addition, Trustee may participate in anysettlement discussions with any insurance companies with respect to anyCasualty in which the Net Proceeds or the costs of completing the Restorationare equal to or greater than Four Million and No/100 Dollars ($4,000,000) andIssuers shall deliver to Trustee all instruments required by Trustee to permitsuch participation.

 

**Section 8.03****  Condemnation.**  Issuersshall promptly give Trustee notice of the actual or threatened commencement ofany proceeding for the Condemnation of the Property and shall deliver toTrustee copies of any and all papers served in connection with suchproceedings.  Trustee may participate inany such proceedings, and Issuers shall from time to time deliver to Trusteeall instruments requested by it to permit such participation.  Issuers shall, at their expense, diligentlyprosecute any such proceedings, and shall consult with Trustee, its attorneysand experts, and cooperate with them in the carrying on or defense of any suchproceedings.  Notwithstanding any takingby any public or quasi-public authority through Condemnation or otherwise (including,but not limited to, any transfer made in lieu of or in anticipation of theexercise of such taking), Issuers shall continue to pay the Debt at the timeand in the manner provided for its payment in the Note and in this Indentureand the Debt shall not be reduced until any Award shall have been actuallyreceived and applied by Trustee, after the deduction of expenses of collection,to the reduction or discharge of the Debt. Trustee shall not be limited to the interest paid on the Award by thecondemning authority but shall be entitled to receive out of the Award interestat the rate or rates provided herein or in the Note.  If the Property or any portion thereof istaken by a condemning authority, Issuers shall promptly commence and diligentlyprosecute the Restoration of the Property and otherwise comply with theprovisions of Section 8.04. If the Property is sold, through foreclosure or otherwise, prior to thereceipt by Trustee of the Award, Trustee shall have the right, whether or not adeficiency judgment on the Note shall have been sought, recovered or denied, toreceive the Award, or a portion thereof sufficient to pay the Debt.

 

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**Section 8.04****  Restoration.** (a)**  **The following provisionsshall apply in connection with the Restoration:

 

(i)  If the Net Proceeds shall be less thanFour Million and No/100 Dollars ($4,000,000) and the costs of completing theRestoration shall be less than Four Million and No/100 Dollars ($4,000,000),the Net Proceeds will be disbursed by Trustee to Issuers upon receipt, providedthere is no Event of Default at the time of such disbursement and Issuershereby covenant and agree to comply with the conditions set forth in Section8.04(b), (vii), (viii), (ix) and (x) during theRestoration and Issuers expeditiously commence and satisfactorily complete withdue diligence the Restoration in accordance with the terms of this Indenture.

 

(ii)  If the Net Proceeds shall be greaterthan Four Million and No/100 Dollars ($4,000,000) and the costs of completingthe Restoration shall be greater than Four Million and No/100 Dollars($4,000,000), the Net Proceeds will be disbursed by Trustee to Issuers uponreceipt, provided that all of the condition set forth in Section8.04(b) are met and Issuers deliver to Trustee a written undertakingto expeditiously commence and to satisfactorily complete with due diligence theRestoration in accordance with the terms of this Indenture.

 

(iii)  The term “**Net Proceeds**”for purposes of this Section 8.04 shall mean:  (i) the net amount of all insuranceproceeds received by Trustee pursuant to Section 8.01 (a)(i), (iii),(iv), (vi), (ix) and (x) as a result of suchdamage or destruction, after deduction of its reasonable costs and expenses(including, but not limited to, reasonable counsel fees), if any, in collectingsame (“**Insurance Proceeds**”), or (ii) the net amountof the Award, after deduction of its reasonable costs and expenses (including,but not limited to, reasonable counsel fees), if any, in collecting same (“**CondemnationProceeds**”), whichever the case may be.

 

(b)  The Net Proceeds shall be madeavailable to Issuers for Restoration upon the approval of Trustee in itsreasonable discretion that all or some of the following conditions are met:

 

(i)  no Event of Default shall have occurredand be continuing;

 

(ii)  the costs of completing theRestoration shall be equal to or less than Thirty Million and No/100 Dollars($30,000,000);

 

(iii)  intentionally omitted;

 

(iv)  subject to excusable delays due toacts of god, governmental restrictions, stays, judgments, orders, decrees,enemy actions, civil commotion, fire, casualty, strikes, work stoppages,shortages of labor or materials or other cases beyond the reasonable control ofIssuers, Issuers shall commence the Restoration as soon as reasonablypracticable (but in no event later than sixty (60) days after such Casualty orCondemnation, whichever the case may be, occurs) (it being understood andagreed that, among other things, the engagement of an architect, engineer orconstruction manager shall constitute commencement of Restoration for purposesof this Section 8.01(b)(iv)) and shall diligently pursue the same tosatisfactory completion;

 

(v)  any operating deficits, including allscheduled payments of principal and interest under the Note, which will beincurred with respect to the Property as a result of the

 

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occurrence of any such Casualty or Condemnation, whichever the case maybe, will be covered out of (1) the Net Proceeds, (2) the insurancecoverage referred to in Section 8.01(a)(iii), if applicable, or(3) by other funds of Issuers;

 

(vi)  Trustee shall be reasonably satisfiedthat the Restoration will be completed on or before the earliest to occur of(1) the Maturity Date, (2) such time as may be required underapplicable Legal Requirements or (3) the expiration of the insurancecoverage referred to in Section 8.01(a)(iii);

 

(vii)  the Property and the use thereofafter the Restoration will be in material compliance with and permitted underall applicable Legal Requirements;

 

(viii)  the Restoration shall be done andcompleted by Issuers in compliance with all applicable Legal Requirements;

 

(ix)  such Casualty or Condemnation, asapplicable, does not result in the permanent loss of material access to theProperty or the related Improvements;

 

(x)  the Condominium Documents shall remainin full force and effect;

 

(xi)  Issuers shall deliver, or cause to bedelivered, to Trustee a signed detailed budget approved in writing by Issuers’architect or engineer stating the entire cost of completing the Restoration,which budget shall be reasonably acceptable to Trustee; and

 

(xii)  the Net Proceeds together with anycash or cash equivalent deposited by Issuers with Trustee are in an amountsufficient in Trustee’s reasonable discretion to cover the estimated cost ofthe Restoration, taking into account the budget delivered to Trustee in subsection(xi) above.

 

(c)  The Net Proceeds shall be held byTrustee in an interest-bearing account and, until disbursed in accordance withthe provisions of Section 8.04(b), shall constitute additionalsecurity for the Debt and other obligations under the Financing Documents.  The Net Proceeds shall be disbursed byTrustee to, or as directed by, Issuers from time to time during the course ofthe Restoration, upon receipt of evidence satisfactory to Trustee that(A) all materials installed and work and labor performed (except to theextent that they are to be paid for out of the requested disbursement) inconnection with the Restoration have been paid for in full, and (B) thereexist no notices of pendency, stop orders, mechanic’s or materialman’s liens ornotices of intention to file same, or any other liens or encumbrances of anynature whatsoever on the Property which have not either been fully bonded tothe satisfaction of Trustee and discharged of record or in the alternativefully insured to the satisfaction of Trustee by the title company issuing theTitle Insurance Policy.

 

(d)  In the event that the estimated cost ofRestoration exceeds Four Million and No/100 Dollars ($4,000,000), all plans andspecifications required in connection with the Restoration shall be subject toprior review and acceptance in all respects by Trustee and by an independentconsulting engineer selected by Trustee (the “**Casualty Consultant**”),such approval (A) not to be unreasonably withheld or delayed and(B) to be deemed granted if Trustee shall not have disapproved same inwriting within twenty (20) Days after Issuers’ request for

 

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approval, so long as the written request to Trustee for approvalcontains a legend clearly marked in not less than fourteen (14) point bold facetype, underlined, in all capital letters **“REQUESTDEEMED APPROVED IF NO RESPONSE WITHIN TWENTY (20) DAYS”**.  Trustee shall have the use of the plans andspecifications and all permits, licenses and approvals required or obtained inconnection with the Restoration.  Theidentity of the contractors, subcontractors and materialmen engaged in theRestoration for contracts in excess of $250,000, as well as the contracts underwhich they have been engaged, shall be subject to prior review and acceptanceby Trustee and the Casualty Consultant, , such approval (A) not to beunreasonably withheld or delayed and (B) to be deemed granted if Trusteeshall not have disapproved same in writing within fifteen (15) Days afterIssuers’ request for approval, so long as the written request to Trustee forapproval contains a legend clearly marked in not less than fourteen (14) pointbold face type, underlined, in all capital letters **“REQUEST DEEMED APPROVED IF NO RESPONSE WITHIN FIFTEEN (15) DAYS”**.  All costs and expenses incurred by Trustee inconnection with making the Net Proceeds available for the Restorationincluding, without limitation, reasonable counsel fees and disbursements andthe Casualty Consultant’s fees, shall be paid by Issuers.

 

(e)  In no event shall Trustee be obligatedto make disbursements of the Net Proceeds in excess of an amount equal to thecosts actually incurred from time to time for work in place as part of theRestoration, as certified by the Casualty Consultant, minus the CasualtyRetainage.  The term “**CasualtyRetainage**” shall mean an amount equal to ten percent (10%) ofthe costs actually incurred for work in place as part of the Restoration, ascertified by the Casualty Consultant, until the Restoration has beencompleted.  The Casualty Retainage shallin no event, and notwithstanding anything to the contrary set forth above in Section 8.04(b),be less than the amount actually held back by Issuers from contractors,subcontractors and materialmen engaged in the Restoration.  The Casualty Retainage shall not be releaseduntil the Casualty Consultant certifies to Trustee that the Restoration hasbeen completed in accordance with the provisions of Section 8.04(b)and that all approvals necessary for the re-occupancy and use of the Propertyhave been obtained from all appropriate governmental and quasi-governmentalauthorities, and Trustee receives evidence satisfactory to Trustee that thecosts of the Restoration have been paid in full or will be paid in full out ofthe Casualty Retainage; provided, however, that Trustee willrelease the portion of the Casualty Retainage being held with respect to anycontractor, subcontractor or materialman engaged in the Restoration as of thedate upon which the Casualty Consultant certifies to Trustee that thecontractor, subcontractor or materialman has satisfactorily completed all workand has supplied all materials in accordance with the provisions of thecontractor’s, subcontractor’s or materialman’s contract, the contractor,subcontractor or materialman delivers the evidence of payment in full of allsums due to the contractor, subcontractor or materialman as may be reasonablyrequested by Trustee or by the title company issuing the Title InsurancePolicy.  If required by Trustee, therelease of any such portion of the Casualty Retainage shall be approved by thesurety company, if any, which has issued a payment or performance bond withrespect to the contractor, subcontractor or materialman.

 

(f)  Trustee shall not be obligated to makedisbursements of the Net Proceeds more frequently than once every calendarmonth.

 

(g)  If at any time the Net Proceeds or theundisbursed balance thereof shall not, in the opinion of Trustee inconsultation with the Casualty Consultant, be sufficient to pay in

 

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full the balance of the costs which are estimated by the CasualtyConsultant to be incurred in connection with the completion of the Restoration,Issuers shall deposit the deficiency (the “**Net Proceeds Deficiency**”)with Trustee before any further disbursement of the Net Proceeds shall bemade.  The Net Proceeds Deficiencydeposited with Trustee shall be held by Trustee and shall be disbursed forcosts actually incurred in connection with the Restoration on the sameconditions applicable to the disbursement of the Net Proceeds, and until sodisbursed pursuant to Section 8.04(b) shall constitute additionalsecurity for the Debt and other obligations under the Financing Documents.

 

(h)  The excess, if any, of the Net Proceedsand the remaining balance, if any, of the Net Proceeds Deficiency depositedwith Trustee after the Casualty Consultant certifies to Trustee that theRestoration has been completed in accordance with the provisions of Section 8.04(b),and the receipt by Trustee of evidence satisfactory to Trustee that all costs incurredin connection with the Restoration have been paid in full, shall be remitted byTrustee to Issuers, provided no Event of Default shall have occurred andshall be continuing.

 

(i)  All Net Proceeds not required(a) to be made available for the Restoration or (b) to be returned toIssuers as excess Net Proceeds pursuant to Section 8.04(h) maybe retained and applied by Trustee in accordance with Section 2.3(b)of the Notes toward the payment of the Debt whether or not then due and payablein such order, priority and proportions as Trustee in its sole discretion shalldeem proper, or, at the discretion of Trustee, the same may be paid, either inwhole or in part, to Issuers for such purposes as Trustee shall approve, in itsdiscretion, so long as Trustee either commences to apply such Net Proceeds toRestoration in accordance with the terms and conditions of this Indenture orapplies such Net Proceeds toward the payment of the outstanding principalbalance of the Notes, in each case within thirty (30) days of receipt thereof.

 

(j)  In the event Security Trust FirstBeneficiary conveys, sells or otherwise transfers (or takes steps to effect aconveyance, sale or other transfer of) the Security Trust Second Beneficiary’sinterest under the security trust formed pursuant to the Security TrustAgreement, or other transfer of title to the Property in extinguishment inwhole or in part of the Debt all right, title and interest of Issuers in and tothe Policies that are not blanket Policies then in force concerning theProperty and all proceeds payable thereunder shall thereupon vest in thepurchaser at such foreclosure or Trustee or other transferee in the event ofsuch other transfer of title.

 

(k)  Notwithstandinganything to the contrary contained in this Section 2.3(b), in the eventthe costs of completing any Restoration shall exceed Thirty Million and No/100Dollars ($30,000,000) and Servicer on behalf of Trustee elects not to make NetProceeds available to Issuers, the Issuers may, within sixty (60) days, offersuch election by Servicer on behalf of Trustee to prepay the Debt in whole, butnot in part, without the payment of any prepayment premium or penalty.

 

**Section 8.05****  Casualty/CondemnationGenerally.**  In all matters pertaining to insurance,Casualty, Condemnation and/or Restoration, the Issuers’ covenants andagreements shall be enforced, and all associated rights shall be exercised, bythe Servicer on behalf of the Trustee for the benefit of the Noteholders, andall related documents to be delivered to the

 

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Trustee, amounts to bedeposited with the Trustee and all accounts to be maintained by the Trusteeshall be so delivered, deposited and maintained by the Servicer or CashManager, as the case may be, on behalf of the Trustee for the benefit of theNoteholders.

 

**ARTICLE 9 - DEFAULTS**

 

**Section 9.01****  Event of Default.** (a)  Each of the following events shall constitute an event ofdefault hereunder (an “**Event of Default**”):

 

(i)  if any portion of the Debt is not paidwhen due;

 

(ii)  if any of the Taxes or Other Chargesare not paid on or before the same are due and payable (and such non-payment,in case of Other Charges (other than Condominium charges and assessments withrespect to which no notice shall be required) continues for five (5) BusinessDays following notice thereof to Issuers), except to the extent sums sufficientto pay such Taxes and Other Charges have been deposited with Trustee inaccordance with Section 10.02 hereof or those Taxes or Other Chargesbeing contested in accordance with the terms and provisions of this Indenture;

 

(iii)  if the Policies are not kept in fullforce and effect or if the Policies or insurance certificates or other evidenceof insurance acceptable to Trustee are not delivered to Trustee within 10 daysafter written notice thereof from Trustee;

 

(iv)  if Issuers Transfer or otherwiseencumbers any portion of the Property in violation of the provisions of thisIndenture;

 

(v)  if any representation or warranty madeby Issuers herein or in any other Financing Document, or in any report,certificate, financial statement or other instrument, agreement or documentfurnished in connection with the Financing Documents shall have been false ormisleading in any material respect as of the date the representation orwarranty was made; provided, however, that if (1) suchmisrepresentation was not intentional, and (2) the condition causing therepresentation or warranty to be false is susceptible of being cured, the sameshall be an Event of Default hereunder only if the same is not cured withinthirty (30) days after written notice to Issuers from Trustee; and provided,further, if the condition causing the representation or warranty to befalse is susceptible of cure but cannot reasonably be cured within such thirty(30) day period and Issuers shall have commenced to cure such condition withinsuch thirty (30) day period and thereafter diligently proceeds to cure thesame, then such thirty (30) day period shall be extended for such an additionalperiod of time as is reasonably necessary for Issuers in the exercise of duediligence to cure such condition, such additional period not to exceed onehundred fifty (150) days;

 

(vi)  if any Issuer, Principal or anyGuarantor shall make an assignment for the benefit of creditors;

 

(vii)  if a receiver, liquidator, *síndico* or trustee shall be appointed for any Issuer,Principal or Guarantor, or if any Issuer, Principal or Guarantor shall beadjudicated a bankrupt or insolvent, or if any petition for *concurso mercantil*, bankruptcy, reorganization or

 

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arrangement pursuant to federal bankruptcy law, or any similar federalor state law, shall be filed by or against, consented to, or acquiesced in by,Issuer, Principal or Guarantor, or if any proceeding for the dissolution orliquidation of Issuers, Principal or Guarantor shall be instituted; provided,however, if such appointment, adjudication, petition or proceeding wasinvoluntary and not consented to by Issuers, Principal or Guarantor, upon thesame not being discharged, stayed or dismissed within ninety (90) days;

 

(viii)  if any Issuer attempts to assign itsrights under this Indenture or any of the other Financing Documents or anyinterest herein or therein in contravention of the Financing Documents;

 

(ix)  if any Issuer breaches any of itsrespective covenants contained in Sections 6.01(dd) and (kk), and anysuch breach is not cured within fifteen (15) Business Days after written noticeto Issuers from Trustee;

 

(x)  with respect to any term, covenant orprovision set forth herein which specifically contains a notice requirement orgrace period, if Issuers shall be in default under such term, covenant orcondition after the giving of such notice or the expiration of such graceperiod;

 

(xi)  if any of the assumptions contained inthe Insolvency Opinion delivered to Trustee in connection with the issuance ofthe Notes, or in the Additional Insolvency Opinion delivered subsequent to theissuance of the Notes, is or shall become untrue in any material respect;

 

(xii)  if a material default has occurredand continues beyond any applicable cure period under the Management Agreement,the Golf Management Agreement or the Spa Management Agreement (or anyReplacement Management Agreement, Replacement Golf Management Agreement orReplacement Spa Management Agreement, as applicable) and (A) if suchdefault permits the Manager, Golf Manager or Spa Manager, as applicable, toterminate or cancel the Management Agreement, the Golf Management Agreement orthe Spa Management Agreement (or any Replacement Management Agreement,Replacement Golf Management Agreement or Replacement Spa Management Agreement,as applicable) or (B) if the Management Agreement, the Golf ManagementAgreement or the Spa Management Agreement (or any Replacement ManagementAgreement, Replacement Golf Management Agreement or Replacement Spa ManagementAgreement, as applicable) is terminated and in the case of either (A) or (B) aQualified Manager, Qualified Golf Manager or Qualified Spa Manager, asapplicable, is not appointed within forty five (45) days thereafter;

 

(xiii)  if (A) any provision of theapplicable statutes pursuant to which the Condominium was established or anysection, sentence, clause, phrase or word or the application thereof in anycircumstance is held invalid and such invalidity materially adversely affectsthe security interest of the Security Trust Agreement or Trustee’s rights underthe Financing Documents; (B) the Condominium shall become subject to anaction for partition by any condominium unit owner which could reasonably beexpected to result in partition and said action has been commenced and notdismissed within sixty (60) days after commencement

 

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thereof; or (C) the Condominium is withdrawn from the condominiumregime established under the Condominium Laws;

 

(xiv)  if Issuers fail to comply with thecovenants as to Prescribed Laws set forth in Section 7.01(a) hereof;

 

(xv)  with respect to any term, covenant orprovision set forth herein or in any other Financing Document whichspecifically contains a notice requirement, grace period or both, if Issuersshall be in default under such term, covenant or condition after the giving ofsuch notice, the expiration of such grace period or both, as applicable; or

 

(xvi)  if Issuers shall continue to be inDefault under any of the other terms, covenants or conditions of this Indenturenot specified in subsections (i) to (xiv) above, orunder any of the terms, covenants or conditions in any other Financing Documentnot specified in Section (xv) above, for ten (10) days after noticeto Issuers from Trustee, in the case of any Default which can be cured by thepayment of a sum of money, or for thirty (30) days after notice from Trustee inthe case of any other Default; provided, however, that if suchnon-monetary Default is susceptible of cure but cannot reasonably becured within such thirty (30) day period and provided, further,that Issuers shall have commenced to cure such Default within such thirty (30)day period and thereafter diligently and expeditiously proceeds to cure thesame, such thirty (30) day period shall be extended for such time as isreasonably necessary for Issuers in the exercise of due diligence to cure suchDefault, such additional period not to exceed sixty (60) days.

 

(b)  Upon the occurrence of an Event ofDefault (other than an Event of Default described in clauses (vi),(vii) or (viii) above) and at any time thereafter, in addition to anyother rights or remedies available to it pursuant to this Indenture and theother Financing Documents or at law or in equity, Trustee, and Servicer on itsbehalf, for the benefit of Noteholders may take such action, without notice ordemand, that Trustee or Servicer deems advisable to protect and enforce itsrights against Issuers and in and to the Property, including, withoutlimitation, declaring the Debt to be immediately due and payable, and Trusteefor the benefit of Noteholders may enforce or avail itself of any or all rightsor remedies provided in the Financing Documents against Issuers and theProperty, including, without limitation, all rights or remedies available atlaw or in equity; and upon any Event of Default described in clauses (vi),(vii) or (viii) above, the Debt and all other obligations of Issuershereunder and under the other Financing Documents shall immediately andautomatically become due and payable, without notice or demand, and Issuershereby expressly waive any such notice or demand, anything contained herein orin any other Financing Document to the contrary notwithstanding.

 

**Section 9.02****  Remedies.** (a)  Upon the occurrence of an Event of Default, all or anyone or more of the rights, powers, privileges and other remedies available toTrustee against Issuers under this Indenture or any of the other FinancingDocuments executed and delivered by, or applicable to, Issuers or at law or inequity may be exercised by Trustee at any time and from time to time, whetheror not all or any of the Debt shall be declared due and payable, and whether ornot Trustee shall have commenced any foreclosure proceeding or other action forthe enforcement of its rights and remedies under any of the Financing Documents.  Any such actions taken by Trustee shall becumulative and concurrent and may be pursued

 

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independently, singularly, successively, together or otherwise, at suchtime and in such order as Trustee may determine in its sole discretion, to thefullest extent permitted by law, without impairing or otherwise affecting theother rights and remedies of Trustee permitted by law, equity or contract or asset forth herein or in the other Financing Documents.  Without limiting the generality of theforegoing, Issuers agree that if an Event of Default is continuing (i) Trusteeis not subject to any “one action” or “election of remedies” law or rule, and(ii) all liens and other rights, remedies or privileges provided toTrustee shall remain in full force and effect until Trustee has exhausted allof its remedies against the Property and a foreclosure procedure has beeninitiated under the Security Trust Agreement or the Pledge and the proceeds ofsuch foreclosure procedure are applied in full satisfaction of the Debt or theDebt has been otherwise paid in full.

 

(b)  **Right to Cure Defaults**.  Upon the occurrence and during thecontinuance of any Event of Default, Trustee may, but without any obligation todo so and without notice to or demand on Issuers and without releasing Issuersfrom any obligation hereunder, make any payment or do any act required of Issuershereunder in such manner and to such extent as Trustee may deem necessary toprotect the security of the Security Trust Agreement and the other FinancingDocuments.  Trustee is authorized toenter upon the Property for such purposes, or appear in, defend, or bring anyaction or proceeding to protect its interest in the Property for the benefit ofNoteholders or to foreclose or cause the foreclosure under the Security TrustAgreement or collect the Debt, and the cost and expense thereof (including reasonableattorneys’ fees to the extent permitted by law), with interest at the DefaultRate, shall constitute a portion of the Debt and shall be due and payable toTrustee upon demand.  All such costs andexpenses incurred by Trustee in remedying such Event of Default or such failedpayment or act or in appearing in, defending, or bringing any such action orproceeding shall bear interest at the Default Rate for the period after noticefrom Trustee that such cost or expense was incurred to the date of payment toTrustee.  All such costs and expensesincurred by Trustee together with interest thereon calculated at the DefaultRate shall be deemed to constitute a portion of the Debt and be secured by andsubject to the Security Trust Agreement and the other Financing Documents andshall be immediately due and payable upon demand by Trustee therefor.

 

(c)  The rights, powers and remedies ofTrustee under this Indenture shall be cumulative and not exclusive of any otherright, power or remedy which Trustee for the benefit of Noteholders may haveagainst Issuers pursuant to this Indenture or the other Financing Documents, orexisting at law or in equity or otherwise. Trustee’s rights, powers and remedies may be pursued singularly,concurrently or otherwise, at such time and in such order as Trustee maydetermine in Trustee’s sole discretion. No delay or omission to exercise any remedy, right or power accruingupon an Event of Default shall impair any such remedy, right or power or shallbe construed as a waiver thereof, but any such remedy, right or power may beexercised from time to time and as often as may be deemed expedient.  A waiver of one Default or Event of Defaultwith respect to Issuers shall not be construed to be a waiver of any subsequentDefault or Event of Default by Issuers or to impair any remedy, right or powerconsequent thereon.

 

(d)  All rights, powers, privileges andother remedies of Trustee hereunder shall be enforced and exercised by Serviceron behalf of Trustee for the benefit of Noteholders.

 

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**Section 9.03****  Exculpation.** (a)  Subject to the qualifications below, Trustee shall notenforce the liability and obligation of Issuers to perform and observe theobligations contained in the Notes, this Indenture, the Security TrustAgreement or the other Financing Documents by any action or proceeding whereina money judgment shall be sought against Issuers, except that Trustee may bringa foreclosure action, an action for specific performance or any otherappropriate action or proceeding to enable Trustee to enforce and realize uponits interest under the Notes, this Indenture, the Security Trust Agreement andthe other Financing Documents, or in the Property, the Rents, or any othercollateral given to Trustee pursuant to the Financing Documents; provided,however, that, except as specifically provided herein, any judgment inany such action or proceeding shall be enforceable against Issuers only to theextent of Issuers’ interest in the Property, in the Rents and in any othercollateral given to Trustee, and Trustee, by accepting the Notes, thisIndenture, the Security Trust Agreement and the other Financing Documents,agrees for itself and its successors and assigns that it and its successors andassigns shall not sue for, seek or demand any deficiency judgment againstIssuers or any of its Affiliates in any such action or proceeding under, or byreason of, or in connection with, the Note, this Indenture, the Security TrustAgreement or the other Financing Documents. The provisions of this Section shall not, however, (a) constitute awaiver, release or impairment of any obligation evidenced or secured by any ofthe Financing Documents; (b) impair the right of Trustee for the benefitof Noteholders to name any Issuer as a party defendant in any action or suitfor foreclosure and sale under the Security Trust Agreement or the Pledge;(c) affect the validity or enforceability of or any Guaranty made inconnection with the issuance of the Notes or any of the rights and remedies ofTrustee under the Financing Documents; (d) impair the right of Trustee toobtain the appointment of a receiver; (e)  impair the enforcement of theSecurity Trust Agreement or the Pledge; (f) constitute a prohibitionagainst Trustee to seek a deficiency judgment against Issuers in order to fullyrealize the security granted by the Security Trust Agreement or the Pledge orto commence any other appropriate action or proceeding in order for Trustee toexercise its remedies against the Property; or (g) constitute a waiver ofthe right of Trustee to enforce the liability and obligation of Issuers underthe terms of this Indenture, by money judgment or otherwise, to the extent ofany actual out of pocket loss, damage, cost, expense, liability, claim or otherobligation incurred by Trustee or Noteholders (including attorneys’ fees andcosts reasonably incurred) arising out of or in connection with the following:

 

(i)  fraud or intentional misrepresentationby Issuers or any Guarantor in connection with the issuance of the Notes or inconnection with the Financing Documents;

 

(ii)  if any Issuer fails to maintain itsstatus as a Special Purpose Entity as required by, and in accordance with, theterms and provisions of this Indenture;

 

(iii)  a breach of any representation orwarranty set forth in Section 6.01(kk) hereof;

 

(iv)  the misappropriation or conversion byor on behalf of Issuers of (A) any Insurance Proceeds paid by reason ofany Casualty, (B) any Awards received in connection with a Condemnation,or (C) any Rents following an Event of Default, in each case only to theextent of the amounts received by Issuers;

 

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(v)  any security deposits, advance depositsor any other deposits collected with respect to the Property which are notdelivered to Trustee upon a foreclosure of the Property or action in lieuthereof under the Security Trust Agreement, except to the extent any suchsecurity deposits, advance deposits or other deposits were applied inaccordance with the terms and conditions of any of the Leases or reservationrules and policies prior to such foreclosure or action in lieu thereof;

 

(vi)  any alterations pursuant to Section7.01(u)(iii) hereof, the aggregate cost of which alterations exceed TwoMillion and No/100 Dollars ($2,000,000) and which are not otherwise approved asrequired by such section;

 

(vii)  if any Issuer fails to obtain Trustee’sprior consent to any Indebtedness for borrowed money as required by thisIndenture;

 

(viii)  if any Issuer files a voluntarypetition under the Bankruptcy Code or any other Federal or state bankruptcy orinsolvency law; and

 

(ix)  if any Issuer fails to pay any Non-ExcludedTaxes as required by the provisions of each Note.

 

(b)  Notwithstanding anything to thecontrary in this Indenture, the Note or any of the Financing Documents,(A) Trustee shall not be deemed to have waived any right which Trustee mayhave under Section 506(a), 506(b), 1111(b) or any other provisions of theBankruptcy Code to file a claim for the full amount of the Debt or to requirethat all collateral shall continue to secure all of the Obligations inaccordance with the Financing Documents, and (B) the Debt shall be fullyrecourse to any Issuer (i) in the event of:  (a) intentionally omitted; (b) thefiling of an involuntary petition against any Issuer under the Bankruptcy Codeor any other Federal or state bankruptcy or insolvency law if and only if suchIssuer has acted in concert with, colluded or conspired with the petitioningcreditors for any involuntary petition from any Person in order to cause thefiling thereof to interfere with the enforcement rights of Trustee;(c) any Issuer consenting to or acquiescing in or joining in anapplication for the appointment of a custodian, receiver, trustee, or examinerfor such Issuer or any portion of the Property if and only if such Issuer hasacted in concert with, colluded or conspired with the Persons bringing suchapplication; (d) any Issuer making an assignment for the benefit ofcreditors, or admitting, in writing or in any legal proceeding, its insolvencyor inability to pay its debts as they become due, and, with respect to suchevents described in the foregoing clauses (b) and (c), either any or allof Issuers, Principal or Guarantor has acted in concert with, colluded orconspired to cause such condition or event in order to interfere with theenforcement of Trustee’s rights and remedies; or (ii) if any Issuer failsto obtain Trustee’s prior consent to any Transfer as required by thisIndenture.

 

**Section 9.04****  ManagerTermination.**  If (a) an Event of Default occurs and iscontinuing, (b) the Manager, Golf Manager or Spa Manager shall becomebankrupt or insolvent or (c) a material default occurs under theManagement Agreement, the Golf Management Agreement or the Spa ManagementAgreement beyond any applicable grace and cure periods, Issuers shall, at therequest of Servicer on behalf of Trustee, terminate the Management Agreement,the Golf Management Agreement or the Spa Management Agreement and replace

 

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the Manager, Golf Manageror Spa Manager with a Qualified Manager, Qualified Golf Manager or QualifiedSpa Manager pursuant to a Replacement Management Agreement, Replacement GolfManagement Agreement or Replacement Spa Management Agreement, as applicable.

 

**ARTICLE 10 - RESERVEFUNDS**

 

**Section 10.01****  Required RepairFunds.**  (a) ** Deposits. **Issuers shall perform the repairsat the Property as more particularly set forth on Schedule 10.01hereto (such repairs hereinafter collectively referred to as “**RequiredRepairs**”).  Subject toexcusable delays due to acts of god, governmental restrictions, stays,judgments, orders, decrees, enemy actions, civil commotion, fire, casualty,strikes, work stoppages, shortages of labor or materials or other cases beyondthe reasonable control of Issuers, Issuers shall complete the Required Repairson or before the required deadline for each repair as set forth on Schedule 10.01.  Upon the occurrence and during thecontinuance of an Event of Default, Trustee, at its option, may withdraw allRequired Repair Funds from the Required Repair Account and Trustee may applysuch funds either to completion of the Required Repairs or toward payment of theDebt in such order, proportion and priority as Trustee may determine in itssole discretion.  Trustee’s right towithdraw and apply Required Repair Funds shall be in addition to all otherrights and remedies provided to Trustee under this Indenture and the otherFinancing Documents.  On the ClosingDate, Issuers shall deposit with Trustee the amount set forth on such Schedule 10.01hereto to perform the Required Repairs multiplied by one hundred twenty-fivepercent (125%).  Amounts so depositedwith Trustee shall be held by Trustee in accordance with Section 10.06hereof.  Amounts so deposited shallhereinafter be referred to as Issuers’ “**Required Repair Fund**”and the account in which such amounts are held shall hereinafter be referred toas Issuers’ “**Required Repair Account**.”

 

(b)  **Release of Required RepairFunds. **Trustee shalldisburse to Issuers the Required Repair Funds from the Required Repair Accountfrom time to time, but not more frequently than once in any ten (10) dayperiod, upon satisfaction by Issuers of each of the following conditions:  (a) Issuers shall submit a writtenrequest for payment to Trustee at least ten (10) days prior to the date onwhich Issuers requests such payment be made and specifies the Required Repairsto be paid, (b) on the date such request is received by Trustee and on thedate such payment is to be made, no Default or Event of Default shall exist andremain uncured, (c) Trustee shall have received an Officer’s Certificate(i) stating that all Required Repairs to be funded by the requesteddisbursement have been completed in good and workmanlike manner and inaccordance with all applicable federal, state and local laws, rules andregulations, such Officer’s Certificate to be accompanied by a copy of anylicense, permit or other approval by any Governmental Authority required tocommence and/or complete the Required Repairs, (ii) identifying eachPerson that supplied materials or labor in connection with the Required Repairsto be funded by the requested disbursement, and (iii) stating that eachsuch Person has been paid in full or will be paid in full upon suchdisbursement, such Officer’s Certificate to be accompanied by evidence ofpayment satisfactory to Trustee, (d) intentionally omitted, and(e) Trustee shall have received such other evidence as Trustee shallreasonably request that the Required Repairs to be funded by the requesteddisbursement have been completed and are paid for or will be paid upon suchdisbursement to Issuers.  Trustee shallnot be required to make disbursements from the Required Repair Account unlesssuch requested disbursement is in an

 

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amount greater than $5,000 (or a lesser amount if the total amount inthe Required Repair Account is less than $5,000, in which case only onedisbursement of the amount remaining in the account shall be made) and suchdisbursement shall be made only upon satisfaction of each condition containedin this Section 10.01(b).

 

**Section 10.02****  Tax and InsuranceEscrow Fund.**  Issuers shall pay to Trustee on each PaymentDate (a) one twelfth of the Taxes and the Condominium charges andassessments that Trustee estimates will be payable during the next ensuingtwelve (12) months in order to accumulate with Trustee sufficient funds to payall such Taxes thirty (30) days prior to their respective due dates, and(b) one twelfth of the Insurance Premiums that Trustee estimates will bepayable for the renewal of the coverage afforded by the Policies upon theexpiration thereof in order to accumulate with Trustee sufficient funds to payall such Insurance Premiums thirty (30) days prior to the expiration of thePolicies (said amounts in (a) and (b) above hereinafter called the “**Taxand Insurance Escrow Fund**”). The Tax and Insurance Escrow Fund and the payment of the monthly DebtService, shall be added together and shall be paid as an aggregate sum byIssuers to Trustee.  Trustee will applythe Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiumsrequired to be made by Issuers pursuant to Section 7.01(b)hereof.  In making any payment relatingto the Tax and Insurance Escrow Fund, Trustee may do so according to any bill,statement or estimate procured from the appropriate public office (with respectto Taxes) or insurer or agent (with respect to Insurance Premiums), withoutinquiry into the accuracy of such bill, statement or estimate or into thevalidity of any tax, assessment, sale, forfeiture, tax lien or title or claimthereof, except where Issuers are contesting the Taxes in accordance with theterms and provisions of this Indenture and have notified Trustee in writing ofsuch contest.  If the amount of the Taxand Insurance Escrow Fund shall exceed the amounts due for Taxes and InsurancePremiums pursuant to Section 7.01(b) hereof, Trustee shall, in itsreasonable discretion, return any excess to Issuers or credit such excessagainst future payments to be made to the Tax and Insurance Escrow Fund.  Any amount remaining in the Tax and InsuranceEscrow Fund after the Debt has been paid in full shall be returned toIssuers.  In allocating such excess,Trustee may deal with the Person shown on the records of Trustee to be theowner of the Property.  If at any timeTrustee reasonably determines that the Tax and Insurance Escrow Fund is not orwill not be sufficient to pay Taxes and Insurance Premiums by the dates setforth in (a) and (b) above, Trustee shall notify Issuers of such determinationand Issuers shall increase its monthly payments to Trustee by the amount thatTrustee estimates is sufficient to make up the deficiency at least thirty (30)days prior to the due date of the Taxes and/or thirty (30) days prior toexpiration of the Policies, as the case may be.

 

**Section 10.03****  Replacements andReplacement Reserve.**

 

(a)  **Replacement Reserve Fund**.  Issuers shall pay to Trustee (i) on eachPayment Date commencing with the Payment Date occurring in January 2005,one twelfth (1/12) of two percent (2%) of Gross Income from Operations for thecalendar month two (2) months prior to the month in which such Payment Dateoccurs, (ii) on each Payment Date commencing with the Payment Dateoccurring in January 2006, one twelfth (1/12) of three percent (3%) ofGross Income from Operations for the calendar month two (2) months prior to themonth in which such Payment Date occurs, and (iii) on each Payment Datethereafter, one twelfth (1/12) of four percent (4%) of Gross Income fromOperations for the calendar month two (2) months prior to the month in whichsuch Payment Date occurs, which is the amount (the “**Replacement Reserve**

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**MonthlyDeposit**”)reasonably estimated for the calendar month two (2) months prior to the monthin which such Payment Date occurs by Trustee in its sole discretion to be duefor replacements and repairs required to be made to the Property during thecalendar year (collectively, the “**Replacements**”).  Amounts so deposited shall hereinafter bereferred to as Issuers’ “Replacement Reserve Fund” and the account in whichsuch amounts are held shall hereinafter be referred to as Issuers’ “**ReplacementReserve Account**.”

 

(b)  **Disbursements fromReplacement Reserve Account**. Trustee shall make disbursements from the Replacement Reserve Fund asrequested by Issuers, and approved by Trustee, no more frequently than once inany thirty (30) day period of no less than $5,000.00 upon delivery by Issuersof Trustee’s standard form of draw request accompanied by copies of paidinvoices for the amounts requested or invoices showing payments due, togetherwith such evidence as Trustee shall reasonably request that the Replacements tobe reimbursed or funded by the requested disbursement have been completed ingood and workmanlike manner and in accordance with all applicable LegalRequirements, and, if required by Trustee for requests in excess of $10,000.00for a single item, releases from all parties furnishing materials and/orservices in connection with the requested payment.  Trustee may require an inspection of theProperty at Issuers’ expense prior to making a monthly disbursement in order toverify completion of replacements and repairs of items in excess of $10,000.00for which reimbursement is sought; provided that Trustee may not requiresuch inspection more frequently than twice during any calendar year unless theaverage monthly disbursement from the Replacement Reserve Fund during thetrailing twelve (12) month period exceeds $250,000 (at which time Trustee mayrequire such inspections prior to making any monthly disbursement from theReplacement Reserve Fund).

 

(c)  **Balance in the ReplacementReserve Account**.  Theinsufficiency of any balance in the Replacement Reserve Account shall notrelieve Issuers from their obligation to fulfill all preservation andmaintenance covenants in the Financing Documents.

 

**Section 10.04****  Interest ReserveInterest.**  (a)    Issuers shall pay to Trustee on the datehereof the sum of $750,000, which amount shall be deposited with and held byTrustee for the benefit of Noteholders as additional security for payment ofthe Debt, provided that if the Net Operating Income for the trailingtwelve (12) month period for the Property exceeds $11,000,000 on any one ofJanuary 9, 2007, January 9, 2008 or January 9, 2009, then allamounts then held in the Interest Reserve Account shall be released to Issuers,provided that no Event of Default shall have occurred and becontinuing.  Notwithstanding theforegoing, if the Net Operating Income for the trailing twelve (12) monthperiod for the Property does not exceed $11,000,000 on any such date, butthereafter exceeds $11,000,000 as of each Payment Date occurring in(a) April and July of the same calendar year or (b) July and Octoberof the same calendar year, then all amounts then held in the Interest ReserveAccount shall be released to Issuers, provided that no Event of Defaultshall have occurred and be continuing. All such amounts so deposited shall hereinafter be referred to as the “**InterestReserve Fund**” and the account to which such amounts are held shallhereinafter be referred to as the “**Interest Reserve Account**.”

 

**Section 10.05****  Reserve LC.**

 

(a)  Issuers shall deliver to Trustee on thedate hereof a Letter of Credit in an amount equal to $2,500,000 (the “**NOI LC**”).  The NOI LCshall be released by Trustee to

 

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Issuers in the event the Net Operating Income for the trailing twelve(12) month period for the Property exceeds $9,500,000 on any Payment Dateoccurring in January, April, July or October during the term of the Notes(commencing with the Payment Date occurring in January 2006), providedthat no Event of Default shall have occurred and be continuing.

 

(b)  Issuers shall deliver to Trustee on thedate hereof a Letter of Credit in an amount equal to $2,500,000 (the “**SpaLC**”).  Issuers shallhave the right to reduce the amount of the Spa LC from time to time by anamount equal to the reduction (other than a reduction by payment) in the amountof the termination fee payable by Hotel Issuer pursuant to Section 2.7 ofthe Spa Management Agreement, provided that the amount of the Spa LC shall notbe less than the amount of such potential termination fee at any time.  In connection with such reduction, Issuers shalldeliver (i) a replacement Spa LC for the reduced amount and (ii) acalculation of the potential termination fee, together with an Officer’sCertificate certifying that such calculation has been determined in accordancewith Section 2.7 of the Spa Management Agreement.

 

(c)  Each Reserve LC shall be additionalsecurity for the payment of the Debt. Upon the occurrence and during the continuance of an Event of Default,Trustee shall have the right, at its option, to draw on any Reserve LC and toapply the proceeds thereof to payment of the Debt in such order, proportion orpriority as Trustee may determine. Trustee’s right to draw on any Reserve LC and apply the proceeds thereofin accordance with this Section 10.05 shall be in addition to allother rights and remedies provided to Trustee under the Financing Documents.

 

(d)  In addition to any other right Trusteemay have to draw upon any Reserve LC pursuant to the terms and conditions ofthis Indenture, Trustee shall have the additional rights to draw in full anyReserve LC:  (i) if the Reserve LCis an evergreen letter of credit, if Trustee has received a notice from theissuing bank that such Reserve LC will not be renewed and a replacement ReserveLC is not provided at least thirty (30) days prior to the date on which suchReserve LC is scheduled to expire; (ii) if the Reserve LC has a statedexpiration date, if Trustee has not received a notice from the issuing bankthat it has renewed such Reserve LC at least thirty (30) days prior to the dateon which such Reserve LC is scheduled to expire and an extension of suchReserve LC or a replacement Reserve LC is not provided at least thirty (30)days prior to the date on which such Reserve LC is scheduled to expire; or(iii) upon receipt of notice from the issuing bank that such Reserve LCwill be terminated (except if a replacement Reserve LC is provided).  Notwithstanding anything to the contrarycontained in the above, Trustee is not obligated to draw any Reserve LC uponthe happening of an event specified in (i), (ii) or (iii) above and shall not beliable for any losses sustained by Issuers due to the insolvency of the bankissuing any Reserve LC if Trustee has not drawn such Reserve LC.

 

**Section 10.06****  Reserve Funds,Generally.**  (a)  Issuers grant to Trustee afirst-priority perfected security interest in each of the Reserve Funds and anyand all monies now or hereafter deposited in each Reserve Fund as additionalsecurity for payment of the Debt.  Untilexpended or applied in accordance herewith, the Reserve Funds shall constituteadditional security for the Debt.  Uponthe occurrence of an Event of Default, Trustee may, in addition to any and allother rights and remedies available to Trustee, apply any sums then present inany or all of the Reserve Funds to the payment of the Debt in any order in itssole discretion.  The Reserve Funds shallnot constitute trust funds and may be commingled with other monies held byTrustee for the benefit of Noteholders.

 

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(b)  Issuers shall not, without obtainingthe prior consent of Trustee, further pledge, assign or grant any securityinterest in any Reserve Fund or the monies deposited therein or permit any lienor encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1Financing Statements, except those naming Trustee as the secured party, to befiled with respect thereto.

 

(c)  The Reserve Funds shall be held in anEligible Account and shall bear interest at a money market rate selected byTrustee.  All interest or other earningson a Reserve Fund shall be added to and become a part of such Reserve Fund andshall be disbursed in the same manner as other monies deposited in such ReserveFund, except for any such taxes applicable to the interest or income earned onthe Tax and Insurance Escrow Funds which is retained by Trustee.  Issuers shall have the right to directTrustee to invest sums on deposit in the Eligible Account in PermittedInvestments provided (a) such investments are then regularly offered byTrustee for accounts of this size, category and type, (b) such investmentsare permitted by applicable federal, state and local rules, regulations andlaws, (c) the maturity date of the Permitted Investment is not later thanthe date on which the applicable Reserve Funds are required for payment of anobligation for which such Reserve Fund was created, and (d) no Event ofDefault shall have occurred and be continuing. Issuers shall be responsible for payment of any federal, state or localincome or other tax applicable to the interest or income earned on the ReserveFunds to the extent Issuers are entitled to such interest under this Indentureand the Cash Management Agreement.  Noother investments of the sums on deposit in the Reserve Funds shall be permittedexcept as set forth in this Section 10.06(c).  Issuers shall bear all reasonable costsassociated with the investment of the sums in the account in PermittedInvestments.  Such costs shall bededucted from the income or earnings on such investment, if any, and to theextent such income or earnings shall not be sufficient to pay such costs, suchcosts shall be paid by Issuers promptly on demand by Trustee.  Trustee shall have no liability for the rateof return earned or losses incurred on the investment of the sums in PermittedInvestments.

 

(d)  Issuers shall indemnify Trustee andhold Trustee harmless from and against any and all actions, suits, claims,demands, liabilities, losses, damages, obligations and costs and expenses(including litigation costs and reasonable attorneys fees and expenses) arisingfrom or in any way connected with the Reserve Funds or the performance of theobligations for which the Reserve Funds were established.  Issuers shall assign to Trustee all rightsand claims Issuers may have against all Persons supplying labor, materials orother services which are to be paid from or secured by the Reserve Funds; provided,however, that Trustee may not pursue any such right or claim unless anEvent of Default has occurred and remains uncured.

 

(e)  In all matters pertaining to theReserve Funds or the Reserve LC, the Issuers’ covenants and agreements shall beenforced, and all associated rights shall be exercised, by the Servicer onbehalf of the Trustee for the benefit of the Noteholders, and all relateddocuments to be delivered to the Trustee, amounts to be deposited with theTrustee and all accounts to be maintained by the Trustee shall be so delivered,deposited and maintained by the Servicer on behalf of the Trustee for thebenefit of the Noteholders.

 

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**ARTICLE11 - MATTERS CONCERNING THE TRUSTEE**

 

**Section 11.01****  Duties of theTrustee.**  (a)  The duties, responsibilitiesand liabilities of the Trustee in respect of the Financing Documents and theother duties and liabilities of the Trustee under this Indenture shall be asfollows:

 

(i)  The Trustee (and the Servicer on itsbehalf) shall have the full power and authority to do all things notinconsistent with the provisions of this Indenture or any other FinancingDocument that it may deem advisable in order to enforce the provisions hereofor thereof or to take any action with respect to a default or an Event ofDefault hereunder or thereunder, or to institute, appear in or defend any suitor other proceeding with respect hereto or thereto, or to protect the interestsof the Holders; provided, however, that notwithstanding theforegoing or any other provisions of this Indenture to the contrary, the Notesshall be serviced by the Servicer and the powers vested in the Servicerhereunder shall not be exercised by the Trustee except as expressly set forthherein.  Neither the Trustee nor any ofits directors, officers, shareholders, agents or employees (each, a “**TrusteeIndemnified Party**” and, collectively, the “**TrusteeIndemnified Parties**”) shall be answerable to or accountablefor, except for its or their own bad faith, willful misconduct or negligence,and the Issuers agree to indemnify and save harmless the Trustee IndemnifiedParties from, any costs, expenses, liabilities and damages that any of them mayincur or sustain, in good faith and without willful misconduct or negligence,in the exercise and performance of the Trustee’s powers and duties hereunderand the acceptance or administration of the trust or trusts hereunder, underthe Indenture or under any other Financing Document, including the cost andexpense of defending themselves against any claim or liability in connectionwith the exercise or performance thereof; provided, however, thatif it is found that any such claim or liability has resulted from the badfaith, willful misconduct or negligence of any Trustee Indemnified Party in theperformance of its duties hereunder, such Trustee Indemnified Party shall repaysuch portion of the reimbursed amounts that is attributable to expensesincurred in relation to that portion of its acts or omissions that is thesubject of such finding.  If any TrusteeIndemnified Party is entitled to receive indemnification hereunder with respectto any such action or proceeding brought by a third party, the Issuers shall beentitled to assume the defense of any such action or proceeding with counselreasonably satisfactory to such Trustee Indemnified Party who shall not, exceptwith the consent of such Trustee Indemnified Party, be counsel to the Issuersor any Affiliate thereof.  Uponassumption by the Issuers of the defense of any such action or proceeding, suchTrustee Indemnified Party shall have the right to participate in such action orproceeding and to retain its own separate counsel, but the Issuers shall not beliable for any legal fees or expenses of such a separate counsel subsequentlyincurred by such Trustee Indemnified Party in connection with the defensethereof unless (i) the Issuers have agreed to pay such fees and expensesor (ii) counsel provided by the Issuers pursuant to the foregoing iscounsel to the Issuers and such Trustee Indemnified Party shall have beenadvised by such counsel that representation of such Trustee Indemnified Partyby such counsel provided by the Issuers pursuant to the foregoing would beinappropriate due to actual or potential conflicting interests between theIssuers and such Trustee Indemnified Party, including situations in which thereare one or more legal defenses available to such Trustee Indemnified Party thatare different from or additional to those available to the Issuers; provided,however, that the Issuers shall not, in connection with any such actionor proceeding, or separate but substantially similar action or proceedingarising out of the same general allegations, be liable for the fees andexpenses of more than one separate firm of attorneys at any time, in additionto any local

 

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counsel, for any such Trustee Indemnified Party.  The Issuers shall not consent to the terms ofany compromise or settlement of any action defended by the Issuers inaccordance with the foregoing without the prior consent of the TrusteeIndemnified Party.  The Issuers shall notbe required to indemnify any Trustee Indemnified Party for any amount paid orpayable by such Trustee Indemnified Party in settlement of any action,proceeding or investigation without the prior written consent of the Issuers,which consent shall not be unreasonably withheld.  Promptly after receipt by any TrusteeIndemnified Party of notice of its involvement (or the involvement of any ofits Affiliates or such Affiliate’s directors, officers, shareholders, agents oremployees) in any action, proceeding or investigation, such Trustee IndemnifiedParty shall, if a claim for indemnification in respect thereof is to be madeagainst the Issuers hereunder, notify the Issuers in writing of suchinvolvement, but the failure of such Trustee Indemnified Party to provide suchnotice shall neither cause the forfeiture of the right to receive indemnityhereunder nor limit such right, except to the extent, if any, that the Issuersare prejudiced by the failure of the Trustee Indemnified Party to promptly givesuch notice.  The Issuers’ indemnificationobligations under this Section 11.01(i) shall survive payment of theNotes and any resignation, removal or replacement of the Trustee.  The indemnification provided herein islimited in each case to actual damages and does not extend to consequential damages.

 

(ii)  The Trustee shall be authorized tomake, at the expense of the Issuers, all required refilings of any FinancingDocument to preserve the liens created thereby to the extent not so done by theIssuers, the Servicer as provided herein or therein, but shall have noobligation to take any action to protect, preserve or enforce any rights orinterests in the Financing Documents or towards the execution or enforcement ofthe trusts hereby or thereby created which, in its opinion, shall be likely toinvolve expense or liability to the Trustee, unless the Trustee shall havereceived an agreement satisfactory to the Trustee in its sole discretion toindemnify it against such liability and expense.  The Trustee shall not be required toascertain or inquire as to the performance or observance of any of thecovenants or agreements contained herein, or in any other Financing Document orin any other instruments to be performed or observed by the Issuers or anyother party to any Financing Document (including, without limitation, thenecessity or desirability under any applicable state law to re-record,re-register or re-file any Financing Document). In accepting the trusts hereunder and under the Financing Documents, theTrustee is acting solely as Trustee hereunder and not in its individualcapacity and all Persons, other than the Issuers and the Holders, having anyclaim against the Trustee arising by reason hereof shall look only to theProperty for payment or satisfaction thereof except as provided herein.

 

(iii)  The Trustee shall incur no liabilityin acting upon any signature, notice, request, consent, certificate, opinion,or other instrument reasonably believed by it to be genuine.  In administering the trusts, the Trustee mayexercise any of the powers hereof directly or through its agents or attorneysand may, at the expense of the Issuers, consult with counsel, accountants andother skilled Persons to be selected and employed by it, and the reasonableexpenses thereof shall be paid by the Issuers, and the Trustee shall not beliable for anything done, suffered or omitted in good faith by it in accordancewith the advice of any such Person nor for any error of judgment made in goodfaith by a Responsible Officer, unless it shall be proved that the Trustee wasnegligent in ascertaining the pertinent facts.

 

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(iv)  The Trustee shall have no duty tomake, arrange or ensure the completion of any recording, filing or registrationof any Financing Document, any instrument of further assurance, any instrumentconstituting part of any of the Property, or any amendments or supplements toany of said instruments and the Trustee shall have no duty to make, arrange orensure the completion of the payment of any fees, charges or taxes inconnection therewith (and the Trustee may act with respect to the FinancingDocuments and pay out deposited monies without regard thereto), or to give anynotice thereof, or to make, arrange or ensure the completion of the payment ofor be under any duty in respect of any tax, assessment or other governmentalcharge that may be levied or assessed on any of the Property or any partthereof or against the Issuers. Notwithstanding the foregoing, the Trustee agrees that it will notify theIssuers in writing of any filings, fees, taxes or other payments required inconnection with the satisfaction of the Issuers’ obligations hereunder andunder the other Financing Documents known to any Responsible Officer of theTrustee assigned to its Corporate Trust Office and actively involved in theadministration of the Loan.

 

(v)  Whenever, in administering the trust,the Trustee shall deem it necessary or desirable that a matter be proved orestablished prior to taking, suffering or omitting any action hereunder, theTrustee may, in the absence of bad faith on the part of the Trustee, requestand rely upon (unless other evidence in respect thereof be specificallyprescribed herein or in any Financing Document) an Officer’s Certificate of theIssuers, and such Officer’s Certificate shall be full warrant to the Trusteefor any action taken, suffered or omitted by it on the faith thereof, but inits discretion the Trustee may in lieu thereof accept other evidence of suchfact or matter or may require such further or additional evidence as it maydeem reasonable.

 

(vi)  Whenever, in administering the trust,the Trustee shall be permitted whether pursuant to the terms of this Indentureor any other Financing Document, to determine to grant or withhold its consentto or waiver or approval of any matter described herein or therein or to takeor omit to take any action or course of conduct permitted or required hereunderor thereunder, the Trustee shall be fully protected in making suchdetermination based solely upon the written direction of the Servicer or,absent such direction, (a) on the basis of the related submission requiredby this Indenture or by such other Financing Document, as the case may be, or(b) if a standard for such determination is specified herein or therein,on the basis of its determination in good faith as to whether or not suchstandard has been satisfied, or (c) if no such standard is specified, onthe basis of its determination in good faith as to (x) with respect to anyact, omission or course of conduct, whether such act, omission or course ofconduct is reasonable (which determination may be made solely on the basis ofadvice from professionals selected by the Trustee with reasonable care) and(y) with respect to the selection of any professional, whether the partyproposing the engagement of such professional is motivated primarily byinterests contrary to those of the Holders in making such proposal; provided,that in each case, that the Trustee grants or withholds its consent or approvalor takes any other action on a timely basis. The Trustee shall not be required to seek the individual consents orapprovals of the Holders with respect to any such consent or approval unlessthe same shall be explicitly required by the terms of this Indenture or suchother Financing Document, as the case may be. Without limiting the generality of the foregoing, in the event theapproval of the Trustee is requested by the Servicer with respect to asettlement of an insurance claim pursuant to the Indenture, the Trustee shallbe fully protected in granting such approval based on directions from theServicer.

 

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(vii)  The Trustee shall have no obligationto see to the payment or discharge of any liens (other than the liens of theFinancing Documents, and then only to the extent therein provided), or to seeto the application of any payment of the principal of or interest on any Notesecured thereby or to the delivery or transfer to any Person of any propertyreleased from any such lien, or to give notice to or make demand upon anymortgagor, mortgagee, trustor, beneficiary or other Person for the delivery ortransfer of any such property.

 

(viii)  The Trustee shall not be concernedwith or accountable to any Person for the use or application of any depositedmonies that shall be released or withdrawn in accordance with the provisionshereof or of any other Financing Document or of any property or securities orthe proceeds thereof that shall be released from the lien hereof or thereof inaccordance with the provisions hereof or thereof and the Trustee shall have noliability for the acts of other parties hereto that are not in accordance withthe provisions hereof.

 

(ix)  Trustee shall not be charged withknowledge of any Event of Default hereunder or under any other FinancingDocument (except default in the payment of monies to the Trustee that theIssuers are required to pay or cause to be paid to the Trustee on or before aspecified date and except default in the delivery of any certificate, opinionor other document expressly required to be delivered to the Trustee by anyprovision hereof or any Financing Document) or any condition which after noticeand/or the passage of time would constitute an Event of Default or any otherfact, circumstance or event the occurrence of which would require the Trusteeto give any notice or otherwise take any action (any such Event of Default,condition, circumstance or other event, an “**Event**”),unless either (i) a Responsible Officer of the Trustee assigned to itsCorporate Trust Office shall have actual knowledge of such Event or(ii) written notice of such Event shall have been given to and received bythe Trustee, by any Issuer, the Servicer or any Holder or Holders of at least25% in aggregate principal amount of the Notes.

 

(x)  The Trustee shall not be responsible ofany act or omission of the Servicer and Servicer shall not be responsible forany act or omission of the Trustee.

 

(xi)  Except during the continuance of anEvent of Default, the Trustee undertakes to perform such duties and only suchduties as are specifically set forth in this Indenture, and no impliedcovenants or obligations shall be read into this Indenture against the Trustee.

 

(xii)  In the absence of actual knowledge onthe part of a Responsible Officer to the contrary or bad faith on its part, theTrustee may conclusively rely, as to the truth of the statements and thecorrectness of the opinions expressed therein, upon certificates or opinions furnishedto the Trustee and conforming to the requirements of this Indenture; but in thecase of any such certificates or opinions which by any provision hereof arespecifically required to be furnished to the Trustee, the Trustee shall beunder a duty to examine the same to determine whether or not they conform ontheir face to the requirements of this Indenture.

 

(xiii)  In the case an Event of Defaultknown to the Trustee has occurred and is continuing, the Trustee shall exercise(subject, in all cases, to the rights and powers vested in the Servicerpursuant to this Indenture), with respect to the Notes, such of the rights andpowers

 

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vested in it by this Indenture, and use the same degree of care and skillin their exercise, as a prudent Person would exercise or use under thecircumstances in the conduct of his own affairs.

 

(xiv)  No provision of this Indenture shallbe construed to relieve the Trustee from liability for its own negligentaction, its own negligent failure to act, or its own willful misconduct or badfaith, except that:

 

(A)  theTrustee shall not be liable for any error of judgment made in good faith by aResponsible Officer, unless it is proved by a court of competent jurisdictionthat the Trustee was negligent in ascertaining the pertinent facts; and

 

(B)  theTrustee shall not be liable with respect to any action taken or omitted to betaken by it in good faith and without negligence in accordance with thedirections of the Noteholders or the Servicer required by this Indenturerelating to the time, method and place of conducting any proceeding for anyremedy available to the Trustee, or exercising any trust or power conferredupon the Trustee, under this Indenture with respect to the Notes or theFinancing Documents.

 

(xv)  At any time or times, for the purposeof meeting the legal requirements of any jurisdiction in which any of theProperty may at the time be located, the Issuers and the Trustee shall havepower to appoint, and, upon the written request of the Trustee or of theHolders of a majority of the Noteholders, the Issuers shall for such purposejoin with the Trustee in the execution, delivery and performance of allinstruments and agreements necessary or proper to appoint, one or more Personsapproved by the Trustee either to act as co-trustee, jointly with theTrustee, of all or any part of the Collateral, or to act as separate trustee ofany such property, in either case with such powers as may be provided in theinstrument of appointment, and to vest in such Person or Persons in thecapacity aforesaid, any property, title, right or power deemed necessary ordesirable, subject to the other provisions of this Section 11.01.  If the Issuers do not join in suchappointment within 15 days after the receipt by them of a request so to do, orin case an Event of Default has occurred and is continuing, the Trustee aloneshall have power to make such appointment.

 

(xvi)  If any written instrument from theIssuers should be required by any co-trustee or separate trustee soappointed to more fully verify such co-trustee’s or separate trustee’spower with respect to such property, title, right or power, any and all suchinstruments shall, on request, be executed, acknowledged and delivered by theIssuer.

 

(xvii)  Every co-trustee or separatetrustee shall, to the extent permitted by law, but to such extent only, beappointed subject to the following terms:

 

(A)  The Notesshall be authenticated and delivered, and all rights, powers, duties andobligations hereunder in respect of the custody of securities, cash and otherpersonal property held by, or required to be deposited or pledged with, theTrustee hereunder, shall be exercised solely, by the Trustee.

 

(B)  Therights, powers, duties and obligations hereby conferred or imposed upon theTrustee in respect of any property covered by such appointment

 

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shall be conferred or imposed upon and exercised orperformed by the Trustee (or by the Trustee and such co-trustee orseparate trustee jointly, as shall be provided in the instrument appointingsuch co-trustee or separate trustee), except to the extent that, underany law of any jurisdiction in which any particular act is to be performed, theTrustee shall be incompetent or unqualified to perform such act, in which eventsuch rights, powers, duties and obligations shall be exercised and performed bysuch co-trustee or separate trustee.

 

(C)  TheTrustee, at any time, by an instrument in writing executed by it, with theconsent of the Issuers evidenced by a Board Resolution, may accept theresignation of or remove any co-trustee or separate trustee appointedunder this Section 11.01, and, if an Event of Default has occurredand is continuing, the Trustee shall have power to accept the resignation of,or remove, any such co-trustee or separate trustee without the consent ofthe Issuers.  Upon the written request ofthe Trustee, the Issuers shall join with the Trustee in the execution, deliveryand performance of all instruments and agreements necessary or proper toeffectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned orremoved may be appointed in the manner provided in this Section 11.01

 

(D)  No co-trusteeor separate trustee hereunder shall be personally liable by reason of any actor omission of the Trustee, or any other such trustee hereunder.  Any fees or expenses of any co-trusteeor separate trustee shall not be an expense of the Trustee.

 

(E)  Any at ofNoteholders delivered to the Trustee shall be deemed to have been delivered toeach such co-trustee and separate trustee.

 

**Section 11.02****  Rights of Trustee.** (a)  The Trustee may rely on any document believed by it to begenuine and to have been signed or presented by the proper Person.  The Trustee need not investigate any fact ormatter stated in such document.

 

(b)  Any request or direction of the Issuersmentioned herein shall be sufficiently evidenced an Issuer request and anyresolution of a board of directors may be sufficiently evidenced by aresolution of such board of directors.

 

(c)  Before the Trustee acts or refrainsfrom acting, it may require an Officer Certificate or an opinion ofcounsel.  The Trustee shall not be liablefor any action it takes or omits to take in good faith in reliance on suchOfficer Certificate or opinion of counsel.

 

(d)  The Trustee may execute any of thetrusts or powers hereunder or perform any duties hereunder either directly orby or through delegates, agents or attorneys or a custodian or nominee, and theTrustee shall not be responsible for any misconduct or negligence on the partof, or for the supervision of, any such agent, attorney, custodian or nomineeappointed with due care by it hereunder.

 

(e)  The Trustee shall not be liable for anyaction it takes or omits to take in good faith which it believes to beauthorized or within its rights or powers.

 

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(f)  The Trustee may consult with counsel,and the advice or opinion of such counsel or any opinion of counsel shall befull and complete authorization and protection from liability in respect of anyaction taken, omitted or suffered by it hereunder in good faith and in reliancethereon.

 

(g)  The Trustee shall be under noobligation to exercise any of the rights or powers vested in it by thisIndenture at the request or direction of any of the Noteholders pursuant tothis Indenture or to institute, conduct or defend any litigation hereunder orin relation hereto at the request, order or direction of any of the Noteholderspursuant to this Indenture, unless such Noteholders shall have offered to theTrustee reasonable security or indemnity against the costs, expenses andliabilities which might be incurred by it in compliance with such request ordirection;

 

(h)  The Trustee shall not be bound to makeany investigation into the facts or matters stated in any document, but theTrustee, in its direction, may make such further inquiry or investigation intosuch facts or matters as it may see fit, and, if the Trustee shall determine tomake such further inquiry or investigation, it shall be entitled to examine thebooks, records and premises of the Issuers, personally or by an agent orattorney; and

 

(i)  The Trustee shall not be required togive any bond or surety in respect of the execution of the trust created herebyor the powers granted hereunder.

 

(j)  With respect to all conditions to besatisfied or determinations permitted or required to be made by or to thesatisfaction of the Trustee hereunder with respect to the closing the Trusteeshall be entitled to receive and rely conclusively upon a certificate orinstruction from the Initial Purchaser.

 

(k)  With respect to the exercise of allrights, powers and authority of the Trustee hereunder, and with respect to anyactions permitted or required to be taken by the Trustee hereunder, the Trusteeshall at all times be entitled to request, rely, and act only upon, the writteninstruction of the Noteholders, and in the absence of such instruction andindemnity reasonably acceptable to the Trustee with respect thereto, theTrustee shall have no obligation to act.

 

(l)  With respect to all matters relating tothe ongoing administration and servicing of the Notes, including withoutlimitation all matters relating to monitoring and enforcing the Issuers’obligations hereunder, the Trustee shall enter into such servicing agreementsas the Noteholder shall request, with such servicers, master servicers and/orspecial servicers (including the initial Servicer) as shall be selected anddesignated by a majority of the Noteholders, and the Trustee shall have noresponsibility or liability therefore.

 

**Section 11.03****  Individual Rightsof Trustee.**  The Trustee, in its individual or any othercapacity, may become the owner or pledgee of Notes and may otherwise deal withthe Issuers or its Affiliates with the same rights it would have had if it werenot Trustee.

 

**Section 11.04****  Trustee’sDisclaimer.**  The Trustee (i) shall not be responsiblefor, and makes no representation, as to the validity or adequacy of thisIndenture or the Notes and (ii) shall not be accountable for the Issuers’use of the proceeds from the Notes, or

 

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responsible for anystatement of the Issuers in this Indenture or in any document issued inconnection with the sale of the Notes or in the Notes other than the Trustee’scertificate of authentication.

 

**Section 11.05****  Notice of Defaults.** If a Default occurs and is continuing and if it is actually known to aResponsible Officer of the Trustee, the Trustee shall mail to each Noteholderand the Issuers with a copy to the Rating Agency, notice of such Default withinthirty (30) calendar days after obtaining actual knowledge of suchDefault.  Except in the case of a Defaultin payment of principal of or interest on any Note, the Trustee may withholdthe notice, and be protected against liability in withholding such notice, if, andso long as the Trustee in good faith determines that withholding the notice isin the best interests of the Noteholders and shall so advise the Issuers inwriting.  Where a notice of theoccurrence of an Event of Default has been given to the Noteholders pursuant tothis Section 11.05 and the Event of Default is thereafter cured,the Trustee shall give notice that the Event of Default is no longer continuingto the Noteholders within thirty (30) calendar days after a Responsible Officerof the Trustee obtains actual knowledge that the Event of Default has beencured.

 

**Section 11.06****  Compensation andIndemnity.**  (a)  On the Note Issuance Date andfrom time to time thereafter, the Trustee shall receive any costs, fees andexpenses of its counsel and a fee, agreed to in writing between the Trustee andthe Noteholders, payable monthly and calculated in the same manner as interestis calculated under the Notes from the monthly payments required under theNotes in advance upon the outstanding principal balance of the Notes as of therelated Determination Date and payable in accordance with the Cash ManagementAgreement, as compensation for its services as Trustee hereunder.  The Trustee’s compensation shall not belimited by any law on compensation of a trustee of an express trust.  The Issuers shall reimburse the Trustee uponrequest for all reasonable out-of-pocket expenses incurred or made by it,including costs of collection, in addition to the compensation for itsservices.  Such expenses shall include,but will not be limited to, the reasonable compensation and expenses,disbursements and advances of the Trustee’s agents (including any receiver),delegates, counsel, accountants and experts. The Issuers shall indemnify the Trustee against any and all loss,liability or expense (including reasonable attorney’s fees) incurred by it inconnection with the administration of this trust and the performance of itsduties in its various capacities hereunder including the costs and expenses ofdefending itself against any claim or liability in connection with the exerciseor performance of any of its powers or duties hereunder.  The Trustee shall notify the Issuers and theNoteholders promptly of any claim for which it may seek indemnity.  Failure by the Trustee to so notify theIssuers shall not relieve the Issuers of its obligations hereunder.  The Issuers need not reimburse any expense orindemnity against any loss, liability or expense incurred by the Trusteethrough the Trustee’s own willful misconduct, negligence or bad faith.

 

(b)  The payment obligations to the Trusteepursuant to this Section 11.06 shall survive the resignation orremoval of the Trustee and the discharge of this Indenture.

 

**Section 11.07****  Replacement ofTrustee.**  The Trustee may resign its trust and bedischarged from all further duties and liabilities hereunder by giving to theNoteholders thirty (30) days prior notice in writing or such shorter notice asthe Noteholders may accept as sufficient. In addition, the Trustee shall resign upon the request of a majority ofthe Noteholders.

 

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In the event of theTrustee resigning or being removed or being dissolved, becoming bankrupt, goinginto liquidation or otherwise becoming incapable of acting hereunder, theNoteholders shall forthwith appoint a new Trustee by Noteholders’Approval.  On any new appointment, theTrustee shall be vested with the same powers, rights, duties andresponsibilities as if it had been originally named herein as Trustee.  Any company into which the Trustee may be mergedor with which it may be consolidated or amalgamated or any company resultingfrom any merger, consolidation or amalgamation to which the Trustee shall be aparty, shall be the successor Trustee under this Indenture without theexecution of any instrument or any further act. If no successor Trustee is appointed within thirty (30) days of theaforesaid notice being provided, the Trustee or any of the Noteholders mayapply, at the cost of the Issuers, to a court of competent jurisdiction toappoint a successor.

 

**Section 11.08****  Resignation orRemoval of Trustee; Conflict of Interest.** (a)  The Trustee may resign its trust, after giving sixty (60)days’ notice in writing to Noteholders or such shorter notice as theNoteholders, may accept as sufficient, after the Trustee becomes aware that ithas a material conflict of interest it shall provide the Noteholders withwritten notice of the nature of that conflict. If, notwithstanding the foregoing provisions of this section, theTrustee has such a material conflict of interest, the validity andenforceability of this Indenture and of the Notes issued hereunder shall not beaffected in any manner whatsoever by reason only of the existence of suchmaterial conflict of interest.  TheTrustee represents to Initial Purchaser and Initial Noteholder that, to thebest of its knowledge, at the time of the execution and delivery hereof, nomaterial conflict of interest exists in the Trustee’s role as a fiduciaryhereunder.  Upon any resignation, theTrustee shall be discharged from all further duties and liabilities under thisindenture.

 

(b)  In the event of the Trustee resigningor being removed or being dissolved, becoming bankrupt, going into liquidationor otherwise becoming incapable of acting hereunder, the Noteholders shallforthwith appoint a new Trustee; failing such appointment by the retiringTrustee or any Holder may apply to any applicable Governmental Authority, forthe appointment of a new Trustee at the Issuers’ expense.  Any new Trustee so appointed shall be subjectto removal by the Noteholders.  On anynew appointment the new Trustee shall be vested with the same powers, rights,duties and responsibilities as if it had been originally named herein asTrustee.  The expense of any act,document or other instrument or thing required under this Section shall be paidby Issuers.

 

(c)  Any new or successor Trustee shall,forthwith upon appointment, become vested with all the estates, properties,rights, powers and trusts of its predecessors in the trusts hereunder, withlike effect as if originally named as Trustee herein.  Nevertheless, upon the written request of thesuccessor Trustee or of the Noteholders and upon payment of all outstandingfees and expenses properly payable to the Trustee hereunder, the Trusteeceasing to act shall execute and deliver an instrument assigning andtransferring to such successor Trustee, upon the trusts herein expressed, allthe rights, powers and trusts of the Trustee so ceasing to act, and shall dulyassign, transfer and deliver all property and money held by such Trustee to thesuccessor Trustee so appointed in its place. Should any deed, conveyance or instrument in writing from the Trustee onbehalf of the Issuers be required by any new Trustee for more fully andcertainly vesting in and confirming to it such estates, properties, rights,powers and trusts, then any and all such deeds, conveyances and instruments inwriting shall, on the request of the

 

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new or successor Trustee, be made, executed, acknowledged and deliveredby the Issuers, as the case may be.

 

(d)  Any company into which the Trustee maybe consolidated or amalgamated or any company resulting from any merger,consolidation or amalgamation to which the Trustee shall be a party shall be asuccessor Trustee under this indenture without the execution of any instrumentor any further act; provided that such successor Trustee shall not havea material conflict of interest in its role as a fiduciary under this Indenture.

 

**Section 11.09****  Successor Trustee.** Upon the written request of any successor Trustee, the Trustee ceasingto act shall, upon receiving payment for any outstanding fees and expenses,execute and deliver an instrument assigning and transferring to such successorTrustee, upon the trusts herein expressed, all the rights, powers and trusts ofthe Trustee so ceasing to act, and shall duly assign, transfer and deliver allproperty and money held by such Trustee to the successor Trustee so appointedin its place.  Should any deed,conveyance or instrument in writing from the Issuers be required by any newTrustee for more fully and certainly vesting in and confirming to it suchestates, properties, rights, powers and trusts, then any and all such deeds,conveyances and instruments in writing shall on the request of said newTrustee, be made, executed, acknowledged and delivered by the Issuers.

 

**Section 11.10****  Authorization andDuties of Trustee.**  (a)  In the exerciseof the rights, duties and obligations prescribed or conferred by the terms ofthis Indenture, the Trustee shall act honestly and in good faith and shallexercise the care, diligence and skill that a reasonably prudent Trustee wouldexercise in comparable circumstances. For greater certainty, provided that the Trustee fulfills theabove noted standard of care and there is no willful misconduct or grossnegligence on the part of the Trustee or its officers, directors, employees oragents, the Trustee shall not be liable for any act or default on the part ofany agent employed by it.

 

(b)  Trustee shall be authorized to takesuch action as trustee on behalf of the Noteholders and to exercise such powersunder the Financing Documents as are delegated to Trustee by the terms hereofor thereof, together with such powers as are reasonably incidental thereto.

 

(c)  By their acquisition of the Notes, theNoteholders hereby authorize and direct Trustee to act on their behalf in allrespects in connection with the Financing Documents (but subject to Section 13.02hereof) and agree with Issuers that Issuers shall only be required to and shallonly deal with Trustee and each Noteholder shall be bound by any acts ofTrustee; provided that Issuers shall not be entitled to rely upon anyacts of Trustee, and Noteholders shall not be bound by any acts of Trustee,that (i) amend or otherwise modify in writing this Indenture or any otherFinancing Document, (ii) waive any Event of Default or(iii) contradicts any Extraordinary Resolution, a copy of which has beenprovided to Issuers; provided further that with respect to each matterunder clause (i), (ii) or (iii) above, Issuers shall be entitled to relyupon copies of the applicable Noteholders’ Approval or Extraordinary Resolutionprovided to Issuers by Trustee.

 

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**Section 11.11****  Trustee NotRequired to Give Security.**  The Trusteeshall not be required to give any security in respect of the execution of thetrusts and powers of this Indenture or otherwise in respect of the premises.

 

**Section 11.12****  Trustee May DealIn Notes.**  The Trustee may buy, sell, lend upon and dealin the Notes and generally contract and enter into financial transactions withthe Issuers without being liable to account for any profits made thereby.

 

**Section 11.13****  Administration ofthe Trust and Protection of the Trustee.**  By way ofsupplement to the provisions of any law of the State of New York from time totime relating to trustees and in addition to any other provision of thisIndenture for the relief of the Trustee, it is expressly declared as follows:

 

(a)  the Trustee may in relation to thesepresents act on the opinion or advice of or information obtained from any legalcounsel, auditor, or other expert, whether obtained by the Trustee or by the Trusteeor otherwise, but will not be bound to act upon the opinion or advice orinformation and will not be responsible for any loss occasioned by so acting ornot acting in good faith, as the case may be, and may pay proper and reasonablecompensation for all legal and other advice as aforesaid; any advice or opinionor information may be sent or obtained by letter, telegram, cablegram or byelectronic facsimile transmission, and the Trustee will not be liable foracting on any advice, opinion or information purporting to be conveyed by anyof these means although the same will contain some error or will not beauthentic;

 

(b)  except where some other mode of proofis required by this Indenture, the Trustee will be at liberty to accept acertificate signed by an officer of the Issuers, provided that theTrustee examines the same and determines that such certificate complies withthe applicable requirements of this Indenture (i) as to any statement offacts as conclusive evidence of the truth of the statement, (ii) as to anyparticular act or transaction or step or thing which, in the opinion of theofficers so certifying, is expedient, as sufficient evidence that the act,transaction, step or thing is expedient, and (iii) as to any expendituremade or indebtedness incurred by the Trustee or any successor trustee to theTrustee as sufficient evidence that the expenditure or indebtedness was made orincurred for the purpose set forth in the certificate; and the Trustee will bein no way bound to call for further evidence or be responsible for any lossthat may be occasioned by its failing to do so; however, the Trustee may causeto be made any independent investigations as it may reasonably require and theexpense thereof (together with interest at the rate of interest charged to theTrustee by its bankers from the date of the Trustee’s expenditure to the dateof its reimbursement) will be paid by the Trustee upon demand and will bepayable out of any funds coming into the possession of the Trustee; if as aresult of any independent investigation the Trustee is not satisfied as to anymatter or thing set forth in the certificate, the Trustee may refuse to actthereon;

 

(c)  in the exercise of the rights andduties prescribed or conferred by the terms of this Indenture, the Trustee willact honestly and in good faith and exercise that degree of care, diligence andskill that a reasonably prudent trustee would exercise in comparablecircumstances;

 

(d)  the Trustee may, but is not requiredto, employ any agents or other assistants as it may reasonably require for theproper discharge of its duties hereunder and will

 

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not be responsible for any misconduct on the part of any agents orother assistants or for any liability incurred by any Person as a result of notappointing such agents or other assistants and may pay reasonable remunerationfor all services performed for it in the discharge of the trusts hereof withouttaxation of any costs or fees of any counsel, and will be entitled to receivereasonable remuneration for all services performed by it in the discharge ofthe trusts hereof and compensation for all disbursements, costs, liabilitiesand expenses made or incurred by it in the discharge of its duties hereunderand in the management of the trusts hereof; all such remuneration,disbursements, costs, liabilities and expenses and all remuneration andexpenses incidental to the preparation, execution and recording of thisIndenture or of any instrument ancillary or supplemental hereto and to thepreparation, execution and issue of Notes or other Financing Documents, whetherdone or incurred at the request of the Trustee or the Issuers, will bearinterest at the rate of interest charged to the Trustee by its bankers from thedate of the same being incurred or expended until the date of reimbursement andwill (together with such interest) be paid by the Trustee upon demand and willbe payable out of any funds coming into the possession of the Trustee.  Where the Trustee has delegated its dutiespursuant to this section, it shall be deemed to have satisfied its duty ofcare, if such delegation is reasonable;

 

(e)  wherever by this Indenture the Trusteeis authorized to employ or consult counsel and to pay costs, the costs need notbe taxed unless the Trustee deems it necessary to tax the same but may beagreed to by the Trustee and paid as a lump sum; costs paid by the Trusteeunder the provisions of this Section in good faith will not be disallowed inthe taking of any accounts by reason only of the fact that the costs aregreater than they might have been if taxed, or by reason of their not beingtaxed, but the costs so paid by the Trustee will, if not improperly incurred byit, be allowed and paid to the Trustee and will be payable out of any fundscoming into the possession of the Trustee; any counsel employed or consulted bythe Trustee may, but need not, be counsel for the Trustee;

 

(f)  the Trustee, in its individual or anyother capacity, may, sell, own, lend upon, become a pledgee of and deal withthe Notes and generally contract and enter into financial transactions with oract as bankers for the Issuers or otherwise, without being liable to accountfor any profits made thereby; provided, however, that except asexpressly provided in this Indenture, the Trustee shall not have any right ofset-off, combination, consolidation or banker’s lien against, and no right tootherwise deduct from, any funds on deposit in the Lockbox Account or the CashManagement Account or in any other account from time to time maintained by theIssuers with the Trustee and all investments thereof for any amount owed to itby virtue of any of the foregoing dealings or activities;

 

(g)  the Trustee will not be liable for orby reason of the statements or implications of fact or law contained in orarising out of anything contained in this Indenture or in the Notes or berequired to verify the same, but all statements or implications will be deemedto have been made by the Trustee only, and it will not be the duty of theTrustee, except as herein otherwise specifically provided, to see to theregistration or filing or renewal of this Indenture, if necessary, or to keepitself informed or advised as to the payment by the Trustee of any taxes or assessmentsor premiums of insurance or other payments which the Trustee should make or torequire payments to be made, it being hereby agreed and declared that as to allmatters and things in this subsection, the duty and responsibility will restupon the Issuers and not upon the Trustee

 

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and the failure of the Trustee to discharge this duty andresponsibility will not in any way render the Trustee liable or cast upon itany duty or responsibility for breach of which it would be liable;

 

(h)  the Trustee may in the exercise of allor any of the trusts, powers and discretions vested in it hereunder act by itsofficers; the Trustee may delegate to any Person the performance of any of thetrusts and powers vested in it by this Indenture or the other FinancingDocuments subject to the limitation set forth in Section 11.08, andany delegation may be made upon such terms and conditions as the Trustee maythink to be in the interest of the holders of Notes and the Trustee shall haveno responsibility for the actions of any such delegate; and

 

(i)  the regularity and validity of allacts, consents, requests and directions of the Issuers will, for the protectionof the Trustee, be deemed conclusively proved by a certificate duly executed byan officer of the Issuers; the Trustee will not be responsible for any errormade or act done by it resulting from reliance upon the signature of anyofficer of the Issuers or of any Person on whose signature the Trustee may becalled upon to act or refrain from acting under this Indenture.

 

**Section 11.14****  Service Providers.**  Amajority of the Noteholders shall designate a servicer, initially the Servicerdesignated herein, to service the obligations of the Issuers with respect tothe Notes, the Financing Documents and the Property, as may be generallydescribed herein, with such powers as are specifically delegated to theServicer herein and as designated by a majority of the Noteholders, whetherpursuant to this Indenture, a servicing agreement or otherwise, together withsuch other powers as are reasonably incidental thereto.  Issuers shall be responsible for the paymentof such Servicer’s fees and expenses for servicing, master servicing orsubservicing, including, without limitation, any fee or expense for any specialservicing and any fees and expenses of such servicer, including, withoutlimitation, in connection with a release of the Property, satisfaction of anyFinancing Document, assumption of the Notes, modification of the Notes made atIssuers’ request, any requests by Issuers for waivers or consents, protectiveadvances, and the enforcement of the Financing Documents.  Issuers shall have the right to rely on anynotices given by the Servicer with the same force and affect as if Trustee hadgiven such notices.

 

**ARTICLE12 - SUPPLEMENTAL INDENTURES**

 

**Section 12.01****  Supplemental TrustIndentures.**  Supplemental Trust Indentures may be issued,from time to time, to evidence those matters agreed between the Issuers and theTrustee, and supplemental Trust Indentures may be issued, to document andevidence such matters from time to time. The execution of a supplemental Trust Indenture by the Trustee shall beevidence that such supplemental Trust Indenture documents the amendment,modification or other agreement, permitted by the terms of this Indenture.

 

**Section 12.02****  Further Assurances.** From time to time the Trustee and the Issuers shall, when so directed bythis Indenture, execute, acknowledge and deliver, by their proper officers,deeds or instruments supplemental to this Indenture, which thereafter shallform part of this Indenture, or any other deeds or instruments, or do andperform any other acts and things for any one or more of the purposes ofhypothecating, mortgaging, pledging, ceding, transferring or assuring to orconfirming or vesting in the Trustee, or charging in favor of the

 

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Trustee, any Property nowowned or hereafter acquired by the Issuers; adding to the limitations orrestrictions specified in the terms, provisions and conditions of this Indenturefurther limitations or restrictions, thereafter to be observed, with respect todealing with the Property or the release of Property from the charges andsecurity interest created hereby; and adding to the terms, provisions andconditions contained in this Indenture for the protection of the Noteholders orproviding for Events of Default in addition to those herein specified.  It is also specifically acknowledged andagreed that such further agreements, and further assurances as providedtherein, as shall be agreed from time to time between the Trustee and theIssuers, and set out in a Note or other Financing Documents, shall specificallybe permitted to be entered into and agreed, and notwithstanding any suchchanges, additions, or deletions, shall form Notes and other FinancingDocuments issued under the terms of this Indenture if so noted.

 

**Section 12.03****  Amendment orModification.**  No modification or amendment to the terms ofthis Indenture, whether by supplemental deeds or indentures or otherwise, shallbe effective unless and until sanctioned by a Noteholders’ Approval.  Issuers acknowledge and agree that the termsand provisions of this Indenture and the other Financing Documents may beamended or otherwise modified pursuant to and in accordance with the terms andprovisions of the Securitization Cooperation Agreement.

 

**ARTICLE13 - NOTEHOLDER MEETINGS AND APPROVALS**

 

**Section 13.01****  Conduct ofMeetings.**  Meetings of the Holders of the Notes shall beconvened, held and conducted in the manner following:

 

(a)  Calling of Meetings.  At any time and from time to time the Trusteeor any Noteholder, at the expense of the Issuers, may call a meeting ofNoteholders in New York City, New York or at such other place as the Trusteemay in any case determine or approve.

 

(b)  Notice of Meetings.  Unless the Noteholders waive such notice, atleast five (5) clear days’ previous notice of such meeting shall be given tothe Noteholders and such notice shall state the time when, and the place where,said meeting is to be held and shall specify in general terms the nature of thebusiness to be transacted thereat, but it shall not be necessary to specify inthe notice the text of the resolutions to be passed.

 

(c)  Quorum.  At any meeting of the Noteholders, subject asherein provided, a quorum shall consist of two or more Persons present inperson holding either personally or as proxies for Holders not less than thirtypercent (30%) of principal amount of the Notes. In the event of a quorum not being present on the date for which themeeting is called within thirty (30) minutes after the time fixed for theholding of such meeting, the meeting shall be adjourned to be held at a placeand upon a date and at an hour to be fixed by the Trustee who shall give notless than five (5) days’ notice of the date and time to which such meeting isadjourned and of the place where such adjourned meeting is to be held and atsuch adjourned meeting a quorum shall consist of the Noteholders then and thererepresented in person or by proxy and voting.

 

(d)  Chairman.  The Noteholders and proxies for Noteholderspresent shall choose one of their number to be Chairman.

 

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(e)  Voting.  Every question submitted to a meeting, exceptan Extraordinary Resolution, shall be decided in the first place by a majorityof the votes given on a show of hands and shall be binding on allNoteholders.  A poll shall be taken onevery Extraordinary Resolution.  On apoll each Noteholder shall have one vote for every One Thousand Dollars($1,000.00) principal amount of Notes of which such Noteholder shall then bethe holder according to the Register. Votes may be given in person or by proxy and a proxy need not be aNoteholder.

 

(f)  Regulations.  The Trustee may make and from time to timevary such regulations as it shall think fit providing for and governing theconduct at meetings of Noteholders.

 

**Section 13.02****  ExtraordinaryResolution.**  A resolution, adopted under this Section 13.02shall be binding upon all the Noteholders and the Trustee shall be bound togive effect thereto accordingly.  Save asherein expressly otherwise provided, no action shall be taken at a meeting ofthe Noteholders which changes any provision of this Indenture or changes orprejudices the exercise of any right of any Noteholder except by ExtraordinaryResolution.  In addition to the powersconferred upon them by any other provisions of this Indenture or by law, theHolders holding the Notes shall have the following powers exercisable from timeto time as a Noteholders’ Approval exercisable by Extraordinary Resolution:

 

(a)  power to sanction any modification,abrogation, alteration, compromise or arrangement of the rights of theNoteholders and/or the Trustee against the Issuers, or against the Property,whether such rights arise under this Indenture or the Notes or, with respect tothe rights of the Trustee only, otherwise;

 

(b)  power to assent to any modification ofor change in or addition to or omission from the provisions contained in thisIndenture or in any Note which shall be agreed to by the Issuers and toauthorize the Trustee to concur in and execute any indenture supplementalhereto embodying any such modification, change, addition or omission;

 

(c)  power to direct or authorize theTrustee to exercise any power, right, remedy or authority given to it by thisIndenture in any manner specified in any such Noteholders’ Approval or torefrain from exercising any such power, right, remedy or authority;

 

(d)  power to waive and direct the Trusteeaccelerating payment or commencing realization to waive any Event of Defaulthereunder and/or cancel any declaration made by the Trustee pursuant to Section 9.02,either unconditionally or upon any condition specified in such Noteholders’ Approval;

 

(e)  power to assent to any compromise orarrangement with any creditor or creditors or any class or classes ofcreditors, whether secured or otherwise, and with holders of any shares orother securities of the Issuers;

 

(f)  power to remove the Trustee from officeand to appoint a new Trustee or Trustees; and

 

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(g)  power to amend, alter or repeal anyNoteholders’ Approval previously passed or sanctioned by the Noteholders.

 

**Section 13.03****  Signed Instruments.** Any resolution or instrument signed in one or more counterparts by theHolders of sixty-six and two-thirds percent (66-2/3%) of the aggregateprincipal amount of the Notes then outstanding shall have the same force andeffect as an Extraordinary Resolution duly passed at a meeting of theNoteholders.

 

**Section 13.04****  Binding Effect ofResolutions.**  Every resolution passed in accordance withthis Indenture at a meeting of the Holders shall be binding upon all Holders ofNotes whether present or absent from such meeting, and every document inwriting signed by the Holders shall be binding upon all Holders of Noteswhether signatories thereto or not, and each and every Holder of Notes shall bebound by the effect of every such resolution and document in writing.

 

**ARTICLE 14 -MISCELLANEOUS**

 

**Section 14.01****  Survival.** This Indenture and all covenants, agreements, representations andwarranties made herein and in the certificates delivered pursuant hereto shallsurvive the issuance of the Notes, and shall continue in full force and effectso long as all or any of the Debt is outstanding and unpaid unless a longerperiod is expressly set forth herein or in the other Financing Documents.  Whenever in this Indenture any of the partieshereto is referred to, such reference shall be deemed to include the legalrepresentatives, successors and assigns of such party.  All covenants, promises and agreements inthis Indenture, by or on behalf of Issuers, shall inure to the benefit of thelegal representatives, successors and assigns of Trustee.

 

**Section 14.02****  Trustee’sDiscretion. **Whenever pursuant to this Indenture,exercises any right given to it to approve or disapprove, or any arrangement orterm is to be satisfactory to Trustee, the decision of Trustee to approve ordisapprove or to decide whether arrangements or terms are satisfactory or notsatisfactory shall (except as is otherwise specifically herein provided) be inthe sole discretion of Trustee and shall be final and conclusive.  Whenever this Indenture expressly providesthat Trustee may not withhold its consent or its approval of an arrangement orterm, such provisions shall also be deemed to prohibit Trustee from delaying orconditioning such consent or approval.

 

**Section 14.03****  Notices. **All notices, consents, approvals and requests requiredor permitted hereunder or under any other Financing Document shall be given inwriting and shall be effective for all purposes if hand delivered or sent by(a) certified or registered United States mail, postage prepaid, returnreceipt requested or (b) expedited prepaid delivery service, eithercommercial or United States Postal Service, with proof of attempted delivery,and by telecopier (with answer back acknowledged), addressed as follows (or atsuch other address and Person as shall be designated from time to time by anyparty hereto, as the case may be, in a notice to the other parties hereto inthe manner provided for in this Section 14.03):

 

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|   | If to Trustee: | LaSalle Bank National  Association

135 South LaSalle  Street, Suite 1625

Chicago, Illinois 60603

Attention: Global  Securitization Trust Services Group Palmilla

Los Cabos Notes due  January 9, 2007

Facsimile No. |
|--------|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |           |                                                                                                                                                                                                                          |
|   |           | with a copy to:                                                                                                                                                                                                               | Column Financial, Inc.

11 Madison Avenue

New York, New York  10010

Attention: [Edmund  Taylor]

Facsimile No. [(212)  325-8106 |
|   |           |                                                                                                                                                                                                                          |
|   |           | with a copy to:                                                                                                                                                                                                               | Column Financial, Inc.

One Madison Avenue

New York, New York  10019

Legal and Compliance  Department

Attention: Casey  McCutcheon, Esq.

Facsimile No. (212)  326-8282 |
|   |           |                                                                                                                                                                                                                          |
|   |           | with a copy to:                                                                                                                                                                                                               | Cadwalader, Wickersham  & Taft LLP

100 Maiden Lane

New York, New York  10038

Attention: William P.  McInerney, Esq.

Facsimile No.  (212) 504-6666 |
|   |           |                                                                                                                                                                                                                          |
|   | If to Issuers: | c/o Kerzner  International North America

1000 South Pine Island  Road

Plantation, Florida  33324-3906

Attention: John Allison

Facsimile No. (954)  809-2346                                                               |
|   |           |                                                                                                                                                                                                                          |
|   |           | with a copy to:                                                                                                                                                                                                               | Goldman Sachs Emerging  Markets Real Estate Fund

c/o Goldman Sachs

85 Broad Street

New York, New York  10004

Attention: Peter  Weidman

Facsimile No. (212)  357-5505 |
|   |           |                                                                                                                                                                                                                          |
|   |           | with a copy to:                                                                                                                                                                                                               | Cravath, Swaine &  Moore LLP

825 Eighth Avenue

New York, New York 10019-7475

Attention: Kevin J.  Grehan, Esq.

Facsimile No. (212)  474-3700 |

 

A notice shall be deemed to have been given:  in the case of hand delivery, at the time ofdelivery; in the case of registered or certified mail, when delivered or thefirst attempted delivery

 

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on a Business Day; or in the case of expedited prepaid delivery andtelecopy, upon the first attempted delivery on a Business Day; or in the caseof telecopy, upon sender’s receipt of a machine-generated confirmation ofsuccessful transmission after advice by telephone to recipient that a telecopynotice is forthcoming.

 

**Section 14.04****  Governing Law.**  **(A)  THIS INDENTURE WAS NEGOTIATED IN THE STATE OF NEW YORK,THE NOTES WERE ISSUED BY ISSUERS AND ACCEPTED BY TRUSTEE IN THE STATE OF NEWYORK, AND THE PROCEEDS OF THE NOTES DELIVERED PURSUANT HERETO WERE DISBURSEDFROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIALRELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THEFOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS INDENTURE,THE NOTES AND THE OTHER FINANCING DOCUMENTS AND THE OBLIGATIONS ARISINGHEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCEWITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE ANDPERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) ANDANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMESTHE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS ANDSECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER FINANCINGDOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATEOR COUNTRY IN WHICH THE PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THEFULLEST EXTENT PERMITTED BY THE LAW OF SUCH COUNTRY, THE LAW OF THE STATE OFNEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALLFINANCING DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER ORTHEREUNDER.  TO THE FULLEST EXTENTPERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY UNCONDITIONALLY ANDIRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTIONGOVERNS THIS INDENTURE, THE NOTE AND THE OTHER FINANCING DOCUMENTS, AND THISINDENTURE, THE NOTE AND THE OTHER FINANCING DOCUMENTS SHALL BE GOVERNED BY ANDCONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TOSECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.**

 

**(B)  ANY LEGAL SUIT,ACTION OR PROCEEDING AGAINST TRUSTEE OR ISSUERS ARISING OUT OF OR RELATING TOTHIS INDENTURE OR THE OTHER FINANCING DOCUMENTS MAY BE INSTITUTED IN ANYFEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK,PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAWAND EACH OF THE PARTIES HERETO WAIVES ANY OBJECTIONS WHICH IT MAY NOW ORHEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT,ACTION OR PROCEEDING, AND EACH ISSUER HEREBY IRREVOCABLY SUBMITS TO THE**

 

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**JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTIONOR PROCEEDING.  EACH ISSUER DOES HEREBYDESIGNATE AND APPOINT, WITH DOMICILE AT:**

 

**CT CORPORATION111 EIGHTH AVENUENEW YORK, NEW YORK 10011**

 

**AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGEON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCHSUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK,AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICEOF SAID SERVICE MAILED OR DELIVERED TO ISSUERS IN THE MANNER PROVIDED HEREINSHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON ISSUERS INANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK.  ISSUERS (I) SHALL GIVE PROMPT NOTICE TOTRUSTEE OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAYAT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITHAN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BEDESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND(III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENTCEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVINGA SUCCESSOR.**

 

**Section 14.05****  Modification,Waiver in Writing.**  No modification, amendment,extension, discharge, termination or waiver of any provision of this Indenture,or of the Note, or of any other Financing Document, nor consent to anydeparture by Issuers therefrom, shall in any event be effective unless the sameshall be in a writing signed by the party against whom enforcement is sought,and then such waiver or consent shall be effective only in the specificinstance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demandon Issuers, shall entitle Issuers to any other or future notice or demand inthe same, similar or other circumstances.

 

**Section 14.06****  Delay Not a Waiver.** Neither any failure nor any delay on the part of Trustee in insistingupon strict performance of any term, condition, covenant or agreement, orexercising any right, power, remedy or privilege hereunder, or under the Noteor under any other Financing Document, or any other instrument given assecurity therefor, shall operate as or constitute a waiver thereof, nor shall asingle or partial exercise thereof preclude any other future exercise, or theexercise of any other right, power, remedy or privilege.  In particular, and not by way of limitation,by accepting payment after the due date of any amount payable under this Indenture,the Note or any other Financing Document, Trustee shall not be deemed to havewaived any right either to require prompt payment when due of all other amountsdue under this Indenture, the Note or the other Financing Documents, or todeclare a default for failure to effect prompt payment of any such otheramount.

 

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**Section 14.07****  Trial by Jury.**  **EACH ISSUER AND TRUSTEE HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OFANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLYTO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TOTHE FINANCING DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING INCONNECTION THEREWITH.  THIS WAIVER OFRIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH ISSUER ANDTRUSTEE, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUEAS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.  EACH ISSUER AND TRUSTEE ARE HEREBY AUTHORIZEDTO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OFTHIS WAIVER BY EACH ISSUER AND TRUSTEE.**

 

**Section 14.08****  Headings.** The Article and/or Section headings and the Table of Contents in thisIndenture are included herein for convenience of reference only and shall notconstitute a part of this Indenture for any other purpose.

 

**Section 14.09****  Severability.** Wherever possible, each provision of this Indenture shall be interpretedin such manner as to be effective and valid under applicable law, but if anyprovision of this Indenture shall be prohibited by or invalid under applicablelaw, such provision shall be ineffective to the extent of such prohibition orinvalidity, without invalidating the remainder of such provision or theremaining provisions of this Indenture.

 

**Section 14.10****  Preferences.** Trustee shall have the continuing and exclusive right to apply orreverse and reapply any and all payments by Issuers to any portion of theobligations of Issuers hereunder or under the other Financing Documents.  To the extent Issuers makes a payment orpayments to Trustee, which payment or proceeds or any part thereof aresubsequently invalidated, declared to be fraudulent or preferential, set asideor required to be repaid to a trustee, receiver or any other party under anybankruptcy law, state or federal law, common law or equitable cause, then, tothe extent of such payment or proceeds received, the obligations hereunder orpart thereof intended to be satisfied shall be revived and continue in fullforce and effect, as if such payment or proceeds had not been received byTrustee.

 

**Section 14.11****  Waiver of Notice.** Each Issuer hereby expressly waives, and shall not be entitled to, anynotices of any nature whatsoever from Trustee except with respect to mattersfor which this Indenture or the other Financing Documents specifically andexpressly provide for the giving of notice by Trustee to Issuers and exceptwith respect to matters for which such Issuer is not, pursuant to applicableLegal Requirements, permitted to waive the giving of notice.

 

**Section 14.12****  Expenses;Indemnity.**  (a)  Issuers covenant and agree topay or, if Issuers fail to pay, to reimburse, Trustee upon receipt of noticefrom Trustee for all reasonable out-of-pocket costs and expenses (includingreasonable attorneys’ fees and disbursements) incurred by Trustee in connectionwith (i) the preparation, negotiation, execution and delivery of thisIndenture, the other Financing Documents and the consummation of thetransactions contemplated hereby and thereby and all the costs of furnishingall opinions by counsel for

 

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Issuers (includingwithout limitation any opinions requested by Trustee as to any legal mattersarising under this Indenture and the other Financing Documents with respect tothe Property); (ii) except as otherwise provided in this Indenture,Issuers’ ongoing performance of and compliance with Issuers’ respectiveagreements and covenants contained in this Indenture and the other FinancingDocuments on its part to be performed or complied with after the Closing Date,including, without limitation, confirming compliance with environmental andinsurance requirements; (iii) the negotiation, preparation, execution,delivery and administration of any consents, amendments, waivers or othermodifications to this Indenture, the other Financing Documents and any otherdocuments or matters requested by Trustee; (iv) securing Issuers’compliance with any requests made pursuant to the provisions of this Indenture;(v) the filing and recording fees and expenses, title insurance andreasonable fees and expenses of counsel for providing to Trustee all requiredlegal opinions, and other similar expenses incurred in creating and perfectingthe Liens in favor of Trustee pursuant to this Indenture and the otherFinancing Documents; (vi) enforcing or preserving any rights, either inresponse to third party claims or in prosecuting or defending any action orproceeding or other litigation, in each case against, under or affecting Issuers,this Indenture, the other Financing Documents, the Property, or any othersecurity given for the Debt; and (vii) enforcing any obligations of orcollecting any payments due from Issuers under this Indenture, the otherFinancing Documents or with respect to the Property or in connection with anyrefinancing or restructuring of the credit arrangements provided under thisIndenture in the nature of a “work-out” or of any insolvency or bankruptcyproceedings; provided, however, that Issuers shall not be liablefor the payment of any such costs and expenses to the extent the same arise byreason of the gross negligence, illegal acts, fraud or willful misconduct ofTrustee.  Any cost and expenses due andpayable to Trustee may be paid from any amounts in the Cash Management Account.

 

(b)  Issuers shall indemnify, defend andhold harmless Trustee from and against any and all other liabilities,obligations, losses, damages, penalties, actions, judgments, suits, claims,costs, expenses and disbursements of any kind or nature whatsoever (including,without limitation, the reasonable fees and disbursements of counsel forTrustee in connection with any investigative, administrative or judicialproceeding commenced or threatened, whether or not Trustee shall be designateda party thereto), that may be imposed on, incurred by, or asserted againstTrustee in any manner relating to or arising out of (i) any breach byIssuers of their obligations under, or any material misrepresentation byIssuers contained in, this Indenture or the other Financing Documents, or(ii) the use or intended use of the proceeds of the Notes (collectively,the “**Indemnified Liabilities**”); provided, however,that Issuers shall not have any obligation to Trustee hereunder to the extentthat such Indemnified Liabilities arise from the gross negligence, illegalacts, fraud or willful misconduct of Trustee. To the extent that the undertaking to indemnify, defend and holdharmless set forth in the preceding sentence may be unenforceable because itviolates any law or public policy, Issuers shall pay the maximum portion thatthey are permitted to pay and satisfy under applicable law to the payment andsatisfaction of all Indemnified Liabilities incurred by Trustee.

 

(c)  Issuers covenant and agree to pay foror, if Issuers fail to pay, to reimburse Trustee for, any fees and expensesincurred by any Rating Agency in connection with any Rating Agency review ofthe Financing Documents or any transaction contemplated thereby or any consent,approval, waiver or confirmation obtained from such Rating Agency pursuant tothe terms and conditions of this Indenture or any other Financing Document andthe Trustee

 

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shall be entitled to require payment of such fees and expenses as acondition precedent to the obtaining of any such consent, approval, waiver orconfirmation.

 

**Section 14.13****  Offsets,Counterclaims and Defenses.**  Any assigneeof Trustee**’**s interest in and to this Indenture,the Note and the other Financing Documents shall take the same free and clearof all offsets, counterclaims or defenses which are unrelated to such documentswhich Issuers may otherwise have against any assignor of such documents, and nosuch unrelated counterclaim or defense shall be interposed or asserted byIssuers in any action or proceeding brought by any such assignee upon suchdocuments and any such right to interpose or assert any such unrelated offset,counterclaim or defense in any such action or proceeding is hereby expressly waivedby Issuers.

 

**Section 14.14****  No Joint Ventureor Partnership; No Third Party Beneficiaries.** (a)  Issuers and Trustee intend that the relationships createdhereunder and under the other Financing Documents be solely that of borrowerand lender.  Nothing herein or therein isintended to create a joint venture, partnership, tenancy-in-common, or jointtenancy relationship between Issuers and Trustee nor to grant Trustee anyinterest in the Property other than that of mortgagee, beneficiary, lender, collateralagent, or trustee.

 

(b)  This Indenture and the other FinancingDocuments are solely for the benefit of Trustee and Issuers and nothingcontained in this Indenture or the other Financing Documents shall be deemed toconfer upon anyone other than Trustee and Issuers any right to insist upon orto enforce the performance or observance of any of the obligations containedherein or therein.  All conditions to theobligations of the Initial Noteholder to acquire the Notes are imposed solelyand exclusively for the benefit of Trustee and no other Person shall havestanding to require satisfaction of such conditions in accordance with theirterms or be entitled to assume that the Initial Noteholder will refuse toacquire the Notes in the absence of strict compliance with any or all thereofand no other Person shall under any circumstances be deemed to be a beneficiaryof such conditions, any or all of which may be freely waived in whole or inpart by Trustee if, in Trustee’s sole discretion, Trustee deems it advisable ordesirable to do so.

 

**Section 14.15****  Publicity.** All news releases, publicity or advertising by Issuers, Trustee, InitialPurchaser or their respective Affiliates through any media intended to reachthe general public which refers to the Financing Documents or the transactionsevidenced by the Financing Documents, to any Issuer, Trustee, InitialPurchaser, Initial Noteholder, or any of their respective Affiliates shall besubject to, (i) in case of release, publicity or advertising by any Issueror any of its Affiliates, the prior approval of Trustee (after aSecuritization), Initial Purchaser or Initial Noteholder (prior to aSecuritization), (ii) in case of release, publicity or advertising byTrustee or any of its Affiliates, the prior approval of Issuers, InitialPurchaser and Initial Noteholder, (iii) in case of release, publicity oradvertising by Initial Purchaser, Initial Noteholder or any of its Affiliates,the prior approval of Issuers (except in connection with a Securitization, inwhich case approval of Issuers shall not be required).  In addition, neither any Issuer, Trustee,Initial Purchaser, Initial Noteholder nor any of their respective Affiliatesshall be prohibited from disclosing to any Person any information to the extentreasonably necessary or desirable to comply with applicable law (including,without limitation, applicable federal or state securities laws) or anyrequired filings with any Governmental Authority or regulatory agency or

 

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with the New York StockExchange or any other nationally or globally recognized securities exchange.

 

**Section 14.16****  Waiver ofMarshalling of Assets.** To the fullest extent permitted by law, each Issuer,for itself and its successors and assigns, waives all rights to a marshallingof the assets of Issuers, Issuers’ partners and others with interests inIssuers, and of the Property, or to a sale in inverse order of alienation inthe event Security Trust First Beneficiary conveys, sells or otherwisetransfers Security Trust Second Beneficiary’s interest under the security trustformed pursuant to the Security Trust Agreement, and agrees not to assert anyright under any laws pertaining to the marshalling of assets, the sale ininverse order of alienation, homestead exemption, the administration of estatesof decedents, or any other matters whatsoever to defeat, reduce or affect theright of Trustee under the Financing Documents to a sale of the Property forthe collection of the Debt without any prior or different resort for collectionor of the right of Trustee to the payment of the Debt out of the net proceedsof the Property in preference to every other claimant whatsoever.

 

**Section 14.17****  Waiver ofCounterclaim.**  Each Issuer hereby waives the right to asserta counterclaim, other than a compulsory counterclaim, in any action orproceeding brought against it by Trustee or its agents.

 

**Section 14.18****  Conflict;Construction of Documents; Reliance.**  In the eventof any conflict between the provisions of this Indenture and any of the otherFinancing Documents, the provisions of this Indenture shall control.  The parties hereto acknowledge that they wererepresented by competent counsel in connection with the negotiation, draftingand execution of the Financing Documents and that such Financing Documentsshall not be subject to the principle of construing their meaning against theparty which drafted same.  Issuersacknowledge that, with respect to the issuance of the Notes, Issuers shall relysolely on their own judgment and advisors in issuing the Notes without relyingin any manner on any statements, representations or recommendations of Trusteeor any parent, subsidiary or Affiliate of Trustee.  Trustee shall not be subject to anylimitation whatsoever in the exercise of any rights or remedies available to itunder any of the Financing Documents or any other agreements or instrumentsrelating to the transactions contemplated thereunder by virtue of the ownershipby it or any parent, subsidiary or Affiliate of Trustee of any equity interestany of them may acquire in Issuers, and Issuers hereby irrevocably waive theright to raise any defense or take any action on the basis of the foregoingwith respect to Trustee’s exercise of any such rights or remedies.  Issuers acknowledges that Trustee, InitialNoteholder or their Affiliates engage in the business of real estate financingsand other real estate transactions and investments which may be viewed asadverse to or competitive with the business of Issuers or their Affiliates.

 

**Section 14.19****  Brokers andFinancial Advisors.**  Issuers and Trustee herebyrepresent that in connection with the issuance of the Notes they have dealtwith no financial advisors, brokers, underwriters, placement agents, agents orfinders (other than Initial Purchaser or its Affiliates).  Issuers and Trustee hereby agree toindemnify, defend and hold the other party harmless from and against any andall claims, liabilities, costs and expenses of any kind (including attorneys’fees and expenses) in any way relating to or arising from a claim by any Person(other than Initial Purchaser or its Affiliates) that such Person acted onbehalf of Issuers or Trustee in connection with the transactions contemplatedherein.  The provisions of this

 

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Section 14.19 shall survive the expiration andtermination of this Indenture and the payment of the Debt.

 

**Section 14.20****  Prior Agreements.** This Indenture and the other Financing Documents contain the entireagreement of the parties hereto and thereto in respect of the transactionscontemplated hereby and thereby, and all prior agreements among or between suchparties, whether oral or written, including, without limitation, the Term Sheetdated on or about October 7, 2004 (as amended) between KerznerInternational Limited and Column Financial Inc. are superseded by the terms ofthis Indenture and the other Financing Documents.

 

**Section 14.21****  DuplicateOriginals, Counterparts.**  This Indenturemay be executed in any number of duplicate originals and each duplicateoriginal shall be deemed to be an original. This Indenture may be executed in several counterparts, each of whichcounterparts shall be deemed an original instrument and all of which togethershall constitute a single Indenture.  Thefailure of any party hereto to execute this Indenture, or any counterparthereof, shall not relieve the other signatories from their obligationshereunder.

 

**Section 14.22****  Joint and SeveralLiability.**  The parties hereto acknowledge that thedefined term “**Issuers**” has been defined to collectively includeeach Issuer.  It is the intent of theparties hereto in determining whether (a) a breach of a representation ora covenant has occurred, (b) there has occurred a Default or Event ofDefault, or (c) an event has occurred which would create recourseobligations under Section 9.03 of this Indenture, that any suchbreach, occurrence or event with respect to any Issuer shall be deemed to besuch a breach, occurrence or event with respect to all Issuers and that allIssuers need not have been involved with such breach, occurrence or event inorder for the same to be deemed such a breach, occurrence or event with respectto every Issuer.  The obligations andliabilities of each Issuer shall be joint and several.

 

**ARTICLE 15 - EXECUTION**

 

**Section 15.01****  Effective UponExecution.**  Upon the execution hereof by the partieshereto, this Indenture shall be binding on the Issuers, in favor of the Trusteeand the Holders, and shall enure to the benefit of the Trustee and the Holders,from time to time.

 

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**IN WITNESS WHEREOF** the parties hereto have executed thisIndenture under the hands of their proper officers duly authorized in that behalf.

 
|   | **ISSUERS:**                                                      |
|--------|-------------------------------------------------------------------|
|   |                                                              |
|   | **KERZNER PALMILLA BEACH PARTNERS, S. de R.L.  de C.V.**     |
|   |                                                              |
|   | By:                                                               | /s/ John R. Allison |   |
|   |                                                              | Name: | John R. Allison |
|   |                                                              |
|   | **KERZNER PALMILLA HOTEL PARTNERS, S. de R.L.  de C.V.**     |
|   | ** **                                                        |
|   | By:                                                               | /s/ John R. Allison |   |
|   |                                                              | Name: | John R. Allison |
|   |                                                              |
|   | **KERZNER SERVICIOS HOTELEROS, S. de R.L. de C.V.**               |
|   | ** **                                                        |
|   | By:                                                               | /s/ John R. Allison |   |
|   |                                                              | Name: | John R. Allison |
|   |                                                              |
|   | **KERZNER COMPANIA de SERVICIOS,  S. de R.L. de C.V.**  |
|   | ** **                                                        |
|   | By:                                                               | /s/ John R. Allison |   |
|   |                                                              | Name: | John R. Allison |
|   |                                                              |
|   | **KERZNER PALMILLA GOLF PARTNERS,  S. de R.L. de C.V.** |
|   | ** **                                                        |
|   | By:                                                               | /s/ John R. Allison |   |
|   |                                                              | Name: | John R. Allison |
|        |                                                                   |  |  |  |

 

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|   | **TRUSTEE:**                          |
|--------|---------------------------------------|
|   |                                  |
|   | **LASALLE BANK NATIONAL ASSOCIATION** |
|   |                                  |
|   | By:                                   | /s/Alyssa Steal |   |
|   |                                  | Name: | Alyssa Steal |
|   |                                  | Title: | FVP |
|        |                                       |  |  |  |

 

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