Document:

ex1029.htm

    
 

    Exhibit
10.29

    

    
      

    

    

    

    

    LETTER OF
CREDIT AND REIMBURSEMENT AGREEMENT

    

    

    

    Dated as
of October 26, 2000

    

    

    

    Between

    

    

    

    PALMAS
COUNTRY CLUB, INC.

    

    a
Delaware corporation

    

    

    

    and

    

    

    

    PUERTO
RICO TOURISM DEVELOPMENT FUND,

    an
instrumentality of the Commonwealth of Puerto Rico

    

    _________________________

    

    $30,000,000

    

    PUERTO
RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL

    

    AND
ENVIRONMENTAL CONTROL

    

    FACILITIES
FINANCING AUTHORITY

    

    TOURISM
REVENUE BONDS,

    

    2000
SERIES A

    

    (PALMAS
DEL MAR COUNTRY CLUB PROJECT)

    

    

    ____________________________________________________________________________________

    

    
      
         

      

      
        
          

        

      

       

    

    LETTER OF CREDIT AND REIMBURSEMENT
AGREEMENT dated as of October 26, 2000, between PALMAS COUNTRY CLUB, INC. (the
"Company"), a Delaware corporation, and the PUERTO RICO TOURISM DEVELOPMENT
FUND, an instrumentality of the Commonwealth of Puerto Rico
("TDF").

    

    WHEREAS, pursuant to the Loan
Agreement dated as of the date hereof (the "Loan Agreement") between the Company
and Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, a body corporate -and politic
constituting a public corporation and a governmental instrumentality established
and existing under and by virtue of the laws of the Commonwealth of Puerto Rico
(the "Issuer"), Issuer has resolved to issue and sell its Tourism Revenue Bonds,
2000 Series A (Palmas del Mar Country Club Project) (the "Bonds") and to apply
the proceeds thereof to finance or refinance a portion of the cost of
constructing and equipping the 18-hole championship "Flamboyan" golf course, a
golf clubhouse, a beach club and other facilities, and the cost of refurbishing
the 18-hole championship "Palm" golf course, all located or to be located in the
Palmas del Mar resort in the municipality of Humacao, Puerto Rico;
and

    

    WHEREAS, PaineWebber Trust
Company of Puerto Rico, a Puerto Rico corporation, has been designated to serve
as trustee under Trust Agreement, dated as of the date hereof, between the
Issuer and the Trustee (the "Trust Agreement") (together with any successor
trustee designated pursuant to the Trust Agreement, the "Trustee");
and

    

    WHEREAS, the Issuer, the
Trustee and the Company requested TDF to issue and deliver its Letter of Credit
(the "Letter of Credit") to provide security for the payment of the principal
of, and interest accrued on, the Bonds; and

    

    NOW, THEREFORE, in
consideration. of the mutual promises contained herein and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

    

    
      	
              1.  

            	
               DEFINITIONS. As used in this
      Agreement and unless otherwise expressly indicated, or unless the context
      clearly requires otherwise:

            

    

    

    "Accountant" shall mean Arthur Andersen
LLP or such other firm of independent certified public accountants as is
reasonably satisfactory to TDF.

    

    "Affliate" shall mean, with respect to
any Person, another Person that directly or indirectly controls, is controlled
by, or is under common control with, such Person. For purposes of this
definition, control means the power to direct the management and policies of a
Person, whether through the ownership of voting securities or partnership
interests, through the right to designate or elect members of its board of
directors or other governing board or body, by contract, or
otherwise.

    

    "Appraisal" shall mean the appraisal
dated April 11, 2000, prepared by Robert McCloskey & Associates at the
Company's sole cost and expense setting forth a fair market value of the
Property.

    

    "Architects" shall collectively mean
Fiedler & Frias, as architects of the beach club and the golf clubhouse
forming part of the Project, Rees Jones, Inc., as architects of the "Flamboyan"
golf course, and Dennis Griffith, as architect for the refurbishing of the
"Palm" golf course, or any successors engaged by the Company with the prior
written consent of TDF.

    

    "Architects' Agreements" shall mean
those certain agreements between. the Company and any of the Architects relating
to the design of the Improvements and providing for architectural services in
connection with the Construction of the Improvements.

    

    "Assignment of Contracts" shall mean an
assignment from the Company to TDF and Issuer, which shall be in form and
substance substantially similar to that set forth in Exhibit 1.1 hereof,
pursuant to which the Company collaterally assigns to TDF and Issuer its rights
in and to all contracts, licenses, permits and certain other documents entered
into or obtained by the Company in connection with the Project.

    

    "Assignment of Depository Accounts"
shall mean a pledge and assignment from the Company to TDF and Issuer, which
shall be in form and substance substantially similar to that set forth in Exhibit 1.2 hereof,
pursuant to which the Company collaterally assigns to TDF and Issuer its rights
in and to all depository accounts maintained by the Company at any financial
institution.

    

    "Assignment of Rents" shall mean an
assignment from the Company to TDF and Issuer, which shall be in form and
substance substantially similar to that set forth in Exhibit 1.3 hereof,
pursuant to which the Company collaterally assigns to TDF and Issuer its rights
in and to all rents, issues and profits derived from any leases entered into for
space at the Project.

    

    "Authorized Company Representative"
shall mean the chief financial officer or other authorized officer of the
Company.

    

    "Bond Proceeds" shall mean the
aggregate proceeds obtained from the initial sale and issuance of the
Bonds.

    

    "Bond Purchase Agreement" shall mean
the Bond Purchase Agreement, dated as of October 12, 2000, among PaineWebber
Incorporated of Puerto Rico, the Company and the Issuer.

    

    "Bonds" shall have the meaning set
forth in the WHEREAS clauses hereof.

    

    "Budget" shall mean the budget for the
Project, a copy of which is attached as Exhibit 1.4, as
amended, modified or supplemented from time to time.

    

    "Business Day" shall mean any day other
than a Saturday, Sunday or other day on which banks in San Juan, Puerto Rico or
New York City, New York, are closed to the public.

    

    "Code" shall mean the United States
Internal Revenue Code of 1986, as amended from time to time.

    

    "Change of Control" shall be deemed to
have occurred if Maxxam shall cease to own, directly or through subsidiaries, a
majority of the capital stock of the Company, or shall cease to have the power
to direct the policies and management of the Company.

    

    "Collateral" shall mean all of the
property, real or personal, tangible or intangible, and all rights thereto,
pledged, mortgaged or hypothecated pursuant to the Security
Documents.

    

    "Company" shall have the meaning set
forth in the introductory paragraph of this Agreement.

    

    "Completion Date" shall mean November
25, 2002, subject to extension for Unavoidable Delay as provided in Section /.
13  hereof.

    

    "Completion Guarantee" shall mean the
Guarantee of Completion Of Construction dated the date hereof between PDMPI and
TDF.

    

    "Consent and Agreement" shall mean an
agreement between an entity providing services to the Company, including a Prime
Contractor, Architect, Engineer, or Operator, and TDF, pursuant to which such
entity consents to the collateral assignment of its contract with the Company to
TDF, which consent and agreement shall be in form and substance substantially
similar to that set forth in Exhibit 1.5
hereof.

    

    "Construction or Construct", when used
with reference to the Project, shall mean construction, installation, renovation
or development of the Improvements or any portion thereof.

    

    "Construction Contracts" shall mean
those certain construction contracts providing for the construction of the
Improvements.

    

    "Construction Documents" shall mean,
collectively, the Construction Contracts, the Architect Agreements, all Prime
Contracts, all Major Trade Contracts and all other agreements to which the
Company is a party to or beneficiary of pertaining to the Construction of the
Improvements.

    

    "Construction Schedule" shall mean the
schedule prepared by the Company showing, by Trade Cost Items, the estimated
periods of time for Construction of the beach club house and for renovation of
the Palm golf course, a copy of which (in the case of the beach club house) is
attached hereto as Exhibit 1.6. The Construction Schedule relating to the
renovation of the Palm golf course shall be prepared by the Company prior to
commencement of such renovation, shall provide for completion of such renovation
on or prior to November 25, 2002, and shall otherwise be reasonably satisfactory
to TDF.

    

    "Date of Issuance" shall mean the date
of delivery of an executed counterpart of the Letter of Credit.

    

    "Debt or "Debts" shall mean, with
respect to any Person, (a) indebtedness of such Person for money borrowed
(including, without limitation, indebtedness evidenced by notes, bonds,
debentures or other similar instruments of such Person), (b) indebtedness
represented by the deferred purchase price of property or services acquired by
such Person, (c) rentals payable by such Person under any lease of real or
personal property which shall have been, or should, under generally accepted
accounting principles, be classified as a capital lease, (d) obligations of such
Person under direct or indirect guarantees in respect of, and obligations
(contingent or otherwise) of such Person to purchase or otherwise acquire, or
otherwise assure a creditor against loss in respect of, indebtedness or
obligations of another Person of the type described in clause (a), (b) or (c)
above, and (e) liabilities of such Person in respect of unfunded vested benefits
under, or withdrawal liability in respect of, plans covered by Title IV of
ERISA.

    

    "Debt Coverage Ratio" shall mean, for
any period, the ratio of (a) the sum of (i) Net Income for such period, (ii)
interest expense on all indebtedness of the Company, including capitalized
leases, to the extent deducted from Gross Revenues in calculating Net Income for
such period, (iii) depreciation and amortization for such period, to the extent
deducted from Gross Revenues in calculating Net Income,, and (iv) initiation
deposits received by the Company from the sale of all club memberships, to the
extent not taken into consideration in calculating Net Income, to (b) interest,
principal, fees and all other payments required to be made with respect to all
indebtedness of the Company, including capitalized leases, for such
period.

    

    "Debt Service Reserve" shall mean the
Debt Service Reserve described in the Trust Agreement, being the same as that
certain Line Item within the Budget entitled Debt Service Reserve which shall at
all times be funded in accordance with the terms of Section 7.61
hereof

    

    "Default" shall mean any event which
with notice of lapse of time, or both, would become an Event of
Default.

    

    "Disbursement" shall mean each
disbursement of all or any portion of the Project Funds.

    

    "Dollars" or the sign "$" shall mean
dollars in the lawful currency of the United States of America.

    

    "Employment Compensation Plan" shall
mean any multiemployer plan or single employer plan, as defined in Section 4001 of ERISA
and subject to Title IV of ERISA, which is maintained, or at any time during the
five (5) calendar years preceding the date of this Agreement was maintained, for
employees of the Company or a subsidiary or an ERISA Affiliate,

    

    "Environmental Laws" shall mean,
collectively, all current and future federal, commonwealth and local
environmental laws, statutes arid regulations, now or at any time here-after in
effect, including, without limitation, the Resource, Conservation and Recovery
Act, as amended from time to time, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time, and any so-called
Superfund or Superlien law, including, without limitation, the Superfund
Amendments and Reauthorization Act of 1986, and the counterparts of such
statutes as enacted by state, commonwealth and local governments with
jurisdiction over the Project, and any and all regulations promulgated under or
judicial or administrative interpretation of any of the foregoing.

    

    "Environmental Report" shall mean an
environmental report dated October, 2000 relating to the Property and the
Improvements, addressed to the Company and to TDF, prepared at the Company's
sole cost and expense.

    

    "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended from time to time. Section
references to ERISA are to ERISA as in effect at the date of this Agreement and
any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or
substituted therefor.

    

    "ERISA Affiliate" shall mean each trade
or business (whether or not incorporated) which, together with the Company or a
Subsidiary, would be deemed to be a single employer within the meaning of Section 4001 of
ERISA.

    

    "Event of
Default" shall have the meaning set forth in Section 12,1 hereof
..

    

    "Excess Cash Flow" shall mean, with
respect to the period (treated as a single accounting period commencing on
January 1, 2001, and ending on the last day of the fiscal year immediately
preceding the date of determination, (i) Net Income for such period minus (ii)
the total amount of cash expenditures of the Company (including principal
payments with respect to the Bonds and other debt of the Company, amounts paid
to purchase or redeem Bonds, capital expenditures, prepaid expenses and deposits
into the reserve accounts described herein), to the extent such cash
expenditures have not been deducted from Gross Revenues in calculating Net
Income and have not been financed from the proceeds of the Bonds or indebtedness
permitted pursuant to Section 7.5, plus (iii) depreciation and amortization, to
the extent deducted from Gross Revenues in calculating Net Income, plus (iv)
initiation deposits received by the Company from the sale of all club
memberships, to the extent not taken in consideration in calculating Net
Income.

    

    "Excess Cash Flow Reserve" shall mean
the reserve account required to be established by the Company pursuant to
Section 7.60 hereof.

    

    "Existing Loans" shall mean the loan in
the amount of $5,760,910.16 (principal, interest and prepayment penalty) payable
to Textron Financial Corporation and the loan in the principal amount of
$21,642,286.68 payable to PDMPI, each relating to the interim financing of the
Project.

    

    "Financial Statements" shall mean, as
applicable, (i) all statements of financial condition with respect to the
Company previously submitted to TDF and/or (ii) all updates of such statements
and/or other statements of financial condition submitted by the Company or any
other party pursuant to Section 7.6
hereof.

    

    "Government Authority" shall mean any
court, agency, authority, board (including, without limitation, any
environmental protection, planning or zoning board), bureau, commission,
department, office or instrumentality of any nature whatsoever of any
governmental or quasi-governmental unit of the United States, the Commonwealth
of Puerto Rico, -or the Municipality of Humacao, whether now or hereafter in
existence, having jurisdiction over the Company or the Project.

    

    "Gross Revenues" shall mean, for any
period, all revenues of any kind received or derived by the Company from the
ownership and operation of the Project for such period, all determined (except
as otherwise agreed) in accordance with generally accepted accounting principles
consistently applied. Anything to the contrary notwithstanding, Gross Revenues
shall not include tips, service charges added to a customer's bill or statement
in lieu of gratuities which are payable to employees of the Project, the value
of complimentary food and beverages, and any sales or other use or excise taxes
required by law to be collected with respect to the operations of the Project
and remitted to taxing authorities, receipts from the sale or other disposition
of capital assets and income derived from securities and other property acquired
and held for investment; receipts from condemnation awards or sales or other
transfers in lieu of and under threat of condemnation (other than those received
in respect of a temporary taking), proceeds of any insurance, and rebates,
discounts or credits of similar nature (not including charge or credit card
discounts, which shall not constitute a reduction from revenues in determining
Gross Revenues nor shall constitute an expense in determining Net
Income).

    

    "Hard Costs" shall mean those
construction costs and expenses within the Budget which would be generally
referred to as hard costs of construction as that term is used within the
construction industry.

    

    "Hazardous Material" shall mean
asbestos, polychlorinated biphenyls, petroleum products and any other substance
or material that, whether by its nature or use, is now or hereafter defined as
hazardous waste, hazardous substance, pollutant or contaminant under any
Environmental Law, or which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
which is now, or hereafter regulated under any Environmental Law.

    

    "Improvements" shall mean the
improvements constructed or to be renovated or constructed on the Property
pursuant to the Plans.

    

    "Indemnified Party" shall have the
meaning set forth in Section 5.1
hereof

    

    "Initial Disbursement" shall mean the
initial disbursement from the Budget on the Date of Issuance, A schedule showing
the expenses comprising the Initial Disbursement is attached as Exhibit
1.7.

    

    "Interest Payment Date" shall mean the
20th day of each month, commencing on November 20, 2000.

    

    "Investment Agreement" shall mean one
or more agreements acceptable to the Company and TDF, pursuant to which portions
of the funds necessary to pay for the amounts contained in the Budget are
invested.

    

    "Issuer" shall have the meaning set
forth in the WHEREAS clauses hereof.

    

    "Legal Requirements" shall mean,
collectively, (i) all statutes, laws, rules, rulings, orders, regulations,
ordinances, judgments, decrees and injunctions of any Governmental Authority
(including, without limitation, fire, health, handicapped access, sanitation,
ecological, historic, zoning, environmental protection, wetlands and building
laws) in any way applicable to the Company or the Property and the Improvements,
or any portion thereof, or to the ownership, use, occupancy, possession,
operation or maintenance of the Property and the improvements; (ii) all
requirements of the local Board of Fire Underwriters or other similar body
acting in and for the locality in which the Property is situated and all
requirements of each insurance policy covering or applicable to all or any
portion of the Property and the Improvements, or the use thereof, and all
requirements of the issuer of each such policy, including any which may require
repairs, modifications or alterations (structural or otherwise) in or to the
Improvements, or any portion thereof; and (iii) all requirements of each permit,
license, authorization and regulation relating to the Property and the
Improvements, or any portion thereof, or to the ownership, use, occupancy,
possession, operation or maintenance thereof; provided, however, that nothing in
this paragraph shall prohibit the Company from exercising a good faith challenge
to any of the foregoing, so long as such action does not result in a Lien being
filed or recorded against any of the Collateral, unless the Company transfers
such Lien to a surety bond.

    

    "Letter of Credit" shall have the
meaning set forth in-the
WHEREAS clauses hereof, as the same may be amended from time to
time.

    

    "Letter of Credit Fee" shall have the
meaning set forth in Section 2.2
hereof.

    

    "Lien" shall mean any mortgage, pledge,
security interest, collateral assignment, encumbrance, lien or charge of any
kind, including, without limitation, any conditional sale or other title
retention agreement, any lease in the nature thereof, or the filing of or an
agreement to give any of the foregoing.

    

    "Line Item" shall mean a line item of
cost set forth in the Budget.

    

    "Loan" shall mean the loan made by the
Issuer to the Company pursuant to the Loan Agreement.

    

    "Loan Agreement" shall have the meaning
set forth in the WHEREAS clauses hereof.

    

    "Major Trade Contract(s)" shall mean a
Trade Contract or Trade Contracts which, when taken together with other work
performed or materials supplied by the same Trade Contractor, provide for
aggregate payments to a single Trade Contractor thereunder in excess of $75,000
but less than $750,000.

    

    "Management Agreement" shall mean each
of the management agreements between an Operator and the Company.

    

    "Master Security Agreement" shall mean
a Master Security Agreement by the Company in favor of TDF and the Issuer in
form and substance acceptable to TDF and creating a security interest under the
UCC with respect to (i) any and all tangible and intangible personal property,
including fixtures, purchased by the Company for use at or in connection with
the Project which is now owned or hereafter acquired by the Company, (ii) any
buses, limousines or other moving vehicles purchased by the Company for use at
or in connection with the Project which is now owned or hereafter acquired by
the Company, (iii) all accounts receivable now existing or hereafter obtained in
connection with the Project, and (iv) all of the collateral assigned to TDF
pursuant to the Assignment of Contracts, Assignment of Depository Accounts,
Assignment of Depository Accounts (Capital Improvements), and Assignment of
Rents.

    

    "Material Work Change" shall mean any
change order, other amendment or modification to any Construction Contract,
Prime Contract, Major Trade Contract or Trade Contract affecting costs in excess
of $50,000.

    

    "Mortgage" shall collectively mean each
of the two mortgages of even date herewith which shall constitute a first
mortgage lien on the Property.

    

    "Maxxam" shall mean MAXXAM Inc., a
Delaware corporation.

    

    "Net Income" shall mean net income or
loss determined in accordance with generally accepted accounting principles,
consistently applied.

    

    "Note" shall collectively mean each of
the two bearer demand promissory notes of the Company in an aggregate principal
amount equal to the aggregate initial principal amount of the Bonds, of even
date herewith, and pledged to TDF and the Issuer pursuant to the Pledge
Agreement.

    

    "Officer's Certificate" shall mean a
certificate signed by an Authorized Company Representative.

    

    "Official Statement" shall mean the
official statement of the Issuer, dated October 18, 2000, pursuant to which the
Bonds are offered for sale.

    

    "Operating Budget" shall have the
meaning set forth in Section 7.50 hereof.
"Operative Documents" shall have the meaning set forth in Section 4(a)
hereof.

    

    "Operator" shall mean each of Pro
Sports, Inc., as operator of the golf courses and the golf clubhouse, and Peter
Burwash Hawaii Ltd., as operator of the tennis facilities, or any successor
engaged by the Company with the prior written consent of TDF.

    

    "PBGC" shall mean the Pension Benefit
Guaranty Corporation established pursuant to Section 4002 of
ERISA, or any successor thereto.

    

    "PDMPI" shall mean Palmas del Mar
Properties, Inc., a Delaware corporation.

    

    "PDMPI Letter Agreement" shall mean the
letter agreement dated the date hereof between PDMPI and TDF, pursuant to which
(i) PDMPI subordinates any debt owed to it by the Company to the Bonds and the
obligations of the Company hereunder; (ii) PDMPI agrees to use its reasonable
best efforts to build a hotel in Punta Candelero, (iii) PDMPI agrees to return
any dividends or distributions paid in violation of Section 7.30 hereof, and
(iv) PDMPI agrees to pay certain environmental remediation costs and to
indemnify TDF against certain environmental liabilities.

    

    "Permits" shall mean, collectively, all
applicable authorizations, consents, licenses, approvals and permits of
Government Authorities for Construction of the Improvements in accordance with
the Plans and all Legal Requirements, and for the performance and observance of
all agreements, provisions and conditions herein contained.

    

    "Permitted Encumbrances" shall mean,
collectively, those items listed as exceptions to title on the Title Policy
issued on the Date of Issuance, real estate taxes not yet due and payable, and
any other Liens consented to in writing by TDF from time to time.

    

    "Permitted Transfers" shall have the
meaning set forth in Section 7.7 of this
Agreement.

    

    "Person" shall mean an individual,
corporation, partnership, joint venture, trust, association or any other entity
or organization, including a government or political subdivision, agency or
instrumentality thereof.

    

    "Phase of the Project" shall mean each
phase of the Construction of the Improvements. The Phases of the Project are (i)
construction of the Flamboyan golf course, (ii) construction of the golf
clubhouse, (iii) construction of the beach club, and (iv) refurbishment of the
Palm golf course.

    

    "Plans" shall mean all preliminary and
final plans, drawings and specifications for the Construction of each Phase of
the Project (including, without limitation, the architectural, structural,
mechanical, electrical and fire protection systems), prepared or to be prepared
by a Prime Contractor, the Architects or the Company's engineers and
contractors, as approved by TDF and TDF's Consultant, together with all
revisions and addenda to such plans, drawings and specifications, provided that
such revisions and addenda have been approved by TDF to the extent such approval
is required pursuant to Section 7.16 hereof,
which Plans shall include, without limitation, a description of the materials,
equipment, fixtures and furnishings necessary for the Construction of the
Improvements (and also showing grade of finishes).

    

    "Pledge Agreement" shall mean that
certain Collateral Pledge and Security Agreement by the Company in favor of TDF
and the Issuer, of even date herewith.

    

    "Preliminary Official Statement" shall
mean the preliminary official statement of the Issuer dated October 5, 2000,
relating to the offering of the Bonds.

    

    "Prime Contractors" shall mean Trade
Contractors under Trade Contracts having a value equal to or greater than
$750,000, which Trade Contractors shall be reasonably acceptable to
TDF,

    

    "Prime Contracts" shall mean Trade
Contracts with Prime Contractors.

    

    "Prime Rate" shall mean at any time the
fluctuating rate of interest announced publicly from time to time by The Chase
Manhattan Bank, N.A. in New York, New York as its "prime," "base," or
"reference" rate, it being understood that such rates shall not necessarily be
the best or lowest rates of interest available to such bank's best or more
preferred large commercial customers.

    

    "Project" shall mean, collectively, the
preparation of the site, the renovation, development, construction, purchasing,
furnishing and equipping of the Property and the Improvements (including,
without limitation, the supplying of all materials therefor), the landscaping of
the Property and any other action necessary to prepare the Improvements for use
as contemplated by the Plans.

    

    "Project Documents" shall mean the
Management Agreements and all licenses, easements or other agreements or
instruments pertaining to the Project and to be entered into by the Company with
the approval of TDF.

    

    "Project Funds" shall mean Bond
Proceeds pursuant to the Trust Agreement and such other funds as are deposited
with the Trustee, from time to time, pursuant to the Investment
Agreement.

    

    "Property" shall mean the fee simple
title to the property owned by the Company described in the
Mortgage.

    

    "Punta Candelero Use Restriction Deed"
shall mean the Deed of Declaration and Constitution of Use Restriction dated the
date hereof executed by PDMPI, the Company and TDF before notary public Omara
Mendez Bernard.

    

    "Reportable Event" shall mean an event
described in Section 4043(b) of ERISA (with respect to which the 30-day notice
requirement has not been waived by the PBGC).

    

    "Request for Disbursement" shall mean a
written certified statement of the Company, substantially in the form of Exhibit 1.8 hereto,
setting forth the amount of the Disbursement sought, which shall constitute an
affirmation that the representations and warranties of the Company with respect
to the Improvements set forth in Section 8 hereof and
in the other Operative Documents remain true and correct as of the date thereof,
except to the extent TDF has been notified in writing to the contrary, and,
unless TDF is notified in writing to the contrary prior to the Disbursement,
will be true and correct on the date of such Disbursement,

    

    "Resort" shall mean the Palmas del Mar
Resort in Humacao, Puerto Rico.

    

    "Retainage" shall have the meaning set
forth in Section 9.2.5 hereof,

    

    "Security Documents" shall mean,
collectively, the Mortgage, the Note, the Pledge Agreement, the Master Security
Agreement, the UCC- I Financing Statement, the Consent and Agreements, the
Assignment of Contracts, the Assignment of Depository Accounts, the Assignment
of Depository Accounts (Capital Improvements), and the Assignment of
Rents.

    

    "Soft Costs" shall mean those costs and
expenses within the Budget which would be generally referred to as soft costs of
construction as that term is used within the construction industry.

    

    "Stored Materials" shall have the
meaning set forth in Section 9.5.3
hereof.

    

    "Subsidiary" shall mean any corporation
of which at least a majority of the outstanding stock having by the terms
thereof ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Company and/or one or more of its
Subsidiaries.

    

    "Substantial Completion" shall mean the
occurrence of all of the following events: (i) the completion of the
construction of the Improvements in accordance with all Legal Requirements and
substantially in accordance with the Plu.ns and the issuance of applicable use
or occupancy permits therefor satisfactory to TDF, and (ii) the delivery to TDF
of certificates, in form and content satisfactory to TDF, from the Company, the
Architects and TDF's Consultant to the effect that all of the work required to
be performed to substantially complete the Improvements in accordance with all
Legal Requirements and in accordance with the Plans has been
performed.

    

    "Survey" shall have the meaning set
forth in Section
4(s) hereof.

    

    "TDF" shall have the meaning set forth
in the introductory paragraph of Agreement.

    

    "TDF's Consultant" shall mean Merritt
& Harris, Inc., or such other Person or architectural or engineering
consultant as may be designated and engaged by TDF, at the Company's expense, to
examine the Budget and the Plans, any changes thereto, and cost breakdowns and
estimates with respect to the Project (including, without limitation, all cost
breakdowns and estimates set forth in any Request for Disbursement and all
accompanying certifications), to make periodic inspections of the progress of
the Construction of the Improvements on behalf of TDF, to advise and render
reports to TDF concerning the foregoing and to otherwise consult with TDF with
respect to the Project.

    

    "TDF's Consultant's Report" shall mean
a report by TDF's Consultant (i) to the effect that all of the work theretofore
completed on the Project has been completed in a good and workmanlike manner,
substantially in accordance with the Plans and the Construction Schedule and in
compliance with the Legal Requirements, (ii) stating whether the work which is
the basis of the applicable Request for Disbursement has been completed within
the applicable Line Item therefor, (iii) stating that the amounts requested for
Disbursement are based on the percentage of completion in accordance with the
schedule of values agreed to by TDF's Consultant and the Company for the Trade
Cost Items for which a Disbursement is requested and (iv) addressing such other
matters reasonably requested by TDF to be addressed therein.

    

    "Title Policy" shall have the meaning
provided in Section
4(Q hereof, and shall include all endorsements thereto.

    

    "Trade Contract" shall mean any
contract entered into by the Company and/or a Prime Contractor, including,
without limitation, general construction contracts, with respect to the
Construction of the Improvements.

    

    "Trade Contractor" shall mean any
contractor engaged in the Construction of the Improvements or supervision
thereof under a Trade Contract including a Prime Contract and a Major Trade
Contract.

    

    "Trade Cost Item" shall mean each of
the line items provided for within the Budget or, at the request of TDF, in the
event any such line item is deemed to be too broad by TDF, each category within
such line item agreed by between the Company and TDF.

    

    "Transfer" shall mean (i) any sale or
transfer by the Company of the Property or the Improvements, or any portion
thereof, or (ii) any transfer, pledge or hypothecation of any share of capital
stock of the Company or any other direct or indirect legal or equitable interest
in the Company.

    

    "Trust Agreement" shall have the
meaning set forth in the WHEREAS clauses hereof.

    

    "Trustee" shall have the meaning set
forth in the WHEREAS clauses hereof.

    

    "UCC" shall mean the Puerto Rico
Commercial Transactions Act, as amended from time to time.

    

    "UCC-1 Financing Statement" shall mean
that certain financing statement or financing statements executed by the Company
in order to perfect the security interests in favor of TDF and the Issuer or in
favor of TDF which are created pursuant to the Security Documents, and such
UCC-3 Financing Statement or financing statements as may be filed from time to
time.

    

    "Unavoidable Delay" shall mean any
delay due to conditions beyond the control of the Company, including, without
limitation, strikes, labor disputes, acts of God, the elements, governmental
restrictions, regulations or controls, enemy action, civil commotion, fire,
unavoidable casualty, mechanical breakdowns or shortages of, or inability to
obtain, labor, utilities or material; provided, however, that any lack of funds
shall not be deemed to be a condition beyond the control of the
Company.

    

    "Working Capital Reserve" shall mean
that certain Line Item within the Budget entitled Working Capital Reserve which
shall at all times be funded in accordance with the terms of Section 7.59
hereof,

    

    "Working Capital Deficits" shall mean,
for any period, the following amount, if less than zero: (i) Net Income for such
period minus (ii) required repayments of principal of the Bonds and other Debt
(other than Debt due to Affiliates of the Company), necessary capital
expenditures, necessary prepaid expenses and deposits into the reserve accounts
described herein), to the extent such cash expenditures have not been deducted
from Gross Revenues in calculating Net Income and have not been financed from
the proceeds of the Bonds or indebtedness permitted pursuant to Section 7.5
thereof, plus (iii) depreciation and amortization, to the extent deducted from
Gross Revenues in calculating Net Income, plus (iv) initiation deposits received
by the Company from the sale of all club memberships, to the extent not taken in
consideration in calculating Net. Income.

    

    2.           ISSUANCE
OF LETTER OF CREDIT; FEES.

    

    2. 1. Terms of Letter of
Credit. TDF agrees, on the terms and subject to the conditions herein set
forth, to issue the. Letter of Credit to the Trustee. The Letter of Credit shall
be for a term of ten years, extendible at the option of TDF, and shall be
substantially in the form of Exhibit 2.1 attached
hereto.

    

                   2.2.           Letter of Credit Fee.
In consideration of the issuance and delivery of the Letter of Credit, the
Company hereby agrees to pay to TDF, on each Interest Payment Date, a Letter of
Credit fee (the "Letter of Credit Fee") equal to

    

     (i) one-twelfth of 1.5%, with
respect to the period ending on October 19, 2002,

    

    (ii) one-twelfth of 1.75%, with
respect to the period commencing on October 20, 2002, . and ending on October
19, 2005,

    

    (iii) one-twelfth of 2.125%, with
respect to the period commencing on October 20, 2005, and ending on October 19,
2010,

    

    (iv) one-twelfth of 2.75%, with
respect to the period commencing on October 20, 2010, and ending on October 19,
2015, if applicable,

    

    (v) one-twelfth of 3,0%, with respect
to the period commencing on October 20, 2015, and ending on October 19, 2020, if
applicable,

    

    (vi) one-twelfth of 3.25%, with
respect to the period commencing on October 20, 2020, and ending on October 19,
2025, if applicable, and

    

    (vii) one-twelfth of 3.5.%, with
respect to the period commencing on October 20, 2025, and ending on October 19,
2030, if applicable,

    

    of the
sum of (a) the aggregate principal amount of Bonds outstanding on such Interest
Payment Date (excluding Bonds to be redeemed on such date), plus (b) interest on
such principal amount, at the rates specified in the Bonds, for a period of 195
days, less (c) amounts which have been continuously on deposit in the Debt
Service Reserve, the Working Capital Reserve, the Excess Cash Flow Reserve or
the Bond Fund since the immediately preceding Interest Payment Date; provided,
however, that

    

    (i) if the Company does not maintain
a Debt Coverage Ratio of at least 1.5 to 1.0 during any fiscal year (the
"Applicable Year"), commencing with the fiscal year ending on December 31, 2002,
and ending with the fiscal year ending on December 31, 2009, the Letter of
Credit Fee applicable to the period from October 20 of such Applicable Year
through October 19 of the following year shall be 2.0% (in the case of the
period commencing on October 20, 2002, and ending on October 19, 2005) and 2.5%
(in the case of the period commencing on October 20, 2005, and ending on October
19, 2010), and any underpayment by the Company prior to the determination of
such Debt Coverage Ratio shall be paid by the Company to TDF; and

    

    (ii) if the Company maintains a Debt
Coverage Ratio of at least 1.5 to 1.0 for any fiscal year (the "Applicable
Year"), commencing with the fiscal year ending on December 31, 2010, the Letter
of Credit Fee applicable to the period from October 20 of such Applicable Year
to October 19 of the following year shall be reduced by 0.25%, and any
overpayment by the Company prior to the determination of such Debt Coverage
Ratio shall be refunded to the Company. For partial periods, the Letter of
Credit Fee shall be prorated based upon the actual number of days elapsed in
such partial period.

    

    The Letter of Credit Fee shall be
payable by the Company in advance, in immediately available funds. At the Date
of Issuance, the Company shall cause to be paid to TDF the portion of the Letter
of Credit Fee due for the period from the Date of Issuance to December 19, 2000,
plus an upfront fee equal to 0.50% of the aggregate principal amount of the
Bonds.

    

    2.3.           Letter of Credit Drawing
Fee, The Company shall pay to TDF an amount equal to $3,000.00 for each
Interest Drawing, Principal Drawing or Reserve Fund Deficiency Drawing (all as
defined in the Letter of Credit) made by the Trustee under the Letter of
Credit.

    

    2.4.           Notice of
Non-Renewal, TDF shall give the Company notice of its intention not to
renew the Letter of Credit at its scheduled expiration date not later than 365
days prior to such scheduled expiration date. If no such notice is given on or
prior to that date, the Letter of Credit shall be automatically extended for an
additional period of one year.

    

    
      	
              3.  

            	
               AGREEMENT
      TO REPAY DRAWINGS; PURCHASE OF
BONDS.

            

    

    

    3.
1.           Reimbursement, The
Company hereby agrees to pay to TDF (i) immediately after payment is made under
the Letter of Credit, without notice of a Letter of Credit drawing or demand for
reimbursement from TDF (which notice is hereby waived by the Company), an amount
equal to such amount so paid under the Letter of Credit, and (ii) interest on
any and all amounts required to be paid as provided in this Section 3.1 from and
after the due date thereof until payment in full, payable on demand at the Prime
Rate plus three percent (but in no event greater than. the
maximum rate permitted by applicable law). The Company and TDF agree that the
reimbursement in full for each Letter of Credit drawing on the date such Letter
of Credit drawing is made is intended to be a contemporaneous exchange for new
value given to the Company by TDF. If a Letter of Credit drawing is repaid at or
prior to 2:00 P.M. (Puerto Rico time) on the same day on which it is made, no
interest shall be payable on such Letter of Credit drawing.

    

    3.2.           Payments and
Computations. The Company shall make or cause to be made each payment
hereunder not later than 2:00 P.M. (Puerto Rico time) on the day when due, in
Dollars and in immediately available funds, to TDF at Citibank, N.A., New York,
New York, ABA #021000089, for further credit to the account of Government
Development Bank for Puerto Rico, Account #36008661, for credit to Puerto Rico
Tourism Development Fund, Account #250-00416, or at such other place as TDF may
from time to time designate in a notice to the Company. If any sum due hereunder
is not paid within 10 days after the date on which the same is due (notice
having been provided to the Company), a late charge in the amount of one percent
of such amount shall immediately become due and payable; if such sum has not
been paid within 20 days after the date on which the same is due, an additional
late charge in the amount of one percent of such amount shall immediately become
due and payable; and if such sum has not been paid within 30 days after the date
on which. the same is due, an additional late charge in the amount of one
percent of such amount shall immediately become due and payable. Interest shall
not accrue on any unpaid late charges. All of the foregoing shall be subject to
any limitation imposed by applicable laws, rules or regulations regarding the
collection or receipt of interest or amounts deemed to be interest. All
computations of interest and fees hereunder shall be made on the basis of a year
of 360 days for the actual number of days elapsed (including the first day but
excluding the last day). Any sums paid by the Company to TDF pursuant to this
Agreement shall be applied by TDF in any order whatsoever, in the absolute and
sole discretion of TDF.

    

    3.3.           Payment on Non-Business
Days. Whenever any payment to be, made hereunder shall be stated to be
due on a day which is not a Business Day, such payment shall be due on the
immediately succeeding Business Day.

    

    3.4.           Book Entries. TDF
shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Company resulting from Letter of Credit
drawings made from time to time and the amounts payable and paid from time to
time hereunder. In any legal action or proceeding in respect of this Agreement,
the entries made in such.account or accounts shall, in the absence of manifest
error, be conclusive evidence of the existence and amounts of the obligations of
the Company therein recorded.

    

    3.5.           Obligations Absolute.
The obligations of the Company under this Agreement shall be unconditional and
irrevocable, and shall be paid or performed strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:

    

    (i) any lack of validity or
enforceability of the Letter of Credit, this Agreement or any other Operative
Documents;

    

    (ii) any amendment or waiver of, or
any consent to departure from, any of the provisions of any of the Operative
Documents;

    

    (iii) the existence of any claim,
set-off, defense or other right which the Company may have at any time (other
than actual payment) against the Trustee, any beneficiary or any transferee of
the Letter of Credit (or any Persons for whom the Trustee, any such beneficiary
or any such transferee may be acting), TDF or any other Person, whether in
connection with this Agreement, any other Operative Documents, the transactions
contemplated herein or therein or any unrelated transaction;

    

    (iv) any certificate, statement or
any other document presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect, provided that payment by TDF under
the Letter of Credit against presentation of any such certificate, statement or
documents shall not have constituted negligence or misconduct of
TDF;

    

    (v) any non-application or
misapplication by the Trustee of the proceeds of any drawing under the Letter of
Credit; and

    

    (vi) payment by TDF under the Letter
of Credit against presentation of a draft or a certificate which does not comply
with the terms of the Letter of Credit, provided that such payment by TDF shall
not have constituted gross negligence or willful misconduct of TDF.

    

    3.6.           
Credits for Amount
Paid_ On Bonds; Other Credits. The Company shall receive a credit against
its reimbursement obligation pursuant to Section 3.1 hereof to
the extent of any payment with respect to such reimbursement obligation made by
the Trustee to TDF pursuant to the Trust Agreement from the funds held by the
Trustee under the Trust Agreement.

    

    4.           CONDITIONS
PRECEDENT TO ISSUANCE AND DELIVERY OF THE LETTER OF
CREDIT. The
obligation of TDF to issue and deliver the Letter of Credit is subject to the
conditions precedent that the Bonds are issued and sold to,the purchaser(s)
thereof and all -of the
following conditions are met prior to or contemporaneously with the issuance and
delivery of the Letter of Credit it being agreed that any conditions waived by
TDF for purposes of  issuing the Letter of Credit shall be a condition
to any Disbursement):

    

    (a) Delivery of the Bonds and
Operative Documents. This Agreement, the Trust Agreement, the Loan
Agreement, the Security Documents, the Completion Guarantee, the PDMPI Letter
Agreement, the Punta Candelero Use Restriction Deed, the Bond Purchase Agreement
and the Official Statement (collectively, the "Operative Documents") and the
Bonds shall have been executed and delivered by authorized Persons of the
parties thereto, each in form and substance satisfactory to TDF. TDF shall have
received an executed counterpart of each of the Operative
Documents.

    

    (b) No Default. On the
Date of Issuance and after giving effect to the issuance of the Letter of
Credit, there shall exist no Default or Event of Default, and no default of any
of the Company's obligations under any of the Operative Documents.

    

    (c) Representations and
Warranties. On the Date of Issuance and after giving effect to the
issuance of the Letter of Credit, all representations and warranties of the
Company contained herein or in the other Operative Documents, or otherwise made
in writing in connection herewith, shall be true and correct in all material
respects, with the same force and effect as though such representations and
warranties had been made on and as of such date.

    

    (d) [Reserved]

    

    (e) Opinion of Counsel to the
Company and PDMPI. There shall have been delivered to TDF an opinion of
McConnell Valdes, counsel to the Company, dated as of the Date of Issuance and
in form and substance satisfactory to TDF, covering the matters set forth in
Section 2.08(e) of the Trust Agreement, Section 8(d) of the Bond Purchase
Agreement and such other matters as TDF may reasonably request.

    

    (f) Opinion of Bond
Counsel. There shall have been delivered to TDF an opinion of Martinez
Odell & Calabria, bond counsel, dated as of the Date of Issuance and in form
and substance satisfactory to TDF, to the effect that the Bonds are legal, valid
and binding obligations of the Issuer, covering the matters set forth in the
form of opinion included in the Official Statement, in Section 8(g) of the Bond
Purchase Agreement and such other matters as TDF may reasonably
request,

    

    (g) Opinion of Counsel to the
Authority. There shall have been delivered to TDF an opinion of counsel
to the Authority, dated the Date of Issuance and in form and substance
satisfactory to TDF, covering the matters set forth in Section 2.08(g) of the
Trust Agreement, in Section 8(f) of the Bond Purchase Agreement and such other
matters as TDF may reasonably request.

    

    (h) Construction
Contracts. There shall have been delivered to TDF a copy of the
Construction Contracts (except the contract relating to the refurbishment of the
Palm golf  course, in the event such contract has not been executed),
including, without limitation, the Budget, certified by the Authorized Company
Representative to be true, correct and complete, in form and substance
satisfactory to TDF.

    

    (i) [Reserved]

    

    (j) Cancellation of Existing
Mortgages and Security Documents. TDF shall have received the following
documents, in form and substance satisfactory to TDF, in connection with the
payment of the Existing Loans:

    

    (a)  a deed of
cancellation of mortgage or a deed subordinating the mortgage securing any
Existing Loan to the Mortgage, together, in the case of subordination, with the
mortgage note secured by such mortgage, to be held in escrow by
TDF;

    

    (b)  termination of all
financing statements relating to the Existing Loans; and

    

    (c)  cancellation of all
security agreements and other instruments relating to the Existing
Loans.

    

    (k) [Reserved]

    

    (1) Management
Agreements. There shall have been delivered to TDF a copy of the
Management Agreements, certified by the Authorized Company Representative to be
true, correct and complete, in form and substance satisfactory to
TDF.

    

    (m) [Reserved]

    

    (n) Documentation and
Proceedings. To the extent not otherwise required by this Section 4, all
corporate and legal proceedings and all instruments in connection with the
transactions contemplated by this Agreement, the other Operative Documents, the
Project Documents and the Construction Documents, to the extent that the same
have previously been entered into by the Company, shall be satisfactory in form
and substance to TDF and its counsel and TDF shall have received all information
and copies of all documents, instruments, approvals (and, if cancellation of all
security agreements and other instruments requested by TDF, certified duplicates
of executed copies thereof) and opinions as TDF may reasonably request,
including, without limitation, records of corporate proceedings, corporate
documents and certificates, governmental approvals and incumbency certificates
in. connection with the transactions contemplated by this Agreement, the other
Operative Documents, the Project Documents, and the Construction Documents, such
documents, where appropriate, to be certified by proper officers.

    

    (o) Fees. TDF shall have
received (1) payment of TDF's counsel fees and the fees of TDF's Consultant
relating to the Project, (2) payment of all other out-of-pocket expenses of TDF
relating to the Project, if any, and (3) payment of all other fees of TDF
relating to the Project that are due on the Date of Issuance, including, without
limitation, the Letter of Credit Fee and TDF's upfront fee.

    

    (p) Title Documents. The
Company shall have delivered to TDF and TDF shall have approved a copy of all
documents affecting title to the Property and to the Improvements.

    

    (q) Title Policy. TDF
shall have received and approved a title policy (the "Title Policy") issued by a
title company acceptable to TDF, marked paid in full, in the amount of the Loan,
insuring the Issuer, TDF and the Trustee, as their respective interests may
appear, that the Mortgage constitutes valid first lien on the Property, and on
the other property secured thereby, and containing:

    

    (i) no exception for mechanics' or
materialmen's liens;

    

    (ii) no survey exceptions other than
those approved by TDF;

    

    (iii) a statement that the Title
Company agrees to affirmatively insure the priority of each Disbursement against
the existence of any other Liens;

    

    (iv) reinsurance with provisions for
direct access against the reinsurers, in amounts and with companies acceptable
to TDF; and

    

    (v) such other endorsements or
affirmative insurance as TDF and TDF's counsel shall reasonably
require.

    

    (r) Appraisal. TDF shall
have received the Appraisal, in form and content satisfactory to TDF in its sole
discretion.

    

    (s) Survey. Except to the
extent this requirement is waived by TDF for a limited period of time and only
as to that portion of the Property agreed to by TDF, TDF shall have received a
survey or surveys of the Property (the "Survey"), in form and content
satisfactory to TDF, certified by a licensed surveyor acceptable to TDF,
certified to TDF and the title insurance company issuing the Title Policy, and
dated as of a date within 45 days prior to the Date of Issuance, showing (i) the
outlines of the Property and the courses and measured distances of the exterior
property Iines and the exact location of all buildings including the
Improvements (as of the date of such survey), (ii) the area of the Property in
cuerdas, (iii) the exact location of all adjoining public and private streets,
(iv) the exact location of any encroachments on the Property by any improvements
on adjoining property (as of the date of such survey) and (v) the exact location
of all easements and rights-of-way and other matters of interest to TDF and
recordation information with respect to the Property.

    

    (t) Environmental Report.
TDF shall have received the Environmental Report.

    

    (u) Preliminary Report.
TDF shall have received a preliminary report from TDFs Consultant reasonably
satisfactory to TDF in form and content with respect to the acceptability of (i)
the then current Plans and associated design materials; (ii) the design of
various systems, including, without limitation, architectural, structural,
electrical, plumbing, air conditioning and sprinkler systems; (iii) the general
conformity of materials specified to overall Project quality objectives; (iv)
the contents of soil reports and coordination of foundation design of the
Improvements; (v) the conformity of the scope and design set forth in the
then-current Plans to the description of the Project otherwise presented to TDF;
(vi) the Company's projected date of Substantial Completion and Construction
Schedule; (vii) the Company's proposed Budget; (viii). the
adequacy of and the Company's distribution of the Budget to each Phase of the
Project and to individual Trade Cost Items; (ix) the adequacy of contingency
reserves within the Budget; (x) the value, scope, and limiting conditions of the
Trade Contracts and/or subcontracts received for review; and (xi) such other
matters as TDF shall reasonably require.

    

     (v) Insurance, TDF shall
have received binders for such policies of casualty insurance, liability
insurance, business interruption insurance, worker's compensation insurance and
such other insurance as shall be required in the Pledge Agreement, issued by
companies satisfactory to TDF, which shall name TDF and its assigns as
additional insured thereunder, and TDF shall have received evidence that the
applicable premiums with respect to such insurance policies have been paid and
that the insurance thereunder is in full force and effect..

    

    (w) Real Estate Taxes.
TDF shall have received evidence of payment of all real estate taxes currently
due and payable or delinquent with respect to the Property and the
Improvements.

    

    (x) [reserved]

    

    (y) Budget. The Budget
shall have been delivered to TDF and TDF's Consultant and shall be identical to
the Budget annexed hereto as Exhibit
1.4.

    

    (z) Authorizations. TDF
shall have received copies of (i) certified corporate resolutions of the Company
and PDMPI authorizing the Company's and PDMPI's execution of the Operative
Documents to which each is party, (ii) a certificate of good standing from the
State of Delaware for the Company and PDMPI, and (iii) organizational documents
of the Company and PDMPI, all of which shall be certified as true, correct and
complete by the Authorized Company Representative.

    

    (aa)  [Reserved]

    

    (bb) Flood Hazard
Certification. TDF shall have received and approved a letter from FEMA
agreeing to revise flood zone classification of the Property.

    

    (cc)  Permits. The Company
shall have delivered to TDF copies of all material approvals and permits
required in connection with the development, construction and operation of the
Project, other than those described in Exhibit 4.2, which the Company represents
will be obtained prior to the time when they are required,

    

    (dd) Plans. There shall
have been delivered to TDF two (2) copies of the plans and specifications and
associated design materials for the Project.

    

    5.            INDEMNIFICATION;
BROKERAGE.

    

    5.1.           It
is the intention of the parties hereto that this Agreement shall be construed
and applied to protect and indemnify TDF against any and all risks involved in
the issuance of the Letter of Credit, all of which risks are hereby assumed by
the Company, including, without limitation, any and all risks of the acts or
omissions, whether rightful or wrongful, of any present or future Government
Authority (all such acts and omissions herein collectively referred to as
"Government Acts"). Accordingly, in addition to amounts payable under Sections 2 and 3
hereof, the Company hereby agrees to defend, indemnify and hold TDF, its
Affiliates, members, employees, agents and representatives (each an "Indemnified
Party") harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) which such Indemnified Party may
sustain or incur or be subject to as a consequence, direct or indirect, of (i)
the issuance of the Letter of Credit or with respect to any other Operative
Documents, other than as a result solely of the gross negligence or willful
misconduct of such Indemnified Party, (ii) any breach by the Company of any
representation, warranty, covenant, term or condition in, or the occurrence of
any default under, this Agreement, any other Operative Documents or the Bonds,
together with all reasonable expenses resulting from the compromise or defense
of any claims or liabilities arising as a result of any such breach or default,
(iii) defense against any legal action commenced to challenge the validity of
this Agreement, the Bonds or any other Operative Documents, (iv) any losses,
claims, damages, liabilities or expenses (or actions in respect thereof) arising
out of or based upon TDF's or an Indemnified Party's participation in the
issuance of the Bonds or the transactions related thereto, other than as a
result solely of the gross negligence or willful misconduct of such Indemnified
Party, (v) any misrepresentation of a material fact or any failure to state a
material fact (other than any facts relating to and supplied by TDF) in the
Preliminary Official Statement or the Official Statement, (vi) the consummation
of the transactions contemplated herein or in any of the Operative Documents,
and (vi) the Construction, use or occupancy of the Project.

    

    5.2.           Except
as otherwise expressly provided herein, the obligations of the Company under
this Agreement are primary, absolute, independent, irrevocable and
unconditional. The Company understands and agrees that no payment by it under
any other agreement (whether voluntary or involuntary or pursuant to court order
or otherwise) shall constitute a defense to the several obligations hereunder
except to the extent that TDF has been indefeasibly paid in full.

    

    5.3.           
The Company and TDF hereby each represents and warrants to the other that
neither it nor any of its agents has dealt with any brokers, finders or-advisors
(other than PaineWebber, as lead underwriter) in connection with the
transactions contemplated hereby. The Company hereby agrees to defend, indemnify
and hold the Indemnified Parties harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including,
without limitation, attorneys' fees and disbursements) arising as a result of
any claim by any broker, finder or advisor, except to the extent any such claim,
demand, liability, damage, loss, cost, charge or expense arises out of an
agreement between such broker, finder or advisor and TDF in connection with the
transactions contemplated by this Agreement or any other Operative
Documents.

    

    5.4.           The
obligations of the Company under this Section 5 shall
survive the payment of the Bonds and the Note and the termination of this
Agreement and/or the Letter of Credit.

    

    6.           [Reserved.]

    

    7.           COVENANTS The Company covenants
and agrees that, so long as the Letter of Credit is outstanding or any amount is
payable to TDF under this Agreement:

    

    7.1.           Notice of Default.
The Company will furnish to TDF as soon as possible and in any event within
three (3) Business Days after the discovery by the Company of any Default or
Event of Default, an Officer's Certificate, setting forth the details of such
Default or Event of Default and the action which the Company proposes to take
with respect thereto,

    

    7.2.           ERISA. (a) The
Company shall maintain the minimum funding standard for each Employment
Compensation Plan as required by Section 412 of the Code for any plan year
unless a waiver of such standard is sought or granted pursuant to Section 412(d)
of the Code, and no Employment Compensation Plan shall be terminated or be the
subject of termination proceedings under ERISA, and the Company or a Subsidiary
or an ERISA Affiliate shall pay the full amount of any installment required
under Section 412(m) of the Code and none of the foregoing shall incur any
liability to or on account of any Employment Compensation Plan under Section
4062, 4063, 4064, 4201 or 4204 of ERISA, or permit to occur as a result of any
such event or events a liability or a material risk of incurring a liability to
the PBGC or a Plan, to the extent that the same could have a material or adverse
effect upon the business, operations or financial condition of the Company or a
Subsidiary.:

    

    (b) As soon as possible and in any
event within 10 days after the Company or a Subsidiary knows or has reason to
know that a Reportable Event has occurred, that any payment required to be made
under Section 412 of the Code is not made before the due date, that an
accumulated funding deficiency has been incurred or an application may be or has
been made to the Secretary of the Treasury for a waiver of the minimum funding
standard under Section 412 of the Code with respect to a Plan, that an
Employment Compensation Plan has been or may be terminated, that proceedings may
be or have been instituted to terminate a Plan, or that the Company, a
Subsidiary or an ERISA Affiliate will or may incur any liability to or on
account of the Employment Compensation Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, the Company will deliver to TDF an Officer's Certificate
setting forth details as to such occurrence and the action, if any, which the
Company, the Subsidiary or the ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be filed with or by the
Company, the Subsidiary, the ERISA Affiliate, the PBGC or the plan administrator
with respect thereto. Copies of any notices required to be delivered to TDF
under the preceding sentence shall be delivered no later than 10 days after the
later of (i) the date such report or notice has been filed with the Internal
Revenue Service or the PBGC and (ii) notice has been received by the Company or
the Subsidiary. The Company will, as soon as possible and in any event within 60
days of filing, furnish to TDF a copy of the annual report of each Employment
Compensation Plan (Form 5500) required to be filed with the Internal Revenue
Service, including a copy of any actuarial valuation prepared in connection
therewith.

    

    7.3.           Preservation of
Existence. The Company will preserve and maintain its legal existence,
franchises, rights and privileges under the laws of the jurisdiction of its
formation and will preserve and maintain its rights and privileges under the
laws of the Commonwealth of Puerto Rico, and shall comply with all Legal
Requirements.

    

    7.4.           Mortgages and Liens.
The Company will not create, incur, assume or permit to exist any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind upon any of
the Company's properties or assets of any character, whether owned on the date
hereof or hereafter acquired, or hold or acquire any property or assets of any
character under conditional sales or other title retention agreements,
except:

    

    (i) the Mortgage and any other
mortgages, liens, pledges and security interests exclusively in favor of TDF and
the Issuer;

    

    (ii) purchase money mortgages or
other purchase money liens or security interests, and capitalized leases
described in Section
7.5(a)(v), covering any fixed or capital assets hereafter acquired,
provided that (A) no such mortgage, lien, security interest or capitalized lease
shall extend to or cover any other property of the Company, (B) the Debt secured
by such mortgages, liens, security interests or capitalized lease is permitted
pursuant to Section 7.5, and (C) the Company provides to TDF copies of such
mortgages, liens, security interests and capitalized leases within 15 days after
execution and delivery by the Company;

    

    (iii) Liens for taxes, assessments or
governmental charges or levies, provided payment thereof shall not at the time
be required; liens for assessments imposed by any tourism improvement district
created under the Tourism Improvement District Act of 1998 in which the Property
shall be included after the date hereof with the consent of TDF (provided that
TDF hereby agrees to consent to the inclusion of the Property in any such
district that has the sole purpose of financing the guard house, lighting,
roads, and other basic infrastructure for the Property); and mechanics',
workmen's, repairmen's, warehousemen's, vendors' or carriers', liens or other
similar liens arising in the ordinary course of business which have been
transferred to bond;

    

    (iv) Liens securing the indebtedness
described in Section 7.5(a)(vi) which have been approved in writing by TDF;
and

    

    (v) the Permitted
Encumbrances.

    

    7.5.           Additional
Indebtedness. (a) The Company will not, directly or indirectly, create or
permit to exist any Debt other than the following:

    

    (i) Debt of the Company pursuant to
this Agreement, the Trust Agreement and the other Operative
Documents;

    

     (ii) Debt representing
unsecured current liabilities incurred in the ordinary course of business with
trade creditors;

    

    (iii) Debt secured by liens described
in Section
7.4(iit;

    

    (iv) Debt incurred to finance capital
expenditures and renovations to which Debt TDF has given its prior written
approval;

    

    (v) capitalized leases for furniture,
fixtures or equipment, including golf cars, ground maintenance vehicles and
kitchen equipment; and

    

    (vi) Loans from PDMPI, including
revolving working capital advances in a maximum principal amount of $1,500,000
("PDMPI Revolving Advances"), provided that TDF receives prior written notice
from the Company of the amount of any such loan (other than PDMPI Revolving
Advances) and the collateral therefor, if any, and each such loan and the liens
therefor, if any, is subordinated to the Bonds and to the obligations of the
Company hereunder and under the Operative Agreements and to the liens therefor
pursuant to subordination and standstill agreements acceptable to and approved
in writing by TDF, it being understood that interest on and the principal of
such loans may only be repaid from Excess Cash Flow to the extent pennitted by
Section 7.30 (except in the case of payments for PDMPI Revolving Advances, which
may be repaid from other available funds provided no payment Default exists
under the Bonds or hereunder) and that the lenders may not accelerate or
exercise any remedies relating to such loans or the liens therefor until the
Bonds and all obligations due to TDF hereunder are paid in full.

    

    (b) Notwithstanding anything contained
in this Section
7,5 to the contrary, the Company shall not incur any Debt described in
Sections 7.5(a)(iii),
(iv) and (v) unless (i) the aggregate annual amount of interest,
principal and other payments pursuant to such Debt does not exceed 10% of Gross
Revenues for the last Fiscal Year for which year-end audited Financial
Statements have been provided to TDF pursuant to Section 7.6, and (ii) the
Company's Debt Coverage Ratio for such Fiscal Year, calculated on a pro forma
basis assuming the Debt to be incurred had been outstanding during such Fiscal
Year, is at least 1.25 to 1.0,

    

    7.6.           
Financial
Statements. The Company shall deliver to TDF within 120 days after the
close of each of its fiscal years, for such fiscal year, the following financial
statements, which shall be audited: (i) a balance sheet, (ii) a statement of
operations, (iii) a statement of cash flow, and (iv) a statement of changes in
shareholder's equity. The Company shall deliver to TDF within 45 days after the
close of each quarter, for the. three month period then ended, the following
financial statement, which need not be audited: (i) a balance sheet, (ii) a
statement of operations, (iii) a statement of cash flow, (iv) a statement of
changes in shareholder's equity, and (v) statements of financial transactions
with Affiliates of the Company, each of which shall be certified to be true and
correct by the the chief financial officer of the Company. Within 20 days after
the close of each calendar month, the Company shall deliver to TDF the monthly
financial reports which the Company prepares for its shareholders, certified by
the Authorized Company Representative to be true and correct. Each of the
foregoing statements (other than statements for individuals) shall be prepared
in accordance with generally accepted accounting principles as in effect from
time to time, applied on a basis consistent with the most recent audited
financial statements delivered to TDF, and each such statement shall present a
fair and accurate portrayal of the financial condition of the Company, All
Financial Statements required to be audited hereunder shall be audited by the
Accountant. Throughout the term of this Agreement, the Company shall deliver to
TDF, within 10 days after request therefor, such other financial information
and/or Financial Statements with respect to the Company as TDF may reasonably
request from time to time.

    

    7.7.           Transfers. The
Company shall not make or permit or suffer to be made any Transfer (other than
Transfers to wholly owned direct or indirect subsidiaries of Maxxam that shall
assume the Company's obligations under the Operative Documents, to the extent
required by , TDF) unless in each case the Company shall have received the prior
written approval of TDF, which shall not be unreasonably denied, it being agreed
that no such Transfer may result in the Company or another wholly owned direct
or indirect subsidiary of Maxxam not owning the Property or in Maxxam owning,
directly or indirectly, less than a majority of the capital stock of the Company
or in Maxxam not controlling the Company (a "Change of Control"). All such
requests shall be submitted to TDF in writing together with such supporting
documents as are necessary for TDF to facilitate a purposeful and adequate
review of the request. In the event TDF does not approve a request, TDF shall
provide written notice and the reasons for such disapproval within ten (10)
Business Days of actual receipt of the request and all supporting information. A
Transfer approved by TDF shall constitute a "Permitted Transfer."

    

    7.8.           Decision Making. The
Company shall recognize and honor the right of TDF, pursuant and to the extent
set forth in the Pledge Agreement, to exercise all rights and remedies and to
make all decisions of the holder of the Note.

    

    7.9.           Further Assurances.
The Company will execute, acknowledge where appropriate, and deliver, and use
best efforts to cause others to execute, acknowledge where appropriate, and
deliver, from time to time promptly at the request of TDF, all such instruments
and documents as in the opinion of TDF are reasonably necessary or advisable to
carry out the intent and purpose of this Agreement and the other Operative
Documents (provided no such instrument or document shall materially add to the
obligations of the Company) and ;will execute and file or record, or use best
efforts to cause others to execute and file or record, continuation statements
or other documents, and take such other actions as may be necessary or advisable
to create, perfect, protect and preserve the existence and priority of the
mortgage liens and existence and priority of the security interests acquired, or
intended to be acquired, by or for the benefit of TDF under the Operative
Documents. The foregoing shall include, without limitation: (a) the updating of
any schedules or exhibits attached to the Operative Documents and requesting the
consents of third parties to the assignment of any agreement to TDF as
additional security for this Agreement; and (b) the execution of appropriate
financing statements and security agreements and the preparation of the
appropriate schedules under the UCC.

    

    7.10.           Compliance with Laws.
The Company will comply with all Legal Requirements and Environmental Laws
provided, however, the Company may in good faith contest any Legal Requirements
and/or Environmental Laws as long as such contest does not adversely impact the
existence or priority of the security interest acquired for the benefit of TDF
under the Operative Documents or otherwise create or result in a Default or
Event of Default under this Agreement or any of the other Operative Documents,
The Company will comply with all conditions, covenants, restrictions, leases,
easements, reservations, rights and rights-of-way and all applicable
requirements of any insurers related to, the Project.

    

    7.11.           Performance of this and
other Agreements: Repayment of Loan; Payment of Debt Service Reserve Fund
Deficiency, The Company will take all action and do all things which it
is authorized by law to take and to do in order to perform and observe all
covenants and agreements on its part to be performed and observed under this
Agreement and each Operative Document. Without limiting the generality of the
foregoing, the Company covenants to repay the Loan in accordance with the
provisions of the Loan Agreement and to deposit with the Trustee prior to the
date on which the principal amount of, redemption premium, if any, or the
interest on the Bonds is payable (whether at maturity, upon acceleration,
redemption or otherwise), such additional amounts which, when taken together
with all other monies available therefor in the Bond Fund established under the
Trust Agreement will be sufficient to pay: (a) all interest which will become
due and payable on the Bonds on such date; (b) the principal amount of the Bonus
and redemption premium, if any, which will become due and payable on such date;
and (c) amounts, if any, required to effect redemption or purchase of the Bonds
on the dates specified pursuant to Sections 301 and 305
of the Trust Agreement, respectively, The foregoing amount "shall be paid by the
Company in immediately available funds for deposit in accordance with the terms
of the Loan Agreement and Trust Agreement. Additionally, the Company agrees to
deposit with the Trustee an amount sufficient to eliminate any Debt Service
Reserve Fund Deficiency within the period of time provided in the Trust
Agreement. The Company shall cause all optional redemptions of the Bonds
pursuant to Section
8.01 of the Loan Agreement to be paid with the Eligible Moneys (as
defined in the Trust Agreement) unless otherwise agreed in writing by
TDF.

    

    7.12.           
Amendments. The
Company will not surrender, terminate, modify, amend or supplement in any
material respect, or give any consent to any surrender, termination,
modification, amendment or supplement or make any waiver with respect to any
provision of its articles of incorporation or by-laws which is prohibited by any
of the Operative Documents, any of the other Construction Documents (except as
otherwise permitted herein), any master restrictive covenants affecting the
Property, the other Project Documents or any other documents relating to the
Project, including, without limitation,. relating to the use or operation of the
Project, without the prior written consent of TDF in each instance.

    

    7.13.           Construction. The
Company will cause the Construction of the Improvements to be prosecuted with
diligence and continuity, in a good and workmanlike manner and in accordance
with the Plans and the Construction Schedule (as may be amended with the consent
of TDF) so as to cause Substantial Completion to occur, free and clear of all
claims, liens and encumbrances related to the Construction, within the Budget
and on or prior to the Completion Date, as the same shall be extended in
accordance with the next succeeding sentence, subject to and in accordance with
this Agreement, the Construction Documents and the Project Documents, to the
extent the same specify construction requirements applicable to the Construction
of the Improvements.. The Plans shall reflect finishes, fixtures and equipment
and the Company shall cause the finishes, fixtures and equipment as well as the
furnishings for the Project to be of a quality and quantity consistent with a
championship golf course in Puerto Rico and a resort of the type of Palmas del
Mar. The Company acknowledges that the maintenance of such standard is a
material covenant of the Company. The Completion Date may be extended for a
period of time equal to the number of days during which the Company is prevented
from or delayed in proceeding with the Construction of the Improvements by
reason of any Unavoidable Delay upon satisfaction of all of the following
conditions at the time of any such extension: (i) TDF shall have received
written notice from the Company of any requested extension and the anticipated
duration thereof, (ii) no Event of Default shall have occurred and be
continuing, (iii) the Company shall have delivered to TDF a revised Budget to
the extent such extension shall affect the Budget, and (iv) the Company shall
have satisfied the requirements of Section 9.10 hereof,
if applicable; provided, however, that in no event shall any such extension
extend the Completion Date for Unavoidable Delay beyond the date reasonably
agreed upon by the Company and TDF's Consultant. The Company shall not permit
and shall promptly notify TDF of any cessation of Construction of the
Improvements for a period in excess of ten (10) days not contemplated by the
Construction Schedule, unless such cessation is due to an Unavoidable Delay. An
Unavoidable Delay affecting one element or portion of the Improvements shall not
excuse the Company from its obligation to complete the remainder of the
Improvements prior to the Completion Date unless (and only to the extent that)
the factors resulting in the Unavoidable Delay also impact such other elements
or portions of the Improvements.

    

    7.14.           Inspection of Project and
Books and Records. During and after Construction and upon twenty-four
(24) hours prior notice, the Company will permit TDF and TDF's Consultant, or
designated representatives of any of them, to enter upon the Project, at any
time, with free access to inspect or examine (i) the Project, (ii) all materials
and shop drawings which are or may be kept at the construction site, (iii) any
contracts, bills of sale, statements, receipts or vouchers, (iv) all work done,
labor performed or materials furnished in and about the Project, (v) all books,
contracts and records of the Company relating to the Project and (vi) any other
documents which are reasonably related to the Project; provided that TDF or
TDF's consultant or its designated representatives shall conduct such
inspections or examinations in a way that minimizes the disruption of the
Company's operations. The Company will make its representative available for TDF
or TDFs Consultant upon reasonable notice to discuss the Company's affairs,
finances and accounts relating to the Project and the Company will cooperate,
and take all reasonable steps to cause the Prime Contractors, the Operators, and
the Trade Contractors to cooperate, with TDF or TDF's Consultant, as the case
may be, or any designated representative of either, to enable such Person to
perform its functions hereunder. In connection therewith, the Company will keep
adequate records and books of account, in which complete entries will be made in
accordance with generally accepted accounting principles, consistently applied,
reflecting, all financial records of the Company.

    

    7.15.           
Expenses. The
Company will pay promptly on demand to or for the account of TDF, as the case
may be, whether incurred prior to or after closing: (i) TDF's reasonable counsel
fees (subject to the terms of any agreements relating thereto, and otherwise of
such counsel's customary rates), it being understood that ordinary post-closing
matters relating to the issuance of the Bonds and the Letter of Credit and this
Agreement are covered by the existing agreement with O'Neill & Borges, (ii)
the fees and disbursements of TDF's Consultant and of any other consultants or
professionals hired by or on behalf of TDF, and (iii) all other costs and
expenses reasonably incurred by or on behalf of TDF in connection with: (A) the
Closing of the Loan, the issuance of the Letter of Credit, the consummation of
the transactions contemplated herein or in any other Operative Document, (B) any
amendments, modifications or waivers of the provisions hereof or thereof, or (C)
the enforcement or protection of the rights of TDF hereunder and thereunder,
Without limiting the generality of the foregoing, the Company will
pay:

    

    (i) all taxes and recording expenses,
including all filing and mortgage recording fees and taxes, with respect to the
Security Documents, and any other documents modifying, extending or
consolidating, the Security Documents;

    

    (ii) all title insurance charges and
premiums;

    

    (iii) all appraisal, survey,
investigation and insurance fees and expenses and all costs of preparing
environmental and insurance reports concerning the Project; and

    

    (iv) all other fees, costs and
expenses referred to in Section 14.3 of this
Agreement.

    

    7.16.           
Plans, (a) The
Company shall proceed with diligence and continuity to cause Substantial
Completion to occur on or before the Completion Date in accordance with the
Plans 'and all Legal Requirements. Without limiting the generality of the
foregoing, Substantial Completion shall be achieved free and clear of Liens or
claims for materials supplied or for labor or services performed in connection
with the Construction of the Improvements or otherwise.

    

    (b) Final Plans for each Phase of the
Project shall be approved by TDF and TDF's Consultant prior to the commencement
of each Phase of the Project. If TDF and TDF's Consultant do not approve or
provide comments to such final Plans for any Phase of the Project within ten
(10) Business Days after actual receipt of such Plans by TDF's Consultant (and
receipt by TDF of a copy of the transmittal letter to the TDF's Consultant),
then such Plans shall be deemed to have been approved by TDF.

    

    (c) The-Company shall promptly submit
to TDF's Consultant for its review and approval all proposed material changes or
proposed material additions to the Plans (simultaneously with such submission,
Company shall deliver to TDF a copy of the transmittal letter to TDF's
Consultant with respect to such proposed changes or additions). Such proposed
changes or proposed additions may not be implemented without the prior written
approval of TDF, which shall not be unreasonably denied. If TDF and TDF's
Consultant do not approve or provide comments to such proposed changes or
proposed additions to the Plans for any Phase of the Project within ten (10)
Business Days after actual receipt of such proposed changes or proposed
additions to the Plans by TDF's Consultant (and receipt by TDF of a copy of the
transmittal letter to the TDF's Consultant), then such proposed changes or
proposed additions to the Plans shall be deemed to have been approved by
TDF.

    

    (d) Company shall also deliver
simultaneously with the proposed Plans (and any modifications or amendments
thereto) all relevant information and materials in order to facilitate a proper
and adequate review of the Plans (and any modifications or amendments thereto)
by TDF and TDF's Consultant, and Company shall promptly furnish from time to
time any addi-tional information and material reasonably requested by TDF's
Consultant in order to adequately. review the Plans (and any modifications or
amendments thereto).

    

    (e) As used in this Section 7.16, the
term "actual receipt" shall mean receipt of the  Plans, or proposed
changes or additions thereto, as the case may be, by TDF's Consultant, together
with all relevant supporting information and materials.

    

    7.17.           Delivery of
Agreements. The Company will deliver to TDF, promptly after demand,
copies of any contracts, bills of sale, statements, receipted vouchers or
agreements, under which the Company claims title to any materials, fixtures or
articles incorporated in the Project and subject to the Lien of the Mortgage.
The Company shall deliver to TDF copies of all Construction Documents and
Project Documents hereafter entered into immediately after the same are entered
into.

    

    7.18.           Correction of Work.
The Company will, upon demand of TDF or TDF's Consultant, promptly correct any
structural defect in the Improvements or any material departure from the Plans
not approved by TDF and TDF's Consultant, to the extent any such approval is
required pursuant to Section 7.16 hereof,
it being agreed that the making of any Disbursement shall not constitute a
waiver of TDF's right to require compliance with this covenant with
respect  to any such defects or departures from the
Plans.

    

    7.19.           Revised Budget. The
Company will, at its sole cost and expense, furnish to TDF with each Request for
Disbursement, a revised Budget, which shall indicate revisions made to the
Budget, if any, from the copies thereof previously submitted to TDF. Such
revised Budget shall be subject to the approval of TDF, which shall not be
unreasonably denied if TDF is provided with evidence satisfactory to it as to
the proposed source and availability of any additional funds required for any
increase in the proposed Budget.

    

    7.20.           Notices. The Company
shall give notice to TDF promptly upon the occurrence of:

    

    (a) any (i) default or event of default
under any Prime Contract or Major Trade Contract, (ii) litigation, investigation
or proceeding of which the Company has knowledge which may exist between the
Company and any Government Authority and (iii) any pending or threatened
litigation or action of a Government Authority of which the Company has
knowledge concerning the presence, release, threat of release, placement on or
in, or the generation, transportation, storage, treatment or disposal at, the
Project of any Hazardous Material:

    

    (b) any notice given or received
pursuant to any of the Operative Documents, the Project Documents or the
Construction Documents alleging that a default or other failure by the Company
has occurred thereunder; and

    

    (c) any condition which results, or is
likely to result, in an Unavoidable Delay in Substantial
Completion.

    

    Each
notice pursuant to this Section 7.20 shall be
accompanied by a statement of the Company setting forth details of the
occurrence referred to therein and stating what action the Company proposes to
take with respect thereto.

    

    7.21.           No Encroachments. The
Improvements shall be constructed entirely within the perimeter of the Property
and shall not encroach upon or overhang (unless consented to in

    writing
by the affected property owner) any easement or right-of-way or land of others,
and when erected shall be wholly within any building restriction lines, however
established.

    

    7.22.            Insurance. The
Company shall provide and maintain at all times insurance in such forms and
covering such risks and hazards and in such amounts and with such companies as
may be required by the Pledge Agreement and Section 9, 5.3. of
this Agreement, and shall deliver such originals of these policies, or signed
insurance binders relating thereto and copies of the policies, to
TDF.

    

    7.23.            Application of Insurance and
Condemnation Proceeds. The application of all insurance or condemnation
proceeds realized from the damage, destruction or condemnation of the Project,
or any portion thereof, shall be governed by the Pledge Agreement.

    

    7.24.            Compliance with
Documents. The Company shall abide by, perform and comply with all
material terms and conditions of the Management Agreements, the Construction
Documents and the other Project Documents and the Company, at its sole cost and
expense, shall use best efforts to secure or enforce the performance of each and
every material obligation, covenant, condition and agreement to be performed by
the other parties under any such documents.

    

    7.25.            [Reserved]

    

    7.26.           
Asbestos. The
Company will not install, permit to be installed or suffer to exist in the
Improvements, friable asbestos or any substance containing asbestos and existing
in a manner or for a use deemed hazardous by federal or Commonwealth regulations
respecting such material.

    

    7.27.           
Final Survey.
The Company will deliver to TDF within 120 days after the date of Substantial
Completion an update of the Survey, dated no earlier than the date of
Substantial Completion, with a certification that no encroachments exist by the
Improvements or on the Property other than those shown on the Survey and
consented to, in writing, by TDF, and indicating the completed Improvements, the
dimensions thereof at ground surface level, the distance therefrom to the facing
exterior property lines and other buildings and any set-back lines, the location
of access to the Project and all utility, water and other easements directly
affecting the Project.

    

    7.28.           
 Use of
Disbursements. The Company will receive and apply all Disbursements to
the payment of the Hard Costs and Soft Costs within the Budget for which the
applicable Request for Disbursement was made.

    

    7.29.            
Leasing. To the
extent that the Company leases space in the Project, the Company shall lease and
cause the lessee to operate the space to be leased in a manner compatible with
the operation of, the Property as a championship golf course. From time to time
upon the request of TDF, the Company shall provide to TDF such information as
TDF shall request with respect to the Company's leasing activities and policies.
All leases for all or any portion of the Property shall be subordinate in all
respects to this Agreement and to the Security Documents. The Company shall not
enter into a lease for any space in the Property without first delivering to TDF
an Assignment of Rents in connection therewith.

    

    7.30.            
Limits on Cash
Distributions to Shareholders. Unless otherwise agreed to in writing by
TDF, the Company shall not pay dividends or make other distributions to or on
behalf of any of its shareholders, or pay interest on or principal of any Debt
due to its shareholders or Affiliates at any time unless the Company is in
compliance with the following terms and conditions and such distributions are
strictly in accordance with the following priorities:

    

    (i) To the extent there is Excess
Cash Flow for any period (treated as a single accounting period) commencing on
January 1, 2001 and ending on the last day of the fiscal year immediately
preceding the date of the proposed distribution (the "Relevant Fiscal Year"),
the Company may pay or distribute to its stockholders or Affiliates 75% o of
such Excess Cash Flow, provided, (a) the Company deposits in the Excess Cash
Flow Reserve, at the time it makes such distribution, an amount equal to
one-third of the amount distributed and (b) the Company's Debt Coverage Ratio
for the Relevant Fiscal Year is at least 1.25 to 1.00; provided, however, that
if at the time of the distribution (i) the Bonds are not redeemable pursuant to
the optional redemption provisions of the Trust Agreement, (ii) the Company is
unable to purchase Term Bonds at a price of 102% of the principal thereof or
lower (as shown by a letter from an investment banker acceptable to TDF
stating. that Term
Bonds at such price are not available for purchase in the market at the time),
and (iii) the maximum yield that the Company can obtain on investments in the
Excess Cash Flow Reserve is lower by 1% or more than the weighted average
interest rate of the Bonds, then the maximum that the Company shall be required
to deposit and maintain in the Excess Cash Flow Reserve while such conditions
exist shall be limited to six months of debt service on the Bonds, calculated on
the basis of the six months commencing after the end of the month in which the
distribution is to be made, and the Company may distribute any Excess Cash Flow
in excess of such maximum amount, subject to compliance with the other
provisions of this Section.

    

    (ii) The foregoing distributions
shall not be made until the audited financial statements of the Company for the
Relevant Fiscal Year have been delivered to TDF and the calculation of Excess
Cash Flow and Debt Coverage Ratio made by the Accountant has been agreed to and
accepted by TDF; provided, however, that the Company may pay, on a quarterly
basis, interest and principal to PDMPI with respect to the remaining
$8,774,340.15 of its existing loan due to PDMPI provided it certifies that it
has determined with reasonable certainty that the amount of Excess Cash Flow
that it will have after the end of the Relevant Fiscal Year and that will be
available pursuant to this Section to pay such interest and principal will be
sufficient to pay such interest and principal, and provided that if, after the
end of the Relevant Fiscal Year, it is determined that the Company paid to PDMPI
monies in excess of those that it could pay in accordance with this Section,
such excess monies, if not reimbursed by PDMPI, shall reduce the amounts that
may be paid in subsequentt years. In the event that the Company pays to PDMPI,
in accordance with the preceding proviso, in any three fiscal years, monies in
excess of those that it is ultimately determined should have been paid, the
Company shall no longer be entitled to pay interest and principal to PDMPI on a
quarterly basis pursuant to such proviso.

    

    (iii) The restriction set forth in
this Section 7.30 on the repayment of debt due to PDMPI shall not be applicable
to up to $1,500,000:in revolving debt due to PDMPI from time to time, which may
be repaid at any time from any funds available to the Company provided (A) there
is no Default or Event of Default at the time, (B) all amounts required to be
deposited in the Debt Service Reserve and the Working Capital Reserve have been
so deposited, and (C) the Company maintains the balance of such revolving debt
at zero during 15 consecutive days during each calendar-year. In the event any
of these conditions is not met, such revolving debt shall be subject to all the
restrictions set forth in this Section 7.30.

    

    (iv) in the event TDF does not accept
the calculation of Excess Cash Flow or Debt Coverage Ratio made by the
Accountant as set forth in clause (i) above, TDF shall identify its objections
to such calculations within 30 days of receipt of the audited financial
statements (it being agreed that if TDF does not identify any objections within
such 30-day period, such calculation shall be deemed approved by TDF), and the
Company and TDF shall agree on a mutually acceptable third party accountant to
resolve the dispute. If the Company and TDF cannot agree on a third-party
accountant, then the Accountant and an accountant designated by the TDF shall
choose a third-party accountant to resolve the dispute.

    

    (v) There shall exist no Default or
Event of Default under this Agreement at the time the distribution is to be
made.

    

    7.31.           
Compliance with
Environmental Laws. The Company will comply with any and all Legal
Requirements and Environmental Laws with respect to the discharge, removal and
disposal of Hazardous Material, and the Company shall pay or cause to be paid
immediately when due the costs of removal and disposal of any such Hazardous
Material, and shall keep the Project free of any Lien imposed pursuant to such
Legal Requirements or Environmental Laws. The Company further agrees not to
release or dispose of any Hazardous Material at the Project in violation of any
applicable law or regulation, and any such release or disposal will be in
compliance with all Legal Requirements and conditions established by TDF, if
any. TDF shall have the right upon reasonable notice and for a reasonable cause
to conduct an environmental audit of the Project at any time and at the
Company's sole cost and expense. The Company shall cooperate in the conduct of
any such environmental audit. In addition to all other rights available to TDF
in connection therewith, if the Company fails to comply with any requirement of
this Section, TDF may, but shall not be obligated to, cause the Project to be
freed from the Hazardous Material, with the cost of the removal and disposal
thereof being payable by the Company upon TDF's demand therefor, The Company
shall give TDF and its agents and employees access to the Project to remove
Hazardous Material, and the Company agrees to and does hereby indemnify and hold
TDF harmless from and against all loss, costs, damages and expenses (including,
without limitation, attorneys' fees and disbursements) that TDF may sustain by
reason of the assertion against TDF by any party of any claim in connection with
such Hazardous Material, except to the extent such claim results from TDF's or
its agents' negligence or willful misconduct,

    

    7.32.           Additional
Assignments. (a) The Company agrees to enter into Assignments of
Depository Accounts and Assignments of Contracts at all such times as the same
may be required in order to ensure that TDF has a valid security interest in all
depository accounts and all contracts and agreements of the Company,
respectively, to the extent permitted by law. Within fifteen (15) days after the
end of each month, the Company shall provide TDF, on a monthly basis, with
schedules describing any new depository accounts opened (including the name and
address of each institution where such depository accounts are held), and shall
execute and deliver confirmatory written assignments of such depository accounts
to TDF.

    

    (b) The Company further agrees to enter
into an Assignment of Rents each time that a new lease is entered into for any
portion of the Project.

    

    (c)  With the exception of
leased property and equipment and property and equipment acquired through
purchase money financing, in each case in accordance with the provisions of
Section 7,4 and
Section 7.5 of
this Agreement, the Company shall execute and deliver a Master Security
Agreement, or Master Security Agreements, within the meaning of and creating a
security interest under the UCC, to TDF in connection with (i) any and all
tangible personal property, including fixtures, purchased by the Company for use
at or in connection with the Property, (ii) any buses, limousines or other
moving vehicles purchased by the Company for use at or in connection with the
Property, (iii) all accounts receivable obtained in connection with the
Property, and (iv) all of the collateral assigned to TDF pursuant to the
Assignment of Contracts, Assignment of Depository Accounts, Assignment of
Depository Accounts (Capital Improvements) and Assignment of Rents, provided
that such tangible personal property, buses, limousines or other moving vehicles
are not financed through purchase money financing or Leases otherwise permitted
pursuant to the terms of this Agreement, and shall also execute and deliver on
demand such other agreements and instruments as TDF may request in order to
further document or perfect its security interest upon any of such property,
including, without limitation, UCC-1 Financing Statements, in form and substance
satisfactory to TDF, The Company shall cause the same to be properly filed for
record in the Department of State, the corresponding Section of the Property
Registry of Puerto Rico and/or the Department of Transportation and Public Works
of Puerto Rico, as applicable, at the sole cost and expense of the Company. Such
Master Security Agreement shall constitute a valid first priority lien subject
to no other liens, security interests, conditional sales contracts or title
retention agreements. TDF shall have all the rights and remedies of a secured
party under the UCC, in addition to any other rights or remedies specified in
this Agreement: The Company's principal place of business and the secured
party's address is set forth in Section
8,16.

    

    7.33.           
Amounts Secured by
Mortgage. Any costs and expenses incurredd by or amounts advanced by TDF
pursuant to the terms hereof and all other Reimbursement Obligations (as defined
in the Pledge Agreement), shall be secured by the Mortgage.

    

    7.34.           Sole Business Puerto
Rico is and shall be the only jurisdiction in which the Company owns real
property or conducts business and the sole. business conducted by the Company at
any time is and shall be the development and operation of the
Project.

    

    7.35.           
Loan Agreement
Covenants. The Company shall comply with all of the covenants of the
Company set forth in the. Loan Agreement.

    

    7.36.           Continuous Operation,
The Company shall continuously operate the Project in a sound and efficient
manner, in accordance with all Legal Requirements and Environmental Laws subject
to the terms of Section 7.10
hereof.

    

    7.37.           Accounting. The
Company shall maintain accounting, management information and cost control
systems acceptable to TDF.

    

    7.38.           
Accountant, The
Company shall engage the Accountant and authorize the Accountant to communicate
directly with TDF regarding the Project and the Company.

    

    7.39.           [Reserved]

    

    7.40.           
[Reserved]

    

    7.41.           
Affiliate
Transactions. The Company shall not, without the prior written consent of
TDF, enter into any transaction that is not a bona fide arm's-length transaction
with an Affiliate of the Company, except as set forth in Exhibit 7.41 hereof.
All transactions with Affiliates of the Company, including those set forth in
Exhibit 7.41 and those approved by TDF, are and will be on economic terms that
are substantially similar or better for the Company than those that could be
obtained from an independent third party that is not an Affiliate of the
Company.

    

    7.42.           Change in Business.
The Company shall not, without the prior written consent of TDF, substantially
modify the Company's business or the operation of the Project.

    

    7.43.           
Quality. The
Company shall not, without the prioi written consent of TDF, allow for a
reduction in quality or standard of Construction, of furniture, fixtures,
equipment or operating services in connection with the Project, from those
specified in the Plans or customary in a championship Puerto Rico golf course
and a resort such as Palmas del Mar.

    

    7.44.           
Terminations.
The Company shall give written notice to TDF of its desire to terminate an
Operator and the circumstances justifying such action, as well as of its
intended plans for replacing such Operator, not less than 1 day prior to the
proposed date of termination.

    

    7.45.           
Events of
Taxability. The Company shall not, without the prior written consent of
TDF, take any action or fail to take any action that would constitute an Event
of Taxability, as defined in the Loan Agreement.

    

    7.46.           
Easements, Covenants
and Restrictions, Except for routine utility, golf course, drainage, and
access easements, which shall be located on a survey (a copy of which shall be
provided to TDF) and which shall not unreasonably interfere with the development
or use of the Property, the Company shall not, without the prior written consent
of TDF, which shall not be unreasonably denied, record any easements, covenants,
conditions or restrictions against any portion of the Property,

    

    7.47.           Reporting
Requirements, In addition to any other documents, statements, balance
sheets, instruments, notices, materials and information required to be provided
by'the Company to TDF, the Company shall provide or cause to be provided to TDF
the following:

    

    (a) on a monthly basis during
Construction of the Project, project implementation and progress reports, all in
form, substance and detail reasonably satisfactory to TDF and TDF's
Consultant;

    

    (b) on a monthly basis, all reports
regularly prepared by any of the Operators for delivery to the
Company;

    

    (c) on an annual basis, not more than
120 days following the end of the Company's fiscal year, statements of financial
transactions with Affiliates of the Company, in form, substance and detail
satisfactory to TDF;

    

    (d) as they arise, notice of events
known to the Company which are likely to cause a default pursuant to any of the
Operative Documents, the Trust Agreement or any documents executed in connection
therewith; and

    

    (e) as they arise, notice of material
adverse events or conditions affecting the Project.

    

    7.48.           [Reserved]

    

    7.49.           Tax and Insurance
Escrow. If required by TDF during the continuance of a Default or Event
of Default, the Company shall deposit quarterly with TDF during the term of this
Agreement, in an interest bearing account (to the extent permitted under the
Trust Agreement and otherwise permitted under law), a sum equal to one-fourth of
the yearly taxes and assessments which may be levied against the Property, and
one-fourth of the yearly premiums for insurance thereon, Any insufficiency of
such account to pay such taxes, assessments and premiums when due, shall be paid
by the Company into the aforesaid account upon demand by TDF. The amount of all
deposits required to be made hereunder for taxes and assessments shall be
calculated assuming that the maximum discounts allowable under the then current
law for the early payment of taxes and assessments shall be taken: TDF hereby
covenants and agrees with the Company to pay all taxes and assessments within
the period entitling the Company to the maximum discount available by law for
the payment of such taxes and assessments. If, by reason of any default by the
Company under the Operative Documents, TDF declares all sums secured thereby to
be due and payable, TDF may then apply any funds in said account against the
entire outstanding balance due TDF.

    

    7.50.           Operating Budget.
Within thirty (30) days prior to the commencement of each fiscal year of the
Company, the Company shall submit to TDF for its review a projected annual
operating budget substantially in the form customarily used in the industry (the
"Operating Budget") together with assumptions in narrative form, which shall set
forth in detail (i) monthly estimates of revenues, including estimates of
membership fees and green fees, (ii) an annual capital improvements budget;
(iii) an annual advertising and marketing budget; (iv) departmental revenues and
expenses; (v) projected gross operating profit; (vi) projected cash flow; and
(vii) a separate Line Item, consistent with the Chart of Accounts recommended by
the Uniform System of Accounts, as to any major category of
expense.

    

    7.51.           [Reserved]

    

    7.52.           
Equipment
Leases. The Company shall assign to TDF, as collateral security, and
provide TDF with copies of, all major equipment leases pertaining to the leasing
of furniture, fixtures and equipment at the Project together with agreements or
consents from all major equipment lessors confirming that TDF shall become the
lessee under such leases upon an Event of Default. The Company shall not lease
any equipment the purchase of which is contemplated in a budget submitted to TDF
without the prior written approval of TDF. For purposes of this subsection, the
term "major equipment leases" shall mean equipment leases which provide for
annual lease payments equal to or greater than $50,000 per year.

    

    7.53.           Prime Contractors,
Each Prime Contract shall be with a Prime Contractor approved for such work by
TDF's Consultant. Prior to commencing any work in connection with the Project,
each Prime Contractor shall provide its Consent and Agreement to the collateral
assignment to TDF of its Prime Contract,

    

    7.54.           Prime Contracts, Each
Prime Contract shall be on the form of contract approved by TDF in accordance
with Section
10.2 hereof, and shall require that each Prime Contractor maintain
insurance coverages reasonably acceptable to TDF.

    

    7.55.           Contracts Calling for
Deposits. Each contract for the purchase of materials as to which a
deposit is to be funded pursuant to Section 9.5.2 hereof
to be incorporated into the Improvements shall contain a provision providing
that such contract shall be assignable without the prior written approval of the
vendor of such materials,

    

    7.56.           
[Reserved.]

    

    7.57.           Payment of Debts, The
Company shall not fail to pay any material Debt or Debts, as the case may be
(but excluding Debt pursuant to this Agreement), or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or Otherwise) and permit such failure to continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt or Debts; or otherwise default under any agreement or
instrument relating to any such Debt or Debts, or permit any other event to
occur and continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to accelerate
the maturity of such Debt or Debts or to cause the holder of such Debt or Debts
(or any trustee or agent for the holders thereof) to threaten expressly or by
implication, the acceleration of the maturity of such Debt or Debts; or permit
any Debt or Debts to be declared to be due and payable, or required to be
prepaid (other than by regularly scheduled required prepayment), prior to the
stated maturity thereof,

    

    7.58.           No Assignments, The
Company shall not assign any Disbursement to be made pursuant to this Agreement,
the Trust Agreement or the Loan Agreement, or any interest in any of the
foregoing, except as may be expressly permitted hereunder.

    

    7.59.           
Establishment and
Replenishment of Working Capital Reserve. The Company shall establish a
Working Capital Reserve, which shall initially be funded with $800,000 from the
proceeds of the Bonds. The Company shall, on an annual basis within 120 days
after the end of the Company's fiscal year, prior to making any distributions to
its shareholders as contemplated by Section 7.30,
replenish from any available funds (to the extent of such available funds) the
Working Capital Reserve, to the extent of disbursements made therefrom not
previously replenished.

    

    7.60.           
Establishment and
Funding of Excess Cash Flow Reserve. The Company shall establish an
Excess Cash Flow Reserve. The Company shall, prior to making any distributions
to its stockholders as contemplated by Section 7.30, deposit
into the Excess Cash Flow Reserve the amount required by Section 7.30. Funds in
the Excess Cash Flow Reserve shall be invested in investments selected by the
Company and reasonably approved by TDF (it being agreed that investments
permitted under the Trust Agreement are hereby approved by TDF), shall be
pledged to TDF to secure the Company's obligations hereunder and may be used by
the Company (i) to redeem or purchase any of the Term Bonds (or, with the prior
written consent of TDF, Serial

    Bonds)
for cancellation, (ii) to finance extraordinary capital improvements approved by
TDF (it being understood that regularly scheduled capital improvements shall not
normally be funded from the Excess Cash Flow Reserve), or (iii) with the prior
written approval of TDF, to cover operating deficits,

    

    7.61.           Funding of Debt Service
Reserve, TDF acknowledges that the Debt Service Reserve may be utilized,
from time to time, for the payment by the Trustee of interest on and principal
of the Bonds, whether at maturity, by acceleration or in satisfaction of the
Amortization Requirement, as that term is defined in the Trust Agreement. The
Company shall be obligated to replenish the Debt Service Reserve to the extent
of any Debt Service Reserve Fund Deficiency, as that term is defined in the
Trust Agreement, in accordance with the terms of Section 4.01 of the
Loan Agreement and Section 7.11 of this
Agreement.

    

    7.62.           Optional Redemption of
Bonds. TDF hereby agrees that, to the extent the Company is permitted to
purchase Bonds or to redeem Bonds pursuant to the optional redemption provisions
of the Trust Agreement, the Company may purchase or redeem Bonds in any order of
maturity, provided such purchase or redemption is made with funds other than
those deposited in the Excess Cash Flow Reserve.

    

    7.63.           [Reserved
]

    

    8.           REPRESENTATIONS AND
WARRANTIES. The Company represents and warrants to TDF as follows (which
representations and warranties shall survive the execution and delivery of this
Agreement and the other Operative Documents, regardless of any investigation
made by TDF or on its behalf):

    

    8.1.           Due
Organization.

    

    8.1.1. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is duly authorized to do business in Puerto Rico, and has all
necessary power and authority to own its properties, to conduct its business as
presently conducted or proposed to be conducted, and to enter into and perform
its obligations under this Agreement, the other Operative Documents and the
Construction Documents to which the Company is a party, and possesses all
licenses and approvals necessary for the conduct of its business as it exists at
such time. True and complete copies of the Company's certificate of
incorporation and by-laws have been delivered to TDF. The only shareholder of
the Company is PDMPI, which is a wholly-owned subsidiary of Maxxam.

    

    8.2.           No Violation. The
consummation of the transactions herein contemplated and the execution, delivery
and performance by the Company of its obligations under this Agree-ment, the
other Operative Documents, the Project Documents and the Construction Documents
to which it is a party and all other agreements to be executed by the Company in
connection herewith or therewith have been duly authorized by all necessary
corporate action, and do not and will not violate any Legal Requirement or any
law or any regulation, order, writ, judgment, injunction or decree of any
Government Authority known to the Company, or result in a breach of any of the
terms, conditions or provisions of, or constitute a default under, or result in
the creation or imposition of any Lien upon any of the assets of the Company
(except as contemplated hereby and by the other Operative Documents) pursuant to
the terms of the Company's articles of incorporation or by-laws, or any
morfgage, indenture, agreement or instrument to which the Company is a party or
by which it or any of its properties is bound. The Project and the use,
occupancy, operation and condition thereof, in its present stage, are in
compliance with all applicable Legal Requirements except as otherwise provided
in Exhibit 8.2
hereof

    

    8.3.           Consents. All
authorizations, consents and approvals of, notices to, registrations or filings
with, or other actions in respect of or by, any governmental body, agency or
other instrumentality or court (collectively, the "Consents") required in
connection with the execution, delivery and performance by the Company of this
Agreement, the other Operative Documents, the Project Documents and the existing
Construction Documents and all other agreements to be executed by the Company in
connection herewith or therewith to which it is a party have been duly obtained,
given or taken and are in full force and effect or will be duly obtained, given
or taken and will be in full force and effect when required or prior to
commencement of each Phase, and the Company agrees that all consents required
for the Construction and operation of the Improvements and otherwise in
connection with the carrying out or performance of any of the transactions
required or contemplated hereby or thereby will be obtained when required. A
list of all material licenses and permits required to operate and construct the
Project is attached as Exhibit 8.3
hereto.

    

    8.4.           Enforceability. This
Agreement, the other Operative Documents, the existing Project Documents and the
existing Construction Documents to which the Company is a party have been duly
executed and delivered on behalf of the Company and are legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms subject to applicable bankruptcy, reorganization, insolvency and
other similar laws now or hereafter in effect, affecting the enforcement of
creditors' rights generally.

    

    8.5.           
No Litigation.
Except as set forth in Exhibit 8.5 hereof,
there is no action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, public board or body pending of which the
Company has been notified or, to the best of the Company's knowledge, threatened
against or affecting the Company or the Project, or any portion thereof
(including, without limitation, any condemnation or eminent domain proceeding
against the Project, or any portion thereof), wherein an unfavorable decision,
ruling or finding would have an adverse effect on the properties, business,
condition (financial or other) or results of operations of the Company, the
transactions contemplated by this Agreement, the Project, the other Operative
Documents, the Project Documents and the existing Construction Documents or
which would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, this Agreement, the
other Operative Documents, the Project Documents and the existing Construction
Documents to which it is a party.

    

    8.6.           No Defaults. Except
as provided in Exhibits 8.2, 8.5 and
8.22, the Company is not in default under nor are there any violations or
notices or other records of violation of any law or any regulation, order, writ,
injunction or decree of any court or governmental body, agency or other
instrumentality applicable to the Company (including, without limitation, any
zoning, health, safety, building, environmental or other statute, ordinance or
restriction affecting all or any part of the Project or any use or condition
thereof), and no default has occurred and is continuing under this Agreement,
any Debt or any indenture or other agreement or instrument governing outstanding
Debt of the Company, or any other contract, agreement or instrument to which the
Company is a party or by which it or its property is bound, and no event has
occurred which with the giving of notice or the passage of time or both would
constitute such a default.

    

    8.7.           Tax Returns. The
Company has filed all tax returns, or extensions thereof, required by law to be
filed, and has paid all taxes, assessments and other governmental charges levied
upon the Company and its properties, assets, income and franchises which are due
and payable, other than those presently payable without penalty or interest. The
charges, accruals and reserves on the books of the Company in respect of
federal, state and commonwealth income taxes for all fiscal periods are adequate
in the opinion of the Company.

    

    8.8.           Compliance with
ERISA. Each Employment Compensation Plan, if any, is in substantial
compliance with ERISA, all contributions required to be made to any Employment
Compensation Plan by its terms, the Code or ERISA (including any quarterly
installments required under Section 412(m) of the Code) have been made by the
applicable due date, no Employment Compensation Plan is insolvent or in
reorganization, no Plan has an accumulated or waived funding deficiency within
the meaning of Section 412 of the Code, neither the Company nor a Subsidiary nor
an ERISA Affiliate has incurred any material liability (including any material
contingent liability) to or on account of an Employment Compensation Plan
pursuant to Section 4062, 4063, 4064, 4201 or 4204 of ERISA, no proceedings have
been instituted to terminate any Plan, and no condition exists which presents a
material risk to the Company or a Subsidiary of incurring a liability to or on
account of an Employment Compensation Plan pursuant to any of the foregoing
Sections of ERISA.

    

    8.9.           
Other Facts.
There is no fact within the Company's knowledge particular to the Company or the
Project which directly adversely affects or in the future is likely to directly
adversely affect the business, property, assets or financial condition of the
Company which has not been set forth in this Agreement or in any other Operative
Documents,

    

    8.10.           
Other Representations
and Warranties, The Company hereby makes to TDF each of the
representations and warranties made by the Company contained in the Operative
Documents to which the Company is a party as if such representations and
warranties were set forth in full herein.

    

    8.11.           Financial Statements.
The Financial Statement of the Company previously delivered to TDF fairly
presents the financial position of the Company, as of such dates and the results
of its operations and changes in its financial positions for the period then
ended, all in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent with the most recent
financial statements of the Company delivered to TDF. The Company does not have
any contingent obligations, liabilities for taxes or other outstanding
liabilities or obligations, fixed or contingent, which are material,
individually or in the aggregate, except for the following outstanding
obligations: (i) the Loan, (ii) those liabilities and obligations in connection
with the Project that have been disclosed to TDF and (iii) those liabilities and
obligations disclosed in the financial statements described in this Section 8.11. Since
the respective dates set forth in the Financial Statements described in the
first sentence of this Section. 8.11 there
has been no adverse change in the condition (financial or other), business,
operations or prospects of the Company. Neither the aforesaid financial
statements of the Company, nor any certificate or statement furnished to TDF by
or on behalf of the Company in connection with the transactions contemplated
hereby nor any representation nor warranty in this Agreement, when taken
collectively as a whole and in the context made and to whom made, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein or herein not misleading in
light of the circumstances in which they were made.

    

    8.12.           
Margin
Regulations. The Company is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System. No part of the proceeds
of the Bonds will be used to purchase or carry any margin stock, or to extend
credit to others for that purpose,- or for any purpose that violates the
provisions of Regulation U or X of the Board of Governors of the Federal Reserve
System.

    

    8.13.           
Investment Company
Act. The Company is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

    

    8.14.           Disclosure. The
Preliminary Official Statement, as of its date, and the Official Statement, as
of its date and as of the date hereof, did not and do not contain any untrue
state-ment of material fact or omit to state any material fact (other than any
fact relating to and supplied by TDF) necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.

    

    8.15.           Management Agreements and
other Agreements. The Management Agreements are in full force and effect;
no event has occurred and is continuing which constitutes a default on the part
of the Company under the Management Agreements, or would constitute any such
default but for the giving of notice or lapse of time or both, The Construction
Contracts, the Architect Agreements, the Trade Contracts, the other Construction
Documents and the other Project Documents heretofore executed by the Company are
in full 'force and effect, not having been amended, modified, terminated or
otherwise changed, or the provisions thereof waived, except as permitted
hereunder.

    

    8.16.           Location of Company,
The place of business or chief executive office of the Company is located in
Humacao, Puerto Rico. The Company will give TDF prior written notice of any
relocation of such office.

    

    8.17.           
Plans;
Construction. The Plans are satisfactory to the Company and have been
approved, to the extent required by applicable law, ordinance or regulation or
any effective restrictive covenant, by all Government Authorities and the
beneficiaries of any such covenant, respectively. All Construction, if any,
heretofore performed in connection with the Improvements has been performed
within the perimeter of the Property or within the area of an easement
benefitting the Property and with respect to which such Construction is
permitted, and in accordance with the Plans and all Legal Requirements, and such
Construction has been fully paid for or else payment is not yet due or payment
is being disputed in good faith, provided that any such disputes are described
in Exhibit 8,17 and such failure to pay would not adversely affect the Company's
ownership rights in the Project. When constructed, the Improvements will be free
of structural defects. The Company has no knowledge of any violation of any
Legal Requirements with respect to the Improvements, and the anticipated use
thereof complies with all restrictive covenants. affecting the Project and, to
the Company's knowledge, all Legal Requirements.

    

    8.18.           Availability of
Utilities. All utility services and facilities necessary for the
Improvements and, upon completion of Construction, the operation and occupancy
of the Improvements for their intended purposes and which must be. obtained from
sources located outside the boundaries of the Property are available at the
boundaries of the Property, including water supply, storm and sanitary sewer
facilities, and electric and telephone facilities.

    

    8.19.           No Liens. Except for
the Operative Documents, the Construction Documents, the Project Documents, and
the Permitted Encumbrances, the Company has made no contract or arrangement of
any kind, the performance of which by the other party thereto would give rise to
a Lien against all or any portion of the Collateral.

    

    8.20.           
Compliance with
Building Codes, Zoning Laws, Etc. The current zoning law and declarations
covering the Project permit the Construction of the Improvements, and, upon
completion of Construction, permit the Improvements to be used as contemplated
by this Agreement. The Project and, upon completion of Construction, the
Improvements and the proposed use thereof will be in all material respects in
compliance with all Permits and all Legal Requirements,

    

    8.21.           Security Documents,
The provisions of each Security Document are effective to create a legal, valid
and enforceable Lien on or security interest in all of the Collateral described
therein, subject to the proper filing thereof when required, and when the
appropriate recordings and filings have been effected in public offices, each of
the Security Documents will constitute a perfected Lien on and security interest
in all right, title, estate and interest in the Collateral described therein,
prior and superior to all other Liens, except as permitted under this Agreement
and the Operative Documents.

    

    8.22.           Hazardous Materials.
To the best of the Company's knowledge, except as described in Exhibit 8.22, the
Property and the Improvements are not currently, and have never been, subject to
Hazardous Materials or their effects in any material respect. The Property and
the Improvements thereon are in compliance in all material respects with the
Environmental Laws except as provided in Exhibit 8.22 hereof
The Company has no knowledge of any claims, litigation, administrative or other
proceedings, whether actual or threatened, or judgements or orders, regarding
any Hazardous Materials relating in any way to the Property or the
Improvements.

    

    9.           DISBURSEMENTS.

    

    9.1.           Funds for
Disbursement. The funds to be disbursed for Construction of the
Improvements and development of the Project shall be those funds under the
control of the Trustee pursuant to the Trust Agreement and such additional funds
as are deposited with the Trustee from time to time in its separate and distinct
capacity as agent pursuant to the Investment Agreement. Such funds, as augmented
from time to time from whatever source, shall be available for the payment of
the amounts referred to in the Budget, in accordance with the terms of this
Agreement. In no event shall TDF be obligated to independently provide any funds
to the Trustee in connection with the Project.

    

    9.2.           Requirements for All
Disbursements.

    

    9.2.1.   Procedures for
Disbursements. Any and all Requests for Disbursements by the Company
shall be in accordance with the following terms and conditions:

    

    9.2.1.1.each Request for Disbursement
shall require the approval of TDF prior to submission to the Trustee for
funding;

    

    9.2.1.2. each such Request for
Disbursement shall be executed by an Authorized Company Representative and shall
be delivered to TDF, after having been reviewed by TDF's Consultant, together
with supporting information and materials, not less than ten (10) Business Days
prior to the proposed date of Disbursement by the Trustee;

    

    9.2.1.3. with the exception of the
Initial Disbursement, all Disbursements by the Trustee shall be made on a
monthly basis;

    

    9.2.1.4. TDF shall not be obligated
to approve aRequest for Disbursement unless TDF is satisfied that (i) there
exists no Default or Event of Default, and (ii) the conditions precedent under
this Agreement to the making of such Disbursement have been satisfied by
Company;

    

    9.2.1.5. Each Request for
Disbursement shall be accompanied by the revised Budget, if any, required by
Section 7.19; and

    

    9.2.1.6.  After receiving
any Request for Disbursement, if TDF shall determine that the conditions to a
Disbursement specified in this Agreement-have not
been satisfied with respect to such requested Disbursement, then TDF shall give
the Company notice to such effect not less than three (3) Business Days prior to
the proposed date of Disbursement, or if such conditions have been satisfied,
then TDF shall approve in writing such Request for Disbursement not later than
the proposed date of Disbursement. If TDF fails to give such notice or approval
within the time period provided above, the Request for Disbursement shall be
deemed to have been approved.

    

    9.2.2.   Contents of Request for
Disbursement. Each Request for Disbursement shall specify:

    

    9.2.2.1. the amount that the Company
requests be disbursed and the amount to be allocated to each Line
Item;

    

    9.2.2.2. the amount contained in each
Line Item (as modified from time to time) for which disbursement is requested,
the amount allocated to each Trade Cost Item, insofar as a Disbursement from the
Construction Line Item is requested, the amount remaining in each such Line Item
and Trade Cost Item, the portion of the amount remaining in each such Trade Cost
Item representing Retainage in connection with prior Disbursements, if
applicable, and the amount of Retainage to be reserved from the requested
Disbursement;

    

    9.2.2.3. the percentage of
completion, performance or delivery, as applicable, of the work, materials,
services or expenses represented by each such Line Item and with regard to
Disbursements requested for the Construction Line Item, as to each Trade Cost
Item; and

    

    9.2.2.4. the amount of any
adjustment to any Line Item requested by the Company and the source of funds for
such requested adjustment.

    

    9.2.3     Method of
Disbursement, Subject to the provisions of this Agreement and the Loan
Agreement, TDF will direct the Trustee to disburse Project Funds in installments
as follows:

    

    9.2.3.1.  as to Hard Costs,
all Disbursements for which .a Request
for Disbursement has been made shall be based on the percentage of completion as
agreed to by the TDF Consul-tant and the Company for Trade Cost Items, as
applied to the actual amount contracted for relative to such Trade Cost Items;
and

    

                    9.2.3.2.
as to Soft Costs, all Disbursements shall be in amounts equal to the aggregate
of Soft Costs incurred by the Company through the end of the period covered by
the relevant Request for Disbursement.

    

                  
9.2.3.3.  The amounts determined pursuant to subsection 9.2.3.1
and subsection
9.2.3.2 shall be reduced, to the extent applicable, by the
following:

    

    (a) the total of the Disbursements
theretofore authorized or directed by TDF to be made by the Trustee for such
labor, -services
or materials;

    

    (b) any costs covered by the relevant
Request for Disbursement not approved, certified or verified as provided herein;
and

    

    (c)  as to Hard Costs only,
the Retainage,

    

                    
9.2.4.  Partial
Disbursements. If any or all conditions precedent to making a
Disbursement have not been satisfied on the applicable funding date for such
Disbursement, TDF shall authorize or direct the Trustee to disburse only that
portion of the requested Disbursement for which all of the conditions have been
satisfied.

    

                    
9.2.5.  Retainages. All
Disbursements for Hard Costs other than (a) deposits placed pursuant to Section 9.5.2 hereof,
(b) Stored Materials pursuant to Section 9.5.3,
hereof, and (c) vehicles and tangible personal property pursuant to Section 9.6.1 hereof,
shall be subject to a retention (each a "Retainage") equal to (i) a total of 10%
of the requested amount until Construction under the relevant Construction
Contract is 90% o complete, as determined by TDF's Consultant, and (ii) zero
percent (0%) after Construction under the relevant Construction Contract is more
than 90% complete, as determined by TDF's Consultant. All Retainage shall be
disbursed simultaneously with the Final Disbursement in accordance with Section 9.8
hereof.

    

    9.3.           Disbursement on the Date of
Issuance. Provided that all of the conditions precedent set forth in
Section 4
hereof have been met, TDF shall authorize and direct the Trustee to make the
Initial Disbursement on the Date of Issuance.

    

    9.4.           [Reserved.

    

    9.5.           Disbursements For
Construction Items within the Budget.

    

      9.5.1. Requests for
Disbursement. Each Request for Disbursement for construction items within
the Budget shall comply with Section 9.2 of this
Agreement and shall be accompanied by (i) an Application and Certificate for
Payment (AIA Document G702 and AIA Document G703), substantially in the form
attached hereto as Exhibit 9.5.1, with
such changes as TDF or TDF's Consultant may reasonably request, (ii) the Prime
Contractor's, the Major Trade Contractor's and the Trade Contractor's,
requisition for payment, dated on or about the date of such Request for
Disbursement, accompanied by true copies
of unpaid invoices and receipted bills and noting that the only amounts due and
owing (other than any retainage pursuant to the terms of the applicable Prime
Contract, Major Trade Contract or Trade Contract) are the amounts to be paid to
the Prime Contractor, Major Trade Contractor or Trade Contractor out of the
Disbursement being requested or amounts due and payable but which are being
disputed by the Company and which are not included in such Request for
Disbursement, each of which shall be certified as true and. complete by the
Company, (iii) a list of all Major Trade Contracts, Trade Contracts and Prime
Contracts executed since the date of the last preceding Disbursement, together
with a certification that copies of the same have been submitted to TDF's
Consultant prior to the date of such Request for Disbursement, (iv) a list of
all Material Work Changes, together with a statement by the Company that copies
of the same have been submitted to TDF's Consultant prior to or
contemporaneously with the date of such Request for Disbursement, and copies of
any other modifications of previously submitted Prime Contracts, Major Trade
Contracts and Trade Contracts, (v) a list of all modifications, amendments or
revisions to the Plans, together with copies thereof and backup materials
required to be provided pursuant to Section 7.16 of this
Agreement, to the extent not previously submitted, and (vi) evidence
satisfactory to TDF that the full amount of the proceeds of the last preceding
Disbursement has been paid out by the Company in accordance with the terms and
conditions of this Agreement. In the case of any Disbursement to pay any Soft
Cost (other than. interest due with respect to the Loan), such Request for
Disbursement shall be accompanied by true copies of the unpaid invoices and a
description of the costs for which the Disbursement is being made.

    

       9.5.2  Disbursements for
Deposits. Disbursements for deposits placed with suppliers for materials,
fabricated items or custom equipment (including, without limitation, furniture,
fixtures, and equipment) shall be made in the amount of such deposits, in
accordance with the terms of Sections 9.2 and
9.5.1 of this Agreement and the following terms and
conditions:

    

    9.5.2.1. All contract rights relating
to the purchase of such materials shall be vested in the Company.

    

    9.5.2.2. The Company shall deliver to
TDF with respect to such deposits, copies of purchase orders or contracts and
collateral assignments of the same to TDF.

    

    9.5.2.3. In the event that such
materials have a value in excess of $50,000, an acknowledgment of and consent to
such assignment by the vendor of such materials,, at the sole cost and expense
of the Company, if necessary to perfect a first priority security interest in
favor of TDF in and to such purchase orders or contracts.

    

       9.5.3.  Disbursements for Stored
Materials. Disbursements for materials, fabricated goods and custom
equipment stored on or away from the Property (collectively, "Stored Materials")
shall be made in accordance with the terms of Sections 9.2 and
9.5.1, of this Agreement and the following terms and
conditions:

    

    9.5.3.1 The Company shall provide
proof satisfactory to TDF. that such Stored Materials are insured against all
risk of loss for their full replacement cost, or if such insurance is not
commercially available at reasonable rates, such lesser amount as is agreed upon
by TDF's Consultant and the Company as being commercially reasonable and that
such insurance contains a standard mortgagee loss payable
endorsement.

    

    9.5.3.2. The Company shall deliver to
TDF (i) evidence satisfactory to TDF that (x) security measures have been taken
to protect the Stored Materials from theft, casualty or deterioration including,
if requested by TDF, storage in a bonded warehouse and (y) the Stored Materials
are identified to the Project and are segregated so as to adequately give notice
to all third parties of the Company's title in and to such materials, and (ii)
if requested by TDF, written evidence from the supplier of the Stored Materials
identifying such materials and indicating that ownership thereof is vested in
the Company, free and clear of all Liens in favor of the supplier.

    

    .9.5.3.3. If such materials have a
value in excess of $50,000 and are located within the Commonwealth of Puerto
Rico, TDF shall have received evidence satisfactory to TDF, which may include a
security agreement, a UCC-1 Financing Statement, and a UCC-3 financing
statement, granting TDF a first priority lien on and security interest in such
materials registered in the appropriate registries, of TDF's perfected first
priority lien on such materials. TDF is hereby authorized to withdraw an amount
necessary to pay any taxes, filing fees or the like (in connection with such
filing) from the Project Funds, without the requirement of any approval by the
Company,

    

    9.5.3.4.  In the event that
any such Stored Materials are to be located outside of the Commonwealth of
Puerto Rico for a period in excess of 30 Business Days and have a value in
excess of $50,000, or that TDF reasonably believes that the Company may grant a
security interest in the same Stored Materials to another party, or there exists
a Default pursuant to this Agreement, the Company shall provide TDF with a
perfected first priority lien on and security interest in such materials while
the same are outside of the Commonwealth of Puerto Rico as a condition to TDF
authorizing a Disbursement for such Stored Materials. In such instance, TDF is
authorized hereby to withdraw an amount necessary to pay any taxes, filing fees
or the like (in connection with the perfection of such a security interest) from
the Project Fund, without the requirement of any approval by the
Company.

    

    9.5.3.5. TDF shall not be obligated
to authorize or direct the Trustee to make.a. Disbursement with respect to any
Stored Materials if such materials are stolen, lost or in any other manner
misplaced, destroyed or rendered unusable or unavailable prior to the making of
any Disbursement with respect thereto; or otherwise to. make any
Disbursement on account of the cost of replacement thereof (unless such
Disbursement is within the Budget or unless such Disbursement involves the
release of insurance proceeds required to be released to the Company pursuant to
the terms of the Pledge Agreement).

    

    9.6.           
Disbursements for
Development Items within the Budget. Each Request for Disbursement for
development items within the Budget shall comply with Section 9.2 of this
Agreement and, to the extent applicable, any other provisions set forth in this
Section
9.6.

    

    9.6.1. Disbursements for
Vehicles/Tangible Personal Property. Notwithstanding anything herein to
the contrary and in addition to the requirements of Section 9.2 and Section 9.5
hereunder, in connection with any Disbursement hereunder for. the acquisition by
the Company of (a) any tangible personal property, or (b) any buses, limousines
or other moving vehicles, the Company shall, within five (5) days after the date
of purchase, (x) provide TDF with a detailed list of all items purchased which
shall include serial numbers, if applicable, and (y) promptly upon delivery to
Puerto Rico execute and deliver, upon TDF's request, a security agreement, UCC-1
Financing Statement or UCC-3 financing statement, at its sole cost and expense,
and cause such. security agreement, UCC-1 Financing Statement or UCC-3 financing
statement to be properly filed for record in the Department of State, the
corresponding Section of the Property Registry of Puerto Rico and/or the
Department of Transportation and Public Works of Puerto Rico, as
applicable.

    

    9.6.2.           [Reserved]

    

    9.6.3. Disbursements for Working
Capital Deficits, Disbursements for Working Capital Deficits ("Working
Capital Deficit Advances"), shall be made not more frequently,than quarterly. At
any time after the end of a fiscal quarter of the Company the Company may
deliver a Request for Disbursement to cover Working Capital Deficits for such
fiscal quarter. Each Request for Disbursement shall be in accordance with the
requirements of Section 9.2 of this
Agreement and shall be accompanied by the financial statements for such fiscal
quarter of the Company and a calculation of the amount of the Working Capital
Deficit. In no event shall the aggregate amount of Disbursements for Working
Capital Deficits exceed the amount specified in the Budget for the Working
Capital Deficit Reserve. In addition, Working Capital Deficits may be funded
from monies in the Excess Cash Flow Reserve, to the extent approved by TDF
pursuant to Section 7.60.

    

    9.6.4. Discretionary Disbursements
for Cost Overruns. In the event of cost overruns in development items
within the Budget, the Company may request, after application of funds within
the contingency line item, that TDF allow the reallocation of the funds within
the Line Item for Working Capital Reserve to the Line Items within the Budget in
which such cost overruns have occurred, provided, however, the approval of such
an allocation shall be within the reasonable discretion of TDF and may be
conditioned upon reallocations from other Line Items, renegotiation of sums
reflected in other Line Items, the deposit of additional funds or other security
with TDF or such other conditions as TDF may reasonably determine to be
appropriate, The Company acknowledges that TDF shall have no obligation to
reallocate such funds from the Line Item for Working Capital Reserve and that
the failure of TDF to agree to such a reallocation shall not affect in any way
TDF's rights pursuant to this Agreement, including, without limitation, the
right to refrain from authorizing any Requests for Disbursements until such time
as an imbalance in the Loan has been corrected, or the right to declare a
Default upon the failure of the Company to bring the Loan into balance in
accordance with the terms of this Agreement.

    

    9.7.           Disbursements after
Default. At its option, TDF may, after the occurrence and during the
continuance of a Default or an Event of Default, authorize or direct the Trustee
to make all Disbursements for work performed or materials furnished directly to
Trade Contractors or Prime Contractors, as the case may be, after giving notice
to the Company as to each such Disbursement, by deposit in an appropriately
designated special bank account and/or by check payable to the Person to whom a
Disbursement is to be made, and the execution of this Agreement by the Company
shall, and hereby does, constitute an irrevocable direction and authorization to
so disburse the funds. No further direction or authorization from the Company
shall be necessary or required for such direct Disbursements and all such
Disbursements shall satisfy pro tanto the
obligations of TDF hereunder and shall be secured by the applicable Security
Documents as fully as if made to the Company, regardless of the disposition
thereof by any Trade Contractor or Prime Contractor.

    

    9.8.           Final Disbursement,
The final Disbursement of the proceeds of the Loan shall be conditioned on, in
addition to those items listed in this Agreement, TDF's receipt, prior to
authorizing or directing the Trustee to make such Disbursement, of written
assurance satisfactory to TDF from TDF's Consultant to the effect that
Construction of the Improvements has been completed, and any necessary utilities
have been finished and made available for use, in accordance with the
Plans.

    

    9.9           [Reserved]

    

    9.
10.             
Loan Balance.
Anything in this Agreement contained to the contrary notwithstanding, it is
expressly understood and agreed that the Loan shall at all times be in balance.
The Loan shall be in balance when each Line Item is in balance, A Line Item
shall be deemed to be in balance if the aggregate of the funds allocated to such
Line Item, after provision for any reallocation then permissible pursuant to
Section 9.11
below, is sufficient to pay the amounts contemplated within such Line Item, as
estimated by TDF, including, without limitation, the payment of interest due
with respect to the Loan through the date of Substantial Completion estimated by
TDF's Consultant, The Company agrees that, if, (i) TDF reasonably determines
that the Loan is not in balance, or (ii) TDF determines that the amount of the
undisbursed Project Funds shall at any time be insufficient, and (iii) the
insufficiency is not caused by an imbalance within the Budget, the Company
shall, within ten (10) days of receipt of written notice from TDF, deposit with
TDF cash or equivalent security or such other security as is acceptable to TDF
in its sole and absolute discretion to eliminate such imbalance. Any funds
deposited with TDF pursuant to this Section 9,10 on
account of any deficiency may be applied by TDF or by the Trustee at the
direction of TDF to pay costs of the Line Items as to which such projected or
anticipated deficiencies exist before TDF shall direct or authorize the Trustee
to disburse proceeds of the Loan to pay such costs,

    

    9.11.           Reallocation. The
Company may reallocate savings in any Line Item to any other Line Item, subject,
in each case, to (i) proof that cost savings in a Line Item shall have actually
been achieved based on the full and complete performance of all work performed
or services or labor to be provided in connection with such Line Item or (ii)
TDF's Consultant determination that such cost savings will be achieved and that
such cost savings shall not have and will not result in any reduction in the
quality for the economic viability of the Project.

    

    9.12.           Allocation of Cost
Savings. If after the final Disbursement pursuant to Section 9.8 of this
Agreement TDF determines that (i) there has been a cost savings in a Line Item
or Line Items, (ii) and there are no cost overruns in any other Line Item, the
cost savings under a Line Item or Line Items shall be disbursed in accordance
with the terms of the Trust Agreement, to the extent that the undisbursed
Project Funds are Bond Proceeds, and to the Working Capital Reserve, to the
extent that the undisbursed Project Funds are other than Bond Proceeds;
provided, however, that, subject to the approval of TDF and (if the undisbursed
funds are Bond Proceeds) the Issuer, such funds may be used for such capital
improvements as shall be previously approved in writing by TDF and, if
applicable, the Issuer,

    

    9.13.           
Disbursements for
Amount Due. Notwithstanding anything in this Agreement which may be to
the contrary, TDF shall at all times have the right, without regard to the
Budget and the amount or classification of Line Items and by its own action, to
authorize or direct the Trustee to advance funds for the purpose of paying
interest and any other sums then due and payable to TDF with respect to the
Operative Documents or this Agreement,

    

    9.14.           TDF's Consultant. The
Company acknowledges that TDF, pursuant to a separate agreement and at the
Company's expense, has retained TDF's Consultant to review the Budget, the Plans
and such other matters relating to the Construction of the Improvements as TDF
shall request, and to furnish reports to TDF from time to time on the progress
of Construction with each Request for Disbursement for Hard Costs and as
otherwise requested by TDF. In order to enable TDF's Consultant to. complete its
reports to TDF, the Company shall permit TDF's Consultant, at any reasonable
time and as frequently as TDF shall require, (i) to inspect the Project and (ii)
to inspect and review all documentation with respect thereto, including, without
limitation, (x) all work changes, field orders and other modifications to the
Plans or any contract or subcontract or which change the price, schedule or any
other aspect of the Construction of the Improvements, (y) all Trade Contracts
relating to the Construction of the Improvements and (z) such other information
as TDF's Consultant shall request relating to (1) the Construction of the
Improvements (including copies of receipts, invoices and other supporting
documentation to substantiate the costs to be paid from the proceeds of any
requested Disbursement) and/or (2) the state of the Company's claimed title to
any materials, fixtures or articles incorporated or to be

    incorporated
in the Project. The Company further agrees that TDF shall have the right to
retain such other consultants and professionals at the Company's expense as it
shall reasonably determine to be appropriate in connection with the Construction
of the Improvements.

    

    9.15.           
Documentation to
TDF. All documents required to be submitted to TDF as a condition of each
Disbursement shall be furnished to TDF at its office referred to in Section 14.17 hereof, or to
such other address or to the attention of such other Person as shall be
designated in writing by TDF in a notice to the Company.

    

    10.           CONDITIONS
PRECEDENT TO MAKING HARD COST DISBURSEMENTS, TDF shall not be
obligated to authorize or direct the Trustee to make a Disbursement for Hard
Costs under the Budget unless, in addition to the conditions set forth in the
Loan Agreement and in Section 9 hereof, the
following conditions have been satisfied:

    

    10.1.           [Reserved]

    

    10.2.           
Prime
Contracts. As to the Phase of the Project for which the Company has
submitted a Request for Disbursement for Hard Costs, (1) all Prime Contracts as
to which the Request for Disbursement relates shall have been entered into, and
(2) copies of all such Prime Contracts, and copies of all amendments thereto,
together with Prime Contractor Consents and Agreements with respect to each such
Prime Contract and Assignments of Contracts with respect to each such Prime
Contract shall have been delivered to TDF. All Prime Contracts shall be in a
form reasonably satisfactory to TDF.

    

    10.3.           Major Trade
Contracts, As to the Phase of the Project for which the Company has
submitted a Request for Disbursement, (1) substantially all Major Trade
Contracts shall have been entered into, and (2) copies of all Major Trade
Contracts, and copies. of all amendments thereto, together with Major Trade
Contractor Consents and Agreements with respect to each such Major Trade
Contract and Assignments of Contracts with respect to each such Major Trade
Contract, shall have been delivered to TDF.

    

    10.4.           
Construction
Contracts. The Construction Contracts for the Phase of the Project for
which the Company shall have submitted a Request for Disbursement shall be in
full force and effect.

    

    10.5.           [Reserved]

    

    10.6.           Architect Agreements.
Each Architect Agreement for the Phase of the Project for which the Company
shall have submitted a Request for Disbursement shall be satisfactory to TDF in
form and content.

    

    10.7.           Plans. TDF's
Consultant shall have approved the Plans for the Phase of the Project for which
the Company has submitted a Request for Disbursement.

    

    10.8.           Representations and
Warranties. The representations and warranties made by the Company in
Section 8
hereof and the representations. and
warranties made by the Company in any other Operative Documents shall be true
and correct in all material respects on and as of the date of such Disbursement
with the same effect as if made on such date.

    

    10.9.           Receipt of Documents by
TDF. TDF shall have received and approved the following items and
documents, duly executed and in recordable form where applicable, in each case
in form. and substance satisfactory to TDF:

    

    10.91.   payment of
the Letter of Credit Fee which shall be due and payable on each Interest Payment
Date, TDF's counsel fees and the fees of TDF's Consultant relating to the
Project, as well as all other then outstanding out-of-pocket expenses of TDF
relating to the Project, including, without limitation, any Appraisal,
investigation or insurance fees or costs and the cost of the Environmental
Report, to the extent any of the foregoing are then due and
payable;

    

    10.9.2.  the Financial
Statements then in existence and required to be or to have been delivered
pursuant to the terms of this Agreement;

    

    10.9.3.   in the case
of the first Disbursement for the Palm golf course refurbishment Phase of the
Project, and in the case of the first Disbursement (after the Initial
Disbursement) for the beach club house Phase of the Project (to the extent
relevant given the advanced state of construction of the beach club house),
advice from TDF's Consultant in form and content satisfactory to TDF, to the
effect that (i) the Plans and associated design materials relating to such Phase
of the Project have been reviewed and approved by TDF's Consultant and, to the
extent required, by the Governmental Authorities (including, without limitation,
ARPE and/or The Planning Board of Puerto Rico); (ii) the portion of the
Improvements that correspond to the Plans for such Phase of the Project, when
completed as shown on said Plans, will comply with applicable zoning and
environmental protection ordinances and regulations; (iii) all public utilities
necessary for the full utilization of the Improvements for their intended
purposes are or will be available by the Date of Substantial Completion at or
within the perimeter of the Property; (iv) the construction permit necessary for
the Construction of such Phase of the Project shall have been obtained by the
Company; and (v) the following are acceptable to TDF's Consultant: (A) the then
current design of various systems, including, without limitation, architectural,
structural, electrical, plumbing, heating, air conditioning and sprinkler
systems, (B) the general conformity of then specified materials to overall
Project quality objectives, (C) the contents of soil reports and coordination of
foundation design of the Improvements, (D) the conformity of the scope and
design set forth in the Plans to the description of the Improvements set forth
in this Agreement and as otherwise presented to TDF, (E) the projected Date of
Substantial Completion and the Construction Schedule, and (F) the value, scope
and limiting conditions of the Construction Documents then in effect and/or
Major Trade Contracts and Prime Contracts received for review;

    

    10.9.4.  TDF's Consultant's
Report;

    

    10.9.5.  [Reserved];

    

    10.9.6.  evidence that the
insurance required pursuant to Section 7.22 hereof
and the Pledge Agreement is in full force and effect and evidence of the payment
of the premiums therefor;

    

    10.9.7. evidence of errors and
omissions insurance carried by the Architects and

    evidence
of the maintenance of the insurance required to be maintained by each Prime
Contractor under the Prime Contracts, in each instance, in the form of a
certificate of insurance and representation of each such Architect and Prime
Contractor contained within their respective requisitions for
payment;

    

    10.9.8 [Reserved.]

    

    10.9.9. evidence satisfactory to TDF
that the Company has paid all real estate taxes on, and assessments of, the
Project which are due and payable and, if delinquent, all penalties and interest
thereon;

    

    10.9.10. a copy of the Construction
Schedule;

    

    10.9.11. to the extent not previously
delivered, copies of the Project Documents and the other Operative Documents,
each of which shall be certified by the Authorized Company Representative as
true, correct and complete;

    

    10.9.12.  a Request for
Disbursement with respect to the Disbursement;

    

    10.9.13. [Reserved]

    

    10.9.14.  to the extent not
previously delivered, copies of the Architect Agreements, certified by the
Authorized Company Representative to be true, correct and complete; 10,9.15, an
Architect's Consent and Agreement from the Architects;

    

    10. 9.16.  an executed
counterpart of all space leases (if any), certified by the Authorized Company
Representative to be true, correct and complete, together with an executed
notice to each tenant of the assignment thereof to TDF pursuant to the
applicable Assignment of Rents;

    

    10.9.17.  copies of the
Plans for the applicable Phase of the Project (including all approved Material
Work Changes) initialed to show the Company's approval, which are satisfactory
to TDF;

    

    10.9.18. an updated Appraisal of the
Project, if any material change or circumstance occurs from the Date of Issuance
that causes TDF to determine that such an update is reasonably
appropriate;

    

    10.9.19. an opinion of the Architect
preparing or contributing to the Plans for the applicable Phase of the Project
stating that the Construction of the Improvements is permitted under, and such
Improvements, when Constructed in accordance with the Plans and occupied, shall
be in material compliance with all applicable zoning ordinances, land use
regulations and similar laws and governmental rules and regulations relating to
the Property;

    

    10.9.20. evidence satisfactory to TDF
that the full amount of all prior Disbursements has been paid out by the Company
or its contractors in accordance with this Agreement and that no Liens exist
against the Project or the Improvements except those permitted pursuant to this
Agreement; and

    

    10.9.21.
In the case of the first Disbursement for the Palm golf course refurbishment
Phase of the Project, and in the case of the first Disbursement (after the
Initial Disbursement) for the beach club house Phase of the Project (to the
extent relevant given the advanced state of construction of the beach club
house), copies of all Permits (or amendments or supplements thereto) not
previously provided to TDF issued by all Government Authorities, evidencing the
authorization of the Company. to commence and complete the Construction of the
Improvements within such Phase, all of which shall be reasonably satisfactory to
TDF and, additionally, TDF shall not have reason to conclude that other
governmental approvals necessary for the operation of the Improvements within
such Phase will not be obtainable at the time that the Improvements within such
Phase are to be operated.

    

    10.10.             No Condemnation,. No
part of the Project shall have been condemned, or threatened with condemnation,
or in the event of such condemnation, TDF shall have received condemnation
proceeds sufficient, in the judgment of TDF, to effect the satisfactory
restoration of the affected part of the Project in accordance with the
Plans.

    

    10.11.             
No Default. No
Default or Event of Default hereunder shall have occurred and be continuing and
no default of any of the Company's obligations under any of the other Operative
Documents shall have, occurred and be continuing.

    

    11.            CONDITIONS
PRECEDENT TO. DISBURSEMENTS FOR SOFT COSTS. TDF shall not be
obligated to authorize or direct the Trustee to make any Disbursement for Soft
Costs under the Budget, unless in addition to the conditions set forth in Section 9 hereof, the
following conditions have been satisfied:

    

    11.1. Conditions Satisfied.
All conditions set forth in the following subsections of this Agreement have
been satisfied:

    

    

    Section
10.1                                  Subsection
10.9.11

    Subsection
10.9.1                        Subsection
10.9.12

    Subsection
10.9.2                        Subsection
10.9.13

    Subsection
10.9.6                        Subsection
10.9.16

    Subsection
10.9.9                        Subsection
10,9.20

    Section
10.11                               
Subsection
10.10

    

    11.1.1. The representations and
warranties made by the Company in Section 8 hereof, and
the representations and warranties made by the Company in any other Operative
Documents shall be true and correct in all material respects on and as of the
date of such Disbursement with the same effect as if made on such
date,

    

    11.2. Receipt of Documents by
TDF, TDF shall have received the TDF's Consultant's Report (as it relates
to Soft Costs) , dated the date of the requested Disbursement, together with a
revised and updated Budget.

    

    11.2.1. TDF shall have received
invoices and bills evidencing that such Soft Costs are due and
payable.

    

    12.           EVENTS OF
DEFAULT.

    

    12.1.           Events of
Default.  It shall be deemed an-Event of
Default if any of the following events shall occur and be continuing, unless
such event has been previously consented to in writing by TDF:

    

    12.1.1.  any amount payable
hereunder (including, without limitation, under Section 2 or Section 3.1) shall
not be paid when due; or

    

    12.1.2. any representation, warranty
or other statement made or deemed to have been made by the Company under or in
connection with this Agreement, any other Operative Document or any document,
instrument or certificate executed or delivered in connection herewith or
therewith shall prove- to have
been incorrect or misleading in any material respect  when made or
deemed to have been made, and such incorrect or misleading representation,
warranty or other statement is material taking into consideration the Company as
a whole and the nature of the transactions contemplated hereby (including the
collateral therefor and the limited sources of payment for the obligations
hereunder from sources other than the Company); or

    

    12.1.3. the Company or PDMPI shall
fail to perform or observe any term, covenant or agreement on its part to
perform or observe contained in this.Agreement or in any other Operative
Document to which they are a party (in any such cases, other than as elsewhere
specifically addressed in this Section 12) and (A)
with respect to any such term, covenant or agreement contained herein, any such
failure shall remain unremedied for ten (10) days in the case of a default which
can be cured by the payment of a sum of money and for thirty (30) days after
notice, in the case of a default which cannot be cured by payment of a sum of
money and (B) with respect to any such term, covenant, or agreement contained in
any of the other Operative Documents, any such failure shall remain unremedied
after any applicable grace period specified in such Operative Document;
provided, however, that if such failure with respect to any term, covenant or
agreement contained within this Agreement or in any of the other Operative
Documents is of a nature such that it cannot be cured by the payment of money
and if such failure requires work to be performed, acts to be done or conditions
to be removed which cannot by their nature, with due diligence, be performed,
done or removed, as the case may be, within such 30-day period or within the
grace period specified in such other Operative Document and such default is
capable of cure by the Company, or PDMPI, as applicable, and the Company or
PDMPI, as applicable, shall have commenced to cure such failure within such
30-day period or within the grace period specified in such other Operative
Document, such period shall be deemed extended for so long as shall be required
by the Company or PDMPI, as applicable, in the exercise of due diligence to cure
such failure; or

    

    12.1.4.  the Company shall
fail to perform or observe its covenants in Section 7.7 hereof
and the same shall, anything herein to the contrary notwithstanding, not be
cured or waived within ten (10) days after notice; or

    

    12.1.5. there shall have been
asserted in writing by or on behalf of the Company that any material provision
of this Agreement is not valid and binding on the Company, or declaration shall
have been sought by or on behalf of the Company that any such provision is null
and void, or there shall have been commenced by or on behalf of the Company a
proceeding to contest the validity or enforceability thereof, or there shall
have been a denial by or on behalf of the Company that it has any further
liability or obligation under this Agreement; or

    

    12.1.6. the Company (A) shall suffer
or permit to be entered a decree or order of a court or agency or supervisory
authority having jurisdiction determining it to be insolvent or providing for
the appointment of a conservator, receiver, liquidator, trustee or any similar
person appointed in connection with any insolvency, readjustment of debt,
marshaling of assets and liabilities, bankruptcy, reorganization or similar
proceedings of or relating to it or of or relating to all, or substantially all,
of its property, or for the winding-up or liquidation of its affairs or (B)
shall suffer or permit to the instituted proceedings under any law relating to
bankruptcy, insolvency or the reorganization or relief of debtors to be
instituted against it, and such proceedings remain undismissed or pending and
unstayed for a period of 90 days; or

    

    12.1.7. the Company shall (A) consent
to the appointment of a conservator, receiver, trustee, liquidator or custodian
in any insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to all, or substantially all, of its property
or for the winding-up or liquidation of its affairs, (B) admit in-writing its
inability to pay its debts generally as they become due, (C) file a petition, or
otherwise institute, or consent to the institution against it of, proceedings to
take advantage of any law relating to bankruptcy, insolvency or reorganization
or the relief of debtors, (D) make an assignment for the benefit of its
creditors or (E) generally fail to pay its debts as they become due;
or

    

    12. 1.8. the rendering of a final and
unappealable judgment(s) for the payment of money against the Company in excess
of $62,000 in the aggregate and the continuance of any such judgment(s)
unsatisfied and without stay of execution thereon for a period of 90 days after
the entry of such judgment(s), or the continuance of such judgment(s)
unsatisfied for a period of 30 days after the termination of any stay of
execution thereon entered within such first mentioned 90 days, or

    

    12.1.9. there shall have occurred a
Change of Control.

    

    12.2.           TDF Remedies. If an
Event of Default shall have occurred then, and in such event at any time
thereafter if such Event of Default is continuing, TDF may, in its
discretion;

    

    12.2.1. by notice to the Company
declare all amounts payable hereunder or under any Operative Document to be
immediately due and payable, whereupon the same shall become immediately due and
payable without demand, presentment, protest or further notice if any kind, all
of which are hereby expressly waived by the Company; and/or

    

    12.2.2. exercise all or any of its
rights and remedies under or in respect of the Operative Documents (including,
without limitation, its rights and remedies under the Security Documents and any
indemnity); and/or

    

    12.2.3. by notice to the Trustee and
the Issuer, require the Trustee to accelerate payment of all Bonds and interest
accrued thereon; and/or

    

    12.2.4. in the event that TDF or
TDF's designees or assignees undertake to complete the Project, TDF or its
designees or assignees shall have the right to cause the Bond Proceeds to be
disbursed on the same terms and conditions as if TDF or such designees or
assignees of TDF were the Company; and/or

    

    12.2.5. exercise any or all other
rights and remedies existing at law or in equity or by statute including,
without limitation, the rights and remedies of a secured creditor under the laws
of the Commonwealth of Puerto Rico.

    

    12.3.           TDF's Right to Stop
Disbursing Funds. In addition to any other rights and remedies TDF may
have pursuant to the other Operative Documents, or as provided by law, and
without limitation thereof, if any Default or any Event of Default shall occur,
then TDF shall not be obligated to instruct the Trustee to make any further
Disbursements until such Default or Event of Default is remedied; provided,
however, TDF may instruct the Trustee to make any Disbursements while such
Default or Event of Default shall exist without thereby waiving the right to
demand payment of the indebtedness and to exercise its rights and remedies
pursuant to any one or more of the Security Documents and/or exercise any other
remedies available to TDF pursuant. to the
other Operative Documents or as provided by law, and without becoming liable to
instruct the Trustee to make any other or further advance or
Disbursement.

    

    12.4           TDF's Right to
Complete. Upon the happening of any Event of Default, TDF may, in
addition to any other remedies which TDF may have under this Agreement, the
other Operative Documents or pursuant to law, enter upon the Project and into
possession of the Project and Construct and complete the Construction of the
Improvements substantially in accordance with the Plans, with such changes
therein as TDF may from time to time deem appropriate (provided that TDF may not
change the scope of the Project in any material respect without the consent of
the Company), all at the sole risk, cost and expense of the Company. TDF shall
have the right, at any and all times, to discontinue any work commenced by TDF
with respect to the Project or to change any course of action undertaken by it
and shall not be bound by any limitations or requirements of time whether set
forth herein or otherwise. TDF shall have the right and power (but shall not be
obligated) to assume any construction contract made by or on behalf of the
Company in any way relating to the Project and to take over and use all or any
part or parts of the labor, materials, supplies and equipment contracted for, by
or on behalf of the Company, whether or not previously incorporated into the
Project, all in the sole and absolute discretion of TDF. In connection with any
portion of the Project undertaken by TDF pursuant to the provisions of this
Section 12.4,
TDF may (i) engage builders, contractors, architects, engineers, inspectors and
others for the purpose of furnishing labor, materials, equipment and fixtures in
connection with the Project, (ii) pay, settle or compromise all bills or claims
which may become Liens against the Project, or which have been or may be
incurred in any manner in connection with the Construction and Substantial
Completion or for the discharge of Liens, encumbrances or defects in the title
of the Project and (iii) take such other action (including, without limitation,
the employment of watchmen to protect the Project) or refrain from acting under
this Agreement as TDF may in its sole and absolute discretion from time to time
determine without any limitation whatsoever, The Company shall be liable to TDF
for all sums paid or incurred for the Project whether the same shall be paid or
incurred pursuant to the provisions of this Section 12.4
otherwise, and all payments made or liabilities incurred by TDF under this Section 12.4 of any
kind whatsoever shall be paid by the Company to TDF upon demand with interest at
the Prime Rate plus 3% per annum to the date of payment to TDF, and all of the
foregoing sums, including such interest at the Prime Rate plus 3% per annum,
shall be deemed and shall constitute advances under the Loan Agreement and be
evidenced by the Note and secured by the Security Documents. Upon the occurrence
of any Event of Default, the rights, powers and privileges provided in this
Section 12.4
and all other remedies available to TDF under this Agreement and the other
Operative Documents or by statute or by rule of law may be exercised by TDF at
any time and from time to time whether or not the indebtedness evidenced and
secured by the Note and the Security Documents shall be due and payable, and
whether or not TDF shall have instituted any foreclosure or other action for the
enforcement of any of the Mortgage, the Pledge Agreement or the Note. The
Company hereby assigns and quitclaim to TDF all sums advanced pursuant to this
Section 12.4,
and all sums held by TDF for the account of the Company, whether in escrow
accounts or otherwise, and all other forms of security delivered by the Company
as additional security (a security interest therein being granted hereby to TDF)
for the repayment of the Loan, all of which security may be utilized by TDF for
the purposes set forth in this Section 12.4 or
applied against the indebtedness evidenced by the Note as TDF, in its sole and
absolute discretion, shall determine.

    

    12.5           No Liability of TDF.
Whether or not TDF elects to employ any or all of the remedies available to it
upon the occurrence of an Event of Default, TDF shall not be liable for the
Construction of or failure to Construct, complete or protect the Project or for
payment of any expenses incurred in connection with the exercise of any remedy
available to TDF or for the performance or non-performance of any other
obligation of the Company,

    

    12.6           Termination of
Agreement, If for any reason whatsoever the outstanding principal amount
of the Loan, together with all interest and other indebtedness due and payable
in connection therewith and all amounts due or payable hereunder have been paid
in full, and the Letter of Credit shall have been finally and irrevocably
terminated, not being subject to reinstatement under any circumstances the
parties hereto shall be released and discharged from all of their obligations
hereunder except for those obligations that expressly survive the termination
hereof. Upon such termination any Project Funds and any other moneys belonging
to the Company and held by TDF shall be paid over to the Company.

    

    12.7           Remedies Not
Exclusive. No remedy herein conferred or reserved is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Agreement. or any other Operative Document or now or hereafter
existing at law or in equity or by statute, No delay or omission to exercise any
right or power accruing upon any default, omission or failure of performance
hereunder shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from time to time
and as often as may be deemed expedient. In order to exercise any remedy
reserved to TDF in this Agreement, it shall not be necessary to give any notice,
other than such notice as may be herein expressly required, In the event any
provision contained in this Agreement should be breached by any party and
thereafter duly waived by the other party so empowered to act, such waiver shall
be limited to the particular breach so waived and shall not be deemed to waive
any other breach hereunder. No waiver, amendment, release or modification of
this Agreement shall be established by conduct, custom or course of dealing, but
solely by an instrument in writing duly executed by the parties thereunto duly
authorized by this Agreement.

    

    13.           NATURE OF
TDF'S DUTIES.

    

    13.1           
The Company hereby assumes all risks of the acts, omissions or misuse of the
Letter of Credit by the Trustee or any beneficiary or transferee of the Letter
of Credit. Neither TDF nor any of its officers or directors shall be responsible
for (i) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document, or any endorsements thereon, even if it should in fact prove to
be in any or all respects invalid, insufficient, inaccurate fraudulent or
forged, (ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign the Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason, (iii) the failure of the Trustee or
any beneficiary or transferee of the Letter of Credit to comply fully with
conditions required in order to draw upon the Letter of Credit, (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, telecopier or otherwise, whether or not they be in cipher, (v) errors
in interpretation of technical terms, (vi) any loss or delay in the transmission
or otherwise of any document required in order to make a drawing under the
Letter of Credit or of the proceeds thereof, (vii) any consequences arising from
causes beyond the control of TDF, (viii) payment by TDF against presentation of
documents which do not comply with the terms of the Letter of Credit, including
failure of any documents to bear any reference or adequate reference to the
Letter of Credit or (ix) any other circumstances whatsoever in making or failing
to make payment under the Letter of Credit; provided, however, that TDF shall be
responsible for any of the above occurrences to the extent that they arise
solely as a result of the negligence or malfeasance of TDF, In furtherance and
extension and not in limitation of the foregoing, TDF may accept documents that
appear on their face to be in order, without responsibility for further
investigation. None of the above shall affect, impair, or prevent the vesting of
any of TDF's rights or powers hereunder.

     

    14.           MISCELLANEOUS.

    

    14.1.           Amendments and
Consents. This Agreement may only be amended by an instrument in writing
signed by all of the parties hereto, provided that the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, if the Company shall obtain the prior written consent of TDF.
No course of dealing between the Company and TDF, nor any delay in exercising
any rights hereunder shall operate as a waiver of any rights of TDF
hereunder,

    

    14.2.           Survival of Representations
and Warranties, All representations and warranties contained herein or
made in writing by the Company in connection herewith shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by TDF or on its behalf,

    

    14.3.           Expenses, The Company
agrees to pay promptly all reasonable costs and expenses in connection with the
preparation, negotiation, issuance, execution, delivery, filing, recording and
administration of the Letter of Credit, this Agreement, the other Operative
Documents, the Bonds and any other document which may be delivered in connection
with this Agreement, including, without limitation, all engineers', architects'
and investigators' fees, the fees and expenses of TDF's counsel, TDF's
Consultant, insurance consultant and any services selected by TDF, each with
respect to the transactions contemplated by this Agreement, and all costs and
expenses (including counsel fees and expenses) in connection with (i) the
transfer, drawing upon, change in terms, maintenance, renewal or cancellation of
the Letter of Credit, (ii) any and all amounts which TDF has paid relative to
TDF's curing of any Event of Default resulting from the acts or omissions of the
Company under this Agreement, any other of the Operative Documents or the Bonds,
(iii) the enforcement of this Agreement or any other of the Operative Documents,
(iv) any action or proceeding relating to a court order, injunction, or other
process or decree restraining or seeking to restrain TDF from paying any amount
under the Letter of Credit, (v) obtaining and reviewing appraisals and the
engineering and environmental reports relating to the Project and (vi) survey
costs and title insurance costs. In addition, the Company shall pay any and all
stamp and other taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing and recording of the Letter of Credit, this
Agreement, any other of the Operative Documents or the Bonds, or any other
document which may be delivered in connection with this Agreement, and agrees to
save TDF harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omitting to pay such taxes and fees. All
costs and expenses described in this Section 14.3 shall be
in addition to the Letter of Credit Fee.

    

    14.4.           No Approval of Work,
No Disbursement authorized hereunder shall constitute an approval or acceptance
by TDF of the work theretofore done in connection with the Project. or a waiver
of any of the conditions of TDF's obligation to make or authorize further
Disbursements, nor, in the event the Company is unable to satisfy any such
condition, shall any such failure to insist upon compliance have the effect of
precluding TDF from thereafter declaring such inability to be an Event of
Default as herein provided, it being agreed that any Disbursement made or
authorized by TDF in the absence of strict compliance with any or all of the
conditions of TDF's obligation to make or authorize such Disbursement shall be
deemed to have been made pursuant to this Agreement and not in modification of
the terms hereof, unless TDF has specifically waived any such condition or
approved a deviation therefrom.

    

    14.5.           TDF's Review.
Inspection and approvals of the Plans, the Project and the workmanship and
materials used therein shall impose no responsibility or liability of any nature
whatsoever on TDF and no person shall, under any circumstances, be entitled to
rely upon such inspections and approvals by TDF for any reason. Approvals
granted by TDF for any matters covered under this Agreement shall be narrowly
construed to cover only the parties and facts identified in any such
approval.

    

    14.6.           TDF Sole Beneficiary.
All terms, provisions, covenants and other conditions of the obligations of TDF
to authorize Disbursements hereunder are imposed and all trust funds hereunder
are held solely and exclusively for the benefit of TDF and its successors and
assigns, and no other Person shall have standing to require satisfaction of such
terms, covenants and other conditions in accordance with their terms or to be
entitled to assume that TDF will refuse to authorize Disbursements or be
entitled to require any particular application of such trust funds. No person,
other than TDF, its successors and assigns and any Person to whom TDF shall
have

    granted a
participation pursuant to Section 14.14 herein
shall, under any circumstances, be deemed to be a beneficiary of the terms,
covenants and other conditions of this Agreement, any or all of which may be
freely waived, in whole or in part, by TDF at any time if, in TDF's sole
discretion, TDF deems it advisable or desirable to do so, and no Person, other
than said parties, shall have any right, remedy or claim under or by reason of
this Agreement.

    

    14.7.           
Contractors,
Except as provided by law, no contractors or subcontractors dealing with the
Company shall be, nor shall any of them be deemed to be, third party
beneficiaries of this Agreement, but each shall be deemed to have agreed (i)
that they shall look to the Company as their sole source of recovery if not paid
and (ii) except as otherwise agreed to in writing between TDF and the
contractor(s) or subcontractor(s) in question, that they may not claim against
TDF under any circumstances.

    

    14.8.           Entire Agreement.
This Agreement and the other Operative Documents embody the entire agreement and
understanding between the parties with respect to matters set forth herein and
supersede and cancel all prior loan applications, expressions of interest,
commitments, agreements and understandings, whether oral or written, relating to
the subject matter hereof.

    

    14.9.           Further Assurances.
The Company hereby agrees promptly to execute and deliver such additional
agreements and instruments and promptly to take such additional action as TDF
may at any time and from time to time reasonably request in order for TDF to
obtain the full benefits and rights granted or purported to be granted by this
Agreement.

    

    14.10.             No Waiver; Cumulative
Remedies. No failure or delay on the part of TDF in exercising any right,
power or remedy hereunder or under or in connection with this Agreement or the
other Operative Documents or to insist upon the strict performance of any term
of this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise or any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under or in connection with this Agreement or the other Operative Documents, The
remedies in this Agreement or the other Operative Documents herein are
cumulative and not exclusive of any remedies provided by law.

    

    14.11.             Singular/Plural,
Whenever appropriate herein or required by the context or circumstances, the
masculine shall be construed as the feminine and/or the neuter, the singular as
the plural, and vice versa,

    

    14.12.             
No Joint
Venture, The Company is not and shall not be deemed to be a joint
venturer with, or an agent of, TDF for any purpose. Prior to any Default or
Event of Default by the Company under this Agreement and TDF's exercise of the
remedies granted herein, TDF shall not be deemed to be in privity of contract
with any contractor or provider of services with respect to the Construction of
the Improvements.

    

    14.13.             
Incorporation by
Reference. The Company agrees that until this Agreement is terminated by
the repayment to the Issuer of all principal and interest due and owing on the
Bonds and other sums due and owing pursuant to the Operative Documents, the Note
and the other Operative Documents shall be made subject to all the terms,
covenants, conditions, obligations, stipulations and agreements contained in
this Agreement to the same extent and effect as if fully set forth in and made
part of the Note and the other Operative Documents. In the event of a conflict
between any of the Operative Documents and the provisions of this Agreement,
this Agreement shall be controlling.

    

    14.14.             Binding Effect;
Assignment. This Agreement is a continuing obligation and shall (i) be
binding upon the Company and its permitted successors and assigns and (ii) inure
to the benefit of and be enforceable by TDF and its successors, transferees and
assigns; provided that the Company may not assign all or any part of this
Agreement without the prior written consent of TDF. Any permitted assignment of
this Agreement by the Company shall be conditioned upon the assignee executing
and delivering to TDF, Issuer and the Trustee a certificate which shall be in a
form reasonably satisfactory to TDF, Issuer and the Trustee, pursuant to which
the assignee shall expressly assume, and agree to pay and to perform, all of the
obligations of the Company under this Agreement. TDF may assign, negotiate,
pledge or otherwise hypothecate all or any portion of this Agreement, or grant
participations herein, in the Letter of Credit, and in TDF's other rights or
security hereunder, including, without limitation, the instruments securing the
Company's obligations hereunder or under any Operative Document. In the event of
an assignment of all, of TDF's rights and obligations hereunder and under the
Letter of Credit, the Company shall at the request of TDF execute such documents
as shall be necessary or convenient to evidence such assignment, the
substitution of TDF by the assignee, and the release of TDF of its obligations
hereunder; provided that such assignment may not impose additional material
obligations on the Company without the Company's previous written consent. No
such assignment or participations by TDF, however, will relieve TDF of its
obligations under the Letter of Credit unless consented to by the Trustee in
accordance with the Trust Agreement. All documentation, financial statements,
appraisals, and other data, or copies thereof, relevant to the Company, may be
reviewed and retained by any such assignee, prospective assignee, participant or
prospective participant so long as such entities agree to retain such
documentation, statements and appraisals confidential and not release them to
the public.

    

    14.15.             Bank Accounts, The
Company shall maintain its operating account(s) with such institutions during
the term of this Agreement as the Company may elect provided the Company shall
provide TDF with written notice of all such institutions.

    

    14.16.             Publicity. TDF may,
at its option, announce and publicize the source of the Letter of Credit
contemplated by this Agreement, by means and media selected by TDF. TDF agrees
to promptly notify Company of same.. TDF, at its option, may deliver at the
Property a sign for display indicating that TDF is providing the Letter of
Credit for the Project. If such a sign is provided by TDF, Company agrees,
subject to applicable zoning and other restrictions, to (i) provide a prominent
and suitable location for the display of this sign; (ii) cause the sign to be
displayed in such place by suitably affixing the sign to a structure on the site
at Company's cost; and (iii) maintain the display of such sign until Substantial
Completion.

    

    14.17.             
Notices. All
notices, certificates, demands and other communications provided for herein
shall be in writing and mailed (registered or certified mail, return receipt
requested, and postage prepaid), hand-delivered, with signed receipt, or sent by
nationally recognized overnight courier, if to TDF, to its address at c/o
Government Development Bank of Puerto Rico, Minillas Government Center, De Diego
Avenue, Stop 22, San Juan, Puerto Rico 00940-1089, Attention: General Counsel,
and a separate copy to the same address Attention: Executive Director, with a
copy similarly delivered to O'Neill & Borges, 250 Munoz Rivera Avenue, San
Juan, Puerto Rico 00918, Attention: Julio Pietrantoni, Esq.; if to the Company,
to its address at Palmas Country Club, Inc., P.O, Box 2020, Humacao, Puerto Rico
00792-2020, Attention: President, with copies similarly delivered to Palmas
Country Club, Inc., 5847 San Felipe, Suite 2600, Houston, Texas 77057,
Attention: General Counsel, and to McConnell Valdes, 270 Munoz Rivera Avenue,
Hato Rey, Puerto Rico 00918, Attention: Harry O. Cook, Esq,; or in each case to
such other address or to the attention of such other person with respect to any
party as such party shall notify the other parties in writing, All such notices,
certificates, demands and other communications shall be effective when received
at the address specified as aforesaid.

    

    14.
18.             Satisfaction. If any
agreement, certificate or other writing, or any action taken or to be taken, is
by the terms of this Agreement required to be satisfactory to TDF, the
determination of such satisfaction shall be made by TDF in its sole and
exclusive judgment, reasonably exercised.

    

    14.19.             Governing Law_ and Consent
to Jurisdiction. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Puerto Rico. The Company
irrevocably (i) agrees that any suit, action or other legal proceeding arising
out of or relating to this Agreement, the other Operative Documents or such
other documents which may be delivered in connection with this Agreement or the
other Operative Documents may be brought in the City of San Juan and the
Commonwealth of Puerto Rico or in the Courts of the United States of America
located in the District of Puerto Rico (ii) consents to the jurisdiction of each
such court in any such suit, action or proceeding and (iii) waives any objection
which it may have to the laying of venue of any such suit, action or proceeding
in any of such courts and any claim that any such suit, action or proceeding has
been brought in any inconvenient forum. The Company irrevocably consents to the
service of any and all process in any such suit, action or proceeding by service
of copies of such process to the Company at its address provided in Section 14.17 hereof.
In addition to any method of service of process provided for under applicable
laws, all service of process under this Section 14.19 may be
made by certified or registered mail, return receipt requested, directed to the
Company at the address set forth in Section 14,17 hereof,
and service so made shall be complete five days after the same shall have been
so mailed, Nothing in this Section 14.19 shall
affect the right of TDF to serve legal process in any other manner permitted by
law or affect the right of TDF to bring any suit, action or proceeding against
the Company or its property in the courts of any other
jurisdictions.

    

    14.20.             
[Reserved.]

    

    14.21.             
Counterparts.
This Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.

    

    14.22.             
Defined
Instruments. All of the agreements or instruments defined in this
Agreement shall mean such agreements or instruments as the same may, from time
to time, be supplemented or amended or the terms thereof waived or modified to
the extent permitted by, and in accordance with, the terms thereof and of this
Agreement.

    

    14.23.             Accounting Terms and
Determinations. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder shall
be prepared, in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis consistent with the most recent
audited financial statements of the Company and delivered to TDF.

    

    14.24.             Lawful Interest.
Nothing contained in this Agreement or in any other Operative Document shall be
construed to permit TDF to receive, at any time, interest, fees or other charges
in excess of the amounts which TDF is legally entitled to charge and receive
under any law to which such interest, fees or charges are subject, In no
contingency or event whatsoever shall the compensation payable to TDF by the
Company, howsoever characterized or computed, hereunder, or under any law to
which such compensation is subject. There is no intention that TDF shall
contract for, charge or receive compensation in excess of the highest lawful
rate, and, in the event it should be determined that TDF has contracted for any
rate of interest in excess of the highest lawful rate, then ipso facto such rate shall
be reduced to the highest lawful rate so that no amounts shall be charged which
are in excess thereof, and, in the event it should be determined that any excess
over such highest lawful rate has been charged or received, TDF shall promptly
refund such excess to the Company.

    

    14.25.             Consents; Approvals.
Wherever in this Agreement the consent or approval of TDF shall be required,
unless specifically provided to the contrary, such consent or approval shall not
be unreasonably withheld. TDF further agrees it shall not unreasonably delay its
withholding or granting of such consent or approval.

    

    14.26.             
Severability.
Any provision of this Agreement which is unenforceable, prohibited or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other
jurisdiction..

    

    14.27.             Headings. Section
headings in this Agreement are included herein for convenience of reference only
and shall not constitute a part of this Agreement for any other
purpose.

    

    14.28.             Reliance by TDF. TDF
may but shall be under no obligation to rely upon the advice of its legal
counsel and of TDF's Consultant, as well as of all other parties whose advice it
obtains in connection with all decisions made by TDF in connection with any
matters discussed herein, provided TDF's decision to seek and rely upon the
advice of its counsel, TDF's Consultant and other parties shall not extend any
time periods provided to TDF herein within which to make a decision required to
be made hereunder.

    

    14.29.             Waiver of Jury Trial,
The parties hereto do hereby mutually and willingly waive the right to a trial
by jury of any and all claims made among them whether now existing or arising in
the future, including without limitation, any and all claims, defenses,
counterclaims, cross claims, third party claims and intervener's claims whether
arising from or related to the negotiation, execution and performance of the
transaction to which this document relates.

    

    14.30.             Review of Work Completed
Prior to Date Hereof. TDF's Consultant shall review the work performed
prior to the date hereof relating to the Project. The Company agrees to correct
any material defects in such work identified by TDF's Consultant.

    

    IN WITNESS WHEREOF, the
parties hereto have caused this Letter of Credit and Reimbursement Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the day and year first above written.

    

    PALMAS
COUNTRY CLUB, INC.

    

    
      	
              By:

            	
                 
      /s/   Jaime Morgan
Stubbe

            

    

                                                    Jaime Morgan
Stubbe

                                    President

    

    

    PUERTO
RICO TOURISM DEVELOPMENT FUND

    

    
      	
              By:

            	
               /s/   Fernando
      Aguiar

            

    

                                                     Fernando
Aguiar

                                         Executive Directorex1030.htm

    
 

    Exhibit
10.30

    

    PUERTO
RICO TOURISM DEVELOPMENT FUND

    

    October
26, 2000

    

    PaineWebber
Trust Company of Puerto Rico

    250 Munoz
Rivera Avenue, Ninth Floor

     Hato
Rey, Puerto Rico 00917

    

    

    
      	
               
      

            	
              Re:

            	
              $30,000,000
      Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
      Control Facilities Financing Authority Tourism Revenue Bonds, 2000 Series
      A (Palmas del Mar Country Club Project) (the "Bonds")

            

    

    

    Ladies
and Gentlemen:

    

    1.           We
at the Puerto Rico Tourism Development Fund ("TDF") establish in your favor as
Trustee under the Trust Agreement dated October 26, 2000 (as the same may be
from time to time supplemented or amended, the "Agreement") between
the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority (the "Issuer") and you,
pursuant to which the Bonds are being issued for the benefit of Palmas Country
Club, Inc. (the "Borrower"), this
Irrevocable Stand-by Letter of Credit (this "Letter of Credit")
in the aggregate amount of $31,157,500 (as from time to time reduced and
reinstated as provided in this Letter of Credit, the "Letter of Credit
Amount"). Such Letter of Credit Amount shall be available for drawing by
you, as set forth below, in an amount not to exceed: (a) $30,000,000 (as from
time to time reduced, as provided in this Letter of Credit, the "Principal
Component") with respect to unpaid principal of the Bonds; (b) $1,157,500
(as from time to time reduced and reinstated, as provided in this Letter of
Credit, the "Interest
Component") with respect to accrued interest on the Bonds (but no more
than the actual interest accrued on the Bonds, up to 195 days); and (c)
$31,157,500 (as from time to time reduced and reinstated, as provided in this
Letter of Credit, the "Reserve Component")
with respect to a Debt Service Reserve Fund Deficiency (as defined in the
Agreement).

    

    2.           This
Letter of Credit shall expire at 5:00 p.m. local time, San Juan, Puerto Rico, on
the date which is the earliest of: (a) October 26, 2010, unless extended by us
(the "Scheduled
Expiration Date") (it being understood that this Letter of Credit shall
be automatically extended for an additional term of one year and shall continue
to be automatically extended for successive one year terms expiring on October
26 of the relevant year until all of the principal of and interest on the Bonds
has been paid in full or we have deposited with the Trustee funds sufficient to
pay the Bonds); (b) the date of Payment of the Bonds (as defined in the
Agreement); (c) the date on which we receive a certificate from you on the Form
of Annex 1,
attached hereto, appropriately completed and executed, to the effect that there
are no Bonds Outstanding (as defined in the Agreement); (d) the date on which
you surrender this Letter of Credit to us, accompanied by your written statement
certifying that a Successor Letter of Credit (as defined in the Agreement) has
been substituted for this Letter of Credit in accordance with the Agreement; or
(e) the date which is the 10th Business Day after the date on which you receive
a notice to the effect that an "Event of Default" has occurred and is continuing
under the Letter of Credit and Reimbursement Agreement, dated the date hereof,
between the Borrower and us, pursuant to which this Letter of Credit is issued
together with a deposit by us of an amount (not in excess of the Letter of
Credit Amount) sufficient (together with other Eligible Moneys available
therefor under the Agreement) to pay the Bonds then Outstanding as provided in
Section 8.03(a) of the Agreement (the "Expiration Date"),
You agree to surrender this Letter of Credit to us, and not to make any
drawings, after the Expiration Date.

    
      
         

      

      
        
          

        

      

       

    

    3.           Subject
to the provisions of this Letter of Credit, demands for payment under this
Letter of Credit may be made by you, from time to time, prior to the Expiration
Date by presentation of your certificate in the form of (a) Annex 2 hereto,
appropriately completed and executed, in the case of a drawing for interest on
the Bonds under Section 1401 of the Agreement (an "Interest Drawing");
(b) Annex 3 hereto, appropriately completed and executed, in the case of the
drawing for principal of the Bonds under Section 1401 (if less than all of the
outstanding Bonds are being paid or redeemed) of the Agreement (a "Principal Drawing");
and (c) Annex 4
hereto, appropriately completed and executed, in the case of a Debt Service
Reserve Fund Deficiency (as defined in the Agreement) (a "Reserve Fund Deficiency
Drawing") (each such demand and presentation, a "Drawing"). With
respect to Subsections (a) and (b), payment against conforming documents
presented under this Letter of Credit, on or before 11:30 a.m. San Juan, Puerto
Rico time not later than two Business Days immediately preceding any day an
interest or principal payment on the Bonds is due shall be made by us, on or
before 11:30 a.m. San Juan, Puerto Rico time, on the next succeeding Business
Day. With respect to Subsection (c) only, payment against conforming documents
presented under this Letter of Credit, on or prior to 11:30 a.m. San Juan,
Puerto Rico time not more than two Business Days immediately preceding July 15
or December 26 shall be made by us, on or before 11:30 a.m. San Juan, Puerto
Rico time, on such July 15 or December 26. Payment under this Letter of Credit
will be made by a wire transfer of immediately available funds in accordance
with your instructions. Partial drawings are permitted under this Letter of
Credit. All payments by us under this Letter of Credit will be made with our own
funds.

    

    4.           As
used in this Letter of Credit, "Business Day" means
any day of the year other than a Saturday, Sunday or other day on which
commercial banks in the Commonwealth of Puerto Rico and the State of New York
are authorized to close or are closed for business to the general
public.

    

    5.           Each
Drawing honored by us under this Letter of Credit shall immediately reduce the
Principal Component, the Interest Component or the Reserve Component (as the
case may be) by the amount of such payment, and the Letter of Credit Amount
available hereunder shall also be contemporaneously reduced. Upon such honor,
our obligations in respect of each Drawing shall be discharged, and we shall
have no further obligations in respect of any such Drawing. The Interest
Component and the Reserve Component (and correspondingly the Letter of Credit
Amount) so reduced shall be reinstated, only as follows:

    

    (a)           In
the case of a reduction resulting from payment against the Interest Component,
such Interest Component shall be reinstated automatically on the tenth day
following each Interest Payment Date (as defined in the Agreement), unless (i)
we notify you that such reinstatement will not occur because the Borrower has
failed to reimburse us in respect of such drawing or because an event of default
has occurred and is continuing under our reimbursement agreement with the
Borrower, and (ii) we deposit with you funds (not in excess of the Letter of
Credit Amount) that, together with other Eligible Monies available therefor
under the Agreement, will be sufficient to pay all outstanding principal of and
interest on the Bonds due through the date specified in the Agreement for
repayment of the Bonds upon such non-reinstatement.

    

    (b)           In
the case of a reduction resulting from payment against the Reserve Component,
the.
Reserve Component shall be reinstated automatically on the Business Day
immediately following the date of such payment until the Expiration Date unless
(i) we notify you that such reinstatement will not occur because the Borrower
has failed to reimburse us in respect of such drawing or because an event of
default has occurred and is continuing under our reimbursement agreement with
the Borrower, and (ii) we deposit with you funds (not in excess of the Letter of
Credit Amount) that, together with other Eligible Monies available therefor
under the Agreement, will be sufficient to pay all outstanding principal of and
interest on the Bonds due through the date specified in the Agreement for
repayment of the Bonds upon such non-reinstatement.

    

    (c)           The
Interest Component and the Reserve Component may otherwise be reinstated as we
may from time to time notify you in writing.

    

    6.           Each
payment made with Eligible Movies (as defined in the Agreement) by or for the
account of, the Borrower of the principal of the Bonds when due, shall
automatically and irrevocably reduce, on the Business Day of our receipt of a
certificate in the form of Annex 5, (i) the
Principal Component and the amount available to be drawn hereunder by subsequent
Principal Drawings by an amount equal to the difference between the Principal
Component outstanding on the date immediately preceding the date of such payment
and the principal of the Bonds to be Outstanding thereafter, and (ii) the
Interest Component and the amount available to be drawn hereunder by a
subsequent Interest Drawing to an amount equal to 195 days' accrued interested
(computed on the basis of a year of 360 days consisting of twelve 30 day months)
on the aggregate principal amount of the Bonds then remaining Outstanding, and
such reductions shall automatically and irrevocably result in corresponding
aggregate reductions in the Letter of Credit Amount.

    

    7.           All
documents presented to us, in connection with any Drawing, and all other
communications and notices to us with respect to this Letter of Credit, shall be
in writing, dated the date of presentation, and delivered to us, at the address
set forth on the letterhead of this Letter of Credit, and shall specifically
refer to "TDF Irrevocable Stand-by Letter of Credit (Palmas del Mar Country Club
Project)." Any such documents, communications, and notices may be sent via
facsimile to (787)722-6815 (with transmission confirmed by a call to telephone
number (787) 722-2525), stating that the originals of such documents,
communications and notices have been mailed or delivered to us.

    

    8.           No
person, other than you as Trustee, or a successor trustee under the Agreement,
may make any demand for payment under this Letter of Credit. This Letter of
Credit is transferable in its entirety only to any transferee who has succeeded
you as Trustee under the Agreement, and may be successfully transferred to any
subsequent successor trustee under the Agreement, in each case upon presentation
to us of the original of this Letter of Credit, accompanied by a 67K certificate
in the form of Annex
6 hereto.

    

    9.           This
Letter of Credit sets forth the full term of our undertaking, and this
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein or in
which this Letter of Credit is referenced or to which this Letter of Credit
relates, except only the certificates referenced herein; and such reference
shall not be deemed to incorporate herein by reference any document, instrument
or other agreement, except such certificates. All certificates referenced herein
that are presented to us from time to time shall become an integral part of this
Letter of Credit, and shall be binding on any transferee permitted by the terms
of this Letter of Credit.

    

    10.           
This Letter of Credit is subject to the provisions of the Uniformed Customs and
Practices for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 (the "UCP"), other than
Article 48(g) thereof. This Letter of Credit shall be deemed a contract made
under the laws of the Commonwealth of Puerto Rico, and shall, as to matters not
governed by the UCP, be governed and construed in accordance with the laws
thereof, without regard to the principles of conflicts of laws.

    

    Very
truly yours,

    

    PUERTO
RICO

    TOPURISM
DEVELOPMENT FUND

    

    

    
      	
              By:

            	
               /s/   Fernando
      Aguiar

            

    

                                                                     
Name:  Fernando Aguiar

                                                                     
Title:    Executive Director

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