Document:

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                                                                     EXHIBIT 4.2

   THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE SUPPLEMENTAL
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
   BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
 BE REQUIRED PURSUANT TO SECTION 2.06 OF THE SUPPLEMENTAL INDENTURE, (II) THIS
        GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO
  SECTION 2.06(a) OF THE SUPPLEMENTAL INDENTURE, (III) THIS GLOBAL NOTE MAY BE
    DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
    SUPPLEMENTAL INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
      SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
--------------------------------------------------------------------------------

                                                            CUSIP/CINS 45031UAA9

                           7.0% Senior Notes due 2008

No. 1                                                               $150,000,000

                              iSTAR FINANCIAL INC.

promises to pay to CEDE & CO., or registered assigns, the principal sum of ONE
HUNDRED FIFTY MILLION Dollars on March 15, 2008.

Interest Payment Dates: March 15 and September 15

Record Dates: March 1 and September 1

Dated: March 14, 2003

                                    iSTAR FINANCIAL INC.

                                    By: /s/ Jay Sugarman
                                        ----------------------------------------
                                        Name:  Jay Sugarman
                                        Title: Chief Executive Officer

                                    By: /s/ Spencer Haber
                                        ----------------------------------------
                                        Name:  Spencer Haber
                                        Title: President and Secretary

SEAL

This is one of the Notes referred to
in the within-mentioned Supplemental Indenture:

US BANK TRUST NATIONAL ASSOCIATION
 as Trustee

By: /s/ Angelita Pena
    ---------------------------------
    Authorized Signatory

<Page>

                           7.0% Senior Notes due 2008

     Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.

     1.  INTEREST. iStar Financial Inc., a Maryland corporation (the "COMPANY"),
promises to pay interest on the principal amount of this Note at 7.0% per annum
from March 14, 2003 until maturity. The Company will pay interest semi-annually
in arrears on March 15 and September 15 of each year, or if any such day is not
a Business Day, on the next succeeding Business Day (each an "INTEREST PAYMENT
DATE"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 14, 2003;
PROVIDED that if there is no existing Default in the payment of interest, and if
this Note is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; PROVIDED, FURTHER, that the first
Interest Payment Date shall be September 15, 2003. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at the rate then in effect; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

     2.  METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on the March 1 or September 1 next preceding the Interest
Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. The Notes will be payable as to
principal, premium, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and PROVIDED that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, and premium, if any, on,
all Global Notes and all other Notes the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts. The Company
reserves the right to pay interest to Holders of Notes by check mailed to such
Holders at their registered addresses or by wire transfer to Holders of at least
$5 million aggregate principal amount of Notes.

     3.  PAYING AGENT AND REGISTRAR. Initially, US Bank Trust National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

                                       A-2
<Page>

     4.  INDENTURE. The Company issued the Notes under an Indenture dated as of
February 5, 2001, as amended and supplemented, including as supplemented by a
Supplemental Indenture dated as of March 14, 2003 (collectively, the
"INDENTURE") between the Company and the Trustee. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred
to the Indenture and such Act for a statement of such terms. To the extent any
provision of this Note conflicts with the express provisions of the Indenture,
the provisions of the Indenture shall govern and be controlling. The Notes are
obligations of the Company. The Company is issuing $150.0 million in aggregate
principal amount on the Issue Date and may issue Additional Notes in accordance
with the terms of the Indenture.

     5.  OPTIONAL REDEMPTION.

     OPTIONAL REDEMPTION. (a) At any time on or prior to March 15, 2008, the
Notes may be redeemed or purchased in whole but not in part at the Company's
option at a price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the date
of redemption or purchase (the "REDEMPTION DATE") (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date). Such redemption or purchase may be made upon
notice mailed by first-class mail to each Holder's registered address, not less
than 30 nor more than 60 days prior to the Redemption Date.

     "APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of: (1) 1.0% of the principal amount of such Note; and (2) the
excess of (a) the present value at such Redemption Date of (i) the redemption
price of such Note on March 15, 2008 plus (ii) all required remaining scheduled
interest payments due on such Note through March 15, 2008, computed using a
discount rate equal to the Treasury Rate plus 50 basis points; over (b) the
principal amount of such Note on such Redemption Date. Calculation of the
Applicable Premium will be made by the Company or on behalf of the Company by
such Person as the Company shall designate; PROVIDED, HOWEVER, that such
calculation shall not be a duty or obligation of the Trustee.

     "TREASURY RATE" means, with respect to a Redemption Date, the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15(519) that has become publicly available at least two
Business Days prior to such Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from such Redemption Date to March 15, 2008;
PROVIDED, HOWEVER, that if the period from such Redemption Date to March 15,
2008 is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the period from such Redemption Date
to March 15, 2008 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.

                                       A-3
<Page>

     OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. At any time, or from time to
time, on or prior to March 15, 2006, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings to redeem up to 35% of the
principal amount of the Notes issued under the Indenture at a redemption price
of 107% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; PROVIDED that:

        (1)  at least 65% of the principal amount of Notes issued under the
     Indenture remains outstanding immediately after any such redemption; and

        (2)  the Company makes such redemption not more than 60 days after the
     consummation of any such Equity Offering.

     6.  MANDATORY REDEMPTION.

     Except as set forth in paragraph 7 below, the Company shall not be required
to make mandatory redemption payments with respect to the Notes.

     7.  REPURCHASE AT OPTION OF HOLDER.

     Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase all of the outstanding Notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of repurchase.

     8.  NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.

     9.  DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company and the Trustee may require a Holder to pay any taxes and fees required
by law or permitted by the Indenture. The Company need not exchange or register
the transfer of any Note or portion of a Note selected for redemption, except
for the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.

     10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.

     11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the written consent
of the Holders of

                                       A-4
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at least a majority in principal amount of the then outstanding Notes voting as
a single class, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the written consent of the Holders of
a majority in principal amount of the then outstanding Notes voting as a single
class. Without the consent of any Holder of a Note, the Indenture or the Notes
may be amended or supplemented to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect in any material respects the rights under the
Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act or to evidence and provide for the acceptance of appointment under
the Indenture of a successor Trustee.

     12. DEFAULTS AND REMEDIES. Events of Default are set forth in the
Indenture. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in
writing in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.

     13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.

     14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator
or stockholder, of the Company, as such, shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.

                                       A-5
<Page>

     15. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.

     16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

     17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

                                       A-6
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     The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:

iStar Financial Inc.
1114 Avenue of the Americas, 27th Floor
New York, NY  10036
Attention: Investor Relations

                                       A-7
<Page>

                                 ASSIGNMENT FORM

     To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to:___________________________________
                                                (Insert assignee's legal name)

________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
              (Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
      ------------------

                                    Your Signature:
                                                   -----------------------------
                                                   (Sign exactly as your name
                                                   appears on the face of this
                                                   Note)

Signature Guarantee*:
                      ------------------------

*    Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

                                       A-8
<Page>

                       OPTION OF HOLDER TO ELECT PURCHASE

     If you want to elect to have this Note purchased by the Company pursuant to
Section 4.13 of the Indenture, check the following box : / /

     If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.13 of the Indenture, state the amount you elect to have
purchased:

                                 $______________

Date:
      -----------------

                                    Your Signature:
                                                   -----------------------------
                                                   (Sign exactly as your name
                                                   appears on the face of this
                                                   Note)

                                    Tax Identification No.:
                                                           ---------------------

Signature Guarantee*:
                      --------------------

*    Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

                                       A-9
<Page>

              SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

     The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:

<Table>
<Caption>
                                                                PRINCIPAL AMOUNT
                        AMOUNT OF            AMOUNT OF         OF THIS GLOBAL NOTE        SIGNATURE OF
                       DECREASE IN          INCREASE IN           FOLLOWING SUCH     AUTHORIZED OFFICER OF
                    PRINCIPAL AMOUNT      PRINCIPAL AMOUNT          DECREASE            TRUSTEE OR NOTE
DATE OF EXCHANGE   OF THIS GLOBAL NOTE   OF THIS GLOBAL NOTE      (OR INCREASE)            CUSTODIAN
----------------   -------------------   -------------------   -------------------   ---------------------
<S>                <C>                   <C>                   <C>                   <C>

</Table>QuickLinks
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Exhibit 10.1  

 
 

MEMORANDUM OF UNDERSTANDING DATED MARCH 15, 2003 ("MoU")    
  

The
Democratic Republic of Sao Tome and Principe ("DRSTP") and Environmental Remediation Holding Corporation ("ERHC"), with respect to the Memorandum of Agreement between the parties of May 21,
2001 ("MoA"), hereby agree as follows: 

(A) TRADE-OFF OF ECONOMIC VALUES  

ERHC
shall: 

	1.
	Relinquish
100% of Signature Bonus, 100% of Profit Oil and 100% of Overriding Royalty Interest (namely the "Financial Interests") attributable to ERHC under the MoA, to DRSTP; and
shall

	2.
	Relinquish
the ERHC right of choice of blocks in the JDZ as contained in the MoA, 

at
such time as the following be fully and finally accomplished: 

DRSTP
shall cause the Joint Development Authority ("JDA") to grant ERHC the option to request and be awarded the following Preferential Working Interests ("PWI") within the Joint Development Zone
("JDZ") in the immediate forthcoming licensing round: 

	1.
	15%
PWI in one block of ERHC's first choice. This choice may not be exercised in the block that ExxonMobil has exercised its right to PWI of 40%. DRSTP shall cause the JDA to waive
100% of the total signature bonus payable on ERHC's 15% in this block.

	2.
	15%
PWI in one block of ERHC's second choice. This choice may not be exercised in the block that ExxonMobil has exercised it's right to PWI of 40%. ERHC shall pay 100% of the total
signature bonus payable on ERHC's 15% in this block.

	3.
	20%
PWI in one block of ERHC's third choice. This choice may not be exercised in the block that ExxonMobil has exercised its right to PWI of 25% or 40%. DRSTP shall cause the JDA to
waive 100% of the total signature bonus payable on ERHC's 20% in this block.

	4.
	30%
PWI in one block of ERHC's fourth choice. This choice may not be exercised in the block that ExxonMobil has exercised its right to PWI of 25% or 40%. DRSTP shall cause the JDA to
waive 100% of the total signature bonus payable on ERHC's 30% in this block.

	5.
	25%
PWI in one block of ERHC's fifth choice. This choice may not be exercised in the block that ExxonMobil has exercised its right to PWI of 25% or 40%. DRSTP shall cause the JDA to
waive 100% of the total signature bonus payable on ERHC's 25% in this block.

	6.
	20%
PWI in one block of ERHC's sixth choice. This choice may not be exercised in the block that ExxonMobil has exercised its right to PWI of 25% or 40%. ERHC shall pay 100% of the
total signature bonus payable on ERHC's 20% in this block. 

ERHC
must exercise its PWI options in the afore-mentioned blocks within a reasonable time after the licensing round subject to approval of the JDA. 

(B) MISCELLANEOUS UNDERSTANDINGS  

The relinquishment of ERHC rights described herein shall be subject to and conditioned upon the following being true and correct and being fully and finally
accomplished:

	1.
	DRSTP
represents and warrants that the number of, designation of, boundaries of, and sizes of blocks (that is, the parameters of acreage) to be offered in the immediately forthcoming
licensing round shall not be materially less than the parameters of acreage as indicated on the 

attached
Exhibit A, and DRSTP further represents and warrants that should the parameters of acreage on offer be materially lower for whatever reason then DRSTP shall compensate ERHC such that
ERHC's economic position as contemplated herein be not diminished thereby. 

	2.
	DRSTP
represents and warrants that the rights of ExxonMobil as contemplated under this MoU shall not exceed PWI of 40% in one block and PWI of 25% each in two blocks in the JDZ and
DRSTP further represents and warrants that its has not granted any other PWI rights in the JDZ to ExxonMobil or any other company that may cause conflict with or be contrary to the PWI rights granted
ERHC under this MoU.

	3.
	DRSTP
and ERHC shall execute definitive legal agreement(s) to incorporate and reflect the contents and intentions of this MoU and such agreement(s), which shall include a proposed
agreement to be signed between the JDA and ERHC as an exhibit therein, must contain mutually acceptable terms and conditions.

	4.
	DRSTP
shall cause the definitive agreement(s) between DRSTP and ERHC to be approved by the Joint Ministerial Council ("JMC") of the JDA at the next JMC meeting and DRSTP shall further
cause the JMC to approve that the JDA enter into agreements with ERHC to implement this MoU and the MoA and DRSTP shall forthwith after the JMC meeting notify ERHC of these approvals.

	5.
	After
the afore-mentioned JMC meeting, but before formal announcement of the licensing round, ERHC and JDA shall execute a definitive legal agreement to enable full implementation of
the definitive agreement(s) between DRSTP and ERHC including the exhibit therein.

	6.
	Any
agreements contemplated under this MoU shall be prepared so as not to affect the integrity, legality, and validity of the MoA and Consent Award.

	7.
	This
MoU and any agreements contemplated herein are, and shall be, without prejudice to ERHC rights and interests in the Exclusive Economic Zone of DRSTP as contained in the MoA.

	8.
	ERHC,
under United States of America Securities and Exchange Commission ("SEC") regulations, is required to file details of this MoU with the SEC. 

INTENDING TO BE LEGALLY BOUND the parties hereby incorporate by reference and make a part hereof as though set out in full herein, Articles 9, 10 and 11
(excluding sub-paragraph 11.5) of the MoA. This MoU is hereby executed this 15th Day of March 2003, in the presence of members of the Joint Development
Authority. 

	
/  / (Signed)

His Excellency, Rafael Branco

Minister of Public Works, Infrastructure,

Natural Resources and Environment

DRSTP	
 	
/  / (Signed)

Mr Chude Mba

President & Chief Executive

Officer

ERHC
	
Witnessed by:	
 	

 
	

 /  / (Signed)

Dr Tajudeen Umar

Chairman of the Executive Board

JDA	

 	

 

QuickLinks

MEMORANDUM OF UNDERSTANDING DATED MARCH 15, 2003 ("MoU")

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