**EXHIBIT 4.24(a)**

 

**KERZNER PALMILLABEACH 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 BANKNATIONAL ASSOCIATION**

(Trustee)

 

----

 

 

**NOTE INDENTURE**

 

----

 

 

| **Location:** | **The One & Only Palmilla** |
|---------------|--------------------------------------|
|          | **Los Cabos, Mexico**                |

 

 

**Dated as of December 17, 2004**

 

**PREPARED BY AND UPONFILING RETURN TO:**

 

**Cadwalader, Wickersham & Taft LLP100 Maiden LaneNew York, New York 10038U.S.A.Attention:  William P. McInerney, Esq.**

 

----

 

**TABLE OF CONTENTS**

 
| ** **                                                                   | **Page** |
|------------------------------------------------------------------------------|----------|
|                                                                         |     |
| ARTICLE 1 – DEFINITIONS; INTERPRETATION                       |
|                                                                         |     |
| Section 1.01 Definitions                                                | 1        |
| Section 1.02 Accounting Terms                                           | 26       |
| Section 1.03 General                                                    | 26       |
|                                                                         |     |
| ARTICLE 2 – ISSUE OF NOTES                                    |
|                                                                         |     |
| Section 2.01 No Limit on Issue                                          | 26       |
| Section 2.02 Notes Deemed to be Outstanding                             | 26       |
| Section 2.03 Conditions Precedent to the Issue of Notes                 | 26       |
| Section 2.04 Issue of Notes                                             | 27       |
| Section 2.05 Form of Notes                                         | 28       |
| Section 2.06 Registration                                               | 29       |
| Section 2.07 Transfers of Notes                                         | 29       |
| Section 2.08 Inspection of Registers                                    | 29       |
| Section 2.09 Title to Registered Notes                                  | 30       |
| Section 2.10 Mutilation, Loss, Theft or Destruction                     | 30       |
| Section 2.11 Cancellation of Notes                                      | 30       |
|                                                                         |     |
| ARTICLE 3 – PAYMENT MECHANICS                                 |
|                                                                         |     |
| Section 3.01 Requirements of Payment                                    | 30       |
| Section 3.02 Additional Provisions                                      | 30       |
| Section 3.03 Priority of Payments                                       | 31       |
|                                                                         |     |
| ARTICLE 4 – SECURITY AND ASSET DEALING                        |
|                                                                         |     |
| Section 4.01 Charges and Security Interest                              | 31       |
| Section 4.02 Holders of Security                                        | 32       |
| Section 4.03 Further Assurances                                         | 32       |
| Section 4.04 Power of Attorney                                          | 32       |
| Section 4.05 Dealings with the Security Trust Agreement and the  Pledge | 32       |
| Section 4.06 No Obligation to Advance Funds                             | 33       |
|                                                                         |     |
| ARTICLE 5 – CANCELLATION AND DISCHARGE                        |
|                                                                         |     |
| Section 5.01 Cancellation and Destruction                               | 33       |
| Section 5.02 Non-Presentation of Notes                                  | 33       |
| Section 5.03 Unclaimed Moneys                                           | 33       |
| Section 5.04 Discharge                                                  | 33       |

 

i

----

 
| ARTICLE 6 – REPRESENTATIONS AND WARRANTIES                   |
|-----------------------------------------------------------------------------|
|                                                                        |   |
| Section 6.01 Issuer Representations                                    | 34 |
| Section 6.02 Survival of Representations                               | 47 |
|                                                                        |   |
| ARTICLE 7 – ISSUER COVENANTS                                 |
|                                                                        |   |
| Section 7.01 Affirmative Covenants                                     | 47 |
| Section 7.02 Negative Covenants                                        | 61 |
|                                                                        |   |
| ARTICLE 8 – INSURANCE; CASUALTY; CONDEMNATION                |
|                                                                        |   |
| Section 8.01 Insurance                                                 | 69 |
| Section 8.02 Casualty                                                  | 73 |
| Section 8.03 Condemnation                                              | 73 |
| Section 8.04 Restoration                                               | 74 |
| Section 8.05 Casualty/Condemnation Generally                           | 78 |
|                                                                        |   |
| ARTICLE 9 – DEFAULTS                                         |
|                                                                        |   |
| Section 9.01 Event of Default                                          | 78 |
| Section 9.02 Remedies                                                  | 81 |
| Section 9.03 Exculpation                                               | 82 |
| Section 9.04 Manager Termination                                       | 84 |
|                                                                        |   |
| ARTICLE 10 – RESERVE FUNDS                                   |
|                                                                        |   |
| Section 10.01 Required Repair Funds                                    | 84 |
| Section 10.02 Tax and Insurance Escrow Fund                            | 85 |
| Section 10.03 Replacements and Replacement Reserve                     | 86 |
| Section 10.04 Interest Reserve Interest                                | 87 |
| Section 10.05 Reserve LC                                               | 87 |
| Section 10.06 Reserve Funds, Generally                                 | 88 |
|                                                                        |   |
| ARTICLE 11 – MATTERS CONCERNING THE TRUSTEE                  |
|                                                                        |   |
| Section 11.01 Duties of the Trustee                                    | 90 |
| Section 11.02 Rights of Trustee                                        | 96 |
| Section 11.03 Individual Rights of Trustee                             | 97 |
| Section 11.04 Trustee’s Disclaimer                                | 97 |
| Section 11.05 Notice of Defaults                                       | 97 |
| Section 11.06 Compensation and Indemnity                               | 98 |
| Section 11.07 Replacement of Trustee                                   | 98 |
| Section 11.08 Resignation or Removal of Trustee; Conflict of  Interest | 99 |
| Section 11.09 Successor Trustee                                        | 100 |
| Section 11.10 Authorization and Duties of Trustee                      | 100 |
| Section 11.11 Trustee Not Required to Give Security                    | 100 |
| Section 11.12 Trustee May Deal In Notes                           | 100 |

 

ii

----

 
| Section 11.13 Administration of the Trust and Protection of the  Trustee     | 101    |
|-----------------------------------------------------------------------------------|--------|
| Section 11.14 Service Providers                                              | 103    |
|                                                                              |   |
| ARTICLE 12 – SUPPLEMENTAL INDENTURES                               |
|                                                                              |   |
| Section 12.01 Supplemental Trust Indentures                                  | 103    |
| Section 12.02 Further Assurances                                             | 103    |
| Section 12.03 Amendment or Modification                                      | 104    |
|                                                                              |   |
| ARTICLE 13 – NOTEHOLDER MEETINGS AND APPROVALS                     |
|                                                                              |   |
| Section 13.01 Conduct of Meetings                                            | 104    |
| Section 13.02 Extraordinary Resolution                                       | 105    |
| Section 13.03 Signed Instruments                                             | 106    |
| Section 13.04 Binding Effect of Resolutions                                  | 106    |
|                                                                              |   |
| ARTICLE 14 – MISCELLANEOUS                                         |
|                                                                              |   |
| Section 14.01 Survival                                                       | 106    |
| Section 14.02 Trustee’s Discretion                                      | 106    |
| Section 14.03 Notices                                                        | 107    |
| Section 14.04 Governing Law                                                  | 108    |
| Section 14.05 Modification, Waiver in Writing                                | 109    |
| Section 14.06 Delay Not a Waiver                                             | 110    |
| Section 14.07 Trial by Jury                                                  | 110    |
| Section 14.08 Headings                                                       | 110    |
| Section 14.09 Severability                                                   | 110    |
| Section 14.10 Preferences                                                    | 111    |
| Section 14.11 Waiver of Notice                                               | 111    |
| Section 14.12 Expenses; Indemnity                                            | 111    |
| Section 14.13 Offsets, Counterclaims and Defenses                            | 112    |
| Section 14.14 No Joint Venture or Partnership; No Third Party  Beneficiaries | 112    |
| Section 14.15 Publicity                                                      | 113    |
| Section 14.16 Waiver of Marshalling of Assets                                | 113    |
| Section 14.17 Waiver of Counterclaim                                         | 114    |
| Section 14.18 Conflict; Construction of Documents; Reliance                  | 114    |
| Section 14.19 Brokers and Financial Advisors                                 | 114    |
| Section 14.20 Prior Agreements                                               | 114    |
| Section 14.21 Duplicate Originals, Counterparts                              | 115    |
| Section 14.22 Joint and Several Liability                                    | 115    |
|                                                                              |   |
| ARTICLE 15 – EXECUTION                                             |
|                                                                              |   |
| Section 15.01 Effective Upon Execution                                       | 115    |
|                                                                              |   |
| EXHIBIT A                                                                    | -      | Form of Note |   |
| SCHEDULE 6.01A                                                               | -      | Organizational Chart |   |
| SCHEDULE 6.01E                                                               | -      | Agreements |   |

 

iii

----

 
| SCHEDULE 6.01Q | - | Assessments      |   |
|---------------------|---|------------------|--------|
| SCHEDULE 6.01T | - | Insurance Claims |   |
| SCHEDULE 6.01Z | - | Leases           |   |
| SCHEDULE 10.01 | - | Required Repairs |   |

 

iv

----

 

**THIS NOTEINDENTURE** (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 &Golf Club Apartado Postal 52, 33400 San Jose Del Cabo, BCS, Mexico(hereinafter collectively the “**Issuers**”) and **LASALLE BANK NATIONAL ASSOCIATION**, having an address at 35S. LaSalle Street, Suite 1625, Chicago, Illinois 60603, as note trusteeand collateral agent for the benefit of the Holders of the Notes (as such termsare hereinafter defined) (hereinafter the “**Trustee**”).

 

**RECITALS**

 

The partieshereto have duly authorized the execution and delivery of this Indenture toprovide for the issuance of the Notes to be issued by the Issuers as providedherein in an aggregate principal amount of $110,000,000.

 

All thingsnecessary to make the Notes when executed by the Issuers and authenticated anddelivered by the Trustee hereunder and duly issued by the Issuers, the validand legally binding obligations of the Issuers enforceable in accordance withtheir terms, and to make this Indenture a valid and legally binding agreementof the Issuers and the Trustee for the benefit of the Noteholders enforceablein accordance with its terms, have been done.

 

# **ARTICLE 1 – DEFINITIONS;INTERPRETATION**

#  

## **Section 1.01  Definitions.**Forpurposes of this Indenture, the Notes, the Security Trust Agreement and theother Financing Documents, unless there is something in the subject matter orcontext inconsistent therewith, the following terms shall have the followingmeanings:

##  

“**Acceptable Counterparty**” shall mean any counterparty to theInterest Rate Cap Agreement that has and shall maintain, until the expirationof the applicable Interest Rate Cap Agreement a long-term unsecured debt ratingof at least “AA” by S&P and “Aa2” from Moody’s, which rating shall notinclude a “t” or otherwise reflect a termination risk.

 

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

 

“**Affiliate**” shall mean, as to any Person, any other Personthat, directly or indirectly, is in control of, is controlled by or is undercommon control with such Person or is a director or officer of such Person orof an Affiliate of such Person.

 

----

 

“**Affiliated Manager**” shall mean, collectively, KerznerInternational Management Services, Inc. and Kerzner InternationalManagement Services Mexico, S. de R.L. de C.V. or any Manager in which anyIssuer, Principal, or Guarantor has, directly or indirectly, any legal,beneficial or economic interest.

 

“**Annual Budget**” shall mean the operating budget, includingall planned Capital Expenditures, for the Property prepared by the Issuers forthe applicable Fiscal Year or other period.

 

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

 

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

 

“**Assignment of Golf Management Agreement**” shall mean thatcertain Assignment of Management Agreement, dated as of the date hereof, amongthe Trustee, the Issuers and Golf Manager, as the same may be amended,restated, replaced, supplemented or otherwise modified from time to time.

 

“**Assignment of Management Agreement**” shall mean that certainAssignment of Management Agreement, dated as of the date hereof, among theTrustee, the Issuers and Manager, as the same may be amended, restated,replaced, supplemented or otherwise modified from time to time.

 

“**Assignment of Spa Management Agreement**” shall mean thatcertain Assignment of Management Agreement, dated as of the date hereof, amongthe Trustee, the Issuers and Spa Manager, as the same may be amended,restated, replaced, supplemented or otherwise modified from time to time.

 

“**Award**” shall mean any compensation paid by any GovernmentalAuthority in connection with a Condemnation.

 

“**Bankruptcy Action**” shall mean with respect to any Person (a) suchPerson filing a voluntary petition under the Bankruptcy Code or any otherforeign or domestic, federal or state bankruptcy or insolvency law; (b) thefiling of an involuntary petition against such Person under the Bankruptcy Codeor any other foreign or domestic, federal or state bankruptcy or insolvencylaw, or soliciting or causing to be solicited petitioning creditors for anyinvoluntary petition against such Person; (c) such Person filing an answerconsenting to or otherwise acquiescing in or joining in any involuntarypetition filed against it, by any other Person under the Bankruptcy Code or anyother foreign or domestic, federal or state bankruptcy or insolvency law, orsoliciting or causing to be solicited petitioning creditors for any involuntarypetition from any Person; (d) such Person consenting to or acquiescing inor joining in an application for the appointment of a custodian, *sindico conciliador*, receiver, trustee, or examiner for suchPerson or any portion of the Property; or (e) such Person making anassignment for the benefit of creditors, or admitting, in writing or in anylegal proceeding, its insolvency or inability to pay its debts as they becomedue.

 

2

----

 

“**Bankruptcy Code**” shall mean Title 11 of the United StatesCode entitled “Bankruptcy”, as amended from time to time, and any successorstatute or statutes and all rules and regulations from time to timepromulgated thereunder, and any comparable foreign laws relating to bankruptcy,insolvency or creditors’ rights (including, but not limited to, the Mexican *Ley de Concursos Mercantiles*).

 

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

 

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

 

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

 

“**Capital Expenditures**” shall mean, for any period, the amountexpended for items capitalized under GAAP (including expenditures for buildingimprovements or major repairs and tenant improvements).

 

“**Cash Management Account**” shall have the meaning set forth inthe Note.

 

“**Cash Management Agreement**” shall mean that certain CashManagement Agreement, dated as of the date hereof, by and 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 the meaning set forth in theCash Management Agreement.

 

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

 

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

 

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

 

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

 

“**Code**” shall mean the Internal Revenue Code of 1986, asamended, as it may be further amended from time to time, and any successorstatutes thereto, and applicable U.S. Department of Treasury regulations issuedpursuant thereto in temporary or final form.

 

3

----

 

“**Collateral Assignment of Interest Rate Cap Agreement**” shallmean that certain Collateral. Assignment of Interest Rate Cap Agreement, datedas of the date hereof, executed by Issuers in connection with the issuance ofthe Notes in favor of Trustee for the benefit of the Noteholders, as the same may beamended, restated, replaced, supplemented or otherwise modified from time totime.

 

“**Condemnation**” shall mean a temporary or permanent taking(including an expropriation under Mexican law) by any Mexican GovernmentalAuthority of all or any part of the Property, or any interest therein orright accruing thereto, including any right of access thereto or any change ofgrade affecting the Property or any part thereof.

 

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

 

“**Condominium**” shall mean that certain condominium regimecreated pursuant to the Condominium Documents.

 

“**Condominium Documents**” shall mean, collectively, thatcertain Public Deed Number 36,681 dated April 10, 1991 granted before Mr. ArmandoAntonio Aguilar Rubial, Notary Public No. 1 of La Paz, Baja CaliforniaSur, which Public Deed creates the condominium regime of the Palmilla TouristDevelopment and contains the condominium incorporation and subdivision ofparcels, together with the lot description (*memoria descriptiva*)and the rules and regulations of the Condominium.

 

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

 

“**Corporate Trust Office**” shall mean the principal office ofthe Trustee at which at any particular time its corporate trust business shallbe administered, which as of the Closing Date is 135 S. LaSalle Street, Suite 1625,Chicago, Illinois 60603, Attention: Global Securitization Trust Services Group —Palmilla Los Cabos Notes due January 9, 2007.

 

“**Counterparty**” shall mean, with respect to the Interest RateCap Agreement, SMBC Derivative Products Limited, and with respect to anyReplacement Interest Rate Cap Agreement, any substitute AcceptableCounterparty.

 

“**Debt**” shall mean the outstanding principal amount set forthin, and evidenced by, the Notes together with all interest accrued and unpaidthereon and all other sums due to Trustee or Noteholders in respect of theobligations under the Notes, the Indenture and the other Financing Documents.

 

“**Debt Service**” shall mean with respect to any particularperiod of time, scheduled principal and/or interest payments under thisIndenture, the Notes and the other Financing Documents.

 

4

----

 

“**Default**” shall mean the occurrence of any event hereunder orunder any other Financing Document which, but for the giving of notice orpassage of time, or both, would be an Event of Default.

 

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

 

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

 

“**Eligible Account**” shall mean a separate and identifiableaccount from all other funds held by the holding institution that is either (a) anaccount or accounts maintained with a federal or state-chartered depositoryinstitution or trust company which complies with the definition of EligibleInstitution or (b) a segregated trust account or accounts maintained witha federal or state-chartered depository institution or trust company acting inits fiduciary capacity which, in the case of a state-chartered depositoryinstitution or trust company, is subject to regulations substantially similarto 12 C.F.R. §9.10(b), having in either case a combined capital and surplus ofat least $50,000,000 and subject to supervision or examination by federal andstate authority. An Eligible Account will not be evidenced by a certificate ofdeposit, passbook or other instrument.

 

“**Eligible Institution**” shall mean (1) LaSalle BankNational Association (provided that the rating by S&P, Moody’s and Fitchfor LaSalle Bank National Association’s short term unsecured debt obligationsor commercial paper and long term unsecured debt obligations does not decreasebelow its current rating) or such lower rating as may be acceptable to theRating Agencies or (2) any other federal or state-chartered depositoryinstitution or trust company, the short term unsecured debt obligations orcommercial paper of which are rated at least “A-1+” by S&P, “P-1” by Moody’sand “F-1+” by Fitch in the case of accounts in which funds are held for thirty(30) days or less (or, in the case of accounts in which funds are held for morethan thirty (30) days, the long term unsecured debt obligations of which arerated at least “AA” by Fitch and S&P and “Aa2” by Moody’s).

 

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

 

“**ERISA**” shall mean the Employee Retirement Income SecurityAct of 1974, as amended.

 

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

 

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

 

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

 

5

----

 

“**Extraordinary Resolution**” means a resolution passed byNoteholders holding sixty-six and two thirds per cent (66 2/3%) of theprincipal amount of the issued and outstanding Notes.

 

“**Financing Documents**” shall mean, collectively, thisIndenture, the Notes, the Security Trust Agreement, the Pledge, the Assignmentof Golf Management Agreement, the Assignment of Management Agreement, theAssignment of Spa Management Agreement, the Guaranty, the Cash ManagementAgreement, the Collateral Assignment of Interest Rate Cap Agreement, theSecuritization Cooperation Agreement and all other documents executed and/ordelivered in connection with the issuance of the Notes.

 

“**Fiscal Year**” shall mean each twelve (12) month periodcommencing on January 1 and ending on December 31 during each year ofthe term of the Notes.

 

“**Fitch**” shall mean Fitch, Inc.

 

“**GAAP**” shall mean generally accepted accounting principles inthe United States of America (“US GAAP”) as of the date of the applicablefinancial report; provided that, with respect to any Issuer’s individualannual financial statements required to be provided to Trustee under thisIndenture, the term “GAAP” shall mean generally accepted accounting principlesin effect in Mexico (“**Mexican GAAP**”)as of the date of such annual financial statements, provided, further,that such annual financial statements shall be prepared in English (or preparedin Spanish and accompanied by an English translation).

 

“**Goldman**” shall mean Goldman Sachs Emerging Markets RealEstate Fund.

 

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

 

“**Golf Management Agreement**” shall mean that certain GolfFacility Management Agreement, dated December 5, 2003, between Golf Issuerand Golf Manager, or, if the context requires, the Replacement Golf ManagementAgreement.

 

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

 

“**Governmental Authority**” shall mean any national or federalgovernment, any state, regional, local or other political subdivision of the United Statesof America or the United Mexican States thereof with jurisdiction and anyPerson with jurisdiction exercising executive, legislative, judicial,regulatory or administrative functions of or pertaining to government or quasigovernmental issues (including, without limitation, any court).

 

“**Gross Income from Operations**” shall mean all income andproceeds (whether in cash or on credit, and computed on an accrual basis, butexcluding non-recurring income and proceeds) received by any Issuer or Managerfor the use,

 

6

----

 

occupancy orenjoyment of the Property, or any part thereof, or received by any Issueror Manager for the sale of any goods, services or other items sold on orprovided from the Property in the ordinary course of the Property operation,including without limitation: (a) all income and proceeds received fromrental 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) allincome and proceeds from judgments, settlements and other resolutions ofdisputes with respect to matters which would be includable in this definitionof “Gross Income from Operations” if received in the ordinary course of theProperty operation (after deducting therefrom all necessary costs and expensesincurred in the adjustment or collection thereof); and (f) interest oncredit accounts, rent concessions or credits, and other required pass-throughsand interest on Reserve Funds to the extent Issuers are entitled to suchinterest under this Indenture and the Cash Management Agreement; but excluding,(1) gross receipts received by lessees, licensees or concessionaires ofthe Property; (2) consideration received at the Property for hotelaccommodations, goods and services to be provided at other hotels, althougharranged by, for or on behalf of any Issuer or Manager; (3) income andproceeds from the sale or other disposition of goods, capital assets and otheritems not in the ordinary course of the Property operation; (4) federal,state and municipal excise, sales and use taxes collected directly from patronsor guests of the Property as a part of or based on the sales price of anygoods, services or other items, such as gross receipts, room, admission,cabaret, value-added or equivalent taxes; (5) Awards (except to the extentprovided in clause (d) above); (6) refunds of amounts notincluded in Operating Expenses at any time and uncollectible accounts; (7) gratuitiescollected by the Property employees; (8) the proceeds of any financing; (9) otherincome or proceeds resulting other than from the use or occupancy of theProperty, or any part thereof, or other than from the sale of goods,services or other items sold on or provided from the Property in the ordinarycourse of business; (10) any credits or refunds made to customers, guestsor patrons in the form of allowances or adjustments to previously recordedrevenues; (11) payments made to Issuers pursuant to the Interest Rate CapAgreement; and (12) any disbursements to any Issuer from the Tax and InsuranceEscrow Fund, the Replacement Reserve Fund, the Interest Reserve Fund, or anyother escrow fund established by the Financing Documents. Notwithstanding theforegoing, Gross Income from Operations shall not include any unrealizedtranslation profit on remeasuring the Pesos.

 

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

 

“**Guaranty**” shall mean that certain Guaranty Agreement, datedas of the date hereof, from Guarantor to Trustee for the benefit ofNoteholders, as the same may be amended, restated, replaced, supplementedor otherwise modified from time to time.

 

7

----

 

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

 

“**Hotel Service Issuer**” shall mean Kerzner ServiciosHoteleros, S. de R.L. de C.V.

 

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

 

“**Indebtedness**” of a Person, at a particular date, means thesum (without duplication) at such date of (a) all indebtedness orliability of such Person (including, without limitation, amounts for borrowedmoney and indebtedness in the form of mezzanine debt and preferredequity); (b) obligations evidenced by bonds, debentures, notes, or othersimilar instruments; (c) obligations for the deferred purchase price ofproperty or services (including trade obligations); (d) obligations underletters of credit; (e) obligations under acceptance facilities; (f) allguaranties, endorsements (other than for collection or deposit in the ordinarycourse of business) and other contingent obligations to purchase, to providefunds for payment, to supply funds, to invest in any Person or entity, orotherwise to assure a creditor against loss; and (g) obligations securedby any Liens (other than Liens constituting Permitted Encumbrances), whether ornot the obligations have been assumed.

 

“**Independent Director**” or “**IndependentManager**” shall mean a Person who is not at the time of initialappointment, 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, director (with the exception of serving as theIndependent Director or Independent Manager), officer, employee, partner,member, attorney or counsel of any Issuer or Principal or any Affiliate of eitherof them; (b) a creditor, customer, supplier or other person who derivesany of its purchases or revenues from its activities with any Issuer orPrincipal or any Affiliate of either of them; (c) a Person controlling orunder common control with any such stockholder, director, officer, partner,member, customer, supplier or other Person; or (d) a member of theimmediate family of any such stockholder, director, officer, employee, partner,member, customer, supplier or other Person. Notwithstanding anything to thecontrary contained herein, a natural Person who satisfies the foregoingdefinition other than clause (b) shall not be disqualifiedfrom serving as an Independent Director or Independent Manager of theapplicable Person if such natural Person is an independent director provided bya nationally recognized company that provides professional independentdirectors in the ordinary course of its business. A natural Person whootherwise satisfies the foregoing definition, except for being the independentdirector of more than one Issuer or a “special purpose entity” affiliated withany Issuer or Principal, shall not be disqualified from serving as anIndependent Director or Independent Manager if such Person is an independentdirector provided by a nationally-recognized company that provides professionalindependent directors in the ordinary course of its business. As used in thisdefinition, the term “control” means the possession, directly orindirectly, of the power to direct or cause the direction of management,policies or activities of a Person, whether

 

8

----

 

throughownership of voting securities, by contract or otherwise and a “specialpurpose entity” is an entity, whose organizational documents contain restrictionson its activities substantially similar to those set forth in the definition ofSpecial Purpose Entity in this Indenture.

 

“**Individual Parcel**” shall mean the particular portion of theLand and the Improvements thereon contributed by an Issuer to the SecurityTrust Agreement, together with all rights pertaining to such portion of theLand and Improvements.

 

“**Initial Note**” shall mean, collectively, that certainPromissory Note A and that certain Promissory Note B in the aggregate principalamount of One Hundred Ten Million and No/100 Dollars ($110,000,000), in eachcase issued as of the Note Issuance Date and made by Issuers, as the same may beamended, restated, replaced, supplemented or otherwise modified from time totime as provided herein.

 

“**Initial Noteholder**” shall mean Column Financial, Inc.,in its capacity as the assignee of Initial Purchaser of one or more of theNotes.

 

“**Initial Purchaser**” shall mean Credit Suisse First BostonLLC.

 

“**Insolvency Opinion**” shall mean, collectively, that certainnon-consolidation opinion letter delivered by Creel, Garcia-Cuellar yMuggenburg, S.C., that certain non-consolidation opinion letter delivered byCravath, Swaine & Moore LLP and such other non-consolidation opinionsas may be required hereunder, in each case dated the date hereof anddelivered in connection with the issuance of the Notes.

 

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

 

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

 

“**Interest Period**” shall have the meaning set forth in theNote.

 

“**Interest Rate Cap Agreement**” shall have the meaning setforth in the Note.

 

“**Interest Reserve Account**” shall have the meaning set forthin Section 10.04 hereof.

 

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

 

“**Issuer**” shall mean any of Beach Issuer, Golf Issuer, HotelIssuer, Hotel Service Issuer or Service Company Issuer.

 

“**Issuer Order**” and “**Issuer Request**”shall mean a written order or request signed in the name of an Issuer by anyone of its authorized officers and delivered

 

9

----

 

to the Trusteeat least five (5) Business Days prior to the date of the requested actionspecified therein.

 

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

 

“**Land**” shall mean the real property contributed by BeachIssuer, Golf Issuer and Hotel Issuer to the Security Trust Agreement, as fullydescribed in the Security Trust Agreement.

 

“**Lease**” shall mean any lease, sublease or subsublease,letting, license, concession or other agreement (whether written or oral andwhether now or hereafter in effect) pursuant to which any Person is granted apossessory interest in, or right to use or occupy all or any portion of theProperty, and (a) every modification, amendment or other agreementrelating to such lease, sublease, subsublease, or other agreement entered intoin connection with such lease, sublease, subsublease, or other agreement and (b) everyguarantee of the performance and observance of the covenants, conditions andagreements to be performed and observed by the other party thereto, providedthat the term “Lease” shall not include any short-term arrangements withtransient guests of the hotel located in the Improvements or the golf courselocated at the Property pursuant to which such guests acquire a right to use oroccupy all or a portion of the Property.

 

“**Legal Requirements**” shall mean all country, federal, state,county, municipal and other governmental statutes, laws, rules, orders,regulations, official standards (*normas tecnicas*),ordinances, judgments, decrees and injunctions of Governmental Authoritiesaffecting the Property or any part thereof, or the construction, use,alteration or operation thereof, or any part thereof, whether now orhereafter enacted and in force, and all permits, licenses and authorizationsand regulations relating thereto, and all covenants, agreements, restrictionsand encumbrances contained in any instruments, either of record or known to anyIssuer, at any time in force affecting the Property or any part thereof,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.

 

“**Letter of Credit**” shall mean an irrevocable, unconditional,transferable, clean sight draft letter of credit reasonably acceptable toServicer on behalf of Trustee (either an evergreen letter of credit or onewhich does not expire until at least thirty (30) Business Days after theMaturity Date) in favor of Trustee for the benefit of Noteholders and entitlingTrustee to draw thereon in Chicago, Illinois or New York, New York, issued by aU.S. Eligible Institution or the U.S. agency or U.S. branch of a foreignEligible Institution. If at any time the bank issuing any such Letter of Creditshall cease to be an Eligible Institution, Trustee shall have the right uponten (10) Business Days’ prior notice to Issuers to draw down the same infull and hold the proceeds of such draw in accordance with the applicableprovisions hereof unless within such ten (10) Business Day period Issuershave delivered an extension thereof or a replacement Letter of Credit issued byan Eligible Institution meeting the requirements set forth herein.

 

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

 

10

----

 

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

 

“**Lien**” shall mean any mortgage, deed of trust, lien, pledge,hypothecation, assignment, security interest, or any other encumbrance, chargeor transfer of, on or affecting any Issuer, the Property, any portion thereofor any interest therein, including, without limitation, any conditional sale orother title retention agreement, any financing lease having substantially thesame economic effect as any of the foregoing, the filing of any financingstatement, and mechanic’s, materialmen’s and other similar liens andencumbrances.

 

“**Lockbox Account**” shall have the meaning set forth in theNotes.

 

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

 

“**Management Agreement**” shall mean the management agreemententered into by and between Issuers and the Manager, pursuant to which theManager is to provide management and other services with respect to theProperty, or, if the context requires, the Replacement Management Agreement.

 

“**Manager**” shall mean, collectively, Kerzner InternationalManagement Services, Inc. and Kerzner International Management ServicesMexico, S. de R.L. de C.V., or, if the context requires, a Qualified Managerwho is managing the Property in accordance with the terms and provisions ofthis Indenture.

 

“**Material Adverse Effect”** shall mean any material adverseeffect upon (i) the business operations, economic performance or financialcondition of the Issuers taken as a whole or the Property, (ii) theability of Issuers to perform, in all material respects, their obligationsunder this Indenture and each of the other Financing Documents or (iii) theenforceability or validity of the Security Trust Agreement, the Pledge, anyother Financing Document, the perfection or priority of any Lien created underany Financing Document or the remedies of Trustee for the benefit ofNoteholders under any Financing Document.

 

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

 

“**Maximum Legal Rate**” shall have the meaning set forth in theNotes.

 

“**Mexico**” shall mean the United Mexican States. “Moody’s”shall mean Moody’s Investors Service, Inc.

 

“**Net Cash Flow**” shall mean, for any period, the amountobtained by subtracting Operating Expenses and Capital Expenditures for suchperiod from Gross Income from Operations for such period.

 

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

 

11

----

 

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

 

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

 

“**Net Proceeds Deficiency**” shall have the meaning set forth inSection 8.04(g) hereof.

 

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

 

“**Note A**” shall mean that certain Promissory Note A in theoriginal principal amount of Sixty Five Million and No/100 Dollars($65,000,000), issued as of the Note Issuance Date and made by Issuers, as thesame may be amended, restated, replaced, supplemented or otherwisemodified from time to time as provided herein.

 

“**Note B**” shall mean that certain Promissory Note B in theoriginal principal amount of Forty Five Million and No/100 Dollars($45,000,000), issued as of the Note Issuance Date and made by Issuers, as thesame may be amended, restated, replaced, supplemented or otherwisemodified from time to time as provided herein.

 

“**Note Issuance Date**” means the date upon which the Notes areissued and signed by the Issuers pursuant to the terms of this Indenture.

 

“**Noteholders**” or “**Holders**” means,at any time, the Persons holding any one or more of the Notes issued under theterms of this Indenture and entered in the Register as holders of such Note orNotes.

 

“**Noteholders’ Approval**” means an instrument signed in one ormore counterparts by all the Registered Holders of Notes at the time ofissuance of the approval, or approved pursuant to resolution, in accordancewith the provisions of this Indenture.

 

“**Notes**” shall mean, collectively, the Initial Note and allother notes issued hereunder, governed by the provisions of this Indenture andat the time of determination then being outstanding.

 

“**Obligations**” means all present and future debts, expensesand liabilities, direct or indirect, absolute or contingent, due, owing, oraccruing due, or owing, from time to time by the Issuers hereunder or under theNotes and the other Financing Documents.

 

“**Officer’s Certificate**” shall mean a certificate delivered toInitial Purchaser, Initial Noteholder or Trustee by any Issuer or Issuers, asthe case may be, which is signed by an authorized senior officer of suchIssuer (if the Officer’s Certificate is being delivered by such Issuer) or ofany Issuer (if the Owner’s Certificate is being delivered by Issuers).

 

12

----

 

“**Operating Expenses**” shall mean the sum of all costs andexpenses of operating, maintaining, directing, managing and supervising theProperty (excluding, (i) depreciation and amortization, (ii) any DebtService, or (iii) any Capital Expenditures in connection with theProperty, incurred by Issuers or by Manager on behalf of Issuers pursuant tothe Management Agreement, or as otherwise specifically provided therein, whichare properly attributable to the period under consideration under Issuers’system of accounting, including without limitation: (a) the cost of allfood and 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 (“**Operating Equipment**”) and paper supplies, cleaning materialsand similar consumable items (“**Operating Supplies**”)placed in use (other than reserve stocks thereof in storerooms). OperatingEquipment and Operating Supplies shall be considered to have been placed in usewhen they are transferred from the storerooms of the Property to theappropriate operating departments; (b) salaries and wages of personnel ofthe Property, including costs of payroll taxes and employee benefits (whichbenefits may include, without limitation, a pension plan, medicalinsurance, life insurance, travel accident insurance and an executive bonusprogram) and the costs of moving employees, personnel, their families and theirbelongings to the area in which the Property is located at the commencement oftheir employment at the Property and other administrative and general operatingexpenses not otherwise specifically referred to in this definition. Except asotherwise 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 the foregoing, if it becomes necessary for aGuarantor employee or an employee or executive of Guarantor Affiliate totemporarily perform services at any Individual Parcel of a nature normallyperformed by personnel of the Property, his or her salary (including any Issuer’sor Manager’s payroll taxes and employee benefits) as well as his or hertraveling expenses will be Operating Expenses and he or she will be entitled tofree room, board and use of the facilities as aforesaid, while performing suchservices; (c) the cost of all other goods and services obtained by Issuersor Manager in connection with its operation of the Property including, withoutlimitation, heat and utilities, office supplies including any operating leasesand all services performed by third parties; (d) the cost of repairs toand maintenance of the Property other than Capital Expenditures; (e) insurancepremiums and losses incurred on any self-insured risks, provided thatIssuers and Manager have specifically approved in advance such self-insuranceor insurance is unavailable to cover such risks. Insurance premiums on policiesfor more than one year will be pro rated over the period of insurance andpremiums under blanket policies will be allocated among properties covered; (f) allTaxes and Other Charges (other than federal, state or local income taxes andfranchise taxes or the equivalent) payable by or assessed against Issuers orManager with respect to the operation of the Property; (g) legal fees,administrative and general expenses, security costs, trustee expenses, mastercondominium association fees and fees of any firm of independent certifiedpublic accounts designated from time to

 

13

----

 

time byIssuers (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 on operational,legal, functional, decorating, design or construction problems and activities,including the reasonable fees of Guarantor or any Guarantor subsidiary ordivision in connection therewith, provided that such costs and expensesare reasonable and customary; (i) all expenses for advertising for theProperty and all expenses of sales promotion, marketing, advertising and publicrelations activities; (j) all out-of-pocket expenses and disbursementsdetermined by the Independent CPA to have been reasonably, properly andspecifically incurred by Issuers, Manager, Guarantor or any of their Affiliatespursuant to, in the course of and directly related to, the management andoperation of the Property under the Management Agreement. Without limiting thegenerality of the foregoing, such charges may include all reasonabletravel, telephone, telegram, radiogram, cablegram, air express and otherincidental expenses, but, excluding costs relating to the offices maintained byany Issuer, 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; (I) thecost associated with any retail Leases; (m) any management fees, basic andincentive fees or other fees and reimbursables paid or payable to Manager underthe Management Agreement or Golf Manager under the Golf Management Agreement;and (n) all costs and expenses of owning, maintaining, conducting andsupervising the operation of the Property to the extent such costs and expensesare not included above. Notwithstanding anything herein contained to thecontrary, Operating Expenses shall not include, and shall not be deemed toinclude, (i) any unrealized translation loss on remeasuring the Pesos and (ii) anycosts or expenses, including, but not limited to, the costs and expenses oftechnical consultants and other specialized operational workers, incurred inconnection with any Capital Expenditure program (including pre-opening costs),where such costs and expenses are capitalized to the Property as permitted byGAAP.

 

“**Other Charges**” shall mean all ground rents, maintenancecharges, Condominium charges and assessments, impositions other than Taxes, andany other charges, including, without limitation, vault charges and licensefees for the use of vaults, chutes and similar areas adjoining the Property,now or hereafter levied or assessed or imposed against the Property or any part thereof.

 

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

 

“**Permitted Encumbrances**” shall mean, collectively (a) theLiens and security interests created by the Financing Documents, (b) allLiens, encumbrances and other matters disclosed in the Title Insurance Policyor liens that are being contested in accordance with Section 7.01(j)(iii) hereof,(c) Liens, if any, for Taxes imposed by any Governmental Authority not yetdue or delinquent or that are being contested in accordance with Section 7.01(b) hereof,(d) Liens on equipment and other personalty used on the Property, if any,granted in connection with the financing of such equipment or other personaltypermitted by the Loan Documents, (e) access and utility easements

 

14

----

 

which do nothave a Material Adverse Effect, and (f) such other title and surveyexceptions as Initial Noteholder or Trustee has approved or may approve inwriting in Initial Noteholder’s or Trustee’s sole discretion.

 

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

 

“**Permitted Investments**” shall have the meaning set forth inthe Cash Management Agreement.

 

“**Person**” shall mean any individual, corporation, partnership,joint venture, limited liability company, estate, trust, unincorporatedassociation, any federal, state, county or municipal government or any bureau,department or agency thereof and any fiduciary acting in such capacity onbehalf of any of the foregoing.

 

“**Personal Property**” shall mean all the movable property andrights and interests pledged by the Issuers pursuant to the Pledge and all otherpersonal property owned by any Issuer and encumbered by any of the FinancingDocuments, together with all rights pertaining to such property.

 

“**Pesos**” shall mean lawful money of Mexico.

 

“**Physical Conditions Report**” shall mean that certain reportof a Hotel Resort, dated November 18, 2004, prepared by Merritt &Harris, Inc.

 

“**Pledge**” shall mean the Pledge Without Transmission ofPossession (*Prenda Sin Transmision de Posesion*), asthe same may be amended, modified, restated or supplemented from time totime, created on the collateral described therein and granted by Issuers tosecure the payment of the Notes.

 

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

 

“**Prescribed Laws**” shall mean, collectively, (a) theUniting and Strengthening America by Providing Appropriate Tools Required toIntercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USAPATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing,effective September 24, 2001, and relating to Blocking Property andProhibiting Transactions With Persons Who Commit, Threaten to Commit, orSupport Terrorism, (c) the International Emergency Economic Power Act, 50U.S.C. §1701 et seq. and (d) all other Legal Requirements relating tomoney laundering or terrorism.

 

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

 

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

 

15

----

 

“**Provided Information**” shall mean any and all financial andother information provided at any time by, or on behalf of, any Issuer orGuarantor with respect to the Property, any Issuer, Principal, Guarantor and/orManager.

 

“**Qualified Golf Manager**” shall mean either (a) GolfManager or (b) a management organization possessing similar reputation andexperience as Golf Manager in managing a golf course of comparable class,luxury and quality as the golf course at the Property.

 

“**Qualified Manager**” shall mean either (a) Manager or (b) inthe reasonable judgment of Servicer on behalf of Trustee, a reputable andexperienced management organization (which may be an Affiliate of anIssuer) possessing experience in managing properties similar in size, scope,use and value as the Property, provided, that Issuers shall haveobtained prior written confirmation from the applicable Rating Agencies thatmanagement of the Property by such Person will not cause a downgrade,withdrawal or qualification of the then current ratings of the Securities orany class thereof.

 

“**Qualified Spa Manager**” shall mean either (a) SpaManager or (b) a management organization possessing similar reputation andexperience as Spa Manager in managing a spa facility of comparable class,luxury and quality as the spa facility at the Property.

 

“**Rating Agencies**” shall mean each of S&P, Moody’s andFitch, or any other nationally recognized statistical rating agency which hasbeen approved by Trustee.

 

“**Register**” means the register or registers providing for theregistration of Notes and the registration of transfers and exchanges of Notes,which register the Trustee will cause to be kept.

 

“**Registered Holder**” shall mean any Noteholder who appears onthe Register as the owner and holder of one or more Notes.

 

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

 

“**REMIC Trust**” shall mean a “real estate mortgage investmentconduit” within the meaning of Section 860D of the Code that holds theNote.

 

“**Rents**” shall mean, with respect to each Individual Parcel,all rents, rent equivalents, moneys payable as damages or in lieu of rent orrent equivalents, royalties (including, without limitation, all oil and gas orother mineral royalties and bonuses), income, receivables, receipts, revenues,deposits (including, without limitation, security, utility and other deposits),accounts, cash, issues, profits, charges for services rendered, and otherconsideration of whatever form or nature received by or paid to or for theaccount of or benefit of Issuers or their agents or employees from any and allsources arising from or attributable to the Individual Parcel, and proceeds, ifany, from business interruption or other loss of income or insurance,including, without limitation, all hotel

 

16

----

 

receipts,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, concession or other grant of theright of the use and occupancy of property or rendering of services by anyIssuer or any operator or manager of the hotel, the golf course or thecommercial space located in the Improvements or at the Property or acquiredfrom others (including, without limitation, from the rental of any officespace, retail space, guest rooms or other space, halls, stores, and offices,and deposits securing reservations of such space), license, lease, sublease andconcession fees and rentals, health club membership fees, food and beveragewholesale and retail sales, service charges, vending machine sales.

 

“**Replacement Golf Management Agreement**” shall mean,collectively, either (a) a management agreement with a Qualified GolfManager 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,with respect to this clause (b), an assignment of managementagreement substantially in the form then used by Servicer (or of suchother form and substance reasonably acceptable to Servicer, on behalf ofthe Trustee) shall be executed and delivered to Trustee by Issuers and suchQualified Golf Manager at Issuers’ expense.

 

“**Replacement Interest Rate Cap Agreement**” means an interestrate cap agreement from an Acceptable Counterparty with terms identical to theInterest Rate Cap Agreement except that the same shall be effective inconnection with replacement of the Interest Rate Cap Agreement following adowngrade, withdrawal or qualification of the long-term unsecured debt ratingof the Counterparty; provided that to the extent any such interest ratecap agreement does not meet the foregoing requirements, a “Replacement InterestRate Cap Agreement” shall be such interest rate cap agreement approved inwriting by each of the Rating Agencies with respect thereto.

 

“**Replacement Management Agreement**” shall mean, collectively, (a) either(i) a management agreement with a Qualified Manager substantially in thesame form and substance as the Management Agreement, or (ii) amanagement agreement with a Qualified Manager, which management agreement shallbe reasonably acceptable to the Servicer, on behalf of the Trustee in form andsubstance, provided, with respect to this subclause (ii),Servicer, at its option, may require that Issuers obtain confirmation fromthe applicable Rating Agencies that such management agreement will not cause adowngrade, withdrawal or qualification of the then current rating of theSecurities or any class thereof; and (b) an assignment of managementagreement substantially in the form then used by Servicer (or of suchother form and substance reasonably acceptable to Servicer, on behalf ofthe Trustee), executed and delivered to Trustee by Issuers and such QualifiedManager at Issuers’ expense.

 

“**Replacement Reserve Account**” shall have the meaning setforth in Section 10.03(a) hereof.

 

17

----

 

“**Replacement Reserve Fund**” shall have the meaning set forthin Section 10.03(a) hereof.

 

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

 

“**Replacement Spa Management Agreement**” shall mean,collectively, either (a) a management agreement with a Qualified SpaManager substantially in the same form and substance as the Spa ManagementAgreement, or (b) a management agreement with a Qualified Spa Manager,which management agreement shall be reasonably acceptable to the Servicer, onbehalf of the Trustee in form and substance, provided, with respectto 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 the meaning set forth in Section 10.03(a) hereof.

 

“**Required Repair Account**” shall have the meaning set forth inSection 10.1(a) hereof.

 

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

 

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

 

“**Reserve Funds**” shall mean, collectively, the Tax andInsurance Escrow Fund, the Replacement Reserve Fund, the Interest Reserve Fund,the Required Repair Fund, and any other escrow fund established pursuant to theFinancing Documents.

 

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

 

“**Responsible Officer**” shall mean a person designated byTrustee as an authorized officer of Trustee in connection with theadministration of the Notes in accordance with this Indenture.

 

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

 

“**Restoration**” shall mean the repair and restoration of anyIndividual Parcel after a Casualty or Condemnation as nearly as possible to thecondition such Individual Parcel was in immediately prior to such Casualty orCondemnation, with such alterations as may be reasonably approved byTrustee.

 

“**Restricted Party**” shall mean (a) any Issuer, Principal,Affiliated Manager, Palmilla JV, LLC, GSEM Palmilla LLC and Kerzner InvestmentPalmilla, Inc.

 

18

----

 

and (b) anyshareholder, partner, member, non-member manager and any direct or indirectlegal or beneficial owner of any Issuer, Principal, Affiliated Manager,Palmilla JV, LLC, GSEM Palmilla LLC and Kerzner Investment Palmilla, Inc.

 

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

 

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

 

“**Securities**” shall have the meaning set forth in the SecuritizationCooperation Agreement.

 

“**Securities Act**” shall mean the Securities Act of 1933, asamended, and the rules and regulations promulgated thereunder.

 

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

 

“**Securitization Cooperation Agreement**” shall mean thatcertain letter agreement dated the date hereof between Issuers and ColumnFinancial, Inc.

 

“**Security Trust Agreement**” shall mean that certain Amendedand Restated Trust Agreement Number 0023, established with Security TrustTrustee to secure the payment of the Notes and the performance of the otherObligations, as the same has been or may be amended, restated orsupplemented from time to time.

 

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

 

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

 

“**Security Trust Trustee**” shall mean Banco J.P. Morgan, S.A.,Institución de Banca Múltiple, J.P. Morgan Grupo Financiero, DivisionFiduciaria, as trustee under the Security Trust Agreement.

 

“**Service Company Issuer**” shall mean Kerzner Compañia deServicios, S. de R.L. de C.V.

 

“**Servicer**” shall mean Orix Capital Markets, LLC or such otherPerson designated in writing pursuant to Section 11.14 hereof by amajority of the Noteholders to act as Servicer, and who shall have accepted inwriting such appointment to so act, on behalf of the Trustee for the benefit ofthe 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

 

19

----

 

a majority ofthe Noteholders. The Servicer may be a Noteholder designated as such inwriting by a majority of the Noteholders. It is understood and agreed that anyservicing agreement may provide that the Servicer may take certainactions, or refrain from an action, only with the consent of a specifiedportion (which may be all) of the Noteholders.

 

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

 

“**Spa Management Agreement**” shall mean that certain SpaOperation Agreement, dated September 19, 2003, between Hotel Issuer andSpa Manager, or, if the context requires, the Replacement Spa ManagementAgreement.

 

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

 

“**Special Purpose Entity**” shall mean a corporation, limitedpartnership or limited liability company which at all times on and after thedate 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) actingas a general partner of the limited partnership that owns the Property or anIndividual Parcel or member of the limited liability company that owns theProperty or an Individual Parcel;

####  

#### (b)  isnot engaged 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) actingas a member of the limited liability company that owns the Property or anIndividual 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)  hasnot engaged in, sought or consented to and will not engage in, seek or consentto any dissolution, winding up, liquidation, consolidation, merger, sale of allor substantially 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,

 

20

----

 

#### articles of incorporation,articles of organization, by-laws, certificate of formation or operatingagreement (as applicable) with respect to the matters set forth in thisdefinition;

####  

#### (e)  ifsuch entity is a limited partnership, has, as its only general partners,Special Purpose Entities that are corporations, limited partnerships or limitedliability companies;

####  

#### (f)  ifsuch entity is a corporation, has at least two (2) Independent Directors,and has not caused or allowed and will not cause or allow the board ofdirectors of such entity to take any action requiring the unanimous affirmativevote of one hundred percent (100%) of the members of its board of directorsunless two Independent Directors shall have participated in such vote;

####  

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

####  

#### (h)  ifsuch entity 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) springingmembers that will become the non-managing members of such entity upon thedissolution of the existing non-managing member;

####  

#### (i)  ifsuch entity is (i) a limited liability company, has articles oforganization, a certificate of formation and/or an operating agreement, asapplicable, (ii) a limited partnership, has a limited partnershipagreement, or (iii) a corporation, has a certificate of incorporation orarticles that, in each case, provide that such entity will not: (A) dissolve,merge, liquidate, consolidate; (B) sell all or substantially all of itsassets or the assets of the Issuers or any Issuer (as applicable); (C) engagein any other business activity, or amend its organizational documents withrespect to the matters set forth in this definition without the consent of theServicer on behalf of Trustee for the benefit of Noteholder; or (D) withoutthe affirmative vote of two Independent Directors and of all other directors ofthe corporation (that is such entity or the general partner or managing orco-managing member of such entity), file a bankruptcy or insolvency petition orotherwise institute insolvency proceedings with respect to itself or to any otherentity in which it has a direct or indirect legal or beneficial ownershipinterest;

####  

#### (j)  is and will remain solvent and pay its debtsand liabilities (including, as applicable, shared personnel and overheadexpenses) from its assets as the same shall become due, and is maintaining andwill maintain adequate capital for

 

21

----

 

#### the normal obligationsreasonably foreseeable in a business of its size and character and in light ofits contemplated business operations;

####  

#### (k)  will not fail to correct any knownmisunderstanding regarding the separate identity of such entity;

####  

#### (l)  will maintain its accounts, books and recordsseparate from any other Person and will file its own tax returns, except to theextent that it is required to file consolidated tax returns by law;

####  

#### (m)  will maintain its own records, books,resolutions and agreements;

####  

#### (n)  other than as provided in the Cash ManagementAgreement, (i) will not commingle its funds or assets with those of anyother Person and (2) will not participate in any cash management systemwith any other Person;

####  

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

####  

#### (p)  will conduct its business in its name, in thename of “One and Only Palmilla” (in the case of an Issuer) or in a namefranchised or licensed to it by an entity other than an Affiliate of Issuers orany Issuer, except for services rendered under a business management servicesagreement with an Affiliate that complies with the terms contained in Subsection (dd)below, so long as the manager, or equivalent thereof, under such businessmanagement services agreement holds itself out as an agent of the Issuers orthe applicable Issuer;

####  

#### (q)  will maintain its financial statements,accounting records and other entity documents separate from any other Personand has not permitted and will not permit its assets to be listed as assets onthe financial statement of any other entity except as required by GAAP; provided,however, that any such consolidated financial statement shall contain anote indicating that its separate assets and liabilities are neither availableto pay the debts of the consolidated entity nor constitute obligations of theconsolidated entity;

####  

#### (r)  will pay its own liabilities and expenses,including the salaries of its own employees, out of its own funds and assets,and has maintained and will maintain a sufficient number of employees in lightof its contemplated business operations;

####  

#### (s)  will observe all partnership, corporate orlimited liability company formalities, as applicable;

####  

#### (t)  has and will have no Indebtedness other than (i) indebtednessevidenced by the Notes and the other Financing Documents, (ii) liabilitiesincurred in the ordinary course of business relating to the ownership andoperation of the Property or its Individual Parcel and the routineadministration of Issuers or any Issuer, in amounts not to exceed one percent(1%) of the principal balance of the Notes which liabilities are not more thansixty (60) days past the date

 

22

----

 

#### incurred, are not evidenced bya note and are paid when due, and which amounts are normal and reasonable underthe circumstances, (iii) in the case of an Issuer, indebtedness incurredin connection with the financing of equipment and other personal property usedon the Property, provided that the aggregate amount of such indebtednessfrom all Issuers does not exceed $512,000 at any one time (the “**Permitted Equipment Financing**”), and (iv) suchother liabilities that are permitted pursuant to this Indenture;

####  

#### (u)  other than in connection with the PermittedEquipment Financing and the indebtedness evidenced by the Notes and the otherFinancing Documents, will not assume or guarantee or become obligated for thedebts of any other Person or hold out its credit as being available to satisfythe obligations of any other Person except as permitted pursuant to thisIndenture or the other Financing Documents;

####  

#### (v)  willnot acquire obligations or securities of its partners, members or shareholdersor any other Affiliate;

####  

#### (w)  will allocate fairly and reasonably anyoverhead expenses that are shared with any Affiliate, including, but notlimited to, paying for shared office space and services performed by anyemployee of an Affiliate;

####  

#### (x)  maintains and uses and will maintain and useseparate stationery, invoices and checks bearing its name or, in the case of anIssuer, the name “One and Only Palmilla”. The stationery, invoices, and checksutilized by the Special Purpose Entity or utilized to collect its funds or payits expenses 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 than pursuant to the FinancingDocuments, will not pledge its assets for the benefit of any other Person;

####  

#### (z)  other than, in the case of an Issuer,pursuant to its use of the name “One and Only Palmilla,” will hold itself outand identify itself as a separate and distinct entity under its own name or ina name franchised or licensed to it by an entity other than an Affiliate ofIssuers and any Issuer and not as a division or part of any other Person,except for services rendered under a business management services agreementwith an Affiliate that complies with the terms contained in Subsection (dd)below, so long as the manager, or equivalent thereof, under such businessmanagement services agreement holds itself out as an agent of the Issuers orthe applicable Issuer;

####  

#### (aa)  will maintain its assets in such a mannerthat it will not be costly or difficult to segregate, ascertain or identify itsindividual assets from those of any other Person;

####  

#### (bb)  will not make loans to any Person or holdevidence of indebtedness issued by any other Person or entity (other than cashand investment-grade

 

23

----

 

#### securities issued by an entitythat is not an Affiliate of or subject to common ownership with such entity);

####  

#### (cc)  will not identify its partners, members orshareholders, or any Affiliate of any of them as a division or part of it,and shall not identify itself as a division of any other Person;

####  

#### (dd)  will not enter into or be a party to, anycontract or agreement with any of its Affiliates, constituents or owners, orany guarantors of any of its obligations or any Affiliate of any of theforegoing except (A) in the ordinary course of its business and on termswhich are intrinsically fair, commercially reasonable and are no less favorableto it than would be obtained in a comparable arm’s-length transaction with anunrelated third party and (B) in connection with this Indenture and theother Financing Documents;

####  

#### (ee)  except as set forth in the organizationaldocuments of the Issuers as of the Note Issuance Date, will not have anyobligation to, and will not, indemnify its partners, officers, directors ormembers, as the case may be, unless such an obligation is fully subordinatedto the Debt and will not constitute a claim against it in the event that cashflow in excess of the amount required to pay the Debt is insufficient to paysuch obligation;

####  

#### (ff)  if such entity is a corporation, it shallconsider the interests of its creditors in connection with all corporateactions;

####  

#### (gg)  other than, in the case of an Issuer, thePermitted Equipment Financing, does not and will not have any of itsobligations guaranteed by any Affiliate;

####  

#### (hh)  complies and will comply with all of theterms and provisions contained in its organizational documents. The statementof facts contained in its organizational documents are true and correct andwill remain true and correct; and

####  

#### (ii)  inthe case 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;

 

24

----

 

###### (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 the State or Commonwealth in theUnited States of America, as applicable, in which the Property or any part thereofis located.

 

“**Substitute Guarantor**” shall mean a Person with (a) $250,000,000in net worth and (b) $20,000,000 in liquidity, including for purposes ofdetermination (i) availability under any existing lines of credit and (ii) outstandingcapital commitments by “Qualified Institutional Investors” or “AccreditedInvestors” (as such terms are defined under the Securities Act) pursuant tosubscription or other similar agreements or arrangements.

 

“**Survey**” shall mean that certain survey of the One &Only Palmilla Hotel located at Los Cabos, Baja California Sur, Mexico, dated November 30,2004, by Pedro Sotres Hernandez, Surveyor.

 

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

 

“**Taxes**” shall mean all real estate and personal propertytaxes, assessments, water rates or sewer rents, now or hereafter levied or assessedor imposed against the Property or any part thereof.

 

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

 

“**Title Insurance Policy**” shall mean a title insurance policyin a form (acceptable to Initial Purchaser) issued with respect to theProperty and insuring the Trustee that the Security Trust Agreement creates avalid first lien on the applicable Property.

 

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

 

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

 

“**Transferee Related Entities**” shall have the meaning setforth in Section 7.02(j)(vi) hereof.

 

25

----

 

“**Trustee**” shall have the meaning set forth on the first page hereof

 

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

 

“**UCC**” or “**Uniform CommercialCode**” shall mean the Uniform Commercial Code as in effect fromtime to time in the State or Commonwealth of the United States of Americain which the Property or any part thereof is located.

 

“**U.S. Obligations**” shall mean non-redeemable securitiesevidencing an obligation to timely pay principal and/or interest in a full andtimely manner that are direct obligations of the United States of Americafor the payment of which its full faith and credit is pledged.

 

## **Section 1.02  Accounting Terms.**Allaccounting terms not otherwise defined herein have the meanings assigned tothem in accordance with GAAP.

##  

## **Section 1.03  General.**Thedivision of this Indenture into sections and the insertion of headings are forconvenience of reference only and shall not affect the interpretation of thisIndenture. Any reference in this Indenture to any act or statute or any section thereofshall be deemed to be a reference to such act, statute or section asamended or re-enacted from time to time, except as otherwise provided herein. Wordsimporting the singular number include the 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 Indenture toany Person shall include the successors and permitted assigns of such Person. Allreferences to sections and schedules are to sections and schedules in or tothis Indenture unless otherwise specified. All uses of the word “including”shall mean “including, without limitation” unless the context shall indicateotherwise. Unless otherwise specified, the words “hereof,” “herein” and “hereunder”and words of similar import when used in this Indenture shall refer to thisIndenture as a whole and not to any particular provision of this Indenture. Wherevera representation, 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 OF NOTES**

#  

## **Section 2.01  No Limit on Issue.**Theaggregate principal amount of the Notes authorized to be issued under thisIndenture and outstanding at any one time shall be limited to the amount of$110,000,000 and subject to compliance with Section 2.03.

##  

## **Section 2.02  Notes Deemed to be Outstanding.**EveryNote signed and delivered by the Issuers hereunder shall be deemed to beoutstanding until it shall be cancelled or delivered to the Trustee forcancellation, or moneys for the payment thereof shall have been set asidepursuant hereto.

##  

## **Section 2.03  Conditions Precedent to the Issue of Notes.**(a)  No Note shall be signed by the Trusteeand issued hereunder unless on the Note Issuance Date relating thereto each ofthe following conditions shall be satisfied:

 

26

----

 

##### (i)  No Event of Default. No event shall have occurred andbe continuing 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 warrantiesof the Issuers set forth in herein and in the other Financing Documents shallbe true and accurate in all material respects;

#####  

##### (iii)  Security Trust Agreement and Pledge. The Issuersshall have executed the Security Trust Agreement and the Pledge, and shall havepresented for 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 themeaning thereof in the Bankruptcy Code; and

#####  

##### (v)  Conditions Precedent in Other Documents. Any terms,conditions, including conditions precedent, set forth in the Security TrustAgreement and in the Pledge, have been fully and properly satisfied in thejudgment and discretion of the Initial Purchaser.

#####  

##### (vi)  Appointment of Process Agent. The Issuers shall havegranted their appointed process agent (as provided in Section 14.04hereof) a power-of-attorney for lawsuits and collections, in form andsubstance satisfactory to Initial Purchaser.

#####  

##### (vii)  Registration of Notes with CNBV. The Notes shallhave been approved for registration with the Special Section (*Sección Especial*) of the National Registryof Securities (*Registro Nacional de Valores*)maintained by the CNBV.

#####  

### (b)  The Trustee shall have no responsibility for determining thesatisfaction of any such conditions, nor for the delivery, receipt or custodyof any agreements, documents or other materials specified in the Security TrustAgreement, or in the Pledge or in this Agreement, which are required to bedelivered to or received by any party other 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.**TheNotes to be issued hereunder shall be issued subject to the following terms,conditions and attributes:

 

27

----

 

### (a)  the Notes shall be issued in the form of the Exhibit Aattached hereto and made a part hereof;

###  

### (b)  the Notes shall bear interest from the Note Issuance Date atthe rate specified in the Notes issued and should there be an Event of Defaultat any time, including failure to pay in accordance with any stated paymentobligation, interest shall be payable on the amount in default at the DefaultRate;

###  

### (c)  the principal of the Notes, together with interest, if any,thereon, will be payable as specified in the Notes issued;

###  

### (d)  every Note, whether issued originally or in exchange for oneor more other Notes, shall be entitled to the payments as designated in theissued form of Note;

###  

### (e)  wherever in this Indenture or the Notes there is mention, inany context, of the payment of interest, such mention shall be deemed toinclude the payment of interest on amounts in default;

###  

### (f)  the Notes may be assigned or otherwise transferred byInitial Purchaser and thereafter any Noteholder, provided that such assignmentor other transfer in the United States of America is effected pursuant toan exemption from any applicable federal and state securities laws, which may beexemptions provided by Rule 144A under the Securities Act, Regulation Dunder the Securities Act, Regulation S under the Securities Act or any otherexemption from registration available under the applicable federal and statesecurities laws in the United States of America; and

###  

### (g)  the terms and conditions of this Indenture are otherwise met.

###  

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

##  

This Note isone of the Notes referred to in the above-mentioned Indenture.

 
|   |   | [                                       ],  as Trustee |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                      |
|   |   | By:                                                                                                                                                                                                                                                       |   |   |
|   |   |                                                                                                                                                                                                                                                      | Authorized  Officer |
|   |   |                                                                                                                                                                                                                                                      |   |
|   | or     |                                                                                                                                                                                                                                                      |   |
|   |   |                                                                                                                                                                                                                                                      |   |
|   |   | [                                       ],  as Trustee |
|   |   |                                                                                                                                                                                                                                                      |   |
|   |   | By:                                                                                                                                                                                                                                                       |   |   |
|   |   |                                                                                                                                                                                                                                                      | as  Authenticating Agent |

 

28

----

 

### (b)  The following legend shall be placed on each Note:

###  

THIS NOTE MAY BEASSIGNED OR OTHERWISE TRANSFERRED BY THE INITIAL PURCHASER THEREOF ANDTHEREAFTER BY ANY HOLDER THEREOF, PROVIDED THAT SUCH ASSIGNMENT OR OTHERTRANSFER IN THE UNITED STATES OF AMERICA IS EFFECTED PURSUANT TO AN EXEMPTIONFROM ANY APPLICABLE FEDERAL AND STATE SECURITIES LAWS IN THE UNITED STATES OFAMERICA, WHICH MAY BE THE EXEMPTIONS PROVIDED BY RULE 144A UNDER THEUNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),REGULATION D UNDER THE SECURITIES ACT, REGULATION S UNDER THE SECURITIES ACT ORANY OTHER EXEMPTION FROM REGISTRATION AVAILABLE UNDER ANY SUCH APPLICABLEREGISTRATION REQUIREMENT.

 

## **Section 2.06  Registration.**TheIssuers shall cause to be kept at the Corporate Trust Office of Trustee aregister (the “**Register**”), for theregistration or transfer of the Notes. The Register shall be maintained by theTrustee, acting as the agent of the Issuers for this purpose, and the Trustee,is hereby appointed as “Registrar” for the purpose of registering Notes andtransfers of Notes as provided herein. The name and address of the Holder ofeach Note, records of any transfers of the Notes and the name and address ofany transferee of a Note shall be entered in the Register under such reasonableregulations as the Trustee may prescribe, and the Issuers shall be entitledto treat 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. Thereshall be no more than one Registered Holder for each Note. The Trustee may appointone or more co-registrars, and the term “Registrar” includes any suchco-registrar. The Registrar shall (i) at all reasonable times duringoffice hours make the Register available to the Issuers and to any Personauthorized by the Issuers in writing for inspection and the making of copiesthereof or extracts therefrom and (ii) mail a copy of the Register to theIssuers and to any other such Person promptly after request therefor from theIssuers.

##  

## **Section 2.07  Transfers of Notes.**Notransfer of a Note shall be valid unless (a) such Note shall have beensurrendered to the Trustee for cancellation whereupon, a new Note or Notes ofan equal aggregate principal amount shall be issued to the transferee inexchange therefor or (b) such Note has been validly endorsed and assignedto the transferee and notice of such assignment and transfer has been given tothe Trustee for recordation in the Register. The registered Holder for the timebeing of any Note shall be entitled to the principal moneys and interestevidenced by such Notes free from all equities or rights of set-off,counterclaim or compensation between the Issuers and the original or anyintermediate Noteholder thereof and all Persons may act accordingly.

##  

## **Section 2.08  Inspection of Registers.**TheRegister maintained by the Issuers at the Corporate Trust Office of Trusteeshall, at all reasonable times, be open for inspection by any Noteholders. EveryRegistered Holder of a Note, by receiving and

 

29

----

 

## holding such aNote, agrees with the Trustee that neither the Issuers, the Trustee, nor any oftheir respective agents, shall be held accountable by reason of the disclosureof such information as to the names and addressed of such Noteholders,regardless of the sources from which such information was derived.

##  

## **Section 2.09  Title to Registered Notes.**ThePerson in whose name the Notes shall be registered shall be deemed and regardedas the owner thereof for all purposes of this Indenture and payment of or onaccount of the principal of or interest on such Notes shall be made only to orupon the order in writing of such Registered Holder thereof.

##  

## **Section 2.10  Mutilation, Loss, Theft or Destruction.**Incase any of the Notes issued hereunder shall become mutilated or be lost, stolenor destroyed, the Issuers shall, at the request of a Noteholder, issue, andthereupon the Trustee shall certify and deliver, a new Note upon surrender orcancellation of the mutilated Note, or in the case of a lost, stolen ordestroyed Note, in lieu of and in substitution for the same, and thesubstituted Note shall be in a form approved by the Trustee and shall beentitled to the benefit of this Indenture identically 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 applicantshall pay all reasonable expenses incidental to the issuance of any substitutedNote.

##  

## **Section 2.11  Cancellation of Notes.**Uponpayment in full to any Noteholder, pursuant to the terms of the applicableNote, and the delivery by such Noteholder to the Trustee of the fully repaidNotes then held by such Noteholder, for cancellation, the Trustee shall cancelsuch Notes pursuant hereto. Notes may only be repaid in accordance withthe terms of such Note, the Note shall specifically contemplate whetherrepayment may be made by way of prepayment, and will specify the terms,and conditions, of such prepayment.

##  

# **ARTICLE 3 – PAYMENT MECHANICS**

#  

## **Section 3.01  Requirements of Payment.**TheNotes shall specifically provide for the requirements for payment, includingrepayment of principal and payment of interest and costs and expenses, and theIssuers agree, subject to all of the terms and conditions of this Indenture andthe Notes, that payment shall be made in the manner, at the times, in theamounts, and otherwise, as provided in the Notes.

##  

## **Section 3.02  Additional Provisions.**TheIssuers shall be required to honor the terms and conditions, and to make eachand every of the payments, required by the terms of each Note, as issued, infavor of the Trustee for the benefit of Noteholders, and specifically shall berequired to honor each and every of the conditions and provisions of thisIndenture and the other Financing Documents, all of such conditions andprovisions to be paid, performed and undertaken, in favor of the Trustee forthe benefit of the Noteholders.

 

30

----

 

## **Section 3.03  Priority of Payments.**(a) All payments or collections received under the Notes on or before an Event ofDefault that are available pursuant to the Cash Management Agreement forpayments on the Notes (after any amounts payable to the Trustee hereunder) withrespect to any Payment Date, or any other unscheduled payments received underthe Notes, this Indenture or the other Financing Documents that are soavailable, will be distributed in the following order of priority (the “**Priority of Payments**”):

##  

##### (i)  First, to the payment of all accrued and unpaid interest onNote A at the Interest Rate provided in Note A;

#####  

##### (ii)  Second, to the payment of principal on Note A in an amountequal to Note A’s pro rata portion (based on the principal balance outstanding)of the principal portion of the amount that is due and payable on the Notes onsuch date;

#####  

##### (iii)  Third, to the payment of all accrued and unpaid interest onNote B at the Interest Rate provided in Note B; and

#####  

##### (iv)  Fourth, to the payment of principal on Note B in an amountequal to Note B’s pro rata portion (based on the principal balance outstanding)of the principal portion of the amount that is due and payable on the Notes onsuch date.

#####  

### (b)  Any Prepayment Premium will be allocated between the Notes, *pro rata*, based on the respective amounts of principal thenbeing prepaid on each Note.

###  

### (c)  On or after an Event of Default, any such payments,collections or prepayment shall be applied by Trustee for the benefit of theNoteholders to any amounts then due and owing in any manner in the discretionof the Servicer on behalf of Trustee.

###  

# **ARTICLE 4 – SECURITY AND ASSETDEALING**

#  

## **Section 4.01  Charges and Security Interest.**Inconsideration of the premises and the sum of One Dollar ($1.00) paid to it bythe Trustee, the receipt and sufficiency of which is hereby acknowledged, andin pursuance of each and every power and authority enabling it to do so, andfor 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 withthe payment of all other sums, if any, from time to time due hereunder to suchNoteholders or to the Trustee, or their successors and assigns, and the paymentof all other moneys, if any, for the time being and from time to time owingpursuant hereto, the Notes or the other Financing Documents and the performanceby the Issuers of their obligations hereunder and thereunder, the Issuers agreeto grant, in favor of the Trustee and its successors and assigns in the trust,as trustee and collateral agent for the benefit of such Noteholders, all of theIssuers’ right, title and interest in and to the Property, and the Issuersagree to grant a security interest in and to all such present and afteracquired real or immovable and personal or movable property of every nature andkind used or to be used in the Property. The Issuers agree that the SecurityTrust Agreement and the Pledge are intended to carry out the intent of thisprovision, and to provide a valid and enforceable lien, charge, encumbrance andsecurity

 

31

----

 

## interest inand to the Property, and no Notes shall be issued other than where a valid andperfected first priority security interest on the Property has been created bythe Issuers in favor of the Trustee for the benefit of the Holders pursuant tothe Security Trust Agreement and the Pledge.

##  

## **Section 4.02  Holders of Security.**TheProperty and security interests, hypothecations, mortgages, pledges andcharges, cessions and transfers thereon and thereof and all rights herebyconferred on the Trustee, its successors and assigns under this Indenture, theNotes, the Pledge and the Security Trust Agreement shall be held for thebenefit and security of the Holders of Notes as security for the payment of theprincipal of and interest on such Notes in the manner herein and thereinprovided and of all other sums from time to time due hereunder or under theother Financing Documents to such Holders or to the Trustee and for thepurposes and subject to the conditions, provisions, covenants and stipulationsherein contained, subject specifically to the segregation, allocation andpriority herein provided. However, until the Trustee has determined or becomebound to realize pursuant to the Security Trust Agreement and Pledge, theIssuers 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 Indentureand of the Notes, the Pledge and the Security Trust Agreement.

##  

## **Section 4.03  Further Assurances.**TheIssuers shall forthwith, and from time to time, execute and do all deeds,documents and things which, in accordance with an opinion of legal counsel tothe Trustee, are reasonably necessary for giving the Trustee the lien andsecurity interest upon the Property intended to be created by the SecurityTrust Agreement and the Pledge and for conferring upon the Trustee such powerof sale (or the right to cause a sale), and other powers over the Property asare expressed by the Security Trust Agreement and the Pledge to be conferred.

##  

## **Section 4.04  Power of Attorney.**TheTrustee hereby agrees to act as the holder of the power of attorney of thepresent and future Holders of all Notes to the extent necessary or desirablefor the purposes of creating, maintaining or enforcing the Security Trust Agreementand the Pledge under applicable laws. Each Holder, by the acceptance of itsNote, accepts and confirms, on its own behalf and on behalf of its successorsand assigns, the appointment of the Trustee as the attorney of the present andfuture Holders for such purposes. The provisions of this Section shall bedeemed to form part of and be included in any indenture supplementalhereto as well as in the Notes.

##  

## **Section 4.05  Dealings with the Security Trust Agreementand the Pledge.**The Trustee shall act as firstbeneficiary under the Security Trust Agreement and as pledgee under the Pledge,for and on behalf of the Holders of the Notes. The Trustee shall deal with, andshall exercise the rights, under the Security Trust Agreement and the Pledge,at the direction of the Noteholders.

 

32

----

 

## **Section 4.06  No Obligation to Advance Funds.**TheTrustee will not be required to pay premiums of insurance, taxes or charges forpublic utility services and late payments, or costs of repair or maintenance ofthe Property or legal fees or disbursements of counsel except to fundsavailable and provided therefor by the Issuers as provided for in Section 10.02hereof.

##  

# **ARTICLE 5 – CANCELLATION ANDDISCHARGE**

#  

## **Section 5.01  Cancellation and Destruction.**AllNotes shall, forthwith after payment as described in this Indenture and therelevant Note, and the Notes have been delivered to the Trustee, be cancelledby 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-Presentation of Notes.**Incase a Holder shall fail to present for payment any Note on the date due or onthe date fixed for redemption thereof or on the maturity date of such Note, asthe case may be, or shall not accept payment on account thereof and givesuch receipt therefor, if any, as the Trustee may require, the principalmoneys and/or the interest payable, as the case may be, shall be setaside, either in the deposit department of the Trustee or in financialinstitution, in trust to be paid to the Holder of such Note upon duepresentation or surrender thereof in accordance with the provisions of thisIndenture; and thereupon the principal moneys and/or the interest payable on orrepresented by each Note in respect whereof such moneys have been set aside,shall be deemed to have been paid, and not to be outstanding for any purposehereof, and the Holder thereof shall thereafter have no right in respectthereof except that of receiving payment of the moneys so set aside by theTrustee upon due presentation and surrender thereof.

##  

## **Section 5.03  Unclaimed Moneys.**Anymoneys set aside under Section 5.02 and not claimed by and paid toHolders of Notes as provided in Section 5.02 within three (3) years(or by the expiry of such lesser period as would result in a claim thereforbeing statute barred under the laws of the State of New York) after the date ofsuch setting aside shall be repaid to the Issuers by the Trustee on demand andthereupon the Trustee and Trustee shall be released from all further liabilitywith respect to such moneys and thereafter the Holders of the Notes in respectof which such moneys were so repaid to the Issuers shall have no rights inrespect thereof except to obtain payment of the moneys due thereon from theIssuers up to such time as the right to proceed against the Issuers forrecovery of such moneys has become statute barred under the laws of the Stateof New York.

##  

## **Section 5.04  Discharge.**TheTrustee shall, after satisfaction of the obligations hereunder and under theother Financing Documents, including specifically the payment in full of theindebtedness 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

 

33

----

 

## instruments asit shall be advised by legal counsel are requisite for that purpose and torelease the Issuers from their covenants herein contained (other than theprovisions relating to the indemnification of the Trustee), upon proof beinggiven to the reasonable satisfaction of the Trustee that the principal and theinterest (including interest on amounts in default, if any) on all the Notesand all other moneys payable hereunder have been paid in accordance with theterms of this Indenture and that all the Notes having matured have been dulycancelled. Trustee shall, upon the written request and at the expense ofIssuers (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.

##  

# **ARTICLE 6 – REPRESENTATIONS ANDWARRANTIES**

#  

## **Section 6.01  Issuer Representations.**EachIssuer represents and warrants (as to itself in each instance where therepresentation or warranty relates to Issuers or Issuer and as to itsIndividual Parcel where the representation or warranty relates to the Propertyor Individual Parcel) as of the Note Issuance Date that:

##  

### (a)  **Organization.**EachIssuer has been duly organized and is validly existing under the laws of Mexicowith requisite power and authority to own its properties and to transact thebusinesses in which it is now engaged. Each Issuer is duly qualified to dobusiness and is in good standing in each jurisdiction where it is required tobe so qualified in connection with its properties, businesses and operations. EachIssuer possesses all rights, licenses, permits and authorizations, governmentalor otherwise, 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 ownershipinterests of each Issuer are as set forth on the organizational chart attachedhereto as Schedule 6.01A.

###  

### (b)  **Proceedings.**EachIssuer has taken all necessary action to authorize the execution, delivery andperformance of this Indenture and the other Financing Documents to which it isa party. This Indenture and such other Financing Documents have been dulyexecuted and delivered by or on behalf of Issuers and constitute legal, validand binding obligations of Issuers enforceable against Issuers in accordancewith their respective terms, subject only to applicable bankruptcy, insolvencyand similar laws affecting rights of creditors generally.

###  

### (c)  **No Conflicts.**Theexecution, delivery and performance of this Indenture and the other FinancingDocuments by Issuers will not conflict with or result in a breach of any of theterms or provisions of, or constitute a default under, or result in thecreation or imposition of any lien, charge or encumbrance (other than pursuantto the Financing Documents) upon any of the property or assets of any Issuerpursuant to the terms of its by-laws (*estatutos sociales*)or any indenture, mortgage, deed of trust, loan agreement, partnership agreement,management agreement or other agreement or instrument to which any Issuer is aparty or by which any Issuer’s property or assets is

 

34

----

 

### subject, norwill such action result in any violation of the provisions of any statute orany order, rule or regulation of any Governmental Authority havingjurisdiction over any Issuer or any Issuer’s properties or assets, and anyconsent, approval, authorization, order, registration or qualification of orwith any such 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.**Thereare no actions, suits or proceedings at law or in equity by or before anyGovernmental Authority or other agency now pending or, to any Issuer’sknowledge, threatened (i) in writing against any Issuer, Principal,Guarantor or the Property, which actions, suits or proceedings, if determinedagainst such Issuer, Principal, Guarantor or the Property, are reasonablylikely to have a Material Adverse Effect, or (ii) that are not adequatelycovered by insurance.

###  

### (e)  **Agreements.**Exceptas otherwise set forth on Schedule 6.01E, no Issuer is a party toany agreement or instrument or subject to any restriction which is reasonablylikely to have a Material Adverse Effect. No Issuer is in default in anymaterial respect in the performance, observance or fulfillment of any of theobligations, covenants or conditions contained in any agreement or instrumentto which it is a party or by which such Issuer or the Property is bound whichis reasonably likely to have a Material Adverse Effect. No Issuer has anymaterial financial obligation under any indenture, mortgage, deed of trust,loan agreement or other agreement or instrument to which such Issuer is a partyor by which such Issuer 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” setforth in Section 1.1 hereof and (b) obligations under theFinancing Documents.

###  

### (f)  **Title.**SecurityTrustee is the record owner of the Property and each Issuer owns its PersonalProperty free and clear of all Liens whatsoever, except the PermittedEncumbrances. Issuers hold the Security Trust Second Beneficiary’s rights freeand clear of all Liens whatsoever, except the Permitted Encumbrances. ThePermitted Encumbrances in the aggregate do not have a Material Adverse Effect. TheSecurity Trust Agreement and the Pledge, when properly registered in the publicregistries of the jurisdictions where the Land is located and of the domicileof each Issuer, together with any Uniform Commercial Code financingstatements required to be filed in connection therewith, will create (a) avalid, perfected first priority lien in and to the Property, subject only toPermitted Encumbrances and (b) perfected security interests in and to, andperfected collateral assignments of, Issuers’ right, title and interest in andto all personally (including the Leases), all in accordance with the termsthereof, in each case subject only to any applicable Permitted Encumbrances. ToIssuers’ knowledge, there are no claims for payment for work, labor ormaterials affecting the Property which are or may become a Lien prior to,or of equal priority with, the Liens created by the Financing Documents.

###  

### (g)  **Solvency.**Issuershave (a) not entered into the transaction or executed or issued the Notes,this Indenture or any other Financing Documents with the actual intent tohinder, delay or defraud any creditor and (b) received reasonablyequivalent

 

35

----

 

### value in exchangefor its obligations under such Financing Documents. The fair saleable value ofIssuers’ assets exceeds and will, immediately following the issuance of theNotes, exceed Issuers’ total liabilities, including, without limitation,subordinated, unliquidated, disputed and contingent liabilities. The fairsaleable value of Issuers’ assets is and will, immediately following theissuance of the Notes, be greater than Issuers’ probable liabilities, includingthe maximum amount of its contingent liabilities on its debts as such debtsbecome absolute and matured. Issuers’ assets do not and, immediately followingthe issuance of the Notes will not, constitute unreasonably small capital tocarry out their business as conducted or as proposed to be conducted. No Issuerintends to, and does not believe that it will, incur debt and liabilities(including contingent liabilities and other commitments) beyond its ability topay such debt and liabilities as they mature (taking into account the timingand amounts of cash to be received by such Issuer and the amounts to be payableon or in respect of obligations of such Issuer). No petition in bankruptcy hasbeen filed against such Issuer or any Affiliate in the immediately precedingseven (7) years, and neither any Issuer nor any Affiliate has ever made anassignment for the benefit of creditors or taken advantage of any insolvencyact for the benefit of debtors in the immediately preceding seven (7) years.Neither any Issuer nor any of its Affiliates are contemplating either thefiling of a petition by it under any applicable bankruptcy or insolvency lawsor the liquidation of all or a major portion of any Issuer’s assets orproperties, and no Issuer has knowledge of any Person contemplating the filingof any such petition against it or such Affiliates.

###  

### (h)  **Full and AccurateDisclosure.**To each Issuer’s knowledge, no statement of factmade by Issuer in this Indenture or in any of the other Financing Documentscontains any untrue statement of a material fact or omits to state any materialfact necessary to make statements contained herein or therein not misleading. Thereis no material fact presently known to any Issuer which has not been disclosedto Initial Noteholder which has, or is reasonably likely to have, a Material AdverseEffect.

###  

### (i)  **No Plan Assets.**NoIssuer or Principal is an “employee benefit plan,” as defined in Section 3(3) ofERISA, subject to Title I of ERISA, and none of the assets of any Issuerconstitutes or will constitute “plan assets” of one or more such plans withinthe meaning of 29 C.F.R. Section 2510.3-101. In addition, (a) noIssuer or Principal is a “governmental plan” within the meaning of Section 3(32)of ERISA and (b) transactions by or with any Issuer are not subject to anystate statute regulating investments of, or fiduciary obligations with respectto, governmental plans similar to the provisions of Section 406 of ERISAor Section 4975 of the Code currently in effect, which prohibit orotherwise restrict the transactions contemplated by this Indenture.

###  

### (j)  **Compliance.**Except as otherwise setforth in the Physical Conditions Report or environmental report or disclosed inwriting to the Initial Purchaser, Issuers and the Property (including the usethereof) comply in all material respects with all Legal Requirements applicableto the operation and maintenance of the Property, including, withoutlimitation, building and zoning ordinances and codes and Prescribed Laws. NoIssuer is in material default or violation of any order, writ, injunction,decree or demand of any Governmental Authority. To each Issuer’s knowledge,there has not been committed by any Issuer or any other Person in occupancy ofor involved with the

 

36

----

 

### operation oruse of the Property any act or omission affording the federal government or anyother Governmental Authority the right of forfeiture as against the Property orany part thereof or any monies paid in performance of Issuers’ obligationsunder any of the Financing Documents.

###  

### (k)  **Financial Information.**All financialdata, 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 forPermitted Encumbrances, Issuers do not have any material contingentliabilities, liabilities for taxes, unusual forward or long-term commitments orunrealized or anticipated losses from any unfavorable commitments that areknown to any Issuer and reasonably likely to have a Material Adverse Effect,except as referred to or reflected in said financial statements. Since the dateof such 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 Reserve Regulations.**No part ofthe proceeds of the Notes will be used for the purpose of purchasing oracquiring any “margin stock” within the meaning of Regulation U of the Board ofGovernors of the Federal Reserve System or for any other purpose which would beinconsistent with such Regulation U or any other Regulations of such Board ofGovernors, or for any purposes prohibited by Legal Requirements or by the termsand conditions of this Indenture or the other Financing Documents.

###  

### (n)  **Utilities and Public Access.**Except asset forth in the Title Insurance Policy or the survey of the Property providedto Initial Purchaser in connection with the issuance of the Notes, and subjectto the Condominium Documents, the Property has rights of access to public waysand is served by water, sewer, sanitary sewer and storm drain facilities adequateto service the Property for its intended uses. All public utilities necessaryor convenient to the full use and enjoyment of the Property are located eitherin the public right-of-way abutting the Property (which are connected so as toserve the Property without passing over other property) or in recordedeasements serving the Property and such easements are set forth in and insuredby the Title Insurance Policy. All roads necessary for the use of the Propertyfor its current purpose have been completed and dedicated to public use andaccepted by all Governmental Authorities.

###  

### (o)  **Payment of Taxes.**Issuers have paid allTaxes due and payable on or prior to the date hereof (other than Taxes beingcontested in accordance with the terms

 

37

----

 

### set forth 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 iscomprised of one (1) or more parcels which constitute a separate tax lotor lots and does not constitute a portion of any other tax lot not a part ofthe Property; provided, however, Lot AP-6A and Lot AP-6B have asingle cadastral number for the payment of property taxes (*impuestopredial*) and Lots APG-l through APG-18 and AS-4 have a singlecadastral number for the payment of property taxes (*impuestopredial*).

###  

### (q)  **Assessments.**Other than Condominiumcharges and assessments, and except as otherwise disclosed in Schedule 6.01Qor as set forth in the Title Insurance Policy, there are no pending or, to eachIssuer’s knowledge, proposed special or other assessments for publicimprovements or otherwise affecting the Property, nor are there anycontemplated improvements to the Property that may result in such specialor other assessments.

###  

### (r)  **Enforceability.**The Financing Documentsare not subject to any right of rescission, set-off, counterclaim or defense byany Issuer, Principal or Guarantor, including the defense of usury, nor wouldthe operation of any of the terms of the Financing Documents, or the exerciseof any right thereunder, render the Financing Documents unenforceable (subjectto principles of equity and bankruptcy, insolvency and other laws generallyaffecting creditors’ rights and the enforcement of debtors’ obligations), andneither any Issuer, Principal nor Guarantor have asserted any right ofrescission, set-off, counterclaim or defense with respect thereto.

###  

### (s)  **No Prior Assignment.**There are no priorassignments of the Leases or any portion of the Rents due and payable or tobecome due and payable which are presently outstanding.

###  

### (t)  **Insurance.**Issuers have obtained andhave delivered to Trustee certified copies of all Policies (or certificates andother evidence reasonably satisfactory to Trustee evidencing the existence ofthe same) reflecting the insurance coverages, amounts and other requirementsset forth in this Indenture. Except as set forth in Schedule 6.01T,no outstanding claims have been made under any property insurance Policies andno Issuer has done, by act or omission, anything which would materially impairthe coverage of any Policies.

###  

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

###  

### (v)  **Certificate ofOccupancy; Licenses.**All certifications, permits, licenses andapprovals, including without limitation, certificates of completion andoccupancy permits and any applicable liquor license required under applicablelaw for the legal use, occupancy and operation of the Property as a hotel(collectively, the “**Licenses**”),have been obtained and are in full force and effect, except where the failureto obtain such Licenses does not have, and is not reasonably expected to have,a Material

 

38

----

 

### Adverse Effect.Issuers shall keep and maintain all Licenses necessary for the operation of theProperty as a hotel, except where the failure to keep and maintain suchLicenses does not have, and is not reasonably expected to have, a Material AdverseEffect. The use being made of the Property is in conformity with thecertificate of occupancy issued for 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 material respects. ToIssuers’ knowledge, and except as set forth in the Physical Conditions Report,there exists no structural or other material defects or damages in theProperty, whether latent or otherwise, and no Issuer has received notice fromany insurance company or bonding company of any defects or inadequacies in theProperty, or any part thereof, which would adversely affect theinsurability of the same or cause the imposition of extraordinary premiums orcharges thereon or of any termination or threatened termination of any policyof insurance or bond.

###  

### (y)  **Boundaries.**To Issuers’ knowledge,except as set forth on the Survey, the Title Insurance Policy or the PhysicalCondition Report, all of the improvements which were included in determiningthe appraised value of the Property lie wholly within the boundaries and buildingrestriction lines of the Property, and no improvements on adjoining propertiesencroach upon the Property, and no easements or other encumbrances upon theProperty encroach upon any of the improvements, so as to affect the value ormarketability of the Property except (i) those which are insured againstby the Title Insurance Policy or are Permitted Encumbrances and (ii) aportion of a staircase giving access from the hotel Individual Parcel to thebeach is located within the boundaries of the Federal Maritime Zone underconcession by the Federal Government of Mexico.

###  

### (z)  **Leases.**The Property is not subject toany Leases other than the Leases described in Schedule 6.01Zattached hereto and made a part hereof. Issuers are the owner and lessorof landlord’s interest in the Leases. No Person has any possessory interest inthe Property or right to occupy the same except under and pursuant to theprovisions of the Leases. The current Leases are in full force and effect and,to Issuers’ knowledge, there are no defaults thereunder by either party andthere are no conditions that, with the passage of time or the giving of notice,or both, would constitute defaults thereunder. No Rent has been paid more thanone (1) month in advance of its due date. All work to be performed priorto the date hereof by Issuers under each Lease has been performed as requiredand has been accepted by the applicable tenant, and any payments, free rent,partial rent, rebate of rent or other payments, credits, allowances orabatements required to be given by Issuers to any tenant has already beenreceived by such tenant. There has been no prior sale, transfer or assignment,hypothecation or pledge of any

 

39

----

 

### Lease or ofthe Rents received therein which is still in effect. To Issuers’ knowledge, notenant has assigned its Lease or sublet all or any portion of the premisesdemised and no such tenant holds its leased premises under assignment orsublease. To Issuers’ knowledge, no tenant under any Lease has a right oroption pursuant to such Lease or otherwise to purchase all or any part ofthe leased premises or the building of which the leased premises are a part. Notenant under any Lease has any right or option to lease additional space in theImprovements.

###  

### (aa)  **Survey.**To Issuers’ knowledge, theSurvey for the Property delivered in connection with this Indenture does notfail to reflect any material matter affecting the Property or the titlethereto.

###  

### (bb)  **Principal Place of Business; State of Organization.**EachIssuer’s principal place of business as of the date hereof is the address setforth in the introductory paragraph of this Indenture. Each Issuer is organizedunder the laws of Mexico.

###  

### (cc)  **Filing and Recording Taxes.**All transfertaxes, deed stamps, intangible taxes, value added taxes or other amounts in thenature of transfer taxes required to be paid by any Person under applicableLegal Requirements currently in effect in connection with the transfer of theProperty to Issuers have been paid. All mortgage, mortgage recording, stamp,intangible or other similar tax required to be paid by any Person underapplicable Legal Requirements currently in effect in connection with theexecution, delivery, recordation, filing, registration, perfection orenforcement of any of the Financing Documents, including, without limitation,the Security Trust Agreement and the Pledge, have been paid, and, under currentLegal Requirements, the Security Trust Agreement and the Pledge are enforceableagainst the settlers or pledgors, as the case may be, in accordance withtheir respective terms, subject to principles of equity, public policy andbankruptcy, insolvency and other laws generally applicable to creditors’ rightsand the enforcement of debtors’ obligations.

###  

### (dd)  **Special Purpose Entity/Separateness.**(i) Until the Debt has been paid in full, each Issuer hereby represents, warrantsand covenants that (A) such Issuer is, shall be and shall continue to be aSpecial Purpose Entity, provided that the requirements set forth in thedefinition of the term “Special Purpose Entity” will not apply to such Issuer’srelationship with the other Issuers, and (B) Principal is, shall be andshall continue to be a Special Purpose Entity.

###  

##### (ii)  The representations, warranties and covenants set forth in Section 6.01(dd)(i) shallsurvive for so long as any amount remains payable to Trustee for the benefit ofNoteholders under this Indenture or any other Financing Document.

#####  

##### (iii)  All of the assumptions made in the Insolvency Opinion,including, but not limited to, any exhibits attached thereto, are true andcorrect in all respects and any assumptions made in any subsequentnon-consolidation opinion required to be delivered in connection with theFinancing Documents (an “**AdditionalInsolvency Opinion**”), including, but not limited to, any exhibitsattached thereto, will have been and shall be true and correct in all respects.Each Issuer has complied and will comply with, and

 

40

----

 

##### 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 complied and will comply, or cause Principal tocomply, with all of the assumptions made with respect to such Issuer andPrincipal in any Additional Insolvency Opinion. 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 ofthe assumptions made with respect to it in any Additional Insolvency Opinion.

#####  

### (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 thedate hereof, the Golf Management Agreement is in full force and effect and, toIssuers’ knowledge, there is no default thereunder by any party thereto and noevent has occurred that, with the passage of time and/or the giving of noticewould constitute a default by Issuers thereunder that would have a MaterialAdverse Effect.

###  

### (gg)  **Spa Management Agreement.**As of thedate hereof, the Spa Management Agreement is in full force and effect and, toIssuers’ knowledge, there is no default thereunder by any party thereto and noevent has occurred that, with the passage of time and/or the giving of noticewould constitute a default by Issuers thereunder that would have a MaterialAdverse 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 any Issuer to Initial Purchaser and in allfinancial statements, rent rolls, reports, certificates and other documentssubmitted in connection with the issuance of the Notes or in satisfaction ofthe terms thereof and all statements of fact made by any Issuer in thisIndenture or in any other Financing Document, are accurate, complete andcorrect in all material respects. To the best of Issuers’ knowledge, there hasbeen no material adverse change in any condition, fact, circumstance or eventthat would make any such information inaccurate, incomplete or otherwisemisleading in any material respect or that otherwise has, or may reasonablybe expected to have, a Material Adverse Effect. Issuers have disclosed toTrustee all material facts and have not failed to disclose any material factthat could cause any Provided Information or representation or warranty madeherein to be materially misleading.

###  

### (jj)  **Investment Company Act.**No Issuer is (a) an“investment company” or a company “controlled” by an “investment company,”within the meaning of the Investment Company Act of 1940; as amended; (b) a“holding company” or a

 

41

----

 

### “subsidiarycompany” of a “holding company” or an “affiliate” of either a “holding company”or a “subsidiary company” within the meaning of the Public Utility HoldingCompany Act of 1935, as amended; or (c) subject to any other federal orstate law or regulation which purports to restrict or regulate its ability toborrow money.

###  

### (kk)  **Embargoed Person.**At all timesthroughout the term of the Notes, including after giving effect to anyTransfers permitted pursuant to the Financing Documents, (a) none of thefunds or other assets of any Issuer, Principal or Guarantor constitute propertyof, or are beneficially owned, directly or indirectly, by any person, entity orgovernment subject to trade restrictions under U.S. law, including, but notlimited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and anyExecutive Orders or regulations promulgated thereunder with the result that theinvestment 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 (“**Embargoed Person**”);(b) no Embargoed Person has any interest of any nature whatsoever in anyIssuer, Principal or Guarantor, as applicable, with the result that theinvestment 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; and (c) none of the funds of any Issuer, Principalor Guarantor have been derived from any unlawful activity by any Issuer,Principal or Guarantor with the result that the investment in any Issuer,Principal or Guarantor, as applicable (whether directly or indirectly), isprohibited 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.

###  

### (ll)  **Cash Management Account.**(i)  ThisIndenture, together with the other Financing Documents, creates a valid andcontinuing lien and security interest (under Mexican law or as such terms aredefined under the Uniform Commercial Code of the State, as applicable) inthe Lockbox Accounts and the Cash Management Account in favor of Trustee, forthe benefit of Holders, which lien and security interest are prior to all otherLiens, other than Permitted Encumbrances, and are enforceable as such againstcreditors of and purchasers from Issuers. Other than in connection with theFinancing Documents and except for Permitted Encumbrances, Issuers have notsold or otherwise conveyed the Lockbox Accounts and Cash Management Account;

###  

##### (ii)  The Cash Management Account constitutes a “deposit account”within the meaning of the Uniform Commercial Code of the State.

#####  

##### (iii)  Pursuant and subject to the terms hereof, each Lockbox Bankhas agreed to comply with all instructions originated by Trustee, withoutfurther consent by any Issuer, directing disposition of the applicable LockboxAccount and all sums at any time held, deposited or invested therein, togetherwith any interest or other earnings thereon, and all proceeds thereof(including proceeds of sales and other dispositions), whether accounts, generalintangibles, chattel paper, deposit accounts, instruments, documents orsecurities; and

 

42

----

 

##### (iv)  The Lockbox Accounts and Cash Management Account are not inthe name of any Person other than Issuers, as pledgor, or Trustee, for thebenefit of Noteholders, as pledgee.

#####  

### (mm)  **SPE Prior Act Representations.**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)  neither such Issuer nor any Principal has owned any materialasset or property other than (A) its Individual Parcel, and (B) incidentalpersonal property necessary for the ownership or operation of the Property orits Individual Parcel other than the Parcel in the Condominium designated asAP-9A which parcel was previously owned by the Hotel Issuer and, providedfurther that, Issuers represent and warrant that such parcel was (a) vacantat the time owned by Hotel Issuer, (b) there are no continuing obligationsor liability with respect to such parcel, and (c) there are no knownenvironmental conditions existing with respect to such parcel in violation ofapplicable law;

#####  

##### (ii)  neither such Issuer nor any Principal has engaged in anybusiness other than the ownership, management and operation of the Property orits Individual Parcel and Issuer has conducted and operated its business aspresently conducted and operated;

#####  

##### (iii)  neither such Issuer nor any Principal has entered into anycontract or agreement with any of its Affiliates, constituents, or owners, orany guarantors of any of its obligations or any Affiliate of any of theforegoing (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 Principal has incurred anyIndebtedness other than (A) subject to clause (xxiv) below,acquisition financing with respect to the Property; construction financing withrespect to the Improvements and certain off-site improvements required bymunicipal and other authorities as conditions to the construction of theImprovements; 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 Principal has made any loans toany Person or held evidence of indebtedness issued by any other Person orentity (other than cash and investment-grade securities issued by an entitythat is not an Affiliate of or subject to common ownership with such entity);

 

43

----

 

##### (vi)  each of such Issuer and each Principal has remained solventand has paid its debts and liabilities from its own assets and generally as thesame have became due;

#####  

##### (vii)  each of such Issuer and each Principal has allocated fairlyand reasonably any overhead expenses that have been shared with an Affiliate,including paying for office space and services performed by any employee of anAffiliate or Related Party;

#####  

##### (viii)  each of such Issuer and each Principal has done or causedto be done all things necessary to observe all its organizational formalitiesand to preserve its existence or has promptly taken curative action withrespect thereto;

#####  

##### (ix)  (A) each of such Issuer and each Principal hasmaintained all of its accounts (including bank accounts), books and recordsseparate from those of any other Person; (B) each of such Issuer and eachPrincipal has maintained separate financial statements and its assets have notbeen listed as assets on the financial statement of any other Person except asrequired by GAAP and Financial Accounting Standards Board Interpretation No. 46R;provided, however, that any such consolidated financial statementshall contain a note indicating that its separate assets and liabilities areneither available to pay the debts of the consolidated entity nor constituteobligations of the consolidated entity; (C) each of such Issuer and eachPrincipal has filed its own tax returns and has not filed a consolidatedfederal income tax return with any other Person, except to the extent thatIssuer was required to file consolidated tax returns by law; and (D) eachof such Issuer and each Principal has maintained its books, records,resolutions and agreements as official records;

#####  

##### (x)  (A) other than inconnection with the operation and management of the Property or, in the case ofsuch Issuer, pursuant to its use of the name “One and Only Palmilla,” each ofsuch Issuer and each Principal has been, and at all times has held itself outand identified itself as a separate and distinct entity and has conductedbusiness under its own name or in a name franchised or licensed to it by anentity other than an Affiliate of such Issuer or another Issuer and not as adivision or part of any other Person, except for services rendered under abusiness management services agreement with an Affiliate that complies with theterms contained in subsection (iii) above, so long as themanager, or equivalent thereof, under such business management servicesagreement holds itself out as an agent of such Issuer; (B) has notidentified itself or any of its Affiliates as a division or part of theother; and (C) other than in connection with the operation and managementof the Property or, in the case of such Issuer, pursuant to its use of the name“One and Only Palmilla,” has used separate stationery, invoices and checksbearing its own name and not the name of any Affiliate;

#####  

##### (xi)  other than in connectionwith the operation and management of the Property or, in the case of suchIssuer, pursuant to its use of the name “One and Only Palmilla,” each of suchIssuer and each Principal has corrected any known misunderstanding regardingits status as a separate entity;

 

44

----

 

##### (xii)  each of such Issuer andeach Principal has maintained adequate capital for the normal obligationsreasonably foreseeable in a business of its size and character and in light ofits contemplated business operations;

#####  

##### (xiii)  neither such Issuer norany Principal has, nor have any of its constituent parties, sought or effectedthe liquidation, dissolution, winding up, liquidation, consolidation or merger,in whole or in part of any Issuer;

#####  

##### (xiv)  other than in connectionwith (A) in the case of such Issuer, acquisition financing with respect tothe Property, (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 in clauses(A), (B) and (C), and (E) in the case of such Issuer, the PermittedEquipment Financing, neither such Issuer nor any Principal has commingled itsfunds 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 andeach Principal has maintained its assets in such a manner that it would not becostly or difficult to segregate, ascertain or identify its individual assetsfrom those of any Affiliate or constituent party or any other Person;

#####  

##### (xvi)  neither such Issuer norany Principal has guaranteed or become obligated for the debts of any otherPerson, except for the debts of the other Issuers or Issuers, as applicable,pursuant to (A) acquisition financing with respect to the Property, (B) constructionfinancing with respect to the Improvements and certain off-site improvementsrequired by municipal and other authorities as conditions to the constructionof the Improvements, (C) first mortgage financings secured by the Property(or financing secured by security trusts holding title to the Property), (D) Indebtednesspursuant to letters of credit, guaranties, interest rate protection agreementsand other similar instruments executed and delivered in connection with suchfinancings described in clauses (A), (B) and (C), and (E) in the caseof such Issuer, the Permitted Equipment Financing, neither such Issuer nor anyPrincipal has held itself out to be responsible for or to have its creditavailable to satisfy the debts or obligations of any other Person;

#####  

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

#####  

##### (xviii)  neither such Issuer norany Principal has permitted any Affiliate or constituent party independentaccess to its bank accounts;

 

45

----

 

##### (xix)  each of such Issuer andeach Principal has paid the salaries of each of its own employees (if any) fromits own funds and has maintained a sufficient number of employees (if any) inlight of its contemplated business operations;

#####  

##### (xx)  each of such Issuer andeach Principal has compensated each of its consultants and agents from its ownfunds for services provided to it and pay from its own assets all obligationsof any kind incurred;

#####  

##### (xxi)  neither such Issuer norany Principal has acquired any obligations or securities of any of itsAffiliates;

#####  

##### (xxii)  such Issuer has notacquired or held any equity interest or subsidiary interest in any entity and,other than Issuers, no Principal has acquired or held any equity interest orsubsidiary interest in any entity except that Beach Issuers briefly owned asubsidiary known as CP Baja, S.A. de C.V. but such subsidiary engaged in noactivities and has been liquidated;

#####  

##### (xxiii)  neither such Issuer norany Principal 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;

#####  

##### (xxiv)  neither such Issuer norany Principal has incurred any Indebtedness that is still outstanding otherthan, in the case of an Issuer, the Permitted Equipment Financing, andindebtedness that is evidenced by the Financing Documents or permitted underthe Financing Documents;

#####  

##### (xxv)  such Issuer is and alwayshas been duly formed and validly existing under the laws of Mexico, eachPrincipal is and always has been duly formed and validly existing under thelaws of the State of Delaware and each of such Issuer and each Principal is andhas always been duly qualified to do business and in good standing in all otherjurisdictions where it is required to be or to have been qualified to dobusiness;

#####  

##### (xxvi)  neither such Issuer norany Principal has any judgments or liens of any nature against it except fortax liens not yet due or delinquent;

#####  

##### (xxvii)  each of such Issuer andeach Principal 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 norany Principal 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 norany Principal is now, nor has ever been, party to any lawsuit, arbitration,summons, or legal proceeding, which has not been settled, 

 

46

----

dismissed or otherwise proceeded to conclusion and none of which hashad or can be reasonably expected to have a Material Adverse Effect;

#####  

##### (xxxi)  each of such Issuer andeach Principal has materially complied with the separateness covenants referredto in the Insolvency Opinion; and

#####  

##### (xxxii)  neither such Issuer norany Principal has any material contingent or actual obligations not related tothe Property.

#####  

### (nn)  **Condominium Documents.**To Issuer’sknowledge, after inquiry, the Condominium Documents comply with all applicablelocal, state and federal laws, rules and regulations which affect theestablishment and maintenance of condominiums in the State relating tocondominiums (collectively, the “**CondominiumLaws**”). To Issuer’s knowledge, after inquiry, the CondominiumDocuments are in full force and effect and there are no defaults thereunder byany party. Each Issuer has paid all common expenses, assessments, maintenancefees and other charges due in connection with the Condominium in accordancewith the Condominium Documents. To Issuer’s knowledge, after inquiry, theCondominium Documents have not been amended, modified or supplemented by anydocument that is not of public record and there is no agreement, document orinstrument to which the Condominium is a party that affects the Condominium orany obligations of Issuers with respect to the Condominium or the Property thatis not of public record.

###  

## **Section 6.02  Survival of Representations.**EachIssuer agrees that all of the representations and warranties of Issuers setforth in Section 6.01 and elsewhere in this Indenture and in theother Financing Documents shall survive for so long as any amount remainsoutstanding under the Notes. All representations, warranties, covenants andagreements made in this Indenture or in the other Financing Documents by anyIssuer shall be deemed to have been relied upon by Initial Purchaser, InitialNoteholder and Trustee notwithstanding any investigation heretofore orhereafter made by Initial Purchaser, Initial Noteholder or Trustee or on itsbehalf.

##  

# **ARTICLE 7 – ISSUER COVENANTS**

#  

## **Section 7.01  Affirmative Covenants.**Fromthe date hereof and until payment and performance in full of all obligationsunder the Financing Documents or the earlier reconveyance of title to theProperty 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 andagreements shall be enforced, and all associated rights shall be exercised, bythe Servicer on behalf of the Trustee for the benefit of the Noteholders, and allrelated documents to be delivered to the Trustee, amounts to be deposited withthe Trustee and all accounts to be maintained by the Trustee shall be sodelivered, deposited and maintained in accordance with the Cash Management

 

47

----

 

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

##  

### (a)  **Existence; Compliancewith Legal Requirements.**To the extent necessary to avoid amaterial adverse change in the financial condition or business condition of anyIssuer, Issuers shall do or cause to be done with the reasonable promptness allthings necessary to preserve, renew and keep in full force and effect itsexistence, rights, licenses, permits and franchises and comply with allmaterial Legal Requirements applicable to Issuers and the Property, including,without limitation, Prescribed Laws. There shall never be committed by anyIssuer and Issuers shall use commercially reasonable efforts not to permit anyother Person in occupancy of or involved with the operation or use of theProperty to commit any act or omission affording the sovereign or federalgovernment or any state or local government the right of forfeiture against theProperty or any part thereof or any monies paid in performance of Issuers’obligations under any of the Financing Documents. Issuers shall at all timesmaintain, preserve and protect in all material respects all franchises andtrade names and preserve all the remainder of their property used or useful inthe conduct of its business and shall keep the Property in good working orderand repair, and from time to time make, or cause to be made, all reasonablynecessary repairs, renewals, replacements, betterments and improvementsthereto, all as more fully provided herein, in the Security Trust Agreement andthe Pledge. After prior notice to Trustee, Issuers, at their own expense, may contestby appropriate legal proceeding promptly initiated and conducted in good faithand with due diligence, the validity of any Legal Requirement, theapplicability of any Legal Requirement to Issuers or the Property or anyalleged violation of any Legal Requirement, provided that (i) noEvent of Default has occurred and remains uncured; (ii) intentionallyomitted; (iii) such proceeding shall not result in a default under anymaterial agreement to which any Issuer is subject and such proceeding shall beconducted in accordance with all applicable statutes, laws and ordinances; (iv) neitherthe Property nor any part thereof or interest therein will be in imminentdanger of being sold, forfeited, terminated, cancelled or lost; (v) Issuersshall promptly upon final determination thereof comply with any such LegalRequirement determined to be valid or applicable or cure any violation of anyLegal Requirement; (vi) such proceeding shall suspend the enforcement ofthe contested Legal Requirement against Issuers and the Property; and (vii) Issuersshall furnish such security as may be required in the proceeding, or as may bereasonably requested by Trustee, to insure compliance with such LegalRequirement, together with all interest and penalties payable in connectiontherewith. Trustee may apply any such security, as necessary to causecompliance with such Legal Requirement at any time when, in the reasonablejudgment of Trustee, the validity, applicability or violation of such LegalRequirement is finally established or the Property (or any part thereof orinterest 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 Charges now or hereafterlevied or assessed or imposed against the Property or any part thereof asthe same become due and payable; provided, however, Issuers’obligation to directly pay Taxes shall be suspended for so long as Issuerscomply with the terms and provisions of Section 2.4 of the Note orcontests such Taxes and Other Charges pursuant

 

48

----

 

### to this Section 7.01(b).Issuers shall furnish to Trustee no later than ten (10) days prior to thedate the same shall become delinquent receipts for the payment of the Taxes andthe Other Charges; provided, however, Issuers are not required tofurnish such receipts for payment of Taxes in the event that such Taxes havebeen paid by Trustee pursuant to Section 10.02 hereof. Issuersshall not suffer and shall promptly cause to be paid and discharged any Lien orcharge whatsoever which may be or become a Lien or charge against theProperty, and shall promptly pay for all utility services provided to theProperty. After prior notice to Trustee, Issuers, at their own expense, may contestby appropriate legal proceeding, promptly initiated and conducted in good faithand with due diligence, the amount or validity or application in whole or in part ofany Taxes or Other Charges, provided that (a) no Default or Eventof Default has occurred 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) Issuersshall promptly upon final determination thereof pay the amount of any suchTaxes or Other Charges, together with all costs, interest and penalties which may bepayable in connection therewith; (f) such proceeding shall suspend thecollection of such contested Taxes or Other Charges from the applicableIndividual Parcel; and (g) Issuers shall furnish such security as may berequired in the proceeding, or as may be reasonably requested by Trustee,to insure the payment of any such Taxes or Other Charges, together with allinterest and penalties thereon. Trustee may pay over any such cash depositor part thereof held by or on behalf of Trustee to the claimant entitledthereto at any time when, in the judgment of Trustee, the entitlement of suchclaimant is established or the applicable Individual Parcel (or part thereofor interest therein) shall be in imminent danger of being sold, forfeited,terminated, cancelled or lost or there shall be any danger of the rights ofTrustee under the Security Trust Agreement and/or the Pledge being primed by orbeing subject to any related Lien.

###  

### (c)  **Litigation.**Issuersshall give prompt notice to Trustee of any litigation or governmentalproceedings pending or threatened in writing against any Issuer, Principal andGuarantor which might reasonably be expected to have a Material Adverse Effect.

###  

### (d)  **Access to Property.**Issuersshall permit agents, representatives and employees of Trustee to inspect theProperty or any part thereof at reasonable hours upon reasonable advancenotice, provided such inspections do not materially interfere with the use andoperation of the Property.

###  

### (e)  **Notice of Default.**Issuersshall promptly advise Trustee of any material adverse change in any Issuer’s,Principal’s or Guarantor’s condition, financial or otherwise, or of theoccurrence of any Event of Default of which any Issuer has knowledge.

 

49

----

 

### (f)  **Cooperate in LegalProceedings.**Issuers shall reasonably cooperate with Trusteewith respect to any proceedings before any court, board or other GovernmentalAuthority which may in any way materially and adversely affect the rightsof Trustee hereunder or any rights obtained by Trustee under any of the otherFinancing Documents and, in connection therewith, permit Trustee, at itselection, to participate in any such proceedings.

###  

### (g)  **Perform FinancingDocuments.**Issuers shall pay when due all costs, fees andexpenses to the extent required under the Financing Documents executed anddelivered by, or applicable to, Issuers.

###  

### (h)  **Award and InsuranceBenefits.**Issuers shall cooperate with Trustee in obtaining forTrustee the benefits of any Awards or Insurance Proceeds lawfully or equitablypayable in connection with the Property to the extent Trustee is entitled tosame under the terms of this Indenture, the Security Trust Agreement or thePledge, and Trustee shall be reimbursed for any expenses incurred in connectiontherewith (including attorneys’ fees and disbursements, and the payment byIssuers of the expense of an appraisal on behalf of Trustee in case of Casualtyor Condemnation affecting the Property or any part thereof) out of suchInsurance Proceeds.

###  

### (i)  **Further Assurances.**Issuersshall, at Issuers’ sole cost and expense:

###  

##### (i)  furnish to Trustee all instruments, documents, boundarysurveys, footing or foundation surveys, certificates, plans and specifications,appraisals, title and other insurance reports and agreements, and each andevery other document, certificate, agreement and instrument required to befurnished by Issuers pursuant to the terms of the Financing Documents or whichare reasonably requested by Trustee in connection therewith;

#####  

##### (ii)  execute and deliver to Trustee such documents, instruments,certificates, assignments and other writings, and do such other acts reasonablynecessary, to evidence, preserve and/or protect the collateral at any timesecuring or intended to secure the obligations of Issuers under the FinancingDocuments, as Trustee may reasonably require;

#####  

##### (iii)  do and execute all and such further lawful and reasonableacts, conveyances and assurances for the better and more effective carrying outof the intents and purposes of this Indenture and the other FinancingDocuments, as Trustee shall reasonably require from time to time; and

#####  

##### (iv)  pay all taxes, filing, registration or recording fees, andall expenses incident to the preparation, execution, acknowledgment and/orrecording of the Security Trust Agreement, the Pledge, the other FinancingDocuments, any mortgage supplemental thereto, any security instrument withrespect to the Property and any instrument of further assurance, and anymodification or amendment of any of the foregoing documents, and all federal,state, county and municipal taxes, duties, imposts, assessments and chargesarising out of or in connection with the execution and delivery

 

50

----

 

##### of theSecurity Trust Agreement, the Pledge, any mortgage supplemental thereto, anysecurity instrument with respect to the Property or any instrument of furtherassurance, and any amendment or other modification of any of the foregoingdocuments, except where prohibited by law so to do.

#####  

### (j)  **Maintenance of Property.**(i)  Issuersshall cause the Property to be maintained in a good and safe condition andrepair. The Improvements and the Personal Property shall not be removed,demolished or materially altered (except for replacement of the PersonalProperty in the ordinary course of business) without the prior consent ofTrustee.

###  

##### (ii)  Issuers shall not commit or suffer any waste of the Propertyor make any change in the use of the Property which will in any way materiallyincrease the risk of fire or other hazard arising out of the operation of theProperty, or take any action that might invalidate or allow the cancellation ofany Policy, or do or permit to be done thereon anything that may in anyway materially impair the value of the Property or the security of the SecurityInstrument or the Pledge. Issuers will not, without the prior written consentof Trustee, permit any drilling or exploration for or extraction, removal, orproduction of any minerals from the surface or the subsurface of the Land,regardless of the depth thereof or the method of mining or extraction thereof.

#####  

##### (iii)  Issuers will promptly pay when due all bills and costs forlabor, materials, and specifically fabricated materials incurred in connectionwith the Property and never permit to exist beyond the due date thereof inrespect of the Property or any part thereof any lien or security interest,even though inferior to the liens and the security interests hereof, and in anyevent never permit to be created or exist in respect of the Property or any part thereofany other or additional lien or security interest other than the liens orsecurity interests hereof except for the Permitted Encumbrances. After priornotice to Trustee, Issuers, at their own expense, may contest byappropriate legal proceeding, promptly initiated and conducted in good faithand with due diligence, the amount or validity or application such liens orsecurity interests, provided that (a) no Default or Event ofDefault has occurred 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) Issuersshall promptly upon final determination thereof pay the amount of any suchliens or security interests, together with all costs, interest and penaltieswhich may be payable in connection therewith; (f) such proceedingshall suspend the collection of such contested liens or security interests fromthe applicable Individual Parcel; and (g) Issuers shall furnish suchsecurity as may be required in the proceeding, or as may bereasonably requested by Trustee, to insure the payment of any such liens orsecurity interests, together with all interest and penalties thereon. Trustee may payover any such cash deposit or part thereof held by or on behalf of Trusteeto the claimant entitled thereto at any time when, in the judgment of Trustee,the entitlement of such claimant is established or the applicable IndividualParcel (or part thereof or interest therein) shall be

 

51

----

 

##### in imminentdanger of being sold, forfeited, terminated, cancelled or lost or there shallbe any danger of the rights of Trustee under the Security Trust Agreementand/or the Pledge being primed by or being subject to any related Lien.

#####  

### (k)  **Financial Reporting.**(i)  Issuerswill keep and maintain or will cause to be kept and maintained on a Fiscal Yearbasis, in accordance with GAAP (or such other accounting basis reasonablyacceptable to Trustee), proper and accurate books, records and accountsreflecting all of the financial affairs of each Issuer and all items of incomeand expense in connection with the operation of the Property. Trustee shallhave the right from time to time at all reasonable times during normal businesshours upon reasonable prior notice to examine such books, records and accountsat the office of any Issuer or any other Person maintaining such books, recordsand accounts and to make such copies or extracts thereof as Trustee may reasonablyrequire. After the occurrence and during the continuance of an Event ofDefault, Issuers shall pay any costs and expenses incurred by Trustee toexamine Issuers’ accounting records with respect to the Property, as Trusteeshall determine to be necessary or appropriate in the protection of Trustee’sinterest.

###  

##### (ii)  Issuers will furnish, or cause to be furnished, to Trusteeannually, within one hundred twenty (120) days following the end of each FiscalYear of Issuers, (A) a complete copy of each Issuer’s individual annualfinancial statements prepared in Pesos and audited by a “Big Four” accountingfirm or other independent certified public accountant acceptable to Trustee inaccordance with GAAP (or such other accounting basis acceptable to Trustee)covering such Issuer’s Individual Parcel for such Fiscal Year and containingstatements of profit and loss for such Issuer and its Individual Parcel and abalance sheet for such Issuer and (B) a completed copy of a consolidatedannual financial statements prepared in Dollars for the Principals and PalmillaJV LLC audited by a “Big Four” accounting firm or other independent certifiedpublic accountant acceptable to Trustee in accordance with GAAP (or such otheraccounting basis acceptable to Trustee) covering the Property for such FiscalYear and containing consolidated statements of profit and loss for Issuers andthe Property and a consolidated balance sheet for Issuers. Such statementsshall set forth the financial condition and the results of operations for anIndividual Parcel (in case of financial statements furnished pursuant to clause (A) above)or the Property (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. The consolidated annual financial statementsshall be accompanied by (i) a comparison of the budgeted income andexpenses and the actual income and expenses for the prior Fiscal Year, (ii) alist of tenants, if any, occupying more than twenty percent (20%) of the totalfloor area of the Improvements as of the last day of the Fiscal Year, (iii) ifthere are Leases in the aggregate affecting more than twenty percent (20%) ofthe total floor area of the Improvements, a breakdown showing the year in whicheach Lease then in effect expires and the percentage of total rentable area ofthe Improvements and the base rent with respect to which Leases shall expire ineach such year, (iv) a schedule audited by such independent certifiedpublic accountant reconciling Net Operating Income to Net Cash Flow (the “**Net Cash Flow Schedule**”), which shallitemize all adjustments made to Net Operating Income to arrive at Net Cash Flowdeemed material

 

52

----

 

##### by such independentcertified public accountant, (v) occupancy reports, room ratereports, RevPAR calculations, STR reports (or other market competition reports)for the Property, and (vi) an Officer’s Certificate certifying that, tosuch officer’s knowledge, each annual financial statement presents fairly thefinancial condition and the results of operations of Issuers and the Propertybeing reported upon and that such financial statements have been prepared inaccordance with GAAP or such other accounting basis as Trustee shall reasonablyaccept and as of the date thereof whether, to such officer’s knowledge, thereexists an event or circumstance which constitutes a Default or Event of Defaultunder the Financing Documents executed and delivered by, or applicable to,Issuers, and if such Default or Event of Default exists, the nature thereof,the period of time it has existed and the action then being taken to remedy thesame.

#####  

##### (iii)  Issuers will furnish, or cause to be furnished, to Trusteeon or before forty-five (45) days after the end of each calendar month thefollowing items, accompanied by an Officer’s Certificate stating that, to suchofficer’s knowledge such items are true, correct, accurate, and complete in allmaterial respects and fairly present the financial condition and results of theoperations of Issuers and the Property as of such date (subject to normalyear-end adjustments): (i) an occupancy report for the subject month,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) aNet Cash Flow Schedule.

#####  

##### (iv)  For the partial year period commencing on the date hereof,and for each Fiscal Year thereafter, Issuers shall submit to Trustee an AnnualBudget not later than forty-five (45) days prior to the commencement of suchperiod or Fiscal Year in form reasonably satisfactory to Trustee. At alltimes during the term of the Notes when there is a Cash Trap Event in effect,the Annual Budget so submitted to Trustee (and the applicable expenses budgetedor projected to be incurred during the period when a Cash Trap Event is ineffect) shall be subject to the approval of Servicer on behalf of Trustee,which shall not be unreasonably withheld or delayed (each such Annual Budget,an “**Approved Annual Budget**”). Notwithstandinganything to the contrary contained herein, the approval by Servicer on behalfof Trustee of any Annual Budget shall not be required if such Annual Budgetsubmitted by Issuers provide for projected Net Cash Flow which is in excess ofan amount determined by subtracting the Capital Expenditures for the precedingFiscal Year from $8.0 million (with respect to an Annual Budget for Fiscal Year2008) or $9.0 million (with respect to an Annual Budget for Fiscal Year 2009),as applicable, and provides for expenses that are comparable to the expensesfor the preceding year (with increases for fixed costs) and with such otherchanges as are reasonably consistent with income growth, marketing conditionsand other variable items that fluctuate with occupancy levels. Servicer onbehalf of Trustee shall use good faith

 

53

----

 

##### efforts torespond within five (5) Business Days after Trustee’s receipt of Issuers’proposed Annual Budget. If Servicer on behalf of Trustee fails to respond tosuch request within five (5) Business Days, and Issuers send a secondrequest for approval of such Annual Budget containing a legend clearly markedin not less than fourteen (14) point bold face type, underlined, in all capitalletters “**REQUEST DEEMED APPROVED IF NORESPONSE WITHIN 5 BUSINESS DAYS**”, the approval of Servicer on behalfof Trustee shall be deemed given if no objection is made by Servicer withinfive (5) Business Days after receipt thereof. In the event that Servicerobjects to a proposed Annual Budget submitted by Issuers which requires theapproval of Servicer on behalf of Trustee hereunder, Servicer on behalf ofTrustee shall advise Issuers of such objections within five (5) BusinessDays after receipt thereof (and deliver to Issuers a reasonably detaileddescription of such objections) and Issuers shall promptly revise such AnnualBudget and resubmit the same to Trustee. Servicer on behalf of Trustee shalladvise Issuers of any objections to such revised Annual Budget within five (5) BusinessDays after receipt thereof (and deliver to Issuers a reasonably detailed descriptionof such objections) and Issuers shall promptly revise the same in accordancewith the process described in this subsection until Servicer approves oris deemed to have approved the Annual Budget. Until such time that Servicerapproves or is deemed to have approved a proposed Annual Budget which requiresthe approval of Servicer on behalf of Trustee hereunder, the most recentlyApproved Annual Budget shall apply; provided that such Approved AnnualBudget shall be adjusted to reflect actual increases in Taxes, InsurancePremiums, utilities expenses, union labor and fixed increases under previouslyexecuted agreements; provided, further, that the Approved AnnualBudget shall be adjusted to reflect increased variable expenses as a result ofincreased occupancy levels from the prior year.

#####  

##### (v)  In the event that a Cash Trap Event is in effect, if Issuersmust incur an extraordinary Operating Expense or Capital Expenditure (otherthan an Emergency Expense) not set forth in the Approved Annual 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. Notwithstandinganything to the contrary contained herein, no approval from Servicer shall berequired if (i) a single Extraordinary Expense is equal to or less thanfive percent (5%) of the amount set forth in the Approved Annual Budget forsuch expense, or (ii) if no sum was budgeted for such expense in theApproved Annual Budget, the Extraordinary Expense is less than or equal to fivepercent (5%) of the Approved Annual Budget, provided that allExtraordinary Expenses in any Fiscal Year do not exceed five percent (5%) ofthe Approved Annual Budget or (iii) an emergency exists which requires theimmediate expenditure of the Extraordinary Expense to preserve the value of theProperty or to protect the health and safety of persons located on the Propertyor adjacent to the Property or (iv) such expense is an expense required tobe made to cause the Property to comply with the terms of this Agreement or theother Financing Documents.

#####  

##### (vi)  Any reports, statements or other information required to bedelivered under this Indenture shall be delivered (i) in paper form, (ii) ona diskette, and (iii) if requested by Trustee and within the capabilitiesof Issuers’ data systems without change

 

54

----

 

##### ormodification thereto, in electronic form and prepared using a MicrosoftWord for Windows or WordPerfect for Windows files (which files may beprepared using a spreadsheet program and saved as word processing files).

#####  

### (l)  **Business and Operations.**Each Issuerwill continue to engage in the businesses presently conducted by it as and tothe extent the same are necessary for the ownership, maintenance, managementand operation of the Property. Each Issuer will qualify to do business and willremain in good standing under the laws of each jurisdiction as and to theextent the same are required for the ownership, maintenance, management andoperation of the Property, except to the extent that the failure to do so wouldnot have a Material Adverse Effect.

###  

### (m)  **Title to the Property.**Issuers willwarrant and defend (a) the title to the Property and every part thereof,subject only to Permitted Encumbrances, and (b) the validity and priorityof the Security Trust Agreement and the Pledge, subject only to PermittedEncumbrances, in each case against the claims of all Persons whomsoever. Issuersshall reimburse Trustee for any losses, costs, damages or expenses (includingreasonable attorneys’ fees and court costs) incurred by Trustee if an interestin the Property, other than as permitted hereunder, is claimed by anotherPerson.

###  

### (n)  **Costs of Enforcement.**In the event (a) thata foreclosure procedure is initiated under the Security Trust Agreement or thePledge, (b) of the foreclosure of any mortgage, deed of trust, trustagreement or pledge prior to or subsequent to the Security Trust Agreement orthe Pledge in which proceeding Trustee is made a party, or (c) of thebankruptcy, *concurso mercantil*, insolvency,rehabilitation or other similar proceeding in respect of any Issuer or any ofits Affiliates or an assignment by any Issuer or any of its constituent Personsfor the benefit of its creditors, or (d) Trustee, on behalf of any Issuer,attempts to remedy any Event of Default hereunder, Issuers, their respectivesuccessors or permitted assigns, shall be chargeable with and agrees to pay allcosts of collection and defense, including attorneys’ fees and costs, incurredby Trustee or Issuers in connection therewith and in connection with anyappellate proceeding or post judgment action involved therein, together withall required service or use taxes.

###  

### (o)  **Estoppel Statement.**(i)  Trusteeand Issuers shall within thirty (30) days of a written request furnish theother party with a statement, duly acknowledged and certified, setting forth (i) theoriginal principal amount of the Notes, (ii) the unpaid principal amountof the Notes, (iii) the Applicable Interest Rate of the Notes, (iv) thedate installments of interest and/or principal were last paid, (v) anyoffsets or defenses to the payment of the Debt, if any, and (vi) that theNotes, 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 be made no more thanone (1) time in any calendar year), Issuers shall request tenant estoppelcertificates from each commercial tenant leasing space at the Property in the form requiredby such tenant’s lease or, at Issuers’ election, in the form previouslyaccepted by Trustee.

 

55

----

 

#####  

##### (iii)  Issuers shall use commercially reasonableefforts (but shall not be required to expend any money), within forty-five (45)Business Days after request, to furnish Trustee with a statement, dulyexecuted, acknowledged and certified by the Board of Surveillance of theCondominium setting forth (i) whether or not there are any defaults orconditions that, with the passage of time or the giving of notice, or both,would constitute a default under the Condominium Documents, (ii) whether or notall common expenses, assessments, maintenance fees and other charges due inconnection with the Condominium Documents have been paid and (iii) such otherstatements as Trustee may reasonably require.

#####  

### (p)  **ConstructionCost; Use of Proceeds.**The aggregate cost of constructionincurred by Issuers in the development, redevelopment and renovation of theProperty was not less than $102,000,000 (including pre-opening expenses). Issuersshall use the proceeds of the Notes received by them on the Note Issuance Dateto (a) refinance the Property and/or repay and discharge any existing loansrelating to the Property, (b) pay all past-due Basic Carrying Costs, if any,with respect to the Property, (c) make initial deposits into the Reserve Fundson the Note Issuance Date in the amounts provided herein, (d) pay costs andexpenses incurred in connection with the issuance of the Notes, (e) fund anyworking capital requirements of the Property, (f) repayment of subordinateddebt and guaranty fees and obligations in favor of Kerzner International NorthAmerica, Inc., (g) payment of accrued management fees payable to Manager and(h) distribute the balance, if any, to Issuers.

###  

### (q)  **Performanceby Issuers.**Issuers shall in a timely manner observe, performand fulfill each and every covenant, term and provision of each FinancingDocument executed and delivered by Issuers subject to all applicable notice,grace and cure periods therein.

###  

### (r)  **CNBVFees.**Issuers shall (i) comply at all times with therequirements imposed by CNBV while this Indenture shall remain in full forceand effect or the Notes shall remain outstanding and (ii) pay any and all feesor other charges payable to CNBV in connection with the Notes and promptlyforward to Trustee an original official receipt or a copy thereof or otherdocumentation issued by CNBV evidencing the payment of such fees or charges.

###  

### (s)  **No JointAssessment.**No Issuer shall suffer, permit or initiate the jointassessment of the Property (a) with any other real property constituting a taxlot separate from the Property, and (b) which constitutes real property withany portion of the Property which may be deemed to constitute personalproperty, or any other procedure whereby the lien of any taxes which may belevied against such personal property shall be assessed or levied or charged tosuch real property portion of the Property.

###  

### (t)  **LeasingMatters.**Any Leases with respect to the Property executed afterthe date hereof, for more than 1,600 square feet shall be approved by Trustee,which approval shall not be unreasonably withheld and shall be deemed grantedif Trustee shall not have disapproved same in writing within fifteen (15)Business Days after Issuers’

###  

### 56

### 

###  

### request forapproval, so long as the written request to Trustee for approval contains alegend clearly marked in not less than fourteen (14) point bold face type,underlined, in all capital letters “**REQUESTDEEMED APPROVED IF NO RESPONSE WITHIN 15 BUSINESS DAYS**”. Uponrequest, Issuers shall furnish Trustee with executed copies of all Leases. Allproposed Leases shall be on commercially reasonable terms and shall not containany terms which would materially affect Trustee’s rights under the FinancingDocuments. All Leases executed after the date hereof shall provide that theyare subordinate to the Security Trust Agreement and the Pledge and that thelessee agrees to attorn to Trustee or any purchaser at a sale by foreclosure orpower of sale. Issuers (i) shall observe and perform the obligationsimposed upon the lessor under the Leases in a commercially reasonable manner;(ii) shall enforce and may amend or terminate the terms, covenants andconditions contained in the Leases upon the part of the lessee thereunder to beobserved or performed in a commercially reasonable manner and in a manner notto impair the value of the Property involved except that no termination byIssuers or acceptance of surrender by a tenant of any Leases shall be permittedunless by reason of a tenant default and then only in a commercially reasonablemanner to preserve and protect the Property; provided, however,that no such termination or surrender of any Lease covering more than 1,600square feet 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 shall notbe 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 lessthan fifteen (15) Business Days notice to, but without the approval of,Trustee, terminate or accept a surrender of the Restaurant Lease in the eventIssuers shall elect to self manage the applicable facility and operation; (iii)shall not collect any of the rents more than one (1) month in advance (otherthan security deposits); (iv) shall not execute any other assignment of lessor’sinterest in the Leases or the Rents (except as contemplated by the FinancingDocuments); (v) shall not alter, modify or change the terms of the Leases in amanner inconsistent 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 tothe contrary contained herein, no Issuer shall enter into a Lease of all orsubstantially all of the Property without Trustee’s prior consent.

###  

### (u)  **Alterations.**Issuers shall obtain Trustee’s prior consent to any alterationsto any Improvements, which consent shall not be unreasonably withheld ordelayed. Notwithstanding the foregoing, Trustee’s consent shall not be requiredin connection with (i) any alterations in connection with Required Repairs,Replacements or Restorations performed in accordance with the terms andprovisions of this Indenture, (ii) alterations provided for in any AnnualBudget, (iii) (A) any emergency alterations in response to a material threat ofdanger to the safety and well-being of hotels guests and employees of Issuersor 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

###  

### 57

### 

###  

### giving rise tosuch alteration (it being understood and agreed that if the cost of suchalterations exceed $2,000,000, the excess costs shall be the liability of theIssuers in accordance with Section 9.03(a)(vi) until suchalteration has been approved by Servicer for the Trustee, such approval not tobe unreasonably withheld, conditioned or delayed); or (iv) alterations thatwill not have a Material Adverse Effect; provided that the alterationsunder clause (iv) above (I) are made in connection with tenant improvementwork performed pursuant to the terms of any Lease executed on or before thedate hereof or (II) do not adversely affect any structural component of anyImprovements, any utility or HVAC system contained in any Improvements or theexterior of any building constituting a part of any Improvements and theaggregate cost thereof does not exceed Five Hundred Thousand and 00/100 Dollars($500,000). If the total unpaid amounts due and payable with respect toalterations to the Improvements at the Property (other than such amounts to bepaid or reimbursed by tenants under the Leases or to be paid from anyapplicable Reserve Fund) shall at any time exceed Five Hundred Thousand and00/100 Dollars ($500,000) (the “**ThresholdAmount**”), Issuers shall promptly deliver to Trustee as security forthe payment of such amounts and as additional security for Issuers’ obligationsunder the Financing Documents any of the following: (A) cash, (B) U.S.Obligations, (C) other securities having a rating acceptable to Trustee andthat the applicable Rating Agencies have confirmed in writing will not, in andof itself, result in a downgrade, withdrawal or qualification of the initial,or, if higher, then current ratings assigned to any Securities or any classthereof in connection with any Securitization, or (D) a completion andperformance bond or an irrevocable letter of credit (payable on sight draftonly) issued by a financial institution having a rating by S&P of not lessthan “A-1+” if the term of such bond or letter of credit is no longer thanthree (3) months or, if such term is in excess of three (3) months, issued by afinancial institution having a rating that is acceptable to Trustee and thatthe applicable Rating Agencies have confirmed in writing will not, in and ofitself, result in a downgrade, withdrawal or qualification of the initial, or,if higher, then current ratings assigned to any Securities or any class thereofin connection with any Securitization. Such security shall be in an amountequal to the excess of the total unpaid amounts with respect to alterations tothe Improvements on the Property (other than such amounts to be paid orreimbursed by tenants under the Leases) over the Threshold Amount and, subjectto the terms of Section 10.06, Trustee shall (or, with respect to aletter of credit or performance bond, may) apply such security from time to timeto pay for such alterations in accordance with the procedures and requirementsset forth in Section 10.03 relating to the disbursement of fundsfrom the Replacement Reserve Account.

###  

### (v)  **Operationof Property.**(i)  Issuersshall cause the Property to be operated, in all material respects, inaccordance with the Management Agreement (or Replacement Management Agreement)as applicable; provided, however, that no Issuer shall be deemedto be in default hereunder if Manager, and not Issuers, is in default under theterms of the Management Agreement or Replacement Management Agreement andIssuers are otherwise complying with the provisions of this Section 7.01(v).In the event that the Management Agreement expires or is terminated (withoutlimiting any obligation of Issuers to obtain Trustee’s consent to anytermination or modification of the Management Agreement in accordance with theterms and provisions of this Indenture), Issuers shall promptly enter into aReplacement Management Agreement with Manager

###  

### 58

### 

###  

### or anotherQualified Manager, as applicable. Any breach of the covenants contained in thisSection 7.01(v) with respect to the Management Agreement shall notresult in an Event of Default as long as Issuers are actively seeking Trustee’sconsent to enter into a Replacement Management Agreement with Manager oranother 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)  Issuers shall:  (A) promptly perform and/or observe, in allmaterial respects, all of the covenants and agreements required to be performedand observed by Issuers under the Management Agreement and do all things necessaryto preserve and to keep unimpaired their material rights thereunder; (B)promptly notify Trustee of any material default under the Management Agreementof which 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 Management Agreement; and (D)use commercially reasonable efforts to enforce the performance and observanceof all of the covenants and agreements required to be performed and/or observedby Manager under the Management Agreement, in a commercially reasonable manner.

#####  

### (*w*)  **Golf Operation.**(i)  Issuers shall cause the golf course at theProperty to be operated, in all material respects, in accordance with the GolfManagement Agreement; provided, however, that no Issuer shall bedeemed to be in default hereunder if the Golf Manager, and not Issuers, is indefault under the terms of the Golf Management Agreement and Issuers areotherwise complying with the provisions of this Section 7.01(w). Inthe event 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 the covenants contained in this Section 7.01(w)with respect to the Golf Management Agreement shall not result in an Event ofDefault as long as Issuers are actively seeking Trustee’s consent to enter intoa Replacement Golf Management Agreement with Golf Manager or Qualified GolfManager or, in the case of a termination, Golf Manager is replaced withinthirty (30) days by Qualified Golf Manager pursuant to Section 9.04.

###  

##### (ii)  Issuers shall:  (A) promptly perform and/or observe, in allmaterial respects, all of the covenants and agreements required to be performedand observed by Issuers under the Golf Management Agreement and do all thingsnecessary to preserve and to keep unimpaired their material rights thereunder;(B) promptly notify Trustee of any material default under the Golf ManagementAgreement of which they are aware; (C) promptly deliver to Trustee a copy ofeach material financial statement, business plan, capital expenditures plan,notice, report and estimate received by Issuers under the Golf ManagementAgreement; and (D) use commercially reasonable efforts to enforce the performanceand observance 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.

#####  

##### 59

##### 

#####  

### (x)  **Spa Operation.**(i)  Issuers shall causethe spa facility at the Property to be operated, in all material respects, inaccordance with the Spa Management Agreement; provided, however,that no Issuer shall be deemed to be in default hereunder if the Spa Manager, andnot Issuers, is in default under the terms of the Spa Management Agreement andIssuers are otherwise complying with the provisions of this Section 7.01(x).In the event that the Spa Management Agreement expires or is terminated(without limiting 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 the covenants contained in this Section 7.01(x)with respect to the Spa Management Agreement shall not result in an Event ofDefault as long as Issuers are actively seeking Trustee’s consent to enter intoa Replacement Spa Management Agreement with Spa Manager or Qualified SpaManager or, in the case of a termination, Spa Manager is replaced within thirty(30) days by Qualified Spa Manager pursuant to Section 9.04.

###  

##### (ii)  Issuers shall:  (A) promptly perform and/or observe, in allmaterial respects, all of the covenants and agreements required to be performedand observed by Issuers under the Spa Management Agreement and do all thingsnecessary to preserve and to keep unimpaired their material rights thereunder;(B) promptly notify Trustee of any material default under the Spa ManagementAgreement of which they are aware; (C) promptly deliver to Trustee a copyof each material financial statement, business plan, capital expenditures plan,notice, report and estimate received by Issuers under the Spa ManagementAgreement; and (D) use commercially reasonable efforts to enforce theperformance and observance of all of the covenants and agreements required tobe performed and/or observed by Spa Manager under the Spa Management Agreement,in a commercially reasonable manner.

#####  

##### (iii)  Notwithstanding anything to the contrarycontained in this Section 7.01(x), upon fifteen (15) Business Daysnotice to Trustee, Issuers may elect to terminate the Spa Management Agreementin accordance with the terms thereof or consent to the termination or surrenderof the Spa Management Agreement and elect to self manage the spa facility andoperation 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 complywith all of the terms, covenants and conditions of the Condominium Documentsapplicable to Issuers, as the same shall be in force and effect from time totime.

###  

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

#####  

##### 60

##### 

#####  

##### (iii)  Issuers shall comply with any state, local orfederal law, rule and regulation applicable to the Condominium as it relates tothe Property.

#####  

##### (iv)  Issuers shall take all actions as may bereasonably necessary from time to time to preserve and maintain the Condominiumin accordance with the Condominium Laws.

#####  

##### (v)  Issuers (A) irrevocably waive any applicablelaw which grants to Issuers rights in the event of a Casualty or a Condemnationwhich are inconsistent with the provisions of Article 8 hereof and (B)expressly agrees to the application of the insurance proceeds and condemnationawards in accordance with Article 8 hereof.

#####  

## **Section7.02  Negative Covenants.**Fromthe date hereof until payment and performance in full of all obligations ofIssuers under the Financing Documents or the earlier reconveyance of title tothe Property held by Security Trust Trustee to Issuers or release of the Lienof the Pledge in accordance with the terms of this Indenture and the otherFinancing Documents, each of the Issuers covenants and agrees with Trustee thatit will not do, directly or indirectly, any of the covenants or agreements setforth in this Section 7.02. All such covenants and agreements shallbe enforced, 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 Management Agreement orotherwise by the Servicer on behalf of the Trustee for the benefit of theNoteholders.

##  

### (a)  **Operationof Property.**(i)  NoIssuer shall, without Trustee’s prior consent (which consent shall not beunreasonably withheld or delayed): (A) surrender, terminate or cancel theManagement Agreement; provided, that Issuers may, without Trustee’sconsent, replace the Manager so long as the replacement manager is a QualifiedManager pursuant to a Replacement Management Agreement; (B) reduce or consentto the reduction of the term of the Management Agreement; (C) increase orconsent to the increase of the amount of any charges under the ManagementAgreement; or (D) otherwise modify, change, supplement, alter or amend, orwaive or release any of its rights and remedies under, the Management Agreementin 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 GolfManagement Agreement; provided, that Issuers may, without Trustee’sconsent, replace the Golf Manager so long as the replacement manager is a:Qualified Golf Manager pursuant to a Replacement Golf Management Agreement; (B)reduce or consent to the reduction of the term of the Golf Management Agreement;(C) increase or consent to the increase of the amount of any charges payable toGolf Manager or reduce or consent to the reduction of the amount payable toIssuers under the Golf Management Agreement; or (D) otherwise modify, change,supplement, alter or amend, or waive or release any of its rights and remediesunder, the Golf Management Agreement in any material respect.

#####  

##### 61

##### 

#####  

##### (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 SpaManagement Agreement; provided, that Issuers may, without Trustee’sconsent, replace the Spa Manager so long as the replacement manager is a QualifiedSpa Manager pursuant to a Replacement Spa Management Agreement; (B) reduce orconsent to the reduction of the term of the Spa Management Agreement; (C)increase or consent to the increase of the amount of any charges payable to SpaManager or reduce or consent to the reduction of the amount payable to Issuersunder the Management Agreement; or (D) otherwise modify, change, supplement,alter or amend, or waive or release any of its rights and remedies under, theSpa Management Agreement in any material respect.

#####  

### (iv)  Following the occurrence and during thecontinuance of an Event of Default, no Issuer shall exercise any rights, makeany 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.**NoIssuer shall create, incur, assume or suffer to exist any Lien on any portionof the Property or permit any such action to be taken, except:

###  

### (i)  Permitted Encumbrances; and

#####  

### (ii)  Liens created by or permitted pursuant to theFinancing Documents.

#####  

### (c)  **Dissolution.**No Issuer shall (a) engage in any dissolution, liquidation orconsolidation or merger with or into any other business entity, (b) engage inany business activity not related to the ownership and operation of theProperty, (c) transfer, lease or sell, in one transaction or any combination oftransactions, the assets or all or substantially all of the. properties orassets of such Issuer except to the extent permitted by the FinancingDocuments, (d) modify, amend, waive or terminate its organizational documentsor its qualification and good standing in any jurisdiction where suchqualification is required for such Issuer to own its assets or conduct its businessor (e) cause the Principal to (i) dissolve, wind up or liquidate or takeany action, or omit to take an action, as a result of which the Principal wouldbe dissolved, wound up or liquidated in whole or in part, or (ii) amend,modify, waive or terminate the certificate of incorporation or bylaws of thePrincipal, in each case, without obtaining the prior consent of Trustee.

###  

### (d)  **IntentionallyOmitted.**

###  

### (e)  **DebtCancellation.**No Issuer shall cancel or otherwise forgive orrelease any claim or debt (other than in connection with termination of Leasesin accordance herewith) owed to Issuers by any Person, except for adequateconsideration and in the ordinary course of Issuers’ business or if suchcancellation, forgiveness or release is prudent and commercially reasonable.

###  

### (f)  **Zoning.**NoIssuer shall initiate or consent to any zoning reclassification of any portionof the Property or seek any variance under any existing

###  

### 62

### 

###  

### zoningordinance or use or permit the use of any portion of the Property in any mannerthat could result in such use becoming a non-conforming use under any zoningordinance or any other applicable land use law, rule or regulation, without theprior consent of Trustee.

###  

### (g)  **IntentionallyOmitted.**

###  

### (h)  **PrincipalPlace of Business and Organization.**No Issuer shall change itsprincipal place of business set forth in the introductory paragraph of thisIndenture without first giving Trustee thirty (30) days prior notice. No Issuershall change 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’s request, Issuers shall execute and deliveradditional financing statements, security agreements and other instrumentswhich may be necessary to effectively evidence or perfect Trustee’s lien orsecurity interest in the Property as a result of such change of principal placeof business or place of organization.

###  

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

###  

##### (ii)  Each Issuer further covenants and agrees todeliver to Trustee such certifications or other evidence from time to timethroughout the term of the Notes, as requested by Trustee in its solediscretion, that (i) such Issuer is not an “employee benefit plan” as definedin Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmentalplan” within 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 of thefollowing circumstances is true:

#####  

(1)  Equity interests in each Issuer are publiclyoffered securities, within the meaning of 29 C.F.R. §2510.3-101(b)(2);

 

(2)  Less than twenty-five percent (25%) of eachoutstanding class of equity interests in each Issuer is held by “benefit planinvestors” within the meaning of 29 C.F.R. §2510.3-101(f)(2); or

 

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

 

### (j)  **Transfers.**(i)  Each Issueracknowledges that Initial Noteholder has examined and relied, and eachNoteholder will rely, on the experience of Issuers and their respective generalpartners, members, principals and (if Issuer is a trust) beneficial owners inowning and operating properties such as the Property in agreeing to purchasethe Notes, and will continue to rely on Issuers’ ownership of the Property as ameans of maintaining the value of the Property as security for repayment of theDebt and the

###  

### 63

### 

###  

### performance ofthe obligations contained in the Financing Documents. Each Issuer acknowledgesthat Trustee has a valid interest in maintaining the value of the Property soas to ensure that, should Issuers default in the repayment of the Debt or theperformance of the obligations contained in the Financing Documents, Trusteecan recover the Debt by a sale of the Property.

###  

##### (ii)  Except to the extent otherwise set forth inthis Section 7.02(j), no Issuer shall, nor shall any Issuer permitany Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber,pledge, assign, grant options with respect to, or otherwise transfer or disposeof (directly or indirectly, voluntarily or involuntarily, by operation of lawor otherwise, and whether or not for consideration or of record) the Propertyor any part thereof or any legal or beneficial interest therein or (ii) permita Sale or Pledge of an interest in any Restricted Party (collectively, a “**Transfer**”), other than pursuant to Leasesof space in the Improvements to tenants in accordance with the provisions of Section 7.01(t).Notwithstanding anything to the contrary contained herein or in the otherFinancing 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 be limitedto, (i) an installment sales agreement wherein Issuers agree to sell theProperty or any part thereof for a price to be paid in installments; (ii) anagreement by Issuers leasing all or a substantial part of the Property forother than actual occupancy by a space tenant thereunder or a sale, assignmentor 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 RestrictedParty is a corporation, any merger, consolidation or Sale or Pledge of suchcorporation’s stock or the creation or issuance of new stock; (iv) if aRestricted Party is a limited or general partnership or joint venture, anymerger or consolidation or the change, removal, resignation or addition of ageneral partner or the Sale or Pledge of the partnership interest of anygeneral partner or any profits or proceeds relating to such partnershipinterest, or the Sale or Pledge of limited partnership interests or any profitsor proceeds relating to such limited partnership interest or the creation orissuance of new limited partnership interests; (v) if a Restricted Party is alimited liability company, any merger or consolidation or the change, removal,resignation or addition of a managing member or non-member manager (or if nomanaging member, any member) or the Sale or Pledge of the membership interestof a managing member (or if no managing member, any member) or any profits orproceeds relating to such membership interest, or the Sale or Pledge ofnon-managing membership interests or the creation or issuance of newnon-managing membership interests; (vi) if a Restricted Party is a trust ornominee trust, any merger, consolidation or the Sale or Pledge of the legal orbeneficial interest in a Restricted Party or the creation or issuance of newlegal or beneficial interests; or (vii) the removal or the resignation of themanaging agent (including, without limitation, an Affiliated Manager) otherthan in accordance with Section 7.02(a) hereof.

#####  

##### (iv)  Notwithstanding the provisions of this Section 7.02(j),the following Transfers shall be permitted hereunder: (A) the sale or transfer,in one or a series of

#####  

##### 64

##### 

#####  

##### transactions,of not more than forty-nine percent (49%) of the stock in a Restricted Party; provided,however, no such sales or transfers shall result in the change of votingcontrol in the Restricted Party, and (B) the sale or transfer, in one or aseries of transactions, of not more than forty-nine percent (49%) of thelimited partnership interests or non-managing membership interests (as the casemay be) in a Restricted Party; provided, however, no such salesor transfers shall result in the change of voting control in the RestrictedParty, 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 described in 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) if aftergiving effect to any of the foregoing Transfers, more than forty-nine percent(49%) in the aggregate of direct or indirect interests in a Restricted Partyare owned by any Person and its Affiliates that owned less than forty-ninepercent (49%) direct or indirect interest in such Restricted Party as of thedate hereof, Issuers shall, no less than thirty (30) days prior to theeffective 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 Transfer under(iv)(C) above, any existing guarantor of the obligations of the Issuers underany of the Financing Documents shall affirm its obligations under itsapplicable guaranty or one (1) or more substitute guarantors reasonably acceptableto Trustee shall have assumed all of the liabilities and obligations of suchguarantor, and (e) Issuers covenant and agree to pay all reasonable costs andexpenses (including reasonable attorneys’ fees and disbursements) incurred byTrustee in connection with such Transfer.

#####  

##### (v)  Notwithstanding the provisions of this Section 7.02(j),Goldman and Kerzner shall each have a collective one-time right during the termof the Notes to transfer direct or indirect ownership interests in the Property(but not the Property) to one or more third parties (each individually orcollectively, “**Transferee**”), providedthat Trustee receives sixty (60) days prior written notice of such Transfer andno Event of Default has occurred and is continuing, and further providedthat the following additional requirements are satisfied:

#####  

(A)  Issuers are and shall remain Special PurposeEntities that are able to satisfy all the representations and covenants setforth in Section 6.01(dd) of this Indenture;

 

(B)  Transferee shall assume any applicableobligations of Issuers or the Principals under the Financing Documents in amanner satisfactory to Trustee in all respects, and Issuers shall provideevidence satisfactory to Trustee that all required approvals, if any, relatingto the Transfer and the assumption of such obligations by Transferee have beenobtained;

 

65

----

 

(C)  Issuers or Transferee, at its sole cost andexpense, shall deliver to Trustee an Additional Insolvency Opinion reflectingsuch Transfer satisfactory in form and substance to Trustee;

 

(D)  Transferee shall be approved by the RatingAgencies, which approval, if required by Trustee, shall take the form of aconfirmation in writing from such Rating Agencies to the effect that suchTransfer will not result in a requalification, reduction, downgrade orwithdrawal of the ratings in effect immediately prior to such assumption ortransfer for the Securities or any class thereof issued in connection with aSecuritization which are then outstanding;

 

(E)  Issuers shall pay any and all reasonableout-of-pocket costs incurred by Trustee and the Rating Agencies in connectionwith such Transfer (including, without limitation, the reasonable fees anddisbursements of Trustee’s and Rating Agencies’ attorneys);

 

(F)  Transferee or Transferee’s principals musthave demonstrated expertise in owning and operating hotel properties similar insize, class and operation to the Property, which expertise shall be reasonablydetermined by Trustee (or Transferee or Transferee’s Principals employ aQualified Manager in lieu of having direct managerial experience requiredhereunder); and

 

(G)  Prior to any release of Guarantor, one (1) ormore Substitute Guarantors shall have assumed all of the liabilities andobligations of Guarantor under the Guaranty executed by Guarantor or execute areplacement guaranty reasonably satisfactory to Trustee.

 

(H)  Immediately upon a Transfer to suchTransferee and the satisfaction of all of the above requirements, the namedIssuers and Guarantor herein shall be released from all liability under thisIndenture, the Notes, the Security Trust Agreement and the other FinancingDocuments accruing after such Transfer. The foregoing release shall beeffective upon the date of such Transfer, but Trustee agrees to provide writtenevidence thereof reasonably requested by Issuers.

 

##### (vi)  Notwithstanding the provisions of this Section 7.02(j),and in addition to other transfer rights under Section 7.02, theIssuers shall have the right to transfer the Property to a Transferee, providedthat Trustee receives sixty (60) days prior written notice of such Transfer andno Event of Default has occurred and is continuing, and further providedthat the following additional requirements are satisfied:

#####  

(A)  Issuers shall pay Trustee a transfer feeequal to one percent (1%) of the outstanding principal balance of the Notes atthe time of such transfer;

 

(B)  Transferee shall be Special Purpose Entity;

 

(C)  Transferee and Transferee’s principals mustbe able to satisfy all the representations and covenants set forth in Section 6.01(dd)of this Indenture, no Event of Default shall otherwise occur as a result ofsuch Transfer, and Transferee

 

66

----

 

and Transferee’sprincipals shall deliver (1) all organizational documentation reasonablyrequested by Trustee, which shall be reasonably satisfactory to Trustee and (2)all certificates, agreements and covenants reasonably required by Trustee;

 

(D)  Transferee shall assume all of theobligations of Issuers under the Financing Documents in a manner satisfactoryto Trustee in all respects, including, without limitation, by entering into anassumption agreement in form and substance satisfactory to Trustee and Issuersshall provide evidence satisfactory to Trustee that all required approvals, ifany, relating to the Transfer and the assumption of such obligations byTransferee have been obtained;

 

(E)  Issuers or Transferee, at its sole cost andexpense, shall deliver to Trustee an Additional Insolvency Opinion reflectingsuch Transfer satisfactory in form and substance to Trustee;

 

(F)  Transferee shall be approved by the RatingAgencies, which approval, if required by Trustee, shall take the form of aconfirmation in writing from such Rating Agencies to the effect that suchTransfer will not result in a requalification, reduction, downgrade orwithdrawal of the ratings in effect immediately prior to such assumption ortransfer for the Securities or any class thereof issued in connection with aSecuritization which are then outstanding;

 

(G)  Issuers shall pay any and all reasonableout-of-pocket costs incurred by Trustee and the Rating Agencies in connectionwith such Transfer (including, without limitation, the fees and disbursementsof Trustee’s and Rating Agencies’ attorneys and all recording fees, titleinsurance premiums and mortgage and intangible taxes);

 

(H)  Transferee or Transferee’s principals musthave demonstrated expertise in owning and operating hotel properties similar insize, class and operation to the Property, which expertise shall be reasonablydetermined by Trustee (or Transferee or Transferee’s Principals employ aQualified Manager in lieu of having direct managerial experience requiredhereunder);

 

(I)  Transferee and Transferee’s principals shall,as of the date of such transfer, have an aggregate net worth and liquidityreasonably acceptable to Trustee;

 

(J)  Transferee, Transferee’s principals and allother entities which may be owned or Controlled directly or indirectly byTransferee’s principals (“**Transferee RelatedEntities**”) must not have been party to any bankruptcy proceedings,voluntary or involuntary, made an assignment for the benefit of creditors ortaken advantage of any insolvency act, or any act for the benefit of debtorswithin seven (7) years prior to the date of the proposed Transfer;

 

(K)  There shall be no material litigation orregulatory action pending or threatened against Transferee, Transferee’sprincipals or Transferee Related Entities which is not reasonably acceptable toTrustee;

 

67

----

 

(L)  Transferee, Transferee’s principals andTransferee Related Entities shall not have defaulted under its or theirobligations with respect to any other Indebtedness in a manner which is notreasonably acceptable to Trustee;

 

(M)  Prior to any release of Guarantor, one (1) ormore Substitute Guarantors shall have assumed all of the liabilities andobligations of Guarantor under the Guaranty executed by Guarantor or execute areplacement guaranty reasonably satisfactory to Trustee; and

 

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

 

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 releaseshall be effective upon the date of such Transfer, but Trustee agrees toprovide written evidence thereof reasonably requested by Issuers.

 

### (k)  **CondominiumDocuments.**(i)  Issuersshall not, without the Trustee’s prior written consent, amend, modify orsupplement in any material respect, or consent to or suffer any materialamendment, modification or supplementation of any of the Condominium Documents.Issuers shall not, without the Trustee’s prior written consent, terminate or consentto or suffer the termination of any of 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.

#####  

##### (iii)  Issuers shall not, without the Trustee’sprior written consent, take (and hereby assigns to Trustee any right it mayhave to take) any action to terminate the Condominium, withdraw the Condominiumfrom 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) the expenditureof any insurance proceeds or condemnation awards for the repair or restorationof the related Improvements other than in accordance with Section 8.04hereof.

#####  

##### 68

##### 

#####  

# **ARTICLE 8 – INSURANCE; CASUALTY; CONDEMNATION**

# ** **

## **Section8.01  Insurance.**(a)  Issuers shall obtain and maintain, or causeto be maintained, 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 Indenture shall meanactual replacement value (exclusive of costs of excavations, foundations,underground utilities and footings) with a waiver of depreciation, but theamount shall in no event be less than the outstanding principal balance of theNotes; (B) containing an agreed amount endorsement with respect to theImprovements and Personal Property waiving all co-insurance provisions; (C)providing for no deductible in excess of One Hundred Thousand and No/100Dollars ($100,000) for all such insurance coverage; and (D) containing an “Ordinanceor Law Coverage” or “Enforcement” endorsement if any of the Improvements or theuse of the Property shall at any time constitute legal non-conformingstructures or uses. In addition, Issuers shall obtain coastal windstorminsurance in amounts and in form and substance satisfactory to Trustee in theevent the Property is located in any coastal region, provided that theinsurance shall be on terms consistent with the comprehensive all riskinsurance policy required under this subsection (i) and providedfurther that coastal windstorm insurance shall not be required with respectto the golf course 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 than theaforesaid limit until required to be changed by Trustee in writing by reason ofchanged economic conditions making such protection inadequate; and (C) to coverat least the following hazards: (1) premises and operations; (2) products andcompleted operations on an “if any” basis; (3) independent contractors; (4)blanket contractual liability for all legal contracts; and (5) contractualliability covering the indemnities contained herein and in the other FinancingDocuments to the extent the same is available;

#####  

##### (iii)  business income insurance (A) with losspayable to Trustee; (B) covering all risks required to be covered by theinsurance provided for in subsection (i) above; (C) containing anextended period of indemnity endorsement which provides that after the physicalloss to the Improvements and Personal Property has been repaired, the continuedloss of income will be insured until such income either returns to the samelevel it was at prior to the loss, or the expiration of twenty-four (24) monthsfrom the date that the Property is repaired or replaced and operations areresumed, whichever first occurs, and notwithstanding that the policy may expireprior to the end of such period; and (D) in an amount equal to one hundredpercent (100%) of the projected

#####  

##### 69

##### 

#####  

##### gross incomefrom the 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 incomeinsurance shall be determined prior to the date hereof and at least once eachyear thereafter based on Issuers’ reasonable estimate of the gross income fromthe Property for the succeeding twenty-four (24) month period. All proceedspayable to Trustee pursuant to this subsection shall be held by Trustee andshall be applied at Trustee’s sole discretion (but after consultation withIssuers) to (I) the obligations secured by the Financing Documents from time totime due and payable hereunder and under the Note or (II) Operating Expensesapproved by Trustee in its reasonable discretion; provided, however,that nothing herein contained shall be deemed to relieve Issuers of theirobligations to pay the obligations secured by the Financing Documents on therespective dates of payment provided for in the Note and the other FinancingDocuments except to the extent such amounts are actually paid out of the proceedsof 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 claims notcovered by or under the terms or provisions of the above mentioned commercialgeneral liability insurance policy; and (B) the insurance provided for in subsection(i) above written in a so-called builder’s risk completed value form (1) ona non-reporting basis, (2) against all risks insured against pursuant to subsection(i) above, (3) including permission to occupy the Property, and (4) with anagreed amount endorsement waiving co-insurance provisions;

#####  

##### (v)  if the Property includes commercial property,worker’s compensation insurance with respect to any employees of Issuers, asrequired by any Governmental Authority or Legal Requirement;

#####  

##### (vi)  comprehensive boiler and machinery insurance,if applicable, in amounts as shall be reasonably required by Trustee on termsconsistent with the commercial property insurance policy required under subsection(i) above;

#####  

##### (vii)  umbrella liability insurance in an amount notless than Fifty Million and No/100 Dollars ($50,000,000) per occurrence onterms consistent with the commercial general liability insurance policyrequired under subsection (ii) above;

#####  

##### (viii)  motor vehicle liability coverage for allowned and non-owned vehicles, including rented and leased vehicles containingminimum limits per occurrence, including umbrella coverage, of Two Million andNo/100 Dollars ($2,000,000);

#####  

##### (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;

#####  

##### 70

##### 

#####  

##### (x)  the commercial property and business incomeinsurance required under Sections 8.01(a)(i) and (iii) aboveshall 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 Mexico securingnon-recourse financings provided by institutional lenders from theUnited States of America are maintaining same or (II) prudentinstitutional lenders (including, without limitation, investment banks) fromthe United States of America to such owners are requiring that such ownersmaintain such insurance in connection with non-recourse financings secured byreal estate 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 the insurance required under Sections 8.01(a)(i) and (iii)above, then Issuers 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)above with a deductible of not greater than $100,000 and such coverage is in anamount equal to, the lesser of (a) the outstanding principal balance of theNotes (provided such policy contains a waiver of coinsurance) or (b) thesum of the business income insurance equal to 100% of the projected grossincome from the Property for a period of twenty-four (24) months from the datethat the Property is repaired or replaced and operations are resumed plus theFull Replacement Cost and further provided that if any claim is made(unless on a per occurrence basis) under such policy or policies reducing theamount of coverage below that which is required to be maintained under this Section 8.01(a)(x),then Issuers shall increase the amount of such policy or policies to an amountthat satisfies the requirements of Section 8.01(a)(x), or (B)Issuers shall obtain a stand-alone policy or policies that covers solely theProperty against Terrorism Losses, which stand-alone policy or policies shallbe on terms consistent with those required under Sections 8.01(a)(i) and(iii) above with a deductible of not greater than $100,000 and suchcoverage is in an amount equal to, the lesser of (a) the outstanding principalbalance of the Notes (provided such policy contains a waiver ofcoinsurance) or (b) the sum of the business income insurance equal to 100% ofthe projected 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. 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 otherreasonable insurance and in such reasonable amounts as Trustee from time totime may reasonably request against such other insurable hazards which at thetime are commonly insured against for property similar to the Property locatedin or around the region in which the Property is located.

#####  

##### (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

#####  

##### 71

##### 

#####  

##### “**Policy**”), and shall be (to the extent notspecified in Section 8.01(a)) subject to the approval of Trustee asto insurance companies, amounts, deductibles, loss payees and insureds. ThePolicies shall be issued by financially sound and responsible insurancecompanies authorized to do business in the State and having a claims payingability rating of “A” or better (and the equivalent thereof) by at least two(2) of the Rating Agencies rating the Securities (one of which shall be S&Pif they are rating the Securities and one of which will be Moody’s if they arerating the Securities), or if only one Rating Agency is rating the Securities,then only by such Rating Agency. The Policies described in Section 8.01(a)(other than those strictly limited to liability protection) shall designateTrustee as loss payee. Not less than ten (10) days prior to the expirationdates of the Policies theretofore furnished to Trustee, certificates ofinsurance evidencing the Policies accompanied by evidence satisfactory toTrustee of payment of the premiums due thereunder (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 or contemplated by Section 8.01(a),except for the Policy referenced in Section 8.01(a)(v), shall name.Issuers as the insured and Trustee as the additional insured, as its interestsmay appear, and in the case of property damage, boiler and machinery, flood andearthquake insurance, shall contain a so-called New York standardnon-contributing mortgagee clause in favor of Trustee providing that theloss thereunder shall be payable to Trustee.

###  

### (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, or anyoneacting for any Issuer, or of any tenant or other occupant, or failure to complywith the provisions of any Policy, which might otherwise result in a forfeitureof the insurance or any part thereof, shall in any way affect the validity orenforceability of the insurance insofar as Trustee is concerned;

#####  

### (ii)  the Policies shall not be materially changed(other than to increase the coverage provided thereby) or canceled without atleast thirty (30) days’ notice to Trustee and any other party named therein asan additional insured;

#####  

### (iii)  the issuers thereof shall give notice toTrustee if the Policies have not been renewed fifteen (15) days prior to itsexpiration; and

#####  

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

#####  

### (f)  If at any time Trustee is not in receipt ofwritten evidence that all Policies are in full force and effect, Trustee shallhave the right, without notice to Issuers (or, upon three (3) Business Days’notice to Issuers if such notice period shall end not 

###  

### 72

### 

###  

### later thanfive (5) Business Days prior to the date upon which the Policies are toexpire), to take such action as Trustee deems necessary to protect its interestin the Property, including, without limitation, the obtaining of such insurancecoverage as Trustee in its sole discretion deems appropriate. All premiumsincurred by Trustee in connection with such action or in obtaining suchinsurance and keeping it in effect shall be paid by Issuers to Trustee upondemand and, until paid, shall be secured by the Security Trust Agreement andthe Pledge and shall bear interest at the Default Rate.

###  

## **Section8.02  Casualty.**Ifthe Property shall be damaged or destroyed, in whole or in part, by fire orother casualty (a “**Casualty**”) suchthat the estimated cost of Restoration exceeds One Million and No/100 Dollars($1,000,000), Issuers shall give prompt notice of such damage to Trustee andshall promptly commence and diligently prosecute the completion of theRestoration of the Property as nearly as possible to the condition the Propertywas in immediately prior to such Casualty, with such alterations as may bereasonably approved by Trustee and otherwise in accordance with Section 8.04.Issuers shall pay all costs of such Restoration whether or not such costs arecovered by insurance. Trustee may, but shall not be obligated to, make proof ofloss if not made promptly by Issuers. In addition, Trustee may participate inany settlement 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.

##  

## **Section8.03  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 such proceedings.Trustee may participate in any such proceedings, and Issuers shall from time totime deliver to Trustee all instruments requested by it to permit suchparticipation. Issuers shall, at their expense, diligently prosecute any suchproceedings, and shall consult with Trustee, its attorneys and experts, andcooperate with them in the carrying on or defense of any such proceedings. Notwithstandingany taking by any public or quasi-public authority through Condemnation orotherwise (including, but not limited to, any transfer made in lieu of or inanticipation of the exercise of such taking), Issuers shall continue to pay theDebt at the time and in the manner provided for its payment in the Note and inthis Indenture and the Debt shall not be reduced until any Award shall havebeen actually received and applied by Trustee, after the deduction of expensesof collection, to the reduction or discharge of the Debt. Trustee shall not belimited to the interest paid on the Award by the condemning authority but shallbe entitled to receive out of the Award interest at the rate or rates providedherein or in the Note. If the Property or any portion thereof is taken by acondemning authority, Issuers shall promptly commence and diligently prosecutethe Restoration of the Property and otherwise comply with the provisions of Section 8.04.If the Property is sold, through foreclosure or otherwise, prior to the receiptby 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.

##  

## 73

## 

##  

## **Section8.04  Restoration.**(a)  The following provisions shall apply inconnection with the Restoration:

##  

##### (i)  If the Net Proceeds shall be less than FourMillion 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 Section 8.04(b),(vii), (viii), (ix) and (x) during the Restoration andIssuers expeditiously commence and satisfactorily complete with due diligencethe Restoration in accordance with the terms of this Indenture.

#####  

##### (ii)  If the Net Proceeds shall be greater thanFour Million and No/100 Dollars ($4,000,000) and the costs of completing theRestoration shall be greater than Four Million and No/100 Dollars ($4,000,000),the Net Proceeds will be disbursed by Trustee to Issuers upon receipt, providedthat all of the conditions set forth in Section 8.04(b) are met andIssuers deliver to Trustee a written undertaking to expeditiously commence andto satisfactorily complete with due diligence the Restoration in accordancewith the terms of this Indenture.

#####  

##### (iii)  The term “**NetProceeds**” for purposes of this Section 8.04 shall mean:(i) the net amount of all insurance proceeds received by Trustee pursuant to Section 8.01(a)(i),(iii), (iv), (vi), (ix) and (x) as a resultof such damage or destruction, after deduction of its reasonable costs andexpenses (including, but not limited to, reasonable counsel fees), if any, incollecting same (“**Insurance Proceeds**”),or (ii) the net amount of the Award, after deduction of its reasonable costsand expenses (including, but not limited to, reasonable counsel fees), if any,in collecting same (“**Condemnation Proceeds**”),whichever the case may be.

#####  

##### (b)  The Net Proceeds shall be made available toIssuers for Restoration upon the approval of Trustee in its reasonablediscretion that all or some of the following conditions are met:

###  

##### (i)  no Event of Default shall have occurred andbe continuing;

#####  

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

#####  

##### (iii)  intentionally omitted;

#####  

##### (iv)  subject to excusable delays due to acts ofgod, governmental restrictions, stays, judgments, orders, decrees, enemyactions, civil commotion, fire, casualty, strikes, work stoppages, shortages oflabor or materials or other cases beyond the reasonable control of Issuers,Issuers shall commence the Restoration as soon as reasonably practicable (butin no event later than sixty (60) days after such Casualty or Condemnation,whichever the case may be, occurs) (it being understood and agreed that, amongother things, the engagement of an architect, engineer or construction manager

#####  

##### 74

##### 

#####  

##### shallconstitute commencement of Restoration for purposes of this Section 8.01(b)(iv))and shall diligently pursue the same to satisfactory 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 occurrence of any suchCasualty or Condemnation, whichever the case may be, will be covered out of (1)the Net Proceeds, (2) the insurance coverage referred to in Section 8.01(a)(iii),if applicable, or (3) by other funds of Issuers;

#####  

##### (vi)  Trustee shall be reasonably satisfied thatthe Restoration will be completed on or before the earliest to occur of (1) theMaturity Date, (2) such time as may be required under applicable LegalRequirements or (3) the expiration of the insurance coverage referred to in Section 8.01(a)(iii);

#####  

##### (vii)  the Property and the use thereof after theRestoration will be in material compliance with and permitted under allapplicable Legal Requirements;

#####  

##### (viii)  the Restoration shall be done and completedby Issuers in compliance with all applicable Legal Requirements;

#####  

##### (ix)  such Casualty or Condemnation, as applicable,does not result in the permanent loss of material access to the Property or therelated Improvements;

#####  

##### (x)  the Condominium Documents shall remain infull 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 any cash orcash equivalent deposited by Issuers with Trustee are in an amount sufficientin Trustee’s reasonable discretion to cover the estimated cost of theRestoration, taking into account the budget delivered to Trustee in subsection(xi) above.

#####  

##### (c)  The Net Proceeds shall be held by Trustee inan interest-bearing account and, until disbursed in accordance with theprovisions of Section 8.04(b), shall constitute additional securityfor the Debt and other obligations under the Financing Documents. The NetProceeds shall be disbursed by Trustee to, or as directed by, Issuers from timeto time during the course of the Restoration, upon receipt of evidencesatisfactory to Trustee that (A) all materials installed and work and laborperformed (except to the extent that they are to be paid for out of therequested disbursement) in connection with the Restoration have been paid forin full, and (B) there exist no notices of pendency, stop orders, mechanic’s ormaterialman’s liens or notices of intention to file same, or any other liens orencumbrances of any nature whatsoever on the Property which have not eitherbeen fully bonded to the satisfaction of Trustee and discharged of record or inthe alternative fully insured to the satisfaction of Trustee by the titlecompany issuing the Title Insurance Policy.

###  

### 75

### 

###  

### (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 “**CasualtyConsultant**”), such approval (A) not to be unreasonably withheld ordelayed and (B) to be deemed granted if Trustee shall not have disapproved samein writing within twenty (20) 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 TWENTY (20) DAYS**”. Trustee shall have the use of theplans and specifications and all permits, licenses and approvals required orobtained in connection with the Restoration. The identity of the contractors,subcontractors and materialmen engaged in the Restoration for contracts inexcess of $250,000, as well as the contracts under which they have beenengaged, shall be subject to prior review and acceptance by Trustee and theCasualty Consultant, such approval (A) not to be unreasonably withheld ordelayed and (B) to be deemed granted if Trustee shall not have disapproved samein writing within fifteen (15) Days after Issuers’ request for approval, solong as the written request to Trustee for approval contains a legend clearlymarked in not less than fourteen (14) point bold face type, underlined, in allcapital letters “**REQUEST DEEMED APPROVED IFNO RESPONSE WITHIN FIFTEEN (15) DAYS**”. All costs and expensesincurred by Trustee in connection with making the Net Proceeds available forthe Restoration including, without limitation, reasonable counsel fees anddisbursements and the Casualty Consultant’s fees, shall be paid by Issuers.

###  

### (e)  In no event shall Trustee be obligated tomake 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 “**Casualty Retainage**”shall mean an amount equal to ten percent (10%) of the costs actually incurredfor work in place as part of the Restoration, as certified by the CasualtyConsultant, until the Restoration has been completed. The Casualty Retainageshall in no event, and notwithstanding anything to the contrary set forth abovein Section 8.04(b), be less than the amount actually held back byIssuers from contractors, subcontractors and materialmen engaged in theRestoration. The Casualty Retainage shall not be released until the CasualtyConsultant certifies to Trustee that the Restoration has been completed inaccordance with the provisions of Section 8.04(b) and that allapprovals necessary for the re-occupancy and use of the Property have beenobtained from all appropriate governmental and quasi-governmental authorities,and Trustee receives evidence satisfactory to Trustee that the costs of theRestoration have been paid in full or will be paid in full out of the CasualtyRetainage; provided, however, that Trustee will release theportion of the Casualty Retainage being held with respect to any contractor,subcontractor or materialman engaged in the Restoration as of the date uponwhich the Casualty Consultant certifies to Trustee that the contractor,subcontractor or materialman has satisfactorily completed all work and hassupplied all materials in accordance with the provisions of the contractor’s,subcontractor’s or materialman’s contract, the contractor, subcontractor ormaterialman delivers the evidence of payment in full of all sums due to thecontractor, subcontractor

###  

### 76

### 

###  

### or materialmanas may be reasonably requested by Trustee or by the title company issuing theTitle Insurance Policy. If required by Trustee, the release of any such portionof the Casualty Retainage shall be approved by the surety company, if any,which has issued a payment or performance bond with respect 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 full thebalance of the costs which are estimated by the Casualty Consultant to beincurred in connection with the completion of the Restoration, Issuers shalldeposit the deficiency (the “**Net ProceedsDeficiency**”) with Trustee before any further disbursement of the NetProceeds shall be made. The Net Proceeds Deficiency deposited with Trusteeshall be held by Trustee and shall be disbursed for costs actually incurred inconnection with the Restoration on the same conditions applicable to thedisbursement of the Net Proceeds, and until so disbursed pursuant to Section 8.04(b)shall constitute additional security for the Debt and other obligations underthe Financing Documents.

###  

### (h)  The excess, if any, of the Net Proceeds andthe remaining balance, if any, of the Net Proceeds Deficiency deposited withTrustee after the Casualty Consultant certifies to Trustee that the Restorationhas been completed in accordance with the provisions of Section 8.04(b),and the receipt by Trustee of evidence satisfactory to Trustee that all costsincurred in connection with the Restoration have been paid in full, shall beremitted by Trustee to Issuers, provided no Event of Default shall haveoccurred and shall be continuing.

###  

### (i)  All Net Proceeds not required (a) to be madeavailable for the Restoration or (b) to be returned to Issuers as excess NetProceeds pursuant to Section 8.04(h) may be retained and applied byTrustee in accordance with Section 2.3(b) of the Notes toward thepayment of the Debt whether or not then due and payable in such order, priorityand proportions as Trustee in its sole discretion shall deem proper, or, at thediscretion of Trustee, the same may be paid, either in whole or in part, toIssuers for such purposes as Trustee shall approve, in its discretion, so longas Trustee either commences to apply such Net Proceeds to Restoration inaccordance with the terms and conditions of this Indenture or applies such NetProceeds toward the payment of the outstanding principal balance of the Notes,in each case within thirty (30) days of receipt thereof.

###  

### (j)  In the event Security Trust First Beneficiaryconveys, sells or otherwise transfers (or takes steps to effect a conveyance,sale or other transfer of) the Security Trust Second Beneficiary’s interestunder the security trust formed pursuant to the Security Trust Agreement, orother transfer of title to the Property in extinguishment in whole or in partof the Debt all right, title and interest of Issuers in and to the Policiesthat are not blanket Policies then in force concerning the Property and allproceeds

###  

### 77

### 

###  

### payablethereunder shall thereupon vest in the purchaser at such foreclosure or Trusteeor other transferee in the event of such other transfer of title.

###  

### (k)  Notwithstanding anything to the contrarycontained in this Section 2.3(b), in the event the costs ofcompleting any Restoration shall exceed Thirty Million and No/100 Dollars($30,000,000) and Servicer on behalf of Trustee elects not to make Net Proceedsavailable to Issuers, the Issuers may, within sixty (60) days, offer suchelection by Servicer on behalf of Trustee to prepay the Debt in whole, but notin part, without the payment of any prepayment premium or penalty.

###  

### **Section2.05  Casualty/Condemnation Generally.**In all matters pertaining to insurance, Casualty,Condemnation and/or Restoration, 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 or Cash Manager, as the case may be,on behalf of the Trustee for the benefit of the Noteholders.

##  

# **ARTICLE 9 – DEFAULTS**

# ** **

## **Section9.01  Event of Default.**(a)  Each of the following events shall constitutean event of default hereunder (an “**Event ofDefault**”):

##  

### (i)  if any portion of the Debt is not paid whendue;

#####  

### (ii)  if any of the Taxes or Other Charges are notpaid on or before the same are due and payable (and such non-payment, in caseof Other Charges (other than Condominium charges and assessments with respectto which no notice shall be required) continues for five (5) Business Daysfollowing notice thereof to Issuers), except to the extent sums sufficient topay such Taxes and Other Charges have been deposited with Trustee in accordancewith Section 10.02 hereof or those Taxes or Other Charges beingcontested in accordance with the terms and provisions of this Indenture;

#####  

### (iii)  if the Policies are not kept in full forceand effect or if the Policies or insurance certificates or other evidence ofinsurance acceptable to Trustee are not delivered to Trustee within 10 daysafter written notice thereof from Trustee;

#####  

### (iv)  if Issuers Transfer or otherwise encumbersany portion of the Property in violation of the provisions of this Indenture;

#####  

### (v)  if any representation or warranty made byIssuers 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

###  

### 78

### 

###  

### hereunder onlyif the same is not cured within thirty (30) days after written notice toIssuers from Trustee; and provided, further, if the conditioncausing the representation or warranty to be false is susceptible of cure butcannot reasonably be cured within such thirty (30) day period and Issuers shallhave commenced to cure such condition within such thirty (30) day period andthereafter diligently proceeds to cure the same, then such thirty (30) dayperiod shall be extended for such an additional period of time as is reasonablynecessary for Issuers in the exercise of due diligence to cure such condition,such additional period not to exceed one hundred fifty (150) days;

#####  

### (vi)  if any Issuer, Principal or any Guarantorshall 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 orarrangement pursuant to federal bankruptcy law, or any similar federal or statelaw, shall be filed by or against, consented to, or acquiesced in by, Issuer,Principal or Guarantor, or if any proceeding for the dissolution or liquidationof Issuers, Principal or Guarantor shall be instituted; provided, however,if such appointment, adjudication, petition or proceeding was involuntary andnot consented to by Issuers, Principal or Guarantor, upon the same not beingdischarged, stayed or dismissed within ninety (90) days;

#####  

### (viii)  if any Issuer attempts to assign its rightsunder this Indenture or any of the other Financing Documents or any interestherein or therein in contravention of the Financing Documents;

#####  

### (ix)  if any Issuer breaches any of its respectivecovenants contained in Sections 6.01(dd) and (kk), and any suchbreach is not cured within fifteen (15) Business Days after written notice toIssuers 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 in theInsolvency Opinion delivered to Trustee in connection with the issuance of theNotes, 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 occurred andcontinues beyond any applicable cure period under the Management Agreement, theGolf Management Agreement or the Spa Management Agreement (or any ReplacementManagement Agreement, Replacement Golf Management Agreement or Replacement SpaManagement Agreement, as applicable) and (A) if such default permits theManager, Golf Manager or Spa Manager, as applicable, to terminate or cancel theManagement Agreement, the Golf

###  

### 79

### 

###  

### ManagementAgreement or the Spa Management Agreement (or any Replacement ManagementAgreement, Replacement Golf Management Agreement or Replacement Spa ManagementAgreement, as applicable) or (B) if the Management Agreement, the GolfManagement Agreement 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 the applicablestatutes pursuant to which the Condominium was established or any section,sentence, clause, phrase or word or the application thereof in any circumstanceis held invalid and such invalidity materially adversely affects the securityinterest of the Security Trust Agreement or Trustee’s rights under theFinancing Documents; (B) the Condominium shall become subject to an action forpartition by any condominium unit owner which could reasonably be expected toresult in partition and said action has been commenced and not dismissed withinsixty (60) days after commencement thereof; or (C) the Condominium is withdrawnfrom the condominium regime established under the Condominium Laws;

#####  

### (xiv)  if Issuers fail to comply with the covenantsas 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 which specificallycontains a notice requirement, grace period or both, if Issuers shall be indefault under such term, covenant or condition after the giving of such notice,the expiration of such grace period or both, as applicable; or

#####  

### (xvi)  if Issuers shall continue to be in Defaultunder any of the other terms, covenants or conditions of this Indenture notspecified in subsections (i) to (xiv) above, or under any of theterms, covenants or conditions in any other Financing Document not specified inSection (xv) above, for ten (10) days after notice to Issuers fromTrustee, in the case of any Default which can be cured by the payment of a sumof money, or for thirty (30) days after notice from Trustee in the case of anyother Default; provided, however, that if such non-monetaryDefault is susceptible of cure but cannot reasonably be cured within suchthirty (30) day period and provided, further, that Issuers shallhave commenced to cure such Default within such thirty (30) day period andthereafter diligently and expeditiously proceeds to cure the same, such thirty(30) day period shall be extended for such time as is reasonably necessary forIssuers in the exercise of due diligence to cure such Default, such additionalperiod not to exceed sixty (60) days.

#####  

### (b)  Upon the occurrence of an Event of Default(other than an Event of Default described in clauses (vi), (vii) or (viii)above) and at any time thereafter, in addition to any other rights or remediesavailable to it pursuant to this Indenture and the other Financing Documents orat law or in equity, Trustee, and Servicer on its behalf, for the benefit ofNoteholders may take such action, without notice or demand, that Trustee orServicer deems advisable to protect and enforce its rights against Issuers andin and to the Property, including, without limitation, declaring the Debt to beimmediately due and

###  

### 80

### 

###  

### payable, andTrustee for the benefit of Noteholders may enforce or avail itself of any orall rights or remedies provided in the Financing Documents against Issuers andthe Property, including, without limitation, all rights or remedies availableat law or in equity; and upon any Event of Default described in clauses (vi),(vii) or (viii) above, the Debt and all other obligations of Issuers hereunderand under the other Financing Documents shall immediately and automaticallybecome due and payable, without notice or demand, and Issuers hereby expresslywaive any such notice or demand, anything contained herein or in any otherFinancing Document to the contrary notwithstanding.

###  

## **Section9.02  Remedies.**(a)  Upon the occurrence of an Event of Default,all or any one or more of the rights, powers, privileges and other remediesavailable to Trustee against Issuers under this Indenture or any of the otherFinancing Documents executed and delivered by, or applicable to, Issuers or atlaw or in equity may be exercised by Trustee at any time and from time to time,whether or not all or any of the Debt shall be declared due and payable, andwhether or not Trustee shall have commenced any foreclosure proceeding or otheraction for the enforcement of its rights and remedies under any of theFinancing Documents. Any such actions taken by Trustee shall be cumulative andconcurrent and may be pursued independently, singularly, successively, togetheror otherwise, at such time and in such order as Trustee may determine in itssole discretion, to the fullest extent permitted by law, without impairing orotherwise affecting the other rights and remedies of Trustee permitted by law,equity or contract or as set forth herein or in the other Financing Documents. Withoutlimiting the generality of the foregoing, Issuers agree that if an Event ofDefault is continuing (i) Trustee is not subject to any “one action” or “electionof remedies” law or rule, and (ii) all liens and other rights, remedies orprivileges provided to Trustee shall remain in full force and effect untilTrustee has exhausted all of its remedies against the Property and a foreclosureprocedure has been initiated under the Security Trust Agreement or the Pledgeand the proceeds of such foreclosure procedure are applied in full satisfactionof the Debt or the Debt has been otherwise paid in full.

##  

### (b)  **Right toCure Defaults.**Upon the occurrence and during the continuance ofany Event of Default, Trustee may, but without any obligation to do so andwithout notice to or demand on Issuers and without releasing Issuers from anyobligation 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 to enter upon the Property for such purposes,or appear in, defend, or bring any action or proceeding to protect its interestin the Property for the benefit of Noteholders or to foreclose or cause theforeclosure under the Security Trust Agreement or collect the Debt, and thecost and expense thereof (including reasonable attorneys’ fees to the extentpermitted by law), with interest at the Default Rate, shall constitute aportion of the Debt and shall be due and payable to Trustee upon demand. Allsuch costs and expenses incurred by Trustee in remedying such Event of Defaultor such failed payment or act or in appearing in, defending, or bringing anysuch action or proceeding shall bear interest at the Default Rate for theperiod after notice from Trustee that such cost or expense was incurred to thedate of payment to Trustee. All such costs and expenses incurred by Trusteetogether with interest thereon calculated at the Default Rate shall be deemedto

###  

### 81

### 

###  

### constitute aportion of the Debt and be secured by and subject to the Security TrustAgreement and the other Financing Documents and shall be immediately due andpayable upon demand by Trustee therefor.

###  

### (c)  The rights, powers and remedies of Trusteeunder this Indenture shall be cumulative and not exclusive of any other right,power or remedy which Trustee for the benefit of Noteholders may have againstIssuers pursuant to this Indenture or the other Financing Documents, orexisting at law or in equity or otherwise. Trustee’s rights, powers andremedies may be pursued singularly, concurrently or otherwise, at such time andin such order as Trustee may determine in Trustee’s sole discretion. No delayor omission to exercise any remedy, right or power accruing upon an Event ofDefault shall impair any such remedy, right or power or shall be construed as awaiver thereof, but any such remedy, right or power may be exercised from timeto time and as often as may be deemed expedient. A waiver of one Default orEvent of Default with respect to Issuers shall not be construed to be a waiverof any subsequent Default or Event of Default by Issuers or to impair anyremedy, right or power consequent thereon.

###  

### (d)  All rights, powers, privileges and otherremedies of Trustee hereunder shall be enforced and exercised by Servicer onbehalf of Trustee for the benefit of Noteholders.

###  

## **Section9.03  Exculpation.**(a)  Subject to the qualifications below, Trusteeshall not enforce the liability and obligation of Issuers to perform andobserve the obligations contained in the Notes, this Indenture, the SecurityTrust Agreement or the other Financing Documents by any action or proceedingwherein a money judgment shall be sought against Issuers, except that Trusteemay bring a 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 thisSection shall not, however, (a) constitute a waiver, release or impairmentof any obligation evidenced or secured by any of the Financing Documents; (b)impair the right of Trustee for the benefit of Noteholders to name any Issueras a party defendant in any action or suit for foreclosure and sale under theSecurity Trust Agreement or the Pledge; (c) affect the validity orenforceability of or any Guaranty made in connection with the issuance of theNotes or any of the rights and remedies of Trustee under the FinancingDocuments; (d) impair the right of Trustee to obtain the appointment of areceiver; (e) impair the enforcement of the Security Trust Agreement or thePledge; (f) constitute a prohibition against Trustee to seek a deficiency

##  

## 82

## 

##  

## judgmentagainst Issuers in order to fully realize the security granted by the SecurityTrust Agreement or the Pledge or to commence any other appropriate action orproceeding in order for Trustee to exercise its remedies against the Property;or (g) constitute a waiver of the right of Trustee to enforce the liability andobligation of Issuers under the terms of this Indenture, by money judgment orotherwise, to the extent of any actual out of pocket loss, damage, cost,expense, liability, claim or other obligation incurred by Trustee orNoteholders (including attorneys’ fees and costs reasonably incurred) arisingout of or in connection with the following:

##  

##### (i)  fraud or intentional misrepresentation byIssuers or any Guarantor in connection with the issuance of the Notes or inconnection with the Financing Documents;

#####  

##### (ii)  if any Issuer fails to maintain its status asa Special Purpose Entity as required by, and in accordance with, the terms andprovisions of this Indenture;

#####  

##### (iii)  a breach of any representation or warrantyset forth in Section 6.01(kk) hereof;

#####  

##### (iv)  the misappropriation or conversion by or onbehalf of Issuers of (A) any Insurance Proceeds paid by reason of any Casualty,(B) any Awards received in connection with a Condemnation, or (C) any Rentsfollowing an Event of Default, in each case only to the extent of the amountsreceived by Issuers;

#####  

##### (v)  any security deposits, advance deposits orany 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 Section 7.01(u)(iii)hereof, the aggregate cost of which alterations exceed Two Million and No/100Dollars ($2,000,000) and which are not otherwise approved as required by suchsection;

#####  

##### (vii)  if any Issuer fails to obtain Trustee’s priorconsent to any Indebtedness for borrowed money as required by this Indenture;

#####  

##### (viii)  if any Issuer files a voluntary petitionunder 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 the contrary inthis Indenture, the Note or any of the Financing Documents, (A) Trustee shallnot be deemed to have waived any right which Trustee may have underSection 506(a), 506(b), 1111(b) or any other provisions of the BankruptcyCode to file a claim for the full amount of the Debt or to

#####  

##### 83

##### 

#####  

##### require thatall collateral shall continue to secure all of the Obligations in accordancewith the Financing Documents, and (B) the Debt shall be fully recourse to anyIssuer (i) in the event of: (a) intentionally omitted; the filing of aninvoluntary petition against any Issuer under the Bankruptcy Code or any otherFederal or state bankruptcy or insolvency law if and only if such Issuer hasacted in concert with, colluded or conspired with the petitioning creditors forany involuntary petition from any Person in order to cause the filing thereofto interfere with the enforcement rights of Trustee; (c) any Issuerconsenting to or acquiescing in or joining in an application for theappointment of a custodian, receiver, trustee, or examiner for such Issuer orany portion of the Property if and only if such Issuer has acted in concertwith, colluded or conspired with the Persons bringing such application; (d) anyIssuer making an assignment for the benefit of creditors, or admitting, inwriting or in any legal proceeding, its insolvency or inability to pay itsdebts as they become due, and, with respect to such events described in theforegoing clauses (b) and (c), either any or all of Issuers, Principal orGuarantor has acted in concert with, colluded or conspired to cause suchcondition or event in order to interfere with the enforcement of Trustee’srights and remedies; or (ii) if any Issuer fails to obtain Trustee’s priorconsent to any Transfer as required by this Indenture.

###  

## **Section9.04  Manager Termination.**If(a) an Event of Default occurs and is continuing, (b) the Manager, Golf Manageror Spa Manager shall become bankrupt or insolvent or (c) a material defaultoccurs under the Management Agreement, the Golf Management Agreement or the SpaManagement Agreement beyond any applicable grace and cure periods, Issuersshall, at the request of Servicer on behalf of Trustee, terminate the ManagementAgreement, the Golf Management Agreement or the Spa Management Agreement andreplace the Manager, Golf Manager or Spa Manager with a Qualified Manager,Qualified Golf Manager or Qualified Spa Manager pursuant to a ReplacementManagement Agreement, Replacement Golf Management Agreement or Replacement SpaManagement Agreement, as applicable.

##  

# **ARTICLE 10 – RESERVE FUNDS**

# ** **

## **Section10.01  Required Repair Funds.**(a)  **Deposits.**Issuers shall perform the repairs at the Property as moreparticularly set forth on Schedule 10.01 hereto (such repairshereinafter collectively referred to as “**RequiredRepairs**”). Subject to excusable delays due to acts of god,governmental restrictions, stays, judgments, orders, decrees, enemy actions,civil commotion, fire, casualty, strikes, work stoppages, shortages of labor ormaterials or other cases beyond the reasonable control of Issuers, Issuersshall complete the Required Repairs on or before the required deadline for eachrepair as set forth on Schedule 10.01. Upon the occurrence and duringthe continuance of an Event of Default, Trustee, at its option, may withdrawall Required Repair Funds from the Required Repair Account and Trustee mayapply such funds either to completion of the Required Repairs or toward paymentof the Debt in such order, proportion and priority as Trustee may determine inits sole discretion. Trustee’s right to withdraw and apply Required RepairFunds shall be in addition to all other rights and remedies provided to Trusteeunder this Indenture and the other Financing Documents. On the Closing Date,Issuers shall deposit with Trustee the amount set forth on such Schedule10.01 hereto to perform the Required Repairs multiplied by one hundredtwenty-five

##  

## 84

## 

##  

## percent (125%).Amounts so deposited with Trustee shall be held by Trustee in accordance with Section 10.06hereof. Amounts so deposited shall hereinafter be referred to as Issuers’ “**Required Repair Fund**” and the account inwhich such amounts are held shall hereinafter be referred to as Issuers’ “**Required Repair Account**.”

##  

### (b)  **Releaseof Required Repair Funds.**Trustee shall disburse to Issuers theRequired Repair Funds from the Required Repair Account from time to time, butnot more frequently than once in any ten (10) day period, upon satisfaction byIssuers 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 the datesuch 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) statingthat all Required Repairs to be funded by the requested disbursement have beencompleted in good and workmanlike manner and in accordance with all applicablefederal, state and local laws, rules and regulations, such Officer’sCertificate to be accompanied by a copy of any license, permit or otherapproval by any Governmental Authority required to commence and/or complete theRequired Repairs, (ii) identifying each Person that supplied materials or laborin connection with the Required Repairs to be funded by the requesteddisbursement, and (iii) stating that each such Person has been paid in full orwill be paid in full upon such disbursement, such Officer’s Certificate to beaccompanied by evidence of payment satisfactory to Trustee, (d) intentionallyomitted, and (e) Trustee shall have received such other evidence as Trusteeshall reasonably request that the Required Repairs to be funded by therequested disbursement have been completed and are paid for or will be paidupon such disbursement to Issuers. Trustee shall not be required to makedisbursements from the Required Repair Account unless such requesteddisbursement is in an amount greater than $5,000 (or a lesser amount if thetotal amount in the Required Repair Account is less than $5,000, in which caseonly one disbursement of the amount remaining in the account shall be made) andsuch disbursement shall be made only upon satisfaction of each conditioncontained in this Section 10.01(b).

###  

**Section 10.02 Tax and Insurance Escrow Fund.**Issuersshall pay to Trustee on each Payment Date (a) one twelfth of the Taxes and theCondominium charges and assessments that Trustee estimates will be payableduring the next ensuing twelve (12) months in order to accumulate with Trusteesufficient funds to pay all such Taxes thirty (30) days prior to theirrespective due dates, and (b) one twelfth of the Insurance Premiums thatTrustee estimates will be payable for the renewal of the coverage afforded bythe Policies upon the expiration thereof in order to accumulate with Trusteesufficient funds to pay all such Insurance Premiums thirty (30) days prior tothe expiration of the Policies (said amounts in (a) and (b) above hereinaftercalled the “**Tax and Insurance Escrow Fund**”). TheTax and Insurance Escrow Fund and the payment of the monthly Debt Service,shall be added together and shall be paid as an aggregate sum by Issuers toTrustee. Trustee will apply the Tax and Insurance Escrow Fund to payments ofTaxes and Insurance Premiums required to be made by Issuers pursuant to Section 7.01(b)hereof. In making any payment relating to the Tax and Insurance Escrow Fund,Trustee may do so according to any bill, statement or estimate procured fromthe

 

85

----

 

## appropriate public office (with respect toTaxes) 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.

## ** **

## **Section10.03  Replacements and ReplacementReserve.**

###  

### (a)  **ReplacementReserve Fund.**  Issuersshall pay to Trustee (i) on each Payment Date commencing with the Payment Dateoccurring in January 2005, one twelfth (1/12) of two percent (2%) of GrossIncome from Operations for the calendar month two (2) months prior to the monthin which such Payment Date occurs, (ii) on each Payment Date commencing withthe Payment Date occurring in January 2006, one twelfth (1/12) of threepercent (3%) of Gross Income from Operations for the calendar month two (2)months prior to the month in which such Payment Date occurs, and (iii) on eachPayment Date thereafter, one twelfth (1/12) of four percent (4%) of GrossIncome from Operations for the calendar month two (2) months prior to the monthin which such Payment Date occurs, which is the amount (the “**Replacement Reserve Monthly Deposit**”)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’ “**Replacement Reserve Account**.”

###  

### (b)  **Disbursementsfrom Replacement Reserve Account.**  Trustee shall make disbursements from theReplacement Reserve Fund as requested by Issuers, and approved by Trustee, nomore frequently than once in any thirty (30) day period of no less than$5,000.00 upon delivery by Issuers of Trustee’s standard form of draw requestaccompanied by copies of paid invoices for the amounts requested or invoices showingpayments due, together with such evidence as Trustee shall reasonably requestthat the Replacements to be reimbursed or funded by the requested disbursementhave been completed in good and workmanlike manner and in accordance with allapplicable Legal Requirements, and, if required by Trustee for requests inexcess of $10,000.00 for a

###  

### 86

### 

###  

### single item, releases from all partiesfurnishing materials and/or services 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 may requiresuch inspections prior to making any monthly disbursement from the ReplacementReserve Fund).

###  

### (c)  **Balancein the Replacement Reserve Account.**  The insufficiency of any balance in theReplacement Reserve Account shall not relieve Issuers from their obligation tofulfill all preservation and maintenance covenants in the Financing Documents.

## ** **

## **Section10.04  Interest Reserve Interest.**  Issuers shall pay to Trustee on the datehereof the sum of $750,000, which amount shall be deposited with and held by Trusteefor the benefit of Noteholders as additional security for payment of the Debt, providedthat if the Net Operating Income for the trailing twelve (12) month period forthe Property exceeds $11,000,000 on any one of January 9, 2007,January 9, 2008 or January 9, 2009, then all amounts then held in theInterest Reserve Account shall be released to Issuers, provided that noEvent of Default shall have occurred and be continuing.  Notwithstanding the foregoing, if the NetOperating Income for the trailing twelve (12) month period for the Propertydoes not exceed $11,000,000 on any such date, but thereafter exceeds$11,000,000 as of each Payment Date occurring in (a) April and July of the samecalendar year or (b) July and October of the same calendar year, 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.  All such amounts sodeposited shall hereinafter be referred to as the “**Interest Reserve Fund**” and the account to which such amountsare held shall hereinafter be referred to as the “**Interest Reserve Account**.”

## ** **

## **Section10.05  Reserve LC.**

###  

### (a)  Issuers shall deliver to Trustee on the datehereof a Letter of Credit in an amount equal to $2,500,000 (the “**NOI LC**”). The NOI LC shall be released by Trustee to Issuers in the event the NetOperating Income for the trailing twelve (12) month period for the Propertyexceeds $9,500,000 on any Payment Date occurring in January, April, July orOctober during the term of the Notes (commencing with the Payment Dateoccurring in January 2006), provided that no Event of Default shallhave occurred and be continuing.

### (b)  Issuers shall deliver to Trustee on the datehereof a Letter of Credit in an amount equal to $2,500,000 (the “**Spa LC**”). Issuers shall have the right to reduce the amount of the Spa LC fromtime to time by an amount equal to the reduction (other than a reduction bypayment) in the amount of the termination fee payable by Hotel Issuer pursuantto Section 2.7 of the Spa Management Agreement, provided that theamount of

###  

### 87

### 

###  

### the Spa LC shall not be less than the amountof such potential termination fee at any time. In connection with such reduction, Issuers shall deliver (i) areplacement Spa LC for the reduced amount and (ii) a calculation of thepotential termination fee, together with an Officer’s Certificate certifyingthat such calculation has been determined in accordance with Section 2.7of the Spa Management Agreement.

### (c)  Each Reserve LC shall be additional securityfor the payment of the Debt.  Upon theoccurrence and during the continuance of an Event of Default, Trustee shallhave the right, at its option, to draw on any Reserve LC and to apply theproceeds thereof to payment of the Debt in such order, proportion or priorityas Trustee may determine.  Trustee’sright to draw on any Reserve LC and apply the proceeds thereof in accordancewith this Section 10.05 shall be in addition to all other rightsand remedies provided to Trustee under the Financing Documents.

###  

### (d)  In addition to any other right Trustee mayhave to draw upon any Reserve LC pursuant to the terms and conditions of thisIndenture, Trustee shall have the additional rights to draw in full any ReserveLC: (i) if the Reserve LC is an evergreen letter of credit, if Trustee hasreceived a notice from the issuing bank that such Reserve LC will not berenewed and a replacement Reserve LC is not provided at least thirty (30) daysprior to the date on which such Reserve LC is scheduled to expire; (ii) if theReserve LC has a stated expiration date, if Trustee has not received a noticefrom the issuing bank that it has renewed such Reserve LC at least thirty (30)days prior to the date on which such Reserve LC is scheduled to expire and anextension of such Reserve LC or a replacement Reserve LC is not provided atleast thirty (30) days prior to the date on which such Reserve LC is scheduledto expire; or (iii) upon receipt of notice from the issuing bank that suchReserve LC will be terminated (except if a replacement Reserve LC isprovided).  Notwithstanding anything tothe contrary contained in the above, Trustee is not obligated to draw anyReserve LC upon the happening of an event specified in (i), (ii) or (iii) aboveand shall not be liable for any losses sustained by Issuers due to theinsolvency of the bank issuing any Reserve LC if Trustee has not drawn suchReserve LC.

## ** **

## **Section10.06  Reserve Funds, Generally.**  (a) Issuers grant to Trustee a first-priority perfected security interest ineach of the Reserve Funds and any and all monies now or hereafter deposited ineach Reserve Fund as additional security for payment of the Debt.  Until expended or applied in accordanceherewith, the Reserve Funds shall constitute additional security for theDebt.  Upon the occurrence of an Event ofDefault, Trustee may, in addition to any and all other rights and remediesavailable to Trustee, apply any sums then present in any or all of the ReserveFunds to the payment of the Debt in any order in its sole discretion.  The Reserve Funds shall not constitute trustfunds and may be commingled with other monies held by Trustee for the benefitof Noteholders.

###  

### (b)  Issuers shall not, without obtaining the priorconsent of Trustee, further pledge, assign or grant any security interest inany Reserve Fund or the monies deposited therein or permit any lien orencumbrance to attach thereto, or any levy to be

###  

### 88

### 

###  

### made thereon, or any UCC-1 FinancingStatements, except those naming Trustee as the secured party, to be filed withrespect thereto.

###  

### (c)  The Reserve Funds shall be held in anEligible Account and shall bear interest at a money market rate selected by Trustee.  All interest or other earnings on a ReserveFund shall be added to and become a part of such Reserve Fund and shall bedisbursed in the same manner as other monies deposited in such Reserve Fund,except for any such taxes applicable to the interest or income earned on theTax 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 by Trusteefor accounts of this size, category and type, (b) such investments arepermitted by applicable federal, state and local rules, regulations and laws,(c) the maturity date of the Permitted Investment is not later than the date onwhich the applicable Reserve Funds are required for payment of an obligationfor which such Reserve Fund was created, and (d) no Event of Default shall haveoccurred and be continuing.  Issuersshall be responsible for payment of any federal, state or local income or othertax applicable to the interest or income earned on the Reserve Funds to theextent Issuers are entitled to such interest under this Indenture and the CashManagement Agreement.  No otherinvestments 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 rate ofreturn earned or losses incurred on the investment of the sums in PermittedInvestments.

###  

### (d)  Issuers shall indemnify Trustee and holdTrustee harmless from and against any and all actions, suits, claims, demands,liabilities, losses, damages, obligations and costs and expenses (including litigationcosts and reasonable attorneys fees and expenses) arising from or in any wayconnected with the Reserve Funds or the performance of the obligations forwhich the Reserve Funds were established. Issuers shall assign to Trustee all rights and claims Issuers may haveagainst all Persons supplying labor, materials or other services which are tobe paid from or secured by the Reserve Funds; provided, however,that Trustee may not pursue any such right or claim unless an Event of Defaulthas occurred and remains uncured.

###  

### (e)  In all matters pertaining to the ReserveFunds 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.

 

89

----

 

# **ARTICLE 11 –** MATTERSCONCERNING THE TRUSTEE

## ** **

## **Section11.01  Duties of the Trustee.**  (a) The duties, responsibilities and liabilities of the Trustee in respectof the Financing Documents and the other duties and liabilities of the Trusteeunder this Indenture shall be as follows:

#####  

##### (i)  The Trustee (and the Servicer on its behalf)shall have the full power and authority to do all things not inconsistent withthe provisions of this Indenture or any other Financing Document that it maydeem advisable in order to enforce the provisions hereof or thereof or to takeany action with respect to a default or an Event of Default hereunder orthereunder, or to institute, appear in or defend any suit or other proceedingwith respect hereto or thereto, or to protect the interests of the Holders; provided,however, that notwithstanding the foregoing or any other provisions ofthis Indenture to the contrary, the Notes shall be serviced by the Servicer andthe powers vested in the Servicer hereunder shall not be exercised by theTrustee except as expressly set forth herein. Neither the Trustee nor any of its directors, officers, shareholders,agents or employees (each, a “**TrusteeIndemnified Party**” and, collectively, the “**Trustee Indemnified Parties**”) shall beanswerable to or accountable for, except for its or their own bad faith,willful misconduct or negligence, and the Issuers agree to indemnify and saveharmless the Trustee Indemnified Parties from, any costs, expenses, liabilitiesand damages that any of them may incur or sustain, in good faith and withoutwillful misconduct or negligence, in the exercise and performance of theTrustee’s powers and duties hereunder and the acceptance or administration ofthe trust or trusts hereunder, under the Indenture or under any other FinancingDocument, including the cost and expense of defending themselves against anyclaim or liability in connection with the exercise or performance thereof; provided,however, that if it is found that any such claim or liability hasresulted from the bad faith, willful misconduct or negligence of any TrusteeIndemnified Party in the performance of its duties hereunder, such TrusteeIndemnified Party shall repay such portion of the reimbursed amounts that isattributable to expenses incurred in relation to that portion of its acts oromissions that is the subject of such finding. If any Trustee Indemnified Party is entitled to receive indemnificationhereunder with respect to any such action or proceeding brought by a thirdparty, the Issuers shall be entitled to assume the defense of any such actionor proceeding with counsel reasonably satisfactory to such Trustee IndemnifiedParty who shall not, except with the consent of such Trustee Indemnified Party,be counsel to the Issuers or any Affiliate thereof.  Upon assumption by the Issuers of the defenseof any such action or proceeding, such Trustee Indemnified Party shall have theright to participate in such action or proceeding and to retain its ownseparate counsel, but the Issuers shall not be liable for any legal fees orexpenses of such a separate counsel subsequently incurred by such TrusteeIndemnified Party in connection with the defense thereof unless (i) the Issuershave agreed to pay such fees and expenses or (ii) counsel provided by theIssuers pursuant to the foregoing is counsel to the Issuers and such TrusteeIndemnified Party shall have been advised by such counsel that representationof such Trustee Indemnified Party by such counsel provided by the Issuerspursuant to the foregoing would be inappropriate due to actual or potentialconflicting interests between the Issuers and such Trustee Indemnified Party,including situations in which there are one or more legal defenses available tosuch Trustee Indemnified Party that are different from or additional

#####  

##### 90

##### 

#####  

##### 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 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’indemnification obligations under this Section 11.01(i) shallsurvive payment of the Notes and any resignation, removal or replacement of theTrustee.  The indemnification providedherein is limited in each case to actual damages and does not extend toconsequential damages.

#####  

##### (ii)  The Trustee shall be authorized to make, atthe expense of the Issuers, all required refilings of any Financing Document topreserve the liens created thereby to the extent not so done by the Issuers,the Servicer as provided herein or therein, but shall have no obligation totake any action to protect, preserve or enforce any rights or interests in theFinancing Documents or towards the execution or enforcement of the trustshereby or thereby created which, in its opinion, shall be likely to involveexpense or liability to the Trustee, unless the Trustee shall have received anagreement satisfactory to the Trustee in its sole discretion to indemnify itagainst such liability and expense.  TheTrustee shall not be required to ascertain or inquire as to the performance orobservance of any of the covenants or agreements contained herein, or in anyother Financing Document or in any other instruments to be performed orobserved by the Issuers or any other party to any Financing Document(including, without limitation, the necessity or desirability under anyapplicable state law to re-record, re-register or re-file any FinancingDocument).  In accepting the trustshereunder and under the Financing Documents, the Trustee is acting solely asTrustee hereunder and not in its individual capacity and all Persons, otherthan the Issuers and the Holders, having any claim against the Trustee arisingby reason hereof shall look only to the Property for payment or satisfactionthereof except as provided herein.

#####  

##### (iii)  The Trustee shall incur no liability inacting upon any signature, notice, request, consent, certificate, opinion, orother 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,

#####  

##### 91

##### 

#####  

##### consult with counsel, accountants and otherskilled Persons to be selected and employed by it, and the reasonable expensesthereof shall be paid by the Issuers, and the Trustee shall not be liable foranything done, suffered or omitted in good faith by it in accordance with theadvice of any such Person nor for any error of judgment made in good faith by aResponsible Officer, unless it shall be proved that the Trustee was negligentin ascertaining the pertinent facts.

#####  

##### (iv)  The Trustee shall have no duty to make,arrange or ensure the completion of any recording, filing or registration ofany 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 notifythe Issuers in writing of any filings, fees, taxes or other payments requiredin connection 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, theTrustee shall deem it necessary or desirable that a matter be proved or establishedprior to taking, suffering or omitting any action hereunder, the Trustee may,in the absence of bad faith on the part of the Trustee, request and rely upon(unless other evidence in respect thereof be specifically prescribed herein orin any Financing Document) an Officer’s Certificate of the Issuers, and suchOfficer’s Certificate shall be full warrant to the Trustee for any actiontaken, suffered or omitted by it on the faith thereof, but in its discretionthe Trustee may in lieu thereof accept other evidence of such fact or matter ormay require such further or additional evidence as it may deem reasonable.

#####  

##### (vi)  Whenever, in administering the trust, theTrustee shall be permitted whether pursuant to the terms of this Indenture orany other Financing Document, to determine to grant or withhold its consent toor waiver or approval of any matter described herein or therein or to take oromit to take any action or course of conduct permitted or required hereunder orthereunder, the Trustee shall be fully protected in making such determinationbased solely upon the written direction of the Servicer or, absent suchdirection, (a) on the basis of the related submission required by thisIndenture or by such other Financing Document, as the case may be, or (b) if astandard for such determination is specified herein or therein, on the basis ofits determination in good faith as to whether or not such standard has beensatisfied, or (c) if no such standard is specified, on the basis of itsdetermination in good faith as to (x) with respect to any act, omission orcourse of conduct, whether such act, omission or course of conduct isreasonable (which determination may be made solely on the basis of advice fromprofessionals selected by the Trustee with reasonable care) and (y) withrespect to the

#####  

##### 92

##### 

#####  

##### selection of any professional, whether theparty proposing 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.

#####  

##### (vii)  The Trustee shall have no obligation to seeto the payment or discharge of any liens (other than the liens of the FinancingDocuments, and then only to the extent therein provided), or to see to theapplication of any payment of the principal of or interest on any Note securedthereby or to the delivery or transfer to any Person of any property releasedfrom any such lien, or to give notice to or make demand upon any mortgagor,mortgagee, trustor, beneficiary or other Person for the delivery or transfer ofany such property.

##### (viii)  The Trustee shall not be concerned with oraccountable to any Person for the use or application of any deposited moniesthat shall be released or withdrawn in accordance with the provisions hereof orof any other Financing Document or of any property or securities or theproceeds 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 with knowledgeof any Event of Default hereunder or under any other Financing Document (exceptdefault in the payment of monies to the Trustee that the Issuers are requiredto pay or cause to be paid to the Trustee on or before a specified date andexcept default in the delivery of any certificate, opinion or other documentexpressly required to be delivered to the Trustee by any provision hereof orany Financing Document) or any condition which after notice and/or the passageof time would constitute an Event of Default or any other fact, circumstance orevent the occurrence of which would require the Trustee to give any notice orotherwise take any action (any such Event of Default, condition, circumstanceor 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 by theTrustee, by any Issuer, the Servicer or any Holder or Holders of at least 25%in aggregate principal amount of the Notes.

#####  

##### (x)  The Trustee shall not be responsible for anyact or omission of the Servicer and Servicer shall not be responsible for anyact or omission of the Trustee.

#####  

##### 93

##### 

#####  

##### (xi)  Except during the continuance of an Event ofDefault, the Trustee undertakes to perform such duties and only such duties asare specifically set forth in this Indenture, and no implied covenants orobligations shall be read into this Indenture against the Trustee.

##### (xii)  In the absence of actual knowledge on thepart 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 opinionsfurnished to the Trustee and conforming to the requirements of this Indenture;but in the case of any such certificates or opinions which by any provision hereofare specifically 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 Default known to theTrustee has occurred and is continuing, the Trustee shall exercise (subject, inall cases, to the rights and powers vested in the Servicer pursuant to thisIndenture), with respect to the Notes, such of the rights and powers vested init by this Indenture, and use the same degree of care and skill in theirexercise, as a prudent Person would exercise or use under the circumstances inthe conduct of his own affairs.

#####  

##### (xiv)  No provision of this Indenture shall beconstrued to relieve the Trustee from liability for its own negligent action,its own negligent failure to act, or its own willful misconduct or bad faith,except that:

 

(A)  the Trustee shall not be liable for any errorof judgment made in good faith by a Responsible Officer, unless it is proved bya court of competent jurisdiction that the Trustee was negligent inascertaining the pertinent facts; and

 

(B)  the Trustee shall not be liable with respectto any action taken or omitted to be taken by it in good faith and withoutnegligence in accordance with the directions of the Noteholders or the Servicerrequired by this Indenture relating to the time, method and place of conductingany proceeding for any remedy available to the Trustee, or exercising any trustor power conferred upon the Trustee, under this Indenture with respect to theNotes or the Financing Documents.

#####  

##### (xv)  At any time or times, for the purpose ofmeeting the legal requirements of any jurisdiction in which any of the Propertymay at the time be located, the Issuers and the Trustee shall have power toappoint, and, upon the written request of the Trustee or of the Holders of amajority of the Noteholders, the Issuers shall for such purpose join with theTrustee in the execution, delivery and performance of all instruments andagreements necessary or proper to appoint, one or more Persons approved by theTrustee either to act as co-trustee, jointly with the Trustee, of all or anypart of the Collateral, or to act as separate trustee of any such property, ineither case with such powers as may be provided in the instrument ofappointment, and to vest in such Person or Persons in the capacity aforesaid,any property, title, right or power deemed necessary or desirable,

#####  

##### 94

##### 

#####  

##### 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 the Issuersshould be required by any co-trustee or separate trustee so appointed to morefully verify such co-trustee’s or separate trustee’s power with respect to suchproperty, title, right or power, any and all such instruments shall, onrequest, be executed, acknowledged and delivered by the Issuer.

#####  

##### (xvii)  Every co-trustee or separate trustee shall,to the extent permitted by law, but to such extent only, be appointed subjectto the following terms:

 

(A)  The Notes shall be authenticated anddelivered, and all rights, powers, duties and obligations hereunder in respectof the custody of securities, cash and other personal property held by, orrequired to be deposited or pledged with, the Trustee hereunder, shall beexercised solely, by the Trustee.

 

(B)  The rights, powers, duties and obligationshereby conferred or imposed upon the Trustee in respect of any property coveredby such appointment shall be conferred or imposed upon and exercised orperformed by the Trustee (or by the Trustee and such co-trustee or separatetrustee jointly, as shall be provided in the instrument appointing suchco-trustee or separate trustee), except to the extent that, under any law ofany jurisdiction in which any particular act is to be performed, the Trusteeshall be incompetent or unqualified to perform such act, in which event suchrights, powers, duties and obligations shall be exercised and performed by suchco-trustee or separate trustee.

 

(C)  The Trustee, at any time, by an instrument inwriting executed by it, with the consent of the Issuers evidenced by a BoardResolution, may accept the resignation of or remove any co-trustee or separatetrustee appointed under this Section 11.01, and, if an Event ofDefault has occurred and is continuing, the Trustee shall have power to acceptthe resignation of, or remove, any such co-trustee or separate trustee withoutthe consent of the Issuers.  Upon thewritten request of the Trustee, the Issuers shall join with the Trustee in theexecution, delivery and performance of all instruments and agreements necessaryor proper to effectuate such resignation or removal.  A successor to any co-trustee or separatetrustee so resigned or removed may be appointed in the manner provided in this Section 11.01.

 

(D)  No co-trustee or separate trustee hereundershall be personally liable by reason of any act or omission of the Trustee, orany other such trustee hereunder.  Anyfees or expenses of any co-trustee or separate trustee shall not be an expenseof the Trustee.

 

95

----

 

(E)  Any at of Noteholders delivered to theTrustee shall be deemed to have been delivered to each such co-trustee andseparate trustee.

## ** **

## **Section11.02  Rights of Trustee.**  (a) The Trustee may rely on any document believed by it to be genuine and tohave 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 by 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 refrains fromacting, it may require an Officer Certificate or an opinion of counsel.  The Trustee shall not be liable for anyaction it takes or omits to take in good faith in reliance on such OfficerCertificate or opinion of counsel.

###  

### (d)  The Trustee may execute any of the trusts orpowers hereunder or perform any duties hereunder either directly or by orthrough 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.

###  

### (f)  The Trustee may consult with counsel, and theadvice or opinion of such counsel or any opinion of counsel shall be full andcomplete authorization and protection from liability in respect of any actiontaken, omitted or suffered by it hereunder in good faith and in reliancethereon.

###  

### (g)  The Trustee shall be under no obligation toexercise any of the rights or powers vested in it by this Indenture at therequest or direction of any of the Noteholders pursuant to this Indenture or toinstitute, conduct or defend any litigation hereunder or in relation hereto atthe request, order or direction of any of the Noteholders pursuant to thisIndenture, unless such Noteholders shall have offered to the Trustee reasonablesecurity or indemnity against the costs, expenses and liabilities which mightbe incurred by it in compliance with such request or direction;

###  

### (h)  The Trustee shall not be bound to make anyinvestigation 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 to give anybond or surety in respect of the execution of the trust created hereby or thepowers granted hereunder.

 

96

----

 

### (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 all rights,powers and authority of the Trustee hereunder, and with respect to any actionspermitted or required to be taken by the Trustee hereunder, the Trustee shallat 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 to theongoing administration and servicing of the Notes, including without limitationall matters relating to monitoring and enforcing the Issuers’ obligationshereunder, the Trustee shall enter into such servicing agreements as theNoteholder shall request, with such servicers, master servicers and/or specialservicers (including the initial Servicer) as shall be selected and designatedby a majority of the Noteholders, and the Trustee shall have no responsibilityor liability therefor.

## ** **

## **Section11.03  Individual Rights of 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.

## ** **

## **Section11.04  Trustee’s Disclaimer.**  The Trustee (i) shall not be responsible for,and makes no representation, as to the validity or adequacy of this Indentureor the Notes and (ii) shall not be accountable for the Issuers’ use of theproceeds from the Notes, or responsible for any statement of the Issuers inthis Indenture or in any document issued in connection with the sale of theNotes or in the Notes other than the Trustee’s certificate of authentication.

## ** **

## **Section11.05  Notice of Defaults.**  If a Default occurs and is continuing and ifit is actually known to a Responsible Officer of the Trustee, the Trustee shallmail to each Noteholder and the Issuers with a copy to the Rating Agency,notice of such Default within thirty (30) calendar days after obtaining actualknowledge of such Default.  Except in thecase of a Default in payment of principal of or interest on any Note, theTrustee may withhold the notice, and be protected against liability inwithholding such notice, if, and so long as the Trustee in good faithdetermines that withholding the notice is in the best interests of theNoteholders and shall so advise the Issuers in writing.  Where a notice of the occurrence of an Eventof Default has been given to the Noteholders pursuant to this Section 11.05and the Event of Default is thereafter cured, the Trustee shall give noticethat the Event of Default is no longer continuing to the Noteholders withinthirty (30) calendar days after a Responsible Officer of the Trustee obtainsactual knowledge that the Event of Default has been cured.

 

97

----

 

## **Section11.06  Compensation and Indemnity.**  (a)  Onthe Note Issuance Date and from time to time thereafter, the Trustee shall receiveany costs, fees and expenses of its counsel and a fee, agreed to in writingbetween the Trustee and the Noteholders, payable monthly and calculated in thesame manner as interest is calculated under the Notes from the monthly paymentsrequired under the Notes in advance upon the outstanding principal balance ofthe Notes as of the related Determination Date and payable in accordance withthe Cash Management Agreement, as compensation for its services as Trusteehereunder.  The Trustee’s compensation shallnot be limited by any law on compensation of a trustee of an expresstrust.  The Issuers shall reimburse theTrustee upon request for all reasonable out-of-pocket expenses incurred or madeby 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.

## ** **

## **Section11.07  Replacement of Trustee.**  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.  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 bemerged or with which it may be consolidated or amalgamated or any companyresulting from any merger, consolidation or amalgamation to which the Trusteeshall be a party, shall be the successor Trustee under this Indenture withoutthe execution of any instrument or any further act.  If no successor Trustee is appointed withinthirty (30) days of the aforesaid notice being provided, the Trustee or any ofthe Noteholders may apply, at the cost of the Issuers, to a court of competentjurisdiction to appoint a successor.

##  

## 98

## 

##  

## **Section11.08  Resignation or Removal ofTrustee; Conflict of Interest.**  (a) The Trustee may resign its trust, after giving sixty (60) days’ noticein writing to Noteholders or such shorter notice as the Noteholders, may acceptas sufficient, after the Trustee becomes aware that it has a material conflictof interest it shall provide the Noteholders with written notice of the natureof that conflict.  If, notwithstandingthe foregoing provisions of this section, the Trustee has such a materialconflict of interest, the validity and enforceability of this Indenture and ofthe Notes issued hereunder shall not be affected in any manner whatsoever by reasononly of the existence of such material conflict of interest.  The Trustee represents to Initial Purchaserand Initial Noteholder that, to the best of its knowledge, at the time of theexecution and delivery hereof, no material conflict of interest exists in theTrustee’s role as a fiduciary hereunder. Upon any resignation, the Trustee shall be discharged from all furtherduties and liabilities under this indenture.

###  

### (b)  In the event of the Trustee resigning orbeing removed or being dissolved, becoming bankrupt, going into liquidation orotherwise 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 bepaid by Issuers.

###  

### (c)  Any new or successor Trustee shall, forthwithupon appointment, become vested with all the estates, properties, rights,powers and trusts of its predecessors in the trusts hereunder, with like effectas if originally named as Trustee herein. Nevertheless, upon the written request of the successor Trustee or ofthe Noteholders and upon payment of all outstanding fees and expenses properlypayable to the Trustee hereunder, the Trustee ceasing to act shall execute anddeliver an instrument assigning and transferring to such successor Trustee,upon the trusts herein expressed, all the rights, powers and trusts of theTrustee 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 Trustee on behalf of the Issuersbe required by any new Trustee for more fully and certainly vesting in andconfirming to it such estates, properties, rights, powers and trusts, then anyand all such deeds, conveyances and instruments in writing shall, on therequest of the new or successor Trustee, be made, executed, acknowledged anddelivered by the Issuers, as the case may be.

###  

### (d)  Any company into which the Trustee may beconsolidated or amalgamated or any company resulting from any merger, consolidationor amalgamation to which the Trustee shall be a party shall be a successorTrustee under this indenture without the execution of any instrument or anyfurther act; provided that such successor Trustee shall not have amaterial conflict of interest in its role as a fiduciary under this Indenture.

 

99

----

 

## **Section11.09  Successor Trustee.**  Upon the written request of any successorTrustee, the Trustee ceasing to act shall, upon receiving payment for any outstandingfees and expenses, execute and deliver an instrument assigning and transferringto such successor Trustee, upon the trusts herein expressed, all the rights,powers and trusts of the Trustee so ceasing to act, and shall duly assign,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 Issuers berequired by any new Trustee for more fully and certainly vesting in and confirmingto it such estates, properties, rights, powers and trusts, then any and allsuch deeds, conveyances and instruments in writing shall on the request of saidnew Trustee, be made, executed, acknowledged and delivered by the Issuers.

## ** **

## **Section11.10  Authorization and Duties ofTrustee.** (a)  In the exercise of therights, duties and obligations prescribed or conferred by the terms of thisIndenture, the Trustee shall act honestly and in good faith and shall exercisethe care, diligence and skill that a reasonably prudent Trustee would exercisein comparable circumstances.  For greatercertainty, provided that the Trustee fulfills the above noted standardof care and there is no willful misconduct or gross negligence on the part ofthe Trustee or its officers, directors, employees or agents, the Trustee shallnot be liable for any act or default on the part of any agent employed by it.

###  

### (b)  Trustee shall be authorized to take suchaction as trustee on behalf of the Noteholders and to exercise such powers underthe Financing Documents as are delegated to Trustee by the terms hereof orthereof, 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 of Trustee;provided that Issuers shall not be entitled to rely upon any acts ofTrustee, and Noteholders shall not be bound by any acts of Trustee, that (i)amend or otherwise modify in writing this Indenture or any other FinancingDocument, (ii) waive any Event of Default or (iii) contradicts anyExtraordinary Resolution, a copy of which has been provided to Issuers; providedfurther that with respect to each matter under clause (i), (ii) or(iii) above, Issuers shall be entitled to rely upon copies of the applicableNoteholders’ Approval or Extraordinary Resolution provided to Issuers byTrustee.

## ** **

## **Section11.11  Trustee Not Required to GiveSecurity.** The Trustee shall not be required to give any security in respect of theexecution of the trusts and powers of this Indenture or otherwise in respect ofthe premises.

## ** **

## **Section11.12  Trustee May Deal In 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.

##  

## 100

## 

##  

## **Section11.13  Administration of the Trust andProtection of the Trustee.**  By way of supplement to the provisions of anylaw of the State of New York from time to time relating to trustees and inaddition to any other provision of this Indenture for the relief of theTrustee, it is expressly declared as follows:

###  

### (a)  the Trustee may in relation to these presentsact on the opinion or advice of or information obtained from any legal counsel,auditor, or other expert, whether obtained by the Trustee or by the Trustee orotherwise, 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 proof isrequired 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 of factsas conclusive evidence of the truth of the statement, (ii) as to any particularact or transaction or step or thing which, in the opinion of the officers socertifying, is expedient, as sufficient evidence that the act, transaction,step or thing is expedient, and (iii) as to any expenditure made orindebtedness incurred by the Trustee or any successor trustee to the Trustee assufficient evidence that the expenditure or indebtedness was made or incurred forthe purpose set forth in the certificate; and the Trustee will be in no waybound to call for further evidence or be responsible for any loss that may beoccasioned by its failing to do so; however, the Trustee may cause to be madeany independent investigations as it may reasonably require and the expensethereof (together with interest at the rate of interest charged to the Trusteeby its bankers from the date of the Trustee’s expenditure to the date of itsreimbursement) will be paid by the Trustee upon demand and will be payable outof any funds coming into the possession of the Trustee; if as a result of anyindependent investigation the Trustee is not satisfied as to any matter orthing set forth in the certificate, the Trustee may refuse to act thereon;

###  

### (c)  in the exercise of the rights and dutiesprescribed or conferred by the terms of this Indenture, the Trustee will acthonestly 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 required to,employ any agents or other assistants as it may reasonably require for theproper discharge of its duties hereunder and will not be responsible for anymisconduct on the part of any agents or other assistants or for any liabilityincurred by any Person as a result of not appointing such agents or otherassistants and may pay reasonable remuneration for all services performed forit in the

###  

### 101

### 

###  

### 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 Trustee isauthorized to employ or consult counsel and to pay costs, the costs need not betaxed unless the Trustee deems it necessary to tax the same but may be agreedto by the Trustee and paid as a lump sum; costs paid by the Trustee under theprovisions of this Section in good faith will not be disallowed in thetaking of any accounts by reason only of the fact that the costs are greaterthan they might have been if taxed, or by reason of their not being taxed, butthe costs so paid by the Trustee will, if not improperly incurred by it, beallowed and paid to the Trustee and will be payable out of any funds cominginto the possession of the Trustee; any counsel employed or consulted by theTrustee may, but need not, be counsel for the Trustee;

###  

### (f)  the Trustee, in its individual or any othercapacity, may, sell, own, lend upon, become a pledgee of and deal with theNotes and generally contract and enter into financial transactions with or actas bankers for the Issuers or otherwise, without being liable to account forany 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 to otherwisededuct from, any funds on deposit in the Lockbox Account or the Cash ManagementAccount or in any other account from time to time maintained by the Issuerswith the Trustee and all investments thereof for any amount owed to it byvirtue of any of the foregoing dealings or activities;

###  

### (g)  the Trustee will not be liable for or byreason of the statements or implications of fact or law contained in or arisingout of anything contained in this Indenture or in the Notes or be required toverify the same, but all statements or implications will be deemed to have beenmade by the Trustee only, and it will not be the duty of the Trustee, except asherein otherwise specifically provided, to see to the registration or filing orrenewal of this Indenture, if necessary, or to keep itself informed or advisedas to the payment by the Trustee of any taxes or assessments or premiums ofinsurance or other payments which the Trustee should make or to requirepayments to be made, it being hereby agreed and declared that as to all mattersand things in this subsection, the duty and responsibility will rest upon theIssuers and not upon the Trustee and the failure of the Trustee to dischargethis duty and responsibility will not in any way

###  

### 102

### 

###  

### render the Trustee liable or cast upon it anyduty or responsibility for breach of which it would be liable;

###  

### (h)  the Trustee may in the exercise of all or anyof 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 all acts,consents, requests and directions of the Issuers will, for the protection ofthe Trustee, be deemed conclusively proved by a certificate duly executed by anofficer of the Issuers; the Trustee will not be responsible for any error madeor act done by it resulting from reliance upon the signature of any officer ofthe Issuers or of any Person on whose signature the Trustee may be called uponto act or refrain from acting under this Indenture.

###  

## **Section11.14  Service Providers.**  A majority of the Noteholders shall designatea servicer, initially the Servicer designated herein, to service theobligations of the Issuers with respect to the Notes, the Financing Documentsand the Property, as may be generally described herein, with such powers as arespecifically delegated to the Servicer herein and as designated by a majorityof the Noteholders, whether pursuant to this Indenture, a servicing agreementor otherwise, together with such other powers as are reasonably incidentalthereto.  Issuers shall be responsiblefor the payment of such Servicer’s fees and expenses for servicing, masterservicing or subservicing, including, without limitation, any fee or expensefor any special servicing and any fees and expenses of such servicer,including, without limitation, in connection with a release of the Property,satisfaction of any Financing Document, assumption of the Notes, modificationof the Notes made at Issuers’ request, any requests by Issuers for waivers orconsents, protective advances, 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 effect as if Trustee hadgiven such notices.

##  

# **ARTICLE 12 – SUPPLEMENTAL INDENTURES**

# ** **

## **Section12.01  Supplemental Trust Indentures.**  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.

##  

## **Section12.02  Further Assurances.**  From time to time the Trustee and the Issuersshall, when so directed by this Indenture, execute, acknowledge and deliver, bytheir proper officers, deeds or instruments supplemental to this Indenture,which

##  

## 103

## 

##  

## thereafter shall form part of this Indenture,or any other deeds or instruments, or do and perform any other acts and thingsfor any one or more of the purposes of hypothecating, mortgaging, pledging,ceding, transferring or assuring to or confirming or vesting in the Trustee, orcharging in favor of the Trustee, any Property now owned or hereafter acquiredby the Issuers; adding to the limitations or restrictions specified in theterms, provisions and conditions of this Indenture further limitations orrestrictions, thereafter to be observed, with respect to dealing with theProperty or the release of Property from the charges and security interestcreated hereby; and adding to the terms, provisions and conditions contained inthis Indenture for the protection of the Noteholders or providing for Events ofDefault in addition to those herein specified. It is also specifically acknowledged and agreed that such furtheragreements, and further assurances as provided therein, as shall be agreed fromtime to time between the Trustee and the Issuers, and set out in a Note orother Financing Documents, shall specifically be permitted to be entered intoand agreed, and notwithstanding any such changes, additions, or deletions,shall form Notes and other Financing Documents issued under the terms of this Indentureif so noted.

##  

## **Section12.03  Amendment or Modification.**  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.

##  

# **ARTICLE 13 – NOTEHOLDER MEETINGS AND APPROVALS**

# ** **

## **Section13.01  Conduct of Meetings.**  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)  Ouorum.  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

###  

### 104

### 

###  

### an hour to be fixed by the Trustee who shallgive not less than five (5) days’ notice of the date and time to which suchmeeting is adjourned and of the place where such adjourned meeting is to beheld and at such adjourned meeting a quorum shall consist of the Noteholdersthen and there represented in person or by proxy and voting.

###  

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

###  

### (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.

###  

## **Section13.02  Extraordinary Resolution.**  A resolution, adopted under thisSection 13.02 shall be binding upon all the Noteholders and the Trusteeshall be bound to give effect thereto accordingly.  Save as herein expressly otherwise provided,no action shall be taken at a meeting of the Noteholders which changes anyprovision of this Indenture or changes or prejudices the exercise of any rightof any Noteholder except by Extraordinary Resolution.  In addition to the powers conferred upon themby any other provisions of this Indenture or by law, the Holders holding theNotes shall have the following powers exercisable from time to time as aNoteholders’ 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 of orchange 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 the Trustee toexercise any power, right, remedy or authority given to it by this Indenture inany manner specified in any such Noteholders’ Approval or to refrain fromexercising 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

###  

### 105

### 

###  

### 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 office andto appoint a new Trustee or Trustees; and

###  

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

###  

## **Section13.03  Signed Instruments.**  Any resolution or instrument signed in one ormore counterparts by the Holders of sixty-six and two-thirds percent (66-2/3%)of the aggregate principal amount of the Notes then outstanding shall have thesame force and effect as an Extraordinary Resolution duly passed at a meetingof the Noteholders.

##  

## **Section13.04  Binding Effect of Resolutions.**  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**

# ** **

## **Section14.01  Survival.**  This Indenture and all covenants, agreements,representations and warranties made herein and in the certificates deliveredpursuant hereto shall survive the issuance of the Notes, and shall continue infull force and effect so long as all or any of the Debt is outstanding andunpaid unless a longer period is expressly set forth herein or in the otherFinancing Documents.  Whenever in thisIndenture any of the parties hereto is referred to, such reference shall be deemedto include the legal representatives, successors and assigns of suchparty.  All covenants, promises andagreements in this Indenture, by or on behalf of Issuers, shall inure to thebenefit of the legal representatives, successors and assigns of Trustee.

##  

## **Section14.02  Trustee’s Discretion.**  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.

##  

## 106

## 

##  

## **Section14.03  Notices.**  All notices, consents, approvals and requestsrequired or permitted hereunder or under any other Financing Document shall begiven in writing and shall be effective for all purposes if hand delivered orsent by (a) certified or registered United States mail, postage prepaid,return receipt requested or (b) expedited prepaid delivery service, eithercommercial or United States Postal Service, with proof of attempteddelivery, and by telecopier (with answer back acknowledged), addressed asfollows (or at such other address and Person as shall be designated from timeto time by any party hereto, as the case may be, in a notice to the otherparties hereto in the manner provided for in this Section 14.03):

##  

 
| 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. (312) 904-2084 |
|-----------------|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |             |                                                                                                                                                                                                                                      |
|            | 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                                                                              |

 

107

----

 
|   | 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 of delivery; in the case ofregistered or certified mail, when delivered or the first attempted delivery ona Business Day; or in the case of expedited prepaid delivery and telecopy, uponthe first attempted delivery on a Business Day; or in the case of telecopy,upon sender’s receipt of a machine-generated confirmation of successfultransmission after advice by telephone to recipient that a telecopy notice isforthcoming.

 

## **Section14.04  Governing Law.**  **(A)  THIS INDENTURE WAS NEGOTIATED IN THE STATE OFNEW YORK, THE NOTES WERE ISSUED BY ISSUERS AND ACCEPTED BY TRUSTEE IN THE STATEOF NEW YORK, AND THE PROCEEDS OF THE NOTES DELIVERED PURSUANT HERETO WEREDISBURSED FROM 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**

##  

## 108

## 

##  

## **OF THE PARTIES HERETO HEREBY UNCONDITIONALLYAND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHERJURISDICTION GOVERNS THIS INDENTURE, THE NOTE AND THE OTHER FINANCINGDOCUMENTS, AND THIS INDENTURE, THE NOTE AND THE OTHER FINANCING DOCUMENTS SHALLBE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEWYORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.**

##  

**(B)  ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINSTTRUSTEE OR ISSUERS ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE OTHERFINANCING DOCUMENTS MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITYOF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORKGENERAL OBLIGATIONS LAW AND EACH OF THE PARTIES HERETO WAIVES ANY OBJECTIONSWHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENSOF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH ISSUER HEREBY IRREVOCABLYSUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION ORPROCEEDING.  EACH ISSUER DOES HEREBYDESIGNATE AND APPOINT, WITH DOMICILE AT:**

** **
| ** ** | **CT  CORPORATION**          |
|------------|------------------------------|
| ** ** | **111  EIGHTH AVENUE**       |
| ** ** | **NEW YORK, NEW YORK 10011** |

** **

**AS ITS AUTHORIZED AGENT TO ACCEPT ANDACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED INANY SUCH SUIT, 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 ADDRESSAND NOTICE OF SAID SERVICE MAILED OR DELIVERED TO ISSUERS IN THE MANNERPROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESSUPON ISSUERS IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEWYORK.  ISSUERS (I) SHALL GIVE PROMPTNOTICE TO TRUSTEE OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER,(II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZEDAGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICESHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND(III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASESTO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING ASUCCESSOR.**

** **

## **Section14.05  Modification, Waiver inWriting.**  Nomodification, amendment, extension, discharge, termination or waiver of anyprovision of this

##  

## 109

## 

##  

## Indenture, or of the Note, or of any otherFinancing Document, nor consent to any departure by Issuers therefrom, shall inany event be effective unless the same shall be in a writing signed by theparty against whom enforcement is sought, and then such waiver or consent shallbe effective only in the specific instance, and for the purpose, for whichgiven.  Except as otherwise expresslyprovided herein, no notice to, or demand on Issuers, shall entitle Issuers toany other or future notice or demand in the same, similar or othercircumstances.

##  

## **Section14.06  Delay Not a Waiver.**  Neither any failure nor any delay on the partof Trustee in insisting upon strict performance of any term, condition,covenant or agreement, or exercising any right, power, remedy or privilegehereunder, or under the Note or under any other Financing Document, or anyother instrument given as security therefor, shall operate as or constitute awaiver thereof, nor shall a single or partial exercise thereof preclude anyother future exercise, or the exercise of any other right, power, remedy orprivilege.  In particular, and not by wayof limitation, by accepting payment after the due date of any amount payableunder this Indenture, the Note or any other Financing Document, Trustee shallnot be deemed to have waived any right either to require prompt payment whendue of all other amounts due under this Indenture, the Note or the otherFinancing Documents, or to declare a default for failure to effect prompt paymentof any such other amount.

##  

## **Section14.07  Trial by Jury.**  **EACH ISSUERAND TRUSTEE HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OFRIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THATANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE FINANCINGDOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTIONTHEREWITH.  THIS WAIVER OF RIGHT TO TRIALBY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH ISSUER AND TRUSTEE, AND ISINTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THERIGHT 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.**

##  

## **Section14.08  Headings.**  The Article and/or Section headings andthe Table of Contents in this Indenture are included herein for convenience ofreference only and shall not constitute a part of this Indenture for any otherpurpose.

##  

## **Section14.09  Severability.**  Wherever possible, each provision of thisIndenture shall be interpreted in such manner as to be effective and validunder applicable law, but if any provision of this Indenture shall beprohibited by or invalid under applicable law, such provision shall beineffective to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions ofthis Indenture.

##  

## 110

## 

##  

## **Section14.10  Preferences.**  Trustee shall have the continuing andexclusive right to apply or reverse and reapply any and all payments by Issuersto any portion of the obligations of Issuers hereunder or under the otherFinancing Documents.  To the extentIssuers makes a payment or payments to Trustee, which payment or proceeds orany part thereof are subsequently invalidated, declared to be fraudulent orpreferential, set aside or required to be repaid to a trustee, receiver or anyother party under any bankruptcy law, state or federal law, common law orequitable cause, then, to the extent of such payment or proceeds received, theobligations hereunder or part thereof intended to be satisfied shall be revivedand continue in full force and effect, as if such payment or proceeds had notbeen received by Trustee.

##  

## **Section14.11  Waiver of Notice.**  Each Issuer hereby expressly waives, andshall not be entitled to, any notices of any nature whatsoever from Trusteeexcept with respect to matters for which this Indenture or the other FinancingDocuments specifically and expressly provide for the giving of notice byTrustee to Issuers and except with respect to matters for which such Issuer isnot, pursuant to applicable Legal Requirements, permitted to waive the giving ofnotice.

##  

## **Section14.12  Expenses; Indemnity.**  (a) Issuers covenant and agree to pay or, if Issuers fail to pay, toreimburse, Trustee upon receipt of notice from Trustee for all reasonableout-of-pocket costs and expenses (including reasonable attorneys’ fees anddisbursements) incurred by Trustee in connection with (i) the preparation,negotiation, execution and delivery of this Indenture, the other FinancingDocuments and the consummation of the transactions contemplated hereby andthereby and all the costs of furnishing all opinions by counsel for Issuers(including without limitation any opinions requested by Trustee as to any legalmatters arising under this Indenture and the other Financing Documents withrespect to the 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, deliveryand administration of any consents, amendments, waivers or other modificationsto this Indenture, the other Financing Documents and any other documents ormatters requested by Trustee; (iv) securing Issuers’ compliance with anyrequests made pursuant to the provisions of this Indenture; (v) the filing andrecording fees and expenses, title insurance and reasonable fees and expensesof counsel for providing to Trustee all required legal opinions, and othersimilar expenses incurred in creating and perfecting the Liens in favor ofTrustee pursuant to this Indenture and the other Financing Documents; (vi)enforcing or preserving any rights, either in response to third party claims orin prosecuting or defending any action or proceeding or other litigation, ineach case against, under or affecting Issuers, this Indenture, the otherFinancing Documents, the Property, or any other security given for the Debt;and (vii) enforcing any obligations of or collecting any payments due fromIssuers under this Indenture, the other Financing Documents or with respect tothe Property or in connection with any refinancing or restructuring of thecredit arrangements provided under this Indenture in the nature of a “work-out”or of any insolvency or bankruptcy proceedings; provided, however,that Issuers shall not be liable for the

##  

## 111

## 

##  

## payment of any such costs and expenses to theextent the same arise by reason of the gross negligence, illegal acts, fraud orwillful misconduct of Trustee.  Any costand expenses due and payable to Trustee may be paid from any amounts in theCash Management Account.

##  

### (b)  Issuers shall indemnify, defend and holdharmless Trustee from and against any and all other liabilities, obligations,losses, damages, penalties, actions, judgments, suits, claims, costs, expensesand disbursements of any kind or nature whatsoever (including, withoutlimitation, the reasonable fees and disbursements of counsel for Trustee inconnection with any investigative, administrative or judicial proceedingcommenced or threatened, whether or not Trustee shall be designated a partythereto), that may be imposed on, incurred by, or asserted against Trustee inany manner relating to or arising out of (i) any breach by Issuers of theirobligations under, or any material misrepresentation by Issuers contained in,this Indenture or the other Financing Documents, or (ii) the use or intendeduse 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 for or, ifIssuers fail to pay, to reimburse Trustee for, any fees and expenses incurredby any Rating Agency in connection with any Rating Agency review of theFinancing 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 shall be entitled to require payment of such fees and expenses as acondition precedent to the obtaining of any such consent, approval, waiver orconfirmation.

###  

## **Section14.13  Offsets, Counterclaims andDefenses.** Any assignee of Trustee’s interest in and to this Indenture, the Noteand the other Financing Documents shall take the same free and clear of all offsets,counterclaims or defenses which are unrelated to such documents which Issuersmay otherwise have against any assignor of such documents, and no suchunrelated counterclaim or defense shall be interposed or asserted by Issuers inany action or proceeding brought by any such assignee upon such documents andany such right to interpose or assert any such unrelated offset, counterclaimor defense in any such action or proceeding is hereby expressly waived byIssuers.

##  

## **Section14.14  No Joint Venture orPartnership; No Third Party Beneficiaries.**  (a) Issuers and Trustee intend that the relationships created hereunder andunder the other Financing Documents be solely that of borrower and lender.  Nothing herein or therein is intended tocreate a joint venture, partnership, tenancy-in-common, or

##  

## 112

## 

##  

## joint tenancy relationship between Issuersand Trustee nor to grant Trustee any interest in the Property other than thatof mortgagee, beneficiary, lender, collateral agent, 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.

###  

## **Section14.15  Publicity.**  All news releases, publicity or advertisingby Issuers, Trustee, Initial Purchaser or their respective Affiliates throughany media intended to reach the general public which refers to the FinancingDocuments or the transactions evidenced by the Financing Documents, to anyIssuer, Trustee, Initial Purchaser, Initial Noteholder, or any of theirrespective Affiliates shall be subject to, (i) in case of release, publicity oradvertising by any Issuer or any of its Affiliates, the prior approval ofTrustee (after a Securitization), Initial Purchaser or Initial Noteholder(prior to a Securitization), (ii) in case of release, publicity or advertisingby Trustee 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 withthe New York Stock Exchange or any other nationally or globally recognizedsecurities exchange.

##  

## **Section14.16  Waiver of Marshalling ofAssets.**  Tothe fullest extent permitted by law, each Issuer, for itself and its successorsand assigns, waives all rights to a marshalling of the assets of Issuers,Issuers’ partners and others with interests in Issuers, and of the Property, orto a sale in inverse order of alienation in the event Security Trust FirstBeneficiary conveys, sells or otherwise transfers Security Trust SecondBeneficiary’s interest under the security trust formed pursuant to the SecurityTrust Agreement, and agrees not to assert any right under any laws pertainingto the marshalling of assets, the sale in inverse order of alienation,homestead exemption, the administration of estates of decedents, or any othermatters whatsoever to defeat, reduce or affect the right of Trustee under theFinancing Documents to a sale of the Property for the collection of the Debtwithout any prior or different resort for collection or of the

##  

## 113

## 

##  

## right of Trustee to the payment of the Debtout of the net proceeds of the Property in preference to every other claimantwhatsoever.

##  

## **Section14.17  Waiver of Counterclaim.**  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.

##  

## **Section14.18  Conflict; Construction ofDocuments; Reliance.**  In the event of any conflict between theprovisions of this Indenture and any of the other Financing Documents, theprovisions of this Indenture shall control. The parties hereto acknowledge that they were represented by competentcounsel in connection with the negotiation, drafting and execution of the FinancingDocuments and that such Financing Documents shall not be subject to theprinciple of construing their meaning against the party which draftedsame.  Issuers acknowledge that, withrespect to the issuance of the Notes, Issuers shall rely solely on their ownjudgment and advisors in issuing the Notes without relying in any manner on anystatements, representations or recommendations of Trustee or any parent,subsidiary or Affiliate of Trustee. Trustee shall not be subject to any limitation whatsoever in theexercise of any rights or remedies available to it under any of the FinancingDocuments or any other agreements or instruments relating to the transactionscontemplated thereunder by virtue of the ownership by it or any parent,subsidiary or Affiliate of Trustee of any equity interest any of them mayacquire in Issuers, and Issuers hereby irrevocably waive the right to raise anydefense or take any action on the basis of the foregoing with respect toTrustee’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.

##  

## **Section14.19  Brokers and Financial Advisors.**  Issuers and Trustee hereby represent that inconnection with the issuance of the Notes they have dealt with no financialadvisors, brokers, underwriters, placement agents, agents or finders (otherthan Initial Purchaser or its Affiliates). Issuers and Trustee hereby agree to indemnify, defend and hold the otherparty harmless from and against any and all claims, liabilities, costs andexpenses of any kind (including attorneys’ fees and expenses) in any wayrelating to or arising from a claim by any Person (other than Initial Purchaseror its Affiliates) that such Person acted on behalf of Issuers or Trustee inconnection with the transactions contemplated herein.  The provisions of this Section 14.19shall survive the expiration and termination of this Indenture and the paymentof the Debt.

##  

## **Section14.20  Prior Agreements.**  This Indenture and the other FinancingDocuments contain the entire agreement of the parties hereto and thereto in respectof the transactions contemplated hereby and thereby, and all prior agreementsamong or between such parties, whether oral or written, including, withoutlimitation, the Term Sheet dated on or about October 7, 2004 (as amended)between Kerzner International Limited and Column Financial Inc. are supersededby the terms of this Indenture and the other Financing Documents.

##  

## 114

## 

##  

## **Section14.21  Duplicate Originals,Counterparts.** This Indenture may be executed in any number of duplicate originals andeach duplicate original shall be deemed to be an original.  This Indenture may be executed in severalcounterparts, each of which counterparts shall be deemed an original instrumentand all of which together shall constitute a single Indenture.  The failure of any party hereto to executethis Indenture, or any counterpart hereof, shall not relieve the othersignatories from their obligations hereunder.

##  

## **Section14.22  Joint and Several Liability.**  The parties hereto acknowledge that thedefined term “**Issuers**” has beendefined to collectively include each Issuer. It is the intent of the parties hereto in determining whether (a) abreach of a representation or a covenant has occurred, (b) there has occurred aDefault or Event of Default, or (c) an event has occurred which would createrecourse obligations under Section 9.03 of this Indenture, that anysuch breach, occurrence or event with respect to any Issuer shall be deemed tobe such 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**

# ** **

## **Section15.01  Effective Upon Execution.**  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.

 

115

----

 

**IN WITNESS WHEREOF**the parties hereto have executed this Indenture under the hands of their properofficers 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 |
|   |                                                      | Title: Vice President |
|   |                                                      |   |
|   | **KERZNER PALMILLA HOTEL  PARTNERS, S. de R.L. de C.V.**  |
|   |                                                      |   |
|   |                                                      |   |
|   | By:                                                       |   /s/ John R. Allison |   |
|   |                                                      | Name: John R. Allison |
|   |                                                      | Title: Vice President |
|   |                                                      |   |
|   | **KERZNER SERVICIOS HOTELEROS,  S. de R.L. de C.V.**      |
|   | ** **                                                |
|   |                                                      |   |
|   | By:                                                       |   /s/ John R. Allison |   |
|   |                                                      | Name: John R. Allison |
|   |                                                      | Title: Vice President |
|   |                                                      |   |
|   | **KERZNER COMPANIA de  SERVICIOS, S. de R.L. de C.V.**    |
|   | ** **                                                |
|   |                                                      |   |
|   | By:                                                       |   /s/ John R. Allison |   |
|   |                                                      | Name: John R. Allison |
|   |                                                      | Title: Vice President |
|   |                                                      |   |
|   | **KERZNER PALMILLA GOLF  PARTNERS, S. de R.L. de C.V.**   |
|   | ** **                                                |
|   |                                                      |   |
|   | By:                                                       |   /s/ John R. Allison |   |
|   |                                                      | Name: John R. Allison |
|   |                                                      | Title: Vice President |

 

116

----

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

 

117

----

 

**EXHIBIT A**

** **

**Form of Note**

 

----

 

THIS NOTE MAYBE ASSIGNED OR OTHERWISE TRANSFERRED BY THE INITIAL PURCHASER THEREOF ANDTHEREAFTER BY ANY HOLDER THEREOF, PROVIDED THAT SUCH ASSIGNMENT OR OTHERTRANSFER IN THE UNITED STATES OF AMERICA IS EFFECTED PURSUANT TO AN EXEMPTIONFROM ANY APPLICABLE FEDERAL AND STATE SECURITIES LAWS IN THE UNITED STATES OFAMERICA, WHICH MAY BE THE EXEMPTIONS PROVIDED BY RULE 144A UNDER THE UNITEDSTATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), REGULATION DUNDER THE SECURITIES ACT, REGULATION S UNDER THE SECURITIES ACT OR ANY OTHEREXEMPTION FROM REGISTRATION AVAILABLE UNDER ANY SUCH APPLICABLE REGISTRATIONREQUIREMENT.

 

**PROMISSORY NOTE**

** **
| $      |   | New York, New York                                 |
|--------|--------|----------------------------------------------------|
|   |   | December      , 2004 |

 

**FOR VALUE RECEIVED**KERZNER PALMILLA BEACH PARTNERS, S. de R.L. de C.V., KERZNER PALMILLA HOTELPARTNERS, 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. and KERZNER PALMILLA GOLFPARTNERS, 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(collectively the “**Issuers**”),hereby unconditionally jointly and severally promise to pay to the order ofCREDIT SUISSE FIRST BOSTON LLC, a Delaware limited liability company, as aholder of this Note, having an address at 11 Madison Avenue, New York, New York10010 (together with its successors and assigns, collectively, “**Noteholder**”), or at such other place as the holder hereofmay from time to time designate in writing, the principal sum of                     Million and No/100 Dollars ($                        ),in lawful money of the United States of America with interest thereon tobe computed from the date of this Note at the Applicable Interest Rate, and tobe paid in accordance with the terms of this Note and that certain NoteIndenture, dated as of December 17, 2004, between Issuers and LaSalle BankNational Association (the “**Trustee**”) (asthe same may be amended, restated, replaced, supplemented or otherwise modifiedfrom time to time, the “**Indenture**”).All capitalized terms not defined herein shall have the respective meanings setforth in the Indenture.

 

----

 

**ARTICLE 1: TERMS AND DEFINITIONS**

** **

For purposes of this Note, unless there issomething in the subject matter or content inconsistent therewith, thefollowing terms shall have the following meanings:

 

“**Applicable Interest Rate**”shall mean the rate or rates at which the outstanding principal amount of theNote bears interest from time to time in accordance with the provisions of Section 2.1(c)hereof.

 

“**Breakage Costs**”shall have the meaning set forth in Section 2.1(c)(viii) hereof.

 

“**Cash Management Account**”shall have the meaning set forth in Section 2.4(b) hereof.

 

“**Default Rate**”shall mean a rate per annum (adjusted monthly on each Determination Date) equalto the lesser of (a) the Maximum Legal Rate and (b) two percent (2%) above theApplicable Interest Rate.

 

“**Determination Date**”shall mean, with respect to any Interest Period, the date that is two (2)London Business Days prior to the fifteenth (15th) day of thecalendar month in which such Interest Period commences.

 

“**Extended Maturity Date**”shall have the meaning set forth in Section 2.5(a) hereof.

 

“**Extension Option**”shall have the meaning set forth in Section 2.5(a) hereof.

 

“**Initial Maturity Date**”shall mean January 9, 2007.

 

“**Interest Period**”shall mean, with respect to any Payment Date, the period commencing on theninth (9th) day of the preceding calendar month and terminating onthe eighth (8th) day of the calendar month in which such PaymentDate occurs; provided, however, that no Interest Period shall endlater than the Maturity Date (other than for purposes of calculating interestat the Default Rate), and the initial Interest Period shall begin on the NoteIssuance Date and shall end on the eighth (8th) day of the samecalendar month in which the Note Issuance Date occurs (in the event the NoteIssuance Date shall occur during the first eight (8) days of such calendarmonth) or the eighth (8th) day of the calendar month immediatelyfollowing the calendar month in which the Note Issuance Date occurs (in theevent the Note Issuance Date shall occur on or after the ninth (9th)day of the calendar month in which the Note Issuance Date occurs).

 

“**Interest Rate CapAgreement**” shall mean, as applicable, an Interest Rate Cap Agreement(together with the confirmation and schedules relating thereto) in form andsubstance reasonably satisfactory to Trustee between Issuers and an AcceptableCounterparty or a Replacement Interest Rate Cap Agreement.

 

2

----

 

“**Libor**” shallmean, with respect to each Interest Period, the rate (expressed as a percentageper annum and rounded upward, if necessary, to the next nearest 1/8 of 1%) fordeposits in U.S. dollars, for a one-month period, that appears on Telerate Page3750 (or the successor thereto) as of 11:00 a.m., London time, on the relatedDetermination Date. If such rate does not appear on Telerate Page 3750 as of11:00 a.m., London time, on such Determination Date, LIBOR shall be thearithmetic mean of the offered rates (expressed as a percentage per annum) fordeposits in U.S. dollars for a one-month period that appear on the Reuters ScreenLibor Page as of 11:00 a.m., London time, on such Determination Date, if atleast two such offered rates so appear. If fewer than two such offered ratesappear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on suchDetermination Date, Trustee shall request the principal London office of anyfour major reference banks in the London interbank market selected by Trusteeto provide such bank’s offered quotation (expressed as a percentage per annum)to prime banks in the London interbank market for deposits in U.S. dollars fora one-month period as of 11:00 a.m., London time, on such Determination Datefor the amounts of not less than U.S. $1,000,000. If at least two such offeredquotations are so provided, LIBOR shall be the arithmetic mean of suchquotations. If fewer than two such quotations are so provided, Trustee shallrequest any three major banks in New York City selected by Trustee to providesuch bank’s rate (expressed as a percentage per annum) for loans in U.S. dollarsto leading European banks for a one-month period as of approximately 11:00a.m., New York City time on the applicable Determination Date for amounts ofnot less than U.S. $1,000,000. If at least two such rates are so provided,LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determinedconclusively by Trustee or its agent.

 

“**Libor Indebtedness**”shall mean the Note Indebtedness at such time as interest thereon accrues at arate of interest based upon LIBOR.

 

“**Lockbox Account**”shall have the meaning set forth in Section 2.4(a) hereof.

 

“**Lockbox Bank**”shall mean any of Banco Nacional de Mexico, S.A., Bancomer, S.A. and WellsFargo Bank, N.A.

 

“**Lockout Release Date**”shall mean January 9, 2006.

 

“**Maturity Date**”shall mean the Initial Maturity Date or, if applicable, the Extended Maturity,or such other date on which the final payment of principal of this Note becomesdue and payable as herein provided or as provided in the Indenture, whether atsuch stated maturity date, by declaration of acceleration, or otherwise.

 

“**Maximum Legal Rate**”shall mean the maximum nonusurious interest rate, if any, that at any time orfrom time to time may be contracted for, taken, reserved, charged or receivedon the Note Indebtedness and as provided for herein or in the other FinancingDocuments, under the laws of such country or state or states whose laws areheld by any court of competent jurisdiction to govern the interest rateprovisions of this Note.

 

3

----

 

“**Monthly Debt Service Payment**”shall mean (a) a payment of interest only on the outstanding principal balanceof Note for each Interest Period through the Maturity Date and (b) during theterm of any Extension Option, a payment of principal based on a 25-yearamortization schedule in the amounts set forth on Schedule I hereto; provided,however, such payment of principal shall be waived and not required to be paidby Issuers if the Net Operating Income for the Property during the twelve (12)month period immediately preceding the first day of such Extension Option termequals or exceeds the following amounts: (i) with respect to the ExtensionOption term commencing on January 9, 2007, $7.5 million, (ii) with respectto the Extension Option term commencing on January 9, 2008, $9.0 million,and (iii) with respect to the Extension Option term commencing on January 9,2009, $11.5 million; provided, further, that if the Net Operating Income forthe trailing twelve (12) month period for the Property does not equal or exceedthe applicable required amount on the first day of any Extension Option term,but thereafter exceeds such amount as of the first day of (1) April and July ofthe same calendar year or (2) July and October of the same calendar year, thenprincipal amortization shall be waived and not required for the remainder ofthe applicable Extension Option term.

 

“**Non-Excluded Taxes**”shall have the meaning set forth in Section 2.1(c)(v)(A) hereof.

 

“**Note A**” shallmean that certain Promissory Note A in the original principal amount of                     Million and No/100 Dollars ($                      ),issued as of the Note Issuance Date and made by Issuers, as the same may beamended, restated, replaced, supplemented or otherwise modified from time totime as provided herein.

 

“**Note B**” shallmean that certain Promissory Note B in the original principal amount of                         Million and No/100 Dollars ($                        ),issued as of the Note Issuance Date and made by Issuers, as the same may beamended, restated, replaced, supplemented or otherwise modified from time totime as provided herein.

 

“**Note Indebtedness**”shall mean the indebtedness of Issuers evidenced by the Notes.

 

“**Other Taxes**”shall have the meaning set forth in Section 2.1(c)(v)(C) hereof.

 

“**Payment Date**”shall mean the ninth (9th) day of each calendar month during theterm of the Loan or, if such day is not a Business Day, the immediatelypreceding Business Day.

 

“**Prepayment Premium**”shall mean an amount equal to the following: (i) one and one-half percent(1.5%) of the outstanding principal balance of the Note being prepaid if theprepayment occurs on or after the Lockout Release Date through, and including,July 9, 2006; (ii) one percent (1%) of the outstanding principal balance of theNote being prepaid if the prepayment occurs after July 9, 2006 through, andincluding, December 9, 2006; and (iii) zero if the prepayment occurs afterDecember 9, 2006.

 

4

----

 

“**Prime Rate**”shall mean the annual rate of interest publicly announced by Citibank, N.A. inNew York, New York, as its base rate, as such rate shall change from time totime. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall meanthe rate of interest published in The Wall Street Journal from time totime as the “Prime Rate.” If more than one “Prime Rate” is published in TheWall Street Journal for a day, the average of such “Prime Rates” shall beused, and such average shall be rounded up to the nearest one-eighth of onepercent (0.125%). If The Wall Street Journal ceases to publish the “PrimeRate,” the Lender shall select an equivalent publication that publishes such “PrimeRate,” and if such “Prime Rates” are no longer generally published or arelimited, regulated or administered by a governmental or quasigovermnental body,then Lender shall select a comparable interest rate index.

 

“**Prime Rate Indebtedness**”shall mean the Note Indebtedness at such time as interest thereon accrues at arate of interest based upon the Prime Rate.

 

“**Prime Rate Spread**”shall mean the difference (expressed as the number of basis points) between (a)LIBOR plus the Spread on the date LIBOR was last applicable to the Loan and (b)the Prime Rate on the date that LIBOR was last applicable to the Note Indebtedness;provided, however, in no event shall such difference be anegative number.

 

“**Spread**” shallmean three and three-quarters percent (3.75%).

 

“**Spread Maintenance Premium**”shall mean, with respect to any prepayment of the Notes prior to the Lockout ReleaseDate, an amount equal to the product of (a) the principal amount of suchprepayment, (b) the Spread and (c) a fraction, the numerator of which shallequal the actual number of days from the date of such payment through theLockout Release Date and the denominator of which is 360.

 

“**Strike Price**”shall mean five percent (5.00%).

 

“**Taxes**” shallhave the meaning set forth in Section 2.1(c)(v)(A) hereof.

 

**ARTICLE 2: INTEREST RATE AND PAYMENT TERMS**

** **

**Section 2.1 Interest Rate.**

 

(a)  **Interest Generally.**Interest on theoutstanding principal balance of this Note shall accrue from the Note IssuanceDate to but excluding the Maturity Date at the Applicable Interest Rate. Issuersshall pay to Noteholder on each Payment Date the interest accrued on this Notefor the preceding Interest Period.

 

(b)  **Interest Calculation.**Interest onthe outstanding principal balance of this Note shall be calculated bymultiplying (a) the actual number of days elapsed in the period for which thecalculation is being made by (b) a daily rate based on a three hundred sixty(360) day year by (c) the outstanding principal balance.

 

5

----

 

(c)  **Determination of Interest Rate.**(i)  The Applicable Interest Rate with respect tothis Note shall be: (i) LIBOR plus the Spread with respect to the applicableInterest Period for a Libor Indebtedness or (ii) the Prime Rate plus the PrimeRate Spread for a Prime Rate Indebtedness if the Note Indebtedness is convertedto a Prime Rate Indebtedness pursuant to the provisions of Section 2.1(c)(iii)or (vi).

 

(ii)  Subjectto the terms and conditions of this Section 2.1, the NoteIndebtedness shall be a Libor Indebtedness and Issuers shall pay interest onthe outstanding principal amount of this Note at LIBOR plus the Spread for theapplicable Interest Period. Any change in the rate of interest hereunder due toa change in the Applicable Interest Rate shall become effective as of theopening of business on the first day on which such change in the Applicable InterestRate shall become effective. Each determination by Trustee of the ApplicableInterest Rate shall be conclusive and binding for all purposes, absent manifesterror.

 

(iii)  Inthe event that Trustee shall have determined (which determination shall be conclusiveand binding upon Issuers absent manifest error) that by reason of circumstancesaffecting the interbank eurodollar market, adequate and reasonable means do notexist for ascertaining LIBOR, then Trustee shall forthwith give notice bytelephone of such determination, confirmed in writing, to Issuers at least one(1) Business Day prior to the last day of the related Interest Period. If suchnotice is given, the related outstanding Libor Indebtedness shall be converted,on the last day of the then current Interest Period, to a Prime RateIndebtedness.

 

(iv)  If,pursuant to the terms of this Note, any portion of the outstanding principalbalance of this Note has been converted to a Prime Rate Indebtedness andTrustee shall determine (which determination shall be conclusive and bindingupon Issuers absent manifest error) that the event(s) or circumstance(s) whichresulted in such conversion shall no longer be applicable, Trustee shall givenotice by telephone of such determination, confirmed in writing, to Issuers atleast one (1) Business Day prior to the last day of the related Interest Period.If such notice is given, the related outstanding Prime Rate Indebtedness shallbe converted to a Libor Indebtedness on the last day of the then currentInterest Period.

 

(v)  Taxes;Non-Excluded Taxes and Other Taxes.

 

(A)                              Any and all payments bythe Issuers, the Guarantor or any other Person under or in respect of this Noteor any other Financing Documents shall be made free and clear of, and withoutdeduction or withholding for or on account of, any and all present or futuretaxes, levies, imposts, deductions, charges or withholdings, and allliabilities (including penalties, interest and additions to tax) with respectthereto, whether now or hereafter imposed, levied, collected, withheld orassessed by any taxation authority or other Governmental Authority(collectively, “**Taxes**”). If the Issuers, theGuarantor and/or any other Person shall be required under any applicable law todeduct or withhold any Taxes from or in respect

 

6

----

 

of any sum payable under or in respect of this Note or any of the otherFinancing Documents to the Noteholder, (i) the Issuers, the Guarantor and/orany other such Person, as applicable, shall make all such deductions andwithholdings in respect of Taxes, (ii) the Issuers, the Guarantor and/or anyother such Person, as applicable, shall pay the full amount deducted orwithheld in respect of Taxes to the relevant taxation authority or other GovernmentalAuthority in accordance with any applicable law, (iii) the sum payable by theIssuers, the Guarantor and/or any other such Person, as applicable, shall beincreased as may be necessary so that after the Issuers, the Guarantor and/orany other such Person, as applicable, has made all required deductions andwithholdings (including deductions and withholdings applicable to additionalsums payable under this Section 2.1(c)(v)) the Noteholder receivesan amount equal to the sum it would have received had no such deductions orwithholdings been made in respect of Non-Excluded Taxes, and (iv) the Issuersshall promptly forward to the Noteholder and the Trustee an original officialreceipt or a copy thereof or other documentation issued by such GovernmentalAuthority or other taxing authority evidencing payment of such Taxes uponIssuers’ receipt thereof. For purposes of this Note the term “**Non-Excluded Taxes**” are Taxes other than Taxes that areimposed on the Noteholder’s overall net income (and branch profits taxes orfranchise taxes imposed in lieu thereof) by the jurisdiction under the laws ofwhich such Noteholder is organized or in which its principal office is locatedor in which such Noteholder’s applicable lending office is located, or anypolitical subdivision thereof, unless such Taxes are imposed solely as a resultof the Noteholder or the Trustee, on behalf of the Noteholder, having executed,delivered or performed its obligations or received payments under or enforced,this Note or any of the other Financing Documents (in which case such Taxeswill be treated as Non-Excluded Taxes).

 

(B)                                If, on the date of theassignment or participation pursuant to which a Noteholder assignee orparticipant becomes subject to this Note, the assigning Noteholder was entitledto payments under this Section 2.1(c)(v), then, to such extent, theterm “Non-Excluded Taxes” shall include (in addition to Taxes that may beimposed in the future or other amounts otherwise includable in Taxes) suchTaxes, if any, applicable with respect to such Noteholder assignee orparticipant on such date.

 

(C)                                In addition, Issuersagree to pay to the relevant Governmental Authority or other taxing authorityin accordance with applicable law any current or future stamp or documentary taxesor any other excise or property taxes, charges or similar levies (including,without limitation, recording taxes and similar fees) that arise from

 

7

----

 

any payment made under this Note or any other Financing Document, orfrom the execution, delivery, registration, or enforcement, of this Note or anyother Financing Document (“**Other Taxes**”).

 

(D)                               Issuers hereby agree toindemnify the Noteholder for, and to hold the Noteholder harmless against, thefull amount of Non-Excluded Taxes and Other Taxes, and the full amount of Taxesof any kind imposed by any jurisdiction on amounts payable under this Section 2.1(c)(v),imposed on or paid by the Noteholder, and any liability (including penalties,additions to tax, interest and expenses) arising therefrom or with respectthereto. The indemnity by Issuers provided for in this Section 2.1(c)(v)shall apply and be made whether or not the Non-Excluded Taxes or Other Taxesfor which indemnification hereunder is sought have been correctly or legallyasserted. Amounts payable by Issuers under the indemnity set forth in this Section 2.1(c)(v)shall be paid within 10 days from the date on which Noteholder makes writtendemand therefor.

 

(E)                                 Issuers shall (i)comply at all times with the information requirements imposed by the Mexican *Resolución Miscelánea Fiscal* or any equivalentadministrative general rules in effect (including, without limitation, inrespect of Article 195 of the Mexican Income Tax Law), (ii) promptly provide tothe Trustee copies of forms, certificates, documents, information,applications, declarations or returns prescribed by any law, rule or regulationenacted by Mexico or any political subdivision thereof or taxing authoritytherein, that Issuers provided to the tax authorities in compliance with clause (i)above of this subsection (E).

 

(F)                                 By the acceptance ofthis Note, Noteholder agrees to cooperate with all reasonable requests ofIssuers to achieve the lowest rate of withholding on payments of interest underthe Note then imposed by the United Mexican States; provided, however,that Noteholder will not be required to take any action that would be, in thereasonable judgment of Noteholder, legally inadvisable or commerciallydisadvantageous to Noteholder in any respect, and in no event shall Noteholderbe required to disclose any information that, in the sole judgment ofNoteholder, is confidential.

 

(G)                                Notwithstandinganything to the contrary contained in this Note or the other FinancingDocuments, all Persons may disclose to any and all Persons, without limitationsof any kind, the purported or claimed U.S. federal, state and local income taxtreatment of this Note, any fact that may be relevant to understanding thepurported or claimed U.S. federal, state and local income tax treatment of thisNote, and all materials of any kind (including opinions or other tax

 

8

----

 

analyses) relating to such U.S. federal, state and local income taxtreatment or fact, other than the name of the parties or any other Person namedherein, or information that would permit identification of the parties or suchother Persons, and any pricing terms or other nonpublic business or financialinformation that is unrelated to the purported or claimed federal income taxtreatment of this Note to the taxpayer and is not relevant to understanding thepurported or claimed federal income tax treatment of this Note to the taxpayer.

 

(H)                               If as a result of anychange in or amendment to the laws of Mexico, or any change in an officialwritten interpretation of such laws, which change is announced after the datehereof (a “**Change in Law**”), and the Issuershave or will be obligated for reasons outside their control to pay additionalamounts pursuant to Section (v)(A) hereof in excess of those attributableto the Mexican withholding tax imposed at a rate of ten percent (10%) onpayments of interest under any Note, (i) the Issuers shall notify theNoteholder and the Trustee of any Change in Law (“**Notice of aChange in Law**”) and (ii) unless, within sixty (60) days of theNotice of a Change in Law, a holder of a Note has agreed to treat any suchwithholding in excess of 10% as Taxes that are not Non-Excluded Taxes, theIssuers shall be entitled to redeem such Note on the next Payment Datefollowing sixty (60) days after such Notice of a Change in Law in whole, butnot in part, without any prepayment premium or penalty, at 100% of itsprincipal amount, plus accrued and unpaid interest to the date of such redemptionand all other amounts due and unpaid under the Indenture and the otherFinancing Documents. Prior to any such redemption by the Issuers the Issuersshall deliver to Trustee: (A) an Officer’s Certificate stating that the Issuersare entitled to redeem this Note pursuant to this subsection and (B) an opinionfrom counsel acceptable to Trustee that such change in Law occurred and wouldimpose a withholding in excess of ten percent (10%).

 

(vi)  Ifany requirement of law or any change therein or in the interpretation orapplication thereof, shall hereafter make it unlawful for the Note Indebtednessto be maintained as a Libor Indebtedness as contemplated hereunder (i) theobligation of Trustee or Noteholder hereunder or under the other Financing Documentsto administer, extend, make or maintain a Libor Indebtedness or to convert aPrime Rate Indebtedness to a Libor Indebtedness shall be canceled forthwith and(ii) any outstanding Libor Indebtedness shall be converted automatically to aPrime Rate Indebtedness on the next succeeding Payment Date or within suchearlier period as required by law. Issuers hereby agree promptly to pay toNoteholder, upon demand, any additional amounts necessary to compensateNoteholder for any costs incurred by, or on behalf of, Noteholder in making anyconversion in accordance with this Note, including, without limitation, anyinterest or fees payable by, or on behalf of, Noteholder to lenders of funds

 

9

----

 

obtained by itin order to extend, make or maintain the Libor Indebtedness hereunder. Trustee’snotice of such costs, as certified to Issuers, shall be conclusive absentmanifest error.

 

(vii)  Inthe event that any change in any requirement of law or in the interpretation orapplication thereof; or compliance by Trustee or Noteholder with any request ordirective (whether or not having the force of law) issued from any central bankor other Governmental Authority:

 

(A)                              shall hereafter impose,modify or hold applicable any reserve, special deposit, compulsory loan orsimilar requirement against assets held by (or on behalf of), or deposits orother liabilities in or for the account of, advances or loans by (or on behalfof), or other credit extended by (or on behalf of), or any other acquisition offunds by (or on behalf of), any office of Noteholder which is not otherwiseincluded in the determination of LIBOR or Spread hereunder;

 

(B)                                shall hereafter havethe effect of reducing the rate of return on Noteholder’s capital as a consequenceof Trustee’s or Noteholder’s obligations hereunder or under the other FinancingDocuments to a level below that which Noteholder could have achieved but forsuch adoption, change or compliance (taking into consideration Noteholder’spolicies with respect to capital adequacy) by any amount deemed by Trustee tobe material; or

 

(C)                                shall hereafter imposeon Trustee or Noteholder any other condition and the result of any of theforegoing is to increase the cost to Noteholder of making, renewing or maintainingloans or extensions of credit or to reduce any amount receivable hereunder

 

then, in anysuch case, Issuers shall promptly pay Noteholder, upon demand, any additionalamounts necessary to compensate Noteholder for such additional cost or reducedamount receivable which Trustee deems to be material as determined by Trusteein its reasonable discretion. If Trustee, on behalf of Noteholder, becomesentitled to claim any additional amounts pursuant to this Section 2.1(c)(vii),Trustee shall provide Issuers with not less than ninety (90) days noticespecifying in reasonable detail the event by reason of which Noteholder hasbecome so entitled and the additional amount required to fully compensateNoteholder for such additional cost or reduced amount. A certificate as to anyadditional costs or amounts payable pursuant to the foregoing sentencesubmitted by Trustee or Noteholder to Issuers shall be conclusive in theabsence of manifest error. This provision shall survive payment of the Note andthe satisfaction of all other obligations of Issuers under this Note and theother Financing Documents.

 

(viii) Issuers agree to indemnify Trustee and Noteholder and to hold Trusteeand Noteholder harmless from any loss or expense which Trustee or Noteholdersustains or incurs as a consequence of (i) any default by Issuers in payment ofthe principal of or

 

10

----

 

interest on aLibor Indebtedness, including, without limitation, any such loss or expensearising from interest or fees payable by, or on behalf of, Noteholder tolenders of funds obtained by, or on behalf of, Noteholder in order to maintaina Libor Indebtedness hereunder, (ii) any prepayment (whether voluntary ormandatory) of the Libor Indebtedness on a day that (A) is not the Payment Dateimmediately following the last day of an Interest Period with respect theretoor (B) is the Payment Date immediately following the last day of an InterestPeriod with respect thereto if Issuers did not give the prior notice of suchprepayment required pursuant to the terms of this Note, including, withoutlimitation, such loss or expense arising from interest or fees payable by, oron behalf of, Noteholder to lenders of funds obtained by it in order tomaintain the Libor Indebtedness hereunder and (iii) the conversion (for anyreason whatsoever, whether voluntary or involuntary) of the Applicable InterestRate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spreadwith respect to any portion of the outstanding principal amount of the Loanthen bearing interest at LIBOR plus the Spread on a date other than the PaymentDate immediately following the last day of an Interest Period, including,without limitation, such loss or expenses arising from interest or fees payableby, or on behalf of, Noteholder to lenders of funds obtained by, or on behalfof, Noteholder in order to maintain a Libor Indebtedness hereunder (the amountsreferred to in clauses (i), (ii) and (iii) are herein referred to collectivelyas the “**Breakage Costs**”); provided, however,Issuers shall not indemnify Trustee or Noteholder from any loss or expensearising from Trustee’s or Noteholder’s willful misconduct or gross negligence. Thisprovision shall survive payment of the Note in full and the satisfaction of allother obligations of Issuers under this Note and the other Financing Documents.

 

(ix)  Noteholdershall not be entitled to claim compensation pursuant to this Section 2.1for any increased cost or reduction in amounts received or receivable hereunder,or any reduced rate of return, which was incurred or which accrued more thanninety (90) days before the date Trustee notified Issuers of the change in lawor other circumstance on which such claim of compensation is based anddelivered to Issuers a written statement setting forth in reasonable detail thebasis for calculating the additional amounts owed to Noteholder under this Section 2.1,which statement shall be conclusive and binding upon all parties hereto absentmanifest error.

 

(d)  **Additional Costs.**Trustee will usecommercially reasonable efforts (consistent with legal and regulatoryrestrictions) to maintain the availability of the Libor Indebtedness and toavoid or reduce any increased or additional costs payable by Issuers under Section 2.1(c).

 

(e)  **Default Rate.**In the event that,and for so long as, any Event of Default shall have occurred and be continuing,the outstanding principal balance of this Note and, to the extent permitted bylaw, all accrued and unpaid interest in respect of this Note and any otheramounts due pursuant to the Financing Documents, shall accrue interest at theDefault Rate, calculated from the date such payment was due without regard toany grace or cure periods contained herein.

 

(f)  **Usury Savings.**This Note, theIndenture and the other Financing Documents are subject to the expresscondition that at no time shall Issuers be obligated

 

11

----

 

or required topay interest on the principal balance of this Note at a rate which couldsubject Trustee or Noteholder to either civil or criminal liability as a resultof being in excess of the Maximum Legal Rate. If, by the terms of this Note orthe other Financing Documents, Issuers are at any time required or obligated topay interest on the principal balance due hereunder at a rate in excess of theMaximum Legal Rate, the Applicable Interest Rate or the Default Rate, as thecase may be, shall be deemed to be immediately reduced to the Maximum LegalRate and all previous payments in excess of the Maximum Legal Rate shall bedeemed to have been payments in reduction of principal and not on account ofthe interest due hereunder. All sums paid or agreed to be paid to Noteholderfor the use, forbearance, or detention of the sums due under this Note, shall,to the extent permitted by applicable law, be amortized, prorated, allocated,and spread throughout the full stated term of the Note until payment in full sothat the rate or amount of interest on account of this Note does not exceed theMaximum Legal Rate of interest from time to time in effect and applicable tothis Note for so long as the Note Indebtedness is outstanding.

 

(g)  **Interest Rate Cap Agreement.**(i)  Prior to or contemporaneously with the NoteIssuance Date, Issuers shall enter into an Interest Rate Cap Agreement with aLIBOR strike price equal to the Strike Price. The Interest Rate Cap Agreement(i) shall be in a form and substance reasonably acceptable to InitialNoteholder, (ii) shall be with an Acceptable Counterparty, (iii) shall directsuch Acceptable Counterparty to deposit directly into the Cash ManagementAccount any amounts due Issuers under such Interest Rate Cap Agreement so longas any portion of the Debt exists, provided that the Debt shall be deemed to existif the Property is transferred pursuant to the terms and provisions of theSecurity Trust Agreement or by judicial or non judicial foreclosure ordeed-in-lieu thereof, (iv) shall be for a period equal to the term of this Noteand (v) shall have an initial notional amount equal to the principal balance ofthis Note. Issuers shall collaterally assign to Trustee for the benefit ofNoteholders pursuant to the Collateral Assignment of Interest Rate CapAgreement, all of their right, title and interest to receive any and allpayments under the Interest Rate Cap Agreement, and shall deliver to Trustee anexecuted counterpart of such Interest Rate Cap Agreement (which shall, by itsterms, authorize the assignment to Trustee for the benefit of Noteholders and requirethat payments be deposited directly into the Cash Management Account).

 

(ii)  Issuersshall comply with all of their obligations under the terms and provisions ofthe Interest Rate Cap Agreement. All amounts paid by the Counterparty under theInterest Rate Cap Agreement to Issuers or Trustee for the benefit ofNoteholders shall be deposited immediately into the Cash Management Account orif the Cash Management Account is not then required to be in effect, into suchaccount as specified by Trustee. Issuers shall take all actions reasonablyrequested by Trustee to enforce Trustee’s rights, on behalf of Noteholders,under the Interest Rate Cap Agreement in the event of a default by theCounterparty and shall not waive, amend or otherwise modify any of their rightsthereunder.

 

(iii)  Inthe event of any downgrade, withdrawal or qualification of the rating of theCounterparty by S&P or Moody’s, Issuers shall replace the Interest Rate CapAgreement with a Replacement Interest Rate Cap Agreement not later than fifteen(15)

 

12

----

 

Business Daysfollowing receipt of notice from Trustee of such downgrade, withdrawal orqualification.

 

(iv)  Inthe event that Issuers fail to purchase and deliver to Trustee the InterestRate Cap Agreement or fail to maintain the Interest Rate Cap Agreement inaccordance with the terms and provisions of this Note, Trustee, on behalf ofNoteholders, may purchase the Interest Rate Cap Agreement and the cost incurredby Trustee in purchasing such Interest Rate Cap Agreement shall be paid byIssuers to Trustee with interest thereon at the Default Rate from the date suchcost was incurred by Trustee until such cost is reimbursed by Issuers toTrustee.

 

(v)  Inconnection with the Interest Rate Cap Agreement, Issuers shall obtain anddeliver to Trustee an opinion from counsel (which counsel may be in-housecounsel for the Counterparty) for the Counterparty (upon which Trustee and itssuccessors and assigns may rely) which shall provide, in relevant part, that:

 

(A)                              the Counterparty is dulyorganized, validly existing, and in good standing under the laws of itsjurisdiction of incorporation and has the organizational power and authority toexecute and deliver, and to perform its obligations under, the Interest RateCap Agreement;

 

(B)                                the execution anddelivery of the Interest Rate Cap Agreement by the Counterparty, and any otheragreement which the Counterparty has executed and delivered pursuant thereto,and the performance of its obligations thereunder have been and remain dulyauthorized by all necessary action and do not contravene any provision of itscertificate of incorporation or by-laws (or equivalent organizationaldocuments) or any law, regulation or contractual restriction binding on oraffecting it or its property;

 

(C)                                all consents,authorizations and approvals required for the execution and delivery by theCounterparty of the Interest Rate Cap Agreement, and any other agreement whichthe Counterparty has executed and delivered pursuant thereto, and theperformance of its obligations thereunder have been obtained and remain in fullforce and effect, all conditions thereof have been duly complied with, and noother action by, and no notice to or filing with any governmental authority or regulatorybody is required for such execution, delivery or performance; and

 

(D)                               the Interest Rate CapAgreement, and any other agreement which the Counterparty has executed anddelivered pursuant thereto, has been duly executed and delivered by the Counterpartyand constitutes the legal, valid and binding obligation of the Counterparty,enforceable against the Counterparty in accordance with its terms, subject toapplicable bankruptcy, insolvency and similar laws affecting creditors’ rightsgenerally, and subject, as to

 

13

----

 

enforceability, to general principles of equity (regardless of whetherenforcement is sought in a proceeding in equity or at law).

 

**Section 2.2 Loan Payment.**

 

(a)  **Payments Generally.**Issuers shallmake a payment to Noteholder of interest only on the Note Issuance Date for theperiod from the Note Issuance Date up to and including January 8, 2005(unless the Note Issuance Date is the ninth (9th) day of a calendarmonth, in which case no such separate payment of interest shall be due). Issuersshall make a payment to Noteholder in the amount of the Monthly Debt ServicePayment on the Monthly Payment Date occurring on February 9, 2005 and on eachMonthly Payment Date thereafter to and including the Maturity Date. Eachpayment shall be applied in accordance with the priority of payments set forthin Section 3.03 of the Indenture.

 

(b)  **Payment on Maturity Date.**Issuersshall pay to Noteholder on the Maturity Date the outstanding principal balanceof this Note, all accrued and unpaid interest and all other amounts duehereunder and shall pay to Trustee, for the benefit of Noteholders, all otheramounts due under the Indenture and the other Financing Documents.

 

(c)  **Late Payment Charge.**If any principal,interest or any other sums due under the Financing Documents (other than theoutstanding principal balance due on the Maturity Date) is not paid by Issuersby the date on which it is due, Issuers shall pay to Noteholder upon demand anamount equal to the lesser of two percent (2%) of such unpaid sum or themaximum amount permitted by applicable law in order to defray the expenseincurred by, or on behalf of, Noteholder in handling and processing suchdelinquent payment and to compensate Noteholder for the loss of the use of suchdelinquent payment. Any such amount shall be secured by the Security TrustAgreement, the Pledge and the other Financing Documents to the extent permittedby applicable law.

 

(d)  **Method and Place of Payment.**Exceptas otherwise specifically provided herein, all payments and prepayments underthis Note shall be made to Noteholder not later than 1:00 P.M., New York Citytime, on the date when due and shall be made in lawful money of the United Statesof America in immediately available funds at Noteholder’s office or asotherwise directed by Noteholder, and any funds received by Noteholder aftersuch time shall, for all purposes hereof, be deemed to have been paid on thenext succeeding Business Day.

 

(e)  **Interest Accrual Period.**The firstinterest accrual period hereunder shall commence on and include the NoteIssuance Date and end on (i) the eighth (8th) day of the calendarmonth in which the Note Issuance Date occurs (if the Note Issuance Date shalloccur during the first eight (8) days of such calendar month) or (ii) on theeighth (8th) day of the calendar month immediately following thecalendar month in which the Note Issuance Date occurs (if the Note IssuanceDate shall occur on or after the ninth (9th) day of the calendarmonth in which the Note Issuance Date occurs). Each interest accrual periodthereafter shall commence on the ninth (9th) day of each calendarmonth

 

14

----

 

during theterm of this Note and shall end on and include the eighth (8th) dayof the next occurring calendar month. For purposes of making paymentshereunder, but not for purposes of calculating interest accrual periods, if theday on which such payment is due is not a Business Day, then amounts due on suchdate shall be due on the immediately preceding Business Day and with respect topayments of principal due on the Maturity Date, interest shall be payable atthe Applicable Interest Rate or the Default Rate, as the case may be, throughand including the day immediately preceding such Maturity Date. All amounts duepursuant to this Note and the other Financing Documents shall be payablewithout setoff, counterclaim, defense or any other deduction whatsoever.

 

**Section 2.3 Prepayments.**

 

(a)  **Voluntary Prepayments.**Prior to theLockout Release Date, the outstanding principal amount of this Note may not beprepaid in whole or in part. On any Payment Date occurring on, or after, theLockout Release Date, Issuers may, at their option and upon fifteen (15) daysprior written notice to Trustee, prepay the Debt in whole or in part; providedthat such prepayment is accompanied by the Prepayment Premium, if any. Exceptfor any prepayment pursuant to Section 2.3(b) hereof (provided thatno Event of Default has occurred and is continuing at the time of suchprepayment), neither Trustee nor Noteholder shall be obligated to accept anyprepayment unless it is accompanied by the Prepayment Premium due in connectiontherewith. All prepayments under this Section 2.3(a) shall beapplied in accordance with the priority of payments set forth in Section 3.03of the Indenture.

 

(b)  **Mandatory Prepayments.**On the nextoccurring Payment Date following the date on which Trustee, on behalf ofNoteholders, actually receives any Net Proceeds, if Trustee is not obligated tomake such Net Proceeds available to Issuers for Restoration, Issuers shallprepay, or authorize Trustee to apply Net Proceeds as a prepayment of, theoutstanding principal balance of the Notes in an amount equal to one hundredpercent (100%) of such Net Proceeds. Other than following an Event of Default,no Prepayment Premium shall be due in connection with any prepayment madepursuant to this Section 2.3(b). Any partial prepayment under this Section 2.3(b)shall be applied in accordance with the priority of payments set forth in Section 3.03of the Indenture.

 

**PrepaymentsAfter Default.**If following an Event of Defaultand prior to the Lockout Release Date, payment of all or any part of the Debtis tendered by Issuers or otherwise recovered by Trustee for the benefit ofNoteholders (including through application of any Reserve Funds), such tenderor recovery shall be (a) made on the next occurring Payment Date together withthe Monthly Debt Service Payment and (b) deemed a voluntary prepayment byIssuers in violation of the prohibition against prepayment set forth in Section 2.3(a)and Issuers shall pay, in addition to the Debt, an amount equal to the sum of(i) the Spread Maintenance Premium and (ii) the Prepayment Premium.

 

15

----

 

**Section 2.4 Cash Management.**

 

(a)  **Lockbox Accounts.**Issuers shallestablish and maintain a segregated Eligible Account (a “**LockboxAccount**”) with each Lockbox Bank in trust in favor of Trustee forthe benefit of Noteholders, which Lockbox Account shall be under the soledominion and control of Trustee. Each Lockbox Account shall be entitled “LaSalleBank National Association, as Trustee, pursuant to Note Indenture dated as of December 17,2004 – Lockbox Account.”  Issuers herebygrant to Trustee for the benefit of Noteholders a first priority securityinterest in each Lockbox Account and all deposits at any time contained thereinand the proceeds thereof and will take all actions necessary to maintain infavor of Trustee for the benefit of Noteholders a perfected first prioritysecurity interest in each Lockbox Account, including, without limitation,executing and filing UCC-1 Financing Statements and continuations thereof, ifapplicable. Trustee and Servicer shall have the sole right to make withdrawalsfrom any Lockbox Account and all costs and expenses for establishing andmaintaining any Lockbox Account shall be paid by Issuers. Issuers shall, orshall cause Manager to, deliver written instructions to all tenants underLeases to deliver all Rents payable thereunder directly to a Lockbox Account. Issuersshall, and shall cause Manager to, deposit all amounts received by Issuers orManager constituting Rents into a Lockbox Account within one (1) Business Dayafter receipt. Issuers shall obtain from each Lockbox Bank its agreement totransfer to the Cash Management Account in immediately available funds by wiretransfer all amounts on deposit in the applicable Lockbox Account once everyBusiness Day throughout the term of the Note (with the exception of the amountson deposit in the Pesos Account (as defined in the Cash Management Agreement),which amounts shall be transferred to the Cash Management Account at such timesas set forth the Cash Management Agreement).

 

(b)  **Cash Management Account.**Issuersshall establish and maintain a segregated Eligible Account (the “**Cash Management Account**”) to be held in trust in favor ofTrustee for the benefit of Noteholders, which Cash Management Account shall beunder the sole dominion and control of Trustee. The Cash Management Accountshall be entitled “LaSalle Bank National Association, as Trustee, pursuant toNote Indenture. dated as of December 17, 2004 - Cash Management Account.”Issuers hereby grant to Trustee for the benefit of Noteholders a first prioritysecurity interest in the Cash Management Account and all deposits at any timecontained therein and the proceeds thereof and will take all actions necessaryto maintain in favor of Trustee for the benefit of Noteholders a perfectedfirst priority security interest in the Cash Management Account, including,without limitation, executing and filing UCC-l Financing Statements andcontinuations thereof. Issuers will not in any way alter or modify the CashManagement Account and will notify Trustee of the account number thereof. Trusteeand Servicer shall have the sole right to make withdrawals from the CashManagement Account and all costs and expenses for establishing and maintainingthe Cash Management Account shall be paid by Issuers. All funds on deposit inthe Cash Management Account shall be applied in accordance with the terms ofthe Cash Management Agreement. The insufficiency of funds on deposit in theCash Management Account shall not relieve Issuers from the obligation to makeany payments, as and when due pursuant to the Notes and the other FinancingDocuments, and such obligations shall be separate and independent, and notconditioned on any event or circumstance

 

16

----

 

whatsoever. Allfunds on deposit in the Cash Management Account following the occurrence of anEvent of Default may be applied by Trustee in such order and priority asTrustee shall determine.

 

(c)  **Payments Received Under Cash Management Agreement.**Notwithstanding anything to the contrary contained in this Note and theother Financing Documents, and provided no Event of Default has occurred and iscontinuing, Issuers’ obligations with respect to the monthly payment of DebtService and amounts due for the Tax and Insurance Escrow Fund, Required RepairFund, Replacement Escrow Fund, Interest Reserve Escrow Fund and any otherpayment reserves established pursuant to this Note or any other FinancingDocument shall be deemed satisfied to the extent sufficient amounts aredeposited in the Cash Management Account established pursuant to the CashManagement Agreement to satisfy such obligations on the dates each such paymentis required, regardless of whether any of such amounts are so applied byTrustee.

 

(d)  **Interest Reserve.**Issuersacknowledge and agree that Excess Cash Flow (as defined in the Cash ManagementAgreement) shall be deposited and held in the Interest Reserve Fund inaccordance with the terms and provisions of the Cash Management Agreement.

 

**Section 2.5 Extension of the Initial Maturity Date.**(a)  Issuers shall have the option to extend theterm of the Notes beyond the Initial Maturity Date for three successive terms(each, an “**Extension Option**”) of one (1) yeareach (the Initial Maturity Date following the exercise of each such option ishereinafter the “**Extended Maturity Date**”) uponsatisfaction of the following terms and conditions:

 

(i)  noEvent of Default shall have occurred and be continuing at the time theapplicable Extension Option is exercised and on the date that the applicableextension term is commenced;

 

(ii)  Issuersshall notify Trustee of their irrevocable election to extend the Maturity Dateas aforesaid not earlier than six (6) months, and no later than sixty (60)days, prior to (i) with respect to the first Extension Option, the InitialMaturity Date, (ii) with respect to the second Extension Option, the end of thefirst Extension Option term and (iii) with respect to the third ExtensionOption, the end of the second Extension Option term. The term of each thenoutstanding Note must be extended pursuant to the applicable provision and noextension of less than all of the then outstanding Notes shall be permitted;

 

(iii)  ifthe Interest Rate Cap Agreement is scheduled to mature prior to the applicableExtended Maturity Date, Issuers shall obtain and deliver to Trustee for thebenefit of Noteholders not later than ten (10) Business Days prior to the firstday of each Extension Option, one or more Replacement Interest Rate CapAgreements from an Acceptable Counterparty which Replacement Interest Rate CapAgreement shall be effective commencing on the first date of such Extension

 

17

----

 

Option and shall have a maturity date not earlier than the applicableExtended Maturity Date;

 

(iv)  Inconnection with each Extension Option Issuers shall have delivered to Trusteetogether with their notice pursuant to subsection (a)(ii) of this Section 2.5and as of the commencement of the applicable Extension Option, an Officer’sCertificate in form acceptable to the Trustee certifying that each of therepresentations and warranties of Issuers contained in the Financing Documentsis true, complete and correct in all material respects as of the date of suchOfficer’s Certificate to the extent such representation and warranties are notmatters which by their nature can no longer be true and correct as a result ofthe passage of time.

 

(v)  Issuersshall pay to Trustee for the benefit of Noteholders in connection with theexercise of the second and third Extension Option an extension fee equal totwenty-five hundredths of one percent (.25%) of the outstanding principalamount of the Notes simultaneously with delivery of the extension noticepursuant to subsection (a)(ii) above, which extension fee shall bedeemed earned by Noteholders as of the first day of the applicable ExtensionOption term and non-refundable thereafter; and

 

(vi)  Issuersshall provide evidence reasonably satisfactory to Trustee that there issufficient capital available to pay for necessary capital expenditures, tenantimprovements and leasing commissions (it being understood that an Officer’sCertificate certifying the same shall constitute reasonably satisfactoryevidence for purposes of this Section 2.5(a)(vi)).

 

(b)  Issuersshall pay all reasonable costs and expenses of Trustee and Noteholders inconnection with any Extension Option.

 

**ARTICLE 3: FINANCING DOCUMENTS**

** **

This Note is issued pursuant to the Indentureand secured by the Security Trust Agreement, the Pledge and the other FinancingDocuments. All of the terms, covenants and conditions contained in theIndenture, the Security Trust Agreement, the Pledge and the other FinancingDocuments are hereby made part of this Note to the same extent and with thesame force as if they were fully set forth herein.

 

**ARTICLE 4: NO ORAL CHANGE**

** **

This Note may not be modified, amended,waived, extended, changed, discharged or terminated orally or by any act orfailure to act on the part of Issuers or Trustee, but only by an agreement inwriting signed by the party against whom enforcement of any modification,amendment, waiver, extension, change, discharge or termination is sought.

 

18

----

 

**ARTICLE 5: WAIVERS**

** **

Issuers and all others who may become liablefor the payment of all or any part of the Debt do hereby severally waivepresentment and demand for payment, notice of dishonor, notice of intention toaccelerate, notice of acceleration, protest and notice of protest andnon-payment and, except as otherwise expressly provided in the FinancingDocuments, all other notices of any kind in connection with the delivery,acceptance, performance, default or enforcement of the payment of this Note. Norelease of any security for the Debt or extension of time for payment of thisNote or any installment hereof, and no alteration, amendment or waiver of anyprovision of this Note, the Indenture or the other Financing Documents made byagreement between Trustee on behalf of Noteholders or any other Person shallrelease, modify, amend, waive, extend, change, discharge, terminate or affectthe liability of Issuers, and any other Person who may become liable for thepayment of all or any part of the Debt under this Note, the Indenture or theother Financing Documents. No notice to or demand on Issuers shall be deemed tobe a waiver of the obligation of Issuers or of the right of Trustee on behalfof Noteholders to take further action without further notice or demand asprovided for in this Note, the Indenture or the other Financing Documents. Ifany Issuer is a partnership, the agreements herein contained shall remain inforce and be applicable, notwithstanding any changes in the individuals orentities comprising the partnership, and the term “**Issuer**,”as used herein, shall include any alternate or successor partnership, but anypredecessor partnership and their partners shall not thereby be released fromany liability. If any Issuer is a corporation, the agreements contained hereinshall remain in full force and be applicable notwithstanding any changes in theshareholders comprising, or the officers and directors relating to, thecorporation, and the term “**Issuer**” as usedherein, shall include any alternative or successor corporation, but anypredecessor corporation shall not be relieved of liability hereunder. If anyIssuer is a limited liability company, the agreements herein contained shallremain in force and be applicable, notwithstanding any changes in the memberscomprising the limited liability company, and the term “**Issuer**”as used herein, shall include any alternate or successor limited liabilitycompany, but any predecessor limited liability company and their members shallnot thereby be released from any liability. Nothing in the foregoing threesentences shall be construed as a consent to, or a waiver of, any prohibitionor restriction on transfers of interests in such partnership, corporation orlimited liability company, as applicable, which may be set forth in theIndenture or any other Financing Document.

 

**ARTICLE 6: TRANSFER**

** **

Upon the transfer of this Note, Issuershereby waiving notice of any such transfer, Noteholder may deliver, or cause tobe delivered, all the collateral mortgaged, granted, pledged or assignedpursuant to the Financing Documents, or any part thereof, to, or for thebenefit of, the transferee who shall thereupon become vested with all therights and obligations herein or under applicable law given to Noteholder withrespect thereto, and Noteholder shall thereafter forever be relieved and fullydischarged from any liability or responsibility in any matter first arisingafter such transfer; but Noteholder shall retain all rights hereby given to itwith respect to any liabilities and the collateral not so transferred.

 

19

----

 

**ARTICLE 7: NUMBER AND GENDER/JOINT AND SEVERAL LIABILITY**

** **

All pronouns and any variations thereof shallbe deemed to refer to the masculine, feminine, neuter, singular or plural asthe identity of the Person or Persons referred to may require. Without limitingthe effect of specific references in any provision of this Agreement, the term “**Issuers**” shall be deemed to refer to each and every Personcomprising an Issuer from time to time, as the sense of a particular provisionmay require, and to include the heirs, executors, administrators, legalrepresentatives, successors and assigns of each Issuer, all of whom shall bebound by the provisions of this Agreement, provided that no obligation ofIssuers may be assigned except with the written consent of Trustee. Eachreference herein to Trustee or Noteholder shall be deemed to include theirrespective successors and assigns.

 

If Issuers are comprised of more than onePerson, all representations, warranties, covenants (both affirmative andnegative) and all other obligations of Issuers hereunder shall be the joint andseveral obligation of each entity making up Issuers and a Default or Event ofDefault by any such Person shall be deemed a Default or Event of Default by allsuch entities and Issuers. The representations, covenants and warrantiescontained herein shall be read to apply to the individual entities comprisingIssuers when the context so requires but a breach of any such representation,covenant or warranty or a breach of any obligation under this Note shall bedeemed a breach by all such entities and Issuers, entitling Trustee, on behalfof Noteholders, to exercise all of its rights and remedies under this Note andthe other Financing Documents and under applicable law.

 

**ARTICLE 8: EXCULPATION**

** **

The provisions of Section 9.03 of theIndenture are hereby incorporated by reference into this Note to the sameextent and with the same force as if fully set forth herein.

 

**ARTICLE 9: GOVERNING LAW**

** **

This Note shall be governed in accordancewith the terms and provisions of Section 14.04 of the Indenture.

 

**ARTICLE 10: NOTICES**

** **

All notices or other written communicationshereunder shall be delivered in accordance with Section 14.03 of theIndenture.

 

**[NO FURTHER TEXT ON THIS PAGE]**

 

20

----

 

**IN WITNESS WHEREOF**,Issuers have duly executed this Note as of the day and year first abovewritten.

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

 

21

----

 

**SCHEDULE 6.01A**

** **

**Organizational Chart**

** **

 

----

 

**SCHEDULE 6.01E**

** **

**Agreements**

** **

None

 

----

 

**SCHEDULE 6.01Q**

** **

**Asse**ssments

** **

None

 

----

 

**SCHEDULE 6.01T**

** **

**Insurance Claims**

** **

None

 

----

 

**SCHEDULE 6.01Z**

** **

**Leases**

** **

1.             Alease for storage space in the town of San Jose. This lease expired onNovember 30, 2004 but was automatically renewed for another 6 months.

 

2.             Alease for the rental of a plot of land from the Palmilla CondominiumAssociation (this is common land of the members) for a nominal amount ofUS$1.00 per year. This agreement is in the final stages of completion but hasnot yet been executed.

 

----

 

**SCHEDULE 10.01**

** **

**Required Repairs**

 

----

 

We haveprepared a column for the estimated costs of each item. **Required**expenditures indicate deficiencies, which are in violation of codes, which posea danger to public safety, or which if left uncorrected, will lead to furtherdeterioration of the property.

 

A **Capital Expenditure Analysis Chart**, based onindustry-accepted life spans of major building components, is included for allmajor components which will exceed or reach their published service liveswithin 7 years.

 

Maintenancetype deficiencies that in-house personnel and/or current Service Contractorsshould address appear without estimates. There are no **ADA**related costs at this property, since the project is outside the jurisdictionof the U.S. Department of Justice.

 

All estimatedcost are engineering estimates and not bid prices. Costs are in year-2004 U.S. dollarsand assume use of union labor unless otherwise noted.

 
| ** ** | ** ** | **One&Only  Palmilla Resort** | ** ** | ** ** | ** ** |
|------------|------------|-----------------------------------|------------|------------|------------|

 
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** **   | **REQUIRED** | ** **   |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|--------------|
| 1.         | ** ** | **Site**  Provide a drainage swale behind the South Chiller yard to prevent erosion.  Storm water flows down the slope against the back wall of the chiller fence.  The swale would direct storm water away from the wall towards the  asphalt-paved parking lot and to the storm drainage system. Not having a  swale will most likely erode the slope. It appeared that drainage control in  this area was mitigated by the use of sandbags. |         |         |         |
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                     |         |         |         |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                              | * *     | *$*          | *2,500*      | * * |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                       | * *     | * *     | * *     |
| 2.         | ** ** | **Roof******The engineering staff should inspect the existing roof tiles at  the 1992-constructed guestroom buildings. Casa Cristina and the Chapel to  ensure that they are tied/anchored so that in the event of high winds, they  remain in place. Cost is to inspect the roofs.                                                                                                                                                            | ** **   | ** **   | ** **   |
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** **   | ** **   | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                              | * *     | *$*          | *1,500*      | * * |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                       | * *     | * *     | * *     |
| 3.         | ** ** | **Structural**  The Butlers’ pantry building and the mechanical enclosure located near the  guest parking, are built into a hillside. The building walls are retaining  over 6 feet of earth. It is not clear from the structural drawings that this  height of earth pressure was taken into account. The design engineer should  review this condition. Cost is to inspect the above-described condition.                               | *** *** | *** *** | *** *** |
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                     | *** *** | *** *** | *** *** |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                              | * *     | *$*          | *2,500*      | * * |

 

----

 
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **REQUIRED** | ** ** |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|------------|
| 4.         |       | The walls of the Wastewater Treatment Plant  are seeping moisture. Moisture within the walls can cause reinforcing steel  to rust and fail. The contractor and design engineer should be notified to  inspect and repair the seepage. The cost for the remediation of this issue is  estimated at $75,000. This item should be covered under the contractor’s  warranty, with no cost to the resort. | * *   | * *     | * *   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      | * *   | * *     | * *   |
| * *   | * *   | *Warranty  Item*                                                                                                                                                                                                                                                                                                                                                                                          | * *   | * *     | * *   |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                  | * *   | * *     | * *   |
| 5.         | ** ** | **Electrical**  The electrical switchgear at Charlie Trotter’s is exposed to rain water. At a  minimum, the existing roof cover should be extended to better protect the  cabinet.                                                                                                                                                                                                                   | ** ** | ** **   | ** ** |
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** **   | ** ** |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                         | * *   | *$*          | *2,500*    | * * |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                  | * *   | * *     | * *   |
| 6.         |       | Change/provide weatherproof outlets in all  mechanical/service areas that are exposed to the weather. Also, panel boxes  were observed either with missing covers or not provided with a weather  protective enclosure. This item should be remediated.                                                                                                                                                   | * *   | * *     | * *   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                      | * *   | * *     | * *   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                         | * *   | *$*          | *4,000*    | * * |

 

----

 
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **REQUIRED** | ** **   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|--------------|
| 7.         | ** ** | **Anchorage**  The seismic anchorage of building service equipment is recommended to prevent  fire hazards from broken natural gas lines, to maintain building functions  following an earthquake, and to prevent heavy equipment from causing  structural damage or creating a safety hazard by being thrown about in an  earthquake. Most of the ‘smaller’ mechanical equipment observed were  unrestrained. The unrestrained equipment should be anchored. | ** ** | ** **   | ** **   |
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | ** **   | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                                                       | * *   | *$*          | *12,000*     | * * |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                | * *   | * *     | * *     |
| ** ** | ** ** | **Total  Estimated One&Only Palmilla Costs**                                                                                                                                                                                                                                                                                                                                                                                                                        | ** ** | ***$***      | ***25,000*** | *** *** |

 

----

 
|       | ** ** | **Troon  Golf at Palmilla**                                                                                                                                                                                                                                                                                                                                                                                                         | ** **   | ** **   | ** **   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|--------------|
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                          | ** **   | ** **   | ** **   |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                          | ** **   | **REQUIRED** | ** **   |
| 1.         | ** ** | **Site**  The pipe for the septic tank, located in the yard behind the Clubhouse  building does not have a cover. The exposed pipe is being covered with a  tray. A proper cover should be provided.                                                                                                                                                                                                                                |         |         | ** **   |
|       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                          |         |         | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                   | * *     | *$*          | *250*        | ** ** |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                            | * *     | * *     | ** **   |
| 2.         |       | Erosion was observed around the patio of  the irrigation pump house (near Arroyo Hole #4). The erosion should be  repaired and a concrete swale should be provided to direct storm water around  the patio and Pump Room walls.                                                                                                                                                                                                     | ** **   | ** **   | ** **   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                | ** **   | ** **   | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                   | * *     | *$*          | *2500*       | ** ** |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                            | * *     | * *     | ** **   |
| 3.         |       | The generators at the irrigation pump room  are poorly maintained, with evidence of oil spillage and corrosion, which  compounded with the continuous refueling, could diminish the service life of  the equipment. The generators should be inspected and serviced/cleaned and  placed on a preventative maintenance program.                                                                                                      | *** *** | *** *** | ** **   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                | *** *** | *** *** | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                   | * *     | *$*          | *10,000*     | ** ** |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                            | * *     | * *     | ** **   |
| 4.         |       | The single-walled fuel tanks at the  irrigation pump yard should be removed and replaced with a double-walled tank  to prevent spillage. Build concrete curbs around the tanks to assist with  containment of fuel.                                                                                                                                                                                                                 | * *     | * *     | ** **   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                | * *     | * *     | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                   | * *     | *$*          | *10,000*     | ** ** |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                            | * *     | * *     | ** **   |
| 5.         |       | The seismic anchorage of building service  equipment is recommended to prevent fire hazards from broken natural gas  lines, to maintain building functions following an earthquake, and to prevent  heavy equipment from causing structural damage or creating a safety hazard by  being thrown about in an earthquake. Most of the mechanical equipment  observed was unrestrained. The unrestrained equipment should be anchored. | ** **   | ** **   | ** **   |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                | ** **   | ** **   | ** **   |
| * *   | * *   | *Estimated  Cost*                                                                                                                                                                                                                                                                                                                                                                                                                   | * *     | *$*          | *2,000*      | ** ** |
| * *   | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                            | * *     | * *     | ** **   |
| ** ** | ** ** | **Total  Estimated Troon Golf at Palmilla Costs**                                                                                                                                                                                                                                                                                                                                                                                   | *** *** | ***$***      | ***24,750*** | ** ** |

 

----

 

**ONE AND ONLYPALMILLA**

 
| **Issue**                                                                                                                                                                                                                                                                                                                   | ** ** | **Cost to Remediate**         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|
| Potential presence of gasoline and diesel in soil                                                                                                                                                                                                                                                                           |       | $8,000                        |
| Potential presence of gasoline and diesel in soil  in the unpaved area surrounding the secondary containment of the tanks                                                                                                                                                                                                   |       | $12,000                       |
| Potential presence of hydrocarbons in soil                                                                                                                                                                                                                                                                                  |       | $14,000                       |
| Floors must be impervious and antiskid because of  potential for hazardous materials on concrete floor                                                                                                                                                                                                                      |       | $11,000                       |
| Floors must be impervious and antiskid because of  potential for hazardous materials on concrete floor (at Palmilla Golf Club)                                                                                                                                                                                              |       | $5,000 plus management  time  |
| Floors must be impervious and antiskid because of  potential for hazardous materials on concrete floor in the Temporary  Hazardous Waste Storage Area                                                                                                                                                                       |       | $4,000 plus management time   |
| Verify in the equipment specifications document or  plate if the dielectric oil used in the transformers is free of PCBs                                                                                                                                                                                                    |       | $1,000 plus management  time  |
| Verify in the equipment specifications document or  plate if the dielectric oil used in the transformers is free of PCBs (at  Palmilla Golf Club)                                                                                                                                                                           |       | $200 plus management time     |
| Testing water for lead                                                                                                                                                                                                                                                                                                      |       | $2,500 plus management  time  |
| If Municipality of San Jose del Cabo does not  remove lead from water, filters must be purchased                                                                                                                                                                                                                       |       | $28,000 plus management  time |
| Designation of a specific location at the Hotel  for storing all hazardous materials, and this storage area should be provided  with good ventilation, proper signs, and secondary containments for  collecting potential spills                                                                                            |       | $4,000 plus management  time  |
| Storing hazardous materials (from Cardboard and  Plastics storage room) in a specific location for such purpose, to avoid  contamination of non-hazardous wastes with hazardous materials                                                                                                                                   |       | $4,000 plus management  time  |
| Provide hazardous materials (from Trailers A, B,  & C and in the Chemicals Storage Area) with secondary containments for  collecting potential spills, to avoid staining the floor and a potential  infiltration to the soil                                                                                            |       | $2,500 plus management  time  |
| Provide eight 10-L plastic containers storing a  mixture of gasoline and diesel utilized in the grass cutting machines were  placed on the concrete floor with no secondary containment with secondary  containments for collecting potential spills, to avoid staining the floor and  a potential infiltration to the soil |       | $1,000 plus management  time  |
| Provide six 200-L metal drums containing gasoline  observed next to the gasoline and/or diesel spill area with secondary  containments for collecting potential spills, to avoid staining the floor and  a potential infiltration to the soil                                                                               |       | $1,000 plus management  time  |
| Provide sodium hypochlorite containers that are  placed on the cement floor and not provided with secondary containment in the  WWTP Equipment Room with secondary containments for collecting potential  spills, to avoid staining the cement floor and a potential infiltration to  the soil                              |       | $1,000 plus management  time  |

 

----

 
| **Issue**                                                                                                                                                                                                                                                            | ** ** | **Cost to Remediate**        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|
| Provide 2,000-L diesel AST and a 10,000-L diesel  AST in the Golf Course Equipment Area placed on the ground with secondary  containments and other devices for collecting potential spills, to a  potential infiltration to the soil                                |       | $4,000 plus management  time |
| Provide two plastic 3,600-L ASTs containing pH  adjusting substance and liquid fertilizer in the Golf Course Equipment Room  that are placed directly on the ground and not provided with secondary  containment with secondary containments                         |       | $4,000 plus management  time |
| Designation of a specific location at the Hotel  for storing all hazardous wastes generated                                                                                                                                                                          |       | $5,000 plus management  time |
| To store the three 200-L metal drums containing  used oil that were observed placed on the concrete floor of the Golf Course  Equipment Room, and with no secondary containment in the Temporary Hazardous  Waste Storage, located in the Golf Club Maintenance Area |       | Management Time              |
| Replacing the use of the R-22 at the site for a  non Ozone Depleting Substance                                                                                                                                                                                       |       | $4,000 plus management  time |
| Dispose of equipment out of operation placed  directly on the ground in several parts of the Golf Club Maintenance Area  that could be leaking oil and other hazardous materials                                                                                     |       | $4,000 plus management  time |
| Provide scrap metal that  is placed directly on the ground in the unpaved Scrap Metal Storage Area with  concrete floor and protect it from the environment to avoid the early  oxidation of metal parts                                                             |       | $5,000 plus management  time |
| Provide Caterpillar  500-KVA generator, in the Golf Course Equipment Room with a secondary  containment for collecting potential oil and diesel spills to avoid potential  infiltration to the soil                                                                  |       | $1,000 plus management  time |

 

----

 

 

 

**FIRST AMENDMENT TO NOTE INDENTURE**

** **

 

Dated as ofMarch        , 2005

 

 

Between

 

 

**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)

 

 

 

----

 

**FIRST AMENDMENT TO NOTE INDENTURE**

** **

**THIS FIRST AMENDMENT TO NOTE INDENTURE**(this“**Amendment**”), dated as of March ___,2005, between **KERZNER PALMILLA BEACH PARTNERS, S. de R.L.de C.V., KERZNER PALMILLA HOTEL PARTNERS, S. de R.L. de C.V., KERZNER SERVICIOSHOTELEROS, S. de R.L. de C.V., KERZNER COMPANIA DE SERVICIOS, S. de R.L. deC.V. and KERZNER PALMILLA GOLF PARTNERS, S. de R.L. de C.V.,** each alimited liability company with variable capital *(sociedad deresponsabilidad limitada de capital variable)*, duly organized andvalidly existing under the laws of the United Mexican States and each having anaddress at Palmilla Resort & Golf Club Apartado Postal 52, 33400 San JoseDel 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 the Noteholders (ashereinafter defined) (hereinafter, the “**Trustee**”).

 

**W**ITNESSETH:

** **

WHEREAS, pursuant to certain promissorynotes, dated December 17, 2004 (collectively, the “**InitialNotes**”), executed and delivered by Issuers pursuant to that certainNote Indenture, dated as of December 17, 2004, between Issuers and Trustee(as amended by this Amendment and as the same may be further amended, restated,replaced, supplemented or otherwise modified from time to time, the “**Indenture**”), Issuers have become indebted to Noteholders (asdefined in the Indenture) in the original principal amount of One Hundred TenMillion and No/100 Dollars ($110,000,000) (such indebtedness, the “**Note Indebtedness**”), which Note Indebtedness is secured bythat certain Amended and Restated Trust Agreement, dated as of December 17,2004 (as the same may be amended, restated, replaced, supplemented, orotherwise modified from time to time, the “**Security Trust Agreement**”)and further evidenced, secured or governed by other instruments and documentsexecuted in connection with the issuance of the Initial Notes (together withthe Initial Notes, the Indenture and the Security Trust Agreement, collectively,the “**Financing Documents**”).

 

WHEREAS, there is presently outstanding onthe Initial Notes a principal balance of $110,000,000.

 

WHEREAS, in connection with the proposedSecuritization (as defined in the Indenture) of a portion of the NoteIndebtedness, the Trustee, on behalf of the Noteholders, have requested, andthe Issuers have agreed, to re-size the Initial Notes in accordance with theterms and provisions of the Indenture and the Securitization CooperationAgreement.

 

WHEREAS, the Trustee, on behalf of theNoteholders, now wishes to amend the Indenture pursuant to the terms andprovisions of the Indenture and the Securitization Cooperation Agreement, andthe Issuers consent to such amendment, in accordance with the terms set forthherein.

 

----

 

NOW, THEREFORE, for good and valuableconsideration, the receipt and sufficiency of which are acknowledged, theparties hereto hereby covenant, agree, represent and warrant as follows:

 

**I.**              DEFINITIONS

** **

**1.1****          Replacement Definitions**.From and after the date hereof, the following terms set forth in the Indentureare hereby deleted in their entirety and shall be redefined as follows:

 

“**Note A**” shallmean that certain Promissory Note A in the original principal amount of SeventyFive Million and No/100 Dollars ($75,000,000), dated December 17, 2004 andmade by Issuers, as the same may be amended, restated, replaced, supplementedor otherwise modified from time to time as provided herein.

 

“**Note B**” shallmean that certain Promissory Note B in the original principal amount of ThirtyFive Million and No/100 Dollars ($35,000,000), dated December 17, 2004 andmade by Issuers, as the same may be amended, restated, replaced, supplementedor otherwise modified from time to time as provided herein.

 

**II.**            AMENDED PROVISIONS

** **

**2.1****          Revised General Terms**.From and after the date hereof,

 

(a) Section 8.01(a) of the Indenture isamended as follows:

 

(i)      Byamending and restating clause (i) thereof in its entirety to provide asfollows:

 

(i)comprehensive all risk insurance on the Improvements and the Personal Property,including contingent liability from Operation of Building Laws, DemolitionCosts and Increased Cost of Construction Endorsements, in each case (A) in anamount equal to one hundred percent (100%) of the “Full Replacement Cost,”which for purposes of this Indenture shall mean actual replacement value(exclusive of costs of excavations, foundations, underground utilities andfootings) with a waiver of depreciation, but the amount shall in no event beless than the outstanding principal balance of the Notes; (B) containing anagreed amount endorsement with respect to the Improvements and PersonalProperty waiving all co-insurance provisions; (C) providing for no deductiblein excess of One Hundred Thousand and No/100 Dollars ($100,000) for all suchinsurance coverage; and (D) containing an “Ordinance or Law Coverage” or “Enforcement”endorsement if any of the Improvements or the use of the Property shall at anytime constitute legal non-conforming structures or uses. In addition, Issuersshall obtain coastal windstorm insurance in amounts and in form and substancesatisfactory to Trustee in the

 

----

 

event theProperty is located in any coastal region, provided that the insuranceshall be on terms consistent with the comprehensive all risk insurance policyrequired under this subsection (i) and providedfurtherthat coastal windstorm insurance shall not be required with respect to the golfcourse located at the Property. Notwithstanding anything to the contrarycontained in this Section 8.01, (1) earthquake insurance requiredhereunder may provide for co-insurance in an amount up to ten percent (10%) ofthe applicable insurance coverage and a deductible in an amount up to TwoMillion and No/100 Dollars ($2,000,000) and (2) coastal windstorm insurancerequired hereunder may provide for a deductible in an amount up to Two Millionand No/100 Dollars ($2,000,000);

 

(ii)     Byamending and restating clause (vi) thereof in its entirety to provide asfollows:

 

(vi)          intentionallyomitted;

 

(iii)    Bydeleting the term “and” at the end of Clause (x) thereof;

 

(iv)    Byamending and restating clause (xi) thereof in its entirety to provide asfollows:

 

(xi) uponsixty (60) days’ notice, such other reasonable insurance and in such reasonableamounts as Trustee from time to time may reasonably request against such otherinsurable hazards which at the time are commonly insured against for propertysimilar to the Property located in or around the region in which the Propertyis located, provided that Trustee hereby agrees that, notwithstandingthe foregoing, Issuers shall not be required to obtain boiler and machineryinsurance; and

 

(v)     Byadding the following at the end thereof:

 

(xii)political risk insurance in an amount not less than One Hundred Ten Million andNo/100 Dollars ($110,000,000) covering losses arising from or associated with(A) the nationalization, confiscation, or expropriation of funds or assets(including expropriation pursuant to unlawful government action depriving theapplicable Person of fundamental rights in its funds or assets), and (B) thedeterioration in a Person’s ability to convert profits, debt service, and otherinvestment returns from Mexican pesos into Dollars and to transfer Dollars outof Mexico (including new currency restrictions or controls preventing theconversion from Mexican pesos to Dollars and/or transfer and repatriation ofmonetary returns of an investment in Mexico).

 

----

 

(b)     Section 8.01(d)of the Indenture is amended and restated in its entirety to provide as follows:

 

All Policiesprovided for or contemplated by Section 8.01(a), except for thePolicy referenced in Section 8.01(a)(v), shall name Issuers as theinsured and Trustee as the additional insured, as its interests may appear, andin the case of property damage, flood and earthquake insurance; shall contain aso-called New York standard non-contributing mortgagee clause in favor ofTrustee providing that the loss thereunder shall be payable to Trustee.

 

(c)     Section 10.02of the Indenture is amended and restated in its entirety to provide as follows:

 

Tax andInsurance Escrow Fund. Issuers shall pay to Trustee(a) on each Payment Date (i) one twelfth of the Taxes and the Condominiumcharges and assessments that Trustee estimates will be payable during the nextensuing twelve (12) months in order to accumulate with Trustee sufficient fundsto pay all such Taxes and Condominium charges and assessments thirty (30) daysprior to their respective due dates and (ii) one twelfth of the InsurancePremiums that Trustee estimates will be payable for the renewal of the coverageafforded by the Policies (other than the political risk insurance Policyrequired under Section 8.01(a)(xii) hereof) upon the expirationthereof in order to accumulate with Trustee sufficient funds to pay all suchInsurance Premiums thirty (30) days prior to the expiration of such Policiesand (b) on each Payment Date, commencing with the Payment Date occurring inApril 2005, an amount that Trustee estimates will be necessary to accumulatewith Trustee (in equal installments and after taking into account the thenremaining balance of any amounts deposited with Initial Purchaser on the NoteIssuance Date for the purchase of political risk insurance coverage) fundssufficient to pay the Insurance Premium relating to political risk insurancePolicy required under Section 8.01(a)(xii) hereof thirty (30) daysprior to the expiration of such Policy (or thirty (30) days prior to the datethe next installment of such Insurance Premium is due and payable, as applicable)(said amounts in (a) and (b) above hereinafter called the “**Tax andInsurance Escrow Fund**”). The Tax and Insurance Escrow Fund and thepayment of the monthly Debt Service, shall be added together and shall be paidas an aggregate sum by Issuers to Trustee. Trustee will apply the Tax andInsurance Escrow Fund to payments of Taxes and Insurance Premiums required tobe made by Issuers pursuant to Section 7.01(b) hereof. In makingany payment relating to the Tax and Insurance Escrow Fund, Trustee may do soaccording to any bill, statement or estimate procured from the appropriatepublic

 

----

 

office (withrespect to Taxes) or insurer or agent (with respect to Insurance Premiums),without inquiry into the accuracy of such bill, statement or estimate or intothe validity of any tax, assessment, sale, forfeiture, tax lien or title orclaim thereof except where Issuers are contesting the Taxes in accordance withthe terms and provisions of this Indenture and have notified Trustee in writingof such contest. If the amount of the Tax and Insurance Escrow Fund shallexceed the amounts due for Taxes and Insurance Premiums pursuant to Section 7.01(b)hereof, Trustee shall, in its reasonable discretion, return any excess toIssuers or credit such excess against future payments to be made to the Tax andInsurance Escrow Fund. Any amount remaining in the Tax and Insurance EscrowFund after the Debt has been paid in full shall be returned to Issuers. Inallocating such excess, Trustee may deal with the Person shown on the recordsof Trustee to be the owner of the Property. If at any time Trustee reasonablydetermines that the Tax and Insurance Escrow Fund is not or will not besufficient to pay Taxes and Insurance Premiums by the dates set forth in (a)and (b) above, Trustee shall notify Issuers of such determination and Issuersshall increase its monthly payments to Trustee by the amount that Trusteeestimates is sufficient to make up the deficiency at least thirty (30) daysprior to the due date of the Taxes, thirty (30) days prior to expiration of thePolicies (other than the political risk insurance Policy required under Section8.01(a)(xii) hereof) and/or thirty (30) days prior to the expiration of thepolitical risk insurance Policy required under Section 8.01(a)(xii)hereof (or, if applicable, thirty (30) days prior to the date the nextinstallment of the Insurance Premium therefor is due and payable), as the casemay be. Notwithstanding anything to the contrary contained herein or in theother Financing Documents, it shall be a condition precedent to the exercise ofany Extension Option that (x) Issuers shall have obtained a political riskinsurance Policy satisfying the terms of Section 8.01(a)(xii)hereof and having an expiration date that is not earlier than the relatedExtended Maturity Date and (y) Issuers shall have delivered to Trustee evidenceof such political risk insurance Policy reasonably satisfactory to Trustee notlater than ten (10) Business Days prior to the first day of the applicableExtension Option term.

 

(d)     Section 10.03(a)of the Indenture amended and restated in its entirety to provide as follows:

 

ReplacementReserve Fund. Issuers shall pay to Trustee (i) on eachPayment Date commencing with the Payment Date occurring in February 2005, twopercent (2%) of Gross Income from Operations for the calendar month two (2)months prior to the

 

----

 

month in whichsuch Payment Date occurs, (ii) on each Payment Date commencing with the PaymentDate occurring in January 2006, three percent (3%) of Gross Income fromOperations for the calendar month two (2) months prior to the month in whichsuch Payment Date occurs, and (iii) on each Payment Date thereafter (commencingwith the Payment Date occurring in January 2007), four percent (4%) ofGross Income from Operations for the calendar month two (2) months prior to themonth in which such Payment Date occurs, which is the amount (the “**Replacement Reserve Monthly Deposit**”) reasonably estimatedfor the calendar month two (2) months prior to the month in which such Payment Dateoccurs by Trustee in its sole discretion to be due for replacements and repairsrequired to be made to the Property during the calendar year (collectively, the“**Replacements**”). Amounts so depositedshall hereinafter be referred to as Issuers’ “Replacement Reserve Fund” and theaccount in which such amounts are held shall hereinafter be referred to asIssuers’ “**Replacement Reserve Account**.”

 

**III.**           MISCELLANEOUS

** **

**3.1**          Except as specificallymodified and amended herein, all other terms, conditions and covenantscontained in the Indenture shall remain in full force and effect.

 

**3.2**          The terms and provisionsof Section 9.03 of the Indenture are incorporated herein by this expressreference.

 

**3.3**          All references in theFinancing Documents to the Indenture shall mean the Indenture as herebymodified and as it may be further amended, restated, replaced, supplemented orotherwise modified from time to time.

 

**3.4**          Unless otherwise definedin this Amendment, terms defined in the Indenture or in any of the otherFinancing Documents shall have their defined meanings when used herein.

 

**3.5**          All of therepresentations, warranties, covenants and other terms and provisions of theNotes and the other Financing Documents, as modified hereby, including, withoutlimitation, all defined terms and granting clauses, shall be applicable fromand after the date hereof with the same force and effect as if the same hadoriginally been included in the Notes and the other Financing Documents. TheFinancing Documents, except as specifically modified by this Amendment, remainunmodified and, as so modified, are in full force and effect.

 

**3.6**          This Amendment may beexecuted in any number of counterparts with the same effect as if all pattieshereto had signed the same document. All such counterparts shall be construedtogether and shall constitute one instrument, but in making proof hereof itshall only be necessary to produce one such counterpart.

 

----

 

**3.7**          This Amendment shall bebinding upon and inure to the benefit of the parties and their respectiveheirs, legal representatives, successors and assigns.

 

**3.8**          This Amendment shall begoverned by, and construed in accordance with, the laws of the State of NewYork, without regard to principles of conflict laws, and any applicable law ofthe United States of America.

 

----

 

**IN WITNESS WHEREOF**,the parties hereto have caused this Amendment to be duly executed by their dulyauthorized representatives, all as of the day and year first above written.

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

 

----

 
|   | **TRUSTEE:**                           |
|--------|----------------------------------------|
|   | ** **                             |
|   | **LASALLE  BANK NATIONAL ASSOCIATION** |
|   |                                   |   |
|   | By:                                    |   |   |
|   |                                   | Name: |
|   |                                   | Title: |

 

----

 
|   | **APPROVED**as of this           day of March, 2005 |
|--------|---------------------------------------------------------------------------------------------|
|   | ** **                                                                                  |
|   | **NOTEHOLDERS:**                                                                            |
|   | ** **                                                                                  |
|   | **CREDIT  SUISSE FIRST BOSTON LLC**                                                         |
|   |                                                                                        |   |
|   | By:                                                                                         |   |   |
|   |                                                                                        | Name: |
|   |                                                                                        | Title: |

 

----