Document:

exv10w6

 

Ex. 10.6

FIRST AMENDMENT TO AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

(Inventory Loan)

THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of February 28,
2005, (the “First Amendment”) entered into by SILVERLEAF RESORTS, INC., a Texas corporation, (as
“Borrower”), and TEXTRON FINANCIAL CORPORATION, a Delaware corporation as (“Lender”).

WITNESSETH:

WHEREAS, Borrower is engaged in the business of acquiring, constructing, developing, owning,
managing, selling and otherwise dealing with Intervals at the Resorts (as each such term is
hereafter defined);

WHEREAS, Lender and Borrower are parties to 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 Loan
Agreement”).

WHEREAS, pursuant to the Original Loan Agreement, Lender agreed, subject to the terms and
conditions of the Original 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 “Existing
Inventory Loan”), which loan is evidenced by Borrower’s Amended and Restated Secured Promissory
Note, dated as of April 30, 2002 (the “Existing Note”);

WHEREAS, Lender and Borrower further amended and restated the Original 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 (the “Restated Loan Agreement”
and as amended hereby the “Loan Agreement”)

WHEREAS, pursuant to the Restated Loan Agreement, Lender agreed, subject to the terms and
conditions of the Restated 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), to make an additional inventory loan to the borrower in the maximum
amount of $8,000,000 (the “New Inventory Loan”). The Existing Inventory Loan

 

 

and the New Inventory Loan are evidenced by the Existing 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);

WHEREAS, Borrower has requested and Lender has agreed, subject to the terms and conditions herein,
that Lender provide an additional inventory loan to Borrower to the maximum amount of $5,000,000
(the “Inventory Term Loan”) for the purpose of repaying the Term Loan Components of the
Additional Credit Facility and Existing Credit Facilities.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:

1. Terms. All capitalized terms not otherwise defined herein shall have the meaning
ascribed to such term in the Loan Agreement.

2. Elimination of Requirement for Business Plan. The Loan Agreement is modified in part to
add the following provision:

“Elimination of Requirement for Business Plan. Provided 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, the requirement for Borrower to
maintain and adhere to the Business Plan is eliminated in all respects from and
after the date that: (i) the Term Loan Component has been paid in full; and (ii)
Borrower has achieved the net income projection for the six months ending December
31, 2004 and exceeded by 10% the net income projection for the fiscal year ending
December 31, 2004, as those net income projections appear in the Business Model
dated November 13, 2003, such net income results to be evidenced by audited
Financial Statements delivered by Borrower to Lender.”

3. Definitions. 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,
Section 1.1(ll) will be amended in its entirety and replaced with the following new Section
1.1(ll), on the date that the Term Loan Component has been paid in full:

“(ll) Final Maturity Date. March 31, 2009 with respect to the
Existing Inventory Loan and the New Inventory Loan, and March 31, 2007 with respect
to the Inventory Term Loan.”

4. Definitions. Section 1.1(tt) is hereby amended in its entirety and replaced with the
following new Section 1.1(tt):

“(tt) Interest Rate. The Interest Rate on: (i) the Existing
Inventory Loan Note shall be a variable rate, adjusted as of each LIBOR
Determination Date, equal to the sum of LIBOR, determined as of each LIBOR
Determination Date, plus three and one-quarter percent (3.25%) per annum and (ii)
the New Inventory Loan Note and the Inventory Term Loan Note shall be a variable
rate, adjusted as of each Prime Rate Determination Date, equal to the sum of the
Prime Rate, determined

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as of each Prime Rate Determination Date, plus three percent (3.0%) per annum,
provided, however, that at no time shall the Interest Rate on the New Inventory Loan
Note or the Inventory Term Loan Note be less than six percent (6.0%) per annum.”

5. Definitions. Section 1.1(ccc) is hereby amended in its entirety and replaced with the
following new paragraph:

“(ccc) Loan or Loans. The terms “Loan” and “Loans” mean the
Existing Inventory Loan, the New Inventory Loan, and the Inventory Term Loan, singly
and collectively, as the context requires.”

6. Definitions. Section 1.1(fff) is hereby amended in its entirety and replaced with the
following new Section 1.1(fff):

“(fff) Loan to Retail Value Ratio. The term “Loan to Retail
Value Ratio” shall mean the ratio of the outstanding principal balance of the Loan,
from time to time, to the Retail Value of the Inventory. The Loan to Retail Value
Ratio shall be 15% for the Existing Inventory Loan and the Inventory Term Loan and
11% for the New Inventory Loan.”

7. Definitions. Section 1.1(ooo) is hereby amended in its entirety and replaced with the
following new Section 1.1(ooo):

“(ooo) Note. Singly and collectively, the Existing Inventory
Loan Note, the New Inventory Loan Note, and the Inventory Term Loan Note.”

8. Definitions. 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,
Section 1.1(uuu) will be amended in its entirety and replaced with the following new Section
1.1(uuu), on the date that the Term Loan Component has been paid in full:

“(uuuu) Term. The term for the Existing Inventory Loan and New
Inventory Loan, shall be the period ending March 31, 2009, and for the Inventory
Term Loan shall be the period ending March 31, 2007.”

9. Definitions. Section 1.1 is hereby amended in part to add the following new paragraphs:

“(ddddd) Backup Servicing Agreement. Shall mean that certain Backup
Servicing Agreement dated as of April 10, 2001, as amended by the First Amendment to
the Backup Servicing Agreement dated as of April 30, 2002.”

“(eeeee) Declarant Rights. Shall mean the rights of the declarant
described on Schedule 1.1(c) attached hereto.”

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“(fffff) Inventory Term Loan. The term “Inventory Term Loan” shall mean
that certain $5,000,000.00 credit facility provided by Lender to Borrower pursuant
to Borrower pursuant to this Agreement and evidenced by the Inventory Term Loan
Note.”

“(ggggg) Inventory Term Loan Note. The term “Inventory Term Loan Note”
shall mean that certain Secured Promissory Note in the form attached as Exhibit A
dated as of February 28, 2005, made by Borrower to Lender to evidence the Inventory
Term Loan in the maximum principal amount of $5,000,000.00, as it may hereafter be
amended from time to time.”

“(hhhhh) Management Agreement. 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.”

“(iiiii) Utility Purchase Agreement. Shall mean that certain Asset
Purchase Agreement between Silverleaf Resorts, Inc. and Algonquin Water Resources of
Texas, Inc. and Algonquin Water Resources of Missouri, Inc. and Algonquin Water
Resources of Illinois, Inc. and Algonquin Water Resources of America, Inc. and
Algonquin Power Income Fund dated as of August 29, 2004.”

“(jjjjj) Utility Rights. Shall mean the Facilities, Real Property and
Utilities, as those terms are defined in the Utility Purchase Agreement, that are
part of the Additional Resort Collateral.”

10. Revolving Loan and Lending Limits. 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, Section 2.1 will be amended in its entirety and replaced with the following
new Section 2.1, on the date that the Term Loan Component has been paid in full:

“(2.1) Revolving Loan and Lending Limits . Upon the
terms and subject to the conditions set forth in this Agreement, including but not
limited to Section 2.8 hereof, the Lender shall make Advances to the Borrower, of up
to $16,000,000 million under the Existing Inventory Loan and the New Inventory Loan
and on the Closing Date up to $5,000,0000 under the Inventory Term Loan. Borrower
may borrow, repay and reborrow during the Revolving Loan Period, as such term is
hereafter defined, principal under the Existing Inventory Loan and the New Inventory
Loan 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)
$16,000,000.00 (such amount being the aggregate principal amount of the Existing
Inventory Loan and the New Inventory Loan), as reduced as set forth in Section
2.4(b)(ii) hereof. Under no conditions may the Borrower repay and reborrow
principal under the Inventory Term Loan. Borrower acknowledges and agrees that
Lender may make Advances from the Existing Inventory Loan, the New Inventory Loan
and/or the Inventory Term Loan in such manner and amount as Lender may determine in
its sole discretion. The

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Revolving Loan Period shall be the period during the Term in which the Borrower may
borrower, repay and reborrow Advances and shall terminate in all respects on March
31, 2007. Borrower’s right to receive Advances hereunder shall also be subject to
the terms and conditions set forth in that certain Second Amended and Restated
Intercreditor Agreement between Lender, Heller, Borrower and Sovereign dated of even
date herewith, as may be amended hereafter (the “Intercreditor Agreement”),
but only so long as the Intercreditor Agreement remains in full force and effect.
Notwithstanding anything herein to the contrary, Borrower acknowledges, confirms and
agrees that it shall not be entitled to receive, nor shall Lender be required to
make, any Advance if and to the extent that Borrower has failed to substantially
adhere to the Business Plan, including the Senior Lender Advance Schedule, as
determined by Lender in its sole and absolute discretion, so long as Borrower is
required to maintain and adhere to the Business Plan under this Agreement. ”

11. Monthly Payments. Section 2.3(a) is hereby amended in its entirety and replaced
with the following new Section 2.3(a):

“(a) Monthly Payments. The Borrower shall pay to the Lender,
on the first day of each month and until the respective Loan is paid in full: (1)
commencing on March 1, 2005, interest on the outstanding principal balance of the
Existing Inventory Loan and New Inventory Loan, from time to time, at the applicable
Interest Rate; and (2) commencing on May 1, 2005, an amount equal to $185,000 plus
interest on the outstanding principal balance of the Inventory Term Loan, 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 the
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; (iv) to
the reduction of principal of the Inventory Term Loan in an amount up to $185,000;
and (v) to the reduction of the principal balance of the Existing Inventory Loan,
the New Inventory Loan, and the Inventory Term Loan in such order and manner as
Lender may determine in its sole discretion. If the amount of the funds received by
Lender with respect to any month is insufficient to pay in full all amounts due from
Borrower to Lender under this Agreement, 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. ”

12. Payments. Section 2.3 is hereby amended in part by adding the following new
Section 2.3(d):

“(d) Final Term Payment. The entire outstanding principal
amount of the Inventory Term Loan together with all accrued interest shall be due
and payable, without notice or demand, on March 31, 2007. ”

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13. Loan Term. 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,
Section 2.7 will be amended in its entirety and replaced with the following new Section 2.7, on the
date that the Term Loan Component has been paid in full:

“2.7 Loan Term. The term of the Loan shall terminate on March
31, 2009, except for the Inventory Term Loan, which shall terminate on March 31,
2007. ”

14. Release of Utility Rights, Additional Resort Collateral and Sovereign Collateral.
Section 3 is hereby amended in part to add the following new Section 3.15:

“3.15 Release of Liens. Notwithstanding anything contrary in the Loan
Agreement, and provided 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:

(a) the Utility Rights shall be released from the Lien of the security interest
granted to Lender hereunder on the date that: (i) the sale of the Utility Rights is
closed pursuant to the Utility Purchase Agreement; and (ii) the net proceeds of such
sale in an amount not less than thirteen million dollars ($13,000,000) is
transferred to Lender to be held in escrow until March 31, 2005, on which date
Lender shall apply such proceeds to the Revolving Component of the Additional Credit
Facility and Existing Credit Facilities, or sooner if required by Lender to make a
contractually obligated payment under the Loan Facilities;

(b) the Additional Resort Collateral, except for the Declarant Rights and the
Management Agreement, shall be released from the Lien of the security interest
granted to Lender hereunder on the date that the Term Loan Component has been paid
in full;

(c) all collateral securing the Sovereign Facility, which shall mean the Notes
Receivable and related Mortgages exclusively assigned to Sovereign in connection
with an advance under its loan documents, shall be released from the Lien of the
security interest granted to Lender hereunder on the date that: (i) the Term Loan
Component has been paid in full; (ii) Borrower has achieved the net income
projection for the six months ending December 31, 2004 and exceeded by 10% the net
income projection for the fiscal year ending December 31, 2004, as those net income
projections appear in the Business Model dated November 13, 2003, such net income
results to be evidenced by audited Financial Statements delivered by Borrower to
Lender; and (iii) all Collateral is released from any lien granted to Sovereign
pursuant to the Sovereign Documents; and

(d) the Declarant Rights and the Management Agreement shall be released from the
Liens of the security interest granted to Lender hereunder on the date that: (i) the
Term Loan Component has been paid in full; (ii) Borrower has achieved the net income
projection for the six months ending December 31, 2004 and exceeded by 10% the net
income projection for the fiscal year ending December

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31, 2004, as those net income projections appear in the Business Model dated
November 13, 2003, such net income results to be evidenced by audited Financial
Statements delivered by Borrower to Lender; (iii) Borrower files a negative pledge
in a form acceptable to Lender in the land records for each Resort that neither
Declarant Rights nor the Management Agreement will be assigned, transferred, or
encumbered; and (iv) the Declarant Rights and the Management Agreement are also
released from any lien granted to Sovereign pursuant to the Sovereign Documents.
Notwithstanding anything herein to the contrary, to the extent that the Declarant
Rights or Management Agreement have not already been released from any lien granted
to Lender hereunder, on the date that the maximum aggregate Commitment under this
Agreement, the Additional Credit Facility and Existing Credit Facilities has been
reduced to $82,000,000.00 for the Revolving Loan Component, the Declarant Rights and
Management Agreement shall be released from the Lien of the security interest
granted to Lender hereunder, provided that: (1) Borrower files a negative pledge in
a form acceptable to Lender in the land records for each Resort that neither the
Declarant Rights nor the Management Agreement will be assigned, transferred, or
encumbered and (2) the Declarant Rights and Management Agreement are also released
from any lien granted to Sovereign pursuant to the Sovereign Documents.

15. Tangible Net Worth. Provided that: (i) 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; and (ii) Tangible Net Worth as of December 31, 2004 meets or exceeds the requirement of
the existing Section 7.1(cc)(i) Tangible Net Worth Covenant, Section 7.1(cc)(i) will be deleted in
its entirety and replaced with the following new Section 7.1(cc)(i), on the date that: (1) the Term
Loan Component has been paid in full; and (2) Borrower has achieved the net income projection for
the six months ending December 31, 2004 and exceeded by 10% the net income projection for the
fiscal year ending December 31, 2004, as those net income projections appear in the Business Model
dated November 13, 2003, such net income results to be evidenced by audited Financial Statements
delivered by Borrower to Lender:

“(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 (1) 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, and (2) each
incurrence of unsecured subordinated debt after December 31, 2004, except for
unsecured debt 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.”

16. Elimination of Requirement for Standby Manager, Resort Consultant and Standby Servicer.
Section 7.1 is hereby amended in part to add the following new paragraph:

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“7.1 (ff) Elimination of Requirement for Standby Manager, Resort Consultant and
Standby Servicer. Provided 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, the Standby Management Agreement shall be released from the
security interest granted to Lender hereunder and Borrower may terminate the
agreement with the Standby Manager and Resort Consultant required under Section
7.1(y), and may amend the agreement with the Standby Servicer required under Section
7.1(y) to allow for Warm Backup, as that term is described in Exhibit B to that
certain Backup Servicing Agreement among Standby Servicer, Borrower, and Agent dated
as of April 10, 2001, as amended to date and, provided that: (i) the Term Loan
Component has been paid in full; (ii) Borrower has achieved the net income
projection for the six months ending December 31, 2004 and exceeded by 10% the net
income projection for the fiscal year ending December 31, 2004, as those net income
projections appear in the Business Model dated November 13, 2003, such net income
results to be evidenced by audited Financial Statements delivered by Borrower to
Lender; (iii) any requirement for the Standby Manager or Resort Consultant is
eliminated from the Sovereign Documents; and (iv) the Standby Management Agreement
is also released from any security interest granted to Sovereign pursuant to the
Sovereign Documents.”

17. Limitation on Other Debt, Further Encumbrances. Provided 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, Section 7.2(a) will be deleted in its entirety and replaced with
the following paragraph on the date that: (i) the Term Loan Component has been paid in full; and
(ii) Borrower has achieved the net income projection for the six months ending December 31, 2004
and exceeded by 10% the net income projection for the fiscal year ending December 31, 2004, as
those net income projections appear in the Business Model dated November 13, 2003, such net income
results to be evidenced by audited Financial Statements delivered by Borrower to Lender:

“7.2(a) Limitation on Other Debt, Further Encumbrances. Borrower will not
obtain financing and grant liens with respect to the Collateral, except as hereafter
provided. 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 or under Heller Documents, the Sovereign Documents, DZ Documents, Bond Holder
Exchange Documents or the documents evidencing any other indebtedness of Borrower;
(iv) Lender is promptly provided a copy of the fully executed loan documents
relating thereto.”

18. Subordinated Obligations. Provided 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

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occurred, Section 7.2(f) will be amended by adding the following sentence to the end of such
section on the date that: (i) the Term Loan Component has been paid in full; and (ii) Borrower has
achieved the net income projection for the six months ending December 31, 2004 and exceeded by 10%
the net income projection for the fiscal year ending December 31, 2004, as those net income
projections appear in the Business Model dated November 13, 2003, such net income results to be
evidenced by audited Financial Statements delivered by Borrower to Lender.

“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(cc)(i) Borrower
may: (i) retire unsecured subordinated debt with the proceeds from the issuance of
stock or the incurrence of unsecured debt, and/or (ii) declare dividends, buy back
stock, and perform other equity transactions.”

19. Modifications of Heller Documents, DZ Documents, Bond Holder Exchange Documents, Sovereign
Documents, Silverleaf Finance II Documents and Other Debt Instruments. Provided 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, Section 7.2(k) will be deleted in its entirety and
replaced with the following new Section 7.2(k), on the date that: (i) the Term Loan Component has
been paid in full; and (ii) Borrower has achieved the net income projection for the six months
ending December 31, 2004 and exceeded by 10% the net income projection for the fiscal year ending
December 31, 2004, as those net income projections appear in the Business Model dated November 13,
2003, such net income results to be evidenced by audited Financial Statements delivered by Borrower
to Lender:

“(k) Modifications of Heller Documents, DZ Documents, Bond Holder Exchange
Documents, Sovereign Documents, Silverleaf Finance II Documents and Other Debt
Instruments. Borrower may amend or modify the Sovereign Documents, the DZ
Documents, the Bond Holder Exchange Documents, the Silverleaf Finance II Documents
or the documents evidencing any other indebtedness of Borrower, and Borrower may
extend, modify, increase or terminate the DZ Facility, the Bond Holder Exchange
Transaction, the Sovereign Facility, the TFC Conduit Loan or any other credit
facility or loan, without the prior written consent of Lender, provided Borrower
provides Lender with (i) ten days prior written notice setting forth the terms and
conditions thereof and (ii) a copy of the fully executed loan documents thereof
promptly after execution.”

20. Conditions Precedent. This First Amendment shall not be effective until all of the
following conditions have been satisfied:

(a) Approval of Documents. Borrower has delivered to Lender (with copies to
Lender’s counsel), and Lender has reviewed and approved in its sole discretion, the
form and content of all of the items specified in Subsections (i) through (vii)
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 any
Advance. Under no circumstances shall Lender’s failure to approve

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or disapprove a change to any of the Submissions be deemed to be an approval of such
Submissions. All of the Submissions shall be prepared at Borrower’s sole cost and
expense.

(i) A certificate in the form attached to the First Amendment as Exhibit A-1
to be signed by the president, vice president or secretary of the Borrower;

(ii) Copies of any amendments to the articles of incorporation/charter and
bylaws of Borrower not previously delivered to Lender, certified to be true,
correct and complete by Borrower and the Secretary of State of the State of
Texas and current certificates of good standing for Borrower for the State
of Texas and states where the Resorts are located, a current certificate of
authority to conduct business by the Secretary of State in each state in
which Borrower conducts business;

(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 the First Amendment and all such documents requested
by Lender in the form attached to the First Amendment as Exhibit B-1;

(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 First
Amendment and all such documents requested by Lender in the form attached to
the First Amendment as Exhibit C-1;

(v) Fully executed closing documents from the sale of the utility rights
which comprise part of the Additional Resort Collateral pursuant to the
Asset Purchase Agreement between Silverleaf Resorts, Inc. and Algonquin
Water Resources of Texas, Inc. and Algonquin Water Resources of Missouri,
Inc. and Algonquin Water Resources of Illinois, Inc. and Algonquin Water
Resources of America, Inc. and Algonquin Power Income Fund dated as of
August 29, 2004. Such sale will provide not less than thirteen million
dollars ($13,000,000) of net proceeds. Lender hereby authorizes Borrower to
consummate the sale of the utility rights subject to the terms and
conditions of this First Amendment;

(vi) Closing Opinions of Counsels for Borrower;

(vii) Such other agreements, documents, instruments, certificates and
materials as Lender may request to evidence the Indebtedness, to evidence
and perfect the rights and Liens and security interests of Lender
contemplated by the Loan Documents as amended hereby, and to effectuate the
transactions contemplated in this First Amendment.

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(b) Conditions to Closing.

(i) Execution of this First Amendment;

(ii) Execution of the amendments to the Additional Credit Facility and
Existing Credit Facilities dated of even date herewith;

(iii) Borrower shall have delivered to Lender the Inventory Term Loan
Note;

(iv) Lender shall have received evidence, in form and substance
satisfactory to Lender, that the consent of each party entitled to consent
to this First Amendment has been obtained;

(v) Borrower shall have paid all fees of all Lenders in connection with this
First Amendment; and

(vi) Lender shall have delivered originals of all releases of Liens
contemplated by this First Amendment to Lender’s counsel to be held in
escrow until such time as Lender notifies Lender’s counsel that Borrower has
satisfied all conditions and is entitled to such releases.

21. Further Documentation. Borrower agrees to execute and deliver to Lender any and all
additional documentation as Lender may now or hereafter require in order to effectuate the terms
and conditions of this First Amendment.

22. Effect of Amendment. The Loan Agreement, as herein amended, shall remain in full force
and effect.

23. Ratification and Confirmation. Except as herein expressly amended, Borrower hereby
ratifies, confirms, assumes and agrees to be bound by all of representations, warranties,
statements, covenants and agreements set forth in the Loan Agreement and the other Loan Documents,
as previously amended. The Borrower reaffirms, restates and incorporates by reference all of the
representations, warranties, covenants and agreements made in the Loan Documents as if the same
were made as of this date. The Borrower agrees to pay the Loan and all related expenses, as and
when due and payable in accordance with the Loan Agreement and the other Loan Documents, and to
observe and perform the Obligations, and do all things necessary which are not prohibited by law to
prevent the occurrence of any Event of Default. In addition, to further secure, and to evidence and
confirm the securing of, the prompt and complete payment and performance by the Borrower of the
Loan and all of the Obligations, for value received, Borrower unconditionally and irrevocably
assigns, pledges and grants to Lender, and hereby confirms or reaffirms the prior granting to
Lender of, a continuing First priority Lien, mortgage and security interest in and to all of the
Collateral, except as otherwise set forth herein, whether now existing or hereafter acquired. Also,
as provided in the Loan Documents, the Loan is and shall be further secured by the Liens and
security interests in favor of Lender in the properties and interests relating to Additional
Eligible Resorts, which now or hereafter serve as collateral security for any Obligations. Upon
satisfaction of the requirements for approval by Lender of Additional Resorts, Borrower shall
record, or cause to be recorded, such mortgages,

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deeds of trust, deeds to secure debt, assignments, pledges, security agreements and UCC Financing
Statements in the appropriate public records of the state in which each Resort is located to
further evidence and perfect Lender’s Lien on the Collateral. Borrower agrees to deliver or cause
to be delivered by its Affiliates, such mortgages, deeds of trust, deeds to secure debt,
assignments, pledges, security agreements and UCC Financing Statements as Lender may deem necessary
to further evidence and perfect the Lender’s Lien on the Collateral.

24. GOVERNING LAW. THIS AMENDMENT 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.

25. General Representations and Warranties. Borrower hereby represents and warrants to
Lender as follows:

(a) 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.

(b) Authorization, Enforceability, Etc

(i) 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: (1) 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; (2) 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 Lenders; or (3) 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.

(ii) 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.

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

12

 

(c) No Event of Default. 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 under the Loan Agreement as amended to date, the Additional
Credit Facility and Existing Credit Facilities, the Heller Facility, the Sovereign
Facility, DZ Facility, Bond Holder Exchange Facility or any other indebtedness of
Borrower.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

13

 

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed on
their behalf as of the day and year first written above.

	 	 	 	 	 	 	 
	Witnessed By:	 	 	 	TEXTRON FINANCIAL CORPORATION
	 
	 	 	 	 	 	 
	/S/ SEBASTIAN GROMOUDIN

	 	 	 	 	 	 
	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	/S/ JOHN D’ANNIBALE
	 	 	 	 	 	 	 
	/S/ GINGER HAYES

	 	 	 	Name:
	 	John D’Annibale
	 	 	 	 	 	 	 
	

	 	 	 	Its:
	 	V/P
	 
	 	 	 	 	 	 
	 	 	 	 	SILVERLEAF RESORTS, INC.
	 
	 	 	 	 	 	 
	/S/ PATRICIA K. DOREY
	 	 	 	 	 	 
	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	/S/ HARRY J. WHITE, JR.
	 	 	 	 	 	 	 
	/S/ PENNY J. PELHAM

	 	 	 	Name:
	 	Harry J. White, Jr.
	 	 	 	 	 	 	 
	

	 	 	 	Its:
	 	CFO

 

 

	 	 	 	 	 	 	 
	STATE OF CONNECTICUT

	 	 	)	 	 	 
	

	 	 	)	 	 	ss: East Hartford
	COUNTY OF HARTFORD

	 	 	)	 	 	 

     At East Hartford in said County and State on this _24___day of ___February ,
2005, personally appeared _John D’Annibale duly authorized ___Vice President of
Textron Financial Corporation, and he acknowledged the foregoing instrument by him signed and
sealed to be his free act and deed and the free act and deed of Textron Financial Corporation.

	 	 	 	 	 
	Before me:

	 	/S/ LAURA D’ANGELO
	 	 
	 	 	 	 	 
	

	 	Notary Public in and for said State	 	 
	

	 	My Commission Expires: Feb. 28, 2009	 	 
	

	 	Commissioner of the Superior Court	 	 

	 	 	 	 	 	 	 
	STATE OF TEXAS

	 	 	)	 	 	 
	

	 	 	)	 	 	ss:
	COUNTY OF DALLAS

	 	 	)	 	 	 

     At ___Dallas, Texas___in said County and State on this _1st___day of
 March___, 2005, personally appeared ___Harry J. White,
Jr.___, duly authorized officer of SILVERLEAF RESORTS, INC., and
he/she acknowledged the foregoing instrument by him/her signed and sealed to be his/her free act
and deed and the free act and deed of Silverleaf Resorts, Inc., a Texas corporation, on behalf of
the corporation.

	 	 	 	 	 
	Before me:

	 	/S/ TAMMY J. MARTIN	 	 
	 	 	 	 	 
	

	 	Notary Public in and for said State
	 	 
	

	 	My Commission Expires: 1-6-2009	 	 

List of Exhibits and Schedules Attached to Agreement and not filed herewith:

Ex. A-1: Borrower’s Certificate

Schedule A: Amendments or Restatements to Documents

Schedule B: Existing Resorts

Schedule C: List of Stock and Equity Interests Owned by Borrower

Schedule D: List of Litigation, Suits, Actions, Complaints, Claims or Charges

Schedule E: List of Borrower’s Executive Management

Ex. B-1: Certificate of Corporate Resolutions of the Board of Directors of Silverleaf Resorts, Inc.

Ex. C-1: Certificate of Secretary of Silverleaf Resorts, Inc.exv10w40

 

Exhibit 10.40

VITRIA CONTRACT NUMBER: 8784

VITRIA PROFESSIONAL SERVICES AGREEMENT

This Vitria Professional Services Agreement (this “Agreement”) is entered into between

	 	 	 	 	 
	QilinSoft LLC

a                                                            
 

(“Client”)
	 	and
	 	Vitria Technology, Inc.,

a Delaware corporation

 

(“Vitria”)

 for the purpose of setting forth the terms and conditions upon which Vitria shall provide Services
to Client.

	1.  	DEFINITIONS

 “Change Order Request” means Client’s written request to Vitria for modifications or supplements to
an existing Statement of Work to provide for additional Professional Services or to change the
scope of Professional Services contemplated thereunder. A Change Order Request shall state (a) the
nature of the Change Order Request and specifically referencing the Statement of Work to which it
is applicable, (b) the cost and timing to effect same, (c) the affect upon the related Statement of
Work of implementing the Change Order, and (d) such other information as the parties deems
material.

 “Change Order” means the finalized, mutually executed version of a mutually agreed Change Order
Request.

 “Confidential Information” means any and all information identified as confidential, whether in
oral, written, graphic or electronic form, and provided to the receiving party hereto, that the
disclosing party provides regarding third parties and any third party proprietary information
rightfully held and disclosed by the disclosing party, and any information (whether or not
identified as confidential) in any form generally understood to be confidential, proprietary or
trade secret, or by its nature or circumstances surrounding its disclosure should be reasonably
regarded as confidential. Confidential Information does not include information which can be shown
by the receiving party as (a) already in the possession of the receiving party without an
obligation of confidentiality, (b) hereafter rightfully furnished to the receiving party by a third
party without a breach of any legal or contractual obligation, (c) that is or becomes publicly
available without breach of this Agreement, (d) furnished by the disclosing party to a third party
without restriction on subsequent disclosure, or (e) independently developed by the receiving party
without reliance on the Confidential Information.

 “Deliverables” means all work product and intellectual property (excluding Products) created or
conceived by Vitria and/or any employee, other person or entity working for or under Vitria, and
delivered to Client in connection with and/or as part of Professional Services provided to Client
under the Agreement and Statement(s) of Work, including, without limitation, all inventions,
methods, processes, business adaptations, reports, products, programs, software (including, but not
limited to, standardized subroutines, command structures, algorithms, processes, design, all files
(including input and output materials), all interfaces, navigational devices, menus, menu
structures or arrangements, icons, help and other operational instructions and documentation
relating thereto), code (including, but not limited to, source code, object code, enhancements,
modifications, and documentation relating thereto), applications, systems, notes, drafts, memos,
manuals, documentation, deliverables and other materials, regardless of whether existing in or on
paper, electronic or other form or media upon creation and at all stages of development, including
upon completion.

 “Documentation” means the user manuals and operator instructions which are delivered by Vitria with
the Products.

 “Effective Date” means the date on which the last party signs this Agreement, as set forth in the
signature block below.

 “Intellectual Property Rights” means all copyrights, all rights of authorship, all patent rights,
all rights of inventorship, all trademark and service mark rights, all rights in trade secret and
proprietary information, all rights in data and compilations of data, all rights of attribution,
and all other intellectual property rights of any type under state or federal law of the United
States or any other nation or international treaty or law, as well as all rights in applications
for registration of these rights and all licenses to these rights.

 “Client’s Prior Technology” means Client’s software, programming documentation, technical
ideas, and any other Intellectual Property Rights developed or owned by Client prior to
commencement of this Agreement.

 “Price List” means Vitria’s standard fee schedule which Vitria may update from time to time.

			
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VITRIA CONTRACT NUMBER: 8784

 “Product” or “Products” means the object code version of the computer software program(s) owned or
distributed by Vitria.

 “Professional Services” means consulting services performed by Vitria pursuant to this Agreement.

 “Services” means the Professional Services.

 “Statement of Work” means a form specifying the Professional Services as mutually agreed upon in
writing by the parties and which is incorporated herein by this reference.

 “Vitria Prior Technology” means Vitria’s software, programming documentation, technical ideas,
and any Intellectual Property Rights therein developed prior to commencement of this Agreement,
including without limitation, the Products and Documentation.

	2.  	INVOICING, PAYMENT AND TAXES

2.1 Invoicing and Payment

	 	2.1.1  	Fees.

(a)      Fees are as set forth on an Order or the relevant Statement of Work. Fees shall
be due and payable net thirty (30) days from the latter of (i) the date of Vitria’s
invoice or (ii) the date for payment specified on the Order or Statement of Work
Professional Services fees will be invoiced and paid by Client pursuant to the terms
therein. Client shall reimburse Vitria for all reasonable and actual documented
travel and out-of-pocket expenses incurred by Vitria in performing Professional
Services.

(b)      All fees on accurate, correctly submitted invoices shall be deemed overdue if they
remain unpaid thirty (30) days after they become due. All overdue amounts on
accurate, correctly submitted invoices shall bear interest at the rate of one and
one-half percent (1 — 1/2%) per month or the maximum legal rate, if less, however,
nothing herein shall limit Vitria’s termination rights under this Agreement.

2.1.2      Unless otherwise set forth in an Order or Statement of Work, payments shall be in
United States dollars. If Client pays Vitria in a currency other than that specified in an
Order or Statement of Work, Client shall pay costs of currency conversion to the currency in
the Order or Statement of Work and any related bank charges.

2.1.3      If the Client’s procedures require that an invoice be submitted against a Client
purchase order before payment can be made, the Client will be responsible for issuing such
purchase order within five (5) days of the effective date of the Order or Statement of Work.

2.1.4      The fees listed in this Agreement are exclusive of taxes and other similar charges;
therefore, Client shall be responsible for all taxes, customs duties, tariffs, and
transportation costs, and like charges related to this Agreement other than taxes based on
Vitria’s net income. The Client shall pay or reimburse Vitria, as appropriate, for all
sales, use, excise, personal property, value-added, goods and services, or other federal,
state or local taxes, duties, or any similar assessments based on the licenses granted or
the services provided under this Agreement or on the Client’s use of the Products.

2.1.5      The parties agree that certain payments under this Agreement may be subject to a
withholding tax at source. Without limiting the generality of Section 2.1.4, if Client is
required by law to withhold or deduct any taxes or other charge from any payment to Vitria
hereunder, Client shall pay to Vitria to the total amount reflected on the invoice less the
applicable withholding taxes. Client shall be responsible for penalties, interest, or like
charges resulting from Client’s failure to withhold and remit such taxes in the time and
manner prescribed by law. The parties shall cooperate in good faith to minimize taxes to the
extent legally permissible. Each party shall provide and make available to the other party
any resale certificates, treaty certification and other exemption information reasonably
requested by the other party.

	3.  	SERVICES

	3.1  	Professional Services

3.2.1      Client may order Professional Services from Vitria in accordance with the terms herein.
Such Professional Services shall be provided at the fees set forth in the Price List (less
any applicable discounts) or as more specifically defined in separate Statements of Work.
Any scheduled service dates shall be mutually agreed upon in writing. Nothing in the
Agreement shall be construed as precluding or limiting in any way the right of Client to
obtain from, or provide to, any person or entity, such products, deliverables, consulting or
other services of any kind or nature whatsoever as Client in its sole discretion may deem
appropriate from time to time.

3.2.2      All Professional Services shall be provided as mutually agreed upon in a Statement of
Work. In all cases, responsibility for development of Client’s applications and deployment
of the Products is with Client. Vitria will not be

			
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VITRIA CONTRACT NUMBER: 8784

liable to Client or any third party for any delay in completion or non-completion of any
Client application. Client’s applications are and will remain at all times under Client’s
control and direction. The use of the Products by Client and the obligation to pay license
fees is not contingent upon provision of the Professional Services.

3.2.3      Vitria will furnish qualified personnel to perform the Professional Services at the
times and location(s) designated in the Statement of Work. Vitria shall make reasonable
efforts to honor specific requests by Client with regard to Vitria’s employees, including
replacements thereof, who are assigned to perform Professional Services and any other aspect
of obtaining the desired results under the Agreement. Client will designate a project
manager to be Vitria’s primary contact for all aspects of the Professional Services to be
performed hereunder.

3.2.4      When Professional Services are to be provided at Client’s site, Client shall provide
Vitria’s on-site employees with temporary office space, telephone service, copying and
general office supplies which may reasonably be necessary to facilitate Vitria’s performance
of the Professional Services. Client will provide Vitria’s on-site employees with such
limited access to Client’ internal computer network as is necessary for the performance of
Professional Services. Vitria will ensure that its employees and will, whenever on Client’
premises, comply with all reasonable instructions, protocols and directions issued by Client.
To the extent a Client delay in the provision of such support may increase the costs or
efforts of Vitria hereunder and Vitria notifies Client in writing of such delay and Client
fails to remedy the delay, such delay may result in commensurably increased costs to Client.
In addition, to the extent a delay in the provision of Professional Services is due to the
delay of Client to perform their obligations and Vitria notifies Client in writing of such
delay and Client fails to remedy such delay, such delay shall extend the time required by
Vitria to perform the Professional Services by the amount of such Client delay.

3.2.5      As between the parties, Client owns all Intellectual Property Rights in, and Vitria
only receives limited license to, the Client Prior Technology for the limited purpose of
providing the Professional Services under this Agreement. As between the parties, Vitria
owns all Intellectual Property Rights in the Vitria Prior Technology and to any derivative
works, improvements, enhancements or modifications made to the Vitria Prior Technology
pursuant to this Agreement; and any Deliverables (subject to Client’s ownership of and
rights in and to Client’s Prior Technology, if any, incorporated in any such derivative
works, improvements, enhancements or modifications by Vitria to the Deliverables), and Client
receives only the limited license as pursuant to the licensing terms of a separate Agreement.

3.2.6      It is understood that Vitria shall be free to use its general knowledge, skills and
experience and any ideas, concepts, know-how, and techniques related to the Professional
Services provided by Vitria. It is further understood that Vitria has created, acquired or
otherwise has rights in, and may, in connection with the performance of Professional Services
hereunder, employ, provide, modify, create, acquire or otherwise obtain rights from third
parties, other than Client, in various concepts, ideas, methods, methodologies, procedures,
processes, know-how, techniques, models, templates, the generalized features of the
structure, sequence and organization of software, user interfaces and screen designs, general
purpose consulting and software tools, utilities and routines, and logic, coherence and
methods of operation of systems (collectively, the “Vitria Technology”). Notwithstanding
anything to the contrary in this Agreement, to the extent that Vitria uses any of its
intellectual or other property (including, without limitation, the Vitria Technology or
Vitria Prior Technology) in connection with the performance of Professional Services
hereunder, such property shall remain the property of Vitria.

3.2.7      Subject to Client’s payment of fees for Professional Services, Vitria hereby grants to
Client and Affiliates a worldwide, transferable, perpetual, non-exclusive, royalty free,
fully paid, license to use, reproduce, perform, display, modify, and/or create derivative
works from, any of the Vitria Technology delivered pursuant to a Statement of Work, solely in
connection with the use, display, operation, modification or commercial exploitation of the
Deliverables, any Vitria Technology contained in or delivered with the Deliverables provided
Client by Vitria solely for Client’s and/or Affiliates’ business purposes.

	4.  	NONDISCLOSURE

 4.1      In the course of performance of this Agreement, either party may find it necessary to disclose
to the other party, or either party may obtain from the other party, Confidential Information. The
parties agree, on behalf of themselves, their Affiliates, and their employees that they shall not
use, except as otherwise expressly permitted hereunder, or disclose to any third person, including
to any employee of the receiving party without a need to know, either during or after the term of
this Agreement, any Confidential Information. Notwithstanding any terms to the contrary within
this Agreement, the parties shall have the right to disclose Confidential Information to
independent contractors and consultants as necessary for Vitria’s or Client’s and/or Affiliates’
internal business purposes, provided such independent contractors and consultants agree to be bound
by the confidentiality restrictions which are applicable to Vitria and Client hereunder.

 4.2      The parties and their respective employees, independent contractors and consultants shall use
the same degree of care as used to protect their own confidential information of a similar nature,
but in no event less than reasonable care, to avoid disclosure of Confidential Information.

 4.3      In the event of a breach of this Section 4, money damages will not be an adequate remedy, and
therefore, in addition to any other legal or equitable remedies, the disclosing party shall be
entitled to seek an injunction or other equitable relief against

			
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VITRIA CONTRACT NUMBER: 8784

 such breach without necessity of posting bond or security, which is expressly waived.

 4.4      Notwithstanding the foregoing, the party to whom Confidential Information was disclosed (the
“Recipient”) shall not be in violation of this Section 4 with regard to a disclosure that was in
response to a valid order by a court or other governmental body, provided that the Recipient
provides the other party with prior written notice of such disclosure in order to permit the other
party to seek confidential treatment of such information.

	5.0  	WARRANTIES AND REMEDIES

 5.1      Vitria warrants that (a) Vitria shall have and maintain the requisite technical knowledge,
skills, abilities, licenses and qualifications to provide the Professional Services, (b) Vitria
shall comply with all applicable local, state and federal ordinances, laws and regulations in
providing the Professional Services, (c) all Services to be performed hereunder will be performed
in good faith and in a good, professional, workmanlike, competent and timely manner, in conformity
with all applicable standards and the requirements of the Agreement and, as applicable, the
respective Statements of Work, and (d) Vitria’s performance of Services does not and will not
violate the terms and conditions of any other contract or obligation of Vitria. This warranty shall
be valid for ninety (90) days from completion of Professional Services set forth in a Statement of
Work (“Services Warranty Period”). In the event that, during the Services Warranty Period, Client
discovers that any Professional Services do not conform to the warranty set forth in this
paragraph, Client shall promptly notify Vitria in writing of such nonconformance, and Vitria shall,
at Client’ option and at Vitria’s sole cost and expense, promptly either (i) re-perform such
Professional Services in conformance with such warranty, or (ii) refund to Client the fees paid for
such deficient Professional Services.

 5.2      DISCLAIMERS. THE EXPRESS WARRANTIES IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, AND VITRIA AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED,
OR STATUTORY, REGARDING THE PRODUCTS AND DOCUMENTATION AND SERVICES, INCLUDING ANY WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS PROVIDED IN THIS AGREEMENT, ALL
SERVICES HEREUNDER ARE PROVIDED “AS IS” WITHOUT ANY WARRANTY WHATSOEVER. CLIENT RECOGNIZES THAT
THE “AS IS” CLAUSE OF THIS AGREEMENT IS AN IMPORTANT PART OF THE BASIS OF THIS AGREEMENT, WITHOUT
WHICH VITRIA WOULD NOT HAVE AGREED TO ENTER INTO THIS AGREEMENT. CLIENT ACKNOWLEDGES THAT IT HAS
RELIED ON NO WARRANTIES OTHER THAN THE EXPRESS WARRANTIES IN THIS AGREEMENT.

	6.0  	LIMITATION OF LIABILITY

 IN NO EVENT WILL VITRIA OR VITRIA’S SUPPLIERS BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, EXEMPLARY,
SPECIAL, PUNITIVE, OR INCIDENTAL DAMAGES, INCLUDING ANY LOST DATA AND LOSS OF PROFITS, ARISING FROM
OR RELATING TO THIS AGREEMENT, EVEN IF VITRIA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
VITRIA’S LIABILITY FOR DAMAGES SHALL BE LIMITED TO DIRECT DAMAGES ONLY AND VITRIA AND ITS
SUPPLIERS’ TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT, THE SERVICES AND THE
PRODUCTS, SHALL IN NO EVENT EXCEED THE AMOUNT OF FEES PAID TO VITRIA HEREUNDER DURING THE 12 MONTHS
PRECEDING ANY ACTION. CLIENT ACKNOWLEDGES THAT THE FEES PAID BY IT REFLECT THE ALLOCATION OF RISK
SET FORTH IN THIS AGREEMENT AND THAT VITRIA WOULD NOT ENTER INTO THIS AGREEMENT WITHOUT THESE
LIMITATIONS ON ITS LIABILITY.

	7.0  	TERM AND TERMINATION

 7.1      Term. This Agreement will begin on the Effective Date and will continue indefinitely unless
terminated pursuant to the terms of this Agreement or otherwise agreed by the parties in writing.

	7.2  	Termination.

7.2.1      Client may terminate this Agreement or any license at any time, with or without cause,
upon thirty (30) days prior written notice to Vitria. Vitria may terminate this Agreement or
any license granted hereunder, effective immediately upon written notice to Client, if:

(a)      Client breaches any provision in Section 4 and does not cure the breach within ten
(10) days after receiving written notice thereof from Vitria,

(b)      Client fails to pay any portion of the fees set forth in Section 2 within thirty
(30) days after receiving written notice from Vitria that payment is due,

(c)      Client breaches any other provision of this Agreement and does not cure the breach
within thirty (30) days after receiving written notice thereof from Vitria or

(d)      If (i) Client files or has filed against it a petition under any applicable law
relating to insolvency or the protection of it creditors,(ii) Client makes an
assignment for the benefit of creditors or (iii) a receiver or similar

			
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VITRIA CONTRACT NUMBER: 8784

official is appointed for all or a substantial portion of Client’s assets.

7.2.2      Client shall have the right to terminate any Statement(s) of Work for convenience, in
whole or in part, at any time by giving Vitria written notice thereof not less than fourteen
(14) days prior to the effective date of such termination and Client shall promptly pay (on a
pro-rata basis if fixed fee) for Professional Services rendered and expenses properly
incurred through the date of termination. In addition to the terms of the Agreement, Client
shall have the right to terminate any Statement(s) of Work immediately in the event of a
material breach of any Statement(s) of Work by Vitria, which breach remains uncured for a
period of ten (10) days after written notice reasonably specifying the nature of the breach
is given to Vitria.

7.2.3      In the event of termination of the Agreement or any Statement(s) of Work for any
reason, Vitria shall deliver to Client within ten (10) days of the date of termination all
Deliverables prepared pursuant to Professional Services provided under any such Statement(s)
of Work that may be owned by Client, in whatever current stage such Deliverables are in on
the date of termination.

 7.3      Effects of Termination. Upon termination of this Agreement, any amounts owed to Vitria under
this Agreement before such termination will be immediately due and payable. Termination of this
Agreement will not limit or restrict any of the remedies otherwise available under this Agreement.

 7.4      Survival. Sections 1 (“Definitions”), 2 (“Invoicing, Payment and Taxes”), 4 (“Nondisclosure”),
5 (“Warranties, Remedies”), 6 (“Limitation of Liability”), 7.3 (“Effects of Termination”),and 8
(“General Terms”) will survive termination of this Agreement for any reason.

	8.0  	GENERAL TERMS

 8.1      Assignment. Client may not assign or transfer, by operation of law or otherwise, any of its
rights under this Agreement (including its licenses with respect to the Product) to any third party
without Vitria’s prior written consent. Nothing in this Agreement shall constitute a consent by
Vitria to Client’s assumption, or assumption and assignment, of any license set forth herein
pursuant to 11 U.S.C. §365 or otherwise, and specifically shall not constitute a consent pursuant
to 11 U.S.C. §365(c)(1)(B). Vitria further expressly reserves all of its rights to object to any
assumption or assumption and assignment of any license set forth herein.

 8.2      Compliance with Laws. Client will comply with all applicable export and import control laws
and regulations in its use of the Products. and shall comply with the United States Foreign Corrupt
Practices Act. Client will defend, indemnify and hold harmless Vitria, its suppliers, agents,
directors, officers and employees, from and against any violation of such laws or regulations by
Client or any of its agents, officers, directors, or employees.

 8.3      Construction. Singular terms shall be construed as plural, and vice versa, where the context
requires. The headings of Sections of this Agreement are for convenience and are not to be used in
interpreting this Agreement. As used in this Agreement, the word “including” means “including but
not limited to”.

 8.4      Counterparts. This Agreement may be executed in any number of counterparts or duplicate
originals.

 8.5      Entire Agreement. This Agreement and the Order(s), Statement(s) of Work, addendum(s),
appendices and exhibit(s) referencing this Agreement are incorporated herein and constitute the
entire agreement between the parties regarding the subject hereof and supersede all prior or
contemporaneous agreements, understandings, and communication, whether written or oral. This
Agreement may be amended only by a written document signed by both parties. In the event of any
ambiguity or conflict between any of the terms and conditions contained in the Agreement and the
terms and conditions contained in a Statement of Work (or any Change Order thereto), the terms and
conditions of the Agreement shall control, unless the parties have expressly provided in such
Statement of Work that a specific provision in the Agreement is amended, in which case the
Agreement shall be so amended, but only with respect to such Statement of Work. The terms and
conditions on any purchase order or similar document submitted by Client to Vitria will have no
effect.

 8.6      Force Majeure. Neither party will be responsible for failure of performance, other than for an
obligation to pay money, due to causes beyond its control, including, without limitation, acts of
God or nature; labor disputes; sovereign acts of any federal, state or foreign government; or
shortage of materials.

 8.7      Governing Law. This Agreement will be governed by the laws of the State of California as such
laws apply to contracts between California residents performed entirely within California. The
United Nations Convention on Contracts for the International Sale of Goods does not apply to this
Agreement. Any action or proceeding arising from or relating to this Agreement must be brought in
a federal court in the Northern District of California or in state court in Santa Clara County,
California, and each party irrevocably submits to the jurisdiction and venue of any such court in
any such action or proceeding.

 8.8      Independent Contractors; Nonexclusivity. Vitria and Client are independent contractors and
will so represent themselves in all regards. Neither party may bind the other in any way. Nothing
in this Agreement will be construed to make either party the agent or legal representative of the
other or to make the parties partners or joint venturers. Client shall identify

			
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VITRIA CONTRACT NUMBER: 8784

 and request the Professional Services to be performed, but Vitria shall determine the legal means
by which all Professional Services are to be accomplished. Vitria is solely responsible for paying
its employees for Professional Services performed under the Agreement. Client is not responsible
for withholding, and shall not withhold, FICA or any other employment-related taxes of any kind
from any payments made to Vitria. Vitria shall not be entitled to receive any benefits that
employees of Client are entitled to receive, nor shall Vitria, be entitled to receive from or
through Client, workers’ compensation, unemployment compensation, medical insurance, life
insurance, paid vacations, paid holidays, pension, profit sharing or Social Security on account of
Professional Services performed under the Agreement.

 8.9      Notices. All notices, consents and approvals under this Agreement must be delivered in writing
by courier, or by certified or registered mail (postage prepaid and return receipt requested), to
the other party at the address set forth beneath such party’s signature, and will be effective upon
receipt or three (3) business days after being deposited in the mail as required above, whichever
occurs sooner. Either party may change its address by giving notice of the new address to the
other party.

 8.10      Proprietary Rights. The Products and Documentation, and all Intellectual Property Rights
therein, are the exclusive property of Vitria. Vitria reserves all rights in and to the Products
not expressly granted to Client in this Agreement. Nothing in this Agreement will be deemed to
grant, by implication, estoppel or otherwise, a license under any of Vitria’s existing or future
patents. Client will not remove, alter, or obscure any proprietary notices (including copyright
notices) of Vitria or its suppliers on the Products or the Documentation.

 8.11      Remedies. Except as provided in Sections 5 and 6, the parties’ rights and remedies under this
Agreement are cumulative. If any legal action is brought to enforce this Agreement, the prevailing
party will be entitled to receive its attorneys’ fees, court costs and other collection expenses,
in addition to any other relief it may receive.

 8.12      Severability. If any provision of this Agreement is unenforceable, such provision will be
changed and interpreted to accomplish the objectives of such provision to the greatest extent
possible under applicable law and the remaining provisions will continue in full force and effect.

 8.13      Waiver. All waivers must be in writing. Any waiver or failure to enforce any provision of
this Agreement on one occasion will not be deemed a waiver of any other provision or of such
provision on any other occasion.

 8.14      Insurance. During the term of this Agreement, Vitria shall maintain commercially reasonable
insurance coverage corresponding to the scope of the services offered hereunder including, but not
limited to; (i) workmen’s compensation, disability, unemployment insurance, and any other insurance
required by law, covering all of its operations in all locations of Client at which services will
be performed by Vitria under this Agreement; (ii) Comprehensive General Liability insurance; and
(iii) Errors and Omissions Insurance. At Client’s written request, Vitria shall provide a
certificate of insurance to Client evidencing such coverage.

 8.15      Client shall not solicit for employment any Vitria employee who is directly involved in the
performance of Professional Services described in a Statement of Work to the Agreement during the
term of the respective Statement of Work except as may otherwise be agreed in writing by the
respective parties hereto. This Section shall not restrict the right of Client to (a) solicit the
employment of employees of Vitria after such employees have separated or have been separated from
the service of Vitria, provided Client did not solicit such separation, or (b) solicit or recruit
generally in the media.

					
	CLIENT: QilinSoft LLC
	 	VITRIA:	 	 
	 
	ADDRESS:	 	 	 	 
	QilinSoft LLC

750 Menlo Ave. Suite 380

Menlo Park, CA 94025

US Phone: 650-323-8000

US Fax: 650-327-2102

     /s/      JoMei Chang, Ph.D.
	 	Vitria Technology, Inc.

945 Stewart Drive

Sunnyvale, CA 94085

Main Phone 408 212-2700

     /s/      Michael D. Perry	 	 
	 
	 	 	 	 
	Signature
	 	Signature	 	 
	 	 
	     JoMei Chang, Ph.D.
	 	     Michael D. Perry	 	 
	 
	 	 	 	 
	Printed Name/Title
	 	Printed Name/Title	 	 
	 	 
	     July 17, 2004
	 	     July 20, 2004	 	 
	 
	 	 	 	 
	Date
	 	Date	 	 
	

	 	 	 	 

			
	PSA QiLinSoft LLC PSA
	 	Page 6 of 6

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