Document:

EXHIBIT
      4.5

    

    

    AMTRUST
      FINANCIAL SERVICES, INC.,

    as
      Issuer

    

    
 

    INDENTURE

    Dated
      as of July 25, 2006

    

    

    

    WILMINGTON
      TRUST COMPANY,

    as
      Trustee

    

    

    

    

    FIXED/FLOATING
      RATE JUNIOR SUBORDINATED
      DEFERRABLE INTEREST DEBENTURES

    

    DUE
      2036

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

    Page

      

      
        
          	
                  ARTICLE
                    I.

                	
                  DEFINITIONS

                	
                  1

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                  .

                	
                  Section
                    1.1

                	
                  Definitions

                	
                  1

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    II.

                	
                  DEBENTURES

                	
                  8

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    2.1.

                	
                  Authentication
                    and Dating

                	
                  8

                
	
                   

                	
                  Section
                    2.2.

                	
                  Form
                    of Trustee’s Certificate of Authentication

                	
                  9

                
	
                   

                	
                  Section
                    2.3.

                	
                  Form
                    and Denomination of Debentures

                	
                  9

                
	
                   

                	
                  Section
                    2.4.

                	
                  Execution
                    of Debentures

                	
                  10

                
	
                   

                	
                  Section
                    2.5.

                	
                  Exchange
                    and Registration of Transfer of Debentures.

                	
                  10

                
	
                   

                	
                  Section
                    2.6.

                	
                  Mutilated,
                    Destroyed, Lost or Stolen Debentures

                	
                  12

                
	
                   

                	
                  Section
                    2.7.

                	
                  Temporary
                    Debentures

                	
                  13

                
	
                   

                	
                  Section
                    2.8.

                	
                  Payment
                    of Interest and Additional Interest

                	
                  14

                
	
                   

                	
                  Section
                    2.9.

                	
                  Cancellation
                    of Debentures Paid, etc

                	
                  15

                
	
                   

                	
                  Section
                    2.10.

                	
                  Computation
                    of Interest

                	
                  15

                
	
                   

                	
                  Section
                    2.11.

                	
                  Extension
                    of Interest Payment Period

                	
                  17

                
	
                   

                	
                  Section
                    2.12.

                	
                  CUSIP
                    Numbers

                	
                  18

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    III.

                	
                  PARTICULAR
                    COVENANTS OF THE COMPANY

                	
                  19

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    3.1.

                	
                  Payment
                    of Principal, Premium and Interest; Agreed Treatment of the
                    Debentures.

                	
                  19

                
	
                   

                	
                  Section
                    3.2.

                	
                  Offices
                    for Notices and Payments, etc

                	
                  20

                
	
                   

                	
                  Section
                    3.3.

                	
                  Appointments
                    to Fill Vacancies in Trustee’s Office

                	
                  20

                
	
                   

                	
                  Section
                    3.4.

                	
                  Provision
                    as to Paying Agent.

                	
                  20

                
	
                   

                	
                  Section
                    3.5.

                	
                  Certificate
                    to Trustee

                	
                  21

                
	
                   

                	
                  Section
                    3.6.

                	
                  Additional
                    Sums

                	
                  21

                
	
                   

                	
                  Section
                    3.7.

                	
                  Compliance
                    with Consolidation Provisions

                	
                  22

                
	
                   

                	
                  Section
                    3.8.

                	
                  Limitation
                    on Dividends

                	
                  22

                
	
                   

                	
                  Section
                    3.9.

                	
                  Covenants
                    as to the Trust

                	
                  23

                
	
                   

                	
                  Section
                    3.10.

                	
                  Additional
                    Junior Indebtedness

                	
                  23

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    IV.

                	
                  SECURITYHOLDERS
                    LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

                	
                  24

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    4.1.

                	
                  Securityholders
                    Lists

                	
                  24

                
	
                   

                	
                  Section
                    4.2.

                	
                  Preservation
                    and Disclosure of Lists.

                	
                  24

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    V.

                	
                  REMEDIES
                    OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF
                    DEFAULT

                	
                  25

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    5.1.

                	
                  Events
                    of Default

                	
                  25

                
	
                   

                	
                  Section
                    5.2.

                	
                  Payment
                    of Debentures on Default; Suit Therefor

                	
                  27

                
	
                   

                	
                  Section
                    5.3.

                	
                  Application
                    of Moneys Collected by Trustee

                	
                  29

                

        

      

    

    

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    
      
        

          
            	 	
                    Section
                      5.4.

                  	
                    Proceedings
                      by Securityholders

                  	
                    29

                  
	
                     

                  	
                    Section
                      5.5.

                  	
                    Proceedings
                      by Trustee

                  	
                    30

                  
	
                     

                  	
                    Section
                      5.6.

                  	
                    Remedies
                      Cumulative and Continuing; Delay or Omission Not a Waiver

                  	
                    30

                  
	
                     

                  	
                    Section
                      5.7.

                  	
                    Direction
                      of Proceedings and Waiver of Defaults by Majority of
                      Securityholders

                  	
                    30

                  
	
                     

                  	
                    Section
                      5.8.

                  	
                    Notice
                      of Defaults

                  	
                    31

                  
	
                     

                  	
                    Section
                      5.9.

                  	
                    Undertaking
                      to Pay Costs

                  	
                    31

                  
	
                     

                  	 	
                     

                  	
                     

                  
	
                    ARTICLE
                      VI.

                  	
                    CONCERNING
                      THE TRUSTEE

                  	
                    32

                  
	
                     

                  	
                     

                  	
                     

                  	
                     

                  
	
                     

                  	
                    Section
                      6.1.

                  	
                    Duties
                      and Responsibilities of Trustee

                  	
                    32

                  
	
                     

                  	
                    Section
                      6.2.

                  	
                    Reliance
                      on Documents, Opinions, etc

                  	
                    33

                  
	
                     

                  	
                    Section
                      6.3.

                  	
                    No
                      Responsibility for Recitals, etc

                  	
                    34

                  
	
                     

                  	
                    Section
                      6.4.

                  	
                    Trustee,
                      Authenticating Agent, Paying Agents, Transfer Agents or Registrar
                      May Own
                      Debentures

                  	
                    34

                  
	
                     

                  	
                    Section
                      6.5.

                  	
                    Moneys
                      to be Held in Trust

                  	
                    34

                  
	
                     

                  	
                    Section
                      6.6.

                  	
                    Compensation
                      and Expenses of Trustee

                  	
                    34

                  
	
                     

                  	
                    Section
                      6.7.

                  	
                    Officers’
                      Certificate as Evidence

                  	
                    35

                  
	
                     

                  	
                    Section
                      6.8.

                  	
                    Eligibility
                      of Trustee

                  	
                    35

                  
	
                     

                  	
                    Section
                      6.9.

                  	
                    Resignation
                      or Removal of Trustee.

                  	
                    36

                  
	
                     

                  	
                    Section
                      6.10.

                  	
                    Acceptance
                      by Successor Trustee

                  	
                    37

                  
	
                     

                  	
                    Section
                      6.11.

                  	
                    Succession
                      by Merger, etc

                  	
                    38

                  
	
                     

                  	
                    Section
                      6.12.

                  	
                    Authenticating
                      Agents

                  	
                    38

                  
	
                     

                  	 	
                     

                  	
                     

                  
	
                    ARTICLE
                      VII.

                  	
                    CONCERNING
                      THE SECURITYHOLDERS

                  	
                    39

                  
	
                     

                  	
                     

                  	
                     

                  	
                     

                  
	
                     

                  	
                    Section
                      7.1.

                  	
                    Action
                      by Securityholders

                  	
                    39

                  
	
                     

                  	
                    Section
                      7.2.

                  	
                    Proof
                      of Execution by Securityholders

                  	
                    40

                  
	
                     

                  	
                    Section
                      7.3.

                  	
                    Who
                      Are Deemed Absolute Owners

                  	
                    40

                  
	
                     

                  	
                    Section
                      7.4.

                  	
                    Debentures
                      Owned by Company Deemed Not Outstanding

                  	
                    40

                  
	
                     

                  	
                    Section
                      7.5.

                  	
                    Revocation
                      of Consents; Future Holders Bound

                  	
                    41

                  
	
                     

                  	 	
                     

                  	
                     

                  
	
                    ARTICLE
                      VIII.

                  	
                    SECURITYHOLDERS
                      MEETINGS

                  	
                    41

                  
	
                     

                  	
                     

                  	
                     

                  	
                     

                  
	
                     

                  	
                    Section
                      8.1.

                  	
                    Purposes
                      of Meetings

                  	
                    41

                  
	
                     

                  	
                    Section
                      8.2.

                  	
                    Call
                      of Meetings by Trustee

                  	
                    42

                  
	
                     

                  	
                    Section
                      8.3.

                  	
                    Call
                      of Meetings by Company or Securityholders

                  	
                    42

                  
	
                     

                  	
                    Section
                      8.4.

                  	
                    Qualifications
                      for Voting

                  	
                    42

                  
	
                     

                  	
                    Section
                      8.5.

                  	
                    Regulations

                  	
                    42

                  
	
                     

                  	
                    Section
                      8.6.

                  	
                    Voting

                  	
                    43

                  
	
                     

                  	
                    Section
                      8.7.

                  	
                    Quorum;
                      Actions

                  	
                    43

                  
	
                     

                  	 	
                     

                  	
                     

                  
	
                    ARTICLE
                      IX.

                  	
                    SUPPLEMENTAL
                      INDENTURES

                  	
                    44

                  
	
                     

                  	
                     

                  	
                     

                  	
                     

                  
	
                     

                  	
                    Section
                      9.1.

                  	
                    Supplemental
                      Indentures without Consent of Securityholders

                  	
                    44

                  
	
                     

                  	
                    Section
                      9.2.

                  	
                    Supplemental
                      Indentures with Consent of Securityholders

                  	
                    45

                  
	
                     

                  	
                    Section
                      9.3.

                  	
                    Effect
                      of Supplemental Indentures

                  	
                    46

                  
	
                     

                  	
                    Section
                      9.4.

                  	
                    Notation
                      on Debentures

                  	
                    46

                  

          

        

         

      

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    
      

        
          	 	
                  Section
                    9.5.

                	
                  Evidence
                    of Compliance of Supplemental Indenture to be Furnished to
                    Trustee

                	
                  46

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    X.

                	
                  REDEMPTION
                    OF SECURITIES

                	
                  47

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    10.1.

                	
                  Optional
                    Redemption

                	
                  47

                
	
                   

                	
                  Section
                    10.2.

                	
                  Special
                    Event Redemption

                	
                  47

                
	
                   

                	
                  Section
                    10.3.

                	
                  Notice
                    of Redemption; Selection of Debentures

                	
                  47

                
	
                   

                	
                  Section
                    10.4.

                	
                  Payment
                    of Debentures Called for Redemption

                	
                  48

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    XI.

                	
                  CONSOLIDATION,
                    MERGER, SALE, CONVEYANCE AND LEASE

                	
                  49

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    11.1.

                	
                  Company
                    May Consolidate, etc., on Certain Terms

                	
                  49

                
	
                   

                	
                  Section
                    11.2.

                	
                  Successor
                    Entity to be Substituted

                	
                  49

                
	
                   

                	
                  Section
                    11.3.

                	
                  Opinion
                    of Counsel to be Given to Trustee

                	
                  49

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    XII.

                	
                  SATISFACTION
                    AND DISCHARGE OF INDENTURE

                	
                  50

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    12.1.

                	
                  Discharge
                    of Indenture.

                	
                  50

                
	
                   

                	
                  Section
                    12.2.

                	
                  Deposited
                    Moneys to be Held in Trust by Trustee

                	
                  50

                
	
                   

                	
                  Section
                    12.3.

                	
                  Paying
                    Agent to Repay Moneys Held

                	
                  51

                
	
                   

                	
                  Section
                    12.4.

                	
                  Return
                    of Unclaimed Moneys

                	
                  51

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    XIII.

                	
                  IMMUNITY
                    OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS

                	
                  51

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    13.1.

                	
                  Indenture
                    and Debentures Solely Corporate Obligations

                	
                  51

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    XIV.

                	
                  MISCELLANEOUS
                    PROVISIONS

                	
                  51

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    14.1.

                	
                  Successors

                	
                  51

                
	
                   

                	
                  Section
                    14.2.

                	
                  Official
                    Acts by Successor Entity

                	
                  51

                
	
                   

                	
                  Section
                    14.3.

                	
                  Surrender
                    of Company Powers

                	
                  52

                
	
                   

                	
                  Section
                    14.4.

                	
                  Addresses
                    for Notices, etc

                	
                  52

                
	
                   

                	
                  Section
                    14.5.

                	
                  Governing
                    Law

                	
                  52

                
	
                   

                	
                  Section
                    14.6.

                	
                  Evidence
                    of Compliance with Conditions Precedent

                	
                  52

                
	
                   

                	
                  Section
                    14.7.

                	
                  Table
                    of Contents, Headings, etc

                	
                  52

                
	
                   

                	
                  Section
                    14.8.

                	
                  Execution
                    in Counterparts

                	
                  53

                
	
                   

                	
                  Section
                    14.9.

                	
                  Severability

                	
                  53

                
	
                   

                	
                  Section
                    14.10.

                	
                  Assignment

                	
                  53

                
	
                   

                	
                  Section
                    14.11.

                	
                  Acknowledgment
                    of Rights

                	
                  53

                
	
                   

                	 	
                   

                	
                   

                
	
                  ARTICLE
                    XV.

                	
                  SUBORDINATION
                    OF DEBENTURES

                	
                  53

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Section
                    15.1.

                	
                  Agreement
                    to Subordinate

                	
                  53

                
	
                   

                	
                  Section
                    15.2.

                	
                  Default
                    on Senior Indebtedness

                	
                  54

                
	
                   

                	
                  Section
                    15.3.

                	
                  Liquidation,
                    Dissolution, Bankruptcy

                	
                  54

                
	
                   

                	
                  Section
                    15.4.

                	
                  Subrogation

                	
                  55

                
	
                   

                	
                  Section
                    15.5.

                	
                  Trustee
                    to Effectuate Subordination

                	
                  56

                
	
                   

                	
                  Section
                    15.6.

                	
                  Notice
                    by the Company

                	
                  56

                

        

      

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

    

      
        	 	
                Section
                  15.7.

              	
                Rights
                  of the Trustee; Holders of Senior Indebtedness

              	
                57

              
	 	
                Section
                  15.8.

              	
                Subordination
                  May Not Be Impaired

              	
                57

              

      

    

    Exhibit
      A    Form
      of
      Fixed/Floating Rate Junior Subordinated Deferrable Interest
      Debenture

    

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

    THIS
      INDENTURE, dated as of July 25, 2006, between AmTrust Financial Services, Inc.,
      a Delaware corporation (the “Company”),
      and
      Wilmington Trust Company, a banking corporation organized under the laws of
      the
      State of Delaware, as debenture trustee (the “Trustee”).

     

    WITNESSETH:

     

    WHEREAS,
      for its lawful corporate purposes, the Company has duly authorized the issuance
      of its Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures
      due 2036 (the “Debentures”)
      under
      this Indenture to provide, among other things, for the execution and
      authentication, delivery and administration thereof, and the Company has duly
      authorized the execution of this Indenture; and

     

    WHEREAS,
      all acts and things necessary to make this Indenture a valid agreement according
      to its terms, have been done and performed;

     

    NOW,
      THEREFORE, in consideration of the premises, and the purchase of the Debentures
      by the holders thereof, the Company covenants and agrees with the Trustee for
      the equal and proportionate benefit of the respective holders from time to
      time
      of the Debentures as follows:

     

    ARTICLE
      I.

    DEFINITIONS

     

    Section
      1.1. Definitions. The
      terms
      defined in this Section 1.1 (except as herein otherwise expressly provided
      or unless the context otherwise requires) for all purposes of this Indenture
      and
      of any indenture supplemental hereto shall have the respective meanings
      specified in this Section 1.1. All accounting terms used herein and not
      expressly defined shall have the meanings assigned to such terms in accordance
      with generally accepted accounting principles and the term “generally accepted
      accounting principles” means such accounting principles as are generally
      accepted in the United States at the time of any computation. The words
“herein,” “hereof” and “hereunder” and other words of similar import refer to
      this Indenture as a whole and not to any particular Article, Section or other
      subdivision.

     

    “Additional
      Interest”
has
      the
      meaning set forth in Section 2.11.

     

    “Additional
      Junior Indebtedness”
means,
      without duplication and other than the Debentures, (a) any indebtedness,
      liabilities or obligations of the Company, or any Subsidiary of the Company,
      under debt securities (or guarantees in respect of debt securities) initially
      issued on or after the date of this Indenture to any trust, or a trustee of
      a
      trust, partnership or other entity affiliated with the Company that is, directly
      or indirectly, a finance subsidiary (as such term is defined in Rule 3a-5 under
      the Investment Company Act of 1940) or other financing vehicle of the Company
      or
      any Subsidiary of the Company in connection with the issuance by that entity
      of
      preferred securities, (b) other securities that are issued either junior and
      subordinate to or on a pari
      passu
      basis
      with the Debentures or (c) any guarantees of the Company in respect of the
      equity or other securities of any entity referred to in clause (a).

     

    “Additional
      Sums”
has
      the
      meaning set forth in Section 3.6.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Affiliate”
has
      the
      same meaning as given to that term in Rule 405 under the Securities Act or
      any successor rule thereunder.

     

    “AmTrust
      Group”
means
      the Company and its Subsidiaries.

     

    “Authenticating
      Agent”
means
      any agent or agents of the Trustee which at the time shall be appointed and
      acting pursuant to Section 6.12.

     

    “Bankruptcy
      Law”
means
      Title 11, U.S. Code, or any similar federal or state law for the relief of
      debtors.

     

    “Board
      of Directors”
means
      the board of directors or the executive committee or any other duly authorized
      designated officers of the Company.

     

    “Board
      Resolution”
means
      a
      copy of a resolution certified by the Secretary or an Assistant Secretary of
      the
      Company to have been duly adopted by the Board of Directors and to be in full
      force and effect on the date of such certification and delivered to the
      Trustee.

     

    “Business
      Day”
means
      any day other than a Saturday, Sunday or any other day on which banking
      institutions in New York City or Wilmington, Delaware are permitted or required
      by any applicable law to close.

     

    “Capital
      Securities”
means
      undivided beneficial interests in the assets of the Trust which rank
pari passu
      with
      Common Securities issued by the Trust; provided,
      however,
      that
      upon the occurrence and during the continuation of an Event of Default (as
      defined in the Declaration), the rights of holders of such Common Securities
      to
      payment in respect of distributions and payments upon liquidation, redemption
      and otherwise are subordinated to the rights of holders of such Capital
      Securities.

     

    “Capital
      Securities Guarantee”
means
      the guarantee agreement that the Company enters into with Wilmington Trust
      Company, as guarantee trustee, or other Persons that operates directly or
      indirectly for the benefit of holders of Capital Securities of the
      Trust.

     

    “Certificate”
means
      a
      certificate signed by any one of the principal executive officer, the principal
      financial officer or the principal accounting officer of the
      Company.

     

    “Common
      Securities”
means
      undivided beneficial interests in the assets of the Trust which rank
pari
      passu
      with
      Capital Securities issued by the Trust; provided,
      however,
      that
      upon the occurrence and during the continuation of an Event of Default (as
      defined in the Declaration), the rights of holders of such Common Securities
      to
      payment in respect of distributions and payments upon liquidation, redemption
      and otherwise are subordinated to the rights of holders of such Capital
      Securities.

     

    “Company”
means
      AmTrust Financial Services, Inc., a Delaware corporation, and, subject to the
      provisions of Article XI, shall include its successors and
      assigns.

     

    “Comparable
      Treasury Issue”
means
      with respect to any Special Redemption Date the United States Treasury security
      selected by the Quotation Agent as having a maturity comparable to the Fixed
      Rate Period Remaining Life that would be utilized, at the time of selection
      and
      in accordance with customary financial practice, in pricing new issues of
      corporate debt securities of comparable maturity to the Fixed Rate Period
      Remaining Life. If no United States Treasury security has a maturity which
      is
      within a period from three months before to three months after the Interest
      Payment Date in September 2011, the two most closely corresponding fixed,
      non-callable United States Treasury securities, as selected by the Quotation
      Agent, shall be used as the Comparable Treasury Issue, and the Treasury Rate
      shall be interpolated or extrapolated on a straight-line basis, rounding to
      the
      nearest month using such securities.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Comparable
      Treasury Price”
means
      (a) the average of five Reference Treasury Dealer Quotations for such Special
      Redemption Date, after excluding the highest and lowest such Reference Treasury
      Dealer Quotations, or (b) if the Quotation Agent obtains fewer than five such
      Reference Treasury Dealer Quotations, the average of all such
      Quotations.

     

    “Coupon
      Rate”
has
      the
      meaning set forth in Section 2.8.

     

    “Debenture”
or
      “Debentures”
has
      the
      meaning stated in the first recital of this Indenture.

     

    “Debenture
      Register”
has
      the
      meaning specified in Section 2.5.

     

    “Declaration”
means
      the Amended and Restated Declaration of Trust of the Trust, as amended or
      supplemented from time to time.

     

    “Default”
means
      any event, act or condition that with notice or lapse of time, or both, would
      constitute an Event of Default.

     

    “Defaulted
      Interest”
has
      the
      meaning set forth in Section 2.8.

     

    “Determination
      Date”
has
      the
      meaning set forth in Section 2.10.

     

    “Distribution
      Period”
means
      (i) with respect to the first Interest Payment Date, the period beginning on
      (and including) the date of original issuance and ending on (but excluding)
      the
      Interest Payment Date in September 2006 and (ii) thereafter, with respect to
      each Interest Payment Date, the period beginning on (and including) the
      preceding Interest Payment Date and ending on (but excluding) such current
      Interest Payment Date.

     

    “Event
      of Default”
means
      any event specified in Section 5.1, continued for the period of time, if
      any, and after the giving of the notice, if any, therein
      designated.

     

    “Excluded
      Assets”
has
      the
      meaning set forth in Section 3.7.

     

    “Extension
      Period”
has
      the
      meaning set forth in Section 2.11.

     

    “Federal
      Reserve”
means
      the Board of Governors of the Federal Reserve System and any successor federal
      agency.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Fixed
      Rate Period Remaining Life”
means,
      with respect to any Debenture, the period from the Special Redemption Date
      for
      such Debenture to the Interest Payment Date in September 2011.

     

    “Indenture”
means
      this instrument as originally executed or, if amended or supplemented as herein
      provided, as so amended or supplemented, or both.

     

    “Institutional
      Trustee”
has
      the
      meaning set forth in the Declaration.

     

    “Interest
      Payment Date”
means
      each March 15, June 15, September 15 and December 15 of each year during the
      term of this Indenture, or if any such day is not a Business Day, then the
      next
      succeeding Business Day, commencing in September 2006.

     

    “Interest
      Rate”
means
      for the period beginning on (and including) the date of original issuance and
      ending on (but excluding) the Interest Payment Date in September 2011 the rate
      per annum of 8.83% and for each Distribution Period thereafter, the Coupon
      Rate.

     

    “Investment
      Company Event”
means
      the receipt by the Company and the Trust of an opinion of counsel experienced
      in
      such matters to the effect that, as a result of the occurrence of a change
      in
      law or regulation or written change (including any announced prospective change)
      in interpretation or application of law or regulation by any legislative body,
      court, governmental agency or regulatory authority, there is more than an
      insubstantial risk that the Trust is or, within 90 days of the date of such
      opinion will be considered an “investment company” that is required to be
      registered under the Investment Company Act of 1940, as amended which change
      or
      prospective change becomes effective or would become effective, as the case
      may
      be, on or after the date of the issuance of the Debentures.

     

    “Liquidation
      Amount”
means
      the stated amount of $1,000.00 per Trust Security.

     

    “Maturity
      Date”
means
      September 15, 2036.

     

    “Officers’
      Certificate”
means
      a
      certificate signed by the Chief Executive Officer, the Vice Chairman, the
      President, any Vice President, and by the Chief Financial Officer, the
      Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
      of
      the Company, and delivered to the Trustee. Each such certificate shall include
      the statements provided for in Section 14.6 if and to the extent required
      by the provisions of such Section.

     

    “Opinion
      of Counsel”
means
      an opinion in writing signed by legal counsel, who may be an employee of or
      counsel to the Company, or may be other counsel reasonably satisfactory to
      the
      Trustee. Each such opinion shall include the statements provided for in
      Section 14.6 if and to the extent required by the provisions of such
      Section.

     

    “Optional
      Redemption Date”
has
      the
      meaning set forth in Section 10.1. 

     

    “Optional
      Redemption Price”
means
      100% of the principal amount of the Debentures being redeemed, plus accrued
      and
      unpaid interest (including any Additional Interest) on such Debentures to the
      Optional Redemption Date.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    The
      term
“outstanding,”
when
      used with reference to Debentures, means, subject to the provisions of
      Section 7.4, as of any particular time, all Debentures authenticated and
      delivered by the Trustee or the Authenticating Agent under this Indenture,
      except:

     

    (a) Debentures
      theretofore canceled by the Trustee or the Authenticating Agent or delivered
      to
      the Trustee for cancellation;

     

    (b) Debentures,
      or portions thereof, for the payment or redemption of which moneys in the
      necessary amount shall have been deposited in trust with the Trustee or with
      any
      paying agent (other than the Company) or shall have been set aside and
      segregated in trust by the Company (if the Company shall act as its own paying
      agent); provided,
      however,
      that,
      if such Debentures, or portions thereof, are to be redeemed prior to maturity
      thereof, notice of such redemption shall have been given as provided in
      Section 10.3 or provision satisfactory to the Trustee shall have been made
      for giving such notice; and

     

    (c) Debentures
      paid pursuant to Section 2.6 or in lieu of or in substitution for which
      other Debentures shall have been authenticated and delivered pursuant to the
      terms of Section 2.6 unless proof satisfactory to the Company and the
      Trustee is presented that any such Debentures are held by bona fide holders
      in
      due course.

     

    “Person”
means
      any individual, corporation, limited liability company, partnership, joint
      venture, association, joint-stock company, trust, unincorporated organization
      or
      government or any agency or political subdivision thereof.

     

    “Predecessor
      Security”
of
      any
      particular Debenture means every previous Debenture evidencing all or a portion
      of the same debt as that evidenced by such particular Debenture; and, for
      purposes of this definition, any Debenture authenticated and delivered under
      Section 2.6 in lieu of a lost, destroyed or stolen Debenture shall be deemed
      to
      evidence the same debt as the lost, destroyed or stolen Debenture.

     

    “Primary
      Treasury Dealer”
means
      either a nationally recognized primary United States Government securities
      dealer or an entity of recognized standing in matters pertaining to the
      quotation of treasury securities that is reasonably acceptable to the Company
      and the Trustee.

     

    “Principal
      Office of the Trustee,”
or
      other similar term, means the office of the Trustee, at which at any particular
      time its corporate trust business shall be principally administered, which
      at
      the time of the execution of this Indenture shall be 1100 North Market Street,
      Wilmington, Delaware 19890-1600, Attention: Corporate Trust
      Administration.

     

    “Quotation
      Agent”
shall
      be a designee of the Trustee, after receiving consent from the Company, who
      is a
      Primary treasury Dealer.

     

    “Reference
      Treasury Dealer”
means
      (i) the Quotation Agent and (ii) any other Primary Treasury Dealer selected
      by
      the Trustee after consultation with the Company.

     

    “Reference
      Treasury Dealer Quotations”
means,
      with respect to each Reference Treasury Dealer and any Redemption Date, the
      average, as determined by the Quotation Agent, of the bid and asked prices
      for
      the Comparable Treasury Issue (expressed in each case as a percentage of its
      principal amount) quoted in writing to the Quotation Agent by such Reference
      Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day
      preceding such Redemption Date.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “Responsible
      Officer”
means,
      with respect to the Trustee, any officer within the Principal Office of the
      Trustee, including any vice-president, any assistant vice-president, any
      secretary, any assistant secretary, the treasurer, any assistant treasurer,
      any
      trust officer or other officer of the Principal Trust Office of the Trustee
      customarily performing functions similar to those performed by any of the above
      designated officers and also means, with respect to a particular corporate
      trust
      matter, any other officer to whom such matter is referred because of that
      officer’s knowledge of and familiarity with the particular subject.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended from time to time or any successor
      legislation.

     

    “Securityholder,”
      “holder
      of Debentures,”
or
      other similar terms, means any Person in whose name at the time a particular
      Debenture is registered on the register kept by the Company or the Trustee
      for
      that purpose in accordance with the terms hereof.

     

    “Senior
      Indebtedness”
means,
      with respect to the Company, (i) the principal, premium, if any, and
      interest in respect of (A) indebtedness of the Company for money borrowed
      and (B) indebtedness evidenced by securities, debentures, notes, bonds or
      other similar instruments issued by the Company; (ii) all capital lease
      obligations of the Company; (iii) all obligations of the Company issued or
      assumed as the deferred purchase price of property, all conditional sale
      obligations of the Company and all obligations of the Company under any title
      retention agreement; (iv) all obligations of the Company for the
      reimbursement of any letter of credit, any banker’s acceptance, any security
      purchase facility, any repurchase agreement or similar arrangement, any interest
      rate swap, any other hedging arrangement, any obligation under options or any
      similar credit or other transaction; (v) all obligations of the type
      referred to in clauses (i) through (iv) above of other Persons for the
      payment of which the Company is responsible or liable as obligor, guarantor
      or
      otherwise; and (vi) all obligations of the type referred to in
      clauses (i) through (v) above of other Persons secured by any lien on any
      property or asset of the Company (whether or not such obligation is assumed
      by
      the Company), whether incurred on or prior to the date of this Indenture or
      thereafter incurred. Notwithstanding the foregoing, “Senior Indebtedness” shall
      not include (1) any Additional Junior Indebtedness, (2) Debentures
      issued pursuant to this Indenture and guarantees in respect of such Debentures,
      (3) trade accounts payable of the Company arising in the ordinary course of
      business (such trade accounts payable being pari
      passu
      in right
      of payment to the Debentures), or (4) obligations with respect to which (a)
      in
      the instrument creating or evidencing the same or pursuant to which the same
      is
      outstanding, it is provided that such obligations are pari
      passu,
      junior
      or otherwise not superior in right of payment to the Debentures and (b) the
      Company, prior to the issuance thereof, has, if required, notified the relevant
      state insurance regulatory agency. Senior Indebtedness shall continue to be
      Senior Indebtedness and be entitled to the subordination provisions irrespective
      of any amendment, modification or waiver of any term of such Senior
      Indebtedness.

     

    “Special
      Event”
means
      either of an Investment Company Event or a Tax Event.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    “Special
      Redemption Date”
has
      the
      meaning set forth in 0.

     

    “Special
      Redemption Price”
means
      (a) if the Special Event is before the Interest Payment Date in September
      2011, the greater of (i) 107.5% of the principal amount of the Debentures,
      plus accrued and unpaid interest (including Additional Interest) on the
      Debentures to the occurrence of the Special Event, or (ii) as determined by
      the Quotation Agent, the sum of (A) the present value of the principal
      amount of the Debentures and the present value of interest payable on the
      Debentures during the Fixed Rate Period Remaining Life of the Debentures, each
      discounted to the date on which such Special Event occurs on a quarterly basis
      (assuming a 360-day year consisting of twelve 30-day months at the Treasury
      Rate), plus (B) accrued and unpaid interest (including Additional Interest)
      on the Debentures to such Special Redemption Date, or (b) if the Special
      Event is on or after the Interest Payment Date in September 2011, 100% of the
      principal amount of the Debentures being redeemed, plus accrued and unpaid
      interest (including any Additional Interest) on such Debentures to the Special
      Redemption Date.

     

    “Subsidiary”
means
      with respect to any Person, (i) any corporation or limited liability
      company at least a majority of the outstanding voting stock of which is owned,
      directly or indirectly, by such Person or by one or more of its Subsidiaries,
      or
      by such Person and one or more of its Subsidiaries, (ii) any general
      partnership, joint venture or similar entity, at least a majority of the
      outstanding partnership or similar interests of which shall at the time be
      owned
      by such Person, or by one or more of its Subsidiaries, or by such Person and
      one
      or more of its Subsidiaries and (iii) any limited partnership of which such
      Person or any of its Subsidiaries is a general partner. For the purposes of
      this
      definition, “voting stock” means shares, interests, participations or other
      equivalents in the equity interest (however designated) in such Person having
      ordinary voting power for the election of a majority of the directors (or the
      equivalent) of such Person, other than shares, interests, participations or
      other equivalents having such power only by reason of the occurrence of a
      contingency.

     

    “Tax
      Event”
means
      the receipt by the Company and the Trust of an opinion of counsel experienced
      in
      such matters to the effect that, as a result of any amendment to or change
      (including any announced prospective change) in the laws or any regulations
      thereunder of the United States or any political subdivision or taxing authority
      thereof or therein, or as a result of any official administrative pronouncement
      (including any private letter ruling, technical advice memorandum, field service
      advice, regulatory procedure, notice or announcement, including any notice
      or
      announcement of intent to adopt such procedures or regulations (an “Administrative
      Action”))
      or
      judicial decision interpreting or applying such laws or regulations, regardless
      of whether such Administrative Action or judicial decision is issued to or
      in
      connection with a proceeding involving the Company or the Trust and whether
      or
      not subject to review or appeal, which amendment, clarification, change,
      Administrative Action or decision is enacted, promulgated or announced, in
      each
      case on or after the date of original issuance of the Debentures, there is
      more
      than an insubstantial risk that: (i) the Trust is, or will be within
      90 days of the date of such opinion, subject to United States federal
      income tax with respect to income received or accrued on the Debentures;
      (ii) interest payable by the Company on the Debentures is not, or within
      90 days of the date of such opinion, will not be, deductible by the
      Company, in whole or in part, for United States federal income tax purposes;
      or
      (iii) the Trust is, or will be within 90 days of the date of such
      opinion, subject to more than a de minimis amount of other taxes (excluding
      withholding taxes), duties or other governmental charges.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    “Telerate
      Page 3750”
has
      the
      meaning set forth in Section 2.10.

     

    “Third
      Party Capital”
has
      the
      meaning set forth in Section 3.7.

     

    “3-Month
      LIBOR”
has
      the
      meaning set forth in Section 2.10.

     

    “Treasury
      Rate”
means
      (i) the yield, under the heading which represents the average for the week
      immediately prior to the date of calculation, appearing in the most recently
      published statistical release designated H.15 (519) or any successor publication
      which is published weekly by the Federal Reserve and which establishes yields
      on
      actively traded United States Treasury securities adjusted to constant maturity
      under the caption “Treasury Constant Maturities,” for the maturity corresponding
      to the Fixed Rate Period Remaining Life (if no maturity is within three months
      before or after the Fixed Rate Period Remaining Life, yields for the two
      published maturities most closely corresponding to the Fixed Rate Period
      Remaining Life shall be determined and the Treasury Rate shall be interpolated
      or extrapolated from such yields on a straight-line basis, rounding to the
      nearest month) or (ii) if such release (or any successor release) is not
      published during the week preceding the calculation date or does not contain
      such yields, the rate per annum equal to the semi-annual equivalent yield to
      maturity of the Comparable Treasury Issue, calculated using a price for the
      Comparable Treasury Issue (expressed as a percentage of its principal amount)
      equal to the Comparable Treasury Price for such Special Redemption Date. The
      Treasury Rate shall be calculated by the Quotation Agent on the third Business
      Day preceding the Special Redemption Date.

     

    “Trust”
shall
      mean AmTrust Capital Financing Trust III, a Delaware statutory trust, or any
      other similar trust created for the purpose of issuing Capital Securities in
      connection with the issuance of Debentures under this Indenture, of which the
      Company is the sponsor.

     

    “Trustee”
means
      Wilmington Trust Company, and, subject to the provisions of Article VI
      hereof, shall also include its successors and assigns as Trustee
      hereunder.

     

    “Trust
      Securities”
means
      Common Securities and Capital Securities of the Trust.

     

    ARTICLE
      II.

    DEBENTURES

     

    Section
      2.1. Authentication
      and Dating.
      Upon
      the execution and delivery of this Indenture, or from time to time thereafter,
      Debentures in an aggregate principal amount not in excess of $30,928,000 may
      be
      executed and delivered by the Company to the Trustee for authentication, and
      the
      Trustee shall thereupon authenticate and make available for delivery said
      Debentures to or upon the written order of the Company, signed by its Chief
      Executive Officer, the President, or one of its Vice Presidents without any
      further action by the Company hereunder. In authenticating such Debentures,
      and
      accepting the additional responsibilities under this Indenture in relation
      to
      such Debentures, the Trustee shall be entitled to receive, and (subject to
      Section 6.1) shall be fully protected in relying upon:

     

    (a) a
      copy of
      any Board Resolution or Board Resolutions relating thereto and, if applicable,
      an appropriate record of any action taken pursuant to such resolution, in each
      case certified by the Secretary or an Assistant Secretary of the Company, as
      the
      case may be; and

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (b) an
      Opinion of Counsel prepared in accordance with Section 14.6 which shall
      also state:

     

    (1) that
      such
      Debentures, when authenticated and delivered by the Trustee and issued by the
      Company in each case in the manner and subject to any conditions specified
      in
      such Opinion of Counsel, will have been duly authorized, executed and delivered
      by the Company, will be entitled to the benefits of this Indenture and will
      be
      legal, valid and binding obligations of the Company enforceable against the
      Company in accordance with their terms, subject to the effect of bankruptcy,
      insolvency, reorganization, receivership, moratorium and other laws affecting
      the rights and remedies of creditors generally and of general principles of
      equity; and

     

    (2) that
      all
      laws and requirements in respect of the execution and delivery by the Company
      of
      the Debentures have been complied with and that authentication and delivery
      of
      the Debentures by the Trustee will not violate the terms of this
      Indenture.

     

    The
      Trustee shall have the right to decline to authenticate and deliver any
      Debentures under this Section if the Trustee, being advised in writing by
      counsel, determines that such action may not lawfully be taken or if a
      Responsible Officer of the Trustee in good faith shall determine that such
      action would expose the Trustee to personal liability to existing
      holders.

     

    The
      definitive Debentures shall be typed, printed, lithographed or engraved on
      steel
      engraved borders or may be produced in any other manner, all as determined
      by
      the officers executing such Debentures, as evidenced by their execution of
      such
      Debentures.

     

    Section
      2.2. Form
      of Trustee’s Certificate of Authentication.
      The
      Trustee’s certificate of authentication on all Debentures shall be in
      substantially the following form:

     

    This
      is
      one of the Debentures referred to in the within-mentioned
      Indenture.

     

    WILMINGTON
      TRUST COMPANY, as Trustee

     

    By
      __________________________________      

    Authorized
      Signer

     

    Section
      2.3. Form
      and Denomination of Debentures.
      The
      Debentures shall be substantially in the form of Exhibit A attached hereto.
      The
      Debentures shall be in registered, certificated form without coupons and in
      minimum denominations of $100,000.00 and any multiple of $1,000.00 in excess
      thereof. Any attempted transfer of the Debentures in a block having an aggregate
      principal amount of less than $100,000.00 shall be deemed to be void and of
      no
      legal effect whatsoever. Any such purported transferee shall be deemed not
      to be
      a holder of such Debentures for any purpose, including, but not limited to
      the
      receipt of payments on such Debentures, and such purported transferee shall
      be
      deemed to have no interest whatsoever in such Debentures. The Debentures shall
      be numbered, lettered, or otherwise distinguished in such manner or in
      accordance with such plans as the officers executing the same may determine
      with
      the approval of the Trustee as evidenced by the execution and authentication
      thereof.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    Section
      2.4. Execution
      of Debentures.
      The
      Debentures shall be signed in the name and on behalf of the Company by the
      manual or facsimile signature of its Chief Executive Officer, President, or
      one
      of its Executive Vice Presidents, Senior Vice Presidents or Vice Presidents.
      Only such Debentures as shall bear thereon a certificate of authentication
      substantially in the form herein before recited, executed by the Trustee or
      the
      Authenticating Agent by the manual signature of an authorized signer, shall
      be
      entitled to the benefits of this Indenture or be valid or obligatory for any
      purpose. Such certificate by the Trustee or the Authenticating Agent upon any
      Debenture executed by the Company shall be conclusive evidence that the
      Debenture so authenticated has been duly authenticated and delivered hereunder
      and that the holder is entitled to the benefits of this Indenture.

     

    In
      case
      any officer of the Company who shall have signed any of the Debentures shall
      cease to be such officer before the Debentures so signed shall have been
      authenticated and delivered by the Trustee or the Authenticating Agent, or
      disposed of by the Company, such Debentures nevertheless may be authenticated
      and delivered or disposed of as though the Person who signed such Debentures
      had
      not ceased to be such officer of the Company; and any Debenture may be signed
      on
      behalf of the Company by such Persons as, at the actual date of the execution
      of
      such Debenture, shall be the proper officers of the Company, although at the
      date of the execution of this Indenture any such person was not such an
      officer.

     

    Every
      Debenture shall be dated the date of its authentication.

     

    Section
      2.5. Exchange
      and Registration of Transfer of Debentures.  

     

    The
      Company shall cause to be kept, at the office or agency maintained for the
      purpose of registration of transfer and for exchange as provided in
      Section 3.2, a register (the “Debenture
      Register”)
      for
      the Debentures issued hereunder in which, subject to such reasonable regulations
      as it may prescribe, the Company shall provide for the registration and transfer
      of all Debentures as in this Article II provided. The Debenture Register
      shall be in written form or in any other form capable of being converted into
      written form within a reasonable time.

     

    Debentures
      to be exchanged may be surrendered at the Principal Office of the Trustee or
      at
      any office or agency to be maintained by the Company for such purpose as
      provided in Section 3.2, and the Company shall execute, the Company or the
      Trustee shall register and the Trustee or the Authenticating Agent shall
      authenticate and make available for delivery in exchange therefor the Debenture
      or Debentures which the Securityholder making the exchange shall be entitled
      to
      receive. Upon due presentment for registration of transfer of any Debenture
      at
      the Principal Office of the Trustee or at any office or agency of the Company
      maintained for such purpose as provided in Section 3.2, the Company shall
      execute, the Company or the Trustee shall register and the Trustee or the
      Authenticating Agent shall authenticate and make available for delivery in
      the
      name of the transferee or transferees a new Debenture for a like aggregate
      principal amount. Registration or registration of transfer of any Debenture
      by
      the Trustee or by any agent of the Company appointed pursuant to
      Section 3.2, and delivery of such Debenture, shall be deemed to complete
      the registration or registration of transfer of such Debenture.

     

    All
      Debentures presented for registration of transfer or for exchange or payment
      shall (if so required by the Company or the Trustee or the Authenticating Agent)
      be duly endorsed by, or be accompanied by a written instrument or instruments
      of
      transfer in form satisfactory to the Company and the Trustee or the
      Authenticating Agent duly executed by the holder or his attorney duly authorized
      in writing.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    No
      service charge shall be made for any exchange or registration of transfer of
      Debentures, but the Company or the Trustee may require payment of a sum
      sufficient to cover any tax, fee or other governmental charge that may be
      imposed in connection therewith.

     

    The
      Company or the Trustee shall not be required to exchange or register a transfer
      of any Debenture for a period of 15 days next preceding the date of
      selection of Debentures for redemption.

     

    Notwithstanding
      anything herein to the contrary, Debentures may not be transferred except in
      compliance with the restricted securities legend set forth below, unless
      otherwise determined by the Company, upon the advice of counsel expert in
      securities law, in accordance with applicable law:

     

    THIS
      SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE
      SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
      MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
      DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
      IS
      EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
      ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY
      ITS
      ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
      ONLY
      (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS
      BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE
      SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION
      MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE
      FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A,
      (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
      RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
      SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE
      MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT
      IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
      AN
      INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
      TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
      OF
      THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
      THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S
      RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF
      AN
      OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
      IT IN
      ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE
      COMPANY.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    THE
      HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND
      WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT
      OR
      OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT
      INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE
      INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN
      ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S
      INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY
      ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER
      OR
      HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF
      LABOR
      PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR
      ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS
      NOT
      PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH
      RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY
      OR
      ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND
      HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN
      THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975
      OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN
      EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS
      OF
      ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH
      PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF
      ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE
      STATUTORY OR ADMINISTRATIVE EXEMPTION.

     

    THIS
      SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN
      AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000.00 AND MULTIPLES OF
      $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK
      HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED
      TO
      BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

     

    THE
      HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
      RESTRICTIONS.

     

    THIS
      SECURITY IS IN REGISTERED FORM WITHIN THE MEANING OF TREASURY REGULATIONS
      SECTION 1.871-14(c)(1)(i) FOR U.S. FEDERAL INCOME AND WITHHOLDING TAX
      PURPOSES.

     

    IN
      CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
      TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY
      THE
      INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
      RESTRICTIONS.

     

    Section
      2.6. Mutilated,
      Destroyed, Lost or Stolen Debentures.
      In case
      any Debenture shall become mutilated or be destroyed, lost or stolen, the
      Company shall execute, and upon its written request the Trustee shall
      authenticate and deliver, a new Debenture bearing a number not contemporaneously
      outstanding, in exchange and substitution for the mutilated Debenture, or in
      lieu of and in substitution for the Debenture so destroyed, lost or stolen.
      In
      every case the applicant for a substituted Debenture shall furnish to the
      Company and the Trustee such security or indemnity as may be required by them
      to
      save each of them harmless, and, in every case of destruction, loss or theft,
      the applicant shall also furnish to the Company and the Trustee evidence to
      their satisfaction of the destruction, loss or theft of such Debenture and
      of
      the ownership thereof.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    The
      Trustee may authenticate any such substituted Debenture and deliver the same
      upon the written request or authorization of any officer of the Company. Upon
      the issuance of any substituted Debenture, the Company may require the payment
      of a sum sufficient to cover any tax or other governmental charge that may
      be
      imposed in relation thereto and any other expenses connected therewith. In
      case
      any Debenture which has matured or is about to mature or has been called for
      redemption in full shall become mutilated or be destroyed, lost or stolen,
      the
      Company may, instead of issuing a substitute Debenture, pay or authorize the
      payment of the same (without surrender thereof except in the case of a mutilated
      Debenture) if the applicant for such payment shall furnish to the Company and
      the Trustee such security or indemnity as may be required by them to save each
      of them harmless and, in case of destruction, loss or theft, evidence
      satisfactory to the Company and to the Trustee of the destruction, loss or
      theft
      of such Debenture and of the ownership thereof.

     

    Every
      substituted Debenture issued pursuant to the provisions of this Section 2.6
      by virtue of the fact that any such Debenture is destroyed, lost or stolen
      shall
      constitute an additional contractual obligation of the Company, whether or
      not
      the destroyed, lost or stolen Debenture shall be found at any time, and shall
      be
      entitled to all the benefits of this Indenture equally and proportionately
      with
      any and all other Debentures duly issued hereunder. All Debentures shall be
      held
      and owned upon the express condition that, to the extent permitted by applicable
      law, the foregoing provisions are exclusive with respect to the replacement
      or
      payment of mutilated, destroyed, lost or stolen Debentures and shall preclude
      any and all other rights or remedies notwithstanding any law or statute existing
      or hereafter enacted to the contrary with respect to the replacement or payment
      of negotiable instruments or other securities without their
      surrender.

     

    Section
      2.7. Temporary
      Debentures.
      Pending
      the preparation of definitive Debentures, the Company may execute and the
      Trustee shall authenticate and make available for delivery temporary Debentures
      that are typed, printed or lithographed. Temporary Debentures shall be issuable
      in any authorized denomination, and substantially in the form of the definitive
      Debentures in lieu of which they are issued but with such omissions, insertions
      and variations as may be appropriate for temporary Debentures, all as may be
      determined by the Company. Every such temporary Debenture shall be executed
      by
      the Company and be authenticated by the Trustee upon the same conditions and
      in
      substantially the same manner, and with the same effect, as the definitive
      Debentures. Without unreasonable delay the Company will execute and deliver
      to
      the Trustee or the Authenticating Agent definitive Debentures and thereupon
      any
      or all temporary Debentures may be surrendered in exchange therefor, at the
      principal corporate trust office of the Trustee or at any office or agency
      maintained by the Company for such purpose as provided in Section 3.2, and
      the Trustee or the Authenticating Agent shall authenticate and make available
      for delivery in exchange for such temporary Debentures a like aggregate
      principal amount of such definitive Debentures. Such exchange shall be made
      by
      the Company at its own expense and without any charge therefor except that
      in
      case of any such exchange involving a registration of transfer the Company
      may
      require payment of a sum sufficient to cover any tax, fee or other governmental
      charge that may be imposed in relation thereto. Until so exchanged, the
      temporary Debentures shall in all respects be entitled to the same benefits
      under this Indenture as definitive Debentures authenticated and delivered
      hereunder.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    Section
      2.8. Payment
      of Interest and Additional Interest.
      Interest at the Interest Rate and any Additional Interest on any Debenture
      that
      is payable, and is punctually paid or duly provided for, on any Interest Payment
      Date for Debentures shall be paid to the Person in whose name said Debenture
      (or
      one or more Predecessor Securities) is registered at the close of business
      on
      the regular record date for such interest installment except that interest
      and
      any Additional Interest payable on the Maturity Date shall be paid to the Person
      to whom principal is paid. 

     

    Each
      Debenture shall bear interest for the period beginning on (and including) the
      date of original issuance and ending on (but excluding) the Interest Payment
      Date in September 2011 at a rate per annum of 8.83%, and shall bear interest
      for
      each successive Distribution Period beginning or after the Interest Payment
      Date
      in September 2011 at a rate per annum equal to the 3-Month LIBOR, determined
      as
      described in Section 2.10, plus 3.30% (the “Coupon
      Rate”),
      applied to the principal amount thereof, until the principal thereof becomes
      due
      and payable, and on any overdue principal and to the extent that payment of
      such
      interest is enforceable under applicable law (without duplication) on any
      overdue installment of interest (including Additional Interest) at the Interest
      Rate in effect for each applicable period compounded quarterly. Interest shall
      be payable (subject to any relevant Extension Period) quarterly in arrears
      on
      each Interest Payment Date with the first installment of interest to be paid
      on
      the Interest Payment Date in September 2006.

     

    Any
      interest on any Debenture, including Additional Interest, that is payable,
      but
      is not punctually paid or duly provided for, on any Interest Payment Date
      (herein called “Defaulted
      Interest”)
      shall
      forthwith cease to be payable to the registered holder on the relevant regular
      record date by virtue of having been such holder; and such Defaulted Interest
      shall be paid by the Company to the Persons in whose names such Debentures
      (or
      their respective Predecessor Securities) are registered at the close of business
      on a special record date for the payment of such Defaulted Interest, which
      shall
      be fixed in the following manner: the Company shall notify the Trustee in
      writing at least 25 days prior to the date of the proposed payment of the amount
      of Defaulted Interest proposed to be paid on each such Debenture and the date
      of
      the proposed payment, and at the same time the Company shall deposit with the
      Trustee an amount of money equal to the aggregate amount proposed to be paid
      in
      respect of such Defaulted Interest or shall make arrangements satisfactory
      to
      the Trustee for such deposit prior to the date of the proposed payment, such
      money when deposited to be held in trust for the benefit of the Persons entitled
      to such Defaulted Interest as in this clause provided. Thereupon the Trustee
      shall fix a special record date for the payment of such Defaulted Interest
      which
      shall not be more than 15 nor less than 10 days prior to the date of the
      proposed payment and not less than 10 days after the receipt by the Trustee
      of
      the notice of the proposed payment. The Trustee shall promptly notify the
      Company of such special record date and, in the name and at the expense of
      the
      Company, shall cause notice of the proposed payment of such Defaulted Interest
      and the special record date therefor to be mailed, first class postage prepaid,
      to each Securityholder at its address as it appears in the Debenture Register,
      not less than 10 days prior to such special record date. Notice of the proposed
      payment of such Defaulted Interest and the special record date therefor having
      been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons
      in whose names such Debentures (or their respective Predecessor Securities)
      are
      registered on such special record date and shall be no longer
      payable.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    The
      Company may make payment of any Defaulted Interest on any Debentures in any
      other lawful manner after notice given by the Company to the Trustee of the
      proposed payment method; provided,
      however,
      the
      Trustee in its sole discretion deems such payment method to be
      practical.

     

    Any
      interest (including Additional Interest) scheduled to become payable on an
      Interest Payment Date occurring during an Extension Period shall not be
      Defaulted Interest and shall be payable on such other date as may be specified
      in the terms of such Debentures.

     

    The
      term
“regular record date” as used in this Section shall mean the close of business
      on the 15th
      calendar
      day next preceding the applicable Interest Payment Date.

     

    Subject
      to the foregoing provisions of this Section, each Debenture delivered under
      this
      Indenture upon registration of transfer of or in exchange for or in lieu of
      any
      other Debenture shall carry the rights to interest accrued and unpaid, and
      to
      accrue, that were carried by such other Debenture.

     

    Section
      2.9. Cancellation
      of Debentures Paid, etc.
      All
      Debentures surrendered for the purpose of payment, redemption, exchange or
      registration of transfer, shall, if surrendered to the Company or any paying
      agent, be surrendered to the Trustee and promptly canceled by it, or, if
      surrendered to the Trustee or any Authenticating Agent, shall be promptly
      canceled by it, and no Debentures shall be issued in lieu thereof except as
      expressly permitted by any of the provisions of this Indenture. All Debentures
      canceled by any Authenticating Agent shall be delivered to the Trustee. The
      Trustee shall destroy all canceled Debentures unless the Company otherwise
      directs the Trustee in writing. If the Company shall acquire any of the
      Debentures, however, such acquisition shall not operate as a redemption or
      satisfaction of the indebtedness represented by such Debentures unless and
      until
      the same are surrendered to the Trustee for cancellation.

     

    Section
      2.10. Computation
      of Interest.
      The
      amount of interest payable (i) for any Distribution Period commencing on or
      after the date of original issuance but before the Interest Payment Date in
      September 2011 will be computed on the basis of a 360-day year of twelve 30-day
      months, it being understood that if a Distribution is payable on a non Business
      Day, and the Distribution Payment Date is on the next succeeding Business Day,
      no additional interest or other Distributions shall accrue in respect of any
      such delay, and (ii) for the Distribution Period commencing on the Interest
      Payment Date in September 2011 and each succeeding Distribution Period will
      be
      calculated by applying the Interest Rate to the principal amount outstanding
      at
      the commencement of the Distribution Period and multiplying each such amount
      by
      the actual number of days in the Distribution Period concerned divided by 360.
      All percentages resulting from any calculations on the Debentures will be
      rounded, if necessary, to the nearest one hundred-thousandth of a percentage
      point, with five one-millionths of a percentage point rounded upward (e.g.,
      9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar
      amounts used in or resulting from such calculation will be rounded to the
      nearest cent (with one-half cent being rounded upward)).

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (a) “3-Month
      LIBOR”
means
      the London interbank offered interest rate for three-month, U.S. dollar deposits
      determined by the Trustee in the following order of priority:

     

    (1) the
      rate
      (expressed as a percentage per annum) for U.S. dollar deposits having a
      three-month maturity that appears on Telerate Page 3750 as of
      11:00 a.m. (London time) on the related Determination Date (as defined
      below). “Telerate Page 3750” means the display designated as
“Page 3750” on the Moneyline Telerate Service or such other page as may
      replace Page 3750 on that service or such other service or services as may
      be nominated by the British Bankers’ Association as the information vendor for
      the purpose of displaying London interbank offered rates for U.S. dollar
      deposits;

     

    (2) if
      such
      rate cannot be identified on the related Determination Date, the Trustee will
      request the principal London offices of four leading banks in the London
      interbank market to provide such banks’ offered quotations (expressed as
      percentages per annum) to prime banks in the London interbank market for U.S.
      dollar deposits having a three-month maturity as of 11:00 a.m. (London
      time) on such Determination Date. If at least two quotations are provided,
      3-Month LIBOR will be the arithmetic mean of such quotations;

     

    (3) if
      fewer
      than two such quotations are provided as requested in clause (2) above, the
      Trustee will request four major New York City banks to provide such banks’
offered quotations (expressed as percentages per annum) to leading European
      banks for loans in U.S. dollars as of 11:00 a.m. (London time) on such
      Determination Date. If at least two such quotations are provided, 3-Month LIBOR
      will be the arithmetic mean of such quotations; and

     

    (4) if
      fewer
      than two such quotations are provided as requested in clause (3) above,
      3-Month LIBOR will be a 3-Month LIBOR determined with respect to the
      Distribution Period immediately preceding such current Distribution
      Period.

     

    If
      the
      rate for U.S. dollar deposits having a three-month maturity that initially
      appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the
      related Determination Date is superseded on the Telerate Page 3750 by a
      corrected rate by 12:00 noon (London time) on such Determination Date, then
      the corrected rate as so substituted on the applicable page will be the
      applicable 3-Month LIBOR for such Determination Date.

     

    (b) The
      Interest Rate for any Distribution Period will at no time be higher than the
      maximum rate then permitted by New York law as the same may be modified by
      United States law.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (c) “Determination
      Date”
means
      the date that is two London Banking Days (i.e., a business day in which dealings
      in deposits in U.S. dollars are transacted in the London interbank market)
      preceding the particular Distribution Period for which a Coupon Rate is being
      determined.

     

    (d) The
      Trustee shall notify the Company, the Institutional Trustee and any securities
      exchange or interdealer quotation system on which the Capital Securities are
      listed, of the Coupon Rate and the Determination Date for each Distribution
      Period, in each case as soon as practicable after the determination thereof
      but
      in no event later than the thirtieth (30th) day of the relevant Distribution
      Period. Failure to notify the Company, the Institutional Trustee or any
      securities exchange or interdealer quotation system, or any defect in said
      notice, shall not affect the obligation of the Company to make payment on the
      Debentures at the applicable Coupon Rate. Any error in the calculation of the
      Coupon Rate by the Trustee may be corrected at any time by notice delivered
      as
      above provided. Upon the request of a holder of a Debenture, the Trustee shall
      provide the Coupon Rate then in effect and, if determined, the Coupon Rate
      for
      the next Distribution Period.

     

    (e) Subject
      to the corrective rights set forth above, all certificates, communications,
      opinions, determinations, calculations, quotations and decisions given,
      expressed, made or obtained for the purposes of the provisions relating to
      the
      payment and calculation of interest on the Debentures and distributions on
      the
      Capital Securities by the Trustee or the Institutional Trustee will (in the
      absence of willful default, bad faith and manifest error) be final, conclusive
      and binding on the Trust, the Company and all of the holders of the Debentures
      and the Capital Securities, and no liability shall (in the absence of willful
      default, bad faith or manifest error) attach to the Trustee or the Institutional
      Trustee in connection with the exercise or non-exercise by either of them of
      their respective powers, duties and discretion.

     

    Section
      2.11. Extension
      of Interest Payment Period.
      So long
      as no Event of Default has occurred and is continuing, the Company shall have
      the right, from time to time, and without causing an Event of Default, to defer
      payments of interest on the Debentures by extending the interest payment period
      on the Debentures at any time and from time to time during the term of the
      Debentures, for up to 20 consecutive quarterly periods (each such extended
      interest payment period, an “Extension
      Period”),
      during which Extension Period no interest (including Additional Interest) shall
      be due and payable (except any Additional Sums that may be due and payable).
      No
      Extension Period may end on a date other than an Interest Payment Date. During
      an Extension Period, interest will continue to accrue on the Debentures, and
      interest on such accrued interest will accrue at an annual rate equal to the
      Interest Rate in effect for such Extension Period, compounded quarterly from
      the
      date such interest would have been payable were it not for the Extension Period,
      to the extent permitted by law (such interest referred to herein as
“Additional
      Interest”).
      At
      the end of any such Extension Period the Company shall pay all interest then
      accrued and unpaid on the Debentures (together with Additional Interest
      thereon); provided,
      however,
      that no
      Extension Period may extend beyond the Maturity Date; provided further,
      however,
      that
      during any such Extension Period, the Company shall not and shall not permit
      any
      Affiliate of the Company controlled by the Company to (i) declare or pay
      any dividends or distributions on, or redeem, purchase, acquire, or make a
      liquidation payment with respect to, any of the Company’s or such Affiliate’s
      capital stock (other than payments of dividends or distributions to the Company
      or a Subsidiary of the Company) or make any guarantee payments with respect
      to
      the foregoing, (ii) make any payment of principal of or interest or
      premium, if any, on or repay, repurchase or redeem any debt securities of the
      Company or any Affiliate of the Company controlled by the Company that rank
      pari
      passu
      in all
      respects with or junior in interest to the Debentures or (iii) enter into any
      contracts with shareholders holding more than 10% of the outstanding shares
      of
      common stock of the Company, unless such contract is entered into on an arm’s
      length basis in the ordinary course of business (other than, with respect to
      clauses (i) and (ii) above, (a) repurchases, redemptions or other
      acquisitions of shares of capital stock of the Company or any Subsidiary of
      the
      Company in connection with any employment contract, benefit plan or other
      similar arrangement with or for the benefit of one or more employees, officers,
      directors or consultants, in connection with a dividend reinvestment or
      stockholder stock purchase plan or in connection with the issuance of capital
      stock of the Company or of such Subsidiary (or securities convertible into
      or
      exercisable for such capital stock) as consideration in an acquisition
      transaction entered into prior to the applicable Extension Period, (b) as a
      result of any exchange or conversion of any class or series of the Company’s
      capital stock (or any capital stock of a Subsidiary of the Company) for any
      class or series of the Company’s capital stock (or in the case of a Subsidiary
      of the Company, any class or series of such Subsidiary’s capital stock) or of
      any class or series of the Company’s indebtedness for any class or series of the
      Company’s capital stock (or in the case of indebtedness of a Subsidiary of the
      Company, of any class or series of such Subsidiary’s indebtedness for any class
      or series of such Subsidiary’s capital stock), (c) the purchase of
      fractional interests in shares of the Company’s capital stock (or the capital
      stock of a Subsidiary of the Company) pursuant to the conversion or exchange
      provisions of such capital stock or the security being converted or exchanged,
      (d) any declaration of a dividend in connection with any stockholders’
rights plan, or the issuance of rights, stock or other property under any
      stockholders’ rights plan, or the redemption or repurchase of rights pursuant
      thereto, (e) any dividend in the form of stock, warrants, options or other
      rights where the dividend stock or the stock issuable upon exercise of such
      warrants, options or other rights is the same stock as that on which the
      dividend is being paid or ranks pari
      passu
      with or
      junior to such stock and any cash payments in lieu of fractional shares issued
      in connection therewith, or (f) payments under the Capital Securities
      Guarantee). Prior to the termination of any Extension Period, the Company may
      further extend such period, provided that such period together with all such
      previous and further consecutive extensions thereof shall not exceed
      20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon
      the termination of any Extension Period and upon the payment of all accrued
      and
      unpaid interest and Additional Interest, the Company may commence a new
      Extension Period, subject to the foregoing requirements. No interest or
      Additional Interest shall be due and payable during an Extension Period, except
      at the end thereof, but each installment of interest that would otherwise have
      been due and payable during an Extension Period shall bear Additional Interest
      to the extent permitted by applicable law. The Company must give the Trustee
      notice of its election to begin or extend an Extension Period at least 5
      Business Days prior to the regular record date (as such term is used in Section
      2.8) immediately preceding the Interest Payment Date with respect to which
      interest on the Debentures would have been payable except for the election
      to
      begin or extend an Extension Period. The Trustee shall give notice of the
      Company’s election to begin a new Extension Period to the
      Securityholders.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    Section
      2.12. CUSIP
      Numbers.
      The
      Company in issuing the Debentures may use “CUSIP” numbers (if then generally in
      use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption
      as a convenience to Securityholders; provided,
      however,
      that
      any such notice may state that no representation is made as to the correctness
      of such numbers either as printed on the Debentures or as contained in any
      notice of a redemption and that reliance may be placed only on the other
      identification numbers printed on the Debentures, and any such redemption shall
      not be affected by any defect in or omission of such numbers. The Company will
      promptly notify the Trustee in writing of any change in the CUSIP
      numbers.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    Section
      2.13 Ranking.
      The
      Company’s obligations in respect of the Debentures shall rank pari passu with
      the Company’s obligations under (i) the Indenture dated as of March 17, 2005, in
      respect of the Company’s Fixed/Floating Rate Junior Subordinated Deferrable
      Interest Debenture due 2035 issued thereunder and under the Guarantee Agreement
      by and between the Company and Wilmington Trust Company, dated as of March
      17,
      2005, and (ii) the Indenture dated as of June 15, 2005, in respect of the
      Company’s Fixed/Floating Rate Junior Subordinated Deferrable Interest Debenture
      due 2035 issued thereunder and under the Guarantee Agreement by and between
      the
      Company and Wilmington Trust Company, dated as of June 15, 2005.

     

    ARTICLE
      III.

    PARTICULAR
      COVENANTS OF THE COMPANY

     

    Section
      3.1. Payment
      of Principal, Premium and Interest; Agreed Treatment of the
      Debentures.

     

    (a) The
      Company covenants and agrees that it will duly and punctually pay or cause
      to be
      paid the principal of and premium, if any, and interest and any Additional
      Interest and other payments on the Debentures at the place, at the respective
      times and in the manner provided in this Indenture and the Debentures. Each
      installment of interest on the Debentures may be paid (i) by mailing checks
      for such interest payable to the order of the holders of Debentures entitled
      thereto as they appear on the registry books of the Company if a request for
      a
      wire transfer has not been received by the Company or (ii) by wire transfer
      to any account with a banking institution located in the United States
      designated in writing by such Person to the paying agent no later than the
      related record date. Notwithstanding the foregoing, so long as the holder of
      this Debenture is the Institutional Trustee, the payment of the principal of
      and
      interest on this Debenture will be made in immediately available funds at such
      place and to such account as may be designated by the Institutional
      Trustee.

     

    (b) The
      Company will treat the Debentures as indebtedness of the Company that is in
      registered form within the meaning of Treasury Regulations Section
      1.871-14(c)(1)(i). The Company will further treat the amounts payable in respect
      of the principal amount of such Debentures as interest for all United States
      federal income and withholding tax purposes. All interest payments in respect
      of
      such Debentures will be made free and clear of United States withholding tax
      to
      any beneficial owner thereof that has provided an Internal Revenue Service
      Form
      W-8BEN (or any substitute or successor form) establishing its non-United States
      status for United States federal income and withholding tax
      purposes.

     

    (c) As
      of the
      date of this Indenture, the Company has no present intention to exercise its
      right under 0
      to defer
      payments of interest on the Debentures by commencing an Extension
      Period.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (d) As
      of the
      date of this Indenture, the Company believes that the likelihood that it would
      exercise its right under 0
      to defer
      payments of interest on the Debentures by commencing an Extension Period at
      any
      time during which the Debentures are outstanding is remote because of the
      restrictions that would be imposed on the Company’s ability to declare or pay
      dividends or distributions on, or to redeem, purchase or make a liquidation
      payment with respect to, any of its outstanding equity and on the Company’s
      ability to make any payments of principal of or interest on, or repurchase
      or
      redeem, any of its debt securities that rank pari
      passu
      in all
      respects with (or junior in interest to) the Debentures.

     

    Section
      3.2. Offices
      for Notices and Payments, etc. So
      long
      as any of the Debentures remain outstanding, the Company will maintain in
      Wilmington, Delaware, an office or agency where the Debentures may be presented
      for payment, an office or agency where the Debentures may be presented for
      registration of transfer and for exchange as in this Indenture provided and
      an
      office or agency where notices and demands to or upon the Company in respect
      of
      the Debentures or of this Indenture may be served. The Company will give to
      the
      Trustee written notice of the location of any such office or agency and of
      any
      change of location thereof. Until otherwise designated from time to time by
      the
      Company in a notice to the Trustee, or specified as contemplated by 0,
      such
      office or agency for all of the above purposes shall be the office or agency
      of
      the Trustee. In case the Company shall fail to maintain any such office or
      agency in Wilmington, Delaware, or shall fail to give such notice of the
      location or of any change in the location thereof, presentations and demands
      may
      be made and notices may be served at the Principal Office of the
      Trustee.

     

    In
      addition to any such office or agency, the Company may from time to time
      designate one or more offices or agencies outside Wilmington, Delaware, where
      the Debentures may be presented for registration of transfer and for exchange
      in
      the manner provided in this Indenture, and the Company may from time to time
      rescind such designation, as the Company may deem desirable or expedient;
provided,
      however,
      that no
      such designation or rescission shall in any manner relieve the Company of its
      obligation to maintain any such office or agency in Wilmington, Delaware, for
      the purposes above mentioned. The Company will give to the Trustee prompt
      written notice of any such designation or rescission thereof.

     

    Section
      3.3. Appointments
      to Fill Vacancies in Trustee’s Office.
      The
      Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
      will appoint, in the manner provided in Section 6.9, a Trustee, so that
      there shall at all times be a Trustee hereunder.

     

    Section
      3.4. Provision
      as to Paying Agent.

     

    (a) If
      the
      Company shall appoint a paying agent other than the Trustee, it will cause
      such
      paying agent to execute and deliver to the Trustee an instrument in which such
      agent shall agree with the Trustee, subject to the provision of this
      Section 3.4,

     

    (1) that
      it
      will hold all sums held by it as such agent for the payment of the principal
      of
      and premium, if any, or interest, if any, on the Debentures (whether such sums
      have been paid to it by the Company or by any other obligor on the Debentures)
      in trust for the benefit of the holders of the Debentures;

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (2) that
      it
      will give the Trustee prompt written notice of any failure by the Company (or
      by
      any other obligor on the Debentures) to make any payment of the principal of
      and
      premium, if any, or interest, if any, on the Debentures when the same shall
      be
      due and payable; and

     

    (3) that
      it
      will, at any time during the continuance of any Event of Default, upon the
      written request of the Trustee, forthwith pay to the Trustee all sums so held
      in
      trust by such paying agent.

     

    (b) If
      the
      Company shall act as its own paying agent, it will, on or before each due date
      of the principal of and premium, if any, or interest or other payments, if
      any,
      on the Debentures, set aside, segregate and hold in trust for the benefit of
      the
      holders of the Debentures a sum sufficient to pay such principal, premium,
      interest or other payments so becoming due and will notify the Trustee in
      writing of any failure to take such action and of any failure by the Company
      (or
      by any other obligor under the Debentures) to make any payment of the principal
      of and premium, if any, or interest or other payments, if any, on the Debentures
      when the same shall become due and payable.

     

    Whenever
      the Company shall have one or more paying agents for the Debentures, it will,
      on
      or prior to each due date of the principal of and premium, if any, or interest,
      if any, on the Debentures, deposit with a paying agent a sum sufficient to
      pay
      the principal, premium, interest or other payments so becoming due, such sum
      to
      be held in trust for the benefit of the Persons entitled thereto and (unless
      such paying agent is the Trustee) the Company shall promptly notify the Trustee
      in writing of its action or failure to act.

     

    (c) Anything
      in this Section 3.4 to the contrary notwithstanding, the Company may, at
      any time, for the purpose of obtaining a satisfaction and discharge with respect
      to the Debentures, or for any other reason, pay, or direct any paying agent
      to
      pay to the Trustee all sums held in trust by the Company or any such paying
      agent, such sums to be held by the Trustee upon the trusts herein
      contained.

     

    (d) Anything
      in this Section 3.4 to the contrary notwithstanding, the agreement to hold
      sums in trust as provided in this Section 3.4 is subject to
      Sections 12.3 and 12.4.

     

    Section
      3.5. Certificate
      to Trustee.
      The
      Company will deliver to the Trustee on or before 120 days after the end of
      each fiscal year, so long as Debentures are outstanding hereunder, a Certificate
      stating that in the course of the performance by the signers of their duties
      as
      officers of the Company they would normally have knowledge of any Default during
      such fiscal year by the Company in the performance of any covenants contained
      herein, stating whether or not they have knowledge of any such Default and,
      if
      so, specifying each such Default of which the signers have knowledge and the
      nature and status thereof.

     

    Section
      3.6. Additional
      Sums.
      If and
      for so long as the Trust or a trustee of the Trust is the holder of all
      Debentures and the Trust is required to pay any additional taxes (excluding
      withholding taxes), duties, assessments or other governmental charges as a
      result of a Tax Event, then the Company will pay such additional amounts
      (“Additional
      Sums”)
      on the
      Debentures as shall be required so that the net amounts received and retained
      by
      the Trust after paying such taxes (excluding withholding taxes), duties,
      assessments or other governmental charges will be equal to the amounts the
      Trust
      would have received if no such taxes (excluding withholding taxes), duties,
      assessments or other governmental charges had been imposed. Whenever in this
      Indenture or the Debentures there is a reference in any context to the payment
      of principal of or interest on the Debentures, such mention shall be deemed
      to
      include mention of payments of the Additional Sums provided for in this
      paragraph to the extent that, in such context, Additional Sums are, were or
      would be payable in respect thereof pursuant to the provisions of this paragraph
      and express mention of the payment of Additional Sums (if applicable) in any
      provisions hereof shall not be construed as excluding Additional Sums in those
      provisions hereof where such express mention is not made; provided,
      however,
      that
      the deferral of the payment of interest during an Extension Period pursuant
      to
      Section 2.11 shall not defer the payment of any Additional Sums that may be
      due and payable.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    Section
      3.7. Compliance
      with Consolidation Provisions.
      The
      Company will not, while any of the Debentures remain outstanding, (a)
      consolidate with, or merge into any other Person, or (b) sell, convey, transfer
      or otherwise dispose of, directly or indirectly through its Subsidiaries, in
      a
      single transaction or in any series of transactions occurring during any
      twelve-month period, more than 70% of its assets, unless in each case of a
      consolidation, merger, sale, conveyance, transfer or other disposition of
      assets, the provisions of Article XI hereof are complied with; provided,
      however,
      that
      any portion of assets (“Excluded
      Assets”)
      constituting portfolio investment assets of any mutual or hedge fund managed
      or
      operated by the Company or a Subsidiary attributable to capital invested in
      such
      mutual or hedge fund by any Person that is not part of the AmTrust Group
      (“Third
      Party Capital”)
      shall
      not be included as part of the Company’s assets for purposes of this Section
      3.7(b), it being understood and agreed that the amount of the Excluded Assets
      shall be determined by multiplying the value of the total portfolio investment
      assets of such mutual or hedge fund (as reflected on the balance sheet included
      in the then most recent consolidated audited financial statements of the Company
      prepared in accordance with United States generally
      accepted accounting principles)
      by a
      fraction, the numerator which shall be the aggregate amount of Third Party
      Capital invested in such mutual or hedge fund and the denominator of which
      shall
      be the total amount of capital invested by all Persons in such mutual or hedge
      fund.

     

    Section
      3.8. Limitation
      on Dividends.
      If
      Debentures are initially issued to the Trust or a trustee of such Trust in
      connection with the issuance of Trust Securities by the Trust (regardless of
      whether Debentures continue to be held by such Trust) and (i) there shall
      have occurred and be continuing an Event of Default, (ii) the Company shall
      be in default with respect to its payment of any obligations under the Capital
      Securities Guarantee, or (iii) the Company shall have given notice of its
      election to defer payments of interest on the Debentures by extending the
      interest payment period as provided herein and such period, or any extension
      thereof, shall be continuing, then the Company shall not, and shall not permit
      any Affiliate of the Company controlled by the Company to, (x) declare or
      pay any dividends or distributions on, or redeem, purchase, acquire, or make
      a
      liquidation payment with respect to, any of the Company’s or such Affiliates’
capital stock (other than payments of dividends or distributions to the Company
      or a Subsidiary of the Company) or make any guarantee payments with respect
      to
      the foregoing, (y) make any payment of principal of or interest or premium,
      if any, on or repay, repurchase or redeem any debt securities of the Company
      or
      any Affiliate of the Company controlled by the Company that rank pari
      passu
      in all
      respects with or junior in interest to the Debentures or (z)
      enter
      into any contracts with shareholders holding more than 10% of the outstanding
      shares of common stock of the Company, unless such contract is entered into
      on
      an arm’s length basis in the ordinary course of business (other than, with
      respect to clauses (x) and (y) above, (1) repurchases, redemptions or other
      acquisitions of shares of capital stock of the Company or any Subsidiary of
      the
      Company in connection with any employment contract, benefit plan or other
      similar arrangement with or for the benefit of one or more employees, officers,
      directors or consultants, in connection with a dividend reinvestment or
      stockholder stock purchase plan or in connection with the issuance of capital
      stock of the Company or of such Subsidiary (or securities convertible into
      or
      exercisable for such capital stock) as consideration in an acquisition
      transaction entered into prior to the applicable Extension Period, (2) as a
      result of any exchange or conversion of any class or series of the Company’s
      capital stock (or any capital stock of a Subsidiary of the Company) for any
      class or series of the Company’s capital stock (or in the case of a Subsidiary
      of the Company, any class or series of such Subsidiary’s capital stock) or of
      any class or series of the Company’s indebtedness for any class or series of the
      Company’s capital stock(or in the case of indebtedness of a Subsidiary of the
      Company, of any class or series of such Subsidiary’s indebtedness for any class
      or series of such Subsidiary’s capital stock), (3) the purchase of
      fractional interests in shares of the Company’s capital stock (or the capital
      stock of a Subsidiary of the Company) pursuant to the conversion or exchange
      provisions of such capital stock or the security being converted or exchanged,
      (4) any declaration of a dividend in connection with any stockholders’
rights plan, or the issuance of rights, stock or other property under any
      stockholders’ rights plan, or the redemption or repurchase of rights pursuant
      thereto, (5) any dividend in the form of stock, warrants, options or other
      rights where the dividend stock or the stock issuable upon exercise of such
      warrants, options or other rights is the same stock as that on which the
      dividend is being paid or ranks pari
      passu
      with or
      junior to such stock and any cash payments in lieu of fractional shares issued
      in connection therewith, or (6) payments under the Capital Securities
      Guarantee).

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    Section
      3.9. Covenants
      as to the Trust.
      For so
      long as the Trust Securities remain outstanding, the Company shall maintain
      100%
      ownership of the Common Securities; provided,
      however,
      that
      any permitted successor of the Company under this Indenture may succeed to
      the
      Company’s ownership of such Common Securities. The Company, as owner of the
      Common Securities, shall, except in connection with a distribution of Debentures
      to the holders of Trust Securities in liquidation of the Trust, the redemption
      of all of the Trust Securities or certain mergers, consolidations or
      amalgamations, each as permitted by the Declaration, cause the Trust (a) to
      remain a statutory trust, (b) to otherwise continue to be classified as a
      grantor trust for United States federal income tax purposes, and (c) to
      cause each holder of Trust Securities to be treated as owning an undivided
      beneficial interest in the Debentures.

     

    Section
      3.10. Additional
      Junior Indebtedness. The
      Company shall not, and it shall not cause or permit any Subsidiary of the
      Company to, incur, issue or be obligated on any Additional Junior Indebtedness,
      either directly or indirectly, by way of guarantee, suretyship or otherwise,
      other than Additional Junior Indebtedness that, by its terms, is expressly
      stated to be either junior and subordinate or pari
      passu
      in all
      respects to the Debentures.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    ARTICLE
      IV.

    SECURITYHOLDERS
      LISTS AND REPORTS

    BY
      THE COMPANY AND THE TRUSTEE

     

    Section
      4.1. Securityholders
      Lists.
      The
      Company covenants and agrees that it will furnish or cause to be furnished
      to
      the Trustee:

     

    (a) on
      each
      regular record date for the Debentures, a list, in such form as the Trustee
      may
      reasonably require, of the names and addresses of the Securityholders of the
      Debentures as of such record date; and

     

    (b) at
      such
      other times as the Trustee may request in writing, within 30 days after the
      receipt by the Company of any such request, a list of similar form and content
      as of a date not more than 15 days prior to the time such list is
      furnished;

     

    except
      that no such lists need be furnished under this Section 4.1 so long as the
      Trustee is in possession thereof by reason of its acting as Debenture
      registrar.

     

    Section
      4.2. Preservation
      and Disclosure of Lists.

     

    (a) The
      Trustee shall preserve, in as current a form as is reasonably practicable,
      all
      information as to the names and addresses of the holders of Debentures
      (1) contained in the most recent list furnished to it as provided in
      Section 4.1 or (2) received by it in the capacity of Debentures
      registrar (if so acting) hereunder. The Trustee may destroy any list furnished
      to it as provided in Section 4.1 upon receipt of a new list so
      furnished.

     

    (b) In
      case
      three or more holders of Debentures (hereinafter referred to as “applicants”)
      apply in writing to the Trustee and furnish to the Trustee reasonable proof
      that
      each such applicant has owned a Debenture for a period of at least 6 months
      preceding the date of such application, and such application states that the
      applicants desire to communicate with other holders of Debentures with respect
      to their rights under this Indenture or under such Debentures and is accompanied
      by a copy of the form of proxy or other communication which such applicants
      propose to transmit, then the Trustee shall within 5 Business Days after the
      receipt of such application, at its election, either:

     

    (1) afford
      such applicants access to the information preserved at the time by the Trustee
      in accordance with the provisions of subsection (a) of this
      Section 4.2, or

     

    (2) inform
      such applicants as to the approximate number of holders of Debentures whose
      names and addresses appear in the information preserved at the time by the
      Trustee in accordance with the provisions of subsection (a) of this
      Section 4.2, and as to the approximate cost of mailing to such
      Securityholders the form of proxy or other communication, if any, specified
      in
      such application.

     

    If
      the
      Trustee shall elect not to afford such applicants access to such information,
      the Trustee shall, upon the written request of such applicants, mail to each
      Securityholder whose name and address appear in the information preserved at
      the
      time by the Trustee in accordance with the provisions of subsection (a) of
      this Section 4.2 a copy of the form of proxy or other communication which
      is specified in such request with reasonable promptness after a tender to the
      Trustee of the material to be mailed and of payment, or provision for the
      payment, of the reasonable expenses of mailing, unless within five days after
      such tender, the Trustee shall mail to such applicants and file with the
      Securities and Exchange Commission, if permitted or required by applicable
      law,
      together with a copy of the material to be mailed, a written statement to the
      effect that, in the opinion of the Trustee, such mailing would be contrary
      to
      the best interests of the holders of all Debentures, as the case may be, or
      would be in violation of applicable law. Such written statement shall specify
      the basis of such opinion. If said Commission, as permitted or required by
      applicable law, after opportunity for a hearing upon the objections specified
      in
      the written statement so filed, shall enter an order refusing to sustain any
      of
      such objections or if, after the entry of an order sustaining one or more of
      such objections, said Commission shall find, after notice and opportunity for
      hearing, that all the objections so sustained have been met and shall enter
      an
      order so declaring, the Trustee shall mail copies of such material to all such
      Securityholders with reasonable promptness after the entry of such order and
      the
      renewal of such tender; otherwise the Trustee shall be relieved of any
      obligation or duty to such applicants respecting their application.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (c) Each
      and
      every holder of Debentures, by receiving and holding the same, agrees with
      Company and the Trustee that neither the Company nor the Trustee nor any paying
      agent shall be held accountable by reason of the disclosure of any such
      information as to the names and addresses of the holders of Debentures in
      accordance with the provisions of subsection (b) of this Section 4.2,
      regardless of the source from which such information was derived, and that
      the
      Trustee shall not be held accountable by reason of mailing any material pursuant
      to a request made under said subsection (b).

     

    ARTICLE
      V.

    REMEDIES
      OF THE TRUSTEE AND SECURITYHOLDERS

    UPON
      AN EVENT OF DEFAULT

     

    Section
      5.1. Events
      of Default. “Event
      of
      Default,” wherever used herein, means any one of the following events (whatever
      the reason for such Event of Default and whether it shall be voluntary or
      involuntary or be effected by operation of law or pursuant to any judgment,
      decree or order of any court or any order, rule or regulation of any
      administrative or governmental body):

     

    (a) the
      Company defaults in the payment of any interest upon any Debenture when it
      becomes due and payable, and fails to cure such default for a period of
      30 days; provided,
      however,
      that a
      valid extension of an interest payment period by the Company in accordance
      with
      the terms of this Indenture shall not constitute a default in the payment of
      interest for this purpose; or

     

    (b) the
      Company defaults in the payment of all or any part of the principal of (or
      premium, if any, on) any Debentures as and when the same shall become due and
      payable either at maturity, upon redemption, by declaration of acceleration
      or
      otherwise; or

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    (c) the
      Company defaults in the performance of, or breaches, any of its covenants or
      agreements in this Indenture or in the terms of the Debentures established
      as
      contemplated in this Indenture (other than a covenant or agreement a default
      in
      whose performance or whose breach is elsewhere in this Section specifically
      dealt with), and continuance of such default or breach for a period of
      60 days after there has been given, by registered or certified mail, to the
      Company by the Trustee or to the Company and the Trustee by the holders of
      at
      least 25% in aggregate principal amount of the outstanding Debentures, a written
      notice specifying such default or breach and requiring it to be remedied and
      stating that such notice is a “Notice of Default” hereunder; or

     

    (d) a
      court
      of competent jurisdiction shall enter a decree or order for relief in respect
      of
      the Company in an involuntary case under any applicable bankruptcy, insolvency,
      reorganization or other similar law now or hereafter in effect, or shall appoint
      a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
      official) of the Company or for any substantial part of its property, or shall
      order the winding-up or liquidation of its affairs and such decree or order
      shall remain unstayed and in effect for a period of 90 consecutive days;
      or

     

    (e) the
      Company shall commence a voluntary case under any applicable bankruptcy,
      insolvency, reorganization or other similar law now or hereafter in effect,
      shall consent to the entry of an order for relief in an involuntary case under
      any such law, or shall consent to the appointment of or taking possession by
      a
      receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
      similar official) of the Company or of any substantial part of its property,
      or
      shall make any general assignment for the benefit of creditors, or shall fail
      generally to pay its debts as they become due; 

     

    (f) the
      Trust
      shall have voluntarily or involuntarily liquidated, dissolved, wound-up its
      business or otherwise terminated its existence except in connection with
      (i) the distribution of the Debentures to holders of the Trust Securities
      in liquidation of their interests in the Trust, (ii) the redemption of all
      of the outstanding Trust Securities or (iii) certain mergers,
      consolidations or amalgamations, each as permitted by the Declaration;
      or

     

    (g) the
      Significant Subsidiaries (as defined in Section 1-02(w) of Regulation S-X
      to the Securities Act (the “Significant Subsidiaries”)) of the Company, in the
      aggregate, (i) fail to offer to renew at least 30% of its business during any
      twelve-month period; or (ii) sell more than 70% of their rights to renew
      insurance policies in one or more transactions during any twelve-month
      period.

     

    If
      an
      Event of Default occurs and is continuing with respect to the Debentures, then,
      and in each and every such case, unless the principal of the Debentures shall
      have already become due and payable, either the Trustee or the holders of not
      less than 25% in aggregate principal amount of the Debentures then outstanding
      hereunder, by notice in writing to the Company (and to the Trustee if given
      by
      Securityholders), may declare the entire principal of the Debentures and the
      interest accrued thereon, if any, to be due and payable immediately, and upon
      any such declaration the same shall become immediately due and
      payable.

     

    The
      foregoing provisions, however, are subject to the condition that if, at any
      time
      after the principal of the Debentures shall have been so declared due and
      payable, and before any judgment or decree for the payment of the moneys due
      shall have been obtained or entered as hereinafter provided, (i) the Company
      shall pay or shall deposit with the Trustee a sum sufficient to pay all matured
      installments of interest upon all the Debentures and the principal of and
      premium, if any, on the Debentures which shall have become due otherwise than
      by
      acceleration (with interest upon such principal and premium, if any, and
      Additional Interest) and such amount as shall be sufficient to cover reasonable
      compensation of the Trustee and each predecessor Trustee, their respective
      agents, attorneys and counsel, and all other amounts due to the Trustee pursuant
      to Section 6.6, if any, and (ii) all Events of Default under this
      Indenture, other than the non-payment of the principal of or premium, if any,
      on
      the Debentures which shall have become due by acceleration, shall have been
      cured, waived or otherwise remedied as provided herein -- then and in every
      such case the holders of a majority in aggregate principal amount of the
      Debentures then outstanding, by written notice to the Company and to the
      Trustee, may waive all defaults and rescind and annul such declaration and
      its
      consequences, but no such waiver or rescission and annulment shall extend to
      or
      shall affect any subsequent default or shall impair any right consequent
      thereon.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    In
      case
      the Trustee shall have proceeded to enforce any right under this Indenture
      and
      such proceedings shall have been discontinued or abandoned because of such
      rescission or annulment or for any other reason or shall have been determined
      adversely to the Trustee, then and in every such case the Company, the Trustee
      and the holders of the Debentures shall be restored respectively to their
      several positions and rights hereunder, and all rights, remedies and powers
      of
      the Company, the Trustee and the holders of the Debentures shall continue as
      though no such proceeding had been taken.

     

    Section
      5.2. Payment
      of Debentures on Default; Suit Therefor.
      The
      Company covenants that upon the occurrence and during the continuation of an
      Event of Default pursuant to Section 5.1(a) or Section 5.1(b) then, upon demand
      of the Trustee, the Company will pay to the Trustee, for the benefit of the
      holders of the Debentures the whole amount that then shall have become due
      and
      payable on all Debentures for principal and premium, if any, or interest, or
      both, as the case may be, with Additional Interest accrued on the Debentures
      (to
      the extent that payment of such interest is enforceable under applicable law
      and, if the Debentures are held by the Trust or a trustee of such Trust, without
      duplication of any other amounts paid by the Trust or a trustee of the Trust
      in
      respect thereof); and, in addition thereto, such further amount as shall be
      sufficient to cover the costs and expenses of collection, including a reasonable
      compensation to the Trustee, its agents, attorneys and counsel, and any other
      amounts due to the Trustee under Section 6.6. In case the Company shall
      fail forthwith to pay such amounts upon such demand, the Trustee, in its own
      name and as trustee of an express trust, shall be entitled and empowered to
      institute any actions or proceedings at law or in equity for the collection
      of
      the sums so due and unpaid, and may prosecute any such action or proceeding
      to
      judgment or final decree, and may enforce any such judgment or final decree
      against the Company or any other obligor on such Debentures and collect in
      the
      manner provided by law out of the property of the Company or any other obligor
      on such Debentures wherever situated the moneys adjudged or decreed to be
      payable.

     

    In
      case
      there shall be pending proceedings for the bankruptcy or for the reorganization
      of the Company or any other obligor on the Debentures under Bankruptcy Law,
      or
      in case a receiver or trustee shall have been appointed for the property of
      the
      Company or such other obligor, or in the case of any other similar judicial
      proceedings relative to the Company or other obligor upon the Debentures, or
      to
      the creditors or property of the Company or such other obligor, the Trustee,
      irrespective of whether the principal of the Debentures shall then be due and
      payable as therein expressed or by declaration of acceleration or otherwise and
      irrespective of whether the Trustee shall have made any demand pursuant to
      the
      provisions of this Section 5.2, shall be entitled and empowered, by
      intervention in such proceedings or otherwise,

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    
      	
            	(a)	
              to
                file and prove a claim or claims for the whole amount of principal
                and
                interest owing and unpaid in respect of the Debentures,
                

            

    

     

    
      	
            	(b)	
              in
                case of any judicial proceedings, (i) to file such proofs of claim
                and
                other papers or documents as may be necessary or advisable in order
                to
                have the claims of the Trustee (including any claim for reasonable
                compensation to the Trustee and each predecessor Trustee, and their
                respective agents, attorneys and counsel, and for reimbursement of
                all
                other amounts due to the Trustee under Section 6.6), and of the
                Securityholders allowed in such judicial proceedings relative to
                the
                Company or any other obligor on the Debentures, or to the creditors
                or
                property of the Company or such other obligor, unless prohibited
                by
                applicable law and regulations and (ii) to vote on behalf of the
                holders
                of the Debentures in any election of a trustee or a standby trustee
                in
                arrangement, reorganization, liquidation or other bankruptcy or insolvency
                proceedings or Person performing similar functions in comparable
                proceedings, 

            

    

     

    
      	
            	(c)	
              to
                collect and receive any moneys or other property payable or deliverable
                on
                any such claims, and 

            

    

     

    
      	
            	(d)	
              to
                distribute the same after the deduction of its charges and
                expenses.

            

    

     

    By
      its
      acceptance of any Debentures, each Securityholder shall be deemed to have
      authorized any receiver, assignee or trustee in bankruptcy or reorganization
      to
      make such payments to the Trustee, and, in the event that the Trustee shall
      consent to the making of such payments directly to the Securityholders, to
      pay
      to the Trustee such amounts as shall be sufficient to cover reasonable
      compensation to the Trustee, each predecessor Trustee and their respective
      agents, attorneys and counsel, and all other amounts due to the Trustee under
      Section 6.6.

     

    Nothing
      herein contained shall be construed to authorize the Trustee to authorize or
      consent to or accept or adopt on behalf of any Securityholder any plan of
      reorganization, arrangement, adjustment or composition affecting the Debentures
      or the rights of any holder thereof or to authorize the Trustee to vote in
      respect of the claim of any Securityholder in any such proceeding.

     

    All
      rights of action and of asserting claims under this Indenture, or under any
      of
      the Debentures, may be enforced by the Trustee without the possession of any
      of
      the Debentures, or the production thereof at any trial or other proceeding
      relative thereto, and any such suit or proceeding instituted by the Trustee
      shall be brought in its own name as trustee of an express trust, and, subject
      to
      Section 5.3, any recovery of judgment shall be for the ratable benefit of
      the holders of the Debentures.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    In
      any
      proceedings brought by the Trustee (and also any proceedings involving the
      interpretation of any provision of this Indenture to which the Trustee shall
      be
      a party), the Trustee shall be held to represent all the holders of the
      Debentures, and it shall not be necessary to make any holders of the Debentures
      parties to any such proceedings.

     

    Section
      5.3. Application
      of Moneys Collected by Trustee.
      Any
      moneys collected by the Trustee pursuant to this Article V shall be applied
      in the following order, at the date or dates fixed by the Trustee for the
      distribution of such moneys, upon presentation of the several Debentures in
      respect of which moneys have been collected, and stamping thereon the payment,
      if only partially paid, and upon surrender thereof if fully paid:

     

    First:
      To
      the payment of costs and expenses incurred by, and reasonable fees of, the
      Trustee, its agents, attorneys and counsel, and of all other amounts due to
      the
      Trustee under Section 6.6;

     

    Second:
      To the payment of all Senior Indebtedness of the Company if and to the extent
      required by Article XV;

     

    Third:
      To
      the payment of the amounts then due and unpaid upon the Debentures for principal
      (and premium, if any), and interest on the Debentures, in respect of which
      or
      for the benefit of which money has been collected, ratably, without preference
      or priority of any kind, according to the amounts due on such Debentures for
      principal (and premium, if any) and interest (including Additional Interest),
      respectively; and

     

    Fourth:
      The balance, if any, to the Company.

     

    Section
      5.4. Proceedings
      by Securityholders.
      No
      holder of any Debenture shall have any right to institute any suit, action
      or
      proceeding for any remedy hereunder, unless such holder previously shall have
      given to the Trustee written notice of an Event of Default with respect to
      the
      Debentures and unless the holders of not less than 25% in aggregate principal
      amount of the Debentures then outstanding shall have given the Trustee a written
      request to institute such action, suit or proceeding and shall have offered
      to
      the Trustee such reasonable indemnity as it may require against the costs,
      expenses and liabilities to be incurred thereby, and the Trustee for
      60 days after its receipt of such notice, request and offer of indemnity
      shall have failed to institute any such action, suit or proceeding.

     

    Notwithstanding
      any other provisions in this Indenture, however, the right of any holder of
      any
      Debenture to receive payment of the principal of, premium, if any, and interest,
      on such Debenture when due, or to institute suit for the enforcement of any
      such
      payment, shall not be impaired or affected without the consent of such holder
      and by accepting a Debenture hereunder it is expressly understood, intended
      and
      covenanted by the taker and holder of every Debenture with every other such
      taker and holder and the Trustee, that no one or more holders of Debentures
      shall have any right in any manner whatsoever by virtue or by availing itself
      of
      any provision of this Indenture to affect, disturb or prejudice the rights
      of
      the holders of any other Debentures, or to obtain or seek to obtain priority
      over or preference to any other such holder, or to enforce any right under
      this
      Indenture, except in the manner herein provided and for the equal, ratable
      and
      common benefit of all holders of Debentures. For the protection and enforcement
      of the provisions of this Section, each and every Securityholder and the Trustee
      shall be entitled to such relief as can be given either at law or in
      equity.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    Section
      5.5. Proceedings
      by Trustee.
      In case
      of an Event of Default hereunder the Trustee may in its discretion proceed
      to
      protect and enforce the rights vested in it by this Indenture by such
      appropriate judicial proceedings as the Trustee shall deem most effectual to
      protect and enforce any of such rights, either by suit in equity or by action
      at
      law or by proceeding in bankruptcy or otherwise, whether for the specific
      enforcement of any covenant or agreement contained in this Indenture or in
      aid
      of the exercise of any power granted in this Indenture, or to enforce any other
      legal or equitable right vested in the Trustee by this Indenture or by
      law.

     

    Section
      5.6. Remedies
      Cumulative and Continuing; Delay or Omission Not a
      Waiver.
      Except
      as otherwise provided in Section 2.6 with respect to the replacement of
      mutilated, destroyed, lost or stolen Debentures, all powers and remedies given
      by this Article V to the Trustee or to the Securityholders shall, to the
      extent permitted by law, be deemed cumulative and not exclusive of any other
      powers and remedies available to the Trustee or the holders of the Debentures,
      by judicial proceedings or otherwise, to enforce the performance or observance
      of the covenants and agreements contained in this Indenture or otherwise
      established with respect to the Debentures, and no delay or omission of the
      Trustee or of any holder of any of the Debentures to exercise any right, remedy
      or power accruing upon any Event of Default occurring and continuing as
      aforesaid shall impair any such right, remedy or power, or shall be construed
      to
      be a waiver of any such default or an acquiescence therein; and, subject to
      the
      provisions of Section 5.4, every power and remedy given by this
      Article V or by law to the Trustee or to the Securityholders may be
      exercised from time to time, and as often as shall be deemed expedient, by
      the
      Trustee (in accordance with its duties under Section 6.1) or by the
      Securityholders.

     

    No
      delay
      or omission of the Trustee or any Securityholder to exercise any right or remedy
      accruing upon any Event of Default shall impair any such right or remedy or
      constitute a waiver of any such Event of Default or an acquiescence therein.
      Every right and remedy given by this Article or by law to the Trustee or to
      any
      Securityholder may be exercised from time to time, and as often as may be deemed
      expedient, by the Trustee (in accordance with its duties under Section 6.1
      hereof) or by such holder, as the case may be.

     

    Section
      5.7. Direction
      of Proceedings and Waiver of Defaults by Majority of
      Securityholders.
      The
      holders of a majority in aggregate principal amount of the Debentures affected
      (voting as one class) at the time outstanding shall have the right to direct
      the
      time, method, and place of conducting any proceeding for any remedy available
      to
      the Trustee, or exercising any trust or power conferred on the Trustee with
      respect to such Debentures; provided,
      however,
      that
      (subject to the provisions of Section 6.1) the Trustee shall have the right
      to decline to follow any such direction if the Trustee shall determine that
      the
      action so directed would be unjustly prejudicial to the holders not taking
      part
      in such direction or if the Trustee being advised by counsel determines that
      the
      action or proceeding so directed may not lawfully be taken or if a Responsible
      Officer of the Trustee shall determine that the action or proceedings so
      directed would involve the Trustee in personal liability. 

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    The
      holders of a majority in aggregate principal amount of the Debentures at the
      time outstanding may on behalf of the holders of all of the Debentures waive
      (or
      modify any previously granted waiver of) any past default or Event of Default,
      and its consequences, except an Event of Default (a) specified in Sections
      5.1(a) and (b), (b) in respect of covenants or provisions hereof which
      cannot be modified or amended without the consent of the holder of each
      Debenture affected, or (c) in respect of the covenants contained in
      Section 3.9; provided,
      however,
      that if
      the Debentures are held by the Trust or a trustee of such trust, such waiver
      or
      modification to such waiver shall not be effective until the holders of a
      majority in Liquidation Amount of the Trust Securities shall have consented
      to
      such waiver or modification to such waiver, provided,
      further,
      that if
      the consent of the holder of each outstanding Debenture is required, such waiver
      shall not be effective until each holder of the Trust Securities shall have
      consented to such waiver. Upon any such waiver, the default covered thereby
      shall be deemed to be cured for all purposes of this Indenture and the Company,
      the Trustee and the holders of the Debentures shall be restored to their former
      positions and rights hereunder, respectively; but no such waiver shall extend
      to
      any subsequent or other default or Event of Default or impair any right
      consequent thereon. Whenever any default or Event of Default hereunder shall
      have been waived as permitted by this Section, said default or Event of Default
      shall for all purposes of the Debentures and this Indenture be deemed to have
      been cured and to be not continuing.

     

    Section
      5.8. Notice
      of Defaults.
      The
      Trustee shall, within 90 days after the actual knowledge by a Responsible
      Officer of the Trustee of the occurrence of a default with respect to the
      Debentures, mail to all Securityholders, as the names and addresses of such
      holders appear upon the Debenture Register, notice of all defaults with respect
      to the Debentures known to the Trustee, unless such defaults shall have been
      cured before the giving of such notice (the term “defaults” for the purpose of
      this Section 5.8 being hereby defined to be the events specified in
      clauses (a), (b), (c), (d), (e) and (f) of Section 5.1, not including
      periods of grace, if any, provided for therein); provided,
      however,
      that,
      except in the case of default in the payment of the principal of, premium,
      if
      any, or interest on any of the Debentures, the Trustee shall be protected in
      withholding such notice if and so long as a Responsible Officer of the Trustee
      in good faith determines that the withholding of such notice is in the interests
      of the Securityholders.

     

    Section
      5.9. Undertaking
      to Pay Costs.
      All
      parties to this Indenture agree, and each holder of any Debenture by his
      acceptance thereof shall be deemed to have agreed, that any court may in its
      discretion require, in any suit for the enforcement of any right or remedy
      under
      this Indenture, or in any suit against the Trustee for any action taken or
      omitted by it as Trustee, the filing by any party litigant in such suit of
      an
      undertaking to pay the costs of such suit, and that such court may in its
      discretion assess reasonable costs, including reasonable attorneys’ fees and
      expenses, against any party litigant in such suit, having due regard to the
      merits and good faith of the claims or defenses made by such party litigant;
      provided,
      however,
      that
      the provisions of this Section 5.9 shall not apply to any suit instituted
      by the Trustee, to any suit instituted by any Securityholder, or group of
      Securityholders, holding in the aggregate more than 10% in principal amount
      of
      the Debentures outstanding, or to any suit instituted by any Securityholder
      for
      the enforcement of the payment of the principal of (or premium, if any) or
      interest on any Debenture against the Company on or after the same shall have
      become due and payable.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    ARTICLE
      VI.

    CONCERNING
      THE TRUSTEE

     

    Section
      6.1. Duties
      and Responsibilities of Trustee.
      With
      respect to the holders of Debentures issued hereunder, the Trustee, prior to
      the
      occurrence of an Event of Default with respect to the Debentures and after
      the
      curing or waiving of all Events of Default which may have occurred, with respect
      to the Debentures, undertakes to perform such duties and only such duties as
      are
      specifically set forth in this Indenture, and no implied covenants shall be
      read
      into this Indenture against the Trustee. In case an Event of Default with
      respect to the Debentures has occurred (which has not been cured or waived),
      the
      Trustee shall exercise such of the rights and powers vested in it by this
      Indenture, and use the same degree of care and skill in their exercise, as
      a
      prudent man would exercise or use under the circumstances in the conduct of
      his
      own affairs.

     

    No
      provision of this Indenture shall be construed to relieve the Trustee from
      liability for its own negligent action, its own negligent failure to act or
      its
      own willful misconduct, except that:

     

    (a) prior
      to
      the occurrence of an Event of Default with respect to Debentures and after
      the
      curing or waiving of all Events of Default which may have occurred

     

    (1) the
      duties and obligations of the Trustee with respect to Debentures shall be
      determined solely by the express provisions of this Indenture, and the Trustee
      shall not be liable except for the performance of such duties and obligations
      with respect to the Debentures as are specifically set forth in this Indenture,
      and no implied covenants or obligations shall be read into this Indenture
      against the Trustee, and

     

    (2) in
      the
      absence of bad faith on the part of the Trustee, the Trustee may conclusively
      rely, as to the truth of the statements and the correctness of the opinions
      expressed therein, upon any certificates or opinions furnished to the Trustee
      and conforming to the requirements of this Indenture; but, in the case of any
      such certificates or opinions which by any provision hereof are specifically
      required to be furnished to the Trustee, the Trustee shall be under a duty
      to
      examine the same to determine whether or not they conform to the requirements
      of
      this Indenture;

     

    (b) the
      Trustee shall not be liable for any error of judgment made in good faith by
      a
      Responsible Officer or Officers of the Trustee, unless it shall be proved that
      the Trustee was negligent in ascertaining the pertinent facts; and

     

    (c) the
      Trustee shall not be liable with respect to any action taken or omitted to
      be
      taken by it in good faith, in accordance with the direction of the
      Securityholders pursuant to Section 5.7, relating to the time, method and
      place of conducting any proceeding for any remedy available to the Trustee,
      or
      exercising any trust or power conferred upon the Trustee, under this
      Indenture.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    None
      of
      the provisions contained in this Indenture shall require the Trustee to expend
      or risk its own funds or otherwise incur personal financial liability in the
      performance of any of its duties or in the exercise of any of its rights or
      powers, if there is ground for believing that the repayment of such funds or
      liability is not assured to it under the terms of this Indenture or indemnity
      satisfactory to the Trustee against such risk is not reasonably assured to
      it.

     

    Section
      6.2. Reliance
      on Documents, Opinions, etc.
      Except
      as otherwise provided in Section 6.1:

     

    (a) the
      Trustee may conclusively rely and shall be fully protected in acting or
      refraining from acting upon any resolution, certificate, statement, instrument,
      opinion, report, notice, request, consent, order, bond, note, debenture or
      other
      paper or document believed by it to be genuine and to have been signed or
      presented by the proper party or parties;

     

    (b) any
      request, direction, order or demand of the Company mentioned herein shall be
      sufficiently evidenced by an Officers’ Certificate (unless other evidence in
      respect thereof be herein specifically prescribed); and any Board Resolution
      may
      be evidenced to the Trustee by a copy thereof certified by the Secretary or
      an
      Assistant Secretary of the Company;

     

    (c) the
      Trustee may consult with counsel of its selection and any advice or Opinion
      of
      Counsel shall be full and complete authorization and protection in respect
      of
      any action taken, suffered or omitted by it hereunder in good faith and in
      accordance with such advice or Opinion of Counsel;

     

    (d) the
      Trustee shall be under no obligation to exercise any of the rights or powers
      vested in it by this Indenture at the request, order or direction of any of
      the
      Securityholders, pursuant to the provisions of this Indenture, unless such
      Securityholders shall have offered to the Trustee reasonable security or
      indemnity against the costs, expenses and liabilities which may be incurred
      therein or thereby;

     

    (e) the
      Trustee shall not be liable for any action taken or omitted by it in good faith
      and believed by it to be authorized or within the discretion or rights or powers
      conferred upon it by this Indenture; nothing contained herein shall, however,
      relieve the Trustee of the obligation, upon the occurrence of an Event of
      Default with respect to the Debentures (that has not been cured or waived)
      to
      exercise with respect to Debentures such of the rights and powers vested in
      it
      by this Indenture, and to use the same degree of care and skill in their
      exercise, as a prudent man would exercise or use under the circumstances in
      the
      conduct of his own affairs;

     

    (f) the
      Trustee shall not be bound to make any investigation into the facts or matters
      stated in any resolution, certificate, statement, instrument, opinion, report,
      notice, request, consent, order, approval, bond, debenture, coupon or other
      paper or document, unless requested in writing to do so by the holders of not
      less than a majority in aggregate principal amount of the outstanding Debentures
      affected thereby; provided,
      however,
      that if
      the payment within a reasonable time to the Trustee of the costs, expenses
      or
      liabilities likely to be incurred by it in the making of such investigation
      is,
      in the opinion of the Trustee, not reasonably assured to the Trustee by the
      security afforded to it by the terms of this Indenture, the Trustee may require
      reasonable indemnity against such expense or liability as a condition to so
      proceeding;

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    (g) the
      Trustee may execute any of the trusts or powers hereunder or perform any duties
      hereunder either directly or by or through agents (including any Authenticating
      Agent) or attorneys, and the Trustee shall not be responsible for any misconduct
      or negligence on the part of any such agent or attorney appointed by it with
      due
      care; and

     

    (h) with
      the
      exceptions of defaults under Sections 5.1(a) or 5.1(b), the Trustee shall not
      be
      charged with knowledge of any Default or Event of Default with respect to the
      Debentures unless a written notice of such Default or Event of Default shall
      have been given to the Trustee by the Company or any other obligor on the
      Debentures or by any holder of the Debentures.

     

    Section
      6.3. No
      Responsibility for Recitals, etc.
      The
      recitals contained herein and in the Debentures (except in the certificate
      of
      authentication of the Trustee or the Authenticating Agent) shall be taken as
      the
      statements of the Company, and the Trustee and the Authenticating Agent assume
      no responsibility for the correctness of the same. The Trustee and the
      Authenticating Agent make no representations as to the validity or sufficiency
      of this Indenture or of the Debentures. The Trustee and the Authenticating
      Agent
      shall not be accountable for the use or application by the Company of any
      Debentures or the proceeds of any Debentures authenticated and delivered by
      the
      Trustee or the Authenticating Agent in conformity with the provisions of this
      Indenture.

     

    Section
      6.4. Trustee,
      Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own
      Debentures.
      The
      Trustee or any Authenticating Agent or any paying agent or any transfer agent
      or
      any Debenture registrar, in its individual or any other capacity, may become
      the
      owner or pledgee of Debentures with the same rights it would have if it were
      not
      Trustee, Authenticating Agent, paying agent, transfer agent or Debenture
      registrar.

     

    Section
      6.5. Moneys
      to be Held in Trust.
      Subject
      to the provisions of Section 12.4, all moneys received by the Trustee or
      any paying agent shall, until used or applied as herein provided, be held in
      trust for the purpose for which they were received, but need not be segregated
      from other funds except to the extent required by law. The Trustee and any
      paying agent shall be under no liability for interest on any money received
      by
      it hereunder except as otherwise agreed in writing with the Company. So long
      as
      no Event of Default shall have occurred and be continuing, all interest allowed
      on any such moneys shall be paid from time to time to the Company upon the
      written order of the Company, signed by the Chief Executive Officer, the
      President, a Vice President, the Treasurer or an Assistant Treasurer of the
      Company.

     

    Section
      6.6. Compensation
      and Expenses of Trustee.
      The
      Company covenants and agrees to pay to the Trustee from time to time, and the
      Trustee shall be entitled to, such compensation as shall be agreed to in writing
      between the Company and the Trustee (which shall not be limited by any provision
      of law in regard to the compensation of a trustee of an express trust), and
      the
      Company will pay or reimburse the Trustee upon its request for all reasonable
      expenses, disbursements and advances incurred or made by the Trustee in
      accordance with any of the provisions of this Indenture (including the
      reasonable compensation and the expenses and disbursements of its counsel and
      of
      all Persons not regularly in its employ) except any such expense, disbursement
      or advance as may arise from its negligence or willful misconduct. The Company
      also covenants to indemnify the Trustee and any predecessor Trustee (and its
      officers, agents, directors and employees) for, and to hold it harmless against,
      any and all loss, damage, action, suit, claim, liability, cost or expense
      including taxes (other than taxes based on the income of the Trustee) incurred
      without negligence or willful misconduct on the part of the Trustee and arising
      out of or in connection with the acceptance or administration of this trust,
      including the costs and expenses of defending itself against any claim of
      liability. The obligations of the Company under this Section 6.6 to
      compensate and indemnify the Trustee and to pay or reimburse the Trustee for
      expenses, disbursements and advances shall constitute additional indebtedness
      hereunder. Such additional indebtedness shall be secured by a lien prior to
      that
      of the Debentures upon all property and funds held or collected by the Trustee
      as such, except funds held in trust for the benefit of the holders of particular
      Debentures.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    Without
      prejudice to any other rights available to the Trustee under applicable law,
      when the Trustee incurs expenses or renders services in connection with an
      Event
      of Default specified in Section 5.1(d), Section 5.1(e) or
      Section 5.1(f), the expenses (including the reasonable charges and expenses
      of its counsel) and the compensation for the services are intended to constitute
      expenses of administration under any applicable federal or state bankruptcy,
      insolvency or other similar law.

     

    The
      provisions of this Section shall survive the resignation or removal of the
      Trustee and the defeasance or other termination of this Indenture.

     

    Notwithstanding
      anything in this Indenture or any Debenture to the contrary, the Trustee shall
      have no obligation whatsoever to advance funds to pay any principal of or
      interest on or other amounts with respect to the Debentures or otherwise advance
      funds to or on behalf of the Company.

     

    Section
      6.7. Officers’
      Certificate as Evidence.
      Except
      as otherwise provided in Sections 6.1 and 6.2, whenever in the
      administration of the provisions of this Indenture the Trustee shall deem it
      necessary or desirable that a matter be proved or established prior to taking
      or
      omitting any action hereunder, such matter (unless other evidence in respect
      thereof be herein specifically prescribed) may, in the absence of negligence
      or
      willful misconduct on the part of the Trustee, be deemed to be conclusively
      proved and established by an Officers’ Certificate delivered to the Trustee, and
      such certificate, in the absence of negligence or willful misconduct on the
      part
      of the Trustee, shall be full warrant to the Trustee for any action taken or
      omitted by it under the provisions of this Indenture upon the faith
      thereof.

     

    Section
      6.8. Eligibility
      of Trustee.
      The
      Trustee hereunder shall at all times be a banking corporation or national
      association organized and doing business under the laws of the United States
      of
      America or any state or territory thereof or of the District of Columbia
      authorized under such laws to exercise corporate trust powers, having (or whose
      obligations under this Indenture are guaranteed by an affiliate having) a
      combined capital and surplus of at least fifty million U.S. dollars
      ($50,000,000.00) and subject to supervision or examination by federal, state,
      territorial, or District of Columbia authority. If such corporation or national
      association publishes reports of condition at least annually, pursuant to law
      or
      to the requirements of the aforesaid supervising or examining authority, then
      for the purposes of this Section 6.8 the combined capital and surplus of
      such corporation or national association shall be deemed to be its combined
      capital and surplus as set forth in its most recent records of condition so
      published.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    The
      Company may not, nor may any Person directly or indirectly controlling,
      controlled by, or under common control with the Company, serve as
      Trustee.

     

    In
      case
      at any time the Trustee shall cease to be eligible in accordance with the
      provisions of this Section 6.8, the Trustee shall resign immediately in the
      manner and with the effect specified in Section 6.9.

     

    If
      the
      Trustee has or shall acquire any “conflicting interest” within the meaning of
§310(b) of the Trust Indenture Act of 1939, the Trustee shall either eliminate
      such interest or resign, to the extent and in the manner described by this
      Indenture.

     

    Section
      6.9. Resignation
      or Removal of Trustee.

     

    (a) The
      Trustee, or any trustee or trustees hereafter appointed, may at any time resign
      by giving written notice of such resignation to the Company and by mailing
      notice thereof, at the Company’s expense, to the holders of the Debentures at
      their addresses as they shall appear on the Debenture Register. Upon receiving
      such notice of resignation, the Company shall promptly appoint a successor
      trustee or trustees by written instrument, in duplicate, executed by order
      of
      its Board of Directors, one copy of which instrument shall be delivered to
      the
      resigning Trustee and one copy to the successor Trustee. If no successor Trustee
      shall have been so appointed and have accepted appointment within 30 days after
      the mailing of such notice of resignation to the affected Securityholders,
      the
      resigning Trustee may petition any court of competent jurisdiction for the
      appointment of a successor Trustee, or any Securityholder who has been a bona
      fide holder of a Debenture or Debentures for at least six months may, subject
      to
      the provisions of Section 5.9, on behalf of himself and all others
      similarly situated, petition any such court for the appointment of a successor
      Trustee. Such court may thereupon, after such notice, if any, as it may deem
      proper and prescribe, appoint a successor Trustee.

     

    (b) In
      case
      at any time any of the following shall occur --

     

    (1) the
      Trustee shall fail to comply with the provisions of Section 6.8 after
      written request therefor by the Company or by any Securityholder who has been
      a
      bona fide holder of a Debenture or Debentures for at least 6 months,
      or

     

    (2) the
      Trustee shall cease to be eligible in accordance with the provisions of
      Section 6.8 and shall fail to resign after written request therefor by the
      Company or by any such Securityholder, or

     

    (3) the
      Trustee shall become incapable of acting, or shall be adjudged a bankrupt or
      insolvent, or a receiver of the Trustee or of its property shall be appointed,
      or any public officer shall take charge or control of the Trustee or of its
      property or affairs for the purpose of rehabilitation, conservation or
      liquidation, 

     

    then,
      in
      any such case, the Company may remove the Trustee and appoint a successor
      Trustee by written instrument, in duplicate, executed by order of the Board
      of
      Directors, one copy of which instrument shall be delivered to the Trustee so
      removed and one copy to the successor Trustee, or, subject to the provisions
      of
      Section 5.9, any Securityholder who has been a bona fide holder of a
      Debenture or Debentures for at least 6 months may, on behalf of himself and
      all others similarly situated, petition any court of competent jurisdiction
      for
      the removal of the Trustee and the appointment of a successor Trustee. Such
      court may thereupon, after such notice, if any, as it may deem proper and
      prescribe, remove the Trustee and appoint a successor Trustee.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    (c) Upon
      prior written notice to the Company and the Trustee, the holders of a majority
      in aggregate principal amount of the Debentures at the time outstanding may
      at
      any time remove the Trustee and nominate a successor Trustee, which shall be
      deemed appointed as successor Trustee unless within 10 Business Days after
      such
      nomination the Company objects thereto, in which case, or in the case of a
      failure by such holders to nominate a successor Trustee, the Trustee so removed
      or any Securityholder, upon the terms and conditions and otherwise as in
      subsection (a) of this Section 6.9 provided, may petition any court of
      competent jurisdiction for an appointment of a successor Trustee.

     

    (d) Any
      resignation or removal of the Trustee and appointment of a successor Trustee
      pursuant to any of the provisions of this Section shall become effective upon
      acceptance of appointment by the successor Trustee as provided in
      Section 6.10.

     

    Section
      6.10. Acceptance
      by Successor Trustee.
      Any
      successor Trustee appointed as provided in Section 6.9 shall execute,
      acknowledge and deliver to the Company and to its predecessor Trustee an
      instrument accepting such appointment hereunder, and thereupon the resignation
      or removal of the retiring Trustee shall become effective and such successor
      Trustee, without any further act, deed or conveyance, shall become vested with
      all the rights, powers, duties and obligations with respect to the Debentures
      of
      its predecessor hereunder, with like effect as if originally named as Trustee
      herein; but, nevertheless, on the written request of the Company or of the
      successor Trustee, the Trustee ceasing to act shall, upon payment of any amounts
      then due it pursuant to the provisions of Section 6.6, execute and deliver
      an instrument transferring to such successor Trustee all the rights and powers
      of the Trustee so ceasing to act and shall duly assign, transfer and deliver
      to
      such successor Trustee all property and money held by such retiring Trustee
      thereunder. Upon request of any such successor Trustee, the Company shall
      execute any and all instruments in writing for more fully and certainly vesting
      in and confirming to such successor Trustee all such rights and powers. Any
      Trustee ceasing to act shall, nevertheless, retain a lien upon all property
      or
      funds held or collected by such Trustee to secure any amounts then due it
      pursuant to the provisions of Section 6.6.

     

    If
      a
      successor Trustee is appointed, the Company, the retiring Trustee and the
      successor Trustee shall execute and deliver an indenture supplemental hereto
      which shall contain such provisions as shall be deemed necessary or desirable
      to
      confirm that all the rights, powers, trusts and duties of the retiring Trustee
      with respect to the Debentures as to which the predecessor Trustee is not
      retiring shall continue to be vested in the predecessor Trustee, and shall
      add
      to or change any of the provisions of this Indenture as shall be necessary
      to
      provide for or facilitate the administration of the Trust hereunder by more
      than
      one Trustee, it being understood that nothing herein or in such supplemental
      indenture shall constitute such Trustees co-trustees of the same trust and
      that
      each such Trustee shall be Trustee of a trust or trusts hereunder separate
      and
      apart from any trust or trusts hereunder administered by any other such
      Trustee.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    No
      successor Trustee shall accept appointment as provided in this Section unless
      at
      the time of such acceptance such successor Trustee shall be eligible under
      the
      provisions of Section 6.8.

     

    In
      no
      event shall a retiring Trustee be liable for the acts or omissions of any
      successor Trustee hereunder.

     

    Upon
      acceptance of appointment by a successor Trustee as provided in this
      Section 6.10, the Company shall mail notice of the succession of such
      Trustee hereunder to the holders of Debentures at their addresses as they shall
      appear on the Debenture Register. If the Company fails to mail such notice
      within 10 Business Days after the acceptance of appointment by the successor
      Trustee, the successor Trustee shall cause such notice to be mailed at the
      expense of the Company.

     

    Section
      6.11. Succession
      by Merger, etc.
      Any
      corporation into which the Trustee may be merged or converted or with which
      it
      may be consolidated, or any corporation resulting from any merger, conversion
      or
      consolidation to which the Trustee shall be a party, or any corporation
      succeeding to all or substantially all of the corporate trust business of the
      Trustee, shall be the successor of the Trustee hereunder without the execution
      or filing of any paper or any further act on the part of any of the parties
      hereto; provided
      that
      such corporation shall be otherwise eligible and qualified under this
      Article.

     

    In
      case
      at the time such successor to the Trustee shall succeed to the trusts created
      by
      this Indenture any of the Debentures shall have been authenticated but not
      delivered, any such successor to the Trustee may adopt the certificate of
      authentication of any predecessor Trustee, and deliver such Debentures so
      authenticated; and in case at that time any of the Debentures shall not have
      been authenticated, any successor to the Trustee may authenticate such
      Debentures either in the name of any predecessor hereunder or in the name of
      the
      successor Trustee; and in all such cases such certificates shall have the full
      force which it is anywhere in the Debentures or in this Indenture provided
      that
      the certificate of the Trustee shall have; provided,
      however,
      that
      the right to adopt the certificate of authentication of any predecessor Trustee
      or authenticate Debentures in the name of any predecessor Trustee shall apply
      only to its successor or successors by merger, conversion or
      consolidation.

     

    Section
      6.12. Authenticating
      Agents.
      There
      may be one or more Authenticating Agents appointed by the Trustee upon the
      request of the Company with power to act on its behalf and subject to its
      direction in the authentication and delivery of the Debentures issued upon
      exchange or registration of transfer thereof as fully to all intents and
      purposes as though any such Authenticating Agent had been expressly authorized
      to authenticate and deliver Debentures; provided,
      however,
      that
      the Trustee shall have no liability to the Company for any acts or omissions
      of
      the Authenticating Agent with respect to the authentication and delivery of
      any
      Debentures. Any such Authenticating Agent shall at all times be a corporation
      organized and doing business under the laws of the United States or of any
      state
      or territory thereof or of the District of Columbia authorized under such laws
      to act as Authenticating Agent, having a combined capital and surplus of at
      least $50,000,000.00 and being subject to supervision or examination by federal,
      state, territorial or District of Columbia authority. If such corporation
      publishes reports of condition at least annually pursuant to law or the
      requirements of such authority, then for the purposes of this Section 6.12
      the combined capital and surplus of such corporation shall be deemed to be
      its
      combined capital and surplus as set forth in its most recent report of condition
      so published. If at any time an Authenticating Agent shall cease to be eligible
      in accordance with the provisions of this Section, it shall resign immediately
      in the manner and with the effect herein specified in this Section.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    Any
      corporation into which any Authenticating Agent may be merged or converted
      or
      with which it may be consolidated, or any corporation resulting from any merger,
      consolidation or conversion to which any Authenticating Agent shall be a party,
      or any corporation succeeding to all or substantially all of the corporate
      trust
      business of any Authenticating Agent, shall be the successor of such
      Authenticating Agent hereunder, if such successor corporation is otherwise
      eligible under this Section 6.12 without the execution or filing of any
      paper or any further act on the part of the parties hereto or such
      Authenticating Agent.

     

    Any
      Authenticating Agent may at any time resign by giving written notice of
      resignation to the Trustee and to the Company. The Trustee may at any time
      terminate the agency of any Authenticating Agent with respect to the Debentures
      by giving written notice of termination to such Authenticating Agent and to
      the
      Company. Upon receiving such a notice of resignation or upon such a termination,
      or in case at any time any Authenticating Agent shall cease to be eligible
      under
      this Section 6.12, the Trustee may, and upon the request of the Company
      shall, promptly appoint a successor Authenticating Agent eligible under this
      Section 6.12, shall give written notice of such appointment to the Company
      and shall mail notice of such appointment to all holders of Debentures as the
      names and addresses of such holders appear on the Debenture Register. Any
      successor Authenticating Agent upon acceptance of its appointment hereunder
      shall become vested with all rights, powers, duties and responsibilities with
      respect to the Debentures of its predecessor hereunder, with like effect as
      if
      originally named as Authenticating Agent herein.

     

    The
      Company agrees to pay to any Authenticating Agent from time to time reasonable
      compensation for its services. Any Authenticating Agent shall have no
      responsibility or liability for any action taken by it as such in accordance
      with the directions of the Trustee.

     

    ARTICLE
      VII.

    CONCERNING
      THE SECURITYHOLDERS

     

    Section
      7.1. Action
      by Securityholders.
      Whenever in this Indenture it is provided that the holders of a specified
      percentage in aggregate principal amount of the Debentures may take any action
      (including the making of any demand or request, the giving of any notice,
      consent or waiver or the taking of any other action) the fact that at the time
      of taking any such action the holders of such specified percentage have joined
      therein may be evidenced (a) by any instrument or any number of instruments
      of similar tenor executed by such Securityholders in person or by agent or
      proxy
      appointed in writing, or (b) by the record of such holders of Debentures
      voting in favor thereof at any meeting of such Securityholders duly called
      and
      held in accordance with the provisions of Article VIII, or (c) by a
      combination of such instrument or instruments and any such record of such a
      meeting of such Securityholders or (d) by any other method the Trustee
      deems satisfactory.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    If
      the
      Company shall solicit from the Securityholders any request, demand,
      authorization, direction, notice, consent, waiver or other action or revocation
      of the same, the Company may, at its option, as evidenced by an Officers’
Certificate, fix in advance a record date for such Debentures for the
      determination of Securityholders entitled to give such request, demand,
      authorization, direction, notice, consent, waiver or other action or revocation
      of the same, but the Company shall have no obligation to do so. If such a record
      date is fixed, such request, demand, authorization, direction, notice, consent,
      waiver or other action or revocation of the same may be given before or after
      the record date, but only the Securityholders of record at the close of business
      on the record date shall be deemed to be Securityholders for the purposes of
      determining whether Securityholders of the requisite proportion of outstanding
      Debentures have authorized or agreed or consented to such request, demand,
      authorization, direction, notice, consent, waiver or other action or revocation
      of the same, and for that purpose the outstanding Debentures shall be computed
      as of the record date; provided,
      however,
      that no
      such authorization, agreement or consent by such Securityholders on the record
      date shall be deemed effective unless it shall become effective pursuant to
      the
      provisions of this Indenture not later than 6 months after the record
      date.

     

    Section
      7.2. Proof
      of Execution by Securityholders.
      Subject
      to the provisions of Section 6.1, 6.2 and 8.5, proof of the execution of
      any instrument by a Securityholder or his agent or proxy shall be sufficient
      if
      made in accordance with such reasonable rules and regulations as may be
      prescribed by the Trustee or in such manner as shall be satisfactory to the
      Trustee. The ownership of Debentures shall be proved by the Debenture Register
      or by a certificate of the Debenture registrar. The Trustee may require such
      additional proof of any matter referred to in this Section as it shall deem
      necessary.

     

    The
      record of any Securityholders meeting shall be proved in the manner provided
      in
      Section 8.6.

     

    Section
      7.3. Who
      Are Deemed Absolute Owners.
      Prior
      to due presentment for registration of transfer of any Debenture, the Company,
      the Trustee, any Authenticating Agent, any paying agent, any transfer agent
      and
      any Debenture registrar may deem the Person in whose name such Debenture shall
      be registered upon the Debenture Register to be, and may treat him as, the
      absolute owner of such Debenture (whether or not such Debenture shall be
      overdue) for the purpose of receiving payment of or on account of the principal
      of, premium, if any, and interest on such Debenture and for all other purposes;
      and neither the Company nor the Trustee nor any Authenticating Agent nor any
      paying agent nor any transfer agent nor any Debenture registrar shall be
      affected by any notice to the contrary. All such payments so made to any holder
      for the time being or upon his order shall be valid, and, to the extent of
      the
      sum or sums so paid, effectual to satisfy and discharge the liability for moneys
      payable upon any such Debenture.

     

    Section
      7.4. Debentures
      Owned by Company Deemed Not Outstanding.
      In
      determining whether the holders of the requisite aggregate principal amount
      of
      Debentures have concurred in any direction, consent or waiver under this
      Indenture, Debentures which are owned by the Company or any other obligor on
      the
      Debentures or by any Person directly or indirectly controlling or controlled
      by
      or under direct or indirect common control with the Company or any other obligor
      on the Debentures shall be disregarded and deemed not to be outstanding for
      the
      purpose of any such determination; provided,
      however,
      that
      for the purposes of determining whether the Trustee shall be protected in
      relying on any such direction, consent or waiver, only Debentures which a
      Responsible Officer of the Trustee actually knows are so owned shall be so
      disregarded. Debentures so owned which have been pledged in good faith may
      be
      regarded as outstanding for the purposes of this Section 7.4 if the pledgee
      shall establish to the satisfaction of the Trustee the pledgee’s right to vote
      such Debentures and that the pledgee is not the Company or any such other
      obligor or Person directly or indirectly controlling or controlled by or under
      direct or indirect common control with the Company or any such other obligor.
      In
      the case of a dispute as to such right, any decision by the Trustee taken upon
      the advice of counsel shall be full protection to the Trustee.

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    Section
      7.5. Revocation
      of Consents; Future Holders Bound.
      At any
      time prior to (but not after) the evidencing to the Trustee, as provided in
      Section 7.1, of the taking of any action by the holders of the percentage
      in aggregate principal amount of the Debentures specified in this Indenture
      in
      connection with such action, any holder (in cases where no record date has
      been
      set pursuant to Section 7.1) or any holder as of an applicable record date
      (in cases where a record date has been set pursuant to Section 7.1) of a
      Debenture (or any Debenture issued in whole or in part in exchange or
      substitution therefor) the serial number of which is shown by the evidence
      to be
      included in the Debentures the holders of which have consented to such action
      may, by filing written notice with the Trustee at the Principal Office of the
      Trustee and upon proof of holding as provided in Section 7.2, revoke such
      action so far as concerns such Debenture (or so far as concerns the principal
      amount represented by any exchanged or substituted Debenture). Except as
      aforesaid any such action taken by the holder of any Debenture shall be
      conclusive and binding upon such holder and upon all future holders and owners
      of such Debenture, and of any Debenture issued in exchange or substitution
      therefor or on registration of transfer thereof, irrespective of whether or
      not
      any notation in regard thereto is made upon such Debenture or any Debenture
      issued in exchange or substitution therefor.

     

    ARTICLE
      VIII.

    SECURITYHOLDERS
      MEETINGS

     

    Section
      8.1. Purposes
      of Meetings.
      A
      meeting of Securityholders may be called at any time and from time to time
      pursuant to the provisions of this Article VIII for any of the following
      purposes:

     

    (a) to
      give
      any notice to the Company or to the Trustee, or to give any directions to the
      Trustee, or to consent to the waiving of any default hereunder and its
      consequences, or to take any other action authorized to be taken by
      Securityholders pursuant to any of the provisions of
      Article V;

     

    (b) to
      remove
      the Trustee and nominate a successor trustee pursuant to the provisions of
      Article VI;

     

    (c) to
      consent to the execution of an indenture or indentures supplemental hereto
      pursuant to the provisions of Section 9.2; or

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    (d) to
      take
      any other action authorized to be taken by or on behalf of the holders of any
      specified aggregate principal amount of such Debentures under any other
      provision of this Indenture or under applicable law.

     

    Section
      8.2. Call
      of Meetings by Trustee.
      The
      Trustee may at any time call a meeting of Securityholders to take any action
      specified in Section 8.1, to be held at such time and at such place as the
      Trustee shall determine. Notice of every meeting of the Securityholders, setting
      forth the time and the place of such meeting and in general terms the action
      proposed to be taken at such meeting, shall be mailed to holders of Debentures
      affected at their addresses as they shall appear on the Debentures Register
      and,
      if the Company is not a holder of Debentures, to the Company. Such notice shall
      be mailed not less than 20 nor more than 180 days prior to the date fixed
      for the meeting.

     

    Section
      8.3. Call
      of Meetings by Company or Securityholders.
      In case
      at any time the Company pursuant to a Board Resolution, or the holders of at
      least 10% in aggregate principal amount of the Debentures, as the case may
      be,
      then outstanding, shall have requested the Trustee to call a meeting of
      Securityholders, by written request setting forth in reasonable detail the
      action proposed to be taken at the meeting, and the Trustee shall not have
      mailed the notice of such meeting within 20 days after receipt of such
      request, then the Company or such Securityholders may determine the time and
      the
      place for such meeting and may call such meeting to take any action authorized
      in Section 8.1, by mailing notice thereof as provided in
      Section 8.2.

     

    Section
      8.4. Qualifications
      for Voting.
      To be
      entitled to vote at any meeting of Securityholders a Person shall be (a) a
      holder of one or more Debentures with respect to which the meeting is being
      held
      or (b) a Person appointed by an instrument in writing as proxy by a holder
      of one or more such Debentures. The only Persons who shall be entitled to be
      present or to speak at any meeting of Securityholders shall be the Persons
      entitled to vote at such meeting and their counsel and any representatives
      of
      the Trustee and its counsel and any representatives of the Company and its
      counsel.

     

    Section
      8.5. Regulations.
      Notwithstanding any other provisions of this Indenture, the Trustee may make
      such reasonable regulations as it may deem advisable for any meeting of
      Securityholders, in regard to proof of the holding of Debentures and of the
      appointment of proxies, and in regard to the appointment and duties of
      inspectors of votes, the submission and examination of proxies, certificates
      and
      other evidence of the right to vote, and such other matters concerning the
      conduct of the meeting as it shall think fit.

     

    The
      Trustee shall, by an instrument in writing, appoint a temporary chairman of
      the
      meeting, unless the meeting shall have been called by the Company or by
      Securityholders as provided in Section 8.3, in which case the Company or
      the Securityholders calling the meeting, as the case may be, shall in like
      manner appoint a temporary chairman. A permanent chairman and a permanent
      secretary of the meeting shall be elected by majority vote of the
      meeting.

     

    Subject
      to the provisions of Section 7.4, at any meeting each holder of Debentures
      with respect to which such meeting is being held or proxy therefor shall be
      entitled to one vote for each $1,000.00 principal amount of Debentures held
      or
      represented by him; provided,
      however,
      that no
      vote shall be cast or counted at any meeting in respect of any Debenture
      challenged as not outstanding and ruled by the chairman of the meeting to be
      not
      outstanding. The chairman of the meeting shall have no right to vote other
      than
      by virtue of Debentures held by him or instruments in writing as aforesaid
      duly
      designating him as the Person to vote on behalf of other Securityholders. Any
      meeting of Securityholders duly called pursuant to the provisions of
      Section 8.2 or 8.3 may be adjourned from time to time by a majority of
      those present, whether or not constituting a quorum, and the meeting may be
      held
      as so adjourned without further notice.

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    Section
      8.6. Voting.
      The
      vote upon any resolution submitted to any meeting of holders of Debentures
      with
      respect to which such meeting is being held shall be by written ballots on
      which
      shall be subscribed the signatures of such holders or of their representatives
      by proxy and the serial number or numbers of the Debentures held or represented
      by them. The permanent chairman of the meeting shall appoint two inspectors
      of
      votes who shall count all votes cast at the meeting for or against any
      resolution and who shall make and file with the secretary of the meeting their
      verified written reports in triplicate of all votes cast at the meeting. A
      record in duplicate of the proceedings of each meeting of Securityholders shall
      be prepared by the secretary of the meeting and there shall be attached to
      said
      record the original reports of the inspectors of votes on any vote by ballot
      taken thereat and affidavits by one or more Persons having knowledge of the
      facts setting forth a copy of the notice of the meeting and showing that said
      notice was mailed as provided in Section 8.2. The record shall show the
      serial numbers of the Debentures voting in favor of or against any resolution.
      The record shall be signed and verified by the affidavits of the permanent
      chairman and secretary of the meeting and one of the duplicates shall be
      delivered to the Company and the other to the Trustee to be preserved by the
      Trustee, the latter to have attached thereto the ballots voted at the
      meeting.

     

    Any
      record so signed and verified shall be conclusive evidence of the matters
      therein stated.

     

    Section
      8.7. Quorum;
      Actions.
      The
      Persons entitled to vote a majority in aggregate principal amount of the
      Debentures then outstanding shall constitute a quorum for a meeting of
      Securityholders; provided,
      however,
      that if
      any action is to be taken at such meeting with respect to a consent, waiver,
      request, demand, notice, authorization, direction or other action which may
      be
      given by the holders of not less than a specified percentage in aggregate
      principal amount of the Debentures then outstanding, the Persons holding or
      representing such specified percentage in principal amount of the Debentures
      then outstanding will constitute a quorum. In the absence of a quorum within
      30 minutes of the time appointed for any such meeting, the meeting shall,
      if convened at the request of Securityholders, be dissolved. In any other case
      the meeting may be adjourned for a period of not less than 10 days as
      determined by the permanent chairman of the meeting prior to the adjournment
      of
      such meeting. In the absence of a quorum at any such adjourned meeting, such
      adjourned meeting may be further adjourned for a period of not less than
      10 days as determined by the permanent chairman of the meeting prior to the
      adjournment of such adjourned meeting. Notice of the reconvening of any
      adjourned meeting shall be given as provided in Section 8.2, except that
      such notice need be given only once not less than 5 days prior to the date
      on
      which the meeting is scheduled to be reconvened. Notice of the reconvening
      of an
      adjourned meeting shall state expressly the percentage, as provided above,
      of
      the principal amount of the Debentures then outstanding which shall constitute
      a
      quorum.

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    Except
      as
      limited by the provisos in the first paragraph of Section 9.2, any
      resolution presented to a meeting or adjourned meeting duly reconvened at which
      a quorum is present as aforesaid may be adopted by the affirmative vote of
      the
      holders of a majority in aggregate principal amount of the Debentures then
      outstanding; provided,
      however,
      that,
      except as limited by the provisos in the first paragraph of Section 9.2,
      any resolution with respect to any consent, waiver, request, demand, notice,
      authorization, direction or other action which this Indenture expressly provides
      may be given by the holders of not less than a specified percentage in aggregate
      principal amount of the Debentures then outstanding may be adopted at a meeting
      or an adjourned meeting duly reconvened and at which a quorum is present as
      aforesaid only by the affirmative vote of the holders of a not less than such
      specified percentage in principal amount of the Debentures then
      outstanding.

     

    Any
      resolution passed or decision taken at any meeting of holders of Debentures
      duly
      held in accordance with this Section shall be binding on all the
      Securityholders, whether or not present or represented at the
      meeting.

     

    ARTICLE
      IX.

    SUPPLEMENTAL
      INDENTURES

     

    Section
      9.1. Supplemental
      Indentures without Consent of Securityholders.
      The
      Company, when authorized by a Board Resolution, and the Trustee may from time
      to
      time and at any time enter into an indenture or indentures supplemental hereto,
      without the consent of the Securityholders, for one or more of the following
      purposes:

     

    (a) to
      evidence the succession of another Person to the Company, or successive
      successions, and the assumption by the successor Person of the covenants,
      agreements and obligations of the Company, pursuant to Article XI
      hereof;

     

    (b) to
      add to
      the covenants of the Company such further covenants, restrictions or conditions
      for the protection of the holders of Debentures as the Board of Directors shall
      consider to be for the protection of the holders of such Debentures, and to
      make
      the occurrence, or the occurrence and continuance, of a default in any of such
      additional covenants, restrictions or conditions a default or an Event of
      Default permitting the enforcement of all or any of the several remedies
      provided in this Indenture as herein set forth; provided,
      however,
      that in
      respect of any such additional covenant, restriction or condition such
      supplemental indenture may provide for a particular period of grace after
      default (which period may be shorter or longer than that allowed in the case
      of
      other defaults) or may provide for an immediate enforcement upon such default
      or
      may limit the remedies available to the Trustee upon such default;

     

    (c) to
      cure
      any ambiguity or to correct or supplement any provision contained herein or
      in
      any supplemental indenture which may be defective or inconsistent with any
      other
      provision contained herein or in any supplemental indenture, or to make such
      other provisions in regard to matters or questions arising under this Indenture;
      provided
      that any
      such action shall not materially adversely affect the interests of the holders
      of the Debentures;

     

    (d) to
      add
      to, delete from, or revise the terms of Debentures, including, without
      limitation, any terms relating to the issuance, exchange, registration or
      transfer of Debentures, including to provide for transfer procedures and
      restrictions substantially similar to those applicable to the Capital Securities
      as required by Section 2.5 (for purposes of assuring that no registration
      of Debentures is required under the Securities Act); provided,
      however,
      that
      any such action shall not adversely affect the interests of the holders of
      the
      Debentures then outstanding (it being understood, for purposes of this proviso,
      that transfer restrictions on Debentures substantially similar to those that
      were applicable to Capital Securities shall not be deemed to materially
      adversely affect the holders of the Debentures);

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    (e) to
      evidence and provide for the acceptance of appointment hereunder by a successor
      Trustee with respect to the Debentures and to add to or change any of the
      provisions of this Indenture as shall be necessary to provide for or facilitate
      the administration of the trusts hereunder by more than one
      Trustee;

     

    (f) to
      make
      any change (other than as elsewhere provided in this paragraph) that does not
      adversely affect the rights of any Securityholder in any material respect;
      or

     

    (g) to
      provide for the issuance of and establish the form and terms and conditions
      of
      the Debentures, to establish the form of any certifications required to be
      furnished pursuant to the terms of this Indenture or the Debentures, or to
      add
      to the rights of the holders of Debentures.

     

    The
      Trustee is hereby authorized to join with the Company in the execution of any
      such supplemental indenture, to make any further appropriate agreements and
      stipulations which may be therein contained and to accept the conveyance,
      transfer and assignment of any property thereunder, but the Trustee shall not
      be
      obligated to, but may in its discretion, enter into any such supplemental
      indenture which affects the Trustee’s own rights, duties or immunities under
      this Indenture or otherwise.

     

    Any
      supplemental indenture authorized by the provisions of this Section 9.1 may
      be executed by the Company and the Trustee without the consent of the holders
      of
      any of the Debentures at the time outstanding, notwithstanding any of the
      provisions of Section 9.2.

     

    Section
      9.2. Supplemental
      Indentures with Consent of Securityholders.
      With
      the consent (evidenced as provided in Section 7.1) of the holders of not
      less than a majority in aggregate principal amount of the Debentures at the
      time
      outstanding affected by such supplemental indenture (voting as a class), the
      Company, when authorized by a Board Resolution, and the Trustee may from time
      to
      time and at any time enter into an indenture or indentures supplemental hereto
      for the purpose of adding any provisions to or changing in any manner or
      eliminating any of the provisions of this Indenture or of any supplemental
      indenture or of modifying in any manner the rights of the holders of the
      Debentures; provided,
      however,
      that no
      such supplemental indenture shall without the consent of the holders of each
      Debenture then outstanding and affected thereby (i) change the fixed
      maturity of any Debenture, or reduce the principal amount thereof or any premium
      thereon, or reduce the rate or extend the time of payment of interest thereon,
      or reduce any amount payable on redemption thereof or make the principal thereof
      or any interest or premium thereon payable in any coin or currency other than
      that provided in the Debentures, or impair or affect the right of any
      Securityholder to institute suit for payment thereof or impair the right of
      repayment, if any, at the option of the holder, or (ii) reduce the
      aforesaid percentage of Debentures the holders of which are required to consent
      to any such supplemental indenture; provided further,
      however,
      that if
      the Debentures are held by a trust or a trustee of such trust, such supplemental
      indenture shall not be effective until the holders of a majority in Liquidation
      Amount of Trust Securities shall have consented to such supplemental indenture;
      provided further,
      however,
      that if
      the consent of the Securityholder of each outstanding Debenture is required,
      such supplemental indenture shall not be effective until each holder of the
      Trust Securities shall have consented to such supplemental
      indenture.

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

    Upon
      the
      request of the Company accompanied by a Board Resolution authorizing the
      execution of any such supplemental indenture, and upon the filing with the
      Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee
      shall join with the Company in the execution of such supplemental indenture
      unless such supplemental indenture affects the Trustee’s own rights, duties or
      immunities under this Indenture or otherwise, in which case the Trustee may
      in
      its discretion, but shall not be obligated to, enter into such supplemental
      indenture.

     

    Promptly
      after the execution by the Company and the Trustee of any supplemental indenture
      pursuant to the provisions of this Section, the Trustee shall transmit by mail,
      first class postage prepaid, a notice, prepared by the Company, setting forth
      in
      general terms the substance of such supplemental indenture, to the
      Securityholders as their names and addresses appear upon the Debenture Register.
      Any failure of the Trustee to mail such notice, or any defect therein, shall
      not, however, in any way impair or affect the validity of any such supplemental
      indenture.

     

    It
      shall
      not be necessary for the consent of the Securityholders under this
      Section 9.2 to approve the particular form of any proposed supplemental
      indenture, but it shall be sufficient if such consent shall approve the
      substance thereof.

     

    Section
      9.3. Effect
      of Supplemental Indentures.
      Upon
      the execution of any supplemental indenture pursuant to the provisions of this
      Article IX, this Indenture shall be and be deemed to be modified and
      amended in accordance therewith and the respective rights, limitations of
      rights, obligations, duties and immunities under this Indenture of the Trustee,
      the Company and the holders of Debentures shall thereafter be determined,
      exercised and enforced hereunder subject in all respects to such modifications
      and amendments and all the terms and conditions of any such supplemental
      indenture shall be and be deemed to be part of the terms and conditions of
      this
      Indenture for any and all purposes.

     

    Section
      9.4. Notation
      on Debentures.
      Debentures authenticated and delivered after the execution of any supplemental
      indenture pursuant to the provisions of this Article IX may bear a notation
      as to any matter provided for in such supplemental indenture. If the Company
      or
      the Trustee shall so determine, new Debentures so modified as to conform, in
      the
      opinion of the Board of Directors of the Company, to any modification of this
      Indenture contained in any such supplemental indenture may be prepared and
      executed by the Company, authenticated by the Trustee or the Authenticating
      Agent and delivered in exchange for the Debentures then
      outstanding.

     

    Section
      9.5. Evidence
      of Compliance of Supplemental Indenture to be Furnished to
      Trustee.
      The
      Trustee, subject to the provisions of Sections 6.1 and 6.2, shall, in
      addition to the documents required by Section 14.6, receive an Officers’
Certificate and an Opinion of Counsel as conclusive evidence that any
      supplemental indenture executed pursuant hereto complies with the requirements
      of this Article IX. The Trustee shall receive an Opinion of Counsel as
      conclusive evidence that any supplemental indenture executed pursuant to this
      Article IX is authorized or permitted by, and conforms to, the terms of
      this Article IX and that it is proper for the Trustee under the provisions
      of this Article IX to join in the execution thereof.

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    ARTICLE
      X.

    REDEMPTION
      OF SECURITIES

     

    Section
      10.1. Optional
      Redemption.
      The
      Company shall have the right to redeem the Debentures, in whole or in part,
      but
      in all cases in a principal amount with integral multiples of $1,000.00, on
      any
      Interest Payment Date on or after the Interest Payment Date in September 2011
      (an “Optional
      Redemption Date”),
      at
      the Optional Redemption Price.

     

    Section
      10.2. Special
      Event Redemption.
      If a
      Special Event shall occur and be continuing, the Company shall have the right
      to
      redeem the Debentures in whole, but not in part, at any Interest Payment Date,
      within 120 days following the occurrence of such Special Event (the
“Special
      Redemption Date”)
      at the
      Special Redemption Price. If the Special Event redemption occurs prior to the
      Interest Payment Date in September 2011, the Company shall appoint a Quotation
      Agent, which initially shall be Wilmington Trust Company or its designee, for
      the purpose of performing the services contemplated in, or by reference in,
      the
      definition of Special Redemption Price. Any error in the calculation of the
      Special Redemption Price by the Quotation Agent or the Trustee may be corrected
      at any time by notice delivered to the Company and the holders of the
      Debentures. Subject to the corrective rights set forth above, all certificates,
      communications, opinions, determinations, calculations, quotations and decisions
      given, expressed, made or obtained for the purposes of the provisions relating
      to the payment and calculation of the Special Redemption Price on the Debentures
      by the Trustee or the Quotation Agent, as the case may be, shall (in the absence
      of willful default, bad faith or manifest error) be final, conclusive and
      binding on the holders of the Debentures and the Company, and no liability
      shall
      attach (except as provided above) to the Trustee or the Quotation Agent in
      connection with the exercise or non-exercise by any of them of their respective
      powers, duties and discretion.

     

    Section
      10.3. Notice
      of Redemption; Selection of Debentures.
      In case
      the Company shall desire to exercise the right to redeem all, or, as the case
      may be, any part of the Debentures, it shall cause to be mailed a notice of
      such
      redemption at least 30 and not more than 60 days prior to the Optional
      Redemption Date or the Special Redemption Date to the holders of Debentures
      so
      to be redeemed as a whole or in part at their last addresses as the same appear
      on the Debenture Register. Such mailing shall be by first class mail. The notice
      if mailed in the manner herein provided shall be conclusively presumed to have
      been duly given, whether or not the holder receives such notice. In any case,
      failure to give such notice by mail or any defect in the notice to the holder
      of
      any Debenture designated for redemption as a whole or in part shall not affect
      the validity of the proceedings for the redemption of any other
      Debenture.

     

    Each
      such
      notice of redemption shall specify the CUSIP number, if any, of the Debentures
      to be redeemed, the Optional Redemption Date or the Special Redemption Date,
      as
      applicable, the Optional Redemption Price or the Special Redemption Price,
      as
      applicable, at which Debentures are to be redeemed, the place or places of
      payment, that payment will be made upon presentation and surrender of such
      Debentures, that interest accrued to the date fixed for redemption will be
      paid
      as specified in said notice, and that on and after said date interest thereon
      or
      on the portions thereof to be redeemed will cease to accrue. If less than all
      the Debentures are to be redeemed the notice of redemption shall specify the
      numbers of the Debentures to be redeemed. In case the Debentures are to be
      redeemed in part only, the notice of redemption shall state the portion of
      the
      principal amount thereof to be redeemed and shall state that on and after the
      date fixed for redemption, upon surrender of such Debenture, a new Debenture
      or
      Debentures in principal amount equal to the unredeemed portion thereof will
      be
      issued.

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

    Prior
      to
      10:00 a.m. (New York City time) on the Optional Redemption Date or Special
      Redemption Date, as applicable, the Company will deposit with the Trustee or
      with one or more paying agents an amount of money sufficient to redeem on the
      Optional Redemption Date or the Special Redemption Date, as applicable, all
      the
      Debentures so called for redemption at the appropriate Optional Redemption
      Price
      or Special Redemption Price, together with accrued interest to the Optional
      Redemption Date or Special Redemption Date, as applicable.

     

    If
      all,
      or less than all, the Debentures are to be redeemed, the Company will give
      the
      Trustee notice not less than 45 nor more than 60 days, respectively, prior
      to the Optional Redemption Date or Special Redemption Date, as applicable,
      as to
      the aggregate principal amount of Debentures to be redeemed and the Trustee
      shall select, in such manner as in its sole discretion it shall deem appropriate
      and fair, the Debentures or portions thereof (in integral multiples of
      $1,000.00) to be redeemed.

     

    Section
      10.4. Payment
      of Debentures Called for Redemption.
      If
      notice of redemption has been given as provided in Section 10.3, the
      Debentures or portions of Debentures with respect to which such notice has
      been
      given shall become due and payable on the Optional Redemption Date or Special
      Redemption Date, as applicable, and at the place or places stated in such notice
      at the applicable Optional Redemption Price or Special Redemption Price,
      together with interest accrued to the Optional Redemption Date or Special
      Redemption Date, as applicable, and on and after said date (unless the Company
      shall default in the payment of such Debentures at the Optional Redemption
      Price
      or Special Redemption Price, as applicable, together with interest accrued
      to
      said date) interest on the Debentures or portions of Debentures so called for
      redemption shall cease to accrue. On presentation and surrender of such
      Debentures at a place of payment specified in said notice, such Debentures
      or
      the specified portions thereof shall be paid and redeemed by the Company at
      the
      applicable Optional Redemption Price or Special Redemption Price, together
      with
      interest accrued thereon to the Optional Redemption Date or Special Redemption
      Date, as applicable.

     

    Upon
      presentation of any Debenture redeemed in part only, the Company shall execute
      and the Trustee shall authenticate and make available for delivery to the holder
      thereof, at the expense of the Company, a new Debenture or Debentures of
      authorized denominations, in principal amount equal to the unredeemed portion
      of
      the Debenture so presented.

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

    ARTICLE
      XI.

    CONSOLIDATION,
      MERGER, SALE, CONVEYANCE AND LEASE

     

    Section
      11.1. Company
      May Consolidate, etc., on Certain Terms.
      Nothing
      contained in this Indenture or in the Debentures shall prevent any consolidation
      or merger of the Company with or into any other Person (whether or not
      affiliated with the Company) or successive consolidations or mergers in which
      the Company or its successor or successors shall be a party or parties, or
      shall
      prevent any sale, conveyance, transfer or other disposition of, directly or
      indirectly through the Subsidiaries of the Company, in a single transaction
      or
      in any series of transactions occurring during any twelve-month period, more
      than 70% of the assets of the Company (exclusive of the Excluded Assets) or
      its
      successor or successors, to any other Person (whether or not affiliated with
      the
      Company, or its successor or successors) authorized to acquire and operate
      the
      same; provided,
      however,
      that
      the Company hereby covenants and agrees that, upon any such consolidation,
      merger (where the Company is not the surviving corporation), sale, conveyance,
      transfer or other disposition of assets, the due and punctual payment of the
      principal of (and premium, if any) and interest on all of the Debentures in
      accordance with their terms, according to their tenor, and the due and punctual
      performance and observance of all the covenants and conditions of this Indenture
      to be kept or performed by the Company, shall be expressly assumed by a
      supplemental indenture satisfactory in form to the Trustee executed and
      delivered to the Trustee by the entity formed by such consolidation, or into
      which the Company shall have been merged, or by the entity which shall have
      acquired such assets.

     

    Section
      11.2. Successor
      Entity to be Substituted.
      In case
      of any such consolidation, merger, sale, conveyance, transfer or other
      disposition and upon the assumption by the successor entity, by supplemental
      indenture, executed and delivered to the Trustee and satisfactory in form to
      the
      Trustee, of the due and punctual payment of the principal of and premium, if
      any, and interest on all of the Debentures and the due and punctual performance
      and observance of all of the covenants and conditions of this Indenture to
      be
      performed or observed by the Company, such successor entity shall succeed to
      and
      be substituted for the Company, with the same effect as if it had been named
      herein as the Company, and thereupon the predecessor entity shall be relieved
      of
      any further liability or obligation hereunder or upon the Debentures. Such
      successor entity thereupon may cause to be signed, and may issue in its own
      name, any or all of the Debentures issuable hereunder which theretofore shall
      not have been signed by the Company and delivered to the Trustee or the
      Authenticating Agent; and, upon the order of such successor entity instead
      of
      the Company and subject to all the terms, conditions and limitations in this
      Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate
      and deliver any Debentures which previously shall have been signed and delivered
      by the officers of the Company, to the Trustee or the Authenticating Agent
      for
      authentication, and any Debentures which such successor entity thereafter shall
      cause to be signed and delivered to the Trustee or the Authenticating Agent
      for
      that purpose. All the Debentures so issued shall in all respects have the same
      legal rank and benefit under this Indenture as the Debentures theretofore or
      thereafter issued in accordance with the terms of this Indenture as though
      all
      of such Debentures had been issued at the date of the execution
      hereof.

     

    Section
      11.3. Opinion
      of Counsel to be Given to Trustee.
      The
      Trustee, subject to the provisions of Sections 6.1 and 6.2, shall receive,
      in addition to the Opinion of Counsel required by Section 9.5, an Opinion
      of Counsel as conclusive evidence that any consolidation, merger, sale,
      conveyance, transfer or other disposition, and any assumption, permitted or
      required by the terms of this Article XI complies with the provisions of
      this Article XI.

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

    ARTICLE
      XII.

    SATISFACTION
      AND DISCHARGE OF INDENTURE

     

    Section
      12.1. Discharge
      of Indenture.  When

     

    
      	
            	(a)	
              the
                Company shall deliver to the Trustee for cancellation all Debentures
                theretofore authenticated (other than any Debentures which shall
                have been
                destroyed, lost or stolen and which shall have been replaced or paid
                as
                provided in Section 2.6) and not theretofore canceled, or
                

            

    

     

    
      	
            	(b)	
              all
                the Debentures not theretofore canceled or delivered to the Trustee
                for
                cancellation shall have become due and payable, or are by their terms
                to
                become due and payable within 1 year or are to be called for redemption
                within 1 year under arrangements satisfactory to the Trustee for
                the
                giving of notice of redemption, and the Company shall deposit with
                the
                Trustee, in trust, funds, which shall be immediately due and payable,
                sufficient to pay at maturity or upon redemption all of the Debentures
                (other than any Debentures which shall have been destroyed, lost
                or stolen
                and which shall have been replaced or paid as provided in
                Section 2.6) not theretofore canceled or delivered to the Trustee for
                cancellation, including principal and premium, if any, and interest
                due or
                to become due to such date of maturity or redemption date, as the
                case may
                be, but excluding, however, the amount of any moneys for the payment
                of
                principal of, and premium, if any, or interest on the Debentures
                (1) theretofore repaid to the Company in accordance with the
                provisions of Section 12.4, or (2) paid to any state or to the
                District of Columbia pursuant to its unclaimed property or similar
                laws,

            

    

     

    and
      if in
      the case of either clause (a) or clause (b) the Company shall also pay
      or cause to be paid all other sums payable hereunder by the Company, then this
      Indenture shall cease to be of further effect except for the provisions of
      Sections 2.5, 2.6, 2.8, 3.1, 3.2, 3.4, 6.6, 6.8, 6.9, 12.1 and 12.4 hereof
      shall survive until such Debentures shall mature and be paid. Thereafter,
      Sections 6.6 and 12.4 shall survive, and the Trustee, on demand of the
      Company accompanied by an Officers’ Certificate and an Opinion of Counsel, each
      stating that all conditions precedent herein provided for relating to the
      satisfaction and discharge of this Indenture have been complied with, and at
      the
      cost and expense of the Company, shall execute proper instruments acknowledging
      satisfaction of and discharging this Indenture. The Company agrees to reimburse
      the Trustee for any costs or expenses thereafter reasonably and properly
      incurred by the Trustee in connection with this Indenture or the
      Debentures.

     

    Section
      12.2. Deposited
      Moneys to be Held in Trust by Trustee.
      Subject
      to the provisions of Section 12.4, all moneys deposited with the Trustee
      pursuant to Section 12.1 shall be held in trust in a non-interest bearing
      account and applied by it to the payment, either directly or through any paying
      agent (including the Company if acting as its own paying agent), to the holders
      of the particular Debentures for the payment of which such moneys have been
      deposited with the Trustee, of all sums due and to become due thereon for
      principal, and premium, if any, and interest.

     

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

    Section
      12.3. Paying
      Agent to Repay Moneys Held.
      Upon
      the satisfaction and discharge of this Indenture all moneys then held by any
      paying agent of the Debentures (other than the Trustee) shall, upon demand
      of
      the Company, be repaid to it or paid to the Trustee, and thereupon such paying
      agent shall be released from all further liability with respect to such
      moneys.

     

    Section
      12.4. Return
      of Unclaimed Moneys.
      Any
      moneys deposited with or paid to the Trustee or any paying agent for payment
      of
      the principal of, and premium, if any, or interest on Debentures and not applied
      but remaining unclaimed by the holders of Debentures for 2 years after the
      date
      upon which the principal of, and premium, if any, or interest on such
      Debentures, as the case may be, shall have become due and payable, shall,
      subject to applicable escheatment laws, be repaid to the Company by the Trustee
      or such paying agent on written demand; and the holder of any of the Debentures
      shall thereafter look only to the Company for any payment which such holder
      may
      be entitled to collect, and all liability of the Trustee or such paying agent
      with respect to such moneys shall thereupon cease.

     

    ARTICLE
      XIII.

    IMMUNITY
      OF INCORPORATORS, STOCKHOLDERS,

    OFFICERS
      AND DIRECTORS

     

    Section
      13.1. Indenture
      and Debentures Solely Corporate Obligations.
      No
      recourse for the payment of the principal of or premium, if any, or interest
      on
      any Debenture, or for any claim based thereon or otherwise in respect thereof,
      and no recourse under or upon any obligation, covenant or agreement of the
      Company in this Indenture or in any supplemental indenture, or in any such
      Debenture, or because of the creation of any indebtedness represented thereby,
      shall be had against any incorporator, stockholder, employee, officer or
      director, as such, past, present or future, of the Company or of any successor
      Person of the Company, either directly or through the Company or any successor
      Person of the Company, whether by virtue of any constitution, statute or rule
      of
      law, or by the enforcement of any assessment or penalty or otherwise, it being
      expressly understood that all such liability is hereby expressly waived and
      released as a condition of, and as a consideration for, the execution of this
      Indenture and the issue of the Debentures.

     

    ARTICLE
      XIV.

    MISCELLANEOUS
      PROVISIONS

     

    Section
      14.1. Successors.
      All the
      covenants, stipulations, promises and agreements of the Company in this
      Indenture shall bind its successors and assigns whether so expressed or
      not.

     

    Section
      14.2. Official
      Acts by Successor Entity.
      Any act
      or proceeding by any provision of this Indenture authorized or required to
      be
      done or performed by any board, committee or officer or other authorized Person
      of the Company shall and may be done and performed with like force and effect
      by
      the like board, committee, officer or other authorized Person of any entity
      that
      shall at the time be the lawful successor of the Company.

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

    Section
      14.3. Surrender
      of Company Powers.
      The
      Company by instrument in writing executed by authority of at least 2/3
      (two-thirds) of its Board of Directors and delivered to the Trustee may
      surrender any of the powers reserved to the Company and thereupon such power
      so
      surrendered shall terminate both as to the Company, and as to any permitted
      successor.

     

    Section
      14.4. Addresses
      for Notices, etc.
      Any
      notice, consent, direction, request, authorization, waiver or demand which
      by
      any provision of this Indenture is required or permitted to be given, made,
      furnished or served by the Trustee or by the Securityholders on or to the
      Company may be given or served in writing by being deposited postage prepaid
      by
      registered or certified mail in a post office letter box addressed (until
      another address is filed by the Company, with the Trustee for the purpose)
      to
      the Company, 59 Maiden Lane, 6th Floor, New York, New York 10038, Attention:
      Stephen Ungar. Any notice, consent, direction, request, authorization, waiver
      or
      demand by any Securityholder or the Company to or upon the Trustee shall be
      deemed to have been sufficiently given or made, for all purposes, if given
      or
      made in writing at the office of the Trustee, addressed to the Trustee, 1100
      North Market Street, Wilmington, Delaware 19890-1600, Attention: Corporate
      Trust
      Administration. Any notice, consent, direction, request, authorization, waiver
      or demand on or to any Securityholder shall be deemed to have been sufficiently
      given or made, for all purposes, if given or made in writing at the address
      set
      forth in the Debenture Register.

     

    Section
      14.5. Governing
      Law.
      Pursuant to Section 5-1401 of the General Obligations Law of the State of New
      York, this Indenture and each Debenture shall be deemed to be a contract made
      under the law of the State of New York, and for all purposes shall be governed
      by and construed in accordance with the law of said State.

     

    Section
      14.6. Evidence
      of Compliance with Conditions Precedent.
      Upon
      any application or demand by the Company to the Trustee to take any action
      under
      any of the provisions of this Indenture, the Company shall furnish to the
      Trustee an Officers’ Certificate stating that in the opinion of the signers all
      conditions precedent, if any, provided for in this Indenture relating to the
      proposed action have been complied with and an Opinion of Counsel stating that,
      in the opinion of such counsel, all such conditions precedent have been complied
      with.

     

    Each
      certificate or opinion provided for in this Indenture and delivered to the
      Trustee with respect to compliance with a condition or covenant provided for
      in
      this Indenture shall include (1) a statement that the person making such
      certificate or opinion has read such covenant or condition; (2) a brief
      statement as to the nature and scope of the examination or investigation upon
      which the statements or opinions contained in such certificate or opinion are
      based; (3) a statement that, in the opinion of such person, he has made
      such examination or investigation as is necessary to enable him to express
      an
      informed opinion as to whether or not such covenant or condition has been
      complied with; and (4) a statement as to whether or not in the opinion of
      such person, such condition or covenant has been complied with.

     

    Section
      14.7. Table
      of Contents, Headings, etc.
      The
      table of contents and the titles and headings of the articles and sections
      of
      this Indenture have been inserted for convenience of reference only, are not
      to
      be considered a part hereof, and shall in no way modify or restrict any of
      the
      terms or provisions hereof.

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

    Section
      14.8. Execution
      in Counterparts.
      This
      Indenture may be executed in any number of counterparts, each of which shall
      be
      an original, but such counterparts shall together constitute but one and the
      same instrument.

     

    Section
      14.9. Severability.
      In case
      any one or more of the provisions contained in this Indenture or in the
      Debentures shall for any reason be held to be invalid, illegal or unenforceable
      in any respect, such invalidity, illegality or unenforceability shall not affect
      any other provisions of this Indenture or of such Debentures, but this Indenture
      and such Debentures shall be construed as if such invalid or illegal or
      unenforceable provision had never been contained herein or therein.

     

    Section
      14.10. Assignment.
      The
      Company will have the right at all times to assign any of its rights or
      obligations under this Indenture to a direct or indirect wholly owned Subsidiary
      of the Company, provided that, in the event of any such assignment, the Company
      will remain liable for all such obligations. Subject to the foregoing, this
      Indenture is binding upon and inures to the benefit of the parties hereto and
      their respective successors and assigns. This Indenture may not otherwise be
      assigned by the parties hereto.

     

    Section
      14.11. Acknowledgment
      of Rights.
      The
      Company agrees that, with respect to any Debentures held by the Trust or the
      Institutional Trustee of the Trust, if the Institutional Trustee of the Trust
      fails to enforce its rights under this Indenture as the holder of Debentures
      held as the assets of such Trust after the holders of a majority in Liquidation
      Amount of the Capital Securities of such Trust have so directed such
      Institutional Trustee, a holder of record of such Capital Securities may, to
      the
      fullest extent permitted by law, institute legal proceedings directly against
      the Company to enforce such Institutional Trustee’s rights under this Indenture
      without first instituting any legal proceedings against such trustee or any
      other Person. Notwithstanding the foregoing, if an Event of Default has occurred
      and is continuing and such event is attributable to the failure of the Company
      to pay interest (or premium, if any) or principal on the Debentures on the
      date
      such interest (or premium, if any) or principal is otherwise payable (or in
      the
      case of redemption, on the redemption date), the Company agrees that a holder
      of
      record of Capital Securities of the Trust may directly institute a proceeding
      against the Company for enforcement of payment to such holder directly of the
      principal of (or premium, if any) or interest on the Debentures having an
      aggregate principal amount equal to the aggregate Liquidation Amount of the
      Capital Securities of such holder on or after the respective due date specified
      in the Debentures.

     

    ARTICLE
      XV.

    SUBORDINATION
      OF DEBENTURES

     

    Section
      15.1. Agreement
      to Subordinate.
      The
      Company covenants and agrees, and each holder of Debentures by such
      Securityholder’s acceptance thereof likewise covenants and agrees, that all
      Debentures shall be issued subject to the provisions of this Article XV;
      and each holder of a Debenture, whether upon original issue or upon transfer
      or
      assignment thereof, accepts and agrees to be bound by such
      provisions.

     

    The
      payment by the Company of the principal of, and premium, if any, and interest
      on
      all Debentures shall, to the extent and in the manner hereinafter set forth,
      be
      subordinated and junior in right of payment to the prior payment in full of
      all
      Senior Indebtedness of the Company, whether outstanding at the date of this
      Indenture or thereafter incurred.

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

    No
      provision of this Article XV shall prevent the occurrence of any default or
      Event of Default hereunder.

     

    Section
      15.2. Default
      on Senior Indebtedness.
      In the
      event and during the continuation of any default by the Company in the payment
      of principal, premium, interest or any other payment due on any Senior
      Indebtedness of the Company following any grace period, or in the event that
      the
      maturity of any Senior Indebtedness of the Company has been accelerated because
      of a default and such acceleration has not been rescinded or canceled and such
      Senior Indebtedness has not been paid in full, then, in either case, no payment
      shall be made by the Company with respect to the principal (including
      redemption) of, or premium, if any, or interest on the Debentures.

     

    In
      the
      event that, notwithstanding the foregoing, any payment shall be received by
      the
      Trustee when such payment is prohibited by the preceding paragraph of this
      Section 15.2, such payment shall, subject to Section 15.7, be held in
      trust for the benefit of, and shall be paid over or delivered to, the holders
      of
      Senior Indebtedness or their respective representatives, or to the trustee
      or
      trustees under any indenture pursuant to which any of such Senior Indebtedness
      may have been issued, as their respective interests may appear, but only to
      the
      extent that the holders of the Senior Indebtedness (or their representative
      or
      representatives or a trustee) notify the Trustee in writing within 90 days
      of such payment of the amounts then due and owing on the Senior Indebtedness
      and
      only the amounts specified in such notice to the Trustee shall be paid to the
      holders of Senior Indebtedness.

     

    Section
      15.3. Liquidation,
      Dissolution, Bankruptcy.
      Upon
      any payment by the Company or distribution of assets of the Company of any
      kind
      or character, whether in cash, property or securities, to creditors upon any
      dissolution or winding-up or liquidation or reorganization of the Company,
      whether voluntary or involuntary or in bankruptcy, insolvency, receivership
      or
      other proceedings, all amounts due upon all Senior Indebtedness of the Company
      shall first be paid in full, or payment thereof provided for in money in
      accordance with its terms, before any payment is made by the Company, on account
      of the principal (and premium, if any) or interest on the Debentures. Upon
      any
      such dissolution or winding-up or liquidation or reorganization, any payment
      by
      the Company, or distribution of assets of the Company of any kind or character,
      whether in cash, property or securities, to which the Securityholders or the
      Trustee would be entitled to receive from the Company, except for the provisions
      of this Article XV, shall be paid by the Company, or by any receiver,
      trustee in bankruptcy, liquidating trustee, agent or other Person making such
      payment or distribution, or by the Securityholders or by the Trustee under
      this
      Indenture if received by them or it, directly to the holders of Senior
      Indebtedness (pro
      rata
      to such
      holders on the basis of the respective amounts of Senior Indebtedness held
      by
      such holders, as calculated by the Company) or their representative or
      representatives, or to the trustee or trustees under any indenture pursuant
      to
      which any instruments evidencing such Senior Indebtedness may have been issued,
      as their respective interests may appear, to the extent necessary to pay such
      Senior Indebtedness in full, in money or money’s worth, after giving effect to
      any concurrent payment or distribution to or for the holders of such Senior
      Indebtedness, before any payment or distribution is made to the Securityholders
      or to the Trustee.

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

    In
      the
      event that, notwithstanding the foregoing, any payment or distribution of assets
      of the Company of any kind or character, whether in cash, property or
      securities, prohibited by the foregoing, shall be received by the Trustee before
      all Senior Indebtedness is paid in full, or provision is made for such payment
      in money in accordance with its terms, such payment or distribution shall be
      held in trust for the benefit of and shall be paid over or delivered to the
      holders of such Senior Indebtedness or their representative or representatives,
      or to the trustee or trustees under any indenture pursuant to which any
      instruments evidencing such Senior Indebtedness may have been issued, as their
      respective interests may appear, as calculated by the Company, for application
      to the payment of all Senior Indebtedness, remaining unpaid to the extent
      necessary to pay such Senior Indebtedness in full in money in accordance with
      its terms, after giving effect to any concurrent payment or distribution to
      or
      for the benefit of the holders of such Senior Indebtedness.

     

    For
      purposes of this Article XV, the words “cash, property or securities” shall
      not be deemed to include shares of stock of the Company as reorganized or
      readjusted, or securities of the Company or any other corporation provided
      for
      by a plan of reorganization or readjustment, the payment of which is
      subordinated at least to the extent provided in this Article XV with
      respect to the Debentures to the payment of all Senior Indebtedness, that may
      at
      the time be outstanding, provided that (i) such Senior Indebtedness is
      assumed by the new corporation, if any, resulting from any such reorganization
      or readjustment, and (ii) the rights of the holders of such Senior
      Indebtedness are not, without the consent of such holders, altered by such
      reorganization or readjustment. The consolidation of the Company with, or the
      merger of the Company into, another corporation or the liquidation or
      dissolution of the Company following the conveyance or transfer of its property
      as an entirety, or substantially as an entirety, to another corporation upon
      the
      terms and conditions provided for in Article XI of this Indenture shall not
      be deemed a dissolution, winding-up, liquidation or reorganization for the
      purposes of this Section if such other corporation shall, as a part of such
      consolidation, merger, conveyance or transfer, comply with the conditions stated
      in Article XI of this Indenture. Nothing in Section 15.2 or in this
      Section shall apply to claims of, or payments to, the Trustee under or pursuant
      to Section 6.6 of this Indenture.

     

    Section
      15.4. Subrogation.
      Subject
      to the payment in full of all Senior Indebtedness, the Securityholders shall
      be
      subrogated to the rights of the holders of such Senior Indebtedness to receive
      payments or distributions of cash, property or securities of the Company,
      applicable to such Senior Indebtedness until the principal of (and premium,
      if
      any) and interest on the Debentures shall be paid in full. For the purposes
      of
      such subrogation, no payments or distributions to the holders of such Senior
      Indebtedness of any cash, property or securities to which the Securityholders
      or
      the Trustee would be entitled except for the provisions of this Article XV,
      and no payment over pursuant to the provisions of this Article XV to or for
      the benefit of the holders of such Senior Indebtedness by Securityholders or
      the
      Trustee, shall, as between the Company, its creditors other than holders of
      Senior Indebtedness of the Company, and the holders of the Debentures be deemed
      to be a payment or distribution by the Company to or on account of such Senior
      Indebtedness. It is understood that the provisions of this Article XV are
      and are intended solely for the purposes of defining the relative rights of
      the
      holders of the Securities, on the one hand, and the holders of such Senior
      Indebtedness, on the other hand.

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

    Nothing
      contained in this Article XV or elsewhere in this Indenture or in the
      Debentures is intended to or shall impair, as between the Company, its creditors
      other than the holders of Senior Indebtedness, and the holders of the
      Debentures, the obligation of the Company, which is absolute and unconditional,
      to pay to the holders of the Debentures the principal of (and premium, if any)
      and interest on the Debentures as and when the same shall become due and payable
      in accordance with their terms, or is intended to or shall affect the relative
      rights of the holders of the Debentures and creditors of the Company, other
      than
      the holders of Senior Indebtedness, nor shall anything herein or therein prevent
      the Trustee or the holder of any Debenture from exercising all remedies
      otherwise permitted by applicable law upon default under this Indenture, subject
      to the rights, if any, under this Article XV of the holders of such Senior
      Indebtedness in respect of cash, property or securities of the Company, received
      upon the exercise of any such remedy.

     

    Upon
      any
      payment or distribution of assets of the Company referred to in this
      Article XV, the Trustee, subject to the provisions of Article VI of
      this Indenture, and the Securityholders shall be entitled to conclusively rely
      upon any order or decree made by any court of competent jurisdiction in which
      such dissolution, winding-up, liquidation or reorganization proceedings are
      pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
      trustee, agent or other Person making such payment or distribution, delivered
      to
      the Trustee or to the Securityholders, for the purposes of ascertaining the
      Persons entitled to participate in such distribution, the holders of Senior
      Indebtedness and other indebtedness of the Company, the amount thereof or
      payable thereon, the amount or amounts paid or distributed thereon and all
      other
      facts pertinent thereto or to this Article XV.

     

    Section
      15.5. Trustee
      to Effectuate Subordination.
      Each
      Securityholder by such Securityholder’s acceptance thereof authorizes and
      directs the Trustee on such Securityholder’s behalf to take such action as may
      be necessary or appropriate to effectuate the subordination provided in this
      Article XV and appoints the Trustee such Securityholder’s attorney-in-fact
      for any and all such purposes.

     

    Section
      15.6. Notice
      by the Company.
      The
      Company shall give prompt written notice to a Responsible Officer of the Trustee
      at the Principal Office of the Trustee of any fact known to the Company that
      would prohibit the making of any payment of monies to or by the Trustee in
      respect of the Debentures pursuant to the provisions of this Article XV.
      Notwithstanding the provisions of this Article XV or any other provision of
      this Indenture, the Trustee shall not be charged with knowledge of the existence
      of any facts that would prohibit the making of any payment of monies to or
      by
      the Trustee in respect of the Debentures pursuant to the provisions of this
      Article XV, unless and until a Responsible Officer of the Trustee at the
      Principal Office of the Trustee shall have received written notice thereof
      from
      the Company or a holder or holders of Senior Indebtedness or from any trustee
      therefor; and before the receipt of any such written notice, the Trustee,
      subject to the provisions of Article VI of this Indenture, shall be
      entitled in all respects to assume that no such facts exist; provided,
      however,
      that if
      the Trustee shall not have received the notice provided for in this Section
      at
      least 2 Business Days prior to the date upon which by the terms hereof any
      money
      may become payable for any purpose (including, without limitation, the payment
      of the principal of (or premium, if any) or interest on any Debenture), then,
      anything herein contained to the contrary notwithstanding, the Trustee shall
      have full power and authority to receive such money and to apply the same to
      the
      purposes for which they were received, and shall not be affected by any notice
      to the contrary that may be received by it within 2 Business Days prior to
      such
      date.

     

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

    The
      Trustee, subject to the provisions of Article VI of this Indenture, shall
      be entitled to conclusively rely on the delivery to it of a written notice
      by a
      Person representing himself to be a holder of Senior Indebtedness (or a trustee
      or representative on behalf of such holder), to establish that such notice
      has
      been given by a holder of such Senior Indebtedness or a trustee or
      representative on behalf of any such holder or holders. In the event that the
      Trustee determines in good faith that further evidence is required with respect
      to the right of any Person as a holder of such Senior Indebtedness to
      participate in any payment or distribution pursuant to this Article XV, the
      Trustee may request such Person to furnish evidence to the reasonable
      satisfaction of the Trustee as to the amount of such Senior Indebtedness held
      by
      such Person, the extent to which such Person is entitled to participate in
      such
      payment or distribution and any other facts pertinent to the rights of such
      Person under this Article XV, and, if such evidence is not furnished, the
      Trustee may defer any payment to such Person pending judicial determination
      as
      to the right of such Person to receive such payment.

     

    Section
      15.7. Rights
      of the Trustee; Holders of Senior Indebtedness.
      The
      Trustee in its individual capacity shall be entitled to all the rights set
      forth
      in this Article XV in respect of any Senior Indebtedness at any time held
      by it, to the same extent as any other holder of Senior Indebtedness, and
      nothing in this Indenture shall deprive the Trustee of any of its rights as
      such
      holder.

     

    With
      respect to the holders of Senior Indebtedness, the Trustee undertakes to perform
      or to observe only such of its covenants and obligations as are specifically
      set
      forth in this Article XV, and no implied covenants or obligations with
      respect to the holders of such Senior Indebtedness shall be read into this
      Indenture against the Trustee. The Trustee shall not be deemed to owe any
      fiduciary duty to the holders of such Senior Indebtedness and, subject to the
      provisions of Article VI of this Indenture, the Trustee shall not be liable
      to any holder of such Senior Indebtedness if it shall pay over or deliver to
      Securityholders, the Company or any other Person money or assets to which any
      holder of such Senior Indebtedness shall be entitled by virtue of this
      Article XV or otherwise.

     

    Nothing
      in this Article XV shall apply to claims of, or payments to, the Trustee
      under or pursuant to Section 6.6.

     

    Section
      15.8. Subordination
      May Not Be Impaired.
      No
      right of any present or future holder of any Senior Indebtedness to enforce
      subordination as herein provided shall at any time in any way be prejudiced
      or
      impaired by any act or failure to act on the part of the Company, or by any
      act
      or failure to act, in good faith, by any such holder, or by any noncompliance
      by
      the Company, with the terms, provisions and covenants of this Indenture,
      regardless of any knowledge thereof that any such holder may have or otherwise
      be charged with.

     

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

    Without
      in any way limiting the generality of the foregoing paragraph, the holders
      of
      Senior Indebtedness may, at any time and from time to time, without the consent
      of or notice to the Trustee or the Securityholders, without incurring
      responsibility to the Securityholders and without impairing or releasing the
      subordination provided in this Article XV or the obligations hereunder of
      the holders of the Debentures to the holders of such Senior Indebtedness, do
      any
      one or more of the following: (i) change the manner, place or terms of
      payment or extend the time of payment of, or renew or alter, such Senior
      Indebtedness, or otherwise amend or supplement in any manner such Senior
      Indebtedness or any instrument evidencing the same or any agreement under which
      such Senior Indebtedness is outstanding; (ii) sell, exchange, release or
      otherwise deal with any property pledged, mortgaged or otherwise securing such
      Senior Indebtedness; (iii) release any Person liable in any manner for the
      collection of such Senior Indebtedness; and (iv) exercise or refrain from
      exercising any rights against the Company, and any other Person.

     

    Signatures
      appear on the following page

     

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	AMTRUST
              FINANCIAL SERVICES, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	
              Name:

              Title:

            

    

     

    
      	
            	 	 
	 	WILMINGTON
              TRUST COMPANY, as Trustee
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	
              Name:

              Title:

            

    

    

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

    FORM
      OF FIXED/FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST
      DEBENTURE

     

    [FORM
      OF
      FACE OF SECURITY]

     

    THIS
      SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE
      SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
      MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
      DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
      IS
      EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
      ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY BY
      ITS
      ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
      ONLY
      (A) TO AMTRUST
      FINANCIAL SERVICES, INC.
      (THE
“COMPANY”), (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
      EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER
      REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING
      THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR
      RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO
      A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR
      RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT,
      (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF
      SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
      ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
      INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
      TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
      OF
      THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
      THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S
      RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF
      AN
      OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
      IT IN
      ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.
      HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS IN
      COMPLIANCE WITH THE SECURITIES ACT.

     

    THE
      HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND
      WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT
      OR
      OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME
      SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL
      REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY
      WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT
      IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR
      HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER
      IS
      ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR
      PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR
      ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS
      NOT
      PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT
      TO
      SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY
      INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING
      THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING
      OF
      SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS
      APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT
      PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE
      BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT
      RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975
      OF
      THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE
      EXEMPTION.

     

    
      
        
        

      

      
        A-1-1

        
          

        

      

      
        
        

      

    

    THIS
      SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN
      AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000.00 AND MULTIPLES OF
      $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK
      HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED
      TO
      BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

     

    THE
      HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
      RESTRICTIONS.

     

    THIS
      SECURITY IS IN REGISTERED FORM WITHIN THE MEANING OF TREASURY REGULATIONS
      SECTION 1.871-14(c)(1)(i) FOR U.S. FEDERAL INCOME AND WITHHOLDING TAX
      PURPOSES.

     

    IN
      CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
      TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY
      THE
      INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
      RESTRICTIONS.

     

    Fixed/Floating
      Rate Junior Subordinated Deferrable Interest Debenture

     

    of

     

    AmTrust
      Financial Services, Inc.

     

    July
      25,
      2006

     

    AmTrust
      Financial Services, Inc., a corporation duly organized and existing under the
      laws of Delaware (the “Company,” which term includes any successor Person under
      the Indenture hereinafter referred to), for value received promises to pay
      to
      Wilmington Trust Company, not in its individual capacity but solely as
      Institutional Trustee for AmTrust Capital Financing Trust III (the “Holder”) or
      registered assigns, the principal sum of Thirty Million Nine Hundred Twenty
      Eight Thousand dollars ($30,928,000) on September 15, 2036, and to pay interest
      on said principal sum from July 25, 2006, or from the most recent Interest
      Payment Date (as defined herein) to which interest has been paid or duly
      provided for, quarterly (subject to deferral as set forth herein) in arrears
      on
      March 15, June 15, September 15 and December 15 of each year or if such day
      is
      not a Business Day, then the next succeeding Business Day (each such date,
      an
“Interest Payment Date”), commencing on the Interest Payment Date in September
      2006, at an annual rate equal to 8.83% beginning on (and including) the date
      of
      original issuance and ending on (but excluding) the Interest Payment Date in
      September 2011 and at an annual rate for each successive Distribution Period
      beginning on (and including) the Interest Payment Date in September 2011, and
      each succeeding Interest Payment Date, and ending on (but excluding) the next
      succeeding Interest Payment Date (each a “Distribution Period”), equal to
      3-Month LIBOR, determined as described below, plus 3.30% (the “Coupon Rate”),
      applied to the principal amount hereof, until the principal hereof is paid
      or
      duly provided for or made available for payment, and on any overdue principal
      and (without duplication and to the extent that payment of such interest is
      enforceable under applicable law) on any overdue installment of interest
      (including Additional Interest) at the Interest Rate in effect for each
      applicable period, compounded quarterly, from the dates such amounts are due
      until they are paid or made available for payment. The amount of interest
      payable (i) for any Distribution Period commencing on or after the date of
      original issuance but before the Interest Payment Date in September 2011 will
      be
      computed on the basis of a 360-day year of twelve 30-day months, it being
      understood that if a Distribution is payable on a non Business Day, and the
      Distribution Payment Date is on the next succeeding Business Day, no additional
      interest or other Distributions shall accrue in respect of any such delay,
      and
      (ii) for the Distribution Period commencing on or after the Interest
      Payment Date in September 2011 and each succeeding Distribution Period will
      be
      computed on the basis of the actual number of days in the Distribution Period
      concerned divided by 360. The interest installment so payable, and punctually
      paid or duly provided for, on any Interest Payment Date will, as provided in
      the
      Indenture, be paid to the Person in whose name this Debenture (or one or more
      Predecessor Securities) is registered at the close of business on the regular
      record date for such interest installment, which shall be fifteen days prior
      to
      the day on which the relevant Interest Payment Date occurs. Any such interest
      installment not so punctually paid or duly provided for shall forthwith cease
      to
      be payable to the Holder on such regular record date and may be paid to the
      Person in whose name this Debenture (or one or more Predecessor Securities)
      is
      registered at the close of business on a special record date.

     

    
      
        
        

      

      
        A-1-2

        
          

        

      

      
        
        

      

    

    Capitalized
      terms used and not defined in this Debenture shall have the meanings assigned
      in
      the Indenture dated as of the date of original issuance of this Debenture
      between the Trustee and the Company.

     

    “3-Month
      LIBOR” as used herein, means the London interbank offered interest rate for
      three-month U.S. dollar deposits determined by the Trustee in the following
      order of priority: (i) the rate (expressed as a percentage per annum) for U.S.
      dollar deposits having a three-month maturity that appears on Telerate Page
      3750
      as of 11:00 a.m. (London time) on the related Determination Date (“Telerate Page
      3750” means the display designated as “Page 3750” on the Moneyline Telerate
      Service or such other page as may replace Page 3750 on that service or such
      other service or services as may be nominated by the British Bankers’
Association as the information vendor for the purpose of displaying London
      interbank offered rates for U.S. dollar deposits); (ii) if such rate cannot
      be
      identified on the related Determination Date, the Trustee will request the
      principal London offices of four leading banks in the London interbank market
      to
      provide such banks’ offered quotations (expressed as percentages per annum) to
      prime banks in the London interbank market for U.S. dollar deposits having
      a
      three-month maturity as of 11:00 a.m. (London time) on such Determination Date.
      If at least two quotations are provided, 3-Month LIBOR will be the arithmetic
      mean of such quotations; (iii) if fewer than two such quotations are
      provided as requested in clause (ii) above, the Trustee will request four major
      New York City banks to provide such banks’ offered quotations (expressed as
      percentages per annum) to leading European banks for loans in U.S. dollars
      as of
      11:00 a.m. (London time) on such Determination Date. If at least two such
      quotations are provided, 3-Month LIBOR will be the arithmetic mean of such
      quotations; and (iv) if fewer than two such quotations are provided as
      requested in clause (iii) above, 3-Month LIBOR will be a 3-Month LIBOR
      determined with respect to the Distribution Period immediately preceding such
      current Distribution Period. If the rate for U.S. dollar deposits having a
      three-month maturity that initially appears on Telerate Page 3750 as of 11:00
      a.m. (London time) on the related Determination Date is superseded on the
      Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such
      Determination Date, then the corrected rate as so substituted on the applicable
      page will be the applicable 3-Month LIBOR for such Determination Date. As used
      herein, “Determination Date” means the date that is two London Banking Days
      (i.e., a business day in which dealings in deposits in U.S. dollars are
      transacted in the London interbank market) preceding the commencement of the
      relevant Distribution Period.

     

    
      
        
        

      

      
        A-1-3

        
          

        

      

      
        
        

      

    

    “Interest
      Rate” means for the period beginning on (and including) the date of original
      issuance and ending on (but excluding) the Interest Payment Date in September
      2011 the rate per annum of 8.83% and for each Distribution Period thereafter,
      the Coupon Rate.

     

    The
      Interest Rate for any Distribution Period will at no time be higher than the
      maximum rate then permitted by New York law as the same may be modified by
      United States law. 

     

    All
      percentages resulting from any calculations on the Debentures will be rounded,
      if necessary, to the nearest one hundred-thousandth of a percentage point,
      with
      five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or
      .09876545) being rounded to 9.87655% (or .0987655), and all dollar amounts
      used
      in or resulting from such calculation will be rounded to the nearest cent (with
      one-half cent being rounded upward)).

     

    The
      principal of and interest on this Debenture shall be payable at the office
      or
      agency of the Trustee (or other paying agent appointed by the Company)
      maintained for that purpose in any coin or currency of the United States of
      America that at the time of payment is legal tender for payment of public and
      private debts; provided,
      however,
      that
      payment of interest may be made by check mailed to the registered holder at
      such
      address as shall appear in the Debenture Register if a request for a wire
      transfer by such holder has not been received by the Company or by wire transfer
      to an account appropriately designated by the holder hereof. Notwithstanding
      the
      foregoing, so long as the holder of this Debenture is the Institutional Trustee,
      the payment of the principal of and interest on this Debenture will be made
      in
      immediately available funds at such place and to such account as may be
      designated by the Trustee.

     

    
      
        
        

      

      
        A-1-4

        
          

        

      

      
        
        

      

    

    So
      long
      as no Event of Default has occurred and is continuing, the Company shall have
      the right, from time to time, and without causing an Event of Default, to defer
      payments of interest on the Debentures by extending the interest payment period
      on the Debentures at any time and from time to time during the term of the
      Debentures, for up to 20 consecutive quarterly periods (each such extended
      interest payment period, an “Extension Period”), during which Extension Period
      no interest (including Additional Interest) shall be due and payable (except
      any
      Additional Sums that may be due and payable). No Extension Period may end on
      a
      date other than an Interest Payment Date. During an Extension Period, interest
      will continue to accrue on the Debentures, and interest on such accrued interest
      will accrue at an annual rate equal to the Interest Rate in effect for such
      Extension Period, compounded quarterly from the date such interest would have
      been payable were it not for the Extension Period, to the extent permitted
      by
      law (such interest referred to herein as “Additional Interest”). At the end of
      any such Extension Period the Company shall pay all interest then accrued and
      unpaid on the Debentures (together with Additional Interest thereon);
provided,
      however,
      that no
      Extension Period may extend beyond the Maturity Date; provided further,
      however,
      that
      during any such Extension Period, the Company shall not and shall not permit
      any
      Affiliate of the Company controlled by the Company to engage in any of the
      activities or transactions described on the reverse side hereof and in the
      Indenture. Prior to the termination of any Extension Period, the Company may
      further extend such period, provided that such period together with all such
      previous and further consecutive extensions thereof shall not exceed
      20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon
      the termination of any Extension Period and upon the payment of all accrued
      and
      unpaid interest and Additional Interest, the Company may commence a new
      Extension Period, subject to the foregoing requirements. No interest or
      Additional Interest shall be due and payable during an Extension Period, except
      at the end thereof, but each installment of interest that would otherwise have
      been due and payable during an Extension Period shall bear Additional Interest
      to the extent permitted by law. The Company must give the Trustee notice of
      its
      election to begin or extend an Extension Period at least 5 Business Days prior
      to the regular record date (as such term is used in Section 2.8 of the
      Indenture) immediately preceding the Interest Payment Date with respect to
      which
      interest on the Debentures would have been payable except for the election
      to
      begin or extend an Extension Period. The Trustee shall give notice of the
      Company’s election to begin a new Extension Period to the holder of the
      Debentures.

     

    The
      indebtedness evidenced by this Debenture is, to the extent provided in the
      Indenture, subordinate and junior in right of payment to the prior payment
      in
      full of all Senior Indebtedness, and this Debenture is issued subject to the
      provisions of the Indenture with respect thereto. Each holder of this Debenture,
      by accepting the same, (a) agrees to and shall be bound by such provisions,
      (b) authorizes and directs the Trustee on his or her behalf to take such
      action as may be necessary or appropriate to acknowledge or effectuate the
      subordination so provided and (c) appoints the Trustee his or her
      attorney-in-fact for any and all such purposes. Each holder hereof, by his
      or
      her acceptance hereof, hereby waives all notice of the acceptance of the
      subordination provisions contained herein and in the Indenture by each holder
      of
      Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
      reliance by each such holder upon said provisions.

     

    This
      Debenture shall not be entitled to any benefit under the Indenture hereinafter
      referred to, be valid or become obligatory for any purpose until the certificate
      of authentication hereon shall have been signed by or on behalf of the
      Trustee.

     

    
      
        
        

      

      
        A-1-5

        
          

        

      

      
        
        

      

    

    The
      provisions of this Debenture are continued on the reverse side hereof and such
      provisions shall for all purposes have the same effect as though fully set
      forth
      at this place.

     

    
      
        
        

      

      
        A-1-6

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has duly executed this certificate.

     

    
      	
            	 	 
	 	AMTRUST
              FINANCIAL SERVICES, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	
              Name:

              Title:

            

    

     

    CERTIFICATE
      OF AUTHENTICATION

     

    This
      is
      one of the Debentures referred to in the within-mentioned
      Indenture.

     

    
      	
            	 	 
	 	WILMINGTON
              TRUST COMPANY, as Trustee
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	
              Authorized
                Officer

            

    

     

    
      
        
        

      

      
        A-1-7

        
          

        

      

      
        
        

      

    

    [FORM
      OF
      REVERSE OF DEBENTURE]

     

    This
      Debenture is one of the fixed/floating rate junior subordinated deferrable
      interest debentures of the Company, all issued or to be issued under and
      pursuant to the Indenture dated as of July 25, 2006 (the “Indenture”), duly
      executed and delivered between the Company and the Trustee, to which Indenture
      reference is hereby made for a description of the rights, limitations of rights,
      obligations, duties and immunities thereunder of the Trustee, the Company and
      the holders of the Debentures. The Debentures are limited in aggregate principal
      amount as specified in the Indenture.

     

    Upon
      the
      occurrence and continuation of a Special Event prior to the Interest Payment
      Date in September 2011, the Company shall have the right to redeem the
      Debentures in whole, but not in part, at any Interest Payment Date, within
      120
      days following the occurrence of such Special Event, at the Special Redemption
      Price.

     

    In
      addition, the Company shall have the right to redeem the Debentures, in whole
      or
      in part, but in all cases in a principal amount with integral multiples of
      $1,000.00, on any Interest Payment Date on or after the Interest Payment Date
      in
      September 2011, at the Optional Redemption Price.

     

    Prior
      to
      10:00 a.m. New York City time on the Optional Redemption Date or Special
      Redemption Date, as applicable, the Company will deposit with the Trustee or
      with one or more paying agents an amount of money sufficient to redeem on the
      Optional Redemption Date or the Special Redemption Date, as applicable, all
      the
      Debentures so called for redemption at the appropriate Optional Redemption
      Price
      or Special Redemption Price.

     

    If
      all,
      or less than all, the Debentures are to be redeemed, the Company will give
      the
      Trustee notice not less than 45 nor more than 60 days prior to the Optional
      Redemption Date or Special Redemption Date, as applicable, as to the aggregate
      principal amount of Debentures to be redeemed and the Trustee shall select,
      in
      such manner as in its sole discretion it shall deem appropriate and fair, the
      Debentures or portions thereof (in integral multiples of $1,000.00) to be
      redeemed.

     

    Notwithstanding
      the foregoing, any redemption of Debentures by the Company shall be subject
      to
      the receipt of any and all required regulatory approvals.

     

    In
      case
      an Event of Default shall have occurred and be continuing, upon demand of the
      Trustee, the principal of all of the Debentures shall become due and payable
      in
      the manner, with the effect and subject to the conditions provided in the
      Indenture.

     

    The
      Indenture contains provisions permitting the Company and the Trustee, with
      the
      consent of the holders of not less than a majority in aggregate principal amount
      of the Debentures at the time outstanding, to execute supplemental indentures
      for the purpose of adding any provisions to or changing in any manner or
      eliminating any of the provisions of this Indenture or of any supplemental
      indenture or of modifying in any manner the rights of the holders of the
      Debentures; provided,
      however,
      that no
      such supplemental indenture shall without the consent of the holders of each
      Debenture then outstanding and affected thereby (i) change the fixed
      maturity of any Debenture, or reduce the principal amount thereof or any premium
      thereon, or reduce the rate or extend the time of payment of interest thereon,
      or reduce any amount payable on redemption thereof or make the principal thereof
      or any interest or premium thereon payable in any coin or currency other than
      that provided in the Debentures, or impair or affect the right of any
      Securityholder to institute suit for payment thereof or impair the right of
      repayment, if any, at the option of the holder, or (ii) reduce the
      aforesaid percentage of Debentures the holders of which are required to consent
      to any such supplemental indenture.

     

    
      
        
        

      

      
        A-1-8

        
          

        

      

      
        
        

      

    

    The
      Indenture also contains provisions permitting the holders of a majority in
      aggregate principal amount of the Debentures at the time outstanding on behalf
      of the holders of all of the Debentures to waive (or modify any previously
      granted waiver of) any past default or Event of Default, and its consequences,
      except an Event of Default (a) specified in Sections 5.1(a) and (b), (b) in
      respect of covenants or provisions hereof or of the Indenture which cannot
      be
      modified or amended without the consent of the holder of each Debenture
      affected, or (c) in respect of the covenants contained in Section 3.9
      of the Indenture; provided,
      however,
      that if
      the Debentures are held by the Trust or a trustee of the Trust, such waiver
      or
      modification to such waiver shall not be effective until the holders of a
      majority in Liquidation Amount of the Trust Securities shall have consented
      to
      such waiver or modification to such waiver, provided,
      further,
      that if
      the consent of the holder of each outstanding Debenture is required, such waiver
      shall not be effective until each holder of the Trust Securities shall have
      consented to such waiver. Upon any such waiver, the default covered thereby
      shall be deemed to be cured for all purposes of the Indenture and the Company,
      the Trustee and the holders of the Debentures shall be restored to their former
      positions and rights hereunder, respectively; but no such waiver shall extend
      to
      any subsequent or other default or Event of Default or impair any right
      consequent thereon. Whenever any default or Event of Default hereunder shall
      have been waived as permitted by the Indenture, said default or Event of Default
      shall for all purposes of the Debentures and the Indenture be deemed to have
      been cured and to be not continuing.

     

    No
      reference herein to the Indenture and no provision of this Debenture or of
      the
      Indenture shall alter or impair the obligation of the Company, which is absolute
      and unconditional, to pay the principal of and premium, if any, and interest,
      including Additional Interest, on this Debenture at the time and place and
      at
      the rate and in the money herein prescribed.

     

    The
      Company has agreed that if Debentures are initially issued to the Trust or
      a
      trustee of such Trust in connection with the issuance of Trust Securities by
      the
      Trust (regardless of whether Debentures continue to be held by such Trust)
      and
      (i) there shall have occurred and be continuing an Event of Default,
      (ii) the Company shall be in default with respect to its payment of any
      obligations under the Capital Securities Guarantee, or (iii) the Company
      shall have given notice of its election to defer payments of interest on the
      Debentures by extending the interest payment period as provided herein and
      such
      Extension Period, or any extension thereof, shall be continuing, then the
      Company shall not, and shall not permit any Affiliate of the Company controlled
      by the Company to, (x) declare or pay any dividends or distributions on, or
      redeem, purchase, acquire, or make a liquidation payment with respect to, any
      of
      the Company’s or such Affiliates’ capital stock (other than payments of
      dividends or distributions to the Company or a Subsidiary of the Company) or
      make any guarantee payments with respect to the foregoing, (y) make any
      payment of principal of or interest or premium, if any, on or repay, repurchase
      or redeem any debt securities of the Company or any Affiliate of the Company
      controlled by the Company that rank pari
      passu
      in all
      respects with or junior in interest to the Debentures or (z) enter into any
      contracts with shareholders holding more than 10% of the outstanding shares
      of
      common stock of the Company, unless such contract is entered into on an arm’s
      length basis in the ordinary course of business (other than, with respect to
      clauses (x) and (y) above, (1) repurchases, redemptions or other
      acquisitions of shares of capital stock of the Company or any Subsidiary of
      the
      Company in connection with any employment contract, benefit plan or other
      similar arrangement with or for the benefit of one or more employees, officers,
      directors or consultants, in connection with a dividend reinvestment or
      stockholder stock purchase plan or in connection with the issuance of capital
      stock of the Company or of such Subsidiary (or securities convertible into
      or
      exercisable for such capital stock) as consideration in an acquisition
      transaction entered into prior to the applicable Extension Period, (2) as a
      result of any exchange or conversion of any class or series of the Company’s
      capital stock (or any capital stock of a Subsidiary of the Company) for any
      class or series of the Company’s capital stock (or in the case of a Subsidiary
      of the Company, any class or series of such Subsidiary’s capital stock) or of
      any class or series of the Company’s indebtedness for any class or series of the
      Company’s capital stock (or in the case of indebtedness of a Subsidiary of the
      Company, of any class or series of such Subsidiary’s indebtedness or any class
      or series of such Subsidiary’s capital stock), (3) the purchase of
      fractional interests in shares of the Company’s capital stock (or the capital
      stock of a Subsidiary of the Company) pursuant to the conversion or exchange
      provisions of such capital stock or the security being converted or exchanged,
      (4) any declaration of a dividend in connection with any stockholders’
rights plan, or the issuance of rights, stock or other property under any
      stockholders’ rights plan, or the redemption or repurchase of rights pursuant
      thereto, (5) any dividend in the form of stock, warrants, options or other
      rights where the dividend stock or the stock issuable upon exercise of such
      warrants, options or other rights is the same stock as that on which the
      dividend is being paid or ranks pari
      passu
      with or
      junior to such stock and any cash payments in lieu of fractional shares issued
      in connection therewith, or (6) payments under the Capital Securities
      Guarantee).

     

    
      
        
        

      

      
        A-1-9

        
          

        

      

      
        
        

      

    

    The
      Debentures are issuable only in registered, certificated form without coupons
      and in minimum denominations of $100,000.00 and any multiple of $1,000.00 in
      excess thereof. As provided in the Indenture and subject to the transfer
      restrictions and limitations as may be contained herein and therein from time
      to
      time, this Debenture is transferable by the holder hereof on the Debenture
      Register of the Company. Upon due presentment for registration of transfer
      of
      any Debenture at the Principal Office of the Trustee or at any office or agency
      of the Company maintained for such purpose as provided in Section 3.2 of
      the Indenture, the Company shall execute, the Company or the Trustee shall
      register and the Trustee or the Authenticating Agent shall authenticate and
      make
      available for delivery in the name of the transferee or transferees a new
      Debenture for a like aggregate principal amount. All Debentures presented for
      registration of transfer or for exchange or payment shall (if so required by
      the
      Company or the Trustee or the Authenticating Agent) be duly endorsed by, or
      be
      accompanied by a written instrument or instruments of transfer in form
      satisfactory to, the Company and the Trustee or the Authenticating Agent duly
      executed by the holder or his attorney duly authorized in writing. No service
      charge shall be made for any exchange or registration of transfer of Debentures,
      but the Company or the Trustee may require payment of a sum sufficient to cover
      any tax, fee or other governmental charge that may be imposed in connection
      therewith.

     

    
      
        
        

      

      
        A-1-10

        
          

        

      

      
        
        

      

    

    Prior
      to
      due presentment for registration of transfer of any Debenture, the Company,
      the
      Trustee, any Authenticating Agent, any paying agent, any transfer agent and
      any
      Debenture registrar may deem the Person in whose name such Debenture shall
      be
      registered upon the Debenture Register to be, and may treat him as, the absolute
      owner of such Debenture (whether or not such Debenture shall be overdue) for
      the
      purpose of receiving payment of or on account of the principal of, premium,
      if
      any, and interest on such Debenture and for all other purposes; and neither
      the
      Company nor the Trustee nor any Authenticating Agent nor any paying agent nor
      any transfer agent nor any Debenture registrar shall be affected by any notice
      to the contrary. All such payments so made to any holder for the time being
      or
      upon his order shall be valid, and, to the extent of the sum or sums so paid,
      effectual to satisfy and discharge the liability for moneys payable upon any
      such Debenture.

     

    The
      Debentures are in registered form within the meaning of Treasury Regulations
      Section 1.871-14(c)(1)(i) for U.S. federal income and withholding tax
      purposes.

     

    No
      recourse for the payment of the principal of or premium, if any, or interest
      on
      any Debenture, or for any claim based thereon or otherwise in respect thereof,
      and no recourse under or upon any obligation, covenant or agreement of the
      Company in the Indenture or in any supplemental indenture, or in any such
      Debenture, or because of the creation of any indebtedness represented thereby,
      shall be had against any incorporator, stockholder, employee, officer or
      director, as such, past, present or future, of the Company or of any successor
      Person of the Company, either directly or through the Company or any successor
      Person of the Company, whether by virtue of any constitution, statute or rule
      of
      law, or by the enforcement of any assessment or penalty or otherwise, it being
      expressly understood that all such liability is hereby expressly waived and
      released as a condition of, and as a consideration for, the execution of the
      Indenture and the issue of the Debentures.

     

    PURSUANT
      TO SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK,
      THE INDENTURE AND THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN
      ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     

    
      
        
        

      

      
        A-1-11Ex.
      10.61

     

    CONSOLIDATED,
      AMENDED AND RESTATED

    LOAN
      AND SECURITY AGREEMENT

    

    among

    SILVERLEAF
      RESORTS, INC.

    (as
      Borrower)

    

    and

    TEXTRON
      FINANCIAL CORPORATION

    (as
      Lender)

    

    As
      of
      February 21, 2007

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                Section
                  1 -Definition Of Terms

              	 	
                3

              
	
                Section
                  2 -The Loan

              	 	
                19

              
	
                2.1
                  Facility Fee

              	 	
                19

              
	
                2.2
                  Revolving Loan and Lending Limits.

              	 	
                20

              
	
                2.3
                  Interest Rate

              	 	
                21

              
	
                2.4
                  Payments

              	 	
                21

              
	
                2.5
                  Prepayments.

              	 	
                24

              
	
                2.6
                  Loan Component Ratio

              	 	
                27

              
	
                2.7
                  Maximum Obligation of Textron Financial Corporation Under the
                  Loan

              	 	
                27

              
	
                2.8
                  Suspension of Advances.

              	 	
                28

              
	
                2.9
                  Release of Intervals from Inventory

              	 	
                28

              
	
                2.10
                  Intentionally Omitted

              	 	
                28

              
	
                2.11
                  Partial Release of Real Property Mortgages

              	 	
                28

              
	
                Section
                  3 -Collateral

              	 	
                29

              
	
                3.1
                  Grant of Security Interest.

              	 	
                29

              
	
                3.2
                  Financing Statements

              	 	
                29

              
	
                3.3
                  Insurance

              	 	
                29

              
	
                3.4
                  Protection of Collateral; Reimbursement

              	 	
                29

              
	
                3.5
                  Additional Eligible Resorts

              	 	
                30

              
	
                3.6
                  Modification of Eligible Notes Receivable

              	 	
                30

              
	
                3.7
                  Assumption of Obligations under Eligible Notes Receivable

              	 	
                31

              
	
                3.8
                  Purchaser/Criteria

              	 	
                31

              
	
                3.9
                  Substitution of Inventory

              	 	
                31

              
	
                3.10
                  Cross Collateralization

              	 	
                32

              
	
                3.11
                  Security Interest in All Pledged Notes Receivable

              	 	
                32

              
	
                3.12
                  The Modification to Inventory Mortgages

              	 	
                32

              
	
                Section
                  4 -Conditions Precedent To The Closing

              	 	
                32

              
	
                4.1
                  Conditions Precedent

              	 	
                32

              
	
                4.2
                  Expenses

              	 	
                36

              
	
                4.3
                  Proceedings Satisfactory

              	 	
                36

              
	
                4.4
                  Conditions Precedent to Funding of Advances with Respect to Additional
                  Eligible Resorts

              	 	
                36

              
	
                Section
                  5 -Funding Procedure

              	 	
                42

              
	
                5.1
                  The obligation of Lender to make any loan shall be subject to the
                  satisfaction of all of the following conditions precedent:

              	 	
                42

              
	
                Section
                  6 -General Representations And Warranties

              	 	
                52

              
	
                6.1
                  Organization, Standing, Qualification

              	 	
                52

              
	
                6.2
                  Authorization, Enforceability, Etc.

              	 	
                53

              
	
                6.3
                  Financial Statements and Business Condition

              	 	
                54

              
	
                6.4
                  Taxes

              	 	
                54

              
	
                6.5
                  Title to Properties: Prior Liens

              	 	
                55

              
	
                6.6
                  Subsidiaries, Affiliates and Capital Structure

              	 	
                55

              
	
                6.7
                  Litigation, Proceedings, Etc

              	 	
                55

              
	
                6.8
                  Licenses, Permits, Etc

              	 	
                55

              
	
                6.9
                  Environmental Matters

              	 	
                55

              
	
                6.10
                  Full Disclosure

              	 	
                56

              
	
                6.11
                  Use of Proceeds/Margin Stock

              	 	
                56

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                6.12
                  Defaults

              	 	
                56

              
	
                6.13
                  Compliance with Law

              	 	
                56

              
	
                6.14
                  Restrictions of Borrower

              	 	
                57

              
	
                6.15
                  Broker’s Fees

              	 	
                58

              
	
                6.16
                  Deferred Compensation Plans

              	 	
                58

              
	
                6.17
                  Labor Relations

              	 	
                58

              
	
                6.18
                  Resorts.

              	 	
                59

              
	
                6.19
                  Timeshare Regimen Reports

              	 	
                60

              
	
                6.20
                  Operating Contracts

              	 	
                60

              
	
                6.21
                  Architectural and Environmental Control

              	 	
                60

              
	
                6.22
                  Tax Identification/Social Security Numbers

              	 	
                60

              
	
                6.23
                  Inventory Control Procedures.

              	 	
                60

              
	
                6.24
                  Real Property

              	 	
                61

              
	
                6.25
                  Inventory.

              	 	
                61

              
	
                6.26
                  Additional Representations and Warranties

              	 	
                61

              
	
                Section
                  7 -Covenants

              	 	
                62

              
	
                7.1
                  Affirmative Covenants

              	 	
                62

              
	
                7.2
                  Negative Covenants

              	 	
                75

              
	
                Section
                  8 -Events Of Default

              	 	
                78

              
	
                8.1
                  Nature of Events

              	 	
                78

              
	
                Section
                  9 -Remedies

              	 	
                80

              
	
                9.1
                  Remedies Upon Default

              	 	
                80

              
	
                9.2
                  Notice of Sale

              	 	
                82

              
	
                9.3
                  Application of Collateral; Termination of Agreements

              	 	
                82

              
	
                9.4
                  Rights of Lender Regarding Collateral

              	 	
                83

              
	
                9.5
                  Delegation of Duties and Rights

              	 	
                83

              
	
                9.6
                  Lender not in Control

              	 	
                83

              
	
                9.7
                  Waivers

              	 	
                83

              
	
                9.8
                  Cumulative Rights

              	 	
                84

              
	
                9.9
                  Expenditures by Lender

              	 	
                84

              
	
                9.10
                  Diminution in Value of Collateral

              	 	
                84

              
	
                9.11
                  Lender’s Knowledge

              	 	
                84

              
	
                Section
                  10 -Certain Rights Of Lenders

              	 	
                84

              
	
                10.1
                  Protection of Collateral

              	 	
                84

              
	
                10.2
                  Performance by Lender

              	 	
                84

              
	
                10.3
                  No Liability of Lender

              	 	
                85

              
	
                10.4
                  Right to Defend Action Affecting Security

              	 	
                85

              
	
                10.5
                  Expenses

              	 	
                86

              
	
                10.6
                  Lender’s Right of Set-Off

              	 	
                86

              
	
                10.7
                  No Waiver

              	 	
                86

              
	
                10.8
                  Right of Lender to Extend Time of Payment, Substitute, Release
                  Security,
                  Etc

              	 	
                86

              
	
                10.9
                  Assignment of Lender’s Interest

              	 	
                86

              
	
                10.10
                  Notice to Purchaser

              	 	
                86

              
	
                10.11
                  Collection of the Notes

              	 	
                87

              
	
                10.12
                  Power of Attorney

              	 	
                87

              
	
                10.13
                  Relief from Automatic Stay, Etc

              	 	
                88

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                Section
                  11 -Term Of Agreement

              	 	
                88

              
	
                Section
                  12 -Miscellaneous

              	 	
                88

              
	
                12.1
                  Notices

              	 	
                88

              
	
                12.2
                  Survival

              	 	
                89

              
	
                12.3
                  Governing Law

              	 	
                90

              
	
                12.4
                  Limitation on Interest

              	 	
                90

              
	
                12.5
                  Invalid Provisions

              	 	
                90

              
	
                12.6
                  Successors and Assigns

              	 	
                91

              
	
                12.7
                  Amendment

              	 	
                91

              
	
                12.8
                  Counterparts; Effectiveness

              	 	
                91

              
	
                12.9
                  Lender Not Fiduciary

              	 	
                91

              
	
                12.10
                  Return of Notes Receivable.

              	 	
                91

              
	
                12.11
                  Accounting Principles

              	 	
                91

              
	
                12.12
                  Total Agreement

              	 	
                92

              
	
                12.13
                  Litigation

              	 	
                92

              
	
                12.14
                  Incorporation of Exhibits

              	 	
                92

              
	
                12.15
                  Consent to Advertising and Publicity of Timeshare
                  Documents

              	 	
                92

              
	
                12.16
                  Directly or Indirectly

              	 	
                93

              
	
                12.17
                  Headings

              	 	
                93

              
	
                12.18
                  Gender and Number

              	 	
                93

              
	
                Section
                  13 -Special Conditions

              	 	
                93

              
	
                13.1
                  Effective Date

              	 	
                93

              
	
                13.2
                  Release

              	 	
                93

              

      

       

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    CONSOLIDATED,
      AMENDED AND RESTATED

    LOAN
      AND SECURITY AGREEMENT

     

    THIS
      CONSOLIDATED, AMENDED AND RESTATED LOAN AND SECURITY
      AGREEMENT,
      dated
      as of February 21, 2007, entered into by and between SILVERLEAF
      RESORTS, INC.,
      a Texas
      corporation (as “Borrower”)
      and
TEXTRON
      FINANCIAL CORPORATION,
      a
      Delaware corporation (the “Lender”).

     

    WITNESSETH:

     

    WHEREAS,
      Borrower and Lender entered into an Amended and Restated Loan, Security and
      Agency Agreement (Tranche A), dated as of April 30, 2002 (as amended, the
“Tranche
      A Loan Agreement”),
      pursuant to which the Borrower executed an Amended and Restated Secured
      Promissory Note in the original principal amount of $56,894,400.00, dated April
      30, 2002, in favor of Lender (the “Tranche
      A Note”);

     

    WHEREAS,
      Borrower, Lender, Webster Bank and Bank of Scotland entered into an Amended
      and
      Restated Loan, Security and Agency Agreement (Tranche B), dated as of April
      30,
      2002 (as amended, the “Tranche
      B Loan Agreement”),
      pursuant to which Borrower executed: (i) an Amended and Restated Secured
      Promissory Note in the original principal amount of $40,305,200.00, dated April
      30, 2002, in favor of Lender; (ii) an Amended and Restated Secured Promissory
      Note in the original principal amount of $7,899,500.00, dated April 30, 2002,
      in
      favor of Webster Bank; and (iii) a Secured Promissory Note in the original
      principal amount of $7,899,500.00, dated April 30, 2002, in favor of Bank of
      Scotland (singly and collectively the “Tranche
      B Note”);

     

    WHEREAS,
      Borrower and Lender entered into an Amended and Restated Loan and Security
      Agreement (Tranche C), dated as of April 17, 2001 (as amended, the “Tranche
      C Loan Agreement”,
      collectively with the Tranche A Loan Agreement and the Tranche B Loan Agreement,
      the “Original
      Loan Agreement”),
      pursuant to which Borrower executed an Amended and Restated Secured Promissory
      Note in the original principal amount of $8,060,000.00, dated April 30, 2002,
      in
      favor of Lender (the “Tranche
      C Note”,
      collectively with the Tranche A Note and the Tranche B Note, the “Original
      Note”);

     

    WHEREAS,
      the Lender and Borrower entered into a Consolidated, Amended and Restated Loan,
      Security and Agency Agreement, dated as of August 5, 2005 (the “Receivable
      Loan Agreement”)
      to
      consolidate, amend and restate the: (i) Tranche A Loan Agreement; (ii) Tranche
      B
      Loan Agreement; and (iii) Tranche C Loan Agreement;

     

    WHEREAS,
      pursuant to the Receivable Loan Agreement, the Original Note was replaced by
      a
      Consolidated, Amended and Restated Secured Promissory Note, dated as of August
      5, 2005 in the aggregate principal amount of $100,000,000.00 in favor of Lender,
      as agent for each of the lenders under the Receivable Loan Agreement (the
“Current
      Receivable Note”);

     

    WHEREAS,
      Lender and Borrower entered into that certain Loan and Security Agreement,
      dated
      as of December 16, 1999, as amended by that certain First Amendment to Loan
      and
      Security Agreement, dated as of April 17, 2001, as further amended by that
      certain Second Amendment to Loan and Security Agreement, dated as of April
      30,
      2002, as further amended by that certain Letter Amendment, dated as of March
      27,
      2003, and as further amended by that certain Third Amendment to Loan and
      Security Agreement (Inventory Loan), dated as of December 19, 2003
      (collectively, the “Original
      Inventory Loan Agreement”);

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
      pursuant to the Original Inventory Loan Agreement, Lender agreed, subject to
      the
      terms and conditions of the Original Inventory Loan Agreement, to provide to
      Borrower, for the purpose of providing liquidity in connection with Borrower’s
      ownership, purchase and warehousing of Intervals (as such term is hereinafter
      defined), a loan in the maximum amount of $10,000,000 (the “Original
      Inventory Loan”),
      which
      loan was evidenced by Borrower’s Amended and Restated Secured Promissory Note,
      dated as of April 30, 2002 (the “Original
      Inventory Note”);

     

    WHEREAS,
      Lender and Borrower amended and restated the Original Inventory Loan Agreement
      in its entirety pursuant to an Amended and Restated Loan, Security and Agency
      Agreement dated as of March 5, 2004, as amended by that certain Letter
      Amendment, dated as of April 16, 2004, and as further amended by that certain
      Letter Amendment, dated as of July 30, 2004
      (together with the First Amendment and the Second Amendment, as such terms
      are
      hereafter defined, the “Restated
      Inventory Loan Agreement”);
      

     

    WHEREAS,
      pursuant to the Restated Inventory Loan Agreement, Lender agreed, subject to
      the
      terms and conditions of the Restated Inventory Loan Agreement, to provide to
      Borrower, for the purpose of providing liquidity in connection with Borrower’s
      ownership, purchase and warehousing of Intervals, to make an additional
      inventory loan to the borrower in the maximum amount of $8,000,000 (the
“Additional
      Inventory Loan”).
      The
      Original Inventory Loan and the Additional Inventory Loan are evidenced,
      respectively, by the Original Inventory Note, in the original principal amount
      of Ten Million Dollars ($10,000,000), and the Borrower’s Secured Promissory
      Note, dated March 5, 2004, in the original principal amount of Eight Million
      Dollars ($8,000,000) (the “Second
      Inventory Note”);

     

    WHEREAS,
      pursuant to that certain First Amendment to Amended and Restated Loan and
      Security Agreement (Inventory Loan) dated as of February 28, 2005 (the
“First
      Amendment”),
      Lender provided Borrower with an additional inventory loan in the maximum amount
      of $5,000,000 (the “Inventory
      Term Loan”)
      for
      the purpose of the repaying certain receivable credit facilities made by Lender
      to Borrower, which Inventory Term Loan increased the Inventory Loan to
      $21,000,000, and which Inventory Term Loan is evidenced by that certain Secured
      Promissory Note (Inventory Term Loan) dated February 28, 2005 in the original
      principal amount of $5,000,000.00 (the “Inventory
      Term Loan Note”);
      the
      Inventory Term Loan together with the Original Inventory Loan and the Additional
      Inventory Loan are collectively, referred to herein as the “Inventory
      Loan”);

     

    WHEREAS,
      pursuant to that certain Second Amendment to Amended and Restated Loan and
      Security Agreement (Inventory Loan) dated as of October 26, 2005 (the
“Second
      Amendment”),
      Lender agreed to extend the period during which Borrower may obtain advances
      pursuant to the Restated Inventory Loan Agreement and to extend the Final
      Maturity Date under the Restated Inventory Loan Agreement;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
      Lender and Borrower have agreed to enter into this Agreement, as such term
      is
      hereafter defined, to: (A) consolidate, amend and restate the: (i) Receivable
      Loan Agreement and (ii) Restated Inventory Loan Agreement and (B) to provide
      to
      Borrower, subject to the terms and conditions of this Agreement, with
      acquisition financing in the maximum aggregate amount of $20,000,000 for the
      purpose of providing liquidity in connection with Borrower’s acquisition and
      ownership of certain improved and unimproved real property (the “Acquisition
      Loan”);
      and

     

    WHEREAS,
      pursuant to this Agreement: (i) the Current Receivable Note will be replaced
      by
      an Amended and Restated Secured Promissory Note (Receivable Component)(the
      “Receivable
      Note”),
      (ii)
      the Original Inventory Note, the Second Inventory Note and the Inventory Term
      Loan Note will be replaced by an Amended and Restated Secured Promissory Note
      (Inventory Component) (the “Inventory
      Note”)
      and
      (iii) Borrower shall issue and deliver to Lender its Secured Promissory Note
      (Acquisition Component) to evidence the Acquisition Loan (the “Acquisition
      Note”).

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and agreements contained
      in
      this Agreement, and for other good and valuable consideration, the receipt
      and
      adequacy of which are acknowledged, the parties to this Agreement, intending
      to
      be legally bound, agree as follows:

     

    Section
      1-Definition Of Terms

     

    Capitalized
      terms used in this Agreement are defined in this Section
      1.
      The
      definitions include the singular and plural forms of the terms
      defined.

     

    Acquisition
      Loan Component Collateral.
      Collectively, all now owned or hereafter acquired right, title and interest
      of
      Borrower, in all of the following:

     

    (i) the
      Real
      Property;

     

    (ii) documents,
      instruments, accounts, chattel paper, and general intangibles relating to the
      Real Property;

     

    (iii) the
      Receivable Loan Component Collateral;

     

    (iv) the
      Inventory Loan Component Collateral;

     

    (v) the
      Silverleaf Finance II Stock;

     

    (vi) the
      Silverleaf Finance II Subordinated Note;

     

    (vii) all
      books, records, reports, computer tapes, discs and software relating to the
      Acquisition Loan Component Collateral; and

     

    (viii) all
      extensions, additions, improvements, betterments, renewals, substitutions and
      replacements of, for or to any of the Acquisition Loan Component Collateral,
      wherever located, together with the products, proceeds, issues, rents and
      profits thereof, and any replacements, additions or accessions thereto or
      substitutions thereof.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    Acquisition
      Loan Component.
      The
      Acquisition Loan Component shall be that portion of the Loan that may be used
      by
      Borrower to fund the acquisition of the Real Property in an aggregate amount
      not
      to exceed $20,000,000.00, subject to the terms and provisions of this
      Agreement.

     

    Acquisition
      Note.
      The
      term “Acquisition Note” shall have the meaning given to such term in the
      recitals hereto.

     

    Additional
      Eligible Resorts or Additional Eligible Resort.
      The
      terms “Additional Eligible Resorts” and “Additional Eligible Resort” shall have
      the meanings ascribed to such terms in Section 3.5
      hereof.

     

    Advance.
      A
      portion of the proceeds of the Loan advanced from time to time by Lender to
      Borrower in accordance with the terms of this Agreement.

     

    Affiliate.
      Any
      party controlled by, controlling, or under common control with,
      Borrower.

     

    Agreement.
      This
      Consolidated, Amended and Restated Loan and Security Agreement by and between
      Borrower and Lender, as it may be amended from time to time.

     

    Assignment
      of Notes Receivable and Mortgages.
      The
      term “Assignment of Notes Receivable and Mortgages” shall mean a recordable
      Collateral Assignment of Notes Receivable and Mortgages, in the form attached
      hereto as Exhibit A, made by Borrower in favor of Lender, evidencing the
      assignment to Lender, of all of the Pledged Notes Receivable and
      Mortgages.

     

    Borrowing
      Base.
      With
      respect to each Eligible Note Receivable pledged to Lender hereunder in
      connection with each Advance from and after the Effective Date, an amount equal
      to seventy-five percent (75%) of the remaining principal balance of each such
      Eligible Note Receivable.

     

    Business
      Day.
      Each
      day that is not a Saturday, a Sunday or a legal holiday under the laws of the
      State of Rhode Island, the State of Connecticut or the State of
      Texas.

     

    Collateral.
      The
      term “Collateral” shall mean, singly and collectively, the Acquisition Loan
      Component Collateral, the Inventory Loan Component Collateral and the Receivable
      Loan Component Collateral.

     

    Closing
      Date.
      The
      term “Closing Date” shall mean the date hereof.

     

    Code.
      The
      Uniform Commercial Code in force in the State of Rhode Island as amended from
      time to time.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Commitment.
      The
      term “Commitment” shall refer singly to the obligation of Lender to make a Loan
      or Loans to Borrower and collectively to all Loans to be made by Lender to
      Borrower as provided herein. The maximum aggregate Commitment of Lender
      hereunder shall be $100,000,000.00,
      provided, however, that the maximum Commitment of Lender with respect to the
      Acquisition Loan Component shall be $20,000,000.00, the Maximum Commitment
      of
      the Lender with respect to the Inventory Loan Component shall be $40,000,000.00
      and the Maximum aggregate Commitment of Lender with respect to the Acquisition
      Loan Component and the Inventory Loan Component shall be
      $40,000,000.00.

     

    Common
      Elements.
      All
      common elements, including but not limited to any limited common elements,
      as
      each such common element is defined or provided for in the Declaration or other
      Timeshare Documents.

     

    Custodian.
      Wells
      Fargo Bank, National Association having an address of 751 Kasota Ave, MAC#
      N9328-011, Minneapolis, MN 55414, or such other custodial agent as may be
      approved by Lender in writing from time to time. Custodian shall be Lender's
      agent for the purpose of maintaining possession of all present and future
      Collateral documents described in Section
      3
      hereof.

     

    Custodial
      Agreement.
      The
      Custodial and Collateral Agency Agreement, dated as of January 13, 2005 by
      and
      among Lender, Borrower and Custodian, pursuant to which the Custodian is to
      maintain possession of all present and future Collateral documents described
      in
Section
      3
      hereof,
      or any custodial agreement entered into as a replacement of such
      agreement.

     

    Debtor
      Relief Laws.
      Any
      applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
      insolvency, reorganization or similar law, proceeding or device providing for
      the relief of debtors from time to time in effect and generally affecting the
      rights of creditors.

     

    Declaration
      or Declarations.
      With
      respect to each Resort or Real Property, the applicable Declaration or
      Declarations described on Schedule 1.1(a) attached hereto.

     

    Default.
      An
      event or condition the occurrence of which immediately is or, with a lapse
      of
      time or the giving or notice or both, becomes an Event of Default.

     

    Default
      Rate.
      The
      term “Default Rate” shall have the meaning given to such term in the applicable
      Note.

     

    Division
      or Commission.
      The
      governmental authority of each state in which a Resort or any Real Property
      is
      located, having jurisdiction over the establishment and operation of the Resorts
      in question and the sale of Intervals at such Resort.

     

    EBITDA.
      The
      term EBITDA means, with respect to any Person for any period: (a) the sum of
      (i)
      net income (but excluding any extraordinary gains or losses or any gains or
      losses from the sale or disposition of assets other than in the ordinary course
      of business), (ii) interest expense, (iii) depreciation and amortization and
      other non-cash items properly deducted in determining net income, and (iv)
      federal, state and local income taxes, in each case for such Person for such
      period, computed and calculated in accordance with GAAP minus (b) non-cash
      items
      properly added in determining net income, in each case for the corresponding
      period.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Effective
      Date.
      The term
“Effective Date” shall have the meaning given in Section 13.1
      hereof.

     

    Eligible
      Notes Receivable.
      Those
      Pledged Notes Receivable which satisfy each of the following
      criteria:

     

    (i) Borrower
      shall be the sole payee;

     

    (ii) it
      arises
      from a bona fide sale by Borrower of one or more Intervals;

     

    (iii) the
      Interval sale from which it arises shall not have been cancelled by Purchaser,
      and any statutory or other applicable cancellation or rescission period shall
      have expired and the Interval sale is otherwise in compliance with this
      Agreement;

     

    (iv) it
      is
      secured by a Mortgage on the purchased Interval;

     

    (v) principal
      and interest payments on it are payable to Borrower in legal tender of the
      United States;

     

    (vi) payments
      of principal and interest on it are payable in equal monthly
      installments;

     

    (vii) it
      shall
      have an original term of no more than one hundred twenty (120)
      months;

     

    (viii) a
      cash
      down payment has been received from Purchaser or the maker in an amount equal
      to
      at least ten percent (10%) of the actual purchase price of each Interval, and
      Purchaser shall have received no cash or other rebates of any kind;

     

    (ix) no
      monthly installment is more than thirty (30) days contractually past due at
      the
      time of an Advance in respect of such Eligible Note Receivable, or more than
      sixty (60) days contractually past due at any time;

     

    (x) the
      rate
      of interest payable on the unpaid balance is at least the rate required so
      that
      when the Advance is made in respect of such Eligible Note Receivable the average
      interest rate on all Eligible Notes Receivable in respect of which Advances
      are
      outstanding shall not be less than thirteen percent (13%) per annum at any
      time,
      provided, however, that up to two percent (2.0%) of the Pledged Notes Receivable
      at any one time may consist of Notes Receivable that bear interest at a reduced
      rate under the Soldiers and Sailors Civil Relief Act, and any such Notes
      Receivable shall not be included in computing whether the average interest
      rate
      satisfies the foregoing requirement;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (xi) Purchaser
      of the related Interval has immediate access, for the timeshare “unit week”
related to such purchase, to the Interval described in the Mortgage securing
      such Eligible Note Receivable, which Interval has been completed, developed,
      and
      furnished in accordance with the specifications provided in the Purchaser’s
      purchase contract, public offering statement and other Timeshare Documents;
      and
      Purchaser has, subject to the terms of the Declaration, purchase contract,
      public offering statement and other Timeshare Documents, complete and
      unrestricted access to the related Interval and the Resort;

     

    (xii) neither
      Purchaser of the related Interval or any other maker of the Note is an Affiliate
      of, or related to, or employed by Borrower;

     

    (xiii) Purchaser
      or other maker has no claim against Borrower and no defense, set-off or
      counterclaim with respect to the Note Receivable;

     

    (xiv) the
      maximum remaining principal balance of any such Note Receivable shall not exceed
      $35,000 and such Note Receivable shall not be executed by a Purchaser or other
      maker if the total maximum remaining principal balance of the Notes Receivable
      executed by such Purchaser or other maker shall exceed $60,000 in the aggregate
      (or such greater amount as may be approved in writing in advance by Lender);
      provided, however, that up to ten percent (10%) of the outstanding principal
      balances of Pledged Notes Receivable at any one time may consist of a
      combination of “Eligible Larger Notes Receivable” and “Eligible Larger Aggregate
      Notes Receivable”. As used herein, the term “Eligible Larger Notes Receivable”
shall mean Notes Receivable in respect of which: [w] the maximum remaining
      principal balance of any such Note Receivable exceeds $35,000 but does not
      exceed $150,000 (each a “Larger
      Note Receivable”);
      and
      [x] such Note Receivable satisfies all of the other eligibility criteria set
      forth in the Agreement. As used herein, the term “Eligible Larger Aggregate
      Notes Receivable” shall mean Notes Receivable; (y) executed by a Purchaser or
      other maker obligated in connection with a Larger Note Receivable if the
      remaining principal balance of all Notes Receivable executed by such Purchaser
      or other maker does not exceed $250,000; and (z) which satisfy all of the other
      eligibility criteria set forth in this Agreement;

     

    (xv) it
      is
      executed by a U.S. or Canadian resident; provided, however, that no more than
      ten percent (10%) of the outstanding principal balance of all Eligible Notes
      Receivable shall at any time be comprised of Notes Receivable executed by
      Canadian residents, and, to the extent such outstanding principal balance of
      such Notes exceeds ten percent (10%), they shall not be considered Eligible
      Notes Receivable;

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (xvi) the
      original of such Note Receivable has been endorsed to Lender and delivered
      to
      the Custodian as provided in this Agreement, and the terms thereof and all
      instruments related thereto shall comply in all respects with all applicable
      federal and state laws and the regulations promulgated thereunder;

     

    (xvii) the
      Unit
      in which the timeshare Interval being financed or evidenced by such Note
      Receivable is located, shall not be subject to any Lien which is not previously
      consented to in writing by Lender; and

     

    (xviii) if
      the
      loan is a newly originated Eligible Note Receivable which is replacing an
      existing Eligible Note Receivable pledged as Collateral under the Agreement
      and
      the proceeds have been used to finance the purchase of an Interval which is
      being upgraded by the Purchaser to a more expensive Interval: 

     

    (1) the
      principal balance of the existing Eligible Note Receivable which is being
      upgraded may still be included for purposes of calculating the Borrowing Base
      for a period of time expiring on the earlier to occur of (i) the 31st day after
      the consumer documents effecting the upgrade have been executed or (ii) the
      date
      on which any payment on such Eligible Note Receivable becomes thirty (30) or
      more days past due; 

     

    (2) on
      or
      before the second business day after the expiration of the statutory rescission
      period in connection with any consumer documents executed effecting any upgrade
      involving an Eligible Note Receivable and in any event within ten (10) days
      of
      such upgrade, the Borrower shall deliver to the Lender or its designee the
      original of the new promissory note, comparable instrument or installment sale
      contract executed in connection with such upgrade duly endorsed in blank by
      the
      Borrower and the Borrower will cause all payments made with respect to such
      new
      promissory note, comparable instrument or installment sale contract to be
      forwarded to the lockbox; and 

     

    (3) any
      new
      upgraded Note Receivable involving a prior Eligible Note Receivable shall only
      be included as part of the Borrowing Base if the prior Eligible Note Receivable
      has been removed from the Borrowing Base and the new upgraded Note Receivable
      satisfies all conditions for an Eligible Note Receivable.

     

    Encumbered
      Intervals.
      The
      Intervals subject to the Mortgages.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Environmental
      Laws.
      Comprehensive Environmental Response, Compensation and Liability Act of 1980,
      as
      amended from time to time (“CERCLA”),
      the
      Resource Conservation and Recovery Act of 1976, as amended from time to time
      (“RCRA”),
      the
      Superfund Amendments and Reauthorization Act of 1986, as amended, the federal
      Clean Air Act, the federal Clean Water Act, the federal Safe Drinking Water
      Act,
      the federal Toxic Substances Control Act, the federal Hazardous Materials
      Transportation Act, the federal Emergency Planning and Community Right to Know
      Act of 1986, the federal Endangered Species Act, the federal Occupational Safety
      and Health Act of 1970, the federal Water Pollution Control Act, all state
      and
      local environmental laws, rules and regulations of each state in which a Resort
      is located, as all of the foregoing legislation may be amended from time to
      time, and any regulations promulgated pursuant to the foregoing; together with
      any similar local, state or federal laws, rules, ordinances or regulations
      either in existence as of the date hereof, or enacted or promulgated after
      the
      date of this Agreement, that concern the management, control, storage,
      discharge, treatment, containment, removal and/or transport of Hazardous
      Materials or other substances that are or may become a threat to public health
      or the environment; together with any common law theory involving Hazardous
      Materials or substances which are (or alleged to be) hazardous to human health
      or the environment, based on nuisance, trespass, negligence, strict liability
      or
      other tortious conduct, or any other federal, state or local statute,
      regulation, rule, policy, or determination pertaining to health, hygiene, the
      environment or environmental conditions.

     

    Environmental
      Indemnification Agreement.
      The
      term “Environmental Indemnification Agreement” shall mean the Environmental
      Indemnification Agreement made by Borrower to Lender pursuant to this Original
      Loan Agreement, as the same has been and may be amended from time to
      time.

     

    Exchange
      Company.
      Resort
      Condominiums International, Inc. (“RCI”).

     

    Event
      of Default.
      The
      term “Event of Default” shall have the meaning given to such term in Section
8.1
      of this
      Agreement.

     

    Event
      of Non Funding.
      The
      term “Event of Non Funding” shall have the meaning given to such term in Section
2.6
      of this
      Agreement.

     

    Final
      Maturity Date.
      The
      term “Final Maturity Date” shall mean the applicable maturity date of each Loan
      Component as follows: (i) January 31, 2013 with respect to the Receivable Loan
      Component and (ii) January 31, 2012 with respect to each of the Acquisition
      Loan
      Component and the Inventory Loan Component.

     

    Financial
      Statements.
      The tax
      returns and balance sheets and statements of income and expense of Borrower,
      and
      the related notes and schedules delivered by Borrower to Lender prior to the
      date of this Agreement; as provided for in Section 4.4(c)(xvii)
      of this
      Agreement; and the monthly, quarterly and annual financial statements and
      reports required to be provided to Lender pursuant to Section 7.1(h).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    GAAP.
      Generally accepted accounting principles, applied on a consistent basis, as
      described in Opinions of the Accounting Principles Board of the American
      Institute of Certified Public Accountants and/or in statements of the Financial
      Accounting Standards Board which are applicable in the circumstances as of
      the
      date in question.

     

    Hazardous
      Materials.
      “Hazardous substances,” “hazardous waste” or “hazardous constituents,” “toxic
      substances”, or “solid waste”, as defined in the Environmental Laws, and any
      other contaminant or any material, waste or substance which is petroleum or
      petroleum based, asbestos, polychlorinated biphenyls, flammable explosives,
      or
      radioactive materials.

     

    Interest
      Rate.
      The
      Interest Rate on: (i) the Receivable Note shall be a variable rate, adjusted
      as
      of each Prime Rate Determination Date, equal to the Prime Rate, determined
      as of
      each Prime Rate Determination Date and (ii) each of the Acquisition Note and
      the
      Inventory Note shall be a variable rate, adjusted as of each Prime Rate
      Determination Rate, equal to the Prime Rate, determined as of each Prime Rate
      Determination Date, plus one percent (1%) per annum. 

     

    Interval.
      With
      respect to each Resort the undivided fractional fee interval ownership interest
      as a tenant-in-common (sometimes referred to in the Timeshare Documents as
      a
      vacation ownership interest, condoshare interest, or condoshare week) in a
      Unit
      sold to a Purchaser by delivery of a deed for a time-share period per calendar
      year (or, in the case of a biennial use period, per alternate calendar year)
      of
      one week (as defined in the Declaration), together with all appurtenant rights
      and interests, including, without limitation, appurtenant rights to use Common
      Elements, and easement, license, access and use rights in and to all Resort
      facilities and amenities (as described in the Declaration), all as more
      particularly described in the Declaration or other Timeshare Documents.
      Notwithstanding the foregoing, the term “Interval” shall also include, with
      respect to the Oak N’ Spruce Resort only, the beneficial interest in the entity
      which owns each of the Units at the Oak N’ Spruce Resort, as evidenced by the
      delivery to the Purchaser of any such beneficial interest of a certificate
      of
      beneficial interest for a timeshare period per calendar year (or, in the case
      of
      biennial use period, per alternate calendar year) of one week (as defined in
      the
      Oak N’ Spruce Resort Declaration), together with all pertinent rights and
      interests, including, without limitation, a pertinent right to use Common
      Elements, and easements, license, access and use rights in and to all Oak N’
Spruce Resort facilities and amenities, all as more particularly described
      in
      the Declaration or other Timeshare Documents for the Oak N’ Spruce
      Resort.

     

    Interval
      Release Threshold.
      The
      term “Interval Release Threshold” shall mean 110% of the Required Retail Value
      of the Inventory. By way of example only, if the Required Retail Value of the
      Inventory is $66,666,666.66, the Inventory Release Threshold will be
      $73,333,333.33.

     

    Inventory.
      The
      term “Inventory” shall mean the Intervals from Eligible Resorts, fee title to
      which is held by the Borrower and on which Lender is granted a first mortgage
      lien to secure Advances of the Inventory Loan Component.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Inventory
      Loan Component.
      The
      term “Inventory Loan Component” shall mean that certain $40,000,000.00 timeshare
      interval inventory loan provided by Lender to Borrower pursuant to this
      Agreement. 

     

    Inventory
      Loan Component Collateral.
      Collectively, all now owned or hereafter acquired right, title and interest
      of
      Borrower, in all of the following:

     

    (i) the
      Inventory;

     

    (ii) documents,
      instruments, accounts, chattel paper, and general intangibles relating to the
      Inventory;

     

    (iii) the
      Acquisition Loan Component Collateral;

     

    (iv) the
      Receivable Loan Component Collateral;

     

    (v) the
      Silverleaf Finance II Stock;

     

    (vi) the
      Silverleaf Finance II Subordinated Note;

     

    (vii) all
      books, records, reports, computer tapes, disks and software relating to the
      Inventory Loan Component Collateral; and 

     

    (viii) all
      extensions, additions, improvements, betterments, renewals, substitutions and
      replacements of, for or to any of the Inventory Loan Component Collateral,
      wherever located, together with the products, proceeds, issues, rents and
      profits thereof, and any replacements, additions or accessions thereto or
      substitutions thereof.

     

    Inventory
      Mortgage or Inventory Mortgages.
      The
      term “Inventory Mortgage” or “Inventory Mortgages” shall mean, singly and
      collectively, a properly recorded, first priority mortgage, deed of trust,
      deed
      to secure debt, assignment of beneficial interest or other security instrument,
      as applicable, executed and delivered by Borrower to Lender encumbering all
      of
      the right, title and interest of the Borrower in the Intervals and related
      Common Elements, and related or appurtenant easement, access and use rights
      and
      benefits, that is collateral for the Inventory Loan Component.

     

    Inventory
      Note.
      The
      term “Inventory Note” shall have the meaning given to such term in the
      Recitals.

     

    Lien.
      Any
      interest in property securing an obligation owed to, or claim by, a Person
      other
      than the owner of such property, whether such interest arises in equity or
      is
      based on the common law, statute, or contract.

     

    Loan
      or Loans.
      The
      terms “Loan” and “Loans” mean, as the context requires, singly each loan and
      collectively all loans made to Borrower prior to the Effective Date pursuant
      to
      the Receivable Loan Agreement and the Restated Inventory Loan Agreement and
      all
      Loans made to Borrower after the Effective Date under this
      Agreement.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Loan
      Component.
      The
      term “Loan Component” shall mean, singly and collectively, the Acquisition Loan
      Component, the Inventory Loan Component and the Receivable Loan
      Component.

     

    Loan
      Documents.
      Collectively, the following documents and instruments listed below as such
      agreements, documents, instruments or certificates may be amended, renewed,
      extended, restated or supplemented from time to time.

     

    (i) This
      Agreement;

     

    (ii) The
      Receivable Note;

     

    (iii) The
      Inventory Note;

     

    (iv) The
      Acquisition Note;

     

    (v) The
      Environmental Indemnification Agreement;

     

    (vi) The
      Assignment of Notes Receivable and Mortgages;

     

    (vii) The
      Inventory Mortgages;

     

    (viii) The
      Real Property Mortgages;

     

    (ix) The
      Modifications to Inventory Mortgages;

     

    (x) Borrower’s
      Acquisition Certificate and Request for Advance;

     

    (xi) Borrower’s
      Inventory Certificate and Request for Advance;

     

    (xii) Borrower’s
      Receivable Certificate and Request for Advance;

     

    (xiii) The
      Lockbox Agreement;

     

    (xiv) The
      Custodial Agreement;

     

    (xv) The
      Silverleaf II Stock and Subordinated Note Pledge Agreement;

     

    (xvi) Financing
      Statements;
      UCC
      financing statements covering the Collateral, to be filed with the Texas
      Secretary of State and the Secretary of State and/or such other office where
      UCC
      financing statements are required to be filed pursuant to the Code;
      and

     

    (xvii) Other
      Items;
      Such
      other agreements, documents, instruments, certificates and materials as Lender
      may request to evidence the Obligations; to evidence and perfect the rights
      and
      Liens and security interests of Lender, contemplated by the Loan Documents,
      and
      to effectuate the transactions contemplated herein, as such agreements,
      documents, instruments or certificates may be hereafter amended, renewed,
      extended, restated or supplemented from time to time.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Loan
      to Retail Value Ratio.
      The
term
      “Loan
      to
      Retail Value Ratio” shall mean the ratio of the outstanding principal balance of
      the Inventory Loan Component, from time to time, to the Retail Value of the
      Inventory. The maximum Loan to Retail Value Ratio shall be 15%.

     

    Loan
      Year.
      The
      period commencing on the Closing Date through the last day of the next full
      twelve calendar month period and each successive twelve calendar month period
      thereafter during the Loan Term.

     

    Lockbox
      Agent.
      JP
      Morgan Chase Bank, a New York banking association having a place of business
      at
      2200 Ross Avenue, Dallas, Texas 75201, or such other financial
      institution as may be approved by Lender in writing from time to
      time.

     

    Lockbox
      Agreement.
      The
      Lockbox and Servicing Agreement, dated as of December 16, 1999, by and among
      Borrower, Lender, Servicing Agent and Lockbox Agent, pursuant to which the
      Lockbox Agent is to provide lockbox, reporting and related services and is
      to
      provide for the receipt of payments on the Notes Receivable and the disbursement
      of such payments to Lender.

     

    Management
      Agreements.
      Shall
      mean that certain Management Agreement by and between Silverleaf Club and
      Silverleaf Resorts, Inc., dated as of March 28, 1990, as amended to date and
      any
      other management agreement entered into by Borrower or any Affiliate of Borrower
      with respect to any Resort.

     

    Mandatory
      Prepayment.
      Any
      prepayment required by Section 2.5(a)(ii)
      and
      Section 2.5(c)(ii)
      of this
      Agreement.

     

    Marketing
      and Sales Expenses.
      Shall
      mean all promotion, lead generation, sales commissions and all other marketing
      expenses incurred or paid by Borrower pursuant to any marketing agreements
      or
      otherwise.

     

    Mortgage.
      A
      properly recorded, first priority mortgage, deed of trust, deed to secure debt,
      assignment of beneficial interest or other security instrument, as applicable,
      executed and delivered by each Purchaser to Borrower, securing a Pledged Note
      Receivable and encumbering all of the right, title and interest of such
      Purchaser in the related Encumbered Interval and Common Elements, and related
      or
      appurtenant easement, access and use rights and benefits. Lender acknowledges
      that assignments of beneficial interest executed by Purchasers of Intervals
      at
      Oak N’ Spruce Resort after July 2004 will not be recorded. 

     

    Modification(s)
      to Inventory Mortgages.
      Properly recorded amendment and restatement(s) or modification(s) of any
      existing Inventory Mortgages, in form and substance reasonably acceptable to
      Lender, for the purpose of securing the Loan, including the Acquisition Loan
      Component and the Receivable Loan Component.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Net
      Securitization Cash Flow.
      The term
“Net Securitization Cash Flow” shall mean all right, title and interest of
      Silverleaf Finance II, Inc., a wholly owned subsidiary of Borrower, in any
      excess cash flow derived from the Notes Receivable sold by Borrower to
      Silverleaf Finance II, Inc. and then sold by Silverleaf Finance II, Inc. to
      Textron Financial Corporation, as Group Two Lender under the Silverleaf Finance
      II Documents.

     

    Note.
      The
      term “Note” shall mean, singly and collectively, the Acquisition Note, in the
      form and substance attached here as Exhibit B-1, the Inventory Note, in the
      form
      and substance attached here as Exhibit B-2, and the Receivable Note, in the
      form
      and substance attached here as Exhibit B-3, as the case may be.

     

    Note
      Receivable.
      A
      promissory note executed in favor of Borrower in connection with a Purchaser’s
      acquisition of an Interval.

     

    Obligations.
      All
      amounts due or becoming due to Lender in respect of the Loan or Loans under
      any
      of the Loan Documents, including principal, interest, prepayment premiums,
      contributions, taxes, insurance, loan charges, custodial fees, attorneys’ and
      paralegals’ fees and expenses and other fees or expenses incurred by Lender or
      advanced to or on behalf of Borrower by Lender pursuant to any of the Loan
      Documents, and the prompt and complete payment and performance by Borrower
      of
      all obligations, indebtedness and liabilities pursuant to this Agreement or
      any
      of the Loan Documents or otherwise

     

    Operating
      Contract or Operating Contracts.
      As
      defined in Section 6.20.

     

    Operating
      Expenses.
      Shall
      mean the total of all expenditures, computed in accordance with Generally
      Accepted Accounting Principles, of whatever kind relating to the ownership,
      operation, maintenance and management of the Resorts that are incurred on a
      regular monthly or other periodic basis, including, without limitation,
      utilities, ordinary and capital repairs and maintenance, insurance premiums,
      license fees, property taxes and assessments, management fees, payroll and
      related taxes, computer processing charges, operational equipment or other
      lease
      payments as approved by Lender, and other similar costs.

     

    Participant.
      Participant shall mean, singly and collectively, any bank or other entity,
      which
      is indirectly or directly funding Lender with respect to the Loan, in whole
      or
      in part, including, without limitation, any direct or indirect assignee of,
      or
      participant in, the Loan.

     

    Payment
      Authorization Agreement.
      Pre-authorized electronic debit agreement by a Purchaser for payment of a Note
      Receivable.

     

    Person.
      An
      individual, partnership, corporation, limited liability company, trust,
      unincorporated organization, other entity, or a government or agency or
      political subdivision thereof.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    Pledged
      Notes Receivable.
      Any
      Note Receivable which at any time has been pledged to Lender by Borrower
      pursuant to this Agreement or any of the Loan Documents.

     

    Prescribed
      Laws.
      The
      term “Prescribed Laws” shall mean, collectively, (a) the Uniting and
      Strengthening America by Providing Appropriate Tools Required to Intercept
      and
      Obstruct Terrorism Act of 2001 (Public Law 107 56) (the USA PATRIOT Act), (b)
      Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001,
      and relating to Blocking Property and Prohibiting Transactions With Persons
      Who
      Commit, Threaten to Commit, or Support Terrorism, (c) the International
      Emergency Economic Power Act, 50 U.S.C. § 1701 et seq., (d) the Trading with the
      Enemy Act, 50 U.S.C. App. 1 et seq., and (d) all other Legal Requirements
      relating to money laundering or terrorism, and, in each case, any Executive
      Orders or regulations promulgated under any such laws.

     

    Prime
      Rate Determination Date.
      The
      term “Prime Rate Determination Date” shall mean the first day of each month,
      provided, however, that if the first day of any month is not a Business Day,
      than the Prime Rate Determination Date for such month shall be the Business
      Day
      immediately preceding the first day of the month in question. Notwithstanding
      the foregoing, the initial Prime Rate Determination Date shall be the Effective
      Date.

     

    Prime
      Rate.
      The
      highest prime rate of interest from time to time announced or published in
      the
      Money Rates column of the Wall Street Journal (Eastern Edition) (the “WSJ”). In
      the event that the prime rate established by the WSJ shall no longer be
      available, due to either the nonexistence of the WSJ or the WSJ’s failure to
      publish a prime rate, then the Prime Rate shall be the highest prime rate
      published by a major money center bank selected by Lender.

     

    Property
      or Properties.
      Any
      interest in any kind of property or asset, whether real, personal or mixed,
      tangible or intangible.

     

    Purchase
      Price.
      The
      total purchase price of a timeshare Interval, as set forth in the Timeshare
      Documents and Note Receivable relating to the purchase of such
      Interval.

     

    Purchaser.
      Any
      Person who purchases one or more Intervals.

     

    Quarterly
      Financial Report.
      Individually and collectively, as applicable, the financial reports delivered
      in
      accordance with Section 7.1(h)(i).

     

    Real
      Property.
      The
      term “Real Property” shall mean real property, both improved and unimproved,
      purchased by the Borrower using proceeds of an Advance of the Acquisition Loan
      Component in accordance with the terms and conditions of this Agreement.
“Unimproved” Real Property shall mean either raw land or Real Property that is
      partially improved. “Improved” Real Property shall mean Real Property that is
      improved with completed infrastructure and other improvements suitable, in
      Lender’s sole discretion, for use as a timeshare resort or for timeshare
      marketing.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    Real
      Property Mortgages.
      The
      term “Real Property Mortgage(s)” shall mean a first priority mortgage, deed of
      trust, deed to secure debt or other similar instrument granted by Borrower
      to
      Lender, to secure each Advance of the Acquisition Loan Component, in the form
      and substance attached here as Exhibit C and containing such changes and
      modifications as are necessary to reflect the law of the state in which the
      Real
      Property in question is located.

     

    Receivable
      Loan Component Collateral.
      Collectively, all now owned or hereafter acquired right, title and interest
      of
      Borrower, in all of the following:

     

    (i) Pledged
      Notes Receivable and all proceeds of or from them;

     

    (ii) Mortgages
      and all proceeds of or from them;

     

    (iii) documents,
      instruments, accounts, chattel paper, and general intangibles relating to the
      Pledged Notes Receivable and the related Mortgages;

     

    (iv) the
      Inventory Loan Component Collateral;

     

    (v) the
      Acquisition Loan Component Collateral; 

     

    (vi) the
      Silverleaf Finance II Stock;

     

    (vii) the
      Silverleaf Finance II Subordinated Note;

     

    (viii) all
      books, records, reports, computer tapes, discs and software relating to the
      Receivable Loan Component Collateral; and

     

    (ix) all
      extensions, additions, improvements, betterments, renewals, substitutions and
      replacements of, for or to any of the Receivable Loan Component Collateral,
      wherever located, together with the products, proceeds, issues, rents and
      profits thereof, and any replacements, additions or accessions thereto or
      substitutions thereof.

     

    Receivable
      Note.
      The term
“Receivable Note” shall have the meaning given to such term in the
      Recitals.

     

    Release
      Price.
      The
      term “Release Price” shall have the meaning ascribed to such term in Section
2.4(b)(ii).

     

    Retail
      Value.
      The
      term “Retail Value” shall mean the fair market value of the Inventory and each
      Interval constituting part of the Inventory, as determined by Lender in its
      sole
      discretion.

     

    Required
      Retail Value.
      The
      term “Required Retail Value” shall mean the aggregate Retail Value of the
      Inventory, such that the ratio of the outstanding balance of the Loan, from
      time
      to time, to the aggregate Retail Value of the Inventory does not exceed the
      Loan
      to Retail Value Ratio. By way of example, if the outstanding principal balance
      of the Inventory Loan Component were $10,000,000, the Required Retail Value
      of
      the Inventory will be $66,666,666.66.

     

    Resort
      or Resorts (also “Eligible Resort” or “Eligible
      Resorts”).
      Individually and collectively, as applicable, each or all of the interval
      ownership and time-share projects consisting of: (i) (A) Holly Lake Ranch,
      Hawkins, Texas; (B) Piney Shores Resort, Conroe, Texas; (C) Lake O’ The Woods,
      Flint, Texas; (D) Hill Country Resort, Canyon Lake, Texas; (E) Ozark Mountain
      Resort, Kimberling City, Missouri; (F) Holiday Hills Resort, Branson, Missouri;
      (G) Fox River Resort, LaSalle County, Illinois; (H) Timber Creek Resort,
      Jefferson County, Missouri (I) Oak N’ Spruce Resort, South Lee, Massachusetts;
      (J) Apple Mountain Resort, Habersham County, Georgia; (K) The Villages, Flint,
      Texas; (L) Silverleaf’s Seaside Resort, Galveston County, Texas; (M) Orlando
      Breeze Resort, Polk County, Florida (also sometimes individually and
      collectively referred to herein as the “Existing Resorts”) and (ii) subject to
      Lender’s prior written approval and satisfaction by Borrower of the conditions
      precedent set forth in Sections 3.5
      and
4.4
      hereof,
      the Additional Eligible Resorts. The term “Resort” or “Resorts” includes, among
      other things, the undivided annual or (biennial) timeshare ownership interests
      (Intervals) in the respective Resorts, and the appurtenant exclusive rights
      to
      use Units in one or more buildings or phases and all appurtenant or related
      properties, amenities, facilities, equipment, appliances, fixtures, easements,
      licenses, rights and interests, including without limitation, the Common
      Elements, as established by and more fully defined and described in the
      respective Declarations, and the other Timeshare Documents.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Revenues.
      Shall
      mean all proceeds from the sale of Intervals, regardless of whether such
      proceeds are in the form of cash or Notes Receivable.

     

    Revolving
      Loan Term.
      Shall
      mean the period commencing on the Closing Date and ending on January 31,
      2010.

     

    Security.
      Shall
      have the same meaning as in Section 2(1) of the Securities Act of 1933, as
      amended.

     

    Servicing
      Agent.
      Lender’s exclusive agent, which shall be such Person or Persons designated by
      Borrower and approved by Lender in its sole discretion, for the purposes of
      billing and collecting amounts due on account of the Pledged Notes Receivable,
      providing reports pursuant to the Lockbox Agreement and performing other
      servicing functions not performed by the Lockbox Agent. 

     

    Silverleaf
      Club.
      Shall
      mean Silverleaf Club, a Texas non-profit corporation.

     

    Silverleaf
      Finance II Documents.
      Shall
      mean the SPV Loan Agreement, the Developer Transfer Agreement, the Demand Notes
      and all other agreements or documents executed in connection with the TFC
      Conduit Loan, as each may be amended, restated or otherwise modified from time
      to time.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    Silverleaf
      Finance II Stock.
      Shall
      mean all equity interests in Silverleaf Finance II, Inc., all documents,
      certificates or instruments representing any of the foregoing and all cash,
      securities, dividends, rights and other property at any time received or
      receivable in respect of or in exchange for the foregoing, and all proceeds
      of
      the foregoing.

     

    Silverleaf
      Finance II Subordinated Note.
      Shall
      mean the Subordinated Note, dated as of December 19, 2003, payable by SPV to
      the
      order of Silverleaf Resorts, Inc., and any other promissory note issued in
      replacement or restatement thereof, or otherwise issued to evidence SPV’s
      obligation to pay the deferred purchase price of Receivables under the Developer
      Transfer Agreement which is part of the Silverleaf Finance II Documents, in
      each
      case as amended or otherwise modified from time to time, and all proceeds of
      the
      foregoing.

     

    Silverleaf
      Finance II Stock and Subordinated Note Pledge Agreement.
      Shall
      mean the agreement pursuant to which the Silverleaf Finance II Stock and the
      Silverleaf Finance II Subordinated Note is pledged to Lender, as security for
      the Loan.

     

    SPV.
      Shall
      mean Silverleaf Finance II, Inc., a Delaware corporation.

     

    SPV
      Assets.
      Shall
      mean all assets sold or conveyed by Borrower to the SPV pursuant to the
      Silverleaf Finance II Documents.

     

    SPV
      Subordination Agreement.
      Shall
      mean that certain Subordination Agreement relating to Lender’s interest in the
      Silverleaf Finance II Stock and the Silverleaf Finance II Subordinated Note,
      dated as of December 19, 2003 by and among Textron Financial Corporation, in
      its
      capacity as Lender and in its capacity as lender under the Group Two Documents
      (as such term is defined in the SPV Subordination Agreement), as may be amended,
      restated or modified from time to time.

     

    Stock
      and Subordinated Note Pledge Agreement.
      Shall
      mean the agreement pursuant to which all issued and outstanding shares of
      Silverleaf Finance II, Inc.’s capital stock and all right, title and interest in
      such shares, all certificates, instruments or other documents evidencing or
      representing the same and all dividends and distributions therefrom, including
      dividends and distributions paid in stock (the “Silverleaf
      Finance II, Inc. Stock”),
      and
      the subordinated note evidencing Silverleaf Finance II, Inc.’s obligation to pay
      the deferred purchase price of the receivables under the Silverleaf Finance
      II
      Documents are pledged to Lender, as security for the Loan.

     

    Survey.
      A plat
      or survey of the Resorts or the Real Property, as the case may be, prepared
      by a
      licensed surveyor acceptable to Lender and in a form acceptable to
      Lender.

     

    Term.
      The
      period beginning on the Closing Date and ending on the applicable Final Maturity
      Date.

     

    TFC
      Conduit Loan.
      Shall
      mean that certain loan facility provided by Textron Financial Corporation (TFC)
      to SPV in accordance with the terms of the Silverleaf Finance II
      Documents.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    Timeshare
      Act.
      Any
      statute, act, regulation, ordinance, rule or law applicable to the establishment
      and operation of the Resorts and the sales of the Intervals.

     

    Timeshare
      Documents.
      Any
      registration statement required under any Timeshare Act approving the
      establishment and operation of the Resorts and the sales of
      Intervals.

     

    Timeshare
      Owners’ Association.
      With
      respect to each Resort, the applicable not-for-profit corporations described
      on
      Schedule 1.1(b).

     

    Tangible
      Net Worth.
      Tangible Net Worth means, with respect to any Person, the amount calculated
      in
      accordance with GAAP as: (i) the consolidated net worth of such Person and
      its
      consolidated subsidiaries, minus (ii) the consolidated intangibles of such
      Person and its consolidated subsidiaries, including, without limitation,
      goodwill, trademarks, tradenames, copyrights, patents, patent allocations,
      licenses and rights in any of the foregoing and other items treated as
      intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent
      to the Effective Date deferred sales are no longer considered an asset under
      GAAP, Lender agrees, at the request of Borrower, to determine, in its reasonable
      discretion, whether deferred sales should continue to be considered an asset
      for
      purposes of determining Borrower’s Tangible Net Worth.

     

    Total
      Interest Expense.
      For any
      period, the aggregate amount of interest required to be paid or accrued by
      Borrower and its subsidiaries during such period on all indebtedness of Borrower
      and its subsidiaries outstanding during all or any part of such period, whether
      such interest was or is required to be reflected as an item of expense or
      capitalized, including payments consisting of interest in respect of any
      capitalized lease, or any synthetic lease and including commitment fees, agency
      fees, facility fees, balance deficiency fees and similar fees or expenses in
      connection with the borrowing of money.

     

    UCC
      Financing Statements.
      The
      UCC-1 Financing Statements, naming Borrower as debtor and Lender as secured
      party, heretofore or hereafter filed in connection with the Loans and all
      amendments thereto.

     

    Unit.
      With
      respect to each Resort, one living unit in a building incorporated into the
      Resort pursuant to the Declaration, together with all related or appurtenant
      Common Elements and related or appurtenant interests in services, easements
      and
      other rights or benefits, as described and provided for in the Declaration,
      including but not limited to the right to use the Resort amenities and
      facilities in accordance with the Timeshare Documents.

     

    Section
      2-The Loan

     

    2.1 Facility
      Fee.
      Borrower acknowledges and agrees that the following facility fees shall be
      due
      and payable to Lender: (i) with respect to the Receivable Loan Component, a
      facility fee in the amount of $90,000.00 shall be paid to Lender and (ii) with
      respect to the Inventory Loan Component and the Acquisition Loan Component,
      a
      facility fee of $247,000.00 shall be paid to Lender. Borrower acknowledges,
      agrees and confirms that Lender has earned each such facility fee
      notwithstanding whether the Loan or any portion is funded and further agrees
      that the facility fee shall be payable by Borrower to Lender upon execution
      of
      this Agreement by Borrower.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    2.2 Revolving
      Loan and Lending Limits. 

     

    (a) Receivable
      Loan Component:

     

    (i) Revolving
      Loan.
      Upon
      the terms and subject to the conditions set forth in this Agreement, Lender
      agrees during the Revolving Loan Term to make a loan or loans to Borrower with
      respect to the Receivable Loan Component, and Borrower may borrow, repay and
      reborrow during the Revolving Loan Term with respect to the Receivable Loan
      Component.

     

    (ii) Lending
      Limits.
      Subject
      to Section 2.7
      hereof,
      Borrower acknowledges, agrees and confirms that the obligations of Lender to
      make Loans under this Agreement to Borrower is limited to the lesser of: (i)
      the
      Borrowing Base or (ii) the maximum aggregate Commitment of
      $100,000,000.00. 

     

    (iii) Note
      Evidencing Borrower’s Obligations.
      Borrower’s obligations to pay the principal of and interest on the Loan or Loans
      made by Lender with respect to the Receivable Loan Component shall be evidenced
      by the Receivable Note to Lender, which Receivable Note shall be dated as of
      the
      date hereof and be in the principal amount of $100,000,000.00. The Receivable
      Note will mature on the Final Maturity Date applicable to the Receivable Loan
      Component, bear interest as provided in Section 2.3
      hereof
      and be otherwise entitled to the benefits of this Agreement. Notwithstanding
      the
      stated principal amount of the Receivable Note, the aggregate outstanding
      principal amount of the Loan with respect to the Receivable Loan Component
      at
      any time shall be the aggregate principal amount owing on the Receivable Note
      at
      such time. Lender is hereby authorized to record in its internal books and
      records the date and amount of each Advance made by Lender to Borrower with
      respect to the Receivable Loan Component, the interest rate and interest period
      applicable thereto and each repayment thereof; and such books and records shall,
      as between Borrower and Lender, absent manifest error, constitute prima facie
      evidence of the accuracy of the information contained therein. Failure by Lender
      to so record any Advance made by Lender to Borrower with respect to the
      Receivable Loan Component, (or any error in such recordation) or any payment
      thereon shall not affect the Obligations of Borrower under this Agreement or
      under the Receivable Note and shall not adversely affect Lender’s rights under
      this Agreement with respect to the repayment thereof. 

     

    (iv) Making
      of Advances.
      Upon
      receipt by Lender from Borrower of a written request for Advance with respect
      to
      the Receivable Loan Component in accordance with Section
      5
      hereof
      and Borrower’s satisfaction of the requirements set forth in Section
      5
      hereof,
      Lender shall fund
      such
      Advance to Borrower in accordance with Borrower’s written request as provided in
Section
      5
      hereof.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (b) Inventory
      Loan Component.
      Upon
      the terms and subject to the conditions set forth in this Agreement, including,
      but not limited to, Section 2.7
      hereof,
      during the Revolving Loan Term the Lender shall make Advances with respect
      to
      the Inventory Loan Component to the Borrower, and the Borrower may borrow,
      repay
      and in the aggregate reborrow during the Revolving Loan Term, in an amount
      not
      to exceed at any time in the aggregate the lesser of: (i) the Loan to Retail
      Value Ratio of the Required Retail Value of the Inventory or (ii)
      $40,000,000.00.

     

    (c) Acquisition
      Loan Component.
      Upon
      the terms and subject to the conditions set forth in this Agreement, including
      but not limited to Section 2.7
      hereof,
      the Lender shall, in its sole and absolute discretion, make Advances with
      respect to the Acquisition Loan Component to the Borrower, and the Borrower
      may,
      subject to Lender’s approval, borrow, repay and reborrow from the Acquisition
      Loan Component during the Revolving Loan Term in an amount not to exceed at
      any
      time the lesser of (i)[A] with respect to unimproved Real Property, 70% of
      the
      actual cost paid by Borrower for said Real Property; or [B] with respect to
      the
      improved Real Property, 75% of the actual cost paid by Borrower for such Real
      Property or (ii) $20,000,000.00; provided, however, that the fair market value
      of any such property, as determined by Lender in its sole discretion based
      on an
      acceptable appraisal, shall in each case equal or exceed such actual
      costs.

     

    2.3 Interest
      Rate.
      From
      and after the Effective Date, the aggregate principal amount of all Advances,
      that are outstanding from time to time, shall bear interest at the applicable
      Interest Rate. Each Advance shall bear interest at the applicable Interest
      Rate
      as of the date of Lender’s wiring of funds to Borrower through the date of
      Lender’s receipt of repayment of the applicable Loan Component (if received by
      Lender later than 12 noon, Eastern Standard Time, then interest accrual shall
      be
      through the next Business Day following such receipt). Interest will accrue
      daily, and shall be payable monthly in arrears. Immediately upon the occurrence
      of an Event of Default and after the Final Maturity Date (if a Loan Component
      is
      not paid in full on the applicable Final Maturity Date), at Lender’s election in
      its sole discretion, the entire Loan will bear interest at the Default
      Rate. 

     

    2.4 Payments.
      From
      and after the Effective Date, Borrower agrees punctually to pay or cause to
      be
      paid to Lender all principal and interest due under each Note in respect of
      the
      Loans. Borrower shall make the following payments on the Loan:

     

    (a) Receivable
      Loan Component:

     

    (i) Monthly
      Payments.
      Borrower shall direct or otherwise cause all makers of all Pledged Notes
      Receivable to pay all monies due thereunder to the lockbox established pursuant
      to the Lockbox Agreement, or as otherwise required by Lender. One hundred
      percent (100%) of the cleared funds collected from the Pledged Notes Receivable
      each week will be paid to Lender by the Lockbox Agent pursuant to the Lockbox
      Agreement, and will be applied by Lender first to the payment of costs or
      expenses incurred by Lender pursuant to this Agreement in creating, maintaining,
      protecting or enforcing the Liens in and to the Collateral and in collecting
      any
      amounts due to Lender in connection with the Loan (“Collection
      Costs”).
      After
      payment of Collection Costs, Lender shall apply each such payment in the
      following order: (i) to any interest accrued at the applicable Default
      Rate; (ii) then to interest accrued and payable at the applicable Interest
      Rate; and (iii) then to outstanding principal. In the event that the payments
      received by Lender are insufficient to pay the Collection Costs and the amounts
      described in aforementioned clauses (i)-(ii), then Borrower shall pay the
      difference to Lender on or before the fifth (5th) day of the following month.
      In
      the event Borrower receives any payments on any of the Pledged Notes Receivable
      directly from or on behalf of the maker or makers thereof, Borrower shall
      receive all such payments in trust for the sole and exclusive benefit of Lender;
      and Borrower shall deliver to the Lockbox Agent all such payments (in the form
      so received by Borrower) as and when received by Borrower, unless Lender shall
      have notified Borrower to deliver directly to Lender all payments in respect
      of
      the Pledged Notes Receivable which may be received by Borrower, in which event
      all such payments (in the form received) shall be endorsed by Borrower to Lender
      and delivered to Lender promptly upon Borrower’s receipt thereof.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (ii) Final
      Payment.
      The
      entire outstanding principal amount of the Receivable Loan Component, together
      with all other Obligations related to the Receivable Loan Component, shall
      be
      due and payable on the applicable Final Maturity Date.

     

    (b) Inventory
      Loan Component.

     

    (i) Monthly
      Payments.
      The
      Borrower shall pay to Lender, on the first day of each month during the Term,
      commencing on February 1, 2007, interest on the outstanding principal balance
      of
      the Inventory Loan Component, from time to time, at the applicable Interest
      Rate. Lender shall apply each such payment in the following order: (i) to
      the payment of all costs or expenses incurred by Lender pursuant to this
      Agreement in creating, maintaining, protecting or enforcing the Liens in and
      to
      the Collateral and in collecting any amount due to Lender in connection with
      the
      Loan; (ii) to any interest accrued at the Default Rate; (iii) to the
      payment of accrued and unpaid interest at the applicable Interest Rate; and
      (iv) to the reduction of the principal balance of the Inventory Loan
      Component. If the payment received by Lender with respect to any month is
      insufficient to pay in full all amounts due from Borrower to Lender under this
      Section 2.4(b)(i),
      Borrower shall pay the difference to Lender on or before the fifth (5th) day
      after notice from Lender to Borrower advising Borrower of such
      insufficiency.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (ii) Interval
      Release Price Payments.
      Prior
      to the release by Lender of any Interval from the Collateral in accordance
      with
      Section 2.9
      hereof,
      the Borrower shall pay to the Lender an amount equal to the greater of: (i)
      $1,600 for each such Interval, or (ii) an amount necessary to fully repay the
      Loan upon sale of 75% of the Inventory (the “Release
      Price”),
      which
      payment shall be applied by Lender in accordance with Section 2.4(b)(i);
      provided, however, that if the Retail Value of the Inventory, as determined
      by
      the Lender, is equal to or greater than the Interval Release Threshold, the
      Borrower shall not be required to pay a Release Payment with respect to the
      release of any Interval until the expiration of the Revolving Loan
      Term. 

     

    (iii) Final
      Payment.
      The
      entire outstanding principal amount of the Inventory Loan Component, together
      with all other Obligations related to shall be paid in full by not later than
      the applicable Final Maturity Date.

     

    (c) Acquisition
      Loan Component. 

     

    (i) Monthly
      Payments.
      The
      Borrower shall pay to Lender, on the first day of each month during the Term,
      commencing on February 1, 2007, interest on the outstanding principal balance
      of
      the Acquisition Loan Component, from time to time, at the applicable Interest
      Rate. If an Advance of the Acquisition Loan Component is not repaid within
      the
      earlier of (i) two years from the date of such Advance or (ii) the expiration
      of
      the Revolving Loan Term, then the remaining principal balance of such Advance
      will be repaid in equal monthly payments of principal over a three year period,
      together with interest thereon at the applicable Interest Rate, provided
      however, that if such three year period would extend beyond the applicable
      Final
      Maturity Date, such equal monthly payments, together with interest thereon
      at
      the applicable Interest Rate, will be adjusted so that such Advance is paid
      in
      full on or before the applicable Final Maturity Date. Lender shall apply each
      such payment in the following order: (i) to the payment of all costs or
      expenses incurred by Lender pursuant to this Agreement in creating, maintaining,
      protecting or enforcing the Liens in and to the Collateral and in collecting
      any
      amount due to Lender in connection with the Loan; (ii) to any interest accrued
      at the Default Rate; (iii) to the payment of accrued and unpaid interest at
      the applicable Interest Rate; and (iv) to the reduction of the principal
      balance of the Acquisition Loan Component. If the payment received by Lender
      with respect to any month is insufficient to pay in full all amounts due from
      Borrower to Lender under this Section 2.4(c),
      Borrower shall pay the difference to Lender on or before the fifth (5th) day
      after notice from Lender to Borrower advising Borrower of such
      insufficiency.

     

    (ii) Final
      Payment.
      The
      entire outstanding principal amount of the Acquisition Loan Component together
      with all other Obligations shall be paid in full by not later than the
      applicable Final Maturity Date.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    2.5 Prepayments. 

     

    (a) Receivable
      Loan Component. 

     

    (i) Voluntary
      Prepayments.
      Except
      for regular payments of interest and principal as provided hereunder,
      prepayments, (i) shall not be permitted during the Revolving Loan Term, and
      (ii)
      may be made, subject to Section 2.6
      hereof,
      in whole, but not in part, upon five (5) days prior written notice to the Lender
      at any time after the end of the Revolving Loan Term upon payment of the
      applicable Prepayment Premium (whether such prepayment results from voluntary
      payments by Borrower, acceleration, or otherwise); provided, however, that
      (A)
      payments or prepayments of Pledged Notes Receivable made by Purchasers who
      are
      not directly or indirectly solicited by Borrower to make such prepayment shall
      not violate this Section 2.5(a)(i),
      and no
      Prepayment Premium shall be payable as a result of any such payment by
      Purchasers; and (B) if at any time the Borrower wishes to release any Pledged
      Notes Receivable for the purpose of including those Pledged Notes Receivable
      in
      a securitization, pooling or similar conduit transaction, and after 30 days’
prior written notice to Lender, Borrower may prepay the principal balance of
      the
      Loan in whole or in part, to the extent necessary to cause the then current
      outstanding unpaid principal balance of the Loan to be equal to or less than
      the
      Borrowing Base, and, except as provided in Section 2.6
      hereof,
      no Prepayment Premium will be due where such prepayment is the result of a
      securitization closing, as certified by Borrower to Lender. If Borrower
      voluntarily prepays the entire Receivables Loan Component, then Borrower shall
      pay to Lender the fee described in Section 2.6
      hereof,
      shall no longer be entitled to Advances of the Acquisition Loan Component or
      the
      Inventory Loan Component and the outstanding principal balance under the
      Inventory Loan Component and the Acquisition Loan Component shall be repaid
      as
      provided in this Section 2.5(a)(i).

     

    (ii) Mandatory
      Prepayments. 

     

    (1) Overadvances.
      If at any time the outstanding principal balance of the Receivable Loan
      Component exceeds the Borrowing Base or the applicable maximum aggregate
      Commitment, Borrower shall, within five (5) Business Days after notice, either
      (A) prepay the Loan in an amount necessary to reduce the outstanding principal
      balance of the Loan with respect to the Receivable Loan Component to an amount
      within the lending limits set forth in Section 2.2(a)(ii),
      or (B)
      pledge and deliver to Lender such additional or replacement Eligible Notes
      Receivable such that the remaining outstanding principal balance of the Loan
      is
      within the lending limits set forth in Section 2.2(a)(ii).

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (2) Ineligible
      Pledged Notes Receivable. If at any time after the expiration of the Revolving
      Loan Term, Lender determines that any Pledged Notes Receivable which are
      included in the Borrowing Base, do not qualify as Eligible Notes Receivable
      (“Ineligible
      Notes Receivable”),
      then
      Borrower shall, within five (5) Business Days after notice, either (A) prepay
      the Loan in an amount equal to the balance due under such Pledged Note
      Receivable, or (B) replace the Ineligible Note Receivable with an Eligible
      Note
      Receivable having an outstanding aggregate principal balance equal to or in
      excess of the outstanding principal balance of such Ineligible Note Receivable.
      The pledge and delivery to Lender of additional Eligible Notes Receivable shall
      comply with the document delivery and recordation requirements set forth in
      Section 5.1
      of this
      Agreement.

     

    (3) No
      Prepayment Premium. No Prepayment Premium shall be due in connection with any
      mandatory prepayment made in accordance with Sections 2.5(a)(ii)(1)
      or
2.5(a)(ii)(2)
      above.

     

    (iii) Prepayment
      Premium.
      Except
      as specifically set forth in Section 2.5(a)(i)
      above,
      any prepayment of the Loan pursuant to Section 2.5(a)(i)
      above
      must be accompanied by a prepayment premium (the “Prepayment
      Premium”)
      calculated, as of immediately prior to such prepayment, as follows:

     

    
      	
              Date
                of Prepayment

            	 	
              Premium

            
	 	 	 
	
              During
                the first Loan Year after the expiration of the Revolving Loan
                Term;

            	 	
              three
                percent (3%) of the then outstanding balance of the
                Loan;

            
	 	 	 
	
              During
                the second Loan Year after the expiration of the Revolving Loan
                Term;

            	 	
              two
                percent (2%) of the then outstanding balance of the
                Loan;

            
	 	 	 
	
              During
                the third Loan Year after the expiration of the Revolving Loan
                Term;

            	 	
              one
                percent (1%) of the then outstanding balance of the
                Loan;

            
	
              Thereafter
                

            	 	
              Zero

            

    

     

    (iv) Prepayment
      Premium upon Acceleration.
      If the
      Loan is accelerated based on an Event of Default prior to the expiration of
      the
      Revolving Loan Term, or if Borrower undertakes a voluntary prepayment prior
      to
      expiration of the Revolving Loan Term, at Lender’s sole discretion, payments on
      the Loan must include the Prepayment Premium that would be applicable if
      prepayment occurred in the first Loan Year after the expiration of the Revolving
      Loan Term.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (b) Acquisition
      Loan Component.
      The
      Acquisition Loan Component may be repaid in full or in part at any time
      including by a payment from an Advance of the Inventory Loan Component or the
      Receivable Loan Component. Borrower acknowledges, confirms and agrees that
      if
      there is sufficient availability under the Inventory Loan Component and the
      Receivable Loan Component, Borrower agrees that repayment of the Acquisition
      Loan Component shall be made first from an Advance of the Inventory Loan
      Component to the extent that there is availability under the Inventory Loan
      Component and then from availability under the Receivable Loan Component.
      Borrower further acknowledges, confirms and agrees that it shall not repay
      the
      Acquisition Loan Component from any other source while Borrower has availability
      to borrow under the Inventory Loan Component and/or the Receivable Loan
      Component. 

     

    (c) Inventory
      Component. 

     

    (i) Voluntary
      Prepayments.
      Borrower may not voluntarily prepay the Inventory Loan Component, in whole
      or in
      part, except that: (i) provided that no Event of Default shall have occurred
      and
      be continuing and (ii) Borrower pays the Release Price in accordance with
      Section 2.4(b)(ii)
      hereof,
      then at any time during the Term of the Loan, the Inventory Loan Component
      may
      be prepaid in part in connection with any prepayment which arises from release
      of any Interval from the Collateral, subject to Section 2.9
      hereof,
      provided, however, that so long as any prepayment is not made with the proceeds
      of a financing provided to Borrower by any other lender or financial institution
      (other than a securitization or bond offering), Borrower may prepay the
      Inventory Component in part so long as the Inventory Loan Component is not
      paid
      in full and this Agreement has not been terminated.

     

    (ii) Mandatory
      Prepayments. If
      at any
      time and for any reason, the outstanding unpaid principal balance of the
      Inventory Loan Component shall exceed the amount which satisfies the Loan to
      Retail Value Ratio, then, within five (5) Business Days following Borrower’s
      receipt of telecopied notice from Lender of the occurrence of such excess or,
      absent such telecopied notice, within fifteen (15) days after the end of the
      calendar month in which such excess occurred, Borrower shall either: (x) prepay
      the principal balance of the Inventory Loan Component in an amount equal to
      the
      difference between the aggregate principal amount of the Inventory Loan
      Component and the amount necessary to comply with the Loan to Retail Value
      Ratio
      of the Inventory or (y) Borrower shall grant to Lender a first mortgage Lien
      on
      additional Intervals from Eligible Resorts so that the Retail Value of the
      Inventory, including such additional Intervals, equals or exceeds the Required
      Retail Value of the Inventory and the Loan to Retail Value Ratio is satisfied.
      In granting to Lender a first mortgage lien on such additional Intervals,
      Borrower shall comply with the document delivery and recordation requirements
      set forth in Section
      4
      of this
      Agreement and Borrower shall deliver to Lender its written certification that
      the Retail Value of the Inventory, including such additional Intervals, is
      equal
      to or greater than the Required Retail Value and satisfies the Loan to Retail
      Value Ratio. If Borrower elects to prepay the excess principal balance of the
      Inventory Loan Component pursuant to this Section (ii) above, no prepayment
      premium shall be payable in connection with such prepayment.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (iii) Premiums.
      Notwithstanding anything herein contained to the contrary, any prepayment under
      this Section 2.5(c)
      must
      include all accrued but unpaid interest, and accrued but unpaid contributions,
      taxes, insurance, loan charges custodial fees, attorneys’ and paralegals’ fees
      and expenses, and other fees or expenses incurred by Lender or advanced to
      or on
      behalf of Borrower by Lender pursuant to any of the Loan Documents accrued
      but
      unpaid.

     

    2.6 Loan
      Component Ratio.
      Borrower shall maintain, at all times during the term of the Loan, a ratio
      between the outstanding principal balance of the Receivable Loan Component
      and
      the aggregate outstanding principal balances of the Acquisition Loan Component
      and the Inventory Loan Component of 1 to 1 for the trailing 6 month period
      computed monthly. If the 1 to 1 ratio is not maintained for any such six month
      period, and during that same period, the outstanding principal balance of the
      Receivable Loan Component is less than $40,000,000, Borrower shall pay Lender
      a
      fee equal to 1⁄4% of the difference between the outstanding principal balance of
      the Receivable Loan Component and $40,000,000. Furthermore, if either: (i)
      the
      ratio between the outstanding principal balance of the Receivable Loan Component
      and the aggregate outstanding principal balances of the Acquisition Loan
      Component and the Inventory Loan Component shall be less than .5 to 1 or (ii)
      the ratio between the outstanding principal balance of the Receivable Loan
      Component and the outstanding principal balance of the Acquisition Loan
      Component shall be less than 1 to 1 (each an “Event
      of Non Funding”),
      then
      Lender shall not be obligated to loan nor shall Borrower be entitled to borrow
      any Advance of the Inventory Loan Component or the Acquisition Loan
      Component.

     

    2.7 Maximum
      Obligation of Textron Financial Corporation Under the
      Loan.
      Borrower acknowledges, agrees and confirms as follows: (i) notwithstanding
      anything to the contrary in Section 2.2(c)
      hereof
      Lender shall not be obligated to make an Advance of the Acquisition Loan
      Component in excess of $15,000,000.00 with respect to any single Real Property;
      (ii) notwithstanding anything to the contrary in Section 2.2(b)
      and
2.2(c)
      hereof,
      the aggregate principal balance of the Acquisition Loan Component and the
      Inventory Loan Component shall not exceed $40,000,000.00; and (iii)
      notwithstanding anything to the contrary herein, in any other Loan Document
      or
      in any document evidencing or securing the Receivable Loan Component, the
      Inventory Loan Component and/or the Acquisition Loan Component, Lender shall
      not
      be obligated to fund any Advance hereunder, which when taken together with
      the
      loans or advances made by Lender to Borrower under this Agreement, the
      Receivable Loan Agreement and/or the Restated Inventory Loan Agreement would
      cause the aggregate amount of such loans and advances by Lender to Borrower
      to
      exceed a maximum aggregate amount of $100,000,000.00.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    2.8 Suspension
      of Advances. 

     

    (a) Suspension
      of Sales.
      If any
      stay, order, cease and desist order, injunction, temporary restraining order
      or
      similar judicial or nonjudicial sanction shall be issued limiting or otherwise
      materially adversely affecting any Interval sales activities, other business
      operations in respect of the Resorts, or the enforcement of the remedies of
      Lender hereunder, then, in such event, Lender shall have no obligation to make
      any Advances hereunder: (i) in respect of Pledged Notes Receivable from the
      sale
      of Intervals which are the subject of any stay, order, cease and desist order,
      injunction, temporary restraining order or similar judicial or nonjudicial
      sanction has been issued until the stay, order, cease and desist order,
      injunction, temporary restraining order or similar judicial or nonjudicial
      sanction has been lifted or released to the satisfaction of Lender and (ii)
      in
      respect of Pledged Notes Receivable from the sale of Intervals at any Resort
      if:
      (x) the stay, order, cease and desist order, injunction, temporary restraining
      order or similar judicial or nonjudicial sanction in question has not been
      lifted or released to the satisfaction of Lender within sixty (60) days of
      its
      issuance and (y) there is a reduction in the total number of sales of Intervals
      by Borrower in any Loan Year of more than twenty percent (20%) from the total
      number of sales of Intervals in the immediately preceding Loan
      Year.

     

    (b) Change
      in Control.
      If
      there shall occur a change, singly or in the aggregate, of more than fifty
      percent (50%) of the executive management of Borrower as described in Schedule
      2.8(b) hereto, Lender shall have no obligation to make any Advances hereunder,
      unless within thirty (30) days prior thereto Borrower provides Lender with
      written information setting forth the replacement executive management personnel
      of Borrower together with a description of those Persons’ experience, ability
      and reputation, and Lender, acting in good faith, determines that the
      replacement management personnel’s experience, ability and reputation is equal
      to or greater than that of Borrower as set forth on Schedule 2.8(b). Lender
      shall have no obligation to make any Advances hereunder if more than two (2)
      of
      the five (5) Board of Directors’ positions are controlled by the Borrower’s bond
      holders.

     

    2.9 Release
      of Intervals from Inventory.
      Upon
      written request of the Borrower, and provided that no Event of Default shall
      have occurred and be continuing hereunder, Lender shall release from the
      Collateral, one or more Intervals subject to the following conditions: (i)
      payment by Borrower to Lender at the time of such release of the Release Price
      for each such Interval and (ii) the remaining Inventory Loan Component
      Collateral satisfies the Required Retail Value.

     

    2.10 Intentionally
      Omitted

     

    2.11 Partial
      Release of Real Property Mortgages.
      From
      time to time, Lender agrees to consider, at its sole discretion, requests from
      Borrower for a partial release of the lien of any Real Property Mortgage. Such
      release shall be subject to such terms and conditions as Lender may impose
      in
      its sole discretion.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    Section
      3-Collateral

     

    3.1 Grant
      of Security Interest. 

     

    (a) To
      secure
      the payment and performance of the Obligations with respect to each Loan
      Component, for value received, Borrower unconditionally and irrevocably assigns,
      mortgages, conveys, transfers, pledges and grants to Lender:

     

    (i) with
      respect to the Receivable Loan Component, the Receivable Loan Component
      Collateral;

     

    (ii) with
      respect to the Acquisition Loan Component, the Acquisition Loan Component
      Collateral; and

     

    (iii) with
      respect to the Inventory Loan Component, the Inventory Loan Component
      Collateral.

     

    3.2 Financing
      Statements.
      Borrower agrees, at its own expense, to execute the financing statements,
      continuation statements and amendments provided for by the Code together with
      any and all other instruments or documents and take such other action as may
      be
      required to perfect and to continue the perfection of Lender’s security
      interests in the Collateral. Borrower hereby authorizes Lender to execute and/or
      file on Borrower’s behalf any such financing statements, continuation statements
      and amendments.

     

    3.3 Insurance.
      Insurance coverage with respect to the Resort(s) is provided by the Silverleaf
      Club. Borrower shall furnish Lender, upon request, with satisfactory evidence
      that the Units, Buildings and Resorts are adequately insured. Such insurance
      coverage shall insure against such risks, be in such amounts, with such
      companies and on such other terms as Lender may reasonably require. Each such
      policy shall name Lender as an additional insured and loss payee, as its
      interests may appear. Borrower shall also maintain insurance in accordance
      with
      Section 7.1(d)
      hereof.

     

    3.4 Protection
      of Collateral; Reimbursement.
      The
      portion of the Collateral consisting of: (i) the original Pledged Notes
      Receivable, (ii) the original Mortgages, (iii) the original purchase
      contracts (including addendum) related to such Pledged Notes Receivable and
      Mortgages, and (iv) originals or true copies of the related
      truth-in-lending disclosure, loan application, warranty deed, and if required
      by
      Lender, the related Purchaser’s acknowledgement receipt and the Exchange Company
      application and disclosures, shall be delivered at Borrower’s expense to the
      Custodian, and held in Custodian’s possession and control pursuant to the
      Custodial Agreement. All fees and costs arising under the Custodial Agreement
      shall be borne and paid by Borrower; and if Borrower fails to promptly pay
      any
      portion thereof when due, Lender may, at its option, but shall not be required
      to, pay the same and charge Borrower’s account therefor, and Borrower agrees
      promptly to reimburse Lender therefor with interest accruing thereon daily
      at
      the Default Rate. All sums so paid or incurred by Lender for any of the
      foregoing and any and all other sums for which Borrower may become liable
      hereunder and all costs and expenses (including attorneys’ and paralegals’ fees,
      legal expenses and court costs) which Lender may incur in enforcing or
      protecting its Lien on, or rights and interest in, the Collateral or any of
      its
      rights or remedies under this Agreement or any other Loan Document or with
      respect to any of the transactions hereunder or thereunder, until paid by
      Borrower to Lender with interest at the Default Rate, shall be included among
      the Obligations, and, as such, shall be secured by all of the Collateral. Lender
      shall not be liable or responsible in any way for the safekeeping of any of
      the
      Collateral or for any loss or damage thereto or for any diminution in the value
      thereof, or for any act or default of the Custodian, Lockbox Agent, or Servicing
      Agent or any warehouseman, carrier, forwarding agency, or other Person
      whomsoever.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    3.5 Additional
      Eligible Resorts.
      From
      time to time during the Term, Borrower may propose to Lender that one or more
      additional time-share plans and projects owned and operated by Borrower be
      included among the Eligible Resorts in respect of which Advances may be made.
      Any such proposal will be in writing, and will be accompanied or supported
      by
      the due diligence and supporting Borrower, Affiliate, project, financial and
      related information identified in Section 4.4
      hereto,
      and such other information as Lender may require. Borrower will reasonably
      cooperate with Lender’s underwriting and due diligence, and Borrower will be
      responsible for payment upon billing for Lender’s out-of-pocket expenses in
      connection therewith. Subject to Lender’s underwriting and due diligence review,
      including satisfaction of the conditions in Section
      4
      and
Section
      5
      hereof
      as they relate to such additional time-share resorts, Lender may, but shall
      not
      be required to, approve one or more such additional time-share resorts,
      including future phases or condominiums in an Existing Eligible Resort, as
      an
      Eligible Resort qualifying for Advances under and subject to the terms of this
      Agreement and the other Loan Documents.

     

    Subject
      in each instance to Lender’s underwriting and due diligence review, and Lender’s
      prior written approval, any project as may be approved by Lender after the
      Closing Date, if any, is hereinafter referred to as an “Additional Eligible
      Resort”. Any Advances hereunder with respect to any Additional Eligible Resort
      will be subject to all terms and conditions of this Agreement and the other
      Loan
      Documents.

     

    3.6 Modification
      of Eligible Notes Receivable.
      Notwithstanding anything herein to the contrary, Borrower shall have the right
      to modify the interest rate and term only of the Eligible Notes Receivable
      without Lender’s prior consent, provided that: (i) any such change in the rate
      of interest on any one or more Eligible Notes Receivable shall not reduce the
      average interest rate on all Eligible Notes Receivable to less than twelve
      and
      one half percent (12 1⁄2%) per annum at any time; (ii) the term of no Eligible
      Notes Receivable shall be increased to a term longer than one hundred twenty
      (120) months from the date of the first required monthly payment of such
      Eligible Note Receivable, except that with respect to any Eligible Note
      Receivable in respect of which one or more monthly payments have been deferred,
      the term of such Eligible Note Receivable may be extended one month for each
      such deferred payment provided, however, that in no event shall the term of
      such
      Eligible Note Receivable be increased to a term longer than one hundred twenty
      eight (128) months from the date of the first required monthly payment of such
      Eligible Note Receivable; (iii) at no time may Borrower so modify the terms
      of
      Eligible Notes Receivable constituting more than fifteen percent (15%) of the
      outstanding principal balance of all Eligible Notes Receivable at any time.
      Solely for purposes of calculating the foregoing fifteen percent (15%) limit,
      an
      Eligible Note Receivable shall not be considered “to have been modified” if the
      Purchaser in respect of such note: (y) has made at least a ten percent (10%)
      down payment on the Interval and (z) has made at least six (6) monthly payments,
      with at least four (4) payments being made after the date the note was modified;
      (iv) Borrower immediately provides Lender with notice of any such modification
      together with any original documentation evidencing such modification and (v)
      no
      Eligible Note Receivable is modified more than once in any twelve (12) month
      period or more than twice during the term of such Eligible Note
      Receivable.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    3.7 Assumption
      of Obligations under Eligible Notes Receivable.
      Notwithstanding anything herein to the contrary, upon the sale by a Purchaser
      of
      an Interval, the new Purchaser of the Interval may be substituted as obligor
      under the Eligible Note Receivable in question, provided that: (i) said new
      Purchaser assumes in writing all of the obligations of the original obligor
      under the Eligible Note Receivable in question; (ii) the Eligible Note
      Receivable continues to meet all of the criteria for an Eligible Note Receivable
      as set forth herein and (iii) the new Purchaser has made a cash down payment
      equal to at least 10% of the original sales price of the Interval in question,
      which down payment shall be in addition to the cash down payment made by the
      original obligor.

     

    3.8 Purchaser/Criteria.
      All
      Eligible Notes Receivable pledged as Collateral will be underwritten in a manner
      consistent with the Borrower’s general underwriting criteria, as approved in
      writing by Lender, including, without limitation, the requirement for a cash
      down payment of at least 15% of the sales price of the Interval for any
      Purchaser with a FICO indicator less than 600. Borrower shall not materially
      alter its general underwriting criteria without the prior written approval
      of
      Lender, which approval, Lender may withhold in its sole discretion. On a
      semi-annual basis, Borrower shall provide Lender with written certification
      that
      the underwriting criteria as approved by Lender remain in full force and effect
      and have not been revised or altered without Lender’s consent.

     

    3.9 Substitution
      of Inventory.
      Lender
      agrees that Borrower may, from time to time during the Term hereof, replace
      any
      Interval or Intervals by granting to Lender a first mortgage Lien on a new
      Interval or Intervals owned by the Borrower at an Eligible Resort. In granting
      to Lender a first mortgage Lien on any such new Interval or Intervals, Borrower
      shall comply with the document delivery and recordation requirements set forth
      in Section
      4
      of this
      Agreement and Borrower shall deliver to Lender its written certification that
      the Retail Value of the Inventory after any such substitution, is equal to
      or
      greater than the Required Retail Value and satisfies the Loan to Value Ratio.
      In
      connection with any such replacement of Inventory under this Section
3.9
      or
      Section 2.5(c)(i)
      hereof,
      Borrower may propose to Lender that one or more additional time-share plans
      and
      projects owned and operated by Borrower be included among the Eligible Resorts
      .
      Any such proposal will be in writing, and will be accompanied or supported
      by
      the due diligence and supporting Borrower, Affiliate, project, financial and
      related information identified in Section
      4
      hereto,
      and such other information as Lender may require. Borrower will reasonably
      cooperate with Lender’s underwriting and due diligence, and Borrower will be
      responsible for payment upon billing for Lender’s out-of-pocket expenses in
      connection therewith. Subject to Lender’s satisfactory underwriting and due
      diligence review, including satisfaction of the conditions in Section
      4
      and
Section
      5
      hereof
      as they relate to such additional time-share resorts, Lender may, but shall
      not
      be required to, approve one or more such additional time-share resorts,
      including future phases or condominiums in an Existing Eligible Resort, as
      an
      Eligible Resort. Subject in each instance to Lender’s acceptable underwriting
      and due diligence review, and Lender’s prior written approval, any project as
      may be approved by Lender after the Closing Date, if any, is hereinafter
      referred to singly as an “Additional
      Eligible Resort”
and
      collectively as the “Additional
      Eligible Resorts.”

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    3.10 Cross
      Collateralization.
      The
      Collateral secures all of the Obligations of Borrower under this Agreement.
      Upon
      repayment of any Loan Component and the satisfaction by Borrower of all of
      the
      Obligations with respect to any Loan Component, the Collateral shall continue
      to
      secure the remaining Loan Components to the extent outstanding as provided
      herein. 

     

    3.11 Security
      Interest in All Pledged Notes Receivable.
      Lender
      shall have a continuing security interest in all of the Pledged Notes
      Receivable, and Lender may collect all payments made under or in respect of
      all
      such Notes Receivable, including, without limitation, Eligible Notes Receivable
      that are or may become ineligible, until any of the same may be released by
      Lender, if at all, pursuant to Section 12.10
      hereof
      or Section 7.2(a)
      hereof.
      Notwithstanding anything heretofore to the contrary, unless and until an Event
      of Default shall occur, Borrower, as agent for and on behalf of Lender, shall
      retain possession of and collect all payments under or in respect of all Notes
      Receivable. By executing this Agreement, Borrower acknowledges and agrees that
      it is holding such Notes Receivable as bailee and agent for Lender. Borrower
      shall hold and designate such Notes Receivable in a manner that clearly
      indicates that they are being held by Borrower as bailee on behalf of
      Lender. 

     

    3.12 The
      Modification to Inventory Mortgages.
      If
      requested by Lender in order to fully secure the Obligations arising under
      this
      Agreement, including, without limitation, the Obligations arising with respect
      to the Acquisition Loan Component, Borrower shall execute and deliver to Lender,
      in form and substance reasonably acceptable to Lender, the Modifications to
      Inventory Mortgages.

     

    Section
      4-Conditions Precedent To The Closing

     

    4.1 Conditions
      Precedent.
      The
      obligation of Lender under this Agreement and the obligation to fund any
      Advance, including the initial Advance, hereunder shall be subject to the
      satisfaction of each of the following conditions precedent, in addition to
      all
      of the conditions precedent set forth elsewhere in the Loan
      Documents:

     

    (a) Representations,
      Warranties, Covenants and Agreements.
      The
      representations and warranties contained in the Loan Documents are and shall
      be
      true and correct in all respects, and all covenants and agreements have been
      complied with and are correct in all respects, and all covenants and agreements
      to have been complied with and performed by Borrower shall have been fully
      complied with and performed to the satisfaction of Lender.

     

    (b) No
      Prohibited Acts.
      Borrower shall not have taken any action or permitted any condition to exist
      which would have been prohibited by any provision of this Agreement or the
      Loan
      Documents.

     

    (c) No
      Changes.
      That
      all information and documents heretofore delivered by Borrower to Lender with
      respect to Borrower or the Existing Resorts, including information and documents
      delivered in connection with the Original Loan and the Inventory Loan, remain
      true and correct in all respects.

     

    (d) Approval
      of Documents Prior to Effective Date.
      Borrower has delivered to Lender (with copies to Lender’s counsel), and Lender
      has reviewed and approved the form and content of all of the items specified
      in
      Subsection 4.1(d)(i)
      through
4.1(d)(v)
      below
      (the “Submissions”).
      Lender shall have the right to review and approve any changes to the form of
      any
      of the Submissions. If Lender disapproves of any changes to any of the
      Submissions, Lender shall have the right to require Borrower either to cure
      or
      correct the defect objected to by Lender or to elect not to fund the Loan or
      any
      Advance. Under no circumstances shall Lender’s failure to approve or disapprove
      a change to any of the Submissions be deemed to be an approval of such
      Submissions. All of the Submissions were and shall be prepared at Borrower’s
      sole cost and expense, unless expressly stated to be an obligation and expense
      of Lender. Lender shall have the right of prior approval of any Person
      responsible for preparing a Submission (“Preparer”)
      and
      may disapprove any Preparer in its sole discretion, for any reason, including
      without limitation, that Lender believes that the experience, skill, reputation
      or other aspect of the Preparer is unsatisfactory in any respect. All
      Submissions required pursuant to this Agreement shall be addressed to Lender
      and
      include the following language: “THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON
      FINANCIAL CORPORATION IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH
      ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION
      WITH
      THE SUBJECT COLLATERAL.”

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    (i) a
      certificate to be dated as of the Effective Date and signed by the president,
      vice president, or secretary of Borrower, certifying that the conditions
      specified in Sections 4.1(a),
      4.1(b)
      and
4.1(c)
      above
      are true;

     

    (ii) copies
      of
      any amendments to the articles of incorporation of Borrower not previously
      delivered to Lender, certified to be true and complete by Borrower and the
      Secretary of State of the State of Texas and a current certificate of good
      standing for Borrower, and copies of any amendments to the by-laws of Borrower
      not previously delivered to Lender, certified to be true, correct and complete
      by the secretary or assistant secretary of Borrower;

     

    (iii) a
      certificate of the Secretary of Borrower certifying the adoption by the Board
      of
      Directors of Borrower of a resolution authorizing Borrower to enter into and
      execute this Agreement, the Notes, and the other Loan Documents, to borrow
      the
      Loan from Lender, and to grant to Lender a first priority security interest
      in
      and to the Collateral;

     

    (iv) a
      certificate of the secretary or assistant secretary of Borrower certifying
      the
      incumbency, and verifying the authenticity of the signatures, of the specified
      officers of Borrower authorized to sign this Agreement, the Notes and the other
      Loan Documents; and

     

    (v) copies
      or
      other evidence of all loans to Borrower from any officers, shareholders, or
      Affiliates of Borrower not previously delivered to Lender.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (e) Execution
      and Delivery of Loan Documents.
      Borrower shall have delivered to Lender, on or before the Closing Date, the
      following Loan Documents, each of which when required, shall be in recordable
      form:

     

    (i) This
      Agreement;

     

    (ii) Closing
      Opinions for Borrower;

     

    (iii) Receivable
      Note;

     

    (iv) Acquisition
      Note;

     

    (v) Inventory
      Note;

     

    (vi) Environmental
      Indemnification Agreement;

     

    (vii) Other
      Items.
      Such
      other agreements, documents, instruments, certificates and materials as Lender
      may request to evidence the Obligations; to evidence and perfect the rights
      and
      Liens and security interests of Lender contemplated by the Loan Documents,
      and
      to effectuate the transactions contemplated herein.

     

    (f) Effective
      Date Conditions.
      On or
      before the Effective Date, the following conditions shall be
      satisfied:

     

    (i) Outstanding
      Balance.
      The
      Lender’s maximum aggregate Commitment shall be greater than the then aggregate
      outstanding balance under the Receivable Loan Agreement and the Restated
      Inventory Loan Agreement.

     

    (ii) UCC
      Search.
      Lender
      shall have obtained, at Borrower’s cost, such searches of the applicable public
      records as it deems necessary under Texas, and other applicable law to verify
      that it has a first and prior perfected Lien and security interest covering
      all
      of the Collateral. Lender shall not be obligated to fund any Advance if Lender
      determines that Lender does not have a first and prior perfected lien and
      security interest covering any portion of the Collateral, except as expressly
      provided herein.

     

    (iii) Litigation
      Search.
      Lender
      shall have obtained, at Borrower’s cost, an independent search to verify that
      there are no bankruptcy, foreclosure actions or other material litigation or
      judgments pending or outstanding against the Resorts, any portion of the
      Collateral, Borrower, or any Affiliates of Borrower (each a “Material
      Party”).
      The
      term “other material litigation” as used herein shall not include matters in
      which (i) a Material Party is plaintiff and no counterclaim is pending or
      (ii) which Lender determines in its sole discretion exercised in good
      faith, are immaterial due to settlement, insurance coverage, frivolity, or
      amount or nature of claim. Lender shall not be obligated to fund any Advance
      if
      Lender determines that any such litigation is pending.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (iv) Counsel
      Opinion Regarding Title Insurance Policies.
      Borrower shall deliver to Lender, an opinion or opinions of counsel in a form
      acceptable to Lender in Lender’s sole discretion, confirming that: (1) each Lien
      on the Encumbered Intervals from the Resorts in Texas, including: (i) Holly
      Lake
      Ranch, Hawkins, Texas; (ii) Piney Shores Resort, Conroe, Texas; (iii) Lake
      O’
The Woods, Flint, Texas; (iv) Hill Country Resort, Canyon Lake, Texas; (v)
      The
      Villages, Flint, Texas; and (vi) Silverleaf’s Seaside Resort, Galveston County,
      that is perfected by an Inventory Mortgage, will retain the priority interest
      afforded by the original recording of the Inventory Mortgages notwithstanding
      the recording of the modification to the Inventory Mortgage required under
      Section 3.12
      hereof;
      and (2) the modification of the Inventory Mortgages as provided herein will
      not
      impair the coverage afforded by the mortgagee’s title insurance policies
      previously issued in connection with the execution and recordation of the
      Inventory Mortgages, and those policies remain in full force and
      effect.

     

    (v) Insurance.
      Evidence that Borrower is maintaining all policies of insurance required by
      and
      in accordance with Section 7.1(d)
      hereof,
      including copies of the most current paid insurance premium
      invoices;

     

    (vi) Governmental
      Permits.
      To the
      extent not previously delivered to Lender, copies of all applicable government
      permits, approvals, consents, licenses and certificates with respect to the
      use
      and operation of the Resorts;

     

    (vii) Taxes.
      Evidence satisfactory to Lender that all taxes and assessments owed by or for
      which Borrower is responsible for collection had been paid with respect to
      the
      Resorts and the Collateral, including but not limited to sales taxes, room
      occupancy taxes, payroll taxes, personal property taxes, excise taxes,
      intangible taxes, real property taxes and any assessments related to the resorts
      or the Collateral. Copies of the most current tax bills for the Resorts shall
      be
      provided to Lender;

     

    (viii) Title
      Insurance Policies.
      Within
      90 days after the Closing Date the Borrower shall deliver to Lender, with
      respect to each parcel of real property comprising the Inventory from the
      Resorts in Missouri, Florida, Illinois and Georgia, including: (i) Ozark
      Mountain Resort, Kimberling City, Missouri; (ii) Holiday Hills Resort, Branson,
      Missouri; (iii) Timber Creek Resort, Jefferson County, Missouri; (iv) Fox River
      Resort, LaSalle County, Illinois; (v) Orlando Breeze and (vi) Apple Mountain
      Resort, Habersham County, Georgia; a new mortgagee’s title insurance policy (the
“Inventory
      Title Policy”
or
      an
      endorsement to the existing mortgagee’s title insurance policy updating each
      applicable policy previously issued with respect to the Inventory through the
      date that the modifications required under Section 4.1(f)(ix) hereof are duly
      recorded in the applicable land records for each state in which the Inventory
      is
      located (the “Inventory
      Title Endorsement”).
      If an
      Inventory Title Policy is obtained, each such Inventory Title Policy shall:
      (i)
      be in an amount equal to the full amount required for such title insurance
      under
      the Inventory Loan; (ii) insure the Inventory Mortgages as modified in
      accordance with Section 3.12 hereof; and (iii) be issued by companies and in
      form and substance satisfactory to Lender in its sole discretion. If an
      Inventory Title Endorsement is obtained, each such Inventory Title Endorsement
      shall: (i) insure that the modification of the Inventory Mortgages as provided
      herein will not impair the coverage afforded by endorsed title insurance
      policies, and that those policies remain in full force and effect; (ii) insure
      that the modification of the Inventory Mortgages as provided herein will not
      impair the lien of the insured mortgage; and (iii) be issued by companies and
      in
      form and substance satisfactory to Lender in its sole discretion. Borrower
      shall
      be responsible for the payment of all costs and expenses of the foregoing
      Inventory Title Policy and/or Endorsement.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    (ix) Recording
      of Modifications to Inventory Mortgages.
      The
      Modifications to Inventory Mortgages, in the form and substance attached here
      as
      Exhibit D, shall be duly recorded in the applicable land records for each state
      in which the Inventory is located.

     

    4.2 Expenses.
      Borrower shall have paid all fees and expenses required to be paid pursuant
      to
      this Agreement. Lender shall have no obligation to fund any Loan or make any
      Advance unless the amount of the Advance, together with any moneys paid by
      Borrower, is sufficient to satisfy all fees and expenses required to be paid
      pursuant to this Agreement.

     

    4.3 Proceedings
      Satisfactory.
      Except
      as expressly provided herein, Borrower shall execute all of the Loan Documents
      approved by Lender on the Closing Date, and all actions taken in connection
      with
      the execution or delivery of the Loan Documents, and all documents and papers
      relating thereto, shall be satisfactory to Lender and its counsel. Lender and
      its counsel shall have received copies of such documents and papers as Lender
      or
      such counsel may reasonably request in connection therewith, all in form and
      substance satisfactory to Lender and its counsel.

     

    4.4 Conditions
      Precedent to Funding of Advances with Respect to Additional Eligible
      Resorts.
      As
      provided in Section 3.5
      hereof,
      Borrower may propose to Lender that Lender approve one or more additional
      timeshare plans for inclusion hereunder as an Additional Eligible Resort in
      respect of which Advances may be made. The obligation of Lender to fund any
      Advances with respect to an Additional Eligible Resort shall be subject to
      the
      satisfaction of each of the following conditions precedent, in addition to
      all
      of the conditions precedent set forth elsewhere in the Loan
      Documents:

     

    (a) Representations,
      Warranties, Covenants and Agreements.
      The
      representations and warranties contained in the Loan Documents are and shall
      be
      true and correct in all respects, and all covenants and agreements have been
      complied with and shall be correct in all respects, and all covenants and
      agreements to have been complied with and performed by Borrower shall have
      been
      fully complied with and performed to the satisfaction of Lender.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    (b) No
      Prohibited Acts.
      Borrower shall not have taken any action or permitted any condition to exist
      which would have been prohibited by any provision of the Loan
      Documents.

     

    (c) Approval
      of Documents Prior to Advance.
      Borrower has delivered or caused to be delivered to Lender (with copies to
      Lender’s counsel), at least fifteen (15) Business Days prior to the date of each
      Advance, and Lender has reviewed and approved, at least five (5) Business Days
      prior to the date of each Advance, the form and content of all of the items
      specified in each of the Submissions required pursuant to this Section
4.4.
      Lender
      shall have the right to review and approve any changes to the form of any of
      the
      Submissions. If Lender disapproves of any changes to any of the Submissions,
      Lender shall have the right to require Borrower either to cure or correct the
      defect objected to by Lender and to not fund the Loan or any Advance. Under
      no
      circumstances shall Lender’s failure to approve or disapprove a change to any of
      the Submissions be deemed to be an approval of such Submissions. All of the
      Submissions were and shall be prepared at Borrower’s sole cost and expense,
      unless expressly stated to be an obligation and expense of Lender. Lender shall
      have the right of prior approval of any Preparer and may disapprove any Preparer
      in its sole discretion, for any reason, including without limitation, that
      Lender believes that the experience, skill, reputation or other aspect of the
      Preparer is unsatisfactory in any respect. All Submissions required pursuant
      to
      this Agreement shall be addressed to Lender and include the following language:
      “THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION IS RELYING
      ON
      THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN
      TO
      SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT
      COLLATERAL.”

     

    (i) a
      certificate in the form attached as Exhibit G, to be dated as of the date of
      each such Advance and signed by the president, chief financial officer, chief
      operating officer, vice president, or secretary of Borrower, certifying that
      the
      conditions specified in Sections 4.4(a)
      and
4.4(b)
      above
      are true;

     

    (ii) copies
      of
      the articles of incorporation of Borrower, together with any amendments thereto
      certified to be true and complete by Borrower and the Secretary of State of
      the
      State of Texas, a current certificate of good standing for Borrower issued
      by
      the Secretary of State of the State of Texas, a current certificate of authority
      to conduct business issued by the secretary of state in each state in which
      Borrower conducts business, and copies of the by-laws of Borrower certified
      to
      be true, correct and complete by the secretary or assistant secretary of
      Borrower;

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    (iii) a
      Survey
      for each Additional Eligible Resort for which Eligible Notes Receivable are
      being pledged to Lender in connection with the Advance in question;

     

    (iv) a
      certificate of the secretary or assistant secretary of Borrower certifying
      the
      adoption by the board of directors thereof, respectively, of a resolution
      authorizing the addition of the Resort in question as an Additional Eligible
      Resort and to authorize Borrower to enter into, execute and deliver any
      Documents in connection therewith;

     

    (v) a
      certificate of the secretary or assistant secretary of Borrower certifying
      the
      incumbency, and verifying the authenticity of the signatures, of the specified
      officers of Borrower authorized to sign all documents required in connection
      with such Additional Eligible Resort as required pursuant to this Section
4.4;

     

    (vi) an
      inspection report or reports covering each Additional Eligible Resort for which
      Eligible Notes Receivable are being pledged to Lender in connection with the
      Advance in question, including without limitation all real property and personal
      property subject to the Declaration and all adjacent property,
      confirming:

     

    (1) the
      absence of Hazardous Materials on the personal property and real property
      comprising each such Additional Eligible Resort;

     

    (2) that
      the
      inspection firm has obtained, reviewed and included within its report a CERCLIS
      printout from the Environmental Protection Agency (the “EPA”),
      statements from the EPA and other applicable state and local authorities and
      a
      Phase I Environmental Audit, all of which information shall confirm that there
      are no known or suspected Hazardous Materials located at, used or stored on,
      or
      transported to or from each such Additional Eligible Resort or in such proximity
      thereto as to create a material risk of contamination of each such Additional
      Eligible Resort;

     

    (vii) evidence
      that Borrower is maintaining all policies of insurance required by and in
      accordance with Section 7.1(d)
      hereof,
      including copies of the most current paid insurance premium
      invoices;

     

    (viii) evidence
      that Borrower and the Timeshare Documents for each Additional Eligible Resort
      for which Eligible Notes Receivable are being pledged to Lender in connection
      with the Advance in question are in compliance with all applicable laws in
      connection with its sales of Intervals, including without limitation, the
      Timeshare Acts;

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    (ix) a
      current
      preliminary title report or certificate of title for each Additional Eligible
      Resort for which Eligible Notes Receivable are being pledged to Lender in
      connection with the Advance in question, with copies of all title
      exceptions;

     

    (x) copies
      of
      all applicable governmental permits, approvals, consents, licenses, and
      certificates for the establishment of each Additional Eligible Resort for which
      Eligible Notes Receivable are being pledged to Lender in connection with the
      Advance in question as timeshare projects in accordance with the applicable
      Timeshare Act, and for the occupancy and intended use and operation of each
      such
      Additional Eligible Resort, including the Units, including a letter
      certification from Borrower regarding zoning classification and compliance,
      letters or other satisfactory evidence from utility companies, governmental
      entities or other persons confirming that water, sewer (sanitary and storm),
      electricity, solid waste disposal, telephone, police, fire and rescue services
      are being provided to each Resort, and any business licenses necessary for
      operation of each such Additional Eligible Resort;

     

    (xi) certified
      true, correct and complete copies of all of the Timeshare Documents for each
      Additional Eligible Resort for which Eligible Notes Receivable are being pledged
      to Lender in connection with the Advance in question;

     

    (xii) evidence
      satisfactory to Lender that all taxes and assessments owed by or for which
      Borrower is responsible for collection have been paid, including but not limited
      to sales taxes, room occupancy taxes, payroll taxes, personal property taxes,
      excise taxes, intangibles taxes, real property taxes, and income taxes, and
      any
      assessments related to each Additional Eligible Resort for which Eligible Notes
      Receivable are being pledged to Lender in connection with the Advance in
      question and copies of the most current paid tax bills for each such Additional
      Eligible Resort evidencing that each such Additional Eligible Resort have been
      segregated from all other property on the applicable municipal
      taxrolls;

     

    (xiii) written
      confirmation from an architect covering each Additional Eligible Resort, for
      which Eligible Notes Receivable are being pledged to Lender in connection with
      the Advance in question as to the physical condition of the improvements at
      each
      such Additional Eligible Resort, including that soil conditions are sufficient
      to support all existing and any contemplated improvements to the real property;
      which written confirmation shall be in form and substance reasonably acceptable
      to Lender;

     

    (xiv) such
      credit references on Borrower as Lender deems necessary in its sole
      discretion;

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    (xv) copies
      or
      other evidence of all loans to Borrower from any officers, shareholders, or
      Affiliates of Borrower, if any;

     

    (xvi) a
      commitment to issue Mortgagee Title Policies from Title Company for each such
      Additional Eligible Resort. Notwithstanding anything heretofore to the contrary,
      Lender agrees that Borrower shall not be required to provide such a commitment
      or a Mortgagee Title Insurance Policy with respect to Oak N’ Spruce Resort and
      any Additional Eligible Resort that is structured in a manner similar to Oak
      N’
Spruce Resort. Notwithstanding anything heretofore to the contrary, if any
      claim, lien, encumbrance, charge or other matter arises with respect to any
      Interval or Intervals for which an Eligible Note Receivable has been pledged
      to
      Lender pursuant to this Agreement, then, in such event:

     

    (a)
      the
      Note Receivable with respect to the Interval in question shall cease to be
      an
      Eligible Note Receivable and Borrower immediately shall either replace the
      Note
      Receivable in question or make a Mandatory Prepayment as provided in Section
      2.5(a)(ii)
      hereof;
      and

    

    (b)
      the
      Resort at which the Interval in question is located shall cease to be an
      Additional Eligible Resort, unless and until Borrower shall cure any such claim,
      lien, encumbrance, charge or other matter to the satisfaction of Lender.
      Furthermore, any and all further requests for Advances in respect of such Resort
      must be accompanied by satisfactory Mortgagee Title Policies for all Intervals
      with respect to which such Advances are requested.

    

    (xvii) the
      Financial Statements;

     

    (xviii) to
      the
      extent not previously delivered hereunder, Borrower will execute, or cause
      to be
      executed with respect to each Additional Eligible Resort, an Assignment of
      Notes
      Receivable and Mortgages, Borrower’s Affidavit with Respect to the Additional
      Eligible Resorts and an Environmental Indemnification Agreement;

     

    (xix) with
      respect to any improvements, including any Units, constructed at a Resort within
      the twenty-four month period prior to any Advance with respect to an Additional
      Eligible Resort, Borrower shall also deliver to Lender, for its approval, such
      documents and instruments as Lender may reasonably request in connection with
      such newly constructed improvements, including, without limitation, copies
      of
      building permits, plans and specifications, construction and architectural
      contracts, title insurance insuring over, among other things, mechanics liens,
      certificates of occupancy and satisfactory evidence of the completion of such
      improvements;

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    (xx) such
      other documents, instruments, agreements, tests, reports and inspections as
      Lender may require with respect to Borrower or any applicable Affiliate, the
      Loan or any Resort, including any Additional Eligible Resort; and

     

    (xxi) upon
      request of Lender, Borrower shall deliver to Lender evidence, satisfactory
      to
      Lender, that there is no material litigation, written complaint, suit, action,
      written claim or written charge pending against Borrower or any Affiliate with
      any court or with any governmental authority with respect to the Resorts, the
      Timeshare Documents, any Eligible Notes Receivable, any Interval, or any
      marketing, offer or sale of any Interval.

     

    (d) Physical
      Inspection.
      Lender
      shall be satisfied with its physical inspection of the Additional Eligible
      Resorts.

     

    (e) UCC
      Search.
      Lender
      shall have obtained, at Borrower’s cost, such searches of the applicable public
      records as it deems necessary under all applicable law to verify that it has
      a
      first and prior perfected Lien and security interest covering all of the
      Collateral. Lender shall not be obligated to fund any Advance if Lender
      determines that Lender does not have a first and prior perfected lien and
      security interest covering any portion of the Collateral, except as expressly
      provided herein.

     

    (f) Litigation
      Search.
      Lender
      shall have obtained, at Borrower’s cost, an independent search to verify that
      there are no bankruptcy, foreclosure actions or other material litigation or
      judgments pending or outstanding against the Additional Eligible Resorts, any
      portion of the Collateral, Borrower, or any Affiliate, (each a “Material
      Party”).
      The
      term “other material litigation” as used herein shall not include matters in
      which (i) a Material Party is plaintiff and no counterclaim is pending or (ii)
      which Lender determines, in its sole discretion, exercised in good faith, are
      immaterial due to settlement, insurance coverage, frivolity, or amount or nature
      of claim. Lender shall not be obligated to fund any Advance if it determines
      that any such litigation is pending.

     

    (g) Opinions
      of Borrower’s Counsel.
      Borrower shall deliver to Lender, for the benefit of Lender, at Borrower’s sole
      cost and expense, such opinions of counsel, including counsel admitted in each
      state in which each Additional Eligible Resort is located, as to such matters
      with respect to Borrower and each Additional Eligible Resort as Lender may
      request, and in form and substance acceptable to Lender in its sole
      discretion.

     

    (h) Funding
      Procedure.
      Borrower shall have complied to Lender’s satisfaction with each of the
      conditions precedent to funding of an Advance set forth in Section
      5
      hereof.

     

    (i) Management
      of Resort.
      Borrower shall provide evidence satisfactory to Lender that Borrower, or an
      Affiliate, is the manager or operator of each Resort, pursuant to a written
      management or operating agreement, in form and substance satisfactory to Lender,
      which with respect to all Resorts shall have a term that shall expire no earlier
      than January 31, 2014. Borrower agrees to provide to Lender an estoppel letter,
      in form and substance acceptable to Lender, from the applicable Timeshare
      Owner’s Association.

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    (j) Other
      Items.
      Such
      other agreements, documents, instruments, certificates and materials as Lender
      may request to determine the acceptability of any such Additional Eligible
      Resort, to evidence the Obligations, to evidence and perfect the rights and
      Liens and security interests of Lender contemplated by the Loan Documents,
      and
      to effectuate the transactions contemplated herein, including, without
      limitation, true copies of all Resort Documents for each such Additional
      Eligible Resort, all Timeshare Documents and operating and management contracts
      and agreements, evidence of compliance with the applicable Timeshare Act and
      other applicable laws, evidence of all required governmental licenses and
      permits; title searches; title commitments or policies, including complete
      and
      legible copies of each title exception, engineering, environmental and soil
      reports and evidence of compliance with all applicable zoning and building
      codes; each of which shall be satisfactory to Lender in its sole and absolute
      discretion.

     

    Section
      5-Funding Procedure

     

    5.1 The
      obligation of Lender to make any loan shall be subject to the satisfaction
      of
      all of the following conditions precedent:

     

    (a) Receivable
      Loan Component.

     

    (i) Requests
      for Advances.
      Each
      request for an Advance shall:

     

    (1) be
      in
      writing in form attached hereto as Exhibit E-1 and shall certify the amount
      of
      the then-current Borrowing Base and specify the principal amount of the Advance
      requested and designate the account to which the proceeds of such Advance are
      to
      be transferred;

     

    (2) state
      that the representations and warranties of Borrower contained in the Agreement
      and any closing or funding related certifications are true and correct as of
      the
      date of the request and, after giving effect to the making of such requested
      Advance, will be true and correct as of the date on which the requested Advance
      is to be made;

     

    (3) state
      that a majority of the Eligible Notes Receivable pledged as Collateral for
      the
      Advance in question have been made by Purchasers with a minimum annual income
      as
      follows: $35,000.00 for Purchasers residing in the State of Texas, $40,000.00
      for Purchasers residing in the State of Illinois and $45,000.00 for Purchasers
      residing in the State of Massachusetts; further state that the weighted average
      of the FICO indicators of all Purchasers for the Advance in question with
      respect to which a FICO indicator can be obtained is not less than 640, provided
      that the aggregate outstanding principal of Eligible Notes Receivable pledged
      to
      Lender with respect to which a FICO indicator can not be obtained does not
      exceed 10% of the aggregate outstanding principal balance of all Eligible Notes
      Receivable pledged to Lender;

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    (4) state
      that no Default or Event of Default exists as of the date of the request and,
      after giving effect to the making of such requested Advance, no Default or
      Event
      of Default would exist as of the date on which the requested Advance is to
      be
      made;

     

    (5) be
      delivered to the office of Lender at least five (5) Business Days prior to
      the
      date of the requested Advance;

     

    (6) be
      signed
      by a principal financial officer of Borrower;

     

    (7) certify
      that Borrower has no knowledge of any asserted or threatened defense, offset,
      counterclaim, discount or allowance in respect of each Note Receivable to be
      pledged in connection with such requested Advance, or in respect of any of
      the
      Pledged Notes Receivable;

     

    (8) contain
      an aging report of the Pledged Notes Receivable; identifying, among other
      things, which among them are Eligible Notes Receivable; and

     

    (9) contain
      a
      delinquency report which shall be in form and substance satisfactory to Lender
      and shall show which of such Notes Receivable is delinquent and the duration
      of
      such delinquency, and which of such Pledged Notes Receivable is not an Eligible
      Note Receivable.

     

    (ii) Loan
      Documents/Collateral.
      Not
      less than five (5) Business Days prior to the date of any Advance, Borrower
      shall have:

     

    (1) delivered
      to Lender a list of all Eligible Notes Receivable and related Mortgages which
      are to be the subject of such requested Advance, indicating the unpaid principal
      balance owing on each of the Pledged Notes Receivable deemed to be an Eligible
      Note Receivable, together with such additional information as Lender may
      require;

     

    (2) delivered
      to Lender (or, if Lender shall so instruct, a designee appointed by Lender
      in
      writing) (A) the original of each Pledged Note Receivable (duly endorsed
      with the words “Pay to the order of Textron Financial Corporation with
      recourse”), (B) the original of each Mortgage securing such Pledged Notes
      Receivable, (C) the original of each purchase contract (including addenda)
      relating to the Pledged Notes Receivable and Mortgages, (D) originals or
      true copies of the related truth-in-lending disclosures, loan application,
      warranty deed, Payment Authorization Agreement and, if required by Lender,
      the
      related Purchaser’s acknowledgement, receipt and exchange company application,
      disclosures and materials, and (E) with respect to each Eligible Note Receivable
      from the sale of Intervals at Oak N’ Spruce: (i) the original UCC-1 Financing
      Statement, naming the Purchaser of the Interval giving rise to the Eligible
      Note
      Receivable as debtor and Borrower as secured party (the “Purchaser
      Financing Statement”),
      perfecting Borrower’s security interest in the applicable Interval to secure the
      Purchaser’s obligations under the Eligible Note Receivable and (ii) a UCC-3
      Assignment, naming Borrower as assignor and Lender as assignee, assigning to
      Lender, all of Borrower’s right, title and interest under each Purchaser
      Financing Statement;

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    (3) delivered
      to Lender a duly executed Assignment of Notes Receivable and Mortgages assigning
      to Lender all of Borrower’s right, title and interest in and to each such
      Pledged Note Receivable and the related Mortgage; and

     

    (4) subject
      to Section 4.4(c)(xvi)
      and
      Section 5.1(a)(vi)
      hereof,
      delivered to Lender, with respect to each Encumbered Interval, a commitment
      for
      a Mortgagee’s Title Policy showing that the Mortgage in respect of such Interval
      has been assigned to Lender and insuring in favor of Borrower the first priority
      Lien of such Mortgage in the amount of the Advance to be made in respect of
      such
      Pledged Note Receivable, with a satisfactory title insurance policy to be issued
      within sixty (60) days from the date of the Advance.

     

    The
      Mortgages and the assignments thereof to Lender shall each have been duly
      recorded in the applicable land records. The Mortgagee’s Title Policies shall be
      in form and substance satisfactory to Lender and shall be issued by a title
      insurance company satisfactory to Lender (the “Title
      Company”),
      and
      name Borrower as the insured party therein. The funding of the requested
      Advance, delivery of the Receivable Loan Component Collateral and issuance
      of
      the title insurance policy, and recording of the assignments or any releases
      may, in Lender’s discretion, be effected by way of an escrow arrangement with
      the Title Company or other fiduciary, the form and substance of which shall
      be
      satisfactory to Lender.

     

    (iii) Other
      Conditions.
      In
      addition to the other conditions set forth in this Agreement, the making of
      the
      initial or any requested Advance shall be subject to the satisfaction of the
      following conditions:

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    (1) no
      Default or Event of Default shall exist immediately prior to the making of
      such
      requested Advance or, after giving effect thereto, immediately after the making
      of such requested Advance;

     

    (2) each
      agreement required to have been executed and delivered in connection with any
      prior Advance shall be consistent with the terms of this Agreement and shall
      be
      in full force and effect;

     

    (3) the
      date
      on which such requested Advance is to be made shall be a Business
      Day;

     

    (4) Borrower
      shall have delivered to Lender a certification showing the dollar amount of
      the
      requested Advance based on the Eligible Notes Receivable pledged to Lender,
      and
      the Notes Receivable being pledged contemporaneously with each requested Advance
      in the form attached hereto as Exhibit D;

     

    (5) not
      more
      than one Advance shall have previously been made in the same calendar month
      in
      which such requested Advance is to be made, unless Lender, in its sole
      discretion, agrees to make an additional Advance during such calendar
      month;

     

    (6) such
      requested Advance shall be in a principal amount of not less than $50,000,
      unless Lender, in its sole discretion, agrees to make an Advance in an amount
      less than $50,000;

     

    (7) Lender
      shall have determined that the requested Advance, when added to the aggregate
      outstanding principal amount of all previous Advances, if any, does not, based
      on the Eligible Notes Receivable that have been duly pledged in favor of Lender
      exceed the lesser of: (i) total amount of the Borrowing Base, or (ii)
      $100,000,000, subject to Section 2.7;
      and

     

    (8) if
      Lender
      shall so require, Lender shall have received an executed closing protection
      letter issued by the Title Company, which shall be reasonably acceptable to
      Lender.

     

    (iv) Expenses.
      Borrower shall have paid all fees and expenses required to be paid by Borrower
      pursuant to this Agreement in connection with such requested Advance or any
      conditions related thereto.

     

    (v) Proceedings
      Satisfactory.
      All
      actions taken in connection with such requested Advance and all documents and
      papers relating thereto shall be satisfactory to Lender and its counsel. Lender
      and its counsel shall have received copies of such documents and papers as
      Lender or such counsel may reasonably request in connection with such requested
      Advance, all in form and substance reasonably satisfactory to Lender and its
      counsel.

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

    (vi) Partial
      Waiver of Requirement for Title Insurance Policies Upon Satisfactory Maintenance
      of Inventory Control Procedures.
      Anything in Section 5.1(a)(ii)(4)
      hereof
      to the contrary notwithstanding, the delivery of a Mortgagee Title Policy shall
      be required only with respect to twenty-five percent (25%) of the Eligible
      Notes
      Receivable delivered to Lender in respect of each advance, subject to the
      following requirements and limitations: 

     

    (1) Borrower
      shall be in full compliance with the Receivable Inventory Control Procedures
      (as
      defined in Section 6.23
      herein);
      and

     

    (2) Lender
      shall have the right in its sole discretion to determine those Eligible Notes
      Receivable in respect of which the Mortgagee Title Policies shall be
      required.

     

    In
      the
      event that Borrower fails to satisfy the requirements of Subparagraph
5.1(a)(vi)(1),
      then,
      immediately upon such failure, the partial waiver provided under this
      subparagraph shall no longer be effective.

     

    (b) Inventory
      Loan Component.
      

     

    (i) Requests
      for Advances.
      Each
      request for an Advance shall:

     

    (1) be
      in
      writing in form attached hereto as Exhibit E-2 and shall certify the amount
      of
      the then-current Loan to Retail Value Ratio, specify the principal amount of
      the
      Advance requested and designate the account to which the proceeds of such
      Advance are to be disbursed;

     

    (2) state
      that the representations and warranties of the Borrower contained in the
      Agreement and any closing or funding related certifications are true and correct
      as of the date of the request and, after giving effect to the making of such
      requested Advance, will be true and correct as of the date on which the
      requested Advance is to be made;

     

    (3) state
      that no Default or Event of Default exists as of the date of the request and,
      after giving effect to the making of the requested Advance, no Default or Event
      of Default would exist as of the date on which the requested Advance is to
      be
      made;

     

    (4) be
      delivered to the office of Lender at least five (5) Business Days prior to
      the
      date of the requested Advance; and

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

    (5) be
      signed
      by a principal financial officer of the Borrower.

     

    (ii) Loan
      Documents/Collateral.
      Not
      less than five (5) Business Days prior to the date of any Advance, the Borrower
      shall have:

     

    (1) delivered
      to Lender a list of all Intervals which are to be the subject of such requested
      Advance, together with such additional information as Lender may
      require;

     

    (2) delivered
      to Lender (or, if Lender shall so instruct, a designee appointed by Lender
      in
      writing), to the extent available, (a) the original or certified copies of
      any
      deed or beneficial interest certificate, or other documents evidencing
      conveyance of the Interval in question to the Borrower, (b) a copy of any title
      policy received by the Borrower in connection with its acquisition of the
      Interval in question, and (c) original or true copies of any purchase contract
      (including addenda) or other agreements entered into by the Borrower with any
      person with respect to the sale by the Borrower to any Purchaser of the Interval
      in question;

     

    (3) delivered
      to Lender a duly executed Inventory Mortgage Inventory Mortgages, in the form
      and substance attached here as Exhibit F, or in the case of an existing
      Inventory Mortgage, a modification thereof in the form and substance attached
      here as Exhibit F-1 (each containing such changes and modifications as are
      necessary to reflect the law of the state in which the Resort in question is
      located) granting to Lender a first mortgage lien on the Inventory;

     

    (4) original
      UCC financing statements covering the Inventory Loan Component Collateral,
      filed
      with the Secretary of State of Texas and the Secretary of State of each state
      in
      which the Inventory Loan Component Collateral is located; and

     

    (5) with
      respect to each Interval constituting a part of the Inventory, a commitment
      for
      a mortgagee’s title insurance policy showing that the Mortgage in respect of
      such Interval insuring in favor of Lender the first priority Lien of such
      Inventory Mortgage in the amount of the Advance to be made in respect of such
      Interval (or in case of any Modification(s) to Inventory Mortgage, an
      endorsement to the existing mortgagee’s title insurance policy endorsing said
      policy to reflect such Modification(s) of Inventory Mortgage), with a
      satisfactory title insurance policy to be issued within a reasonable time
      following the requested Advance.

     

    The
      Inventory Mortgages shall each have been duly recorded in the applicable land
      records which are described in Schedule A hereof. The mortgagee’s title
      insurance policies shall be in form and substance satisfactory to Lender and
      shall be issued by Title Company, and name Lender as the insured party therein.
      The funding of the Advance, delivery of the Inventory Loan Component Collateral
      and issuance of the title insurance policy, and recording of the mortgages
      or
      any releases may, in Lender’s discretion, be effected by way of an escrow
      arrangement with the Title Company or other fiduciary, the form and substance
      of
      which shall be satisfactory to Lender.

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

    (iii) Other
      Conditions.
      In
      addition to the other conditions set forth in this Agreement, the making of
      the
      initial or any subsequent Advance shall be subject to the satisfaction of the
      following conditions:

     

    (1) no
      Default or Event of Default shall exist immediately prior to the making of
      such
      requested Advance or, after giving effect thereto, immediately after the making
      of such requested Advance;

     

    (2) each
      agreement required to have been executed and delivered in connection with any
      prior Advance shall be consistent with the terms of this Agreement and shall
      be
      in full force and effect;

     

    (3) the
      date
      on which such requested Advance is to be made shall be a Business
      Day;

     

    (4) Borrower
      shall have delivered to Lender a certification showing the Retail Value of
      each
      Interval and Lender shall be satisfied with the Retail Value of each Interval
      in
      its sole discretion. The dollar amount of the requested Advance shall be based
      on the Retail Value of the Intervals on which the Lender is being granted a
      Mortgage;

     

    (5) not
      more
      than one Advance shall have previously been made in the same calendar month
      in
      which such requested Advance is to be made, unless Lender, in its sole
      discretion, agrees to make an additional Advance during such calendar
      month;

     

    (6) such
      requested Advance shall be in a principal amount of not less than $50,000.00,
      unless Lender, in its sole discretion, agrees to make an Advance in an amount
      less than $50,000.00;

     

    (7) Lender
      shall have determined that the requested Advance will not result in the Loan
      to
      Retail Value Ratio exceeding 15%, based on the Retail Value of the Inventory
      on
      which Lender has been granted a first mortgage lien; and

     

    (8) if
      Lender
      shall so require, Lender shall have received an executed Closing Protection
      Letter issued by the Title Company, which shall be reasonably acceptable to
      Lender.

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

    (iv) Expenses.
      The
      Borrower shall have paid all fees and expenses required to be paid by Borrower
      pursuant to this Agreement in connection with such requested Advance or any
      conditions related thereto.

     

    (v) Proceedings
      Satisfactory.
      All
      actions taken in connection with such requested Advance and all documents and
      papers relating thereto shall be satisfactory to Lender and its counsel. Lender
      and its counsel shall have received copies of such documents and papers as
      the
      Lender or such counsel may reasonably request in connection with such requested
      Advance, all in form and substance reasonably satisfactory to the Lender and
      its
      counsel.

     

    (c) Acquisition
      Loan Component.
      

     

    (i) Request
      for Advances.
      Each
      request for an Advance shall:

     

    (1) be
      in
      writing in the form attached hereto as Exhibit E-3, shall certify the fair
      market value of the Real Property for which such Advance is being requested
      and
      designate the account to which such proceeds are to be disbursed;

     

    (2) state
      that the representations and warranties of the Borrower contained in this
      Agreement and any closing or funding related certifications are true and correct
      as of the date of the request and, after taking into effect the making of such
      requested Advance, will be true and correct as of the date on which such
      requested Advance is to be made;

     

    (3) state
      that no Default or Event of Default exists as of the date of the requested
      Advance and, after taking into effect the making of the requested Advance,
      no
      Default or Event of Default would exist as of the date on which the requested
      Advance is to be made;

     

    (4) be
      delivered to the office of Lender at least 30 business days prior to the date
      of
      the requested Advance; and

     

    (5) be
      signed
      by a principal officer of the Borrower.

     

    (ii) Loan
      Documents/Collateral.
      Not
      less than 30 days prior to the date of any Advance, Borrower shall have
      delivered to the Lender the following items with respect to the Real Property
      in
      question each of which shall be in form and substance acceptable to Lender
      in
      its sole discretion:

     

    (1) a
      copy of
      the purchase agreement, including all exhibits and amendments
      thereto;

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

     

    (2) a
      copy of
      a Phase I environmental report;

     

    (3) a
      copy of
      a zoning report prepared by a zoning firm reasonably acceptable to the
      Lender;

     

    (4) a
      survey;

     

    (5) a
      title
      commitment, including legible copies of all exceptions noted in the Title
      Commitment;

     

    (6) MAI
      appraisal; 

     

    (7) copies
      of
      all contracts, agreements, permits and licenses;

     

    (8) a
      UCC,
      bankruptcy, litigation, judgment, tax and environmental search with respect
      to
      the seller of the Real Property; 

     

    (9) true,
      correct and complete copies of all documents, including closing statements,
      executed and or delivered in connection with the Borrower’s acquisition of title
      to the Real Property; 

     

    (10) if
      applicable, a copy of all ground leases; 

     

    (11) copies
      of
      all permits and consents, including building permits in connection with the
      renovation and or construction of any improvements on the Real Property;

     

    (12) an
      inventory of all personal property, including copies of all equipment
      leases;

     

    (13) if
      applicable, copies of final certificates of occupancy; 

     

    (14) copies
      of
      all business licenses for operation of any resort to be operated on the Real
      Property;

     

    (15) confirmation
      that any and all parking facilities with respect to the Real Property are on
      site and part of the Common Elements for such Real Property;

     

    (16) letters
      confirming the availability of all utility services through Real Property,
      including, without limitation, water, sewer, (sanitary and storm), electric,
      gas, telephone, cable television and internet; 

     

    (17) if
      applicable, a wetlands letter from the U.S. Army Corp of Engineers;

     

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

     

    (18) a
      detail
      site plan showing the location of all existing improvements and proposed
      improvements to the Real Property, including floor plans for all units;

     

    (19) engineers
      report consistent with Lender provided checklist as to soil conditions,
      mechanical integrity of improvements, structural integrity of improvements
      and
      absence of toxic substances and hazardous materials, including lead based paint
      and asbestos;

     

    (20) evidence
      of insurance with respect to the Real Property in accordance with Section
7.1(h)
      hereof;

     

    (21) if
      applicable, a non disturbance agreement with respect to all amenities, parking
      and access; 

     

    (22) a
      duly
      executed Real Property Mortgage granting to Lender a first mortgage lien on
      the
      Real Property in question;

     

    (23) an
      original UCC financing statement covering the Acquisition Loan Component
      Collateral filed with the Secretary of State of the State of Texas and the
      Secretary of State in which the Real Property in question is located;

     

    (24) with
      respect to each Real Property, a Mortgage Title Insurance Policy, in form and
      substance satisfactory to Lender and issued by a Title Insurance Company
      satisfactory to Lender. The funding of each Advance, and delivery of the
      Acquisition Loan Component Collateral, issuance of the Title Insurance Policy,
      and recording of the Real Estate Mortgage, may in Lender’s sole discretion, be
      effected by way of an escrow agent with the Title Company or other fiduciary,
      in
      the form and substance of which shall be satisfactory to Lender; 

     

    (25) an
      opinion of counsel in form and substance acceptable to Lender, and issued by
      an
      attorney admitted to practice in the state in which the Real Property in
      question is located and otherwise acceptable to Lender; and

     

    (26) such
      other documents and instruments as Lender, in its sole discretion, may request
      in connection with the Real Property in question. 

     

    (iii) Other
      Conditions.
      In
      addition to the other conditions set forth in this Agreement, the making of
      the
      initial or any subsequent Advance shall be subject to the satisfaction of the
      following conditions:

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

     

    (1) no
      Default or Event of Default shall exist immediately prior to the making of
      such
      requested Advance or, after giving effect thereto, immediately after the making
      of such requested Advance;

     

    (2) each
      agreement required to have been executed and delivered in connection with any
      prior Advance shall be consistent with the terms of this Agreement and shall
      be
      in full force and effect;

     

    (3) the
      date
      on which such requested Advance is to be made shall be a Business
      Day;

     

    (4) not
      more
      than one Advance shall have previously been made in the same calendar month
      in
      which such requested Advance is to be made, unless Lender, in its sole
      discretion, agrees to make an additional Advance during such calendar
      month;

     

    (5) such
      requested Advance shall be in a principal amount of not less than $50,000.00,
      unless Lender, in its sole discretion, agrees to make an Advance in an amount
      less than $50,000.00, nor more than $15,000,000.00 for any one Real Property;
      and

     

    (6) if
      Lender
      shall so require, Lender shall have received an executed closing protection
      letter issued by the Title Company, which shall be reasonably acceptable to
      Lender.

     

    (iv) Expenses.
      The
      Borrower shall have paid all fees and expenses required to be paid by Borrower
      pursuant to this Agreement in connection with such requested Advance or any
      conditions related thereto.

     

    (v) Proceedings
      Satisfactory.
      All
      actions taken in connection with such requested Advance and all documents and
      papers relating thereto shall be satisfactory to Lender and its counsel. Lender
      and its counsel shall have received copies of such documents and papers as
      the
      Lender or such counsel may reasonably request in connection with such requested
      Advance, all in form and substance reasonably satisfactory to the Lender and
      its
      counsel.

     

    (vi) Lender’s
      Discretion.
      All
      Advances of the Acquisition Loan Component shall be made at the sole and
      exclusive discretion of Lender without any explanation to Borrower being
      required.

     

    Section
      6-General Representations And Warranties

     

    Borrower
      hereby represents and warrants to Lender as follows:

     

    6.1 Organization,
      Standing, Qualification.
      Borrower: (a) is a duly organized and validly existing Texas corporation duly
      organized, validly existing and in good standing under the laws of the State
      of
      Texas, and (b) has all requisite power, corporate or otherwise, to conduct
      its
      business and to execute and deliver, and to perform its obligations under,
      the
      Loan Documents.

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

     

    6.2 Authorization,
      Enforceability, Etc. 

     

    (a) The
      execution, delivery and performance by Borrower of the Loan Documents has been
      duly authorized by all necessary corporate action by Borrower and does not
      and
      will not: (i) violate any provision of the certificate or articles of
      incorporation of Borrower, bylaws of Borrower, or any agreement, law, rule,
      regulation, order, writ, judgment, injunction, decree, determination or award
      presently in effect to which Borrower is a party or is subject; (ii) result
      in,
      or require the creation or imposition of, any Lien upon or with respect to
      any
      asset of Borrower other than Liens in favor of Lender; or (iii) result in a
      breach of, or constitute a default by Borrower under, any indenture, loan or
      credit agreement or any other agreement, document, instrument or certificate
      to
      which Borrower is a party or by which it or any of its assets are bound or
      affected.

     

    (b) No
      approval, authorization, order, license, permit, franchise or consent of, or
      registration, declaration, qualification or filing with, any governmental
      authority or other Person, including without limitation, the Division or the
      Timeshare Owners’ Association is required in connection with the execution,
      delivery and performance by Borrower of any of the Loan Documents.

     

    (c) The
      Loan
      Documents constitute legal, valid and binding obligations of Borrower,
      enforceable against Borrower in accordance with their respective
      terms.

     

    (d) Borrower
      has, or will have, good and marketable title to the Collateral, free and clear
      of any lien, security interest, charge or encumbrance except for the security
      interests created by this Agreement or any Loan Document or otherwise created
      in
      favor of Lender or those specifically consented to in writing by Lender or
      permitted hereunder. No financing statement or other instrument similar in
      effect covering all or any part of the Collateral is on file in any recording
      office, except such as may have been filed in favor of Lender hereunder or
      Lender as permitted hereunder.

     

    (e) The
      execution and delivery of the Loan Documents, the delivery and endorsement
      to
      Lender of the Pledged Notes Receivable, the filing of the UCC-1’s with the
      office of the secretary of state of the state in which Borrower is organized
      and
      the Assignment of Notes Receivable and Mortgages in the official records of
      the
      county in which the applicable Resort is located, create in favor of Lender
      a
      valid and perfected continuing first or second, as applicable, priority security
      interest in the Collateral. The Collateral shall secure the full payment and
      performance of the Obligations.

     

    (f) None
      of
      the Pledged Notes Receivable is forged or has affixed thereto any unauthorized
      signatures or has been entered into by any Person without the required legal
      capacity; and during the term of the Agreement, none will be forged, or will
      have affixed thereto, any unauthorized signatures.

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

     

    (g) Except
      as
      permitted in Sections 3.6
      and
3.7
      hereof,
      there have been no modifications or amendments to the Pledged Notes Receivable
      or Mortgages.

     

    (h) The
      makers of the Eligible Notes Receivable have no defenses, offsets, counterclaims
      or claims relating to the Eligible Notes Receivable or the
      Mortgages.

     

    (i) The
      Pledged Notes Receivable and the Mortgages were executed and delivered by
      Purchasers in favor of Borrower in connection with the purchase of the related
      Encumbered Intervals.

     

    (j) The
      Mortgages constitute and will constitute valid and enforceable first and prior
      liens and security interests on the Encumbered Intervals.

     

    (k) The
      Pledged Notes Receivable and the Mortgages are and shall remain in full force
      and effect, are and will be valid and binding obligations of the respective
      makers in favor of Lender; and Borrower further warrants and guarantees the
      value, quantity, sound condition, grade and quality of the Encumbered Intervals
      and rights, properties, easements and interests appurtenant or related
      thereto.

     

    (l) The
      grant
      of the security interests described herein has not affected and will not affect
      the validity or enforceability of the obligations of the respective makers
      of
      the Pledged Notes Receivable under such Notes Receivable or the respective
      Mortgages.

     

    (m) Lender
      shall not be required to take, and Borrower has taken any and all required
      steps
      to protect Lender’s security interest in the Collateral (other than maintaining
      possession of the portion of the Collateral constituting instruments); and
      Lender is or shall not be required to collect or realize upon the Collateral
      or
      any distribution of interest or principal, nor shall loss of, or damage to,
      the
      Collateral release Borrower from any of the Obligations.

     

    6.3 Financial
      Statements and Business Condition.
      The
      Financial Reports for the first 9 months of the calendar year 2006 are, to
      the
      best of Borrower’s knowledge, accurate and fairly represent the financial
      condition of the Borrower for the periods in question, subject to the written
      qualifications set forth therein. To the best of Borrower’s knowledge, there are
      no material liabilities, direct or indirect, fixed or contingent, of Borrower,
      except as disclosed to Lender in writing.

     

    6.4 Taxes.
      In
      accordance with the requirements set forth in the Declaration, Borrower
      represents and warrants that Borrower, Silverleaf Club, or the applicable
      Timeshare Owners’ Association, as required, has paid or will have paid in full,
      prior to delinquency, all ad valorem taxes and other taxes and assessments
      against the Resorts, the Real Property and the other Collateral; and Borrower
      knows of no basis for any additional taxes or assessments against the Resorts,
      the Real Property or the other Collateral. Borrower, Silverleaf Club, or the
      applicable Timeshare Owners’ Association, as the case may be, has filed all tax
      returns required to have been filed by it and has paid or will pay prior to
      delinquency, all taxes shown to be due and payable on such returns, including
      interest and penalties thereon, and all other taxes which are payable by it
      to
      the extent the same have become due and payable.

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

     

    6.5 Title
      to Properties: Prior Liens.
      Borrower has good and marketable title to all of the Collateral and to all
      unsold Units and Intervals at each Resort, and all rights, properties and
      benefits appurtenant to or benefiting them. Borrower is not in default under
      any
      of the documents evidencing or securing any indebtedness which is secured,
      wholly or in part, by any portion of any Resort or any portion or all the
      Collateral and no event has occurred which with the giving of notice, the
      passage of time or both, would constitute a default under any of the documents
      evidencing or securing any such indebtedness. Other than the Liens granted
      in
      favor of Lender and the liens described in Schedule 6.5 attached hereto, there
      are no liens or encumbrances against the Collateral, including to all unsold
      Units, Intervals and Inventory, or against any Resort.

     

    6.6 Subsidiaries,
      Affiliates and Capital Structure.
      Borrower has no subsidiaries or Affiliates which have any involvement or
      interest in any Resort in any way. None of the Affiliates of Borrower are
      parties to any proxies, voting trusts, shareholders agreements or similar
      arrangements pursuant to which voting authority, rights or discretion with
      respect to Borrower is vested in any other Person.

     

    6.7 Litigation,
      Proceedings, Etc.
      Except
      for those matters identified in Schedule 6.7 hereto, there are no actions,
      suits, proceedings, orders or injunctions pending or threatened against or
      affecting Borrower, the Real Property, the Resorts or the Timeshare Owners’
Association at law or in equity, or before or by any governmental authority
      or
      other tribunal, which (a) could have a material adverse effect on Borrower
      or (b) relate to the Loan or which could have a material effect on the
      Collateral or the Resorts. Borrower has received no notice from any court,
      governmental authority or other tribunal alleging that Borrower or the Resorts
      have violated the Timeshare Act, any of the rules or regulations thereunder,
      the
      Declaration or any other applicable laws, agreements or arrangements that could
      have any material effect on the Loan, the Collateral or the
      Resorts.

     

    6.8 Licenses,
      Permits, Etc.
      Borrower, the Resorts, the Timeshare Owners’ Associations or Borrower’s
      Affiliates involved in the operations of the Resorts, and, to the best of
      Borrower’s knowledge after diligent inquiry, other Persons involved in the
      operations of the Resorts, possess all requisite franchises, certificates of
      convenience and necessity, operating rights, approvals, licenses, permits,
      consents, authorizations, exemptions and orders as are necessary to carry on
      its
      or their business as now being conducted, without any known conflict with the
      rights of others and, with respect to Borrower, the Resorts and the Timeshare
      Owners’ Associations, in each case subject to no mortgage, pledge, Lien, lease,
      encumbrance, charge, security interest, title retention agreement or option
      other than as provided for by this Agreement.

     

    6.9 Environmental
      Matters.
      Except
      as otherwise noted on Schedule 6.9: (a) no Resort or Real Property contains
      any
      Hazardous Materials, (b) no Hazardous Materials are used or stored at or
      transported to or from the Resorts or the Real Property, (c) neither Borrower,
      the Real Property, nor the Resorts nor any manager thereof nor to Borrower’s
      knowledge, the Timeshare Owners’ Associations, have received notice from any
      governmental agency, entity or other Person with regard to Hazardous Materials
      on, under or affecting any Resort, and (d) neither Borrower, the Real Property,
      the Resorts, nor any portion thereof, nor to Borrower’s knowledge after diligent
      inquiry, the Timeshare Owners’ Associations, are in violation of any
      Environmental Laws.

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

     

    6.10 Full
      Disclosure.
      No
      information, exhibit or written report or the content of any schedule furnished
      by or on behalf of Borrower to Lender in connection with the Loan, the Real
      Property or the Resorts contains any material misstatement of fact or omits
      the
      statement of a material fact necessary to make the statement contained herein
      or
      therein not misleading. Borrower knows of no fact or condition which will
      prevent the sale of Intervals to Purchasers or prevent the operation of the
      Resorts in accordance with the Declarations and related public offering
      statements, and in accordance with applicable law, or prevent Borrower from
      performing its Obligations pursuant to the Loan Documents.

     

    6.11 Use
      of Proceeds/Margin Stock.
      None of
      the proceeds of the Loan will be used to purchase or carry any margin stock
      (as
      defined under Regulation U of the Board of Governors of the Federal Reserve
      System, as in effect from time to time), and no portion of the proceeds of
      the
      Loan will be extended to others for the purpose of purchasing or carrying margin
      stock. None of the transactions contemplated in the Agreement (including,
      without limitation, the use of the proceeds from the Loan) will violate or
      result in the violation of Section
      7
      of the
      Securities Exchange Act of 1934, as amended, or any regulations issued pursuant
      thereto, including, without limitation, Regulations G, T, U and X of the Board
      of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11.

     

    6.12 Defaults.
      Borrower has no knowledge of any Default or Event of Default not disclosed
      to
      Lender in writing. Borrower has no knowledge of any default or event of default
      under any loan facility or with any lender. Borrower has no knowledge of any
      condition or event, which, with the passage of time, notice or both, would
      constitute an Event of Default or an event of default under any loan facility
      or
      with any lender

     

    6.13 Compliance
      with Law.
      Borrower:

     

    (a) is
      not in
      violation, nor is the Real Property or are any of the Resorts, or the business
      operations in respect of any of the Resorts, or to Borrower’s knowledge after
      diligent inquiry, the Timeshare Owners’ Association, in violation, of the
      Timeshare Act, or any laws, ordinances, governmental rules or regulations of
      any
      state in which a Resort is located, any political subdivision of said states
      or
      any other jurisdiction to which Borrower or the Resorts, or the business
      operations conducted in respect of the Resorts, or the Timeshare Owners’
Association, are subject;

     

    (b) has
      not
      failed, nor have the Resorts or, to Borrower’s knowledge, the Timeshare Owners’
Associations failed, to obtain any consents or joinders, or any approvals,
      licenses, permits, franchises or other governmental authorizations, or to make
      or cause to be made any filings, submissions, registrations or declarations
      with
      any government or agency or department thereof, necessary to the establishment,
      ownership or operation of the Resorts or any of Borrower’s Properties, or to the
      conduct of Borrower’s business, including, without limitation, the operation of
      the Resorts and the sale, or offering for sale, of Intervals therein; which
      violation or failure to obtain or register materially adversely affects
      Borrower, the Resorts or the business, prospects, profits, properties or
      condition (financial or otherwise) of Borrower or the Resorts. Borrower has,
      to
      the extent required by its activities and businesses, and the operations of
      the
      Resorts, fully complied with: (1) all of the applicable provisions of (a) the
      Consumer Credit Protection Act; (b) Regulation Z of the Federal Reserve Board;
      (c) the Equal Credit Opportunity Act; (d) Regulation B of the Federal Reserve
      Board; (e) the Federal Trade Commission’s 3-day cooling-off Rule for
      Door-to-Door Sales; (f) Section
      5
      of the
      Federal Trade Commission Act; (g) the Interstate Land Sales Full Disclosure
      Act
      (“ILSA”);
      (h)
      federal postal laws; (i) applicable state and federal securities laws; (j)
      applicable usury laws; (k) applicable trade practices, home and telephone
      solicitation, sweepstakes, anti-lottery and consumer credit and protection
      laws;
      (l) applicable real estate sales licensing, disclosure, reporting and escrow
      laws; (m) the Americans With Disabilities Act and related accessibility
      guidelines (“ADA”);
      (n)
      the Real Estate Settlement Procedures Act (“RESPA”);
      (o)
      all amendments to and rules and regulations promulgated under the foregoing
      acts
      or laws; (p) the Federal Trade Commission’s Privacy of Consumer Financial
      Information Rule and (q) other applicable federal statutes and the rules and
      regulations promulgated thereunder; and (2) all of the applicable provisions
      of
      the Timeshare Acts, any law or laws of any state (and the rules and regulations
      promulgated thereunder) relating to ownership, establishment or operation of
      the
      Resorts, or the sale, offering for sale, or financing of Intervals;

     

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

     

    (c) has
      made
      diligent inquiry, and to the best of Borrower’s knowledge, all persons or
      entities owning an interest in Borrower: (i) are not currently identified on
      United States Office of Foreign Assets Control (“OFAC”)
      List;
      and (ii) are not persons or entities with whom a citizen of the United States
      is
      prohibited to engage in transactions by any trade embargo, economic sanction,
      or
      other prohibition of Untied States law, regulation, or Executive Order of the
      President of the United States. The OFAC List currently is accessible through
      the internet website www.treas.gov/ofac/t11sdn.pdf; and

     

    (d) represents
      and warrants that at all times throughout the term of the Loan, (i) none of
      the
      funds or other assets of Borrower shall constitute property of, or shall be
      beneficially owned, directly or indirectly, by, any Person subject to trade
      restrictions under the Prescribed Laws (each such Person, an “Embargoed
      Person”),
      with
      the result that the investment in Borrower (whether directly or indirectly),
      is
      or would be prohibited by law or the Loan made by Lender is or would be in
      violation of law; (ii) no Embargoed Person shall have any interest of any nature
      whatsoever in Borrower with the result that the investment in Borrower (whether
      directly or indirectly), is or would be prohibited by law or the Loan is or
      would be in violation of law; and (iii) none of the funds of Borrower shall
      be
      derived from any unlawful activity with the result that the investment in
      Borrower (whether directly or indirectly), is or would be prohibited by law
      or
      the Loan is or would be in violation of law.

     

    6.14 Restrictions
      of Borrower.
      Borrower will not be, on or after the date hereof, a party to any contract
      or
      agreement which prohibits Borrower’s execution of or compliance with the terms
      of this Agreement or the other Loan Documents. Borrower has not agreed or
      consented to cause or permit in the future (upon the happening of a contingency
      or otherwise) any of the Collateral, whether now owned or hereafter acquired,
      to
      be subject to a Lien except in favor of Lender as provided herein.

     

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

     

    6.15 Broker’s
      Fees.
      Borrower and Lender represent to each other that none of them has made any
      commitment or taken any action which will result in a claim for any brokers’,
      finders’ or other similar fees or commitments with respect to the transactions
      described in the Agreement. Borrower agrees to indemnify Lender and save and
      hold Lender harmless from all claims of any Person for any broker’s or finder’s
      fee or commission, and this indemnity shall include reasonable attorneys’ fees
      and legal expenses.

     

    6.16 Deferred
      Compensation Plans.
      Borrower has no pension, profit sharing or other compensatory or similar plan
      (herein called a “Plan”)
      providing for a program of deferred compensation for any employee or officer.
      No
      fact or situation, including but not limited to, any “Reportable Event,” as that
      term is defined in Section 4043 of the Employee Retirement Income Security
      Act
      of 1974 as the same may be amended from time to time (“Pension
      Reform Act”),
      exists or will exist in connection with any Plan of Borrower which might
      constitute grounds for termination of any Plan by the Pension Benefit Guaranty
      Corporation or cause the appointment by the appropriate United States District
      Court of a Trustee to administer any such Plan. No “Prohibited Transaction”
within the meaning of Section 406 of the Pension Reform Act exists or will
      exist
      upon the execution and delivery of the Agreement or the performance by the
      parties hereto of their respective duties and obligations hereunder. Borrower
      will (1) at all times make prompt payment of contributions required to meet
      the minimum funding standards set forth in Sections 302 through 305 of the
      Pension Reform Act with respect to each of its Plans; (2) promptly, after
      the filing thereof, furnish to Lender copies of each annual report required
      to
      be filed pursuant to Section 103 of the Pension Reform Act in connection with
      each Plan for each Plan Year, including any certified financial statements
      or
      actuarial statements required pursuant to said Section 103; (3) notify Lender
      immediately of any fact, including, but not limited to, any Reportable Event
      arising in connection with any Plan which might constitute grounds for
      termination thereof by the Pension Benefit Guaranty Corporation or for the
      appointment by the appropriate United States District Court of a Trustee to
      administer the Plan; and (4) notify Lender of any “Prohibited Transaction”
as that term is defined in Section 406 of the Pension Reform Act. Borrower
      will
      not (a) engage in any Prohibited Transaction or (b) terminate any such
      Plan in a manner which could result in the imposition of a Lien on the Property
      of Borrower pursuant to Section 4068 of the Pension Reform Act.

     

    6.17 Labor
      Relations.
      The
      employees of Borrower are not a party to any collective bargaining agreement
      with Borrower, and, to the best knowledge of Borrower and its officers, there
      are no material grievances, disputes or controversies with any union or any
      other organization of Borrower’s employees, or threats of strikes, work
      stoppages or any asserted pending demands for collective bargaining by any
      union
      or organization.

     

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    

     

    6.18 Resorts. 

     

    (a) Timeshare
      Plan.
      Each
      Resort has been established and dedicated, and is and will remain, a time-share
      plan and project in full compliance with all applicable laws and regulations,
      including without limitation, the Timeshare Act.

     

    (b) Access.
      Each
      Resort has direct access to a publicly dedicated road and all roadways inside
      each Resort are subject to an access and use easement or other dedication or
      provision that benefits and will continue to benefit all
      Purchasers.

     

    (c) Utilities.
      Electric, sanitary and stormwater sewer, telephone, water facilities and other
      necessary utilities are available in sufficient capacity to service each Resort
      and any easements necessary to the furnishing of such utility services have
      been
      obtained and duly recorded, and inure to the benefit of each Resort and each
      Timeshare Owners’ Association.

     

    (d) Amenities.
      Each
      Purchaser of an Interval has and will have access to and the full use and
      enjoyment of all of the Common Elements and public utilities of the Resort
      in
      which such interval is located, all in accordance with the Declaration and
      Timeshare Documents.

     

    (e) Construction.
      All
      costs arising from the construction or acquisition of any Units and any other
      improvements and the purchase of any fixtures or equipment, inventory,
      furnishings or other personalty located in, at, or on the Resorts have been
      paid
      or will be paid when due.

     

    (f) Sale
      of Intervals.
      The
      marketing, sale, offering of sale, rental, solicitation of Purchasers or, if
      applicable, lessees, and financing of Intervals in the Resort: (1) do not
      constitute the sale, or the offering of sale, of Securities subject to the
      registration requirements of the Securities Act of 1933, as amended, or any
      state securities law; (2) do not violate the Timeshare Act or any land
      sales or consumer protection law, statute or regulation of the state where
      the
      Resort is located or any other state or jurisdiction in which a Purchaser
      resides or in which sales or solicitation activities occur; and (3) do not
      violate any consumer credit or usury statute of state where the Resort is
      located or any other state or jurisdiction in which a Purchaser resides or
      in
      which sales or solicitation activities occur. All marketing and sales activities
      are performed by employees of Borrower, all of whom are and shall be properly
      licensed in accordance with applicable laws.

     

    (g) Tangible
      Property.
      Except
      for specific items which may be owned by independent contractors, the machinery,
      equipment, fixtures, tools and supplies used in connection with the Resort,
      including without limitation, with respect to the operations and maintenance
      of
      the Common Elements, are owned either by Borrower, Silverleaf Club, or the
      applicable Timeshare Owners’ Association.

     

    (h) Operating
      Contracts.
      Borrower, Silverleaf Club, or the applicable Timeshare Owners’ Association has
      entered into the contracts, agreements, and arrangements necessary for the
      operation of the Resorts, including but not limited to those with respect to
      utilities, maintenance, management, services, marketing and sales (hereinbelow
      defined as “Operating Contracts”).

     

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

     

    6.19 Timeshare
      Regimen Reports.
      Borrower has furnished to Lender true and correct copies of the Timeshare
      Documents listed on Schedule 6.19, which consist of all those placed on file
      by
      Borrower with the Divisions or any federal, state or local regulatory or
      recording agencies, offices or departments. All such filings and/or
      recordations, and all joinders and consents, necessary in order to establish
      the
      plan in respect of the Resorts, including without limitation, the Units,
      Intervals, and all appurtenant Common Elements, and all related use and access
      rights, have been done or obtained and all laws, regulations and statutes,
      and
      all agreements or arrangements, in connection therewith have been complied
      with.

     

    6.20 Operating
      Contracts.
      The
      contracts, agreements and arrangements comprising those agreements or
      arrangements relating to the operation of the Resorts, including without
      limitation, with respect to utilities, maintenance, management, services,
      marketing and sales under which the fees to be paid equal or exceed $50,000.00
      (collectively, all such agreements and arrangements are referred to herein
      as
      the “Operating
      Contracts”)
      are
      unmodified and in full force and effect and shall remain free and clear of
      any
      lien.

     

    6.21 Architectural
      and Environmental Control.
      All
      Units, Common Elements and other improvements at, upon or appurtenant to the
      Resorts are and will be in compliance with the design, use, architectural and
      environmental control provisions, if any, set forth in the
      Declaration.

     

    6.22 Tax
      Identification/Social Security Numbers.
      Borrower’s federal taxpayer’s identification number is: 75-2259890.

     

    6.23 Inventory
      Control Procedures. 

     

    (a) Receivables.
      Borrower has provided to Lender a true and complete copy of Borrower's
      Inventory, Sales and Assignments procedures (the "Receivable
      Inventory Control Procedures"),
      a
      copy of which is attached hereto as Schedule 6.23(a). Borrower is and shall
      at
      all times be in full compliance with the Receivable Inventory Control Procedures
      from the date hereof until the Receivable Loan Component is repaid in full.
      Borrower shall permit Lender, its officers, employees, auditors, and other
      agents or designees to review the books and records of Borrower and make such
      other examinations and inspections as Lender in its sole discretion deems
      necessary to determine that Borrower is in full compliance with such Inventory
      Control Procedures.

     

    (b) Interval
      Inventory Control Procedures.
      Borrower has provided to Lender a true and complete copy of the Borrower’s
      Inventory, Sales and Assignments procedures (the “Interval
      Inventory Control Procedures”),
      a
      copy of which is attached hereto as Schedule 6.23(b). Borrower is and shall
      at
      all times be in full compliance with the Interval Inventory Control Procedures
      from the date hereof until the Initial Inventory Loan Component is repaid in
      full. Borrower shall permit Lender, its officers, employees, auditors and other
      agents or designees to review the books and records of Borrower and to make
      such
      other examinations and inspections as Lender in its sole discretion deems
      necessary to determine that Borrower is in full compliance with such Interval
      Inventory Control Procedures. 

     

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    

     

    6.24 Real
      Property.
      With
      respect to each parcel of Real Property:

     

    (a) First
      Lien.
      Upon
      execution and recording of the Real Property Mortgage, Lender will have a valid
      first lien on the Real Property.

     

    (b) Access.
      The
      Real Property has adequate legal rights of access to a public way.

     

    (c) Single
      Tax Lot.
      The
      Real Property consists of a single tax lot. No portion of said lot covers
      property other than the Real Property in question and no portion of the Real
      Property in question lies in any other tax lot.

     

    (d) Flood
      Zone.
      Except
      as is disclosed in the surveys of the Real Property that have been or will
      be
      provided to Lender, no portion of the Real Property is located in a flood hazard
      area as defined by the Federal Insurance Administration.

     

    (e) Seismic
      Exposure.
      No
      portion of the Real Property is located in a zone 3 or zone 4 of the “Seismic
      Zone Map of the U.S.”

     

    (f) Improvements.
      No
      improvements, buildings or other structures are located on the Real Property,
      except as disclosed to Lender in writing.

     

    (g) Condemnation.
      No part
      of the Real Property has been taken in condemnation or other like proceedings
      nor is any preceding pending, threatened or known to be contemplated for the
      partial or the total condemnation or taking of any portion of the Real
      Property.

     

    (h) No
      Purchase Options.
      No
      person or entity has an option to purchase the Real Property, or any portion
      thereof, or any interest therein.

     

    6.25 Inventory.

     

    (a) First
      Lien.
      Upon
      execution, delivery and recording of the Inventory Mortgage(s) and/or the
      Modification(s) of Inventory Mortgages, Lender will have a valid, first priority
      mortgage lien on the Inventory, and the Inventory will be subject to no other
      Lien.

     

    (b) No
      Purchase Options.
      No
      person or entity has an option to purchase any portion of the Inventory, or
      any
      portion thereof, or any interest therein.

     

    6.26 Additional
      Representations and Warranties.
      This
      Agreement, the Note and the other Loan Documents constitute the legal, valid
      and
      binding obligation of Borrower, enforceable against Borrower in accordance
      with
      their respective terms. 

     

    
      
        
        

      

      
        61

        
          

        

      

      
        
        

      

    

     

    Section
      7-Covenants

     

    7.1 Affirmative
      Covenants.
      So long
      as any portion of the Obligations remains unsatisfied, Borrower hereby covenants
      and agrees with Lender as follows:

     

    (a) Payment
      and Performance of Obligations.
      Borrower shall pay all of the Loan and related expenses when and as the same
      become due and payable, and Borrower shall strictly observe and perform all
      of
      the Obligations, including without limitation, all covenants, agreements, terms,
      conditions and limitations contained in the Loan Documents, and will do all
      things necessary which are not prohibited by law to prevent the occurrence
      of
      any Event of Default hereunder; and Borrower will maintain an office or agency
      in the State of Texas where notices, presentations and demands in respect of
      the
      Loan Documents may be made upon Borrower. Such office or agency and the books
      and records of Borrower shall be maintained at 1221 Riverbend Drive,
      Suite 120, Dallas, Texas 75221 until such time as Borrower shall so notify
      Lender, in writing, of any change of location of such office or
      agency.

     

    (b) Maintenance
      of Existence, Qualification and Assets.
      Borrower shall at all times (i) maintain its legal existence,
      (ii) maintain its qualification to transact business and good standing in
      any state and in any jurisdiction where it conducts business in connection
      with
      the Resorts, and (iii) comply or cause compliance with all governmental
      laws, rules, regulations and ordinances applicable to the Resorts, Borrower
      or
      its business, including, without limitation, the Timeshare Act.

     

    (c) Consolidation
      and Merger.
      Borrower will not consolidate with or merge into any other Person or permit
      any
      other Person to consolidate with or merge into it, unless: (i) Borrower is
      the
      continuing or surviving corporation in any such consolidation or merger and
      (ii)
      prior to and immediately after such consolidation or merger, Borrower shall
      not
      be in default hereunder.

     

    (d) Maintenance
      of Insurance.
      Borrower, or if required pursuant to the Declarations, the Timeshare Owners’
Associations, shall maintain (or Borrower shall cause to be maintained) at
      all
      times during the term of this Agreement, policies of insurance with premiums
      being paid when due, and shall deliver to Lender originals of insurance policies
      issued by insurance companies, in amounts, in form and in substance, and with
      expiration dates, all acceptable to Lender and containing a waiver of
      subrogation rights by the insuring company, a non-contributory standard
      mortgagee benefit clause, or their equivalents, and a mortgagee loss payable
      endorsement in favor of and satisfactory to Lender, and breach of warranty
      coverage, providing the following types of insurance on and with respect to
      Borrower (or, as appropriate, the respective Associations), the Collateral,
      including the Real Property, and the Resorts:

     

    (i) fire
      and
      extended coverage insurance (including lightning, hurricane, tornado, wind
      and
      water damage, vandalism and malicious mischief coverage) covering the
      improvements and any personal property located in or on the Resorts and the
      Real
      Property in an amount not less than the full replacement value of such
      improvements and personal property, and said policy of insurance shall provide
      for a deductible acceptable to Lender, breach of warranty coverage, replacement
      cost endorsements satisfactory to Lender, and shall not permit
      co-insurance;

     

    
      
        
        

      

      
        62

        
          

        

      

      
        
        

      

    

     

    (ii) public
      liability and property damage insurance covering the Resorts and the Real
      Property in amounts and on terms satisfactory to Lender; and

     

    (iii) such
      other insurance on the Resorts and the Real Property or any replacements or
      substitutions therefor including, without limitation, flood insurance (if the
      Property or the Real Property is or becomes located in an area which is
      considered a flood risk by the U.S. Emergency Management Agency or pursuant
      to
      the National Flood Insurance program), in such amounts and upon terms as may
      from time to time be reasonably required by Lender.

     

    To
      the
      extent any other timeshare receivable lender has any rights to approve the
      form
      of insurance policies with respect to the Resorts, the amounts of coverage
      thereunder, the insurers under such policies, or the designation of an
      attorney-in-fact for purposes of dealing with damage to any part of the Resorts
      or insurance claims or matters related thereto, or any successor to such
      attorney-in-fact, or any changes with respect to any of the foregoing, Borrower
      shall take all steps as may be necessary (and, after turnover, if any, of
      control of the Resort to the Timeshare Owners’ Association, Borrower shall use
      its best efforts) to ensure that Lender shall at all times have a co-equal
      right, with such other lender (including, without limitation, Borrower or any
      third-party lender), to approve all such matters and any proposed changes in
      respect thereof; and Borrower shall not cause or permit any changes with respect
      to any insurance policies, insurers, coverage, attorney-in-fact, or insurance
      trustee, if any, without Lender’s prior written approval.

     

    In
      the
      event of any insured loss or claim in respect of the Resorts, or the Real
      Property, Borrower shall apply (or cause to be applied), and Borrower covenants
      that the Timeshare Owners’ Association shall apply (or cause to be applied), all
      proceeds of such insurance policies in a manner consistent with the Timeshare
      Documents and the Timeshare Act.

     

    All
      insurance policies required pursuant to this Agreement (or the Timeshare
      Documents or Timeshare Act) shall provide that the coverage afforded thereby
      shall not expire or be amended, canceled, modified or terminated without at
      least thirty (30) days prior written notice to Lender. At least thirty (30)
      days
      prior to the expiration date of each policy maintained pursuant to this Section
      7.1(d),
      a
      renewal or replacement thereof satisfactory to Lender shall be delivered to
      Lender. Borrower shall deliver or cause to be delivered to Lender receipts
      evidencing the payment for all such insurance policies and renewals or
      replacements.

     

    In
      the
      event of any fire or other casualty to or with respect to the improvements
      on or
      at the Resorts, Borrower covenants that Borrower or the Timeshare Owners’
Association, as the case may be, will promptly restore or repair (or cause
      to be
      restored, repaired or replaced) the damaged improvements and repair or replace
      any other personal property to the same condition as immediately prior to such
      fire or other casualty and, with respect to the improvements and personal
      property on the Resorts, in accordance with the terms of the Timeshare Documents
      or Timeshare Act. The insufficiency of any net insurance proceeds shall in
      no
      way relieve Borrower or, as applicable, Borrower and Timeshare Owners’
Association, of its obligation to restore, repair or replace such improvements
      and other personal property in accordance with the terms hereof, of the
      Declaration or other Timeshare Documents or of the Timeshare Act, and Borrower
      covenants that Borrower or, as the case may be, the Timeshare Owners’
Association, shall promptly comply and cause compliance with the provisions
      of
      the Declaration and other Timeshare Documents, or of the Timeshare Act relating
      to such restoration, repair or replacement. Borrower shall, unless an Event
      of
      Default has occurred, apply all insurance proceeds payable to or received by
      it,
      in accordance with the applicable Declaration. If an Event of Default has
      occurred, Lender may, in its sole discretion, apply all insurance proceeds
      in
      accordance with the applicable Declaration or to the repayment of the Loan
      in
      accordance with Section 2.4
      and
2.5
      hereof.

     

    
      
        
        

      

      
        63

        
          

        

      

      
        
        

      

    

     

    (e) Maintenance
      of Security.
      Borrower shall execute and deliver (or cause to be executed and delivered)
      to
      Lender all security agreements, financing statements, assignments and such
      other
      agreements, documents, instruments and certificates, and supplements and
      amendments thereto, and take such other actions, as Lender deems necessary
      or
      appropriate in order to maintain as valid, enforceable and perfected first
      or
      second priority liens and security interests, as applicable, all Liens and
      security interests in the Collateral granted Lender to secure the Obligations.
      Borrower shall not grant extensions of time for the payment of, compromise
      for
      less than the full face value or release in whole or in part, any Purchaser
      or
      other Person liable for the payment of, or allow any credit whatsoever except
      for the amount of cash to be paid upon, any Collateral or any instrument,
      chattel paper or document representing the Collateral.

     

    (f) Payment
      of Taxes and Claims.
      Borrower will pay, and, as applicable pursuant to the Declaration, Borrower
      covenants that the Timeshare Owners’ Association will pay, when due, all taxes
      imposed upon the Resorts, the Collateral, Borrower, the Timeshare Owners’
Association, or any of its or their property, or with respect to any of its
      or
      their franchises, businesses, income or profits, or with respect to the Loan
      or
      any of the Loan Documents; and Borrower and the Timeshare Owners’ Association,
      as the case may be, shall pay all other charges and assessments against
      Borrower, the Collateral and the Resorts before any claim (including, without
      limitation, claims for labor, services, materials and supplies) arises for
      sums
      which have become due and payable. Except for the Liens granted pursuant to
      the
      Loan Documents, and except as otherwise specifically provided for herein,
      Borrower covenants that no statutory or other Liens whatsoever (including,
      without limitation, mechanics’, materialmens’, judgment or tax liens) shall
      attach to any of the Collateral or the Resorts except for such Liens as are
      expressly provided for pursuant to the Declaration, which shall, in any event,
      be subordinate to the Lien of Lender. In the event any such Lien attaches to
      any
      of the Collateral or the Resorts, Borrower shall, within thirty (30) days after
      any such Lien attaches, either (i) cause such Lien to be released of record
      or (ii) provide Lender with a bond in accordance with the applicable laws
      of the State, issued by a corporate surety acceptable to Lender, in an amount
      and form acceptable to Lender.

     

    
      
        
        

      

      
        64

        
          

        

      

      
        
        

      

    

     

    (g) Inspections.
      Borrower shall, at any time and from time to time and at the expense of
      Borrower, permit Lender or its agents or representatives to inspect the Resorts,
      the Collateral and if necessary, in Lender’s opinion, to ascertain or assure
      Borrower’s compliance with the terms of this Agreement, any of Borrower’s other
      assets or Property, and to examine and make copies of and abstracts from its
      and, to the extent it has access thereto or possession thereof, the Timeshare
      Owners’ Association’s, books, accounts, records, original correspondence,
      computer tapes, disks, software, and other papers as it may desire; and to
      discuss its affairs, finances and accounts with any of its officers, employees,
      Affiliates, contractors or independent public accountants (and by this provision
      Borrower authorizes said accountants to discuss with Lender, its agents or
      representatives, the affairs, finances and accounts of Borrower). Lender agrees
      to use reasonable efforts not to unreasonably interfere with Borrower’s business
      operations in connection with any such inspections. Without limiting the
      foregoing, Lender shall have the right to make such credit investigations as
      Lender may deem appropriate in connection with its review of Notes Receivable,
      and Borrower shall make available to Lender all credit information in Borrower’s
      possession or under its control or to which it may have access, with respect
      to
      Purchasers or other obligors under Notes Receivable as Lender may
      request.

     

    (h) Reporting
      Requirements.
      So long
      as any portion of the Obligations remain unsatisfied, Borrower shall furnish
      (or
      cause to be furnished, as the case may be) to Lender the following:

     

    (i) Monthly
      Financial Reports.
       As
      soon
      as available and in any event within ten (10) business days after the end of
      each calendar month the following reports: (i) the trial balance of the Pledged
      Notes Receivable; (ii) an aging report on the Pledged Notes Receivable; (iii)
      a
      report detailing the collections on each of the Pledged Notes Receivable; (iv)
      a
      Borrowing Base Report; (v) a deposit summary and other monthly reports from
      the
      Lockbox Agent required pursuant to the Lockbox Agreement; (vi) reports relating
      to Eligibility Criteria for Notes Receivable including: (a) modified accounts;
      (b) upgrades; (c) employees of Borrower; (d) non-U.S. or non-Canadian accounts;
      (e) pending cancellations; (f) residents in Canada; (g) terms greater than
      120
      months; (h) less than 10% down payments; (i) principal balances over $60,000;
      and (j) principal balances over $35,000; and (vii) other reports including:
      (a)
      paid-in-full; (b) delinquency; (c) accounts added; (d) accounts subtracted;
      (e)
      summary of accounts added; (f) summary of accounts subtracted; (g) summary
      of
      delinquencies; (h) Borrower's monthly summary; (i) maintenance fee letter;
      (j)
      maintenance fee back-up for prior month(s); (k) copies of checks deposited
      to
      clear up auto debit delay; (l) compact disc of trial balances broken down by
      old
      and new accounts; and (m) reports relating to Purchaser criteria including
      individual and weighted average FICO indicators for all new Purchasers for
      the
      second preceding month. Each such report, other than the reports provided under
      subparagraph (v) above, shall be certified by the Borrower in accordance with
      Exhibit G attached hereto.

     

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

      

    

     

    (ii) Quarterly
      Financial Reports.
      As soon
      as available and in any event within forty-five (45) days after the end of
      each
      fiscal quarter, copies of income statements and balance sheets for the
      operations of each Resort and for Borrower, certified by the Chief Financial
      Officer of Borrower;

     

    (iii) Annual
      Financial Reports.
      As soon
      as available and in any event within ninety (90) days after the end of each
      calendar year or other fiscal year as may be applicable with respect to Borrower
      (a “Fiscal
      Year”),
      a
      statement of income and expense of Borrower for the annual period ended as
      of
      the end of such Fiscal Year, and a balance sheet of Borrower as of the end
      of
      such Fiscal Year, all in such detail and scope as may be reasonably required
      by
      Lender and prepared in accordance with GAAP and on a basis consistent with
      prior
      accounting periods. Each annual financial statement of Borrower shall be
      prepared by an independent certified public accountant and certified by Borrower
      to be true, correct and complete, and shall otherwise be in form acceptable
      to
      Lender. In the event that Lender, acting in good faith, is not satisfied with
      any such Financial Statement, and if Borrower fails to provide Lender with
      new
      Financial Statements acceptable to Lender within fifteen (15) days after Lender
      delivers written notice of such dissatisfaction to Borrower, then, at Lender’s
      request, Borrower shall furnish to Lender copies of audited income statements
      and balance sheets certified by an independent certified public accountant
      acceptable to Lender and prepared in accordance with GAAP and on a basis
      consistent with prior accounting periods. Such audited annual statements shall
      also be in form and content satisfactory to Lender. If the figures for net
      and
      total operating income (as such terms are defined in accordance with GAAP)
      in
      the audited annual statements do not vary by more than five percent (5%) from
      the figures in the unaudited annual statements, Lender shall bear the cost
      of
      the certified public accountant’s audit. If, however, such figures vary by more
      than five percent (5%), Borrower shall bear the cost of such certified public
      accountant’s audit;

     

    (iv) Officer’s
      Certificate.
      Each
      set of annual Financial Statements or reports delivered to Lender pursuant
      to
      Sections 7.1(h)(i)
      and
7.1(h)(ii)
      of this
      Agreement will be accompanied by a certificate of the President or the Treasurer
      of Borrower in the form attached as Exhibit H setting forth that the signers
      have reviewed the relevant terms of the Agreement (and all other agreements
      and
      exhibits between the parties) and have made, or caused to be made, under their
      supervision, a review of the transactions and conditions of Borrower from the
      beginning of the period covered by the Financial Statements or reports being
      delivered therewith to the date of the certificate and that such review has
      not
      disclosed the existence during such period of any condition or event which
      constitutes a Default or Event of Default or, if any such condition or event
      existed or exists or will exist, specifying the nature and period of existence
      thereof and what action Borrower has taken or proposes to take with respect
      thereto;

     

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

     

    (v) Sales
      Reports.
      Concurrently with the financial statements required pursuant to Section
7.1(h)(i),
      Borrower shall deliver to Lender, a sales report, detailing the sales of all
      Intervals at the Resorts for the period covered thereby, certified by Borrower
      to be true, correct and complete and otherwise in a form approved by
      Lender;

     

    (vi) Audit
      Reports.
      Promptly upon receipt thereof, one (1) copy of each other report submitted
      to
      Borrower by independent public accountants or other Persons in connection with
      any annual, interim or special audit made by them of the books of
      Borrower;

     

    (vii) Notice
      of Default or Event of Default.
      Immediately upon becoming aware of the existence of any condition or event
      which
      constitutes a Default or an Event of Default, Borrower shall deliver to Lender
      a
      written notice specifying, as applicable, the nature and period of existence
      thereof and what action Borrower is taking or proposes to take with respect
      thereto;

     

    (viii) Notice
      of Claimed Default.
      Immediately upon becoming aware of a claim of Default or Event of Default,
      a
      written notice specifying, as applicable, the nature and period of existence
      thereof and what action Borrower is taking or proposes to take with respect
      thereto; 

     

    (ix) Maintenance
      of Inventory Control.
      Borrower shall maintain and at all times fully comply with the Inventory Control
      Procedures from the date hereof until the Loan is repaid in full. Borrower
      shall
      permit Lender, its officers, employees, auditors, and other agents or designees
      to review the books and records of Borrower and make such other examinations
      and
      inspections as Lender in its sole discretion deems necessary to determine that
      Borrower is in full compliance with such Inventory Control
      Procedures;

     

    (x) Material
      Adverse Developments.
      Immediately upon becoming aware of any claim, action, proceeding, development
      or
      other information which may materially and adversely affect Borrower, the
      Collateral, the Resorts, the business, prospects, profits or condition
      (financial or otherwise) of Borrower, or the ability of Borrower to perform
      its
      Obligations under the Agreement, Borrower shall provide Lender with telephonic
      or telegraphic notice, followed by telefaxed and mailed written confirmation,
      specifying the nature of such development or information and such anticipated
      effect; and

     

    (xi) Other
      Information.
      Borrower shall deliver to Lender: (i) within five (5) days of the filing thereof
      with the United States Securities and Exchange Commission, copies of each Form
      8-K, 10-Q and 10-K filed by Borrower; (ii) at least semi-annually during the
      Term (or more frequently upon request of Lender), current addresses and
      telephone numbers for each obligor under an Eligible Note Receivable pledged
      to
      Lender and (iii) any other information related to the Loan, the Collateral,
      the
      Resorts or Borrower as Lender may in good faith request including, without
      limitation, annually, federal call reports relating to Lockbox
      Agent.

     

    
      
        
        

      

      
        67

        
          

        

      

      
        
        

      

    

     

    (i) Records.
      Borrower shall keep adequate records and books of account reflecting all
      financial transactions of Borrower and with respect to the Resorts in which
      complete entries will be made in accordance with GAAP. In addition, Borrower
      shall keep, and shall promptly deliver to Lender upon Lender’s request therefor,
      complete, timely and accurate records of all sales of Intervals and all payments
      in respect of Pledged Notes Receivable.

     

    (j) Management.
      Borrower shall: (i) remain engaged in the active management of the Resorts,
      (ii)
      unless Borrower notifies Lender in writing at least thirty (30) days in advance
      of its new location, retain its executive offices at 1221 Riverbend Drive,
      Suite
      120, Dallas, Texas 75221, and (iii) continue to perform duties substantially
      similar to those presently performed as provided in the management agreement
      relating to each Resort. No management agreement for any Resort shall be
      modified, assigned, extended, terminated or entered into nor shall the current
      method of operation and management of the Resorts be changed in any material
      manner, without the prior written approval of Lender.

     

    (k) FICA.
      Borrower shall furnish to Lender within thirty (30) days after the expiration
      of
      each calendar quarter proof reasonably satisfactory to Lender that Borrower’s
      obligations to make deposits for F.I.C.A., social security and withholding
      taxes
      have been satisfied.

     

    (l) Operating
      Contracts.
      Subject
      to the rights of the Timeshare Owners’ Association as set forth in the Timeshare
      Documents, no Operating Contract shall be modified, extended, terminated or
      entered into, without the prior written approval of Lender, if any such
      modification, extension, termination or new agreement could have a material
      adverse impact on the operation of the Resorts or the Collateral.

     

    (m) Notices.
      Borrower shall notify Lender within five (5) Business Days of the occurrence
      of
      any event (i) as a result of which any representation or warranty of
      Borrower contained in any Loan Documents would be incorrect or materially
      misleading if made at that time, or (ii) as a result of which Borrower is
      not in full compliance with all of its covenants and agreements contained in
      this Agreement or any Loan Document, or (iii) which constitutes or, with
      the passage of time, notice or a determination by Lender would constitute,
      an
      Event of Default.

     

    (n) Maintenance.
      Borrower shall maintain, or shall cause to be maintained, or to the extent
      provided for pursuant to the Declaration, shall use its best efforts to cause
      the Timeshare Owners’ Association to maintain, and the Resorts in good repair,
      working order and condition and shall make all necessary replacements and
      improvements to the Resorts consisting of real property so that the value and
      operating efficiency of the Resorts will be maintained at all times and so
      that
      the Resorts remain in compliance in all respects with the Timeshare Act, the
      Timeshare Documents and other applicable law.

     

    
      
        
        

      

      
        68

        
          

        

      

      
        
        

      

    

     

    (o) Claims.
      Borrower shall promptly notify Lender of any claim, action or proceeding
      affecting the Resorts or Collateral, or any part thereof, or Lender, or any
      of
      the security interests or rights granted in favor of Lender hereunder or under
      any of the Loan Documents. At the request of Lender, Borrower shall appear
      in
      and defend in favor of Lender, at Borrower’s sole expense, any such claim,
      action or proceeding.

     

    (p) Registration
      and Regulations.
      

     

    (i) Local
      Legal Compliance.
      Borrower will comply, and will cause the Resorts to comply, with all applicable
      servitudes, restrictive covenants, applicable planning, zoning or land use
      ordinances and building codes, all applicable health and Environmental Laws
      and
      regulations, and all other applicable laws, rules, regulations, agreements
      or
      arrangements.

     

    (ii) Registration
      Compliance.
      Borrower will maintain, or cause to be maintained, all necessary registrations,
      current filings, consents, franchises, approvals, and exemption certificates,
      and Borrower will make or pay, or cause to be made or paid, all registrations,
      declarations or fees with the Division and any other government or any agency
      or
      department thereof, whether in the state or another jurisdiction, required
      in
      connection with the Resorts and the occupancy, use and operation thereof, the
      incorporation of Units into the time-share plan established pursuant to the
      Declaration and the other Timeshare Documents, and the sale, advertising,
      marketing, and offering for sale of Intervals. All such registrations, filings
      and reports will be truthfully completed; and true and complete copies of such
      registrations, applications, consents, licenses, permits, franchises, approvals,
      exemption certificates, filings and reports will be delivered to Lender.
      Borrower shall advise Lender of any changes with respect to its marketing or
      sales programs in any jurisdiction, including jurisdictions other than the
      state, and at Lender’s request from time to time, Borrower shall deliver to
      Lender: (A) written statements by the applicable state authorities, in form
      acceptable to Lender, stating that no registration is necessary for the sale
      of
      Intervals in the particular state, (B) an opinion of counsel in form
      acceptable to Lender and rendered by counsel acceptable to Lender, stating
      that
      no such registration is necessary, or (C) such other evidence of compliance
      with applicable laws as Lender may require; and

     

    (iii) Other
      Compliance.
      Borrower has, in all material respects, complied with and will comply with
      all
      laws and regulations of the United States, the State of Texas, each state in
      which an applicable Resort or Collateral is located, any political subdivision
      of either such state and any other governmental, quasi-governmental or
      administrative jurisdiction in which Intervals have been sold or offered for
      sale, or in which sales, offers of sale or solicitations with respect to the
      Resorts have been or will be conducted, including to the extent applicable,
      but
      not limited to: (1) the Timeshare Act; (2) the Consumer Credit
      Protection Act; (3) Regulation Z of the Federal Reserve Board;
      (4) the Equal Credit Opportunity Act; (5) Regulation B of the
      Federal Reserve Board; (6) the Federal Trade Commission’s 3-day cooling-off
      Rule for Door-to-Door Sales; (7) Section 5 of the Federal Trade Commission
      Act;
      (8) ILSA; (9) federal postal laws; (10) applicable state and
      federal securities laws; (11) applicable usury laws; (12) applicable
      trade practices, home and telephone solicitation, sweepstakes, anti-lottery
      and
      consumer credit and protection laws; (13) applicable real estate sales
      licensing, disclosure, reporting and escrow laws; (14) the ADA;
      (15) RESPA; (16) all amendments to and rules and regulations
      promulgated under the foregoing acts or laws; (17) the Federal Trade
      Commission’s Privacy of Consumer Financial Information Rule; (18) other
      applicable federal statutes and the rules and regulations promulgated
      thereunder; and (19) any state law or law of any state (and the rules and
      regulations promulgated thereunder) relating to ownership, establishment or
      operation of the Resort, or the sale, offering for sale, or financing of
      Intervals.

     

    
      
        
        

      

      
        69

        
          

        

      

      
        
        

      

    

     

    (q) Other
      Documents.
      Borrower will maintain to the satisfaction of Lender and make available to
      Lender, accurate and complete files relating to the Resorts, the Pledged Notes
      Receivable and other Collateral, and such files will contain true copies of
      each
      Pledged Note Receivable, as amended from time to time, copies of all relevant
      credit memoranda relating to such Notes Receivable and all collection
      information and correspondence relating thereto. Without limiting the foregoing,
      Borrower shall maintain evidence of its compliance with the requirements of
      Section 3.8.

     

    (r) Further
      Assurances.
      Borrower will execute and deliver, or cause to be executed and delivered, such
      other and further agreements, documents, instruments, certificates and
      assurances as, in the judgment of Lender exercised in good faith may be
      necessary or appropriate to more effectively evidence or secure, and to ensure
      the performance of, the Obligations. In addition, Borrower shall deliver to
      Lender from time to time upon each request by Lender such documents, instruments
      or other matters or items as Lender may require to evidence Borrower’s
      compliance with the covenants set forth in this Section 7.1
      and
      Section 3.8.

     

    (s) Utilities.
      Borrower will cause, or to the extent provided for pursuant to the Declaration,
      covenants to use its best efforts to ensure that the Timeshare Owners’
Association, or the manager of the Resorts, as applicable, will cause, electric,
      sanitary and stormwater sewer, water facilities, drainage facilities, solid
      waste disposal, telephone and other necessary utilities to be available to
      the
      Resorts in sufficient capacity to service the Resorts.

     

    
      
        
        

      

      
        70

        
          

        

      

      
        
        

      

    

     

    (t) Amenities.
      Borrower will cause, or to the extent provided for pursuant to the Declarations,
      will use its best efforts to ensure that the Timeshare Owners’ Association, or
      the manager of the Resort, as applicable, will cause, the Resorts to be
      maintained in good condition and repair, and in accordance with the provisions
      of the applicable Timeshare Documents, and Borrower will cause each Purchaser
      of
      an Interval at the Resorts to have continuing access to, and the use of, to
      the
      extent of such Purchaser’s time-share periods, all of the Common Elements and
      related or appurtenant services, rights and benefits, all as provided in the
      Declaration and the Timeshare Documents.

     

    (u) Expenses
      and Closing Fees.
      Whether
      or not the transactions contemplated hereunder are completed, Borrower shall
      pay
      all expenses of Lender and each of Lender’s participants relating to
      negotiating, preparing, documenting, closing and enforcing this Agreement,
      including, but not limited to:

     

    (i) the
      cost
      of preparing, reproducing and binding this Agreement, the other Loan Documents
      and all Exhibits and Schedules thereto;

     

    (ii) the
      reasonable fees and disbursements of Lender’s and each of Lender’s participants’
counsel;

     

    (iii) Lender’s
      and each of Lender’s participants’ reasonable out-of-pocket
      expenses;

     

    (iv) all
      reasonable fees and expenses (including fees and expenses of Lender’s and each
      of Lender’s participants’ counsel) relating to any amendments, waivers, consents
      or subsequent closings pursuant to the provisions hereof;

     

    (v) all
      costs, outlays, legal fees and expenses of every kind and character had or
      incurred in (1) the interpretation or enforcement of any of the provisions
      of,
      or the creation, preservation or exercise of rights and remedies under, any
      of
      the Loan Documents including the costs of appeal (2) the preparation for,
      negotiations regarding, consultations concerning, or the defense or prosecution
      of legal proceedings involving any claim or claims made or threatened against
      Lender arising out of this transaction or the protection of the Collateral
      securing the Loan or Advances made hereunder, expressly including, without
      limitation, the defense by Lender, and each of Lender’s participants of any
      legal proceedings instituted or threatened by any Person to seek to recover
      or
      set aside any payment or setoff theretofore received or applied by Lender and
      each of Lender’s participants with respect to the Obligations, and any and all
      appeals thereof; and (3) the advancement of any expenses provided for under
      any
      of the Loan Documents;

     

    
      
        
        

      

      
        71

        
          

        

      

      
        
        

      

    

     

    (vi) all
      expenses relating to the maintenance and administration of the Lockbox and
      Lockbox Account by the Lockbox Agent and Servicing and any escrow by the Title
      Company or any other escrow agent;

     

    (vii) all
      costs
      and expenses incurred by Lender under the Note, and all late charges under
      the
      Note;

     

    (viii) all
      real
      and personal property taxes and assessments, documentary stamp and intangible
      taxes, sales taxes, recording fees, title insurance premiums and other title
      charges, document copying, transmittal and binding costs, appraisal fees, lien
      and judgment search costs, fees of architects, engineers, environmental
      consultants, surveyors and any special consultants, construction inspection
      fees, brokers fees, escrow fees, wire transfer fees, and all travel and
      out-of-pocket expenses of Lender and each of Lender’s participants to conduct
      inspections or audits. Without limitation of the foregoing, Borrower shall
      pay
      the costs of UCC and other searches, UCC and other Loan Document recording
      fees
      and applicable taxes, and premiums on each Mortgagee Title Policy delivered
      to
      Lender pursuant to this Agreement; and

     

    (ix) with
      respect to the fees payable by Borrower under clauses (ii), (iii), and (iv)
      above, provided that no Event of Default or condition, omission or act which,
      with the passage of time, notice or both, would constitute an Event of Default,
      has occurred, Lender and/or Lender’s participants shall provide Borrower in
      advance, as applicable, with good faith estimates of: (1) the reasonable fees
      and disbursements of participant’s counsel; (2) the participant’s reasonable
      out-of-pocket expenses; and (3) the reasonable fees and expenses of participants
      and each participant’s counsel relating to any amendments, waivers, consents or
      subsequent closings pursuant to the provisions hereof, respectively; and such
      fees, disbursements and expenses shall be in accordance with such good faith
      estimates.

     

    
      
        
        

      

      
        72

        
          

        

      

      
        
        

      

    

     

    (v) Indemnification
      of Lender.
      In
      addition to (and not in lieu of) any other provisions of any Loan Document
      providing for indemnification in favor of Lender, Borrower shall defend,
      indemnify and hold harmless Lender, its subsidiaries, affiliates, officers,
      directors, agents, employees, representatives, consultants, contractors,
      servants, and attorneys, as well as the respective heirs, personal
      representatives, successors or assigns of any or all of them (hereafter
      collectively the “Indemnified
      Lender Parties”),
      from
      and against, and promptly pay on demand or reimburse each of them with respect
      to, any and all liabilities, claims, demands, losses, damages, costs and
      expenses (including without limitation, reasonable attorneys’ and paralegals’
fees and costs), actions or causes of action of any and every kind or nature
      whatsoever asserted against or incurred by any of them by reason of or arising
      out of or in any way related or attributable to (i) this Agreement, the Loan
      Documents, or the Collateral; (ii) the transactions contemplated under any
      of
      the Loan Documents or any of the Timeshare Documents, including without
      limitation, those in any way relating to or arising out of the violation of
      any
      federal or state laws, including the Timeshare Act; (iii) any breach of any
      covenant or agreement or the incorrectness or inaccuracy of any representation
      and warranty of Borrower contained in this Agreement or any of the Loan
      Documents (including without limitation any certification of Borrower delivered
      to Lender); (iv) any and all taxes, including real estate, personal property,
      sales, mortgage, excise, intangible or transfer taxes, and any and all fees
      or
      charges, including, without limitation under the Timeshare Act, which may at
      any
      time arise or become due prior to the payment, performance and discharge in
      full
      of the Obligations; (v) the breach of any representation or warranty as set
      forth herein regarding any Environmental Laws; (vi) the failure of Borrower
      to
      perform any obligation or covenant herein required to be performed pursuant
      to
      any Environmental Laws; (vii) the use, generation, storage, release, threatened
      release, discharge, disposal or presence on, under or about the Resorts of
      any
      Hazardous Materials; (viii) the removal or remediation of any Hazardous
      Materials from the Resorts required to be performed pursuant to any
      Environmental Laws or as a result of recommendations of any environmental
      consultant or as required by Lender; (ix) claims asserted by any Person
      (including without limitation any governmental or quasi-governmental agency,
      commission, department, instrumentality or body, court, arbitrator or
      administrative board (collectively, a “Governmental
      Agency”),
      in
      connection with or any in any way arising out of the presence, use, storage,
      disposal, generation, transportation, release, or treatment of any Hazardous
      Materials on, in, under or affecting the Resorts; (x) the violation or claimed
      violation of any Environmental Laws in regard to the Resorts; or (xi) the
      preparation of an environmental audit or report on the Resorts, whether
      conducted by Lender, Borrower or a third-party, or the implementation of
      environmental audit recommendations. Such indemnification shall not give
      Borrower any right to participate in the selection of counsel for Lender or
      the
      conduct or settlement of any dispute or proceeding for which indemnification
      may
      be claimed. Lender agrees to give Borrower written notice of the assertion
      of
      any claim or the commencement of any action or lawsuit described in this
      Section. It is the express intention of the parties hereto that the indemnity
      provided for in this Section, as well as the disclaimers of liability referred
      to in this Agreement, are intended to and shall protect and indemnify Lender
      from the consequences of Lender’s own negligence, whether or not that negligence
      is the sole or concurring cause of any liability, obligation, loss, damage,
      penalty, action, judgment, suit, claim, cost, expense or disbursement provided,
      however, that Borrower shall not be required to protect and indemnify Lender
      or
      any Lender from the consequences of Lender’s or any such Lender’s gross
      negligence, where that gross negligence is the sole cause of the liability,
      obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense
      or disbursement for which indemnification or protection would otherwise be
      required. The provisions of this Section shall survive the full payment,
      performance and discharge of the Obligations and the termination of this
      Agreement, and shall continue thereafter in full force and effect.

     

    
      
        
        

      

      
        73

        
          

        

      

      
        
        

      

    

     

    (w) Financial
      Covenants. 

     

    (i) Tangible
      Net Worth.
      Borrower
      shall at all times have and maintain Tangible Net Worth in an amount which
      shall
      not be less than an amount equal to the Tangible Net Worth as stated in the
      annual audited financial statements as of December 31, 2004 plus (A) fifty
      percent (50%) of the aggregate amount of proceeds received by Borrower after
      December 31, 2004 in connection with each issuance by Borrower of any class
      or
      classes of capital stock after December 31, 2004, except for stock issued to
      retire existing unsecured subordinated debt, plus (B) fifty percent (50%) of
      the
      aggregate amount of net income (calculated in accordance with GAAP) of Borrower
      after December 31, 2004.

     

    (ii) Marketing
      and Sales Expenses.
      As
      of the
      last day of each fiscal quarter, Borrower will not permit the twelve (12) month
      cumulative ratio of Marketing and Sales Expenses to the Borrower’s net proceeds
      from the sale of Intervals as recorded on the Borrower’s financial statements
      for the immediately preceding twelve (12) consecutive months to equal or exceed
      a ratio of .570 to 1.

     

    (iii) Maximum
      Loan Delinquency.
      Borrower
      will not permit as of the last day of each calendar quarter its over 30-day
      delinquency rate on its entire Notes Receivable portfolio to be greater than
      twenty-five percent (25%). If, as of the last day of each calendar quarter,
      Borrower’s over 30-day delinquency on its entire Notes Receivable portfolio is
      greater than twenty percent (20%), then Lender shall have the right to conduct
      an audit, at Borrower’s sole cost and expense, of all Borrower’s Notes
      Receivable pledged to the Lender hereunder.

     

    (iv) Interest
      Coverage.
      The
      Interest Coverage Ratio for Borrower shall be at least 1.25:1. The term Interest
      Coverage Ratio means with respect to any Person for any calendar quarter, the
      ratio of (a) EBITDA for such period less capital expenditures as determined
      in
      accordance with GAAP, for such period to (b) the interest expense minus all
      non-cash items constituting interest expense for such period.

     

    (v) Profitable
      Operations.
      Borrower
      will not permit Consolidated Net Income (a) for any fiscal year, commencing
      with
      the fiscal year ending December 31, 2004, to be less than $1.00 and (b) for
      any
      two consecutive fiscal quarters (reviewed on an individual rather than on an
      aggregate basis) to be less than $1.00.

     

    (vi) Debt
      to Equity Ratio.
      The
      Debt
      to Equity Ratio for Borrower shall be less than 6:1. The term Debt to Equity
      Ratio means the ratio of (a) debt consisting of all notes payable, capital
      lease
      obligations and senior subordinated debt as reported on the Borrower’s most
      recent consolidated financial statements to (b) equity consisting of the balance
      sheet equity and senior subordinated debt less intangible assets, including,
      without limitation, goodwill, trademarks, tradenames, copyrights, patents,
      patent allocations, licenses and rights in any of the foregoing and other items
      treated as intangible in accordance with GAAP, as reported on the Borrower’s
      most recent consolidated financial statements. In computing Borrower’s Debt to
      Equity Ratio, non-recourse off balance sheet financing will not be included
      as
      part of Borrower’s debt.

     

    
      
        
        

      

      
        74

        
          

        

      

      
        
        

      

    

     

    (x) Net
      Securitization Cash Flow.
      If
      a
      Default or Event of Default has occurred, then Borrower shall cause Silverleaf
      Finance II, Inc. to declare, at least quarterly, a cash dividend payable to
      Borrower and/or a payment in respect of the Silverleaf Finance II Subordinated
      Note in an aggregate amount equal to the Net Securitization Cash Flow in respect
      of Silverleaf Finance II, Inc. for such quarter, and all such dividends shall
      be
      paid directly to Lender, and applied by Lender in repayment of the Loan.
      Borrower shall provide Lender with notice of Silverleaf Finance II, Inc.’s
      declaration of a cash dividend or a payment on the Silverleaf Finance II
      Subordinated Note, together with a certification that: (i) states whether a
      Default or Event of Default exists, and (ii) contains a calculation of the
      Net
      Securitization Cash Flow.

     

    (y) The
      maximum Loan to Retail Value Ratio shall at no time exceed 15%.

     

    7.2 Negative
      Covenants.
      So long
      as any portion of the Obligations remain unsatisfied, Borrower hereby covenants
      and agrees with Lender as follows:

     

    (a) Limitation
      on Other Debt, Further Encumbrances.
      Borrower will not obtain financing and grant liens with respect to the
      Collateral. Notwithstanding anything herein to the contrary, Borrower may,
      without first obtaining the written consent of Lender obtain financing and
      grant
      liens with respect to any of its assets or other property except for the
      Collateral and those assets or property restricted by a negative pledge
      provided: (i) Borrower provides ten days prior written notice to Lender setting
      forth the terms and conditions of such financing; (ii) no Event of Default
      or
      condition, omission or act which, with the passage of time, notice or both,
      would constitute an Event of Default, has occurred; (iii) such financing does
      not result in an Event of Default hereunder or under any documents evidencing
      any other indebtedness of Borrower; and (iv) Lender is promptly provided a
      copy
      of the fully executed loan documents relating thereto.

     

    (b) Restrictions
      on Transfers.
      Except
      as hereinafter specifically provided, Borrower shall not, whether voluntarily
      or
      involuntarily, by operation of law or otherwise, (i) without obtaining the
      prior
      written consent of Lender (which consent may be given, withheld or conditioned
      by Lender in Lender’s sole discretion), transfer, sell, pledge, convey,
      hypothecate, factor or assign all or any portion of the Collateral, the
      Encumbered Intervals, the Common Elements relating to the Encumbered Intervals
      or any Resort facilities or amenities, or contract to do any of the foregoing,
      including, without limitation, pursuant to options to purchase, and so-called
      installment sales contracts, land contracts, or contracts for deed, provided
      that the foregoing restriction on transfers shall not apply to the conveyance
      of
      SPV Assets to the SPV in accordance with the Silverleaf Finance II Documents,
      (ii) without obtaining the prior written consent of Lender (which consent may
      be
      given, withheld or conditioned by Lender in Lender’s sole discretion), lease or
      license all or any portion of the Collateral, the Encumbered Intervals, the
      Common Elements relating to the Encumbered Intervals or any Resort facilities
      or
      amenities (except for the license created in favor of SPV under any license
      agreement with Borrower, Silverleaf Club or any timeshare owners association,
      to
      use or access the reservation system or related computer hardware or software
      for any Resort), or change the legal or actual possession or use thereof, (iii)
      permit the assignment, transfer, delegation, change, modification or diminution
      of the duties or responsibilities of Borrower, of any manager of the Resorts
      approved by Lender as manager of the Resorts (except for an assignment of such
      duties to a professional management company or companies reasonably acceptable
      to Lender in advance) without obtaining the prior written consent of Lender
      (which consent shall not be unreasonably withheld), or (iv) without obtaining
      the prior written consent of Lender (which consent may be given, withheld or
      conditioned by Lender in Lender’s sole discretion), cause or permit the
      assignment, pledge or other encumbrance of any of the Operating Contracts or
      all
      or any portion of Borrower’s right, title or interest in the Declaration.
      Without limiting the generality of the preceding sentence, and subject to the
      terms of this Agreement, the prior written consent of Lender (as specified
      above) shall be required for (A) any transfer of the Encumbered Intervals,
      the
      Common Elements relating to the Encumbered Intervals or any Resort facilities
      or
      amenities or any part thereof made to a subsidiary or Affiliate or otherwise,
      (B) any transfer of all or any part of the Encumbered Intervals, the Common
      Elements relating to the Encumbered Intervals or any Resort facilities or
      amenities by Borrower to its stockholders or Affiliates or vice versa, and
      (C)
      any corporate merger or consolidation, disposition or other reorganization,
      except as permitted in Section 7.1(c).
      In the
      event that Lender is willing to consent to a transfer which would otherwise
      be
      prohibited by this Section 7.2(b)
      Lender
      may condition its consent on such terms as it desires, including, without
      limitation, an increase in the Interest Rate and the requirement that Borrower
      pay a transfer fee, together with any expenses incurred by Lender in connection
      with the granting of such consent (including, without limitation, attorneys’
fees and expenses). If Borrower violates the terms of this Section 7.2(b),
      in
      addition to any other rights or remedies which Lender may have herein, in any
      other Loan Document, or at law or in equity, Lender may by written notice to
      Borrower increase, effective immediately as of the date of such violation,
      the
      Interest Rate to the Default Rate.

     

    
      
        
        

      

      
        75

        
          

        

      

      
        
        

      

    

     

    (c) Use
      of a Lender’s or Lender’s Name.
      Borrower will not, and will not permit any Affiliate to, without the prior
      written consent of Lender or such Lender’s participant, use the name of Lender
      or any Lender’s participant or the name of any affiliate of Lender, any Lender
      or any Lender’s participant in connection with any of their respective
      businesses or activities, except in connection with internal business matters
      and as required in dealings with governmental agencies.

     

    (d) Transactions
      with Affiliates.
      Except
      as provided in the Silverleaf Finance II Documents, without the prior written
      consent of Lender, which shall not unreasonably be withheld, Borrower will
      not
      enter into any transaction with any Affiliate in connection with the Resorts,
      including, without limitation, relating to the purchase, sale or exchange of
      any
      assets or properties or the rendering of any service, except in the ordinary
      course of, and pursuant to the reasonable requirements of, the operations of
      the
      Resorts and upon fair and reasonable terms.

     

    
      
        
        

      

      
        76

        
          

        

      

      
        
        

      

    

     

    (e) Restrictive
      Covenants.
      Borrower will not without Lender’s prior written consent seek, consent to, or
      otherwise acquiesce in, any change in any private restrictive covenant, planning
      or zoning law or other public or private restriction, which would limit or
      alter
      the use of the Resorts.

     

    (f) Subordinated
      Obligations.
      Borrower will not, directly or indirectly, (i) permit any payment to be
      made in respect of any indebtedness, liabilities or obligations, direct or
      contingent, (the “Subordinated
      Debt”)
      to any
      of its shareholders or their affiliates or which are subordinated by the terms
      thereof or by separate instrument to the payment of principal of, and interest
      on, the Note; (ii) permit the amendment, rescission or other modification
      of any such subordination provisions of any of Borrower’s subordinated
      obligations in such a manner as to affect adversely the Lien in and to the
      Collateral or Lender’s senior priority position and entitlement as to payment
      and rights with respect to the Note and the Obligations, or (iii) permit
      the prepayment or redemption, except for mandatory prepayments, of all or any
      part of Borrower’s obligations to its shareholders, or of any subordinated
      obligations of Borrower except in accordance with the terms of such
      subordination. Notwithstanding anything to the contrary in this Section
7.2(f),
      so long
      as Borrower’s Tangible Net Worth remains in compliance with Section 7.1(w)(i)
      Borrower
      may: (i) retire unsecured subordinated debt, and/or (ii) declare dividends,
      buy
      back stock, and perform other equity transactions.

     

    (g) Timeshare
      Regime.
      Without
      Lender’s prior written consent, Borrower shall not amend, modify or terminate
      the Declarations or other Timeshare Documents, or any other restrictive
      covenants, agreements or easements regarding the Resorts (except for routine
      non-substantive modifications which have no impact on the Collateral). Except
      as
      otherwise provided herein, Borrower shall not assign its rights as developer
      under the Declarations without Lender’s prior written consent, or file or permit
      to be filed any additional covenants, conditions, easements or restrictions
      against or affecting the Resorts (or any portion thereof) without Lender’s prior
      written consent, which consent shall not be unreasonably withheld.

     

    (h) Name
      Change.
      Borrower will not change its name or state of organization.

     

    (i) Collateral.
      Borrower shall not take any action (nor permit or consent to the taking of
      any
      action) which might impair the value of the Collateral or any of the rights
      of
      Lender in the Collateral, except with respect to the Silverleaf Finance II
      Stock
      and the Silverleaf Finance II Subordinated Note as provided in the Silverleaf
      Finance II Documents, nor shall Borrower cause or permit any amendment to or
      modification of the form or terms of any of the Pledged Notes Receivable,
      Mortgages or, except as specifically provided herein above, the other Timeshare
      Documents.

     

    (j) Marketing/Sales.
      Borrower shall not market, attempt to sell or sell or permit or justify any
      sales or attempted sales of any Intervals except in compliance with the
      Timeshare Act and applicable laws in state and other jurisdictions where
      marketing, sales or solicitation activities occur.

     

    
      
        
        

      

      
        77

        
          

        

      

      
        
        

      

    

     

    (k) Declarant’s
      Rights and Management Agreements.
      Borrower
      covenants, pledges and agrees that until the Loan and all other amounts due
      and
      owing under this Agreement and the other Loan Documents are paid in full
      Borrower will not, voluntarily or involuntarily, directly or indirectly,
      mortgage, pledge, assign, sell, transfer, hypothecate, encumber, convey or
      grant
      a security interest in any: (i) contract or agreement, whether written, oral
      or
      otherwise, whether now or hereafter existing, including any management or
      operating contract and agreement, between Borrower or any Affiliate of the
      Borrower and the governing body of any Resort, with respect to the management
      and operation of the Resort; or (ii) any rights of the Declarant arising under
      the Declaration creating any Resort, or under the Bylaws for the Resort, whether
      now or hereafter existing. 

     

    Section
      8-Events Of Default

     

    8.1 Nature
      of Events.
      An
“Event of Default” shall exist if any of the following shall occur:

     

    (a) Payments.
      If
      Borrower shall fail to make, as and when due, any payment or mandatory
      prepayment of principal, interest, fees or other amounts with respect to the
      Loan and such failure shall continue for five (5) days after notice of such
      failure is provided by Lender.

     

    (b) Covenant
      Defaults.
      If
      Borrower shall fail to perform or observe any covenant, agreement or warranty
      contained in this Agreement or in any of the Loan Documents, (other than with
      respect to: (i) the failure to make timely payments in respect of the Loan
      as
      provided in Section 8.1(a);
      (ii)
      the failure to deliver payments made under the Pledged Notes Receivable directly
      to Lender as required pursuant to Section 2.4
      as
      provided in Section 8.1(h);
      or
      (iii) violation of: (y) the financial covenants in Section 7.1(w);
      any
      negative covenants in Section 7.2)
      and,
      such failure shall continue for fifteen (15) days after notice of such failure
      is provided by Lender, provided however, that if Borrower commences to cure
      such
      failure within such 15 day period, but, because of the nature of such failure,
      cure cannot be completed within 15 days notwithstanding diligent effort to
      do
      so, then, provided Borrower diligently seeks to complete such cure, an Event
      of
      Default shall not result unless such failure continues for a total of thirty
      (30) days.

     

    (c) Warranties
      or Representations.
      If any
      representation or other statement made by or on behalf of Borrower in this
      Agreement, in any of the Loan Documents or in any instrument furnished in
      compliance with or in reference to the Loan Documents, is false, misleading
      or
      incorrect in any material respect as of the date made or
      reaffirmed.

     

    (d) Enforceability
      of Liens.
      If any
      lien or security interest granted by Borrower to Lender in connection with
      the
      Loan is or becomes invalid or unenforceable or is not, or ceases to be, a
      perfected first or second priority lien or security interest, as applicable,
      in
      favor of Lender, encumbering the asset which it is intended to encumber, and
      Borrower fails to cause such lien or security interest to become a valid,
      enforceable, first or second, as applicable, and prior lien or security interest
      in a manner satisfactory to Lender within ten (10) days after Lender delivers
      written notice thereof to Borrower.

     

    
      
        
        

      

      
        78

        
          

        

      

      
        
        

      

    

     

    (e) Involuntary
      Proceedings.
      If a
      case is commenced or a petition is filed against Borrower under any Debtor
      Relief Law; a receiver, liquidator or trustee of Borrower or of any material
      asset of Borrower is appointed by court order and such order remains in effect
      for more than forty-five (45) days; or if any material asset of Borrower is
      sequestered by court order and such order remains in effect for more than
      forty-five (45) days.

     

    (f) Proceedings.
      If
      Borrower voluntarily seeks, consents to or acquiesces in the benefit of any
      provision of any Debtor Relief Law, whether now or hereafter in effect; consents
      to the filing of any petition against it under such law; makes an assignment
      for
      the benefit of its creditors; admits in writing its inability to pay its debts
      generally as they become due; or consents or suffers to the appointment of
      a
      receiver, trustee, liquidator or conservator for it, or any part of its,
      assets.

     

    (g) Attachment,
      Judgment, Tax Liens.
      The
      issuance, filing, levy or seizure against the Collateral, or, with respect
      to
      the Resorts or the Obligations, against Borrower of one or more attachments,
      injunctions, executions, tax liens or judgments for the payment of money
      cumulatively in excess of $100,000.00, which is not discharged in full or stayed
      within thirty (30) days after issuance or filing.

     

    (h) Failure
      to Deposit Proceeds.
      If
      Borrower shall fail to deliver payments made under the Pledged Notes Receivable
      directly to Lender as required pursuant to Section 2.4
      above,
      or if Borrower shall take any other act which Lender shall deem to be a
      conversion of the Collateral or fraudulent with respect to Lender.

     

    (i) Timeshare
      Documents.
      If the
      Declaration, any of the other documents creating or governing the Resorts,
      its
      timeshare regime, or the Timeshare Owners’ Association, or the restrictive
      covenants with respect to the Resorts, shall be terminated, amended or modified
      without Lender’s prior written consent (except for routine non-substantive
      modifications which have no impact on the Collateral).

     

    (j) Removal
      of Collateral.
      If
      Borrower conceals, removes, transfers, conveys, assigns or permits to be
      concealed, removed, transferred, conveyed or assigned, any of the Collateral
      in
      violation of the terms of the Loan Documents or with the intent to hinder,
      delay
      or defraud its creditors or any of them including, without limitation,
      Lender.

     

    (k) Other
      Defaults.
      If a
      material default shall occur in any of the covenants or Obligations set forth
      in
      any of the Loan Documents.

     

    (l) Material
      Adverse Change.
      Any
      material adverse change in the financial condition of Borrower or in the
      condition of the Collateral. For purposes of this provision, a decline in the
      net worth of Borrower of $100,000.00 or less shall not be considered a material
      adverse change.

     

    
      
        
        

      

      
        79

        
          

        

      

      
        
        

      

    

     

    (m) Default
      by Borrower in Other Agreements.
      Any:
      (1) default, as defined in the applicable loan agreement, by Borrower: (i)
      in
      the payment of any indebtedness to any lender; (ii) in the payment or
      performance of other indebtedness for borrowed money or obligations secured
      by
      any part of the Resorts; or (iii) in the payment or performance of other
      material indebtedness or obligations (material indebtedness or obligations
      being
      defined for purposes of this provision as any indebtedness or obligation in
      excess of $200,000) where such default accelerates or permits the acceleration
      (after the giving of notice or passage of time or both) of the maturity of
      such
      indebtedness, or permits the holders of such indebtedness to elect a majority
      of
      the board of directors of Borrower (whether or not such default[s] have been
      waived by such holder); (2) acceleration by any lender of its respective credit
      facilities; or (3) default under, or acceleration of the TFC Conduit Loan.
      

     

    (n) Use
      of Resorts.
      Any act
      or failure to act by Borrower which materially and adversely limits the rights
      of Purchasers to use Common Elements, and related or appurtenant easement,
      access and use rights and benefits of any of the Resorts, including but not
      limited to a default by Borrower or any Affiliate under any loan document or
      Declaration to which Borrower or any Affiliate is a party.

     

    (o) Violation
      of Negative Covenants.
      Borrower violates any negative covenants set forth in Section 7.2.

     

    (p) Violation
      of Financial Covenants.
      Borrower violates any financial covenants set forth in Section 7.1(w).

     

    (q) Use
      of Loan Proceeds.
      If the
      proceeds of any Advance are used in contravention of Section 6.11.

     

    Section
      9-Remedies

     

    9.1 Remedies
      Upon Default.
      Should
      an Event of Default occur, Lender may take any one or more of the actions
      described in this Section
      9,
      all
      without notice to Borrower:

     

    (a) Acceleration.
      Without
      demand or notice of any nature whatsoever, declare the unpaid balance of the
      Loans, or any part thereof, immediately due and payable, whereupon the same
      shall be due and payable.

     

    (b) Termination
      of Obligation to Advance.
      Terminate any obligation of Lender to lend under this Agreement in its entirety,
      or any portion of any such commitment, to the extent Lender shall deem
      appropriate, all without notice to Borrower.

     

    (c) Judgment.
      Reduce
      Lender’s claim to judgment, foreclose or otherwise enforce Lender’s security
      interest in all or any part of the Collateral by any available judicial or
      other
      procedure under law.

     

    
      
        
        

      

      
        80

        
          

        

      

      
        
        

      

    

     

    (d) Sale
      of Collateral and Foreclosure of Mortgages. Inventory Mortgages and Real
      Property Mortgages.
      After
      notification, if any, provided for in Section 9.2
      below,
      Lender may sell or otherwise dispose of, at the office of Lender, or elsewhere,
      as chosen by Lender, all or any part of the Collateral, and any such sale or
      other disposition may be as a unit or in parcels, by public or private
      proceedings, and by way of one or more contracts (it being agreed that the
      sale
      of any part of the Collateral shall not exhaust Lender’s power of sale, but
      sales may be made from time to time until all of the Collateral has been sold
      or
      until the Obligations have been paid in full and fully performed), and at any
      such sale it shall not be necessary to exhibit the Collateral, including,
      without limitation, foreclosure of the Inventory Mortgages and the Real Property
      Mortgages. Borrower hereby acknowledges and agrees that a private sale or sales
      of the Collateral, after notification as provided for in Section 9.2,
      shall
      constitute a commercially reasonable disposition of the Collateral sold at
      any
      such sale or sales, and otherwise, commercially reasonable action on the part
      of
      Lender.

     

    (e) Retention
      of Collateral.
      At
      Lender’s discretion, retain such portion of the Collateral as shall aggregate in
      value to an amount equal to the aggregate amount of the Loans, in satisfaction
      of the Obligations, whenever the circumstances are such that Lender elects
      to do
      so under applicable law.

     

    (f) Receiver.
      Apply
      by appropriate judicial proceedings for appointment of a receiver for the
      Collateral, or any part thereof, and Borrower hereby consents to any such
      appointment.

     

    (g) Purchase
      of Collateral.
      Buy the
      Collateral at any public or private sale.

     

    (h) Exercise
      of Other Rights.
      Lender
      shall have all the rights and remedies of a secured party under the Code and
      other legal and equitable rights to which it may be entitled, including, without
      limitation, and without notice to Borrower, the right to continue to collect
      all
      payments made on the Pledged Notes Receivable, and to apply such payments to
      the
      Obligations, and to sue in its own name the maker of any defaulted Pledged
      Notes
      Receivable. Lender may also exercise any and all other rights or remedies
      afforded by any other applicable laws or by the Loan Documents as Lender shall
      deem appropriate, at law, in equity or otherwise, including, but not limited
      to,
      the right to bring suit or other proceeding, either for specific performance
      of
      any covenant or condition contained in the Loan Documents or in aid of the
      exercise of any right or remedy granted to Lender in the Loan Documents. Lender
      shall also have the right to require Borrower to assemble any of the Collateral
      not in Lender’s possession, at Borrower’s expense, and make it available to
      Lender at a place to be determined by Lender which is reasonably convenient
      to
      both parties, and shall have the right to take immediate possession of all
      of
      the Collateral, and may enter the Resorts or any of the premises of Borrower
      or
      wherever the Collateral shall be located, with or without process of law
      wherever the Collateral may be, and, to the extent such premises are not the
      property of Lender, to keep and store the same on said premises until sold
      (and
      if said premises be the property of Borrower, Borrower agrees not to charge
      Lender for use and occupancy, rent, or storage of the Collateral, for a period
      of at least ninety (90) days after sale or disposition of the
      Collateral).

     

    
      
        
        

      

      
        81

        
          

        

      

      
        
        

      

    

     

    9.2 Notice
      of Sale.
      Reasonable notification of time and place of any public sale of the Collateral
      or reasonable notification of the time after which any private sale or other
      intended disposition of the Collateral is to be made shall be sent to Borrower
      and to any other person entitled under the Code to notice; provided, however,
      that if the Collateral threatens to decline speedily in value or is of a type
      customarily sold on a recognized market, Lender may sell or otherwise dispose
      of
      the Collateral without notification, advertisement or other notice of any kind.
      It is agreed that notice sent not less than five (5) calendar days prior to
      the
      taking of the action to which such notice relates is reasonable notification
      and
      notice for the purposes of this Section 9.2.
      Lender
      shall have the right to bid at any public or private sale on its own behalf.
      Out
      of money arising from any such sale, Lender shall retain an amount equal to
      all
      of its costs and charges, including attorneys’ fees for advice, counsel or other
      legal services or for pursuing, reclaiming, seeking to reclaim, taking, keeping,
      removing, storing and advertising such Collateral for sale, selling same and
      any
      and all other charges and expenses in connection therewith and in satisfying
      any
      prior Liens thereon. Any balance shall be applied upon the Obligations, and
      in
      the event of deficiency, Borrower shall remain liable to Lender. In the event
      of
      any surplus, such surplus shall be paid to Borrower or to such other Persons
      as
      may be legally entitled to such surplus. If, by reason of any suit or proceeding
      of any kind, nature or description against Borrower, or by Borrower or any
      other
      party against Lender or any Lender, which in such Lender’s sole discretion makes
      it advisable for Lender to seek counsel for the protection and preservation
      of
      Lenders’ security interest, or to defend the interest of Lender, such expenses
      and counsel fees shall be allowed to Lender and the same shall be made a further
      charge and Lien upon the Collateral.

     

    In
      view
      of the fact that federal and state securities laws may impose certain
      restrictions on the methods by which a sale of Collateral comprised of
      Securities may be effected after an Event of Default, Borrower agrees that
      upon
      the occurrence or existence of an Event of Default, Lender may from time to
      time, attempt to sell all or any part of such Collateral by means of a private
      placement restricting the bidding and prospective purchasers to whose who will
      represent and agree that they are purchasing for investment only and not for,
      or
      with a view to, distribution. In so doing, Lender may solicit offers to buy
      such
      Collateral, or any part of it for cash, from a limited number of investors
      deemed by Lender, in its reasonable judgment, to be responsible parties who
      might be interested in purchasing the Collateral, and if Lender solicits such
      offers from not less than two (2) such investors, then the acceptance by Lender
      of the highest offer obtained therefrom shall be deemed to be a commercially
      reasonable method of disposition of such Collateral.

     

    9.3 Application
      of Collateral; Termination of Agreements.
      Upon
      the occurrence of any Event of Default: (i) Lender may, with or without
      proceeding with such sale or foreclosure or demanding payment or performance
      of
      the Obligations, without notice, terminate Lender’s further performance under
      this Agreement or any other agreement or agreements between Lender and Borrower,
      without further liability or obligation by Lender; (ii) Lender may, at any
      time,
      appropriate and apply on any Obligations any and all Collateral in its, the
      Custodian’s, or the Lockbox Agent’s possession and (iii) Lender may apply any
      and all balances, credits, deposits, accounts, reserves, indebtedness or other
      moneys due or owing to Borrower held by Lender hereunder or under any other
      financing agreement or otherwise, whether accrued or not. Neither such
      termination, nor the termination of this Agreement by lapse of time, the giving
      of notice or otherwise, shall absolve, release or otherwise affect the liability
      of Borrower in respect of transactions prior to such termination, or affect
      any
      of the Liens, security interests, rights, powers and remedies of Lender, but
      they shall, in all events, continue until all of the Obligations are
      satisfied.

     

    
      
        
        

      

      
        82

        
          

        

      

      
        
        

      

    

     

    9.4 Rights
      of Lender Regarding Collateral.
      In
      addition to all other rights possessed by Lender, Lender, at its option, may
      on
      its own behalf from time to time after there shall have occurred an Event of
      Default, and so long as such Event of Default remains uncured, at its sole
      discretion, take the following actions:

     

    (a) transfer
      all or any part of the Collateral into the name of Lender or its
      nominee;

     

    (b) take
      control of any proceeds of any of the Collateral;

     

    (c) extend
      or
      renew the Loan and grant releases, compromises or indulgences with respect
      to
      the Obligations, any portion thereof, any extension or renewal thereof, or
      any
      security therefor, to any obligor hereunder or thereunder; and

     

    (d) exchange
      certificates or instruments representing or evidencing the Collateral for
      certificates or instruments of smaller or larger denominations for any purpose
      consistent with the terms of this Agreement.

     

    9.5 Delegation
      of Duties and Rights.
      Lender
      may execute any of its duties and/or exercise any of its rights or remedies
      under the Loan Documents by or through its officers, directors, employees,
      attorneys, agents or other representatives.

     

    9.6 Lender
      not in Control.
      Except
      as expressly provided herein or in any Loan Document, none of the covenants
      or
      other provisions contained in this Agreement or in any Loan Document shall
      give
      Lender the right or power to exercise control over the affairs and/or management
      of Borrower.

     

    9.7 Waivers.
      The
      acceptance by Lender at any time and from time to time of partial payments
      of
      the Loan or performance of the Obligations shall not be deemed to be a waiver
      of
      any Event of Default then existing. No waiver by Lender of any Event of Default
      shall be deemed to be a waiver of any other or subsequent Event of Default.
      No
      delay or omission by Lender in exercising any right or remedy under the Loan
      Documents shall impair such right or remedy or be construed as a waiver thereof
      or an acquiescence therein, nor shall any single or partial exercise of any
      such
      right or remedy preclude other or further exercise thereof, or the exercise
      of
      any other right or remedy under the Loan Documents or otherwise. Further, except
      as otherwise expressly provided in this Agreement or by applicable law, Borrower
      and each and every surety, endorser, guarantor and other party liable for the
      payment or performance of all or any portion of the Obligations, severally
      waive
      notice of the occurrence of any Event of Default, presentment and demand for
      payment, protest, and notice of protest, notice of intention to accelerate,
      acceleration and nonpayment, and agree that their liability shall not be
      affected by any renewal or extension in the time of payment of the Loan, or
      by
      any release or change in any security for the payment or performance of the
      Loan, regardless of the number of such renewals, extensions, releases or
      changes.

     

    
      
        
        

      

      
        83

        
          

        

      

      
        
        

      

    

     

    9.8 Cumulative
      Rights.
      All
      rights and remedies available to Lender under the Loan Documents shall be
      cumulative of and in addition to all other rights and remedies granted under
      any
      of the Loan Document, at law or in equity, whether or not the Loan is due and
      payable and whether or not Lender shall have instituted any suit for collection
      or other action in connection with the Loan Documents.

     

    9.9 Expenditures
      by Lender.
      Any
      sums expended by or on behalf of Lender pursuant to the exercise of any right
      or
      remedy provided herein shall become part of the Obligations and shall bear
      interest at the Default Rate, from the date of such expenditure until the date
      repaid.

     

    9.10 Diminution
      in Value of Collateral.
      Lender
      shall not have any liability or responsibility whatsoever for any diminution
      or
      loss in value of any of the Collateral, specifically including that which may
      arise from Lender’s negligence or inadvertence, whether such negligence or
      inadvertence is the sole or concurring cause of any damage.

     

    9.11 Lender’s
      Knowledge.
      Lender
      shall not be deemed to have knowledge or notice of the occurrence of any Event
      of Default unless Lender has actual knowledge of the Event of Default or has
      received a notice from Borrower referring to this Agreement and describing
      such
      Event of Default. 

     

    Section
      10-Certain Rights Of Lenders

     

    10.1 Protection
      of Collateral.
      Lender
      may at any time and from time to time take such actions as it deems necessary
      or
      appropriate to protect Lender’s Liens and security interests in and to preserve
      the Collateral, and to establish, maintain and protect the enforceability of
      Lender’s rights with respect thereto, all at the expense of Borrower. Borrower
      agrees to cooperate fully with all of Lender’s efforts to preserve the
      Collateral and Lender’s Liens, security interests and rights and will take such
      actions to preserve the Collateral and Lender’s Liens, security interests and
      rights as Lender may direct, including, without limitation, by promptly paying
      upon Lender’s demand therefor, all documentary stamp taxes or other taxes that
      may be or may become due in respect of any of the Collateral. All of Lender’s
      expenses of preserving the Collateral and Lender’s liens and security interests
      and rights therein shall be added to the Loan.

     

    10.2 Performance
      by Lender.
      If
      Borrower fails to perform any agreement contained herein, Lender may itself
      perform, or cause the performance of, such agreement on behalf of Lenders,
      and
      the expenses of Lender incurred in connection therewith shall be payable by
      Borrower under Section 10.5
      below.
      In no event, however, shall Lender have any obligation or duties whatsoever
      to
      perform any covenant or agreement of Borrower contained herein or in any of
      the
      Loan Documents, Timeshare Documents or Operating Contracts, and any such
      performance by Lender shall be wholly discretionary with Lender. The performance
      by Lender, of any agreement or covenant of Borrower on any occasion shall not
      give rise to any duty on the part of Lender to perform any such agreements
      or
      covenants on any other occasion or at any time. In addition, Borrower
      acknowledges that Lender shall not at any time or under any circumstances
      whatsoever have any duty to Borrower or to any third party to exercise any
      of
      Lender’s rights or remedies hereunder.

     

    
      
        
        

      

      
        84

        
          

        

      

      
        
        

      

    

     

    10.3 No
      Liability of Lender.
      Neither
      the acceptance of this Agreement by Lender, nor the exercise of any rights
      hereunder by Lender on its behalf, shall be construed in any way as an
      assumption by Lender of any obligations, responsibilities or duties of Borrower
      arising in connection with any Resort or under the Timeshare Documents or
      Timeshare Acts, or any of the Operating Contracts, or in connection with any
      other business of Borrower, or the Collateral, or otherwise bind Lender to
      the
      performance of any obligations with respect to any Resort or the Collateral;
      it
      being expressly understood that Lender shall not be obligated to perform,
      observe or discharge any obligation, responsibility, duty, or liability of
      Borrower with respect to any Resort or any of the Collateral, or under any
      of
      the Timeshare Documents, the Timeshare Acts or under any of the Operating
      Contracts, including, but not limited to, appearing in or defending any action,
      expending any money or incurring any expense in connection therewith. Without
      limitation of the foregoing, neither this Agreement, any action or actions
      on
      the part of Lender taken hereunder, nor the acquisition of the Pledged Notes
      Receivable and the Mortgages by Lender prior to or following the occurrence
      of
      an Event of Default shall constitute an assumption by Lender of any obligations
      of Borrower with respect to any Resort or the Pledged Notes Receivable, the
      Real
      Property, the Inventory, the Inventory Mortgages, the Real Property Mortgages,
      the Mortgages or any documents or instruments executed in connection therewith,
      and Borrower shall continue to be liable for all of its obligations thereunder
      or with respect thereto. Borrower agrees to indemnify, protect, defend and
      hold
      Lender harmless from and against any and all claims, demands, causes of action,
      losses, damages, liabilities, suits, costs and expenses, including, without
      limitation, attorneys’ fees and court costs, asserted against or incurred by
      Lender by reason of, arising out of, or connected in any way with (i) any
      failure or alleged failure of Borrower to perform any of its covenants or
      obligations with respect to each Resort or the Purchasers of any of the
      Intervals, (ii) a breach of any certification, representation, warranty or
      covenant of Borrower set forth in any of the Loan Documents, (iii) the
      ownership of the Pledged Notes Receivable, the Mortgages and the rights, titles
      and interests assigned hereby, or intended so to be, (iv) the
      debtor-creditor relationships between Borrower on the one hand, and the
      Purchasers or Lender, as the case may be, on the other, or (v) the Pledged
      Notes Receivable, the Mortgages or the operation of the Resorts or sale of
      Intervals. The obligations of Borrower to indemnify, protect, defend and hold
      Lender harmless as provided in this Agreement are absolute, unconditional,
      present and continuing, and shall not be dependent upon or affected by the
      genuineness, validity, regularity or enforceability of any claim, demand or
      suit
      from which Lender is indemnified. The indemnity provisions in this Section
      10.3
      shall
      survive the satisfaction of the Obligations and termination of this Agreement,
      and remain binding and enforceable against Borrower, or its successors or
      assigns. Borrower hereby waives all notices with respect to any losses, damages,
      liabilities, suits, costs and expenses, and all other demands whatsoever hereby
      indemnified, and agrees that its obligations under this Agreement shall not
      be
      affected by any circumstances, whether or not referred to above, which might
      otherwise constitute legal or equitable discharges of its obligations
      hereunder.

     

    10.4 Right
      to Defend Action Affecting Security.
      Lender
      may, at Borrower’s expense, appear in and defend any action or proceeding at law
      or in equity which Lender in good faith believes may affect the security
      interests granted under this Agreement, including without limitation, with
      respect to Pledged Notes Receivable, the Real Property, the Inventory, the
      Real
      Property Mortgages, the Inventory Mortgages or Mortgages, the value of the
      Collateral or Lender’s rights under any of the Loan Documents.

     

    
      
        
        

      

      
        85

        
          

        

      

      
        
        

      

    

     

    10.5 Expenses.
      All
      expenses payable by Borrower, under any provision of this Agreement shall be
      an
      Obligation of Borrower and shall be paid by Borrower to Lender, upon demand,
      and
      shall bear interest at the Default Rate from the date of expense until repaid
      by
      Borrower.

     

    10.6 Lender’s
      Right of Set-Off.
      Lender
      shall have the right to set-off against any Collateral any Obligations then
      due
      and unpaid by Borrower, provided Borrower is in Default.

     

    10.7 No
      Waiver.
      No
      failure or delay on the part of Lender in exercising any right, remedy or power
      under this Agreement or in giving or insisting upon strict performance by
      Borrower hereunder or in giving notice hereunder shall operate as a waiver
      of
      the same or any other power or right, and no single or partial exercise of
      any
      such power or right shall preclude any other or further exercise thereof or
      the
      exercise of any other such power or right. Lender, notwithstanding any such
      failure, shall have the right thereafter to insist upon the strict performance
      by Borrower of any and all of the terms and provisions of this Agreement to
      be
      performed by Borrower. The collection and application of proceeds, the entering
      and taking possession of the Collateral, and the exercise by Lender of the
      rights of Lender contained in the Loan Documents and this Agreement shall not
      cure or waive any default, or affect any notice of default, or invalidate any
      acts done pursuant to such notice. No waiver by Lender of any breach or default
      of or by any party hereunder shall be deemed to alter or affect Lender’s rights
      hereunder with respect to any prior or subsequent default.

     

    10.8 Right
      of Lender to Extend Time of Payment, Substitute, Release Security,
      Etc.
      Without
      affecting the liability of any Person or entity including without limitation,
      any Purchasers, for the payment of any of the Obligations or without affecting
      or impairing Lender’s Lien on the Collateral, or the remainder thereof, as
      security for the full amount of the Loan unpaid and the Obligations, Lender
      may
      from time to time, without notice: (a) release any Person liable for the payment
      of the Loan, (b) extend the time or otherwise alter the terms of payment of
      the
      Loan, (c) accept additional security for the Obligations of any kind, including
      deeds of trust or mortgages and security agreements, (d) alter, substitute
      or
      release any property securing the Obligations, (e) realize upon any collateral
      for the payment of all or any portion of the Loan in such order and manner
      as it
      may deem fit, or (f) join in any subordination or other agreement affecting
      this
      Agreement or the lien or charge thereof.

     

    10.9 Assignment
      of Lender’s Interest.
      Lender
      shall have the right to assign all or any part of the Loans and all or any
      portion of its rights in or pursuant to this Agreement or any of the Loan
      Documents to any subsequent holder or holders of its Note or the Obligations
      evidenced thereby.

     

    10.10 Notice
      to Purchaser.
      Borrower authorizes any of Lender, Lockbox Agent or Servicing Agent (but none
      of
      Lender, Lockbox Agent nor Servicing Agent shall be obligated) to communicate
      at
      any time and from time to time with any Purchaser or any other Person primarily
      or secondarily liable under a Pledged Note Receivable with regard to the Lien
      of
      Lender thereon and any other matter relating thereto, and by no later than
      the
      Effective Date, Borrower shall deliver to Lender a notification to the
      Purchasers executed in blank by Borrower and in form acceptable to Lender,
      pursuant to which the Purchasers (or other obligors) may be directed to remit
      all payments in respect of the Collateral as Lender may require.

     

    
      
        
        

      

      
        86

        
          

        

      

      
        
        

      

    

     

    10.11 Collection
      of the Notes.
      Borrower hereby directs and authorizes each party liable for the payment of
      the
      Pledged Notes Receivable, and by no later than the Effective Date shall direct
      in writing each such party, to pay each installment thereon to Lockbox Agent
      pursuant to the Lockbox Agreement, unless and until directed otherwise by
      written notice from Lender or, at Lender’s direction, from Borrower, after which
      such parties are and shall be directed to make all further payments on the
      Pledged Notes Receivable in accordance with the directions of
      Lender.

     

    Following
      the occurrence of an Event of Default, Lender shall have the right to require
      that all payments becoming due under the Pledged Notes Receivable be paid
      directly to Lender, and Lender is hereby authorized to receive, collect, hold
      and apply the same in accordance with the provisions of this Agreement. In
      the
      event that following the occurrence of an Event of Default, Lender or Lockbox
      Agent does not receive any installment of principal or interest due and payable
      under any of the Pledged Notes Receivable on or prior to the date upon which
      such installment becomes due, Lender may, at its election (but without any
      obligation to do so), give or cause Lockbox Agent to give notice of such default
      to the defaulting party or parties, and Lender shall have the right (but not
      the
      obligation), subject to the terms of such Notes, to accelerate payment of the
      unpaid balance of any of the Pledged Notes Receivable in default and to
      foreclose each of the Mortgages securing the payment thereof, and to enforce
      any
      other remedies available to the holder of such Pledged Notes Receivable with
      respect to such default. Borrower hereby further authorizes, directs and
      empowers Lender (and Lockbox Agent or any other Person as may be designated
      by
      Lender in writing) to collect and receive all checks and drafts evidencing
      such
      payments and to endorse such checks or drafts in the name of Borrower and upon
      such endorsements, to collect and receive the money therefor. The right to
      endorse checks and drafts granted pursuant to the preceding sentence is
      irrevocable by Borrower, and the banks or banks paying such checks or drafts
      upon such endorsements, as well as the signers of the same, shall be as fully
      protected as though the checks or drafts have been endorsed by
      Borrower.

     

    10.12 Power
      of Attorney.
      Borrower does hereby irrevocably constitute and appoint Lender as Borrower’s
      true and lawful agent and attorney-in-fact, with full power of substitution,
      for
      Borrower and in Borrower’s name, place and stead, or otherwise, to
      (a) endorse any checks or drafts payable to Borrower in the name of
      Borrower and in favor of Lender on behalf of each Lender as provided in Section
      10.11
      above,
      (b) to demand and receive from time to time any and all property, rights,
      titles, interests and liens hereby sold, assigned and transferred, or intended
      so to be, and to give receipts for same, (c) from time to time to institute
      and prosecute in Lender’s own name any and all proceedings at law, in equity, or
      otherwise, that Lender may deem proper in order to collect, assert or enforce
      any claim, right or title, of any kind, in and to the property, rights, titles,
      interests and liens hereby sold, assigned or transferred, or intended so to
      be,
      and to defend and compromise any and all actions, suits or proceedings in
      respect of any of the said property, rights, titles, interests and liens,
      (d) upon an Event of Default to change Borrower’s post office mailing
      address, and (e) generally to do all and any such acts and things in
      relation to the Collateral as Lender shall in good faith deem advisable.
      Borrower hereby declares that the appointment made and the powers granted
      pursuant to this Section 10.12
      are
      coupled with an interest and are and shall be irrevocable by Borrower in any
      manner, or for any reason, unless and until a release of the same is executed
      by
      Lender and duly recorded in the appropriate public records of Dallas County,
      Texas.

     

    
      
        
        

      

      
        87

        
          

        

      

      
        
        

      

    

     

    10.13 Relief
      from Automatic Stay, Etc.
      To the
      fullest extent permitted by law, in the event Borrower shall make application
      for or seek relief or protection under the federal bankruptcy code
      (“Bankruptcy
      Code”)
      or
      other Debtor Relief Laws, or in the event that any involuntary petition is
      filed
      against Borrower under such Code or other Debtor Relief Laws, and not dismissed
      with prejudice within 45 days, the automatic stay provisions of Section 362
      of
      the Bankruptcy Code are hereby modified as to Lender to the extent necessary
      to
      implement the provisions hereof permitting set-off and the filing of financing
      statements or other instruments or documents; and Lender shall automatically
      and
      without demand or notice (each of which is hereby waived) be entitled to
      immediate relief from any automatic stay imposed by Section 362 of the
      Bankruptcy Code or otherwise, on or against the exercise of the rights and
      remedies otherwise available to Lender as provided in the Loan
      Documents.

     

    Section
      11-Term Of Agreement

     

    This
      Agreement shall continue in full force and effect and the security interests
      granted hereby and the duties, covenants and liabilities of Borrower hereunder
      and all the terms, conditions and provisions hereof relating thereto shall
      continue to be fully operative until all of the Obligations have been satisfied
      in full. Borrower expressly agrees that if Borrower makes a payment to Lender,
      which payment or any part thereof is subsequently invalidated, declared to
      be
      fraudulent or preferential, or otherwise required to be repaid to a trustee,
      receiver or any other party under any Debtor Relief Laws, state or federal
      law,
      common law or equitable cause, then to the extent of such repayment, the
      Obligations or any part thereof intended to be satisfied and the Liens provided
      for hereunder securing the same shall be revived and continued in full force
      and
      effect as if said payment had not been made.

     

    Section
      12-Miscellaneous

     

    12.1 Notices.
      All
      notices, requests and other communications to any party hereunder shall be
      in
      writing and shall be given to such party at its address set forth below or
      at
      such other address as such party may hereafter specify for the purpose of notice
      to Lender or Borrower. Each such notice, request or other communication shall
      be
      effective (a) if given by mail, when such notice is deposited in the United
      States Mail with first class postage prepaid, addressed as aforesaid, provided
      that such mailing is by registered or certified mail, return receipt requested,
      (b) if given by overnight delivery, when deposited with a nationally
      recognized overnight delivery service such as Federal Express or Airborne with
      all fees and charges prepaid, addressed as provided below, or (c) if given
      by any other means, when delivered at the address specified in this Section
      12.1.

     

    
      
        
        

      

      
        88

        
          

        

      

      
        
        

      

    

     

    
      	
              If
                to Borrower:

            	 	
              Silverleaf
                Resorts, Inc.

              1221
                Riverbend Drive, Suite 120

              Dallas,
                TX 75221

              Attn:
                Mr. Robert Mead, CEO

            
	 	 	 
	
              With
                a Copy to:

            	 	
              Meadows,
                Owens, Collier, Reed, Cousins and Blau

              3700
                Nations Bank Plaza

              901
                Main St.

              Dallas,
                TX 75202

              Attn:
                George R. Bedell, Esq.

            
	 	 	 
	
              If
                to Lender:

            	 	
              Textron
                Financial Corporation

              40
                Westminster Street

              Providence,
                Rhode Island 02903

              Attention:
                Accounting Department/Collections

            
	 	 	 
	
              With
                a copy to:

            	 	
              Textron
                Financial Corporation

              P.O.
                Box 6687

              Providence,
                Rhode Island 02940-6687

              Attention:
                Division Counsel (RRD)

            
	 	 	 
	
              And
                to:

            	 	
              Textron
                Financial Corporation

              Resort
                Finance Division

              45
                Glastonbury Blvd.

              Glastonbury,
                CT 06033-4450

              Attn:
                Division President

            

    

     

    Notwithstanding
      the foregoing, copies of the requests or notices from Borrower to Lender which
      are specified in the Sections of this Agreement listed below shall not be
      delivered to Providence, Rhode Island as provided above, but rather shall be
      delivered in accordance with this Section 12.1
      to
      Textron Financial Corporation, Resort Finance Division, 45 Glastonbury Blvd.,
      Glastonbury, CT 06033-4450, Attention: Silverleaf Relationship Manager. The
      applicable Sections of this Agreement are Section 5.1(a)
      Request
      for Advances, and Section 12.10
      Return
      of Notes Receivable. In addition, all documents, instruments and other items
      to
      be delivered to Lender from time to time pursuant to this Agreement shall be
      delivered to Lender’s office at Resort Finance Division, 45 Glastonbury Blvd.,
      Glastonbury, CT 06033-4450.

     

    12.2 Survival.
      All
      representations, warranties, covenants and agreements made by Borrower herein,
      in the other Loan Documents or in any other agreement, document, instrument
      or
      certificate delivered by or on behalf of Borrower under or pursuant to the
      Loan
      Documents shall be considered to have been relied upon by Lender and shall
      survive the delivery to Lender of such Loan Documents (and each part thereof),
      regardless of any investigation made by or on behalf of Lender.

     

    
      
        
        

      

      
        89

        
          

        

      

      
        
        

      

    

     

    12.3 Governing
      Law.
      THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS MAY BE EXPRESSLY PROVIDED
      THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
      THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF ITS CHOICE OF LAWS
      PRINCIPLES.

     

    12.4 Limitation
      on Interest.
      Lender
      and Borrower intend to comply at all times with applicable usury laws. All
      agreements between Lender and Borrower, whether now existing or hereafter
      arising and whether written or oral, are hereby limited so that in no
      contingency, whether by reason of demand or acceleration of the maturity of
      the
      Note or otherwise, shall the interest contracted for, charged, received, paid
      or
      agreed to be paid to Lender exceed the highest lawful rate permissible under
      applicable usury laws. If, from any circumstance whatsoever, fulfillment of
      any
      provision hereof, of the Note or of any other Loan Documents shall involve
      transcending the limit of such validity prescribed by any law which a Court
      of
      competent jurisdiction may deem applicable hereto, then ipso facto, the
      obligation to be fulfilled shall be reduced to the limit of such validity;
      and
      if from any circumstance Lender shall ever receive anything of value deemed
      interest by applicable law which would exceed the highest lawful rate, such
      amount which would be excessive interest shall be applied to the reduction
      of
      the principal of Loan and not to the payment of interest, or if such excessive
      interest exceeds the unpaid balance of principal of the Loan, such excess shall
      be refunded to Borrower. All interest paid or agreed to be paid to Lender shall,
      to the extent permitted by applicable law, be amortized, prorated, allocated
      and
      spread throughout the full period until payment in full of the principal so
      that
      the interest on the Loan for such full period shall not exceed the highest
      lawful rate. Borrower agrees that in determining whether or not any interest
      payment under the Loan Documents exceeds the highest lawful rate, any
      non-principal payment (except payments specifically described in the Loan
      Documents as “interest”) including without limitation, prepayment fees and late
      charges, shall to the maximum extent not prohibited by law, be an expense,
      fee,
      premium or penalty rather than interest. Lender hereby expressly disclaims
      any
      intent to contract for, charge or receive interest in an amount which exceeds
      the highest lawful rate. The provisions of the Note, this Agreement, and all
      other Loan Documents are hereby modified to the extent necessary to conform
      with
      the limitations and provisions of this Section, and this Section shall govern
      over all other provisions in any document or agreement now or hereafter
      existing. This Section shall never be superseded or waived unless there is
      a
      written document executed by Lender and Borrower, expressly declaring the usury
      limitation of this Agreement to be null and void, and no other method or
      language shall be effective to supersede or waive this paragraph.

     

    12.5 Invalid
      Provisions.
      If any
      provision of this Agreement or any of the other Loan Documents is held to be
      illegal, invalid or unenforceable under present or future laws effective during
      the term thereof, such provision shall be fully severable, this Agreement and
      the other Loan Documents shall be construed and enforced as if such illegal,
      invalid or unenforceable provision had never comprised a part hereof or thereof,
      and the remaining provisions hereof or thereof shall remain in full force and
      effect and shall not be affected by the illegal, invalid or unenforceable
      provision or by its severance therefrom. Furthermore, in lieu of such illegal,
      invalid or unenforceable provision there shall be added automatically as a
      part
      of this Agreement and/or the Loan Documents (as the case may be) a provision
      as
      similar in terms to such illegal, invalid or unenforceable provision as may
      be
      possible and be legal, valid and enforceable.

     

    
      
        
        

      

      
        90

        
          

        

      

      
        
        

      

    

     

    12.6 Successors
      and Assigns.
      This
      Agreement and the other Loan Documents shall be binding upon and inure to the
      benefit of Borrower and Lender and their respective successors and assigns;
      provided that Borrower may not transfer or assign any of its rights or
      obligations under this Agreement, the Commitment or the other Loan Documents
      without the prior written consent of Lender. This Agreement and the transactions
      provided for or contemplated hereunder or under any of the Loan Documents are
      intended solely for the benefit of the parties hereto. No third party shall
      have
      any rights or derive any benefits under or with respect to this Agreement,
      the
      Commitment or the other Loan Documents except as provided in advance in a
      writing signed on behalf of Lender.

     

    12.7 Amendment.
      This
      Agreement may not be amended or modified, and no term or provision hereof may
      be
      waived, except by written instrument signed by Borrower and Lender.

     

    12.8 Counterparts;
      Effectiveness.
      This
      Agreement may be signed in any number of counterparts, each of which shall
      be an
      original, with the same effect as if the signature thereto and hereto were
      on
      the same instrument. This Agreement shall become effective upon Lender’s receipt
      of one or more counterparts hereof signed by Borrower.

     

    12.9 Lender
      Not Fiduciary.
      The
      relationship between Borrower and Lender is solely that of debtor and creditor,
      and Lender has no fiduciary or other special relationship with Borrower, and
      no
      term or provision of any of the Loan Documents shall be construed so as to
      deem
      the relationship between Borrower and Lender to be other than that of debtor
      and
      creditor.

     

    12.10 Return
      of Notes Receivable. 

     

    (a) In
      the
      event Borrower complies with its Obligations under Section 2.5(a)(ii)
      of this
      Agreement with respect to Pledged Notes Receivable pursuant to which a default
      by the Purchaser thereof has occurred, and Borrower thereafter desires to
      enforce such Note Receivable against the Purchaser thereof, then provided that
      no Event of Default has occurred which has not been cured to Lender’s
      satisfaction (as evidenced by a written acceptance of such cure executed by
      Lender), and no event has occurred which with notice, the passage of time or
      both, would constitute an Event of Default, then within thirty (30) days after
      its receipt of a written request from Borrower, Lender shall deliver such
      ineligible Note Receivable to Borrower, provided that such delivery shall be
      for
      the sole purpose of enforcing Lender’s rights thereunder and Lender,
      notwithstanding such delivery, shall continue to have a first priority security
      interest in any such note.

     

    (b) In
      the
      event that all Obligations hereunder are fully satisfied, then within a
      reasonable time thereafter, Lender shall endorse the Pledged Notes Receivable
      “Pay to the order of Silverleaf Resorts, Inc. without recourse”, and deliver
      such Pledged Notes Receivable, together with any other nonrecourse Collateral
      reassignment documents requested and prepared by Borrower, at Borrower’s sole
      cost and expense.

     

    12.11 Accounting
      Principles.
      Where
      the character or amount of any asset or liability or item of income or expense
      is required to be determined or any consolidation or other accounting
      computation is required to be made for the purposes of this Agreement, the
      same
      shall be determined or made in accordance with GAAP consistently applied at
      the
      time in effect, to the extent applicable, except where such principles are
      inconsistent with the requirements of this Agreement.

     

    
      
        
        

      

      
        91

        
          

        

      

      
        
        

      

    

     

    12.12 Total
      Agreement.
      This
      Agreement and the other Loan Documents, including the Exhibits and Schedules
      to
      them, is the entire agreement between the parties relating to the subject matter
      hereof, incorporates or rescinds all prior agreements and understandings between
      the parties hereto relating to the subject matter hereof, cannot be changed
      or
      terminated orally or by course of conduct, and shall be deemed effective as
      of
      the date it is accepted by Lender at the offices set forth above.

     

    12.13 Litigation.
      TO
      THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED,
      BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY
      WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
      ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT
      OF
      OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
      CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OR
      OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING,
      STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES
      THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE
      A JURY. EACH OF BORROWER AND LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO
      CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH
      ANY
      OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER,
      BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR
      LENDER’S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT,
      IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
      TRIAL PROVISION. BORROWER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION
      ARE A
      MATERIAL INDUCEMENT TO LENDER’S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN
      DOCUMENTS.

     

    The
      waiver and stipulations of Borrower and Lender in this Section 12.13
      shall
      survive the final payment or performance of all of the Obligations of Borrower
      and the resulting termination of this Agreement.

     

    12.14 Incorporation
      of Exhibits.
      This
      Agreement, together with all Exhibits and Schedules hereto, constitute one
      document and agreement which is referred to herein by the use of the defined
      term “Agreement.” Such Exhibits and Schedules are incorporated herein as to
      fully set out in this Agreement. The definitions contained in any part of this
      Agreement shall apply to all parts of this Agreement.

     

    12.15 Consent
      to Advertising and Publicity of Timeshare Documents.
      Borrower hereby consents that Lender may issue and disseminate to the public
      information describing the credit accommodation entered into pursuant to this
      Agreement, including the names and addresses of Borrower and any subsidiaries
      and Affiliates, the amount and a general description of Borrower’s
      business.

     

    
      
        
        

      

      
        92

        
          

        

      

      
        
        

      

    

     

    12.16 Directly
      or Indirectly.
      Where
      any provision in the Agreement refers to action to be taken by any Person,
      or
      which such Person is prohibited from taking, such provisions shall be applicable
      whether such action is taken directly or indirectly by such Person.

     

    12.17 Headings.
      Section
      headings have been inserted in the Agreement as a matter of convenience of
      reference only; such section headings are not a part of the Agreement and shall
      not be used in the interpretation of this Agreement.

     

    12.18 Gender
      and Number.
      Words
      of any gender in this Agreement shall include each other gender and the singular
      shall mean the plural and vice versa where appropriate.

     

    Section
      13-Special Conditions

     

    13.1 Effective
      Date. BORROWER
      ACKNOWLEDGES, AGREES AND CONFIRMS THAT THE TERMS AND CONDITIONS OF THIS
      AGREEMENT, INCLUDING ANY OBLIGATION OF LENDER TO MAKE ANY ADVANCE HEREUNDER,
      SHALL NOT BECOME EFFECTIVE UNTIL THE EFFECTIVE DATE, AS SUCH TERM IS HEREINAFTER
      DEFINED. FOR PURPOSES OF THIS AGREEMENT, THE TERM “EFFECTIVE DATE” SHALL MEAN
      THE DATE ON WHICH LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT
      EACH OF THE CONDITIONS SET FORTH IN Section
      4
      HEREOF, HAVE BEEN SATISFIED. IN SUCH EVENT, THE LOAN, AND THE RIGHTS AND
      OBLIGATIONS OF BORROWER WITH RESPECT THERETO, SHALL BE GOVERNED IN ALL RESPECTS
      BY THE TERMS AND CONDITIONS SET FORTH IN THE RECEIVABLE LOAN AGREEMENT AND
      THE
      RESTATED INVENTORY LOAN AGREEMENT, AS THE CASE MAY BE.

     

    13.2 Release.
      IN
      ORDER TO INDUCE AGENT, LENDERS AND PARTICIPANTS TO ENTER INTO THIS AGREEMENT,
      BORROWER ACKNOWLEDGES AND AGREES THAT: (i) BORROWER HAS NO CLAIM OR CAUSE OF
      ACTION AGAINST LENDER OR ANY PARTICIPANT (OR ANY OF THEIR RESPECTIVE DIRECTORS,
      OFFICERS, EMPLOYEES OR AGENTS); (ii) BORROWER HAS NO OFFSET RIGHT, COUNTERCLAIM
      OR DEFENSE OF ANY KIND AGAINST ANY OF ITS OBLIGATIONS, INDEBTEDNESS OR
      LIABILITIES TO LENDER OR ANY PARTICIPANT; AND (iii) EACH OF LENDER AND ITS
      PARTICIPANTS HAS HERETOFORE PROPERLY PERFORMED AND SATISFIED IN A TIMELY MANNER
      ALL OF ITS OBLIGATIONS TO BORROWER. BORROWER WISHES TO ELIMINATE ANY POSSIBILITY
      THAT ANY PAST CONDITIONS, ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS
      WOULD IMPAIR OR OTHERWISE ADVERSELY AFFECT LENDER’S OR ANY OF PARTICIPANTS’
RIGHTS, INTERESTS, CONTRACTS, COLLATERAL SECURITY OR REMEDIES. THEREFORE,
      BORROWER UNCONDITIONALLY RELEASES, WAIVES AND FOREVER DISCHARGES (A) ANY AND
      ALL
      LIABILITIES, OBLIGATIONS, DUTIES, PROMISES OR INDEBTEDNESS OF ANY KIND OF LENDER
      OR ANY PARTICIPANT TO BORROWER, EXCEPT THE OBLIGATIONS TO BE PERFORMED BY LENDER
      OR ANY PARTICIPANT ON OR AFTER THE DATE HEREOF AS EXPRESSLY STATED IN THIS
      AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) ALL CLAIMS, OFFSETS, CAUSES
      OF
      ACTION, SUITS OR DEFENSES OF ANY KIND WHATSOEVER (IF ANY), WHETHER ARISING
      AT
      LAW OR IN EQUITY, WHETHER KNOWN OR UNKNOWN, WHICH BORROWER MIGHT OTHERWISE
      HAVE
      AGAINST LENDER, ANY PARTICIPANT OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
      EMPLOYEES OR AGENTS, IN EITHER CASE (A) OR (B), ON ACCOUNT OF ANY PAST OR
      PRESENTLY EXISTING CONDITION, ACT, OMISSION, EVENT, CONTRACT, LIABILITY,
      OBLIGATION, INDEBTEDNESS, CLAIM, CAUSE OF ACTION, DEFENSE, CIRCUMSTANCE OR
      MATTER OF ANY KIND.

     

    
      
        
        

      

      
        93

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      Borrower and Lender have caused this Agreement to be duly executed and delivered
      effective as of the date first above written.

    
      	 	 	 
	 	
              BORROWER:

               

              SILVERLEAF
                RESORTS, INC., a Texas corporation

            
	 
 	 
 	 
 
	
            	By:  	/S/
              HARRY J. WHITE, JR.
	
              

            	
              

              Name:
                Harry J. White, Jr. 
                Title:
                  Chief Financial Officer

              

            

    

     

    
      	 	STATE OF TEXAS	 	)	 	 
	 	 	 	) 	 	ss: 
	 	COUNTY OF  DALLAS	 	)	 	 

    

    

    The
      foregoing instrument was acknowledged before me this 23rd day of February,
      2007
      by Harry J. White, Jr. , CFO of Silverleaf Resorts, Inc., a Texas corporation,
      on behalf of the Corporation.

    
      	 	 	 
	 
 	 
 	 
 
	
            	 	
              /S/
                MARGARETTE BYRD   

            
	 	
              

              Commissioner
                of the Superior Court 
                Notary
                  Public 
                  My
                    Commission Expires: Nov. 22,
                    2007

                

              

            

    

    

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	
              LENDER:

               

              TEXTRON
                FINANCIAL CORPORATION,

              a
                Delaware corporation

            
	 
 	 
 	 
 
	
              /S/
                LISA TOOMER    

            	By:  	/S/ JOHN D’ANNIBALE
	
              
                

              

              Lisa
                Toomer

            	
              

              Name:
                John D’Annibale 
                Title:
                  V.P. 

              

            

    

    

      
        	 	STATE OF CONNECTICUT	 	)	 	 
	 	 	 	) 	 	ss: 
	 	COUNTY OF HARTFORD	 	)	 	 

      

    

    

    The
      foregoing instrument was acknowledged before me this 26th day of February,
      2007
      by John D’Annibale, Vice President of TEXTRON FINANCIAL CORPORATION, a Delaware
      corporation, on behalf of the corporation.

    
      
        	 	 	 
	 
 	 
 	 

	
              	 	
                
                  /S/
                    LAURA D’ANGELO  

                

              
	 	
                

                
                  Commissioner
                    of the Superior Court

                  
                    Notary
                      Public

                    
                      My
                        Commission Expires: Feb. 28,
                        2009

                    

                  

                

              

      

    

     

    List
      of
      Schedules and Exhibits to Agreement not filed herewith:

    

    EXHIBIT
      A: Form of Collateral Assignment of Notes Receivable and Mortgages

    EXHIBIT
      B-1: Form of Acquisition Note

    EXHIBIT
      B-2: Form of Inventory Note

    EXHIBIT
      B-3: Form of Receivable Note

    EXHIBIT
      C
      : Form of Real Estate Mortgage

    EXHIBIT
      D: Form of Modification of Inventory Mortgage

    EXHIBIT
      E-1: Form of Borrower’s Certificate and Request for Advance
      (Receivable)

    EXHIBIT
      E-2: Form of Borrower’s Certificate and Request for Advance
      (Inventory)

    EXHIBIT
      E-3: Form of Borrower’s Certificate and Request for Advance
      (Acquisition)

    EXHIBIT
      F: Form of Inventory Mortgage 

    EXHIBIT
      F-1: Form of Modification of Inventory Mortgage (Advances)

    EXHIBIT
      G: Form of Certification

    EXHIBIT
      H: Form of Officer’s Certificate

    SCHEDULE
      A: Land Records for Recording Inventory Mortgages

    SCHEDULE
      1.1(a): List of Resort Declarations

    SCHEDULE
      1.1(b): List of Timeshare Owner’s Associations

    SCHEDULE
      2.8(B): Borrower’s Executive Management

    SCHEDULE
      6.5: Liens

    SCHEDULE
      6.7: Litigation

    SCHEDULE
      6.9: Environmental Matters

    SCHEDULE
      6.19: Timeshare Documents

    SCHEDULE
      6.23(a): Receivable Inventory Control Procedures

    SCHEDULE
      6.23(b): Interval Inventory Control Procedures

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}]]