Document:

LETTER OF CREDIT REIMBURSEMENT AGREEMENT

                                     Between

                  PALOMINO PARK PUBLIC IMPROVEMENTS CORPORATION
                         WELLSFORD REAL PROPERTIES, INC.

                                       and

                         COMMERZBANK AG, NEW YORK BRANCH

                                   Relating to

                     Palomino Park Public Improvements Corp.
             Assessment Lien Revenue Bonds Series 1995 - $14,755,000

                            Dated as of June 16, 2000

                      (Letter of Credit No. 150SBY0030064)

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                                TABLE OF CONTENTS

     This Table of Contents is not a part of the Letter of Credit  Reimbursement
Agreement  and is for  convenience  only.  The  captions  herein are of no legal
effect and do not vary the meaning or legal  effect of any part of the Letter of
Credit Reimbursement Agreement.

                                                                            Page
                                                                            ----

ARTICLE 1         DEFINITIONS..................................................2
   Section 1.1  Definitions....................................................2
   Section 1.2  Accounting Matters............................................14
   Section 1.3  Interpretation................................................14
   Section 1.4  Relation to Other Documents...................................14
   Section 1.5  Time for Performance..........................................14

ARTICLE 2         REIMBURSEMENT, FEES AND PAYMENT PROVISIONS..................15
   Section 2.1  Same Day Reimbursement........................................15
   Section 2.2  Reimbursement of Liquidity Drawing Amounts and LC Loans.......15
   Section 2.3  Limitation on Interest........................................16
   Section 2.4  Remarketing of Pledged Bonds..................................16
   Section 2.5  Transfer/Amendment Fee........................................17
   Section 2.6  Costs, Expenses and Taxes.....................................18
   Section 2.7  Issuance Fee..................................................19
   Section 2.8  Letter of Credit Facing Fee...................................19
   Section 2.9  Capital Adequacy..............................................19
   Section 2.10  Method of Payment............................................20
   Section 2.11  Maintenance of Accounts......................................20
   Section 2.12  Cure.........................................................20
   Section 2.13  Withholding..................................................20
   Section 2.14  Reduction and Reinstatement of the Letter of Credit..........20

ARTICLE 3         CONDITIONS PRECEDENT........................................21
   Section 3.1  Account Parties' Resolutions; Bylaws..........................21
   Section 3.2  Guarantor's Resolutions.......................................21
   Section 3.3  Account Parties' Organizational Documents.....................21
   Section 3.4  Guarantor's Organizational Documents..........................21
   Section 3.5  Regulatory Approvals..........................................21
   Section 3.6  Officer's Certificates........................................22
   Section 3.7  Opinions of Counsel...........................................22
   Section 3.8  Related Documents.............................................22
   Section 3.9       .........................................................22
   Section 3.10  Compliance Certificate.......................................22
   Section 3.11  Rating.......................................................22

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   Section 3.12  Account Parties Certificate(s)...............................22
   Section 3.13  [Reserved....................................................22
   Section 3.14  Payment of Fees and Expenses.................................23
   Section 3.15  Financial Statements.........................................23
   Section 3.16  Highlands Certificate(s).....................................23
   Section 3.17  Remarketing Agent Certificate................................23
   Section 3.18  Bond Trustee Certificate.....................................23
   Section 3.19  Other Documents..............................................23

ARTICLE 4         REPRESENTATIONS AND WARRANTIES..............................23
   Section 4.1  Corporate Authority, Etc......................................23
            (1)      Incorporation; Good Standing.............................23
            (2)      Authorization............................................24
            (3)      Enforceability...........................................24
   Section 4.2  Governmental Approvals........................................24
   Section 4.3  Title to Properties; Leases...................................24
   Section 4.4  Financial Statements..........................................25
   Section 4.5  No Material Changes...........................................25
   Section 4.6  Franchises, Patents, Copyrights, Etc..........................25
   Section 4.7  Litigation....................................................25
   Section 4.8  No Materially Adverse Contracts, Etc..........................26
   Section 4.9  Compliance with Other Instruments, Laws, Etc..................26
   Section 4.10  Tax Status...................................................26
   Section 4.11  No Event of Default..........................................26
   Section 4.12  Holding Company and Investment Company Acts, Etc.............26
   Section 4.13  Absence of UCC Financing Statements, Etc.....................27
   Section 4.14  Noncontravention.............................................27
   Section 4.15  Certain Transactions.........................................27
   Section 4.16  Employee Benefit Plans.......................................27
   Section 4.17  Regulations U and X..........................................28
   Section 4.18  Environmental Compliance.....................................28
   Section 4.19  Subsidiaries.................................................30
   Section 4.20  Related Documents............................................30
   Section 4.21  Property.....................................................30
   Section 4.22  Brokers......................................................31
   Section 4.23  Other Debt...................................................31
   Section 4.24  Solvency.....................................................31
   Section 4.25  Complete and Correct Information.............................31
   Section 4.26  Public Improvements Liens....................................32
   Section 4.27  Pledge of Pledged Bonds......................................32
   Section 4.28  Security for Pledged Bonds...................................32

ARTICLE 5         AFFIRMATIVE COVENANTS.......................................32
   Section 5.1  Compliance with Bond Indenture and Related Documents..........32
   Section 5.2  Maintenance of Office.........................................32

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   Section 5.3  Records and Accounts..........................................33
   Section 5.4  Financial Statements, Certificates and Information............33
   Section 5.5  Notices.......................................................35
            (1)      Defaults.................................................35
            (2)      Environmental Events.....................................35
            (3)      Notice of Litigation and Judgments.......................35
            (4)      [Reserved]...............................................36
            (5)      Location, Name and Business..............................36
            (6)      Highlands Indebtedness...................................36
   Section 5.6  Existence; Maintenance of Properties..........................36
   Section 5.7  Insurance.....................................................36
   Section 5.8  Taxes.........................................................37
   Section 5.9  Inspection of Properties and Books............................37
   Section 5.10  Compliance with Laws, Contracts, Licenses, and Permits.......37
   Section 5.11  Further Assurances...........................................38

ARTICLE 6         NEGATIVE COVENANTS..........................................38
   Section 6.1  Amendments....................................................38
   Section 6.2  Optional Redemption...........................................39
   Section 6.3  Restrictions on Indebtedness..................................39
   Section 6.4  Restrictions on Liens Etc.....................................40
   Section 6.5  Restrictions on Investments...................................41
   Section 6.6  Merger, Consolidation.........................................42
   Section 6.7  Sale and Leaseback............................................42
   Section 6.8  Compliance with Environmental Laws............................42
   Section 6.9  Distributions.................................................44
   Section 6.10  Asset Sales..................................................44
   Section 6.11  [Reserved]...................................................44
   Section 6.12  [Reserved] ..................................................44
   Section 6.13  Restriction on Prepayment of Indebtedness....................44
   Section 6.14  [Reserved]...................................................45
   Section 6.15  Restrictions Upon Modes and Interest Periods for Bonds.......45
   Section 6.16  Accounting Methods and Fiscal Year...........................45
   Section 6.17  Financial Covenants of WRP...................................45
            (1)      Minimum Shareholder's Equity.............................45
            (2)      Consolidated EBITDA .....................................45
   Section 6.18  Official Statement and Other Documents.......................45
   Section 6.19  Remarketing..................................................45
   Section 6.20  Substitute Credit Facility...................................46
   Section 6.21  Remarketing Agent and Bond Trustee...........................46

ARTICLE 7         EVENTS OF DEFAULT...........................................46
   Section 7.1  Events of Default.............................................46
   Section 7.2  Rights and Remedies...........................................50

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ARTICLE 8         NATURE OF OBLIGATIONS; INDEMNIFICATION......................50
   Section 8.1  Obligations Absolute..........................................50
   Section 8.2  Continuing Obligation.........................................51
   Section 8.3  Liability of the Bank.........................................51
   Section 8.4  Indemnification...............................................52
   Section 8.5  Telecopied Documents..........................................53

ARTICLE 9         ISSUANCE, TRANSFER, REDUCTION
                  OR EXTENSION OF LETTER OF CREDIT............................53
   Section 9.1  Issuance......................................................53
   Section 9.2  Transfer, Reduction and Reinstatement.........................53

ARTICLE 10        MISCELLANEOUS...............................................53
   Section 10.1  Right of Setoff..............................................53
   Section 10.2  Amendments and Waivers.......................................54
   Section 10.3  No Waiver; Remedies..........................................54
   Section 10.4  Notices......................................................54
   Section 10.5  Severability.................................................56
   Section 10.6  GOVERNING LAW................................................56
   Section 10.7  Consent to Jurisdiction and Venue, Etc.......................56
   Section 10.8  Headings.....................................................57
   Section 10.9  Participation................................................57
   Section 10.10  Issuing Branch of the Bank..................................57
   Section 10.11  Counterparts................................................57
   Section 10.12  Complete and Controlling Agreement..........................57
   Section 10.13  WAIVER OF JURY TRIAL........................................57
   Section 10.14  Assignability to Federal Reserve............................58
   Section 10.15  Subrogation and Subordination...............................58
            (1)  Subrogation..................................................58
            (2)  Subordination................................................59

TESTIMONIUM...................................................................
                                                                              --

SIGNATURES...................................................................S-1

BANK BOSTON CONSENTS.........................................................S-2

Exhibit A - Irrevocable Letter of Credit

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     THIS  LETTER  OF  CREDIT   REIMBURSEMENT   AGREEMENT  (this  "REIMBURSEMENT
AGREEMENT")  is executed  and  entered  into as of June 16,  2000,  by and among
PALOMINO PARK PUBLIC  IMPROVEMENT  CORPORATION  (the "BOND ISSUER"),  a Colorado
nonprofit  corporation,  WELLSFORD REAL PROPERTIES,  INC.,  ("WRP"),  a Maryland
corporation  (collectively,  the Bond  Issuer and WRP are  referred to herein as
"ACCOUNT PARTIES"),  and COMMERZBANK,  AG, a banking  corporation  organized and
existing  under  the laws of The  Federal  Republic  of  Germany,  acting by and
through its New York Branch (the "BANK").  All capitalized terms used herein and
not otherwise  defined in  connection  with such use shall have the meanings set
forth in Article 1.

     WHEREAS,  (a) the Bond Issuer issued,  at the request of Wellsford REIT and
its subsidiary, Park at Highlands, LLC, a Colorado limited liability company and
pursuant to the Bond  Indenture,  its "PALOMINO PARK PUBLIC  IMPROVEMENTS  CORP.
ASSESSMENT  LIEN REVENUE BONDS SERIES 1995 -  $14,755,000"  (the  "BONDS"),  the
proceeds of which was used primarily to finance certain water, sewer, street and
park facilities for Park at Highlands  Ranch,  Phase I of which is owned by Park
at  Highlands  LLC, and (b) Park at  Highlands  LLC entered into the  Assessment
Agreement and the Assessment and Lien to support repayment of the Bonds; and

     WHEREAS,  to  enhance  the  marketability  of  the  Bonds  and  to  provide
additional security for the repayment of the Bonds,  Account Party has requested
that the Bank issue the Letter of Credit to secure  certain  payments to be made
with respect to the Bonds in the amount of $15,773,702, of which (subject to the
terms of the Letter of Credit) $14,755,000 will be available to pay principal of
the Bonds either at maturity or upon  redemption or  acceleration  thereof or to
pay the portion of the purchase price of Bonds representing the principal amount
thereof, and of which $1,018,702  (representing 210 days interest on the initial
outstanding principal amount of Bonds,  calculated at a maximum interest rate of
12% per annum  computed on the basis of a year of 365 days) will be available to
pay  interest on the Bonds as interest  becomes due or to pay the portion of the
purchase price of the Bonds representing the accrued interest thereon; and

     WHEREAS,  WRP succeeded from Wellsford REIT certain  interests with respect
to the Bonds pursuant to the Assignment Agreement; and

     WHEREAS,  the  Letter of Credit is  issued to  substitute  the  Irrevocable
Letter of Credit No.  967-95  issued by Dresdner  Bank AG, New York Branch dated
December 20, 1995 pursuant to Section 5.15(b) of the Bond Indenture; and

     WHEREAS,  to secure its  obligations  to the Bank under this  Reimbursement
Agreement and the Related Documents,  Account Parties substantially concurrently
herewith are executing and delivering to the Bank the Pledge Agreement; and

     WHEREAS, in order to further evidence and secure the obligations of Account
Parties  to  the  Bank  under  this  Reimbursement  Agreement  and  the  Related
Documents,  WRP and the Bond Issuer concurrently herewith are each executing and
delivering to the Bank their Promissory Notes.

<PAGE>

     NOW, THEREFORE,  in consideration of the agreements set forth herein and in
order to induce  the Bank to issue the Letter of  Credit,  the Bank and  Account
Parties agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

     SECTION 1.1  DEFINITIONS.  In addition to terms  defined at other places in
this  Reimbursement  Agreement,  the following defined terms are used throughout
this Reimbursement Agreement with the following meanings:

     "ACCOUNT  PARTIES" means the Bond Issuer and WRP  collectively  and jointly
and severally.

     "ACCOUNTANT" means an independent  certified public accountant or a firm of
independent  certified public  accountants,  selected by WRP and satisfactory to
the Bank.

     "AFFILIATE"  means  a  corporation,  partnership,  joint  venture,  limited
liability company, limited liability partnership, association, business trust or
similar entity  organized  under the laws of the United States of America or any
state  thereof which is directly or  indirectly  controlled  by any Person.  For
purposes of this  definition,  control means the power to direct the  management
and policies of a Person  through the  ownership  directly or  indirectly of not
less than a majority of its voting securities or the right to designate or elect
not less than a  majority  of the  members  of its board of  directors  or other
governing board or body by law, contract or otherwise.

     "ASSESSMENT  AGREEMENT" means the Assessment Agreement dated as of December
1, 1995 by and between the Bond Issuer and Park at Highlands LLC, including such
amendments,  modifications  or supplements  permitted  pursuant to its terms and
Section 6.1.

     "ASSESSMENT  AND LIEN" means the Public  Improvements  Assessment  and Lien
dated  as of  December  1,  1995 by and  between  the  Bond  Issuer  and Park at
Highlands LLC, including such amendments, modifications or supplements permitted
pursuant to its terms and Section 6.1

     "ASSET  VALUE"  means  the  purchase   price  of  Real  Estate   (including
improvements) and ordinary related purchase transaction costs, without deduction
for  depreciation.  If the  Real  Estate  is  purchased  as a part of a group of
properties,  the  Asset  Value  shall  be  calculated  based  upon a  reasonable
allocation  by WRP  of the  aggregate  purchase  price  among  all  Real  Estate
purchased in such transaction.

     "ASSIGNMENT   AGREEMENT"  means  that  certain  Assignment  and  Assumption
Agreement, dated as of May 30, 1997, by and between Wellsford REIT and WRP.

     "BALANCE SHEET DATE" means "March 31, 2000".

<PAGE>

     "BANK" means Commerzbank AG, a banking  corporation  organized and existing
under the laws of The Federal Republic of Germany, acting by and through its New
York Branch.

     "BANKING ARRANGEMENTS" means the agreements of the Bank and Account Parties
set forth in this  Reimbursement  Agreement  and the  transactions  contemplated
thereby, including,  without limitation, (a) any commitment to extend credit, to
issue any letter of credit or other  credit or liquidity  facility,  to purchase
any obligation of or for the benefit of and of the Account Parties, or to extend
any other financial accommodation, (b) any issuance, extension or maintenance of
any of the foregoing, and (c) any pledge, purchase or carrying of any obligation
of or for the benefit of any of the Account Parties.

     "BASE RATE" means,  at any time,  the higher of (i) the Prime  Lending Rate
and (ii) one half of one percent  (0.5%) above the Federal Funds  Effective Rate
(rounded  upwards,  if necessary,  to the next  one-eighth of one percent);  any
change in the rate of interest payable hereunder  resulting from a change in the
rates defined in this subsection (a) shall become effective as of the opening of
business on the day on which such change in the rate becomes effective.

     "BOND  INDENTURE"  means the Trust  Indenture dated as of September 1, 1995
between  the  Bond  Issuer  and the Bond  Trustee,  including  such  amendments,
modifications  or  supplements  permitted  pursuant  to its terms and  permitted
hereunder.

     "BOND  ISSUER"  means  Palomino  Park Public  Improvements  Corporation,  a
Colorado nonprofit corporation, and the issuer of the Bonds.

     "BOND PURCHASE  CONTRACT" means the Placement  Agency Agreement dated as of
December 20, 1995 between the Bond Issuer and First  Interstate Bank of Arizona,
including such amendments,  modifications or supplements  permitted  pursuant to
its terms and Section 6.1.

     "BOND  TRUSTEE"  means  United  States  Trust  Company  of New  York or its
permitted  successor  as  trustee  under  the Bond  Indenture  and as  permitted
hereunder.

     "BONDS" means the Palomino Park Public  Improvements Corp.  Assessment Lien
Revenue Bonds Series 1995-$14,755,000.

     "BUSINESS  DAY" means any day other than (i) a Saturday  or Sunday,  (ii) a
day on which  commercial  banks in Denver,  Colorado,  New York, New York or the
city or cities in which are located the principal corporate trust offices of the
Bond  Trustee  and the  Remarketing  Agent  and the  office of the Bank at which
demands  for  payment  under  the  Letter  of  Credit  are to be  presented  are
authorized  or required by law or  executive  order to close,  or (iii) a day on
which the New York Stock Exchange is closed.

     "CAPITAL  IMPROVEMENT  RESERVE"  means as to any Person for any period,  an
amount equal to fifteen  cents  ($0.15)  multiplied  by the weighted  average of
rentable square footage of Real Estate owned by such Person and its Subsidiaries
during such period.

     "CERCLA" has the meaning set forth in Section 4.18(1).

<PAGE>

     "CLOSING  DATE"  means the date on which the  executed  Letter of Credit is
delivered to the Bond Trustee.

     "CODE"  means the Internal  Revenue  Code of 1986,  as amended from time to
time, and all rules and regulations from time to time promulgated thereunder.

     "COLLATERAL" has the meaning set forth in Section 4.29.

     "COMPLIANCE CERTIFICATE" has the meaning set forth in Section 5.4(d).

     "CONSOLIDATED EBITDA" means, with respect to any period, an amount equal to
the  EBITDA  of WRP  and its  Subsidiaries  for  such  period,  consolidated  in
accordance with generally accepted accounting principles.

     "CONSOLIDATED  OPERATING CASH FLOW" means,  with respect to any period,  an
amount equal to the Operating Cash Flow of such Person and its  Subsidiaries for
such period  consolidated  in  accordance  with  generally  accepted  accounting
principles.

     "CONSOLIDATED  TOTAL  ASSETS"  means as to WRP,  all  assets of WRP and its
Subsidiaries  determined on a  consolidated  basis in accordance  with generally
accepted  accounting  principles.   All  Real  Estate  shall  be  valued  on  an
undepreciated cost basis.

     "CONSOLIDATED  TOTAL  LIABILITIES"  means  all  liabilities  of WRP and its
Subsidiaries  determined on a  consolidated  basis in accordance  with generally
accepted accounting principles and all Indebtedness of WRP and its Subsidiaries,
whether or not so classified,  excluding those certain contingent liabilities of
WRP and its  Subsidiaries  pursuant to (i) that certain  Indemnity  and Guaranty
Agreement  ($300,000,000  Loan)  dated  as of  July  16,  1998,  from  Wellsford
Commercial  Properties Trust ("WCPT") and WHWEL Real Estate Limited  Partnership
("WHWEL") in favor of Fleet National Bank (f/k/a BankBoston, N.A.), individually
and as Agent, and certain other lenders,  (ii) that certain Conditional Guaranty
of Payment ($300,000,000 Loan) dated as of July 16, 1998, from WRP, WCPT, WHWEL,
Whitehall Street Real Estate Limited  Partnership V ("Whitehall  V"),  Whitehall
Street Real Estate Limited  Partnership VI ("Whitehall  VI"),  Whitehall  Street
Real Estate Limited Partnership VII ("Whitehall VII"), and Whitehall Street Real
Estate Limited  Partnership VIII  ("Whitehall  VIII") in favor of Fleet National
bank (f/k/a  BankBoston,  N.A.),  individually  and as Agent , and certain other
lenders,  (iii) that certain Indemnity and Guaranty Agreement ($75,000,000 Loan)
dated as of July 16, 1998,  from WCPT and WHWEL in favor of Fleet  National Bank
(f/k/a

<PAGE>

BankBoston,  N.A.),  individually and as Agent, and certain other lenders,  (iv)
that certain Mezzanine  Conditional Guaranty of Payment ($75,000,000 Loan) dated
as of July 16, 1998, from WRP, WCPT, WHWEL, Whitehall V, Whitehall VI, Whitehall
VII,  and  Whitehall  VIII in favor of Fleet  National  Bank (f/k/a  BankBoston,
N.A.),  individually  and as Agent,  and  certain  other  lenders,  and (v) that
certain  Nomura  Conditional  Guaranty  of  Payment   ($75,000,000   Loan-Nomura
Properties)  dated as of July 16,  1998,  from WRP,  WCPT,  WHWEL,  Whitehall V,
Whitehall VI,  Whitehall VII, and Whitehall VIII in favor of Fleet National Bank
(f/k/a BankBoston, N.A.) individually and as Agent and certain other lenders, as
the same have been or may  hereafter  be modified  or amended  from time to time
(collectively,   the  Contingent  Obligations")  provided,   however,  it  being
acknowledged and agreed that any Contingent  Obligation that becomes  liquidated
or is no longer contingent shall no longer be considered a Contingent Obligation
and shall no longer be  excluded  from the  calculation  of  Consolidated  Total
Liabilities.

     "COUNSEL"  means an  attorney  duly  admitted  to  practice  law before the
highest court of any state or the District of Columbia.

     "Debentures"  means the 8.25% convertible  junior  suboridnated  debentures
issued by WRP under that certain  Indenture  dated as of May 5, 2000 between WRP
and Wilmington Trust Company.

     "DEED OF TRUST"  means  that  certain  Deed of Trust,  Security  Agreement,
Financing Statement, and Assignment of Leases from the Bond Issuer to The Public
Trustee of Douglas County, Colorado for the use of the Bond Trustee and the Bank
dated December 1, 1995, including such amendments,  modifications or supplements
permitted pursuant to its terms and Section 6.1.

     "DEED OF TRUST AMENDMENT" means the First Supplement to Deed of Trust dated
June 16, 2000.

     "DEFAULT" means the occurrence of any event which with the giving of notice
or the passage of time or both would constitute an Event of Default.

     "DEFAULT RATE" means the Base Rate plus two percent (2.00%) per annum.  The
Default Rate shall change as and when the Base Rate changes.

     "DEVELOPMENT"   means  The  Park  at  Highlands   Ranch,  a  master-planned
residential community in Denver,  Colorado,  comprising  approximately 182 acres
planned for development in five phases.

     "DISTRIBUTION"  means  the  declaration  or  payment  of  any  dividend  or
distribution  on or in  respect of any  shares of common  stock or other  equity
interests of WRP, other than dividends or distributions payable solely in equity
securities  of  such  Person;  the  purchase,  redemption,   exchange  or  other
retirement  of any  shares of common  stock or other  equity  interests  of WRP,
directly or indirectly  through a Subsidiary  of such Person or  otherwise;  the
return of capital by WRP to its shareholders; or any other distribution on or in
respect of any shares of common stock or other equity interests of WRP.

     "DISTRICT"  means  Highlands  Ranch  Metropolitan  District  No. 2, Douglas
County, Colorado, a quasi-municipal  corporation organized under the laws of the
State of Colorado.

     "DRAWING"  means an  Interest  Drawing,  a Principal  Drawing,  an Interest
Purchase Drawing or a Principal Purchase Drawing.

<PAGE>

     "DRAWING DATE" has the meaning set forth in Section 2.1(l).

     "EBITDA" means, with respect to any Person (or any asset of any Person) for
any period,  an amount equal to the sum of (a) the Net Income of such Person (or
attributable  to such  asset)  for such  period  plus (b)  Taxes,  depreciation,
amortization,  interest expense,  and any extraordinary or non-recurring  losses
deducted  in  calculating  such  Net  Income  minus  (c)  any  extraordinary  or
non-recurring gains included in calculating such Net Income.

     "ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.18(1).

     "EPA" has the meaning set forth in Section 4.18(2).

     "EQUITY  OFFERING"  means the issuance and sale by WRP of any of its equity
securities.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended  from  time to time,  and all rules  and  regulations  from time to time
promulgated thereunder.

     "ERISA AFFILIATE"  means,  with respect to any Person,  any Person which is
treated as a single employer with such Person under ss. 414 of the Code.

     "ERISA  REPORTABLE  EVENT"  means a  reportable  event  with  respect  to a
Guaranteed  Pension  Plan  within  the  meaning  of ss.  4043 of  ERISA  and the
regulations promulgated thereunder as to which the requirement of notice has not
been waived.

     "EVENT OF DEFAULT" means any of the events defined as such in Section 7.1.

     "EXPIRATION  DATE" means the date on which the Letter of Credit  terminates
or expires as described under paragraph 1 of the Letter of Credit.

     "FEDERAL  FUNDS  EFFECTIVE  RATE"  means,  for any day, the rate per annum,
equal  to  the  weighted  average  of  the  rates  of  overnight  federal  funds
transactions  with  members of the Federal  Reserve  System  arranged by federal
funds  brokers as published  for such day (or if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day that is a Business Day, the average
of the  quotations for such day on such  transactions  received by the Bank from
three (3) federal funds brokers of recognized standing selected by the Bank.

     "FINAL LC LOAN PAYMENT DATE" has the meaning set forth in Section 2.2(l).

     "FIXED RATE PERIOD" has the meaning assigned in the Bond Indenture.

     "FUNDS FROM  OPERATIONS"  means,  with respect to any Person for any fiscal
period,  the net income (or deficit) of such Person  computed in accordance with
generally accepted  accounting  principles,  excluding financing costs and gains
(or losses) from debt restructuring and sales of property, plus depreciation and
amortization and other non-cash items.

<PAGE>

     "GUARANTOR"  means ERP Operating Limited  Partnership,  an Illinois limited
partnership.

     "GUARANTY"  means that certain  Guaranty  dated as of June 16, 2000 made by
the Guarantor in favor of the Bank.

     "HAZARDOUS SUBSTANCE" has the meaning set forth in Section 4.18(2).

     "HIGHLANDS"  means  Wellsford  Park  Highlands   Corporation,   a  Colorado
corporation and a Subsidiary of WRP.

     "IMPLIED  RATING" means,  with respect to a Person,  the most recent rating
issued  from  time to time  by the  Rating  Agencies  as is  applicable  to such
Person's  senior  unsecured  long-term  debt,  or if no  such  senior  unsecured
long-term debt is  outstanding,  then the most recent rating issued from time to
time by the  Rating  Agencies  as would  hypothetically  be  applicable  to such
Person's senior unsecured long-term debt (I.E., an implied rating).

     "INDEBTEDNESS"  means all  obligations,  contingent and otherwise,  that in
accordance with generally  accepted  accounting  principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made  by  footnotes  thereto,  including  in any  event  and  whether  or not so
classified  (a) all debt and similar  monetary  obligations,  whether  direct or
indirect ( including,  without limitation,  any obligations  evidenced by bonds,
debentures,  notes or similar debt instruments and the obligations  described in
Section 6.3(i); (b) all liabilities  secured by any mortgage,  pledge,  security
interest,  lien,  charge or other  encumbrance  existing  on  property  owned or
acquired  subject  thereto,  whether or not the liability  secured thereby shall
have  been  assumed;  (c) all  guarantees,  endorsements  and  other  contingent
obligations  whether  direct or indirect in respect of  Indebtedness  of others,
including any  obligation to supply fund to or in any manner to invest  directly
or indirectly in a Person, to purchase  Indebtedness,  or to assure the owner of
Indebtedness  against loss through an agreement to purchase  goods,  supplies or
services  for  the  purpose  of  enabling  the  debtor  to make  payment  of the
indebtedness  held by such owner or otherwise,  and the  obligation to reimburse
the issuer in respect of any letter of credit;  (d) all  obligations to purchase
under  agreements to acquire,  or otherwise to contribute money with respect to,
properties  under  "development"  within  the  meaning of  Section  6.11;  (e) a
Person's  pro  rata  share  of  any of the  above-described  obligations  of its
unconsolidated  affiliates;  and (f) all  amounts  available  to be drawn  under
letters of credit, including but not limited to, the Letter of Credit.

     "INDEMNIFIED PARTY" has the meaning set forth in Section 8.4.

     "INDENTURE   SUPPLEMENT"  means  that  certain  First  Amendment  to  Trust
Indenture,  dated  as of May 30,  1997,  between  the Bond  Issuer  and the Bond
Trustee.

     "INTEREST  DRAWING" means a drawing under the Letter of Credit  pursuant to
an Interest Drawing,  as defined in the Letter of Credit, to pay interest on the
Bonds when due.

     "INTEREST PAYMENT DATE" means the 1st day of each month.

<PAGE>

     "INTEREST PURCHASE DRAWING" means the portion of a drawing under the Letter
of Credit pursuant to a Purchase Drawing, as defined in the Letter of Credit, to
pay the portion of the purchase price of Bonds representing  accrued interest on
Bonds to be purchased.  The Interest  Purchase Drawing for each Purchase Drawing
is set forth in paragraph  3(b) of the  certificate  submitted  for the Purchase
Drawing.

     "INTEREST RATE  PROTECTION  AGREEMENT"  means an interest rate swap, cap or
collar  agreement  or similar  arrangement  between  any Person and a  financial
institution  providing for the transfer or  mitigation of interest  risks either
generally or under specific  contingencies.  For purposes hereof, the "exposure"
at any time of any Person under an Interest Rate  Protection  Agreement to which
such Person is a party shall be determined  at such time in accordance  with the
standard  methods of  calculating  such exposure under similar  arrangements  as
prescribed  from time to time by the Bank,  taking into  account the  respective
termination provisions set forth therein, the notional principal amount and term
thereof and assuming  that U.S.  Treasury  rates  generally are equal to the per
annum rate of interest  which the Bank at such time  determines to be the lowest
U.S. Treasury rate likely to occur in the relevant period following such date.

     "INVESTMENTS"  means,  with  respect to any  Person,  all shares of capital
stock,  evidences  of  Indebtedness  and  other  securities  issued by any other
Person, all loans, advances, or extensions of credit to, or contributions to the
capital of, any other  Person,  all  purchases of the  securities or business or
integral part of the business of any other Person and commitments and options to
make such purchases,  all interest in real property,  and all other investments;
provided,  however,  that the term "Investment" shall not include (i) equipment,
inventory and other tangible  personal  property acquired in the ordinary course
of business, or (ii) current trade and customer accounts receivable for services
rendered in the  ordinary  course of business  and  payable in  accordance  with
customary  trade terms.  In  determining  the  aggregate  amount of  Investments
outstanding at any particular time: (a) the amount of any investment represented
as a  guaranty  shall  be taken at not less  than the  principal  amount  of the
obligations guaranteed and still outstanding;  (b) there shall be included as an
Investment all interest  accrued with respect to indebtedness  constituting  and
Investment  unless and until such interest is paid;  (c) there shall be deducted
in respect of each such  Investment  any amount  received as a return of capital
(but only by repurchase, redemption, retirement, repayment, liquidating dividend
or liquidating distribution);  (d) there shall not be deducted in respect of any
Investment  any amounts  received as  earnings  on such  Investment,  whether as
dividends,  interest or  otherwise,  except that  accrued  interest  included as
provided in the foregoing  clause (b) may be deducted  when paid;  and (e) there
shall not be deducted from the aggregate  amount of Investments  any decrease in
the value thereof.

     "LC LOAN" has the meaning set forth in Section 2.2.

     "LC LOAN ELIGIBILITY DATE" has the meaning set forth in Section 2.2

     "LETTER OF CREDIT" means the Letter of Credit No.  150SBY0030064  issued by
the Bank  dated June 16,  2000,  including  such  amendments,  modifications  or
supplements permitted pursuant to its terms and Section 6.1.

<PAGE>

     "LIENS" has the meaning set forth in Section 6.4.

     "LIQUIDITY  DRAWING" means a Drawing made pursuant to a Purchase Drawing on
the Letter of Credit, but only to the extent such amounts have not yet become an
LC Loan.

     "MATERIAL  SUBSIDIARY"  means a  Subsidiary  of a Person  whose net  worth,
determined  in  accordance  with  generally   accepted   accounting   principles
consistently applied, equals or exceeds 10% of the net worth of such Person.

     "MOODY'S" means Moody's Investors Service, Inc. or its successors.

     "NET INCOME (OR DEFICIT)"  means,  with respect to any Person (or any asset
of any Person) for any fiscal period, the net income (or deficit) of such Person
(or  attributable  to such asset),  after  deduction of all expenses,  taxes and
other  proper  charges,   determined  in  accordance  with  generally   accepted
accounting principles.

     "OFFICIAL STATEMENT" means collectively, the Preliminary Official Statement
and the Official Statement used in connection with the sale of the Bonds.

     "OPERATING  AGREEMENT" means the Operating Agreement dated December 1, 1995
by and between  the Bond Issuer and the  District,  including  such  amendments,
modifications or supplement permitted pursuant to its terms and Section 6.1.

     "PALOMINO  ENTITIES" means Highlands,  Red Canyon, Park at Highlands LLC, a
Colorado limited liability company, Silver Mesa at Palomino Park LLC, a Colorado
limited liability company,  Green River at Palomino Park LLC, a Colorado limited
liability  company  and Gold Peak at  Palomino  Park  LLC,  a  Colorado  limited
liability company.

     "PARTICIPANT(S)" means any bank(s) or other financial  institution(s) which
may  purchase a  participation  interest  from the Bank in the Letter of Credit,
this Reimbursement  Agreement and certain of the Related Documents pursuant to a
participation or similar agreement among the Bank and the Participant(s).

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

     "PERMITTED LIENS" means liens,  security  interests and other  encumbrances
permitted by Section 6.4.

     "PERSON" means any natural person, corporation,  partnership,  association,
trust,  joint venture,  public body,  limited  liability  company or other legal
entity.

     "PHASE I OF THE  DEVELOPMENT"  means  the first  phase of the  Development,
consisting  of 456  units,  a 30-acre  park and the  Public  Improvements  to be
constructed  on the real property  described on Exhibit A of the  Assessment and
Lien.

     "PLAN" has the meaning set forth in Section 4.16.

<PAGE>

     "PLEDGE  AGREEMENT" means the Bond Pledge and Security  Agreement  attached
hereto as Exhibit B dated as of the date  hereof by and among  Account  Parties,
the  Bank  and the  Bond  Trustee,  as  custodian,  including  such  amendments,
modifications or supplements permitted pursuant to its terms and Section 6.1.

     "PLEDGED  BONDS" means Bonds which have been purchased with the proceeds of
a Purchase Drawing on the Letter of Credit and are pledged to the Bank under the
Pledge Agreement.

     "PRIME  LENDING  RATE" means the rate as announced by the Bank from time to
time as its prime  lending  rate,  the Prime  Lending Rate to change when and as
such prime lending rate changes.  The Prime Lending Rate is a reference rate and
does not necessarily  represent the lowest or best rate actually  charged to any
customer.  The Bank may make commercial  loans or other loans at, above or below
the Prime Lending Rate.

     "PRINCIPAL  DRAWING" means a drawing under the Letter of Credit pursuant to
a Principal Drawing, as defined in the Letter of Credit, to pay principal of the
Bonds.

     "PRINCIPAL  PURCHASE  DRAWING"  means a drawing  under the Letter of Credit
pursuant to a Purchase  Drawing,  as defined in the Letter of Credit, to pay the
portion of the purchase  price of Bonds  representing  the  principal  amount of
Bonds to be purchased.  The Principal Purchase Drawing for each Purchase Drawing
is set forth in paragraph  3(a) of the  certificate  submitted for such Purchase
Drawing.

     "PROMISSORY  NOTES"  means  the  promissory  notes  of even  date  herewith
attached  hereto as Exhibit C-1 and C-2 made by WRP and the Bond Issuer in favor
of the Bank, including such amendments,  modifications or supplements  permitted
pursuant to Section 6.1.

     "PUBLIC IMPROVEMENTS" has the meaning assigned in the Bond Indenture.

     "PURCHASE DRAWING" means a drawing under the Letter of Credit pursuant to a
Purchase Drawing, as defined in the Letter of Credit, to purchase Bonds that are
tendered or deemed tendered.

     "RATE MODE" has the meaning assigned in the Bond Indenture.

     "RATE PERIOD" means each Weekly Rate Period, Term Rate Period or Fixed Rate
Period, as applicable.

     "RATING  AGENCY"  means  Standard  & Poor's,  Moody's or any  successor  or
additional rating agency that rates the Bonds at the written request of the Bond
Issuer  with  the  written  consent  of the  Bank,  which  consent  will  not be
unreasonably withheld.

     "RATING NOTICE" has the meaning set forth in Section 5.4(i).

     "RCRA" has the meaning set forth in Section 4.18(1).

<PAGE>

     "REAL  ESTATE"  means all real  property  at any time  owned or leased  (as
lessee or sublessee) by WRP or any of its Subsidiaries.

     "RED  CANYON"  means Red Canyon at  Palomino  Park LLC, a Colorado  limited
liability company.

     "REIMBURSEMENT   AGREEMENT"  means  this  Letter  of  Credit  Reimbursement
Agreement,  including such amendments,  modifications  or supplements  permitted
pursuant to Section 10.2..

     "RELATED  DOCUMENTS"  means  this  Reimbursement  Agreement,  the Letter of
Credit, the Bond Indenture, the Remarketing Agreement, the Promissory Notes, the
Pledge  Agreement,   the  Bonds,  the  Bond  Purchase  Contract,  the  Operating
Agreement, the Assessment Agreement, the Deed of Trust, the Assessment and Lien,
the Assignment Agreement,  the Guaranty, the Indenture Supplement,  and the Deed
of Trust Amendment,  and, in each case, all exhibits,  instruments or agreements
relating to each.

     "RELEASE" has the meaning set forth in Section 4.18(3).

     "REMARKETING AGENT" means the remarketing agent at the time serving as such
under the Remarketing Agreement on the date of this Reimbursement Agreement.

     "REMARKETING  AGREEMENT"  means the  Remarketing  Agreement dated as of the
date hereof between the Bond Issuer and the  Remarketing  Agent,  including such
amendments,  modifications  or supplements  permitted  pursuant to its terms and
Section 6.1.

     "REVOLVING  CREDIT  AGREEMENT"  has  the  meaning  ascribed  to it  in  the
Guaranty.

     "SARA" has the meaning set forth in Section 4.18(1).

     "SEC" means the federal Securities and Exchange Commission.

     "SHAREHOLDER'S   EQUITY"  means,  at  any  date,  the  total   consolidated
shareholder's equity of WRP and its Subsidiaries,  determined in conformity with
generally accepted accounting principles consistently applied.

     "SHORT-TERM  INVESTMENTS"  means  investments  described in subsections (a)
through (g),  inclusive,  of Section 6.5. For all purposes of this Reimbursement
Agreement and the other Related Documents,  the value of Short-Term  Investments
at any time shall be the current  market value  thereof  determined  in a manner
reasonably satisfactory to the Bank.

     "STANDARD & POOR'S" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., or its successors.

     "STATED  AMOUNT" has the meaning  given to such term in  paragraph 2 of the
Letter of Credit.

<PAGE>

     "SUBSIDIARY"  means  any  corporation,   association,  partnership,  trust,
limited  liability  company or other business or other legal entity of which the
designated  parent  shall at any time  own  directly  or  indirectly  through  a
Subsidiary  or  Subsidiaries  at  least  a  majority  (by  number  of  votes  or
controlling interests) of the outstanding Voting Interests.

     "TAXES"  means all taxes,  however  denominated,  including  any  interest,
penalties,  or other  additions to tax that may become due or payable in respect
thereof,  imposed  by  any  federal,  territorial,   state,  local,  or  foreign
government or any agency or political subdivision of any such government,  which
taxes shall  include,  without  limiting the  generality of the  foregoing,  all
income  taxes or profit taxes  (including,  but not limited to,  federal  income
taxes  and  state  income  taxes),   payroll  and  employee  withholding  taxes,
unemployment  insurance,  social security taxes, sales and use taxes, ad valorem
taxes,  excise taxes,  franchise  taxes,  gross receipt taxes,  business license
taxes,  occupation  taxes,  real  and  personal  property  taxes,  stamp  taxes,
environmental taxes,  transfer taxes, workers'  compensation,  PBGC premiums and
other  governmental  charges,  and other obligations of the same or of a similar
nature to any of the foregoing, which WRP is assessed, required to pay, withhold
or collect for any period.

     "TERM RATE PERIOD" has the meaning assigned in the Bond Indenture.

     "TEST PERIOD" means the period of four  consecutive  fiscal quarters ending
on the applicable date.

     "VOTING INTEREST" means stock,  partnership or similar ownership interests,
of any class or classes  (however  designated),  the holders of which are at the
time  entitled,  as such holders,  (a) to vote for the election of a majority of
the  directors (or persons  performing  similar  functions) of the  corporation,
association,  partnership,  trust or other business entity  involved,  or (b) to
control,  manage,  or conduct  the  business  of the  corporation,  partnership,
association, trust or other business entity involved.

     "WEEKLY RATE PERIOD" has the meaning assigned in the Bond Indenture.

     "WRP  MATERIAL  SUBSIDIARIES"  means the  Palomino  Entities  and  Material
Subsidiaries of WRP.

     "WRP REIMBURSEMENT  AGREEMENT" means that certain  Reimbursement  Agreement
dated as of June 16, 2000  between the Bond  Issuer and WRP,  and all  exhibits,
instruments or agreements relating thereto or contemplated thereby.

     "WELLSFORD REIT" means Equity Residential Properties Trust, a Maryland real
estate investment trust formerly known as Wellsford  Residential  Property Trust
and the successor by merger dated May 30, 1997 of Equity Residential  Properties
Trust with and into Wellsford Residential Property Trust.

     "WRP" means Wellsford Real Properties, Inc., a Maryland corporation.

<PAGE>

     "WRP  CONSOLIDATED  DEBT  SERVICE"  means for any  period the sum of actual
interest expense and mandatory or scheduled  principal  payments due and payable
during such period with respect to the  Indebtedness of WRP and its Subsidiaries
consolidated  in  accordance  with  generally  accepted  accounting  principles,
consistently  applied,  excluding any balloon  payments due upon maturity of any
indebtedness,  amortized loan fees,  capitalized  interest,  any interest charge
incurred by any entity in which WRP or any of its  Subsidiaries  has an interest
of less than 50%, or over which WRP or any of its Subsidiaries does not exercise
voting  control and  excluding  any interest  payable with respect to Debentures
issued to WRP  Convertible  Trust.  For  purposes  of  clarification,  principal
payments of debt  becoming due as a result of  acceleration  of such debt solely
due to the  sale  of a  specific  condominium  will  not  counted  as  mandatory
principal payments for the purpose of calculating WRP Consolidated Debt Service.

     "WRP  Convertible  Trust" means WRP  Convertible  Trust I, a business trust
established pursuant to the laws of Delaware.

     SECTION 1.2 ACCOUNTING  MATTERS.  All accounting  terms used herein without
definition shall be interpreted in accordance with generally accepted accounting
principles,  and except as otherwise  expressly  provided  herein all accounting
determinations  required  to be made  pursuant to this  Reimbursement  Agreement
shall be made in accordance with generally accepted accounting principles.

     SECTION 1.3 INTERPRETATION.  All words used herein shall be construed to be
of such gender or number as the circumstances require. Reference to any document
means such  document as amended or  supplemented  from time to time as permitted
under Section 6.1 and in accordance with the terms of such document.

     SECTION 1.4  RELATION  TO OTHER  DOCUMENTS.  Nothing in this  Reimbursement
Agreement  shall be deemed to amend,  or to relieve any Account  Party of any of
its obligations under, any Related Document. To the extent any provision of this
Reimbursement  Agreement  conflicts  with any  provision  of any  other  Related
Document to which any Account Party or the Bank are parties,  the  provisions of
this Reimbursement Agreement shall control.

     SECTION  1.5  TIME  FOR  PERFORMANCE.  Time  is  of  the  essence  to  this
Reimbursement   Agreement  and  the   performance  of   obligations   hereunder.
Notwithstanding  the  immediately  preceding  sentence,  whenever any obligation
hereunder  shall be stated to be due on a day which is not a Business  Day, such
obligation  shall be due on the next  succeeding  Business Day (provided that if
the  obligation  involves the payment of money upon which  interest is accruing,
then the payment made on the next succeeding Business Day shall include interest
through such next succeeding Business Day).

                                    ARTICLE 2

                   REIMBURSEMENT, FEES AND PAYMENT PROVISIONS

     SECTION  2.1  SAME DAY  REIMBURSEMENT.  The  Account  Parties  jointly  and
severally agree to pay the Bank for the following:

          (1) Subject to the  provisions  of Section 2.2  relating to  Liquidity
     Drawing Amounts and LC Loans,  the Bank shall be reimbursed for all amounts
     advanced  by the Bank in  connection  with a Drawing  under  the  Letter of
     Credit by [2:00  p.m.],  New York time,  on the same day as the  Drawing is
     made under the Letter of Credit and honored by the Bank (a "DRAWING DATE");
     and

          (2)  To the  extent  permitted  by  law  all  amounts  required  to be
     reimbursed to the Bank pursuant to the foregoing clause (1) of this Section
     2.1 shall bear  interest at the Base Rate for three days from the date such
     amounts are required to be  reimbursed,  and thereafter at the Default Rate
     until paid in full. Such amounts shall be due and payable on demand.

     SECTION 2.2  REIMBURSEMENT  OF LIQUIDITY  DRAWING AMOUNTS AND LC LOANS. The
Account Parties agree that they shall reimburse the Bank for amounts drawn under
Liquidity  Drawings (the  "Liquidity  Drawing  Amounts") in accordance  with the
following provision of this Section 2.2:

          (1) At the written  request of both  Account  Parties  received by the
     Bank no later  than  8:00  a.m.  New  York  time on the  Business  Day next
     succeeding the Drawing Date (the "LC Loan  Eligibility  Date") stating that
     no Default  exists and is continuing or would result from the conversion of
     a  Liquidity  Drawing  into an LC Loan as set  forth  herein  and  that the
     representations   and   warranties   contained   in   Article  IV  of  this
     Reimbursement  Agreement are true and correct on and as of the date of such
     conversion as if made on and as of such date,  and  requesting a conversion
     to an LC Loan as set  forth  herein,  to the  extent  not  repaid  in full,
     including  interest  thereon in accordance  with Clause (2) of Section 2.1,
     Liquidity  Drawings  may be  converted  into a  short-term  loan under this
     Reimbursement  Agreement  (an  "LC  Loan").  From  and  after  the LC  Loan
     Eligibility  Date and until the LC Loans have been  repaid in full,  the LC
     Loans shall bear interest at the Base Rate plus one and one-quarter percent
     (1.25%) for the period commencing on the LC Loan Eligibility Date and ended
     fourteen days  following  the Drawing Date for the  Liquidity  Drawing that
     became such LC Loan, at the Base Rate plus one and one-half  percent (1.5%)
     for the next  fourteen days  thereafter,  and at the Base Rate plus one and
     three-quarters  percent  (1.75%) for the next fourteen days thereafter (the
     "Final LC Loan Payment  Date").  Interest on such LC Loans shall be payable
     in arrears on the earlier of each Interest  Payment Date or the  applicable
     Final LC Loan  Payment  Date.  On the Final LC Loan Payment Date for any LC
     Loan, such LC Loan shall be immediately due and payable in full,  including
     all accrued and unpaid interest. LC Loans may be prepaid in accordance with
     Section 2.4. Any Liquidity Drawing that is not

<PAGE>

     converted  into an LC Loan in accordance  with this Section 2.2(1) shall be
     due and  payable at the time,  and bear  interest  at the rate set forth in
     Section 2.1.

          (2) Notwithstanding the foregoing, all unreimbursed Liquidity Drawings
     and LC Loans shall be accelerated and become immediately due and payable on
     the first to occur of the end of the Final LC Loan Interest  Period (for LC
     Loans only) and the  Expiration  Date. To the extent  permitted by law, any
     unreimbursed  Liquidity  Drawings  or LC Loan,  and any  interest  accruing
     thereon,  that are not paid when due thereafter  shall bear interest at the
     Default  Rate.  While held by or for the  benefit of the Bank,  the Pledged
     Bonds  shall  bear  interest  at the Base Rate plus one and  three-quarters
     percent (1.75%).

     SECTION  2.3  LIMITATION  ON  INTEREST.  Notwithstanding  anything  in this
Reimbursement  Agreement to the  contrary,  all  agreements  between the Account
Parties and the Bank,  whether now  existing  or  hereafter  arising and whether
written or oral, are hereby limited so that in no contingency, whether by reason
of  acceleration of the maturity of any of the obligations to the Bank hereunder
or under any Related Document or otherwise,  shall the interest  contracted for,
charged or  received by the Bank exceed the  maximum  amount  permissible  under
applicable law. If, from any circumstance  whatsoever,  interest would otherwise
be payable to the Bank in excess of the  maximum  lawful  amount,  the  interest
payable  to the Bank  shall be reduced to the  maximum  amount  permitted  under
applicable  law;  and if from any  circumstance  the  Bank  shall  ever  receive
anything of value  deemed  interest by  applicable  law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal  balance of the  obligations to the Bank hereunder or
under the Related  Documents  (including  the period of any renewal or extension
thereof) so that the interest  thereon for such full period shall not exceed the
maximum  amount  permitted by  applicable  law.  This section  shall control all
agreements between the Account Parties and the Banks.

     SECTION 2.4  REMARKETING OF PLEDGED BONDS. As security for the amounts owed
to the Bank in order to reimburse the Bank for amounts drawn under the Letter of
Credit and interest  thereon  pursuant to Sections 2.1 and 2.2,  Account Parties
have granted to the Bank,  pursuant to the Pledge Agreement,  security interests
in all of its right,  title and  interest in and to the Pledged  Bonds.  Account
Parties shall take such further steps and execute such further  documents as the
Bank may from time to time request in order to more fully evidence,  perfect and
protect such security interests.  Account Parties shall have the right to effect
a release of Pledged  Bonds from such pledge and security  interest by paying or
prepaying  portions of the unreimbursed  Liquidity Drawing Amounts and/or unpaid
LC Loans in accordance with the following provisions:

          (1) Account  Parties  shall cause the Bond Trustee to provide the Bank
     with at least one (1) Business  Day's prior  written  notice or  telephonic
     notice  (confirmed  in writing) of: (a) Account  Parties'  intent to pay or
     prepay any Liquidity  Drawing Amounts or LC Loans; (b) the principal amount
     of Pledged Bonds to be released and the amounts of the required  payment or
     prepayment as  determined  pursuant to clause (2) of this Section 2.4 (with
     separate  designation  of the  principal,  interest and other amounts to be

<PAGE>

     included  in  the  payment  and/or  prepayment);  and  (c)  the  particular
     Liquidity  Drawing  Amounts and/or LC Loans which are to be prepaid and the
     particular  Pledged Bonds to be released.  The written  notice  required by
     this clause (1) shall be in the form of Exhibit I to the Letter of Credit.

          (2) As a condition to release of Pledged  Bonds for the Bank's  pledge
     and security interests, the Bank shall receive a payment in an amount equal
     to the sum of:

               (a) The amount of the Liquidity Drawings (irrespective of whether
          such amounts then  constitute  Liquidity  Drawing Amounts or LC Loans)
          under the Letter of Credit  made in  connection  with the  purchase of
          such Pledged Bonds, to the extent not previously paid;

               (b)  Interest  pursuant  to  Sections  2.1  and  2.2 on the  sums
          described  in  clause  (a) above to the date of such  payment,  to the
          extent not previously paid; and

               (c) Any other  amounts due and payable  under this  Reimbursement
          Agreement as of the date of such payment, to the extent not previously
          paid.

          (3) No amounts  received  by the Bank  pursuant  to clause (2) of this
     Section  2.4 shall be  applied  against  LC Loans  until  all  unreimbursed
     Liquidity  Drawing  Amounts  have  been  reimbursed  to the  Bank in  full,
     together  with any other amounts  required to be paid with respect  thereto
     pursuant to the said clause (2).  As among  outstanding  Liquidity  Drawing
     Amounts, payments received pursuant to clause (2) of this Section 2.4 shall
     be applied against  Liquidity  Drawing Amounts (and unpaid accrued interest
     thereon) in order based upon the time that the  Liquidity  Drawing  Amounts
     have been  outstanding,  starting with those Liquidity Drawing Amounts that
     have been outstanding the longest.

          (4) Upon  payment to the Bank of the sums  described  in clause (2) of
     this Section 2.4, and  acknowledgment  by the Bank of the receipt  thereof,
     the Bank or  designated  agent  shall  deliver to the Bond  Trustee (to the
     extent that the payment is on account of the  remarketing of the Bonds,  or
     for  delivery  to the Bond  Issuer,  to the extent  that the  payment is on
     account of a payment or prepayment of Liquidity Drawing Amounts or LC Loans
     other than in connection with a remarketing of Bonds) a principal amount of
     Pledged Bonds equal to the principal  amount of Liquidity  Drawings made in
     connection with the purchase of the Bonds,  and said Pledged Bonds shall be
     deemed  released  from the pledge and security  interests  under the Pledge
     Agreement.

     SECTION 2.5 TRANSFER/AMENDMENT FEE; DRAWING FEE.

     (1) Upon each  transfer  of the  Letter of  Credit in  accordance  with its
terms,  Account  Parties  agree to pay to the Bank  the sum of  $1,000  plus the
Bank's actual costs and expenses  associated with such transfer (and interest on
such  costs  and  expenses  from  the  date  expended  by the  Bank to the  date
reimbursed by Account  Parties at the interest  rate  specified in Section 2.2),
payable  on the date of such  transfer.  Upon each  amendment  of the  Letter of
Credit,

<PAGE>

this  Reimbursement  Agreement  or any of the  Related  Documents,  the  Account
Parties shall pay to the Bank such amendment  fees, plus the Bank's actual costs
and expenses  associated  with such  amendment  (and  interest on such costs and
expenses  from the date  expended by the Bank to the date  reimbursed by Account
Parties at the interest rate specified in Section 2.2), payable on the effective
date of such  amendment,  as shall be agreed upon by the Account Parties and the
Bank at such time; provided,  however, that no amendment fee shall be payable by
Account  Parties  solely by reason of a  reduction  in the Stated  Amount of the
Letter of Credit.

     (2) Account  Parties agree to pay a drawing fee (the "Drawing  Fee") to the
Bank on each  Drawing  Date in the amount of $150 for each  Drawing made on such
Drawing Date.

     SECTION 2.6 COSTS,  EXPENSES AND TAXES. (1) Account Parties agree to pay on
demand all costs and expenses in  connection  with the  preparation,  execution,
delivery  and  administration  of  this  Reimbursement  Agreement,  the  Related
Documents and any other documents which may be delivered in connection with this
Reimbursement   Agreement  and  the  Related   Documents,   including,   without
limitation,  the fees and  out-of-pocket  expenses  of counsel for the Bank with
respect  thereto  and with  respect  to  advising  the Bank as to its rights and
responsibilities  under this  Reimbursement  Agreement and the Related Documents
and all costs and expenses,  if any, in connection  with the enforcement of this
Reimbursement  Agreement,  the Related  Documents and such other documents which
may be delivered in connection with this Reimbursement  Agreement.  In addition,
Account  Parties shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution,  delivery, filing and
recording of this Reimbursement  Agreement, the Related Documents and such other
documents  and agrees to save the Bank  harmless  from and  against  any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.

     (2)  Notwithstanding  anything  herein  to  the  contrary,  if  any  future
applicable law or any amendment or modification of present  applicable law which
expression,  as used herein, includes statutes, rules and regulations thereunder
and legally  binding  interpretations  thereof by any competent  court or by any
governmental or other regulatory body or official with appropriate  jurisdiction
charged with the  administration  or the  interpretation  thereof and  requests,
directives,  instructions and notices at any time or from time to time hereafter
made upon or otherwise  issued to the Bank by any central bank or other  fiscal,
monetary or other authority (whether or not having the force of law), shall: (a)
subject the Bank to any tax,  levy,  impost,  duty,  charge,  fee,  deduction or
withholding  of any nature with  respect to this  Reimbursement  Agreement,  the
other Related  Documents,  or the Banking  Arrangements  (other than taxes based
upon or measured by the income or profits of the Bank), or (b) materially change
the basis of  taxation  (except  for  changes in taxes on income or  profits) of
payments to the Bank of the  principal  of or the interest on any Drawings or LC
Loans  or any  other  amounts  payable  to the  Bank  under  this  Reimbursement
Agreement or the other  Related  Documents,  or (c) impose or increase or render
applicable any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar  requirements  (whether or not having the force of law) against
assets  held by, or  deposits  in or for the account of, or Drawings or LC Loans
by, or the Letters of Credit from,  or  commitments  of the Bank beyond those in
effect as of the date hereof, or (d) impose on the Bank

<PAGE>

any  other  conditions  or  requirements  with  respect  to  this  Reimbursement
Agreement,  the other Related Documents,  the LC Loans, any Drawings, the Letter
of Credit, or any class of loans or commitments of which any of the same forms a
part; and the result of any of the foregoing is: (i) to increase the cost to the
Bank of making, funding, issuing, renewing,  extending or maintaining any of the
LC Loans,  any Liquidity  Drawing  Amounts,  the Letter of Credit or any Banking
Arrangements hereunder,  or (ii) to reduce the amount of principal,  interest or
other  amount   payable  to  the  Bank  hereunder  on  account  of  any  Banking
Arrangements  hereunder  or any of the LC Loans,  Liquidity  Drawing  Amounts or
Letters  of  Credit,  or (iii) to  require  such Bank to make any  payment or to
forego any interest or other sum payable hereunder,  the amount of which payment
or foregone interest or other sum is calculated by reference to the gross amount
of any sum  receivable or deemed  received by the Bank from the Account  Parties
hereunder, then, and in each such case, the Account Parties will, within fifteen
(15)  days of  demand  made by the Bank at any time and from time to time and as
often as the  occasion  therefor  may  arise,  pay to the Bank  such  additional
amounts as the Bank shall determine in good faith to be sufficient to compensate
the Bank or the Agent for such additional cost,  reduction,  payment or foregone
interest  or other sum.  The Bank,  in  determining  such  amounts,  may use any
reasonable averaging and attribution methods, generally applied by the Bank.

     SECTION 2.7 ISSUANCE FEE. In consideration of the delivery of the Letter of
Credit,  the Account  Parties  hereby agree to pay to the Bank a  non-refundable
letter of credit issuance fee in the amount of $157,737.00.

     SECTION 2.8 LETTER OF CREDIT  FACING FEE. The Account  Parties agree to pay
to the Bank a  nonrefundable  letter of credit facing fee,  payable  without any
requirement  of notice or demand by the Bank,  for the period from and including
the  Closing  Date until the  Expiration  Date in an amount  equal to 0.90 % per
annum of the Stated  Amount  (without  regard to reductions of the Stated Amount
subject to  reinstatement,  it being  understood  that  reductions  effected  by
submission of a Certificate in the form of Exhibit "D" attached to the Letter of
Credit are not subject to  reinstatement).  Such fee shall be  calculated on the
basis  of a  360-day  year  for  the  actual  number  of days  belonging  to the
Calculation Period (as defined below) and shall be payable quarterly in advance,
in immediately available funds, on the Closing Date and January 1, April 1, July
1 and October 1, of each year (each a "Payment Date"). As used herein,  the term
"Calculation   Period"  shall  mean,  in  respect  of  each  Payment  Date  (the
"applicable  Payment Date"),  the period  commencing on such applicable  Payment
Date and  ending  on the  next  Payment  Date (or in the case of the  applicable
Payment Date immediately prior to the Expiration Date, the Expiration Date).

     SECTION 2.9 CAPITAL ADEQUACY.  If after the date hereof the Bank determines
that (a) the  adoption of or change in any law,  rule,  regulation  or guideline
regarding capital  requirements of general application for banks or bank holding
companies  or any change in the  interpretation  or  application  thereof by any
governmental   authority  charged  with  the  administration   thereof,  or  (b)
compliance  by the Bank or its  parent  bank  holding  company  with any  future
guideline, request or directive of any such entity regarding capital adequacy or
any amendment or change in interpretation of any existing guideline,  request or
directive  (whether or not having the force of law),  has the effect of reducing
the return on the Bank's or such holding

<PAGE>

company's  capital as a consequence of the Banking  Arrangements  hereunder to a
level below that which the Bank or holding  company  could have achieved but for
such adoption,  change or compliance  (taking into  consideration  the Bank's or
such holding  company's then existing  policies with respect to capital adequacy
and assuming the full utilization of such entity's capital) by any amount deemed
by the  Bank to be  material,  then  the Bank may  notify  the  Account  Parties
thereof.  The  Account  Parties  agree  to pay to the Bank  the  amount  of such
reduction  in the return on capital as and when such  reduction  is  determined,
upon  presentation  by the Bank of a  statement  of the amount  setting  for the
Bank's  calculation  thereof.  In determining such amount,  the Bank may use any
reasonable averaging and attribution methods, generally applied by the Bank.

     SECTION 2.10 METHOD OF PAYMENT. All payments by Account Parties to the Bank
hereunder or under any of the Related  Documents  shall be fully earned when due
and nonrefundable when paid and made in lawful currency of the United States and
in immediately  available funds.  Amounts payable to the Bank hereunder shall be
transferred to the Bank's account at Commerzbank AG, New York Branch,  New York,
NY, ABA # 026 008 044,  Account  No.  150/1019272/06  Reference:  Palomino  Park
Public  Improvements Corp. (or to such other account of the Bank as the Bank may
specify by written notice to Account Parties) not later than 2:00 p.m. New York,
New York time,  on the date  payment is due.  Any  payment  received by the Bank
after 2:00 p.m., New York, New York time,  shall be deemed to have been received
by the Bank on the next Business  Day. If any payment  hereunder is due on a day
that is not a Business Day,  then such payment  shall be due on the  immediately
succeeding Business Day.

     SECTION 2.11 MAINTENANCE OF ACCOUNTS. The Bank shall maintain in accordance
with its usual practice an account or accounts  evidencing the  indebtedness  of
Account Parties and the amounts payable and paid from time to time hereunder. In
any legal action or proceeding in respect of this Reimbursement  Agreement,  the
entries made in such account or accounts  shall be  presumptive  evidence of the
existence and amounts of the obligations of Account  Parties  therein  recorded.
The failure to record any such amount  shall not,  however,  limit or  otherwise
affect the  obligations of Account  Parties  hereunder to repay all amounts owed
hereunder,  together  with all  interest  accrued  thereon as  provided  in this
Article 2.

     SECTION 2.12 CURE.  Account  Parties agree to pay to the Bank on demand any
amounts  advanced by or on behalf of the Bank to the extent required to cure any
default,  event of default or event of nonperformance  under this  Reimbursement
Agreement  or  any  Related  Document.  The  Bank  shall  give  Account  Parties
reasonably  prompt notice of any such  advances.  The Bank shall have the right,
but not the obligation,  to cure any such default,  event of default or event of
nonperformance.

     SECTION 2.13 WITHHOLDING. All payments of principal, interest and any other
sums due hereunder shall be made in the amounts required  hereunder  without any
reduction or setoff, notwithstanding the assertion of any right of recoupment or
setoff or of any counterclaim by Account Parties, and without any withholding on
account of taxes, levies, duties or any other deduction  whatsoever.  If Account
Parties are required by law to withhold or deduct any sum from payments required
under this Reimbursement Agreement, Account Parties shall, to the

<PAGE>

extent permitted by applicable law, increase the amount paid by them to the Bank
so that, after all withholdings and deductions,  the amount received by the Bank
shall equal the amount the Bank would have received without any such withholding
or deduction.

     SECTION  2.14  REDUCTION  AND  REINSTATEMENT  OF THE LETTER OF CREDIT.  The
Stated  Amount  shall be reduced and  reinstated  as  specified in the Letter of
Credit.

                                    ARTICLE 3

                              CONDITIONS PRECEDENT

     As a condition  precedent to the issuance of the Letter of Credit, the Bank
shall have received the following  items on or before the Closing Date,  each in
form and substance satisfactory to the Bank and its counsel:

     SECTION 3.1 ACCOUNT PARTIES' RESOLUTIONS;  BYLAWS;  OFFICER'S CERTIFICATES.
Copies of  resolutions  of the  Board of  Directors  of WRP and the Bond  Issuer
approving this Reimbursement Agreement, the other Related Documents to which WRP
or the Bond  Issuer  (as  applicable)  is a party,  the form and  content of the
Letter of Credit  and the other  matters  contemplated  hereby and copies of all
other documents evidencing any other necessary  organizational action and copies
of WRP's Bylaws and the Bond Issuer's Bylaws,  all certified by the Secretary of
WRP and the Secretary of the Bond Issuer, as applicable (which certificate shall
state that such resolutions and Bylaws are true,  complete and in full force and
effect on the Closing Date).

     SECTION 3.2 GUARANTOR'S RESOLUTIONS;  OFFICER'S CERTIFICATES. Copies of the
resolutions of the general partner of the Guarantor approving the Guaranty,  and
copies of all other documents evidencing any other necessary organization action
and  copies  of  Guarantor's   general  partner's  Bylaws  and  the  Partnership
Agreement,  all  certified  by the  Secretary  of  the  general  partner  of the
Guarantor  (which  certificate  shall state that such resolutions and Bylaws are
true, complete and in full force and effect on the Closing Date).  Signature and
incumbency certificates of the officers executing the Guaranty.

     SECTION 3.3 ACCOUNT PARTIES' ORGANIZATIONAL DOCUMENTS.  Copies certified as
of recent  date by the  appropriate  officer  of each State in which WRP and the
Bond Issuer  each are  organized  or  authorized  to do  business  and by a duly
authorized  officer  of WRP or the Bond  Issuer (as  applicable)  to be true and
complete,  of  the  articles  of  incorporation  of  WRP  and  the  Articles  of
Incorporation  of the Bond Issuer,  as  applicable or its  qualifications  to do
business, as applicable, as in effect on such date of certification.

     SECTION 3.4 GUARANTOR'S  ORGANIZATIONAL  DOCUMENTS.  Copies certified as of
recent date by the  appropriate  officer of each State in which the Guarantor is
organized or authorized to do business and by a duly  authorized  officer of the
Guarantor  to be  true  and  complete,  of  the  partnership  agreement,  or its
qualification  to do  business,  as  applicable  as in  effect  on such  date of
certification.

<PAGE>

     SECTION 3.5 REGULATORY APPROVALS. [Reserved]

     SECTION 3.6 OFFICER'S  CERTIFICATES.  Certificates  from the Secretaries of
WRP and the Bond Issuer, respectively,  certifying the names and true signatures
of the officers of WRP and the Bond  Issuer,  respectively,  authorized  to sign
this  Reimbursement  Agreement and/or the Related  Documents to which WRP and/or
the Bond Issuer is a party.

     SECTION 3.7 OPINIONS OF COUNSEL. Opinions, in form and substance acceptable
to the Bank and upon which the Bank may rely, of (i) Brownstein  Hyatt & Farber,
P.C.,  Colorado  counsel  to the Bond  Issuer,  (ii)  Ballard  Spahr  Andrews  &
Ingersoll,  LLP,  Maryland  counsel to WRP, (iii) Piper Marbury Rudnick & Wolfe,
counsel to the  Guarantor,  (iv) White & Case LLP,  New York counsel to the Bank
and (v) German in-house counsel to the Bank.

     SECTION 3.8 RELATED  DOCUMENTS.  An executed copy of each of the Promissory
Notes, the Pledge Agreement and the Deed of Trust Amendment.

     SECTION 3.9 ISSUANCE FEE. The Bank shall have received the letter of credit
issuance fee stated in Section 2.7.

     SECTION 3.10 COMPLIANCE  CERTIFICATE.  A Compliance Certificate in the form
of Exhibit D hereto dated as of the Closing Date  demonstrating  compliance with
each of the covenants  calculated  therein as of the most recent fiscal  quarter
end of WRP shall have been delivered to the Bank.

     SECTION 3.11 RATING.  Ratings  letter from Moody's which  confirms that the
Bonds have  received  long-term  and  short-term  ratings at least  equal to the
long-term and short-term ratings of the Bank.

     SECTION 3.12 ACCOUNT PARTIES  CERTIFICATE(S).  Certificates  signed by duly
authorized officers of WRP and the Bond Issuer, respectively,  dated the Closing
Date,  stating that:  (a) the  representations  and warranties of WRP and/or the
Bond Issuer,  respectively,  contained in Article 4 and in the Related Documents
are correct on and as of the Closing Date as though made on and as of such date;
(b) WRP and/or the Bond Issuer, respectively,  are in compliance with all of the
covenants  set forth in  Articles 5 and 6; (c) no  petition  by or  against  WRP
and/or  the Bond  Issuer  has at any time been  filed  under the  United  States
Bankruptcy Code or under any similar act; (d) no Event of Default or Default has
occurred and is  continuing,  or would result from the issuance of the Letter of
Credit and execution, delivery or performance of this Reimbursement Agreement or
the Related Documents; and (e) such other matters as the Bank or its counsel may
request.

     SECTION 3.13 [RESERVED]

     SECTION  3.14  PAYMENT  OF  FEES  AND  EXPENSES.  Payment  of  all  amounts
(including attorney's fees and expenses) payable at the Closing Date pursuant to
Section 2.6.

<PAGE>

     SECTION 3.15 FINANCIAL STATEMENTS. The most recent annual audited financial
statements of WRP and the unaudited financial statements as of the Balance Sheet
Date of WRP and Highlands. The most recent unaudited financial statements of the
Bond Issuer. All of such statements shall be accompanied with a certificate from
an officer of WRP, Highlands or the Bond Issuer, as applicable,  stating that no
material adverse change in the consolidated assets,  liabilities,  operations or
financial  condition of WRP, Highlands,  or the Bond Issuer, as applicable,  has
occurred since the date of the most recent financial statements.

     SECTION 3.16 PALOMINO ENTITIES CERTIFICATE(S).  Certificates signed by duly
authorized  officers of Highlands,  dated the Closing Date, stating that: (a) no
petition by or against any of the  Palomino  Entities has at any time been filed
under the United States  Bankruptcy  Code or under any similar act; (b) no event
of default nor any occurrence,  circumstance or event or any combination thereof
which with the lapse of time and/or  giving of notice would  constitute an event
of  default  under any of the  Related  Documents  to which any of the  Palomino
Entities is a party has  occurred  and is  continuing,  or would result from the
execution,  delivery or  performance  of any of the Related  Documents;  (c) the
representations  and warranties of Palomino Entities contained in the Assessment
Agreement are correct on and as of the Closing Date;  and (d) such other matters
as the Bank or its counsel may request.

     SECTION  3.17  REMARKETING  AGENT  CERTIFICATE.   A  certificate  from  the
Remarketing  Agent  in form  and  substance  satisfactory  to the  Bank  and its
counsel.

     SECTION 3.18 BOND TRUSTEE CERTIFICATE. A certificate of the Bond Trustee in
form and substance satisfactory to the Bank and its counsel.

     SECTION 3.19 OTHER DOCUMENTS. Such other documents, instruments,  approvals
and, if requested by the Bank,  certified duplicates of executed copies thereof,
and opinions as the Bank may reasonably request.

                                    ARTICLE 4

                         REPRESENTATIONS AND WARRANTIES

     Account Parties represent and warrant to the Bank as follows:

     SECTION 4.1 CORPORATE AUTHORITY, ETC.

     (1) INCORPORATION;  GOOD STANDING.  WRP: (i) is a Maryland corporation duly
organized, incorporated, validly existing and in good standing under the laws of
Maryland,  (ii) has all  requisite  power to own its  property,  to conduct  its
business as now  conducted and as presently  contemplated  and to enter into and
satisfy its obligations under this Reimbursement Agreement and the other Related
Documents  to which it is a party,  and (iii) is in good  standing  as a foreign
entity and is duly  authorized  to do business in Denver,  Colorado  and in each
other  jurisdiction  where failure to be so qualified in such other jurisdiction
could have a  materially  adverse  effect on the  business,  assets or financial
condition of WRP.

<PAGE>

     (2)  AUTHORIZATION.   The  execution,  delivery  and  performance  of  this
Reimbursement   Agreement  and  the  Related   Documents  and  the  transactions
contemplated hereby and thereby (a) are within the authority of WRP and the Bond
Issuer, respectively, (b) have been duly authorized by all necessary proceedings
on the part of WRP and the Bond  Issuer,  respectively,  (c) do not and will not
conflict with or result in any breach or  contravention of any provision of law,
statute, rule or regulation to which WRP, the Bond Issuer or any of the Palomino
Entities is subject or any judgment, order, writ, injunction,  license or permit
applicable  to WRP,  the Bond Issuer or any of the  Palomino  Entities or any of
their respective properties, (d) do not and will not conflict with or constitute
a default  (whether  with the passage of time or the giving of notice,  or both)
under any provision of the charter documents, partnership agreement, declaration
of trust or other  charter  documents  or bylaws of, or any  agreement  or other
instrument  binding upon, WRP, the Bond Issuer or any of the Palomino  Entities,
or any of their respective properties,  and (e) do not and will not result in or
require  the  imposition  of  any  lien  or  other  encumbrance  on  any  of the
properties,  assets  or rights of WRP,  the Bond  Issuer or any of the  Palomino
Entities  or any of their  respective  properties  other  than the liens for the
benefit of the holders of the Bonds  created by the Bond  Indenture and the lien
of the Assessment and Lien.

     (3)  ENFORCEABILITY.  The  execution  and  delivery  of this  Reimbursement
Agreement and the Related  Documents to which each of them are parties are valid
and legally binding obligations of WRP and the Bond Issuer,  enforceable against
each of them in accordance with the respective  terms and provisions  hereof and
thereof,  except  as  enforceability  is  limited  by  bankruptcy,   insolvency,
reorganization,  moratorium or other laws relating to or affecting generally the
enforcement of creditors'  rights and except to the extent that  availability of
the  remedy of  specific  performance  or  injunctive  relief is  subject to the
discretion of the court before which any proceeding therefor may be brought.

     SECTION 4.2 GOVERNMENTAL APPROVALS. The execution, delivery and performance
by WRP and the Bond Issuer of this  Reimbursement  Agreement and the  execution,
delivery and performance by WRP and the Bond Issuer of the Related  Documents to
which each of them are  parties  and the  transactions  contemplated  hereby and
thereby  do not  require  the  approval  or  consent  of,  or filing  with,  any
governmental agency or authority other than those already obtained.

     SECTION 4.3 TITLE TO PROPERTIES;  LEASES. Except as indicated on Schedule A
hereto,  the  Bond  Issuer,  and the  Palomino  Entities  own all of the  assets
reflected  in their  respective  consolidated  balance  sheets as at the Balance
Sheet Date or  acquired  since that date  (except  property  and assets  sold or
otherwise  disposed  of in the  ordinary  course of  business  since that date),
subject to no rights of others, including any mortgages, leases (except standard
residential  apartment leases for a duration of less than 18 months) conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted  Liens.  Each of the Palomino  Entities  holds fee title to all of the
property  securing  payment of the assessments to be paid to pay debt service on
the Bonds,  subject  to no rights of others,  including  any  mortgages,  leases
(except  standard  residential  apartment  leases for a duration of less than 18
months),  conditional sales  agreements,  title retention  agreements,  liens or
other encumbrances except

<PAGE>

Permitted Liens described in Sections 6.4. Without limiting the foregoing,  each
of the Palomino Entities has good and marketable fee simple title to, or a valid
and subsisting leasehold interest in, all real property reasonably necessary for
the  operation  of  their  respective   businesses,   free  from  all  liens  or
encumbrances of any nature  whatsoever,  except for Permitted Liens. Each of WRP
or its Subsidiaries,  and Highlands or its Subsidiaries,  as the case may be, is
the insured under owner's policies of title insurance covering all real property
owned by it, in each case in an amount not less than the purchase price for such
real property.

     SECTION 4.4 FINANCIAL  STATEMENTS.  WRP and Highlands have furnished to the
Bank:  income  statements and balance sheets of WRP as of the Balance Sheet Date
satisfactory  in  form  and  substance  to the  Bank.  Such  balance  sheet  and
statements of income and stockholder's equity and all other financial statements
delivered to the Bank by WRP and all other financial statements delivered to the
Bank by WRP have been prepared in accordance with generally accepted  accounting
principles,  are  complete,  true and correct and fairly  present the  financial
condition  of WRP and  its  Subsidiaries  and  Highlands  and its  Subsidiaries,
respectively, as of such dates and the results of the operation of each of them.
There are no liabilities, contingent or otherwise, of WRP or Highlands or any of
their respective  Subsidiaries  involving material amounts not disclosed in said
financial  statements and the related notes thereto, or financial statements and
the related notes thereto  delivered to the Bank in accordance  with Section 5.4
hereof.

     SECTION 4.5 NO MATERIAL  CHANGES.  Since the Balance Sheet Date,  there has
occurred no materially adverse change in the financial  condition or business of
WRP and its Subsidiaries  taken as a whole, the Bond Issuer and its Subsidiaries
taken as a whole, or Highlands and its  Subsidiaries  taken as a whole from that
shown on or reflected in the  consolidated  balance  sheet of each of them as of
the Balance Sheet Date, or their respective  consolidated statement of income or
cash flows for the fiscal year then ended,  other than  changes in the  ordinary
course  of  business  that have not had any  materially  adverse  effect  either
individually or in the aggregate on the business or financial  condition of WRP,
the Bond Issuer or the Palomino Entities.

     SECTION 4.6 FRANCHISES, PATENTS, COPYRIGHTS, ETC. WRP and its Subsidiaries,
the  Bond  Issuer  and its  Subsidiaries  and  Highlands  and its  Subsidiaries,
respectively,  each possess all  franchises,  patents,  copyrights,  trademarks,
trade names,  servicemarks,  licenses and permits,  and rights in respect of the
foregoing,  adequate  for the  conduct of their  business  substantially  as now
conducted without known conflict with any rights of others. Each of the Palomino
Entities   possessess  all  franchises,   patents,   copyrights,   trade  names,
servicemarks,  licenses  and  permits,  and rights in respect of the  foregoing,
including without  limitation land use approvals,  adequate for the construction
and completion of Phase I of the Development.

     SECTION  4.7  LITIGATION.  Except  as  stated  on  Schedule  B there are no
actions, suits,  proceedings or investigations of any kind pending or threatened
against  WRP  or  any  of  its  Subsidiaries,  the  Bond  Issuer  or  any of its
Subsidiaries or Highlands or any of its Subsidiaries before any court,  tribunal
or administrative agency or board that, if adversely  determined,  might, either
in any case or in the aggregate,  materially  adversely  affect the  properties,
assets, financial

<PAGE>

condition  or  business of such  Person or  materially  impair the right of such
Person to carry on business  substantially  as now conducted by it, or result in
any  liability  not  adequately  covered  by  insurance,  or for which  adequate
reserves  are not  maintained  on the  balance  sheet of such  Person,  or which
question  the  validity of this  Reimbursement  Agreement  or any of the Related
Documents,  any action  taken or to be taken  pursuant  hereto or thereto or any
lien or security  interest  created or intended to be created pursuant hereto or
thereto,  or which will  adversely  affect the  ability of WRP,  the Bond Issuer
and/or the Palomino Entities to pay and perform their respective  obligations in
the  manner  contemplated  by  this  Reimbursement  Agreement  and  the  Related
Documents.

     SECTION 4.8 NO  MATERIALLY  ADVERSE  CONTRACTS,  ETC. None of WRP, the Bond
Issuer,  Highlands  or any of their  respective  Subsidiaries  is subject to any
charter,  corporate or other legal restriction,  or any judgment, decree, order,
rule or  regulation  that has or is expected in the future to have a  materially
adverse  effect on the business,  assets or financial  condition of such Person.
None of WRP, the Bond Issuer,  Highlands or any of their respective Subsidiaries
is a party to any contract or agreement that has or is expected, in the judgment
of the officers of such Person,  to have any  materially  adverse  effect on the
business of any of them.

     SECTION 4.9 COMPLIANCE WITH OTHER INSTRUMENTS,  LAWS, ETC. None of WRP, the
Bond Issuer,  Highlands or any of their respective  Subsidiaries is in violation
of any provision of its charter or other organizational  documents,  by-laws, or
any  agreement or instrument to which it may be subject or by which it or any of
its properties may be bound or any decree, order,  judgment,  statute,  license,
rule or regulation,  in any of the foregoing cases in a manner that could result
in the  imposition of substantial  penalties or materially and adversely  affect
the financial condition, properties or business of such Person.

     SECTION 4.10 TAX STATUS. WRP, the Bond Issuer,  Highlands and each of their
respective  Subsidiaries  (a) has made or filed all federal and state income and
all other  material  tax  returns,  reports  and  declarations  required  by any
jurisdiction  to  which  it is  subject,  (b)  has  paid  all  taxes  and  other
governmental  assessments  and  charges  shown or  determined  to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and by appropriate  proceedings,  and (c) has set aside on its books  provisions
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods  to which such  returns,  reports or  declarations  apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of WRP, the Bond Issuer and Palomino Entities
know of no basis for any such claim.

     SECTION  4.11 NO EVENT OF  DEFAULT.  No  Default  or Event of  Default  has
occurred and is continuing.

     SECTION 4.12 HOLDING COMPANY AND INVESTMENT COMPANY ACTS, ETC. None of WRP,
the Bond Issuer, Highlands or any of their respective Subsidiaries is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding  company,"  as such terms are defined in the Public  Utility  Holding
Company  Act of  1935;  nor is it an  "investment  company,"  or an  "affiliated
company" or a "principal underwriter" of an

<PAGE>

"investment company," as such terms are defined in the Investment Company Act of
1940.  None of WRP,  the  Bond  Issuer,  Highlands  or any of  their  respective
Subsidiaries  is  subject  to  regulation  under  the  Federal  Power  Act,  the
Interstate  Commerce  Act or to its  knowledge  any federal or state  statute or
regulation  which regulates the issuance of securities  and/or debt of companies
limiting its ability to incur  indebtedness  for money borrowed,  except federal
and state securities laws.

     SECTION 4.13 ABSENCE OF UCC FINANCING STATEMENTS,  ETC. Except with respect
to Permitted Liens, there is no financing statement, security agreement, chattel
mortgage,  real estate  mortgage or other  document  filed or recorded  with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible  future lien on, or security  interest
or security title in, any property of the Palomino Entities, or the Bond Issuer,
or any of its Subsidiaries.

     SECTION 4.14  NONCONTRAVENTION.  The execution and delivery, or assumption,
as the case may be, by WRP and the Bond Issuer of this  Reimbursement  Agreement
and the Related  Documents to which each of them is a party, and the performance
of their respective  obligations hereunder and thereunder,  will not violate any
existing  law or  regulation  or  result  in a breach of any of the terms of, or
constitute a default under,  any indenture,  mortgage,  deed of trust,  lease or
other agreement or instrument to which any of them is a party or by which any of
them or any of their respective  property is bound or their respective  articles
of  incorporation,  limited  liability  agreements or  declarations of trust (as
applicable),  bylaws or any of the rules or regulations  applicable to either of
them or to their  respective  property  or decree or order of any court or other
governmental body.

     SECTION 4.15 CERTAIN TRANSACTIONS. [Reserved]

     SECTION 4.16 EMPLOYEE  BENEFIT PLANS.  WRP, the Bond Issuer,  Highlands and
each ERISA Affiliate of each of them have fulfilled their  obligations under the
minimum  funding  standards of ERISA and the Code with respect to each  Employee
Benefit Plan,  Multi-employer  Plan or Guaranteed Pension Plan (referred to each
individually  as a "PLAN" and  collectively  as "PLANS") and is in compliance in
all material respects with the presently applicable  provisions of ERISA and the
Code with respect to each Plan.  None of WRP, the Bond Issuer,  Highlands or any
ERISA Affiliate of either of them has (a) sought a waiver of the minimum funding
standard  under  Section  412 of the Code in respect of any Plan,  (b) failed to
make any contribution or payment to any Plan, or made any amendment to any Plan,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other  security under ERISA or the Code, or (c) incurred any liability
under Title IV of ERISA other than a liability  to the PBGC for  premiums  under
Section  4007 of ERISA.  Except as  disclosed  in WRP's,  the Bond  Issuer's  or
Highlands'  respective  financial  statements,  none of WRP,  the  Bond  Issuer,
Highlands or any of their  respective  Subsidiaries  maintains or has maintained
any Plan.  None of WRP,  the Bond Issuer,  Highlands or any of their  respective
Subsidiaries  has received any notice or has any knowledge to the effect that it
is not in full compliance with any of the requirements of such Plan(s).  No fact
or  circumstance  which may have a  material  adverse  effect on the  Plan's tax

<PAGE>

qualified  status  exists in  connection  with any Plan.  None of WRP,  the Bond
Issuer,  Highlands or any of their  respective  Subsidiaries has any accumulated
funding deficiency under any Plan.

     SECTION  4.17  REGULATIONS  U AND X. No portion of any  Drawing,  Liquidity
Drawing  Amount or LC Loan under this  Reimbursement  Agreement or the Letter of
Credit is to be used for the  purpose of  purchasing  or  carrying  any  "margin
security" or "margin stock" as such terms are used in Regulations U and X of the
Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.

     SECTION 4.18  ENVIRONMENTAL  COMPLIANCE.  Account Parties have conducted or
caused to be conducted Phase I environmental  site  assessments  with respect to
the past  usage  and  condition  of the Real  Estate  (including  Phase I of the
Development)  and the  Development  and, in each case, the operations  conducted
thereon,  and are  familiar  with the  present  condition  and usage of the Real
Estate  (including  Phase  I of the  Development)  and the  Development  and the
operations  conducted thereon and, based upon such reports and knowledge,  makes
the following representations and warranties:

          (1) To the best of Account Parties'  knowledge,  none of WRP, the Bond
     Issuer,  Highlands and their respective Subsidiaries or any operator of the
     Real Estate  (including Phase I of the Development) or the Development,  or
     any  operations  thereon  is in  violation,  or alleged  violation,  of any
     judgment,  decree,  order, law, license,  rule or regulation  pertaining to
     environmental  matters,  including without limitation,  those arising under
     the Resource  Conservation  and Recovery Act  ("RCRA"),  the  Comprehensive
     Environmental  Response,  Compensation and Liability Act of 1980 as amended
     ("CERCLA"),  the  Superfund  Amendments  and  Reauthorization  Act of  1986
     ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
     Substances  Control  Act,  or  any  state  or  local  statute,  regulation,
     ordinance,  order  or  decree  relating  to  the  environment  (hereinafter
     "Environmental  Laws"), which violation involves the Real Estate (including
     Phase I of the  Development)  or the  Development and would have a material
     adverse  effect on the  environment  or the  business,  assets or financial
     condition of WRP,  the Bond Issuer or any of the  Palomino  Entities or the
     development of Phase I of the Development or the Development as a whole.

          (2)  None of WRP,  the Bond  Issuer,  Highlands  or  their  respective
     Subsidiaries  has received notice from any third party  including,  without
     limitation, any federal, state or local governmental authority, (a) that it
     has been identified by the United States  Environmental  Protection  Agency
     ("EPA") as a potentially  responsible  party under CERCLA with respect to a
     site listed on the National  Priorities List, 40 C.F.R. Part 300 Appendix B
     (1986);  (b) that any  hazardous  waste,  as defined  by 42 U.S.C.  Section
     9601(5), any hazardous substances as defined by 42 U.S.C. Section 9601(14),
     any pollutant or  contaminant as defined by 42 U.S.C.  Section  9601(33) or
     any toxic  substances,  oil or hazardous  materials  or other  chemicals or
     substances  regulated by any  Environmental  Laws ("Hazardous  Substances")
     which it has  generated,  transported or disposed of have been found at any
     site at which a federal,  state or local  agency or other  third  party has
     conducted  or  has  ordered  that  any  such  Person   conduct  a  remedial

<PAGE>

     investigation,   removal  or  other   response   action   pursuant  to  any
     Environmental  Law;  or (c)  that it is or  shall  be a named  party to any
     claim,  action,  cause of  action,  complaint,  or legal or  administrative
     proceeding (in each case, contingent or otherwise) arising out of any third
     party's  incurrence  of  costs,  expenses,  losses or  damages  of any kind
     whatsoever in connection with the release of Hazardous Substances.

          (3) To the best of Account Parties' knowledge,  except as set forth in
     Schedule C or, in the case of Real  Estate  (including  any  portion of the
     Development other than Phase I of the Development)  acquired after the date
     hereof,  except  as may be  disclosed  in  writing  to the  Bank  upon  the
     acquisition  of  the  same:  (i)  no  portion  of the  Real  Estate  or the
     Development has been used for the handling, processing, storage or disposal
     of Hazardous Substances except in accordance with applicable  Environmental
     Laws, and no underground tank or other underground  storage  receptacle for
     Hazardous  Substances  is located on any  portion of the Real Estate or the
     Development;  (ii) in the course of any  activities  conducted  by WRP, the
     Bond Issuer, Highlands and their respective  Subsidiaries,  the District or
     the operators of any  properties  of any of them,  no Hazardous  Substances
     have been generated or are being used on the Real Estate or the Development
     except in the ordinary course of business and in accordance with applicable
     Environmental  Laws;  (iii)  there has been no past or  present  releasing,
     spilling,  leaking,  pumping,  pouring,  emitting,  emptying,  discharging,
     injecting,  escaping,  disposing  or dumping (a  "Release")  or  threatened
     Release of Hazardous  Substances on, upon,  into or from the Real Estate or
     the Development,  or, to the best of Account Parties' knowledge,  on, upon,
     into or from the other  properties  of WRP, the Bond  Issuer,  Highlands or
     their respective Subsidiaries,  which Release would have a material adverse
     effect on the value of any of the Real Estate,  Phase I of the Development,
     the Development as a whole or adjacent  properties of either of them or the
     environment;  (iv) to the best of Account  Parties'  knowledge,  there have
     been no Releases on, upon,  from or into any real  property in the vicinity
     of any of the Real Estate, Phase I of the Development or the Development as
     a whole which, through soil or groundwater contamination,  may have come to
     be located on, and which would have a material  adverse effect on the value
     of, the Real Estate,  Phase I of the  Development  or the  Development as a
     whole; and (v) any Hazardous  Substances that have been generated on any of
     the Real Estate,  Phase I of the  Development or the Development as a whole
     have been  transported  off-site only by carriers having an  identification
     number  issued  by the EPA or  approved  by a state or local  environmental
     regulatory  authority having  jurisdiction  regarding the transportation of
     such  substance  and,  to the best  knowledge  of Account  Parties  without
     independent  investigation,  treated or  disposed of only by  treatment  or
     disposal  facilities  maintaining  valid  permits  as  required  under  all
     applicable  Environmental Laws, which transporters and facilities have been
     and are,  to the best of Account  Parties'  knowledge  without  independent
     investigation,  operating in  compliance  with such permits and  applicable
     Environmental Laws.

          (4) None of WRP,  the Bond  Issuer,  Highlands  and  their  respective
     Subsidiaries,  any Real  Estate,  Phase I of the  Development  or any other
     portion of the Development is subject to any applicable  Environmental  Law
     requiring the performance

<PAGE>

     of Hazardous Substances site assessments,  or the removal or remediation of
     Hazardous Substances, or the giving of notice to any governmental agency or
     the recording or delivery to other Persons of an  environmental  disclosure
     document or  statement by virtue of the  transactions  set forth herein and
     contemplated  hereby,  or as a condition to the  effectiveness of any other
     transactions contemplated hereby.

     SECTION 4.19 SUBSIDIARIES. Schedule D sets forth all of the Subsidiaries of
the Bond  Issuer  and  Highlands,  respectively.  The form and  jurisdiction  of
organization  of each of such  Subsidiaries,  and WRP's,  the Bond  Issuer's and
Highlands' ownership interest therein, is set forth in said Schedule D.

     SECTION 4.20 RELATED DOCUMENTS.  All of the  representations and warranties
of WRP, the Bond Issuer and Highlands made in this  Reimbursement  Agreement and
the Related  Documents  or any  document  or  instrument  delivered  to the Bank
pursuant to or in  connection  with any of such Related  Documents  are true and
correct in all material respects,  and none of WRP, the Bond Issuer or Highlands
has  failed  to  disclose  such   information  as  is  necessary  to  make  such
representations and warranties not misleading.

     SECTION 4.21 PROPERTY. All of WRP's, the Bond Issuer's Highlands' and their
respective Subsidiaries' properties (including without limitation Phase I of the
Development)  are in good repair and  condition,  subject to  ordinary  wear and
tear, other than with respect to deferred maintenance existing as of the date of
acquisition of such property as permitted in this Section 4.21. Without limiting
the foregoing,  WRP has completed an appropriate  investigation  of the physical
condition  of each  such  property  as of the later of the date of WRP's or such
other  Person's  purchase  thereof or the date upon which such property was last
security for Indebtedness of WRP or such Person, including without limitation an
analysis of the  structural  condition  and  existence of any material  deferred
maintenance,  and such property is in good condition,  order and repair, and any
material  deferred  maintenance  existing as of the date of  acquisition of such
property has been corrected or satisfactory remediation actions are being taken.
WRP further has  completed an  appropriate  investigation  of the  environmental
condition  of each  such  property  as of the later of the date of WRP's or such
other  Person's  purchase  thereof or the date upon which such property was last
security for  Indebtedness  of WRP or such Person,  including  preparation  of a
"Phase I" report and, if appropriate, a "Phase II" report, in each case prepared
by a recognized  environmental  engineer in accordance with customary  standards
which  discloses  that such property is not in violation of the  representations
and covenants set forth in this  Reimbursement  Agreement,  unless  satisfactory
remediation  actions are being taken.  There are no unpaid or  outstanding  real
estate or other taxes or assessments on or against any property of WRP, the Bond
Issuer,  Highlands or any of their respective  Subsidiaries  (including  without
limitation  Phase I of the  Development)  which  are  payable  by WRP,  the Bond
Issuer,  Highlands or their respective  Subsidiaries (except only real estate or
other  taxes or  assessments,  that are not yet due and  payable).  There are no
pending  eminent domain  proceedings  against the Development or any property of
WRP, the Bond Issuer,  Highlands or their  respective  Subsidiaries  or any part
thereof,  and, to the  knowledge of Account  Parties,  no such  proceedings  are
presently   threatened  or  contemplated  by  any  taking  authority  which  may
individually  or in the  aggregate  have any  materially  adverse  effect on the
business or financial condition of WRP,

<PAGE>

the  Bond  Issuer  or  Highlands.  None  of  the  Development,  Phase  I of  the
Development  or any other  property of WRP, the Bond Issuer,  Highlands or their
respective  Subsidiaries  is now  damaged  or  injured  as a result of any fire,
explosion, accident, flood or other casualty in any manner which individually or
in the aggregate  would have any  materially  adverse  effect on the business or
financial condition of WRP, the Bond Issuer or Highlands.

     SECTION 4.22  BROKERS.  None of WRP,  the Bond Issuer,  Highlands or any of
their  respective  Subsidiaries  has engaged or otherwise dealt with any broker,
finder or similar entity in connection with this  Reimbursement  Agreement,  the
Letter of Credit contemplated hereunder, or any Related Document.

     SECTION 4.23 OTHER DEBT. None of WRP, the Bond Issuer,  Highlands and their
respective  Subsidiaries  is in default in the  payment of any  Indebtedness  or
under any agreement,  mortgage,  deed of trust,  security  agreement,  financing
agreement,  indenture  or  lease  to which  any of them is a party  except  with
respect to the  violation of  financial  covenants  under the  existing  finance
facility between Wellsford Finance, Inc. and Fleet National Bank, under which no
amounts are owed by Wellsford Finance, Inc. Neither WRP, the Bond Issuer nor any
of the Palomino Entities is a party to or bound by any agreement,  instrument or
indenture that may require the  subordination in right or time of payment of any
of the obligations of any of them under this  Reimbursement  Agreement or any of
the Related  Documents  to which they are a party to any other  indebtedness  or
obligation of WRP, the Bond Issuer or the Palomino Entities.

     SECTION 4.24  SOLVENCY.  As of the Closing Date and after giving  effect to
the transactions  contemplated by this  Reimbursement  Agreement and the Related
Documents,  none of WRP,  the Bond  Issuer or any of the  Palomino  Entities  is
insolvent  on a  balance  sheet  basis  such  that  the  sum  of  such  Person's
liabilities  exceeds  the sum of such  Person's  assets.  Each of WRP,  the Bond
Issuer,  and  each of the  Palomino  Entities  is able to pay its  debts as they
become due, and has sufficient capital to carry on its business.

     SECTION 4.25 COMPLETE AND CORRECT INFORMATION. All information, reports and
other papers and data with respect to WRP, the Bond Issuer,  Highlands and their
respective Subsidiaries furnished to the Bank were, at the time the same were so
furnished,  complete  and  correct  in all  material  respects,  to  the  extent
necessary to give the Bank a true and accurate  knowledge of the subject matter.
No fact is known to WRP, the Bond Issuer or any of the Palomino  Entities  which
adversely  affects  or in the future  may (so far as it can  foresee)  adversely
affect its business,  assets or  liabilities,  financial  condition,  results of
operations,  or its  business  prospects  or the  development  of Phase I of the
Development or any other portion of the Development which has not been set forth
in the  financial  statements  referred  to in  Section  4.4  above  or in  such
information,  reports,  papers and data or otherwise disclosed in writing to the
Bank. No document  furnished or statement made by WRP, the Bond Issuer or any of
the  Palomino  Entities  in  connection  with the  negotiation,  preparation  or
execution  of  this  Reimbursement  Agreement,  or any  other  Related  Document
contains any untrue  statement of a fact  material to its credit  worthiness  or
omits to  state a  material  fact  necessary  in  order  to make the  statements
contained therein not misleading.

<PAGE>

     SECTION 4.26 PUBLIC  IMPROVEMENTS LIENS. There are no liens or encumbrances
of any kind on the Public  Improvements or Phase I of the Development other than
Permitted Liens (as defined here and in the Bond Indenture).

     SECTION 4.27 PLEDGE OF PLEDGED BONDS. The security interests granted to the
Bank  pursuant to the Pledge  Agreement  (a)  constitute  a  perfected  security
interest  in the  collateral  pledged  pursuant  to the  Pledge  Agreement  (the
"Collateral") under the Uniform Commercial Code and (b) are, and with respect to
any subsequently acquired property, will be, superior and prior to the rights of
all third Persons now existing or hereafter  arising whether by way of mortgage,
lien,  security  interests,  encumbrances,  assignments  or otherwise.  All such
actions as is  necessary  has been taken to  establish  and  perfect  the Bank's
rights in and to the Collateral.

     SECTION 4.28 SECURITY FOR PLEDGED BONDS.  The Bond Indenture  creates,  for
the benefit and security of the Bonds, the legally valid and binding Lien on and
pledge of the  Revenues  and the funds  ("FUNDS") in which they are from time to
time on deposit which the Bond Indenture purports to create.  There are no Liens
on the Revenues or the Funds other than the Lien created by the Bond  Indenture.
No filing,  registering,  recording or  publication of the Bond Indenture or any
other  document or instrument is required to establish the pledge under the Bond
Indenture or to perfect,  protect or maintain  the Lien  created  thereby on the
Revenues and the Funds.

                                    ARTICLE 5

                              AFFIRMATIVE COVENANTS

     Account Parties covenant and agree that, so long as the Expiration Date has
not occurred or any amount is due or owning to the Bank under this Reimbursement
Agreement  or any  Related  Document,  each of them will comply with each of the
covenants  contained in this Article 5, unless the Bank shall otherwise  consent
in writing:

     SECTION 5.1 COMPLIANCE WITH BOND INDENTURE AND RELATED DOCUMENTS.  WRP, the
Bond Issuer and the Palomino Entities shall comply with each of the covenants of
each of them set forth in the Bond Indenture and all Related Documents.

     SECTION 5.2  MAINTENANCE OF OFFICE.  WRP will maintain its chief  executive
office at 535 Madison Avenue, New York, New York 10022, and the Bond Issuer will
maintain its chief executive office at 1623 Blake Street, #270, Denver, Colorado
80202,  or, in each case, at such other place in the United States of America as
WRP or the Bond Issuer shall  designate  upon prior written  notice to the Bank,
where notices,  presentations  and demands to or upon each of them in respect of
this Reimbursement Agreement and the Related Documents to which they are parties
may be given or made.

     SECTION 5.3 RECORDS AND  ACCOUNTS.  WRP and Bond Issuer will (a) keep,  and
cause  each of their  respective  Subsidiaries  (including  but not  limited  to
Highlands) to keep, true

<PAGE>

and  accurate  records  and books of account  in which  full,  true and  correct
entries  will be made of all dealings or  transactions  of or in relation to the
business  and  affairs of such  Person in  accordance  with  generally  accepted
accounting  principles and (b) maintain  adequate  accounts and reserves for all
taxes (including income taxes),  depreciation and amortization of its properties
and the properties of their  respective  Subsidiaries,  contingencies  and other
reserves.

     SECTION 5.4 FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. WRP and the
Bond Issuer will each deliver to the Bank:

                  (a)  as soon as practicable,  but in any event not later
         than 90 days  after  the end of  their  respective  fiscal  years,  the
         audited consolidated balance sheet of each of them and their respective
         Subsidiaries  (including  but not limited to  Highlands)  at the end of
         such year, and the related audited  consolidated  statements of income,
         changes in  shareholder's  equity  and cash  flows for such year,  each
         setting forth in comparative  form the figures for the previous  fiscal
         year and all such  statements to be in reasonable  detail,  prepared in
         accordance  with  generally   accepted   accounting   principles,   and
         accompanied by an auditor's  report prepared  without  qualification by
         Ernst & Young LLP or by another "Big Five"  accounting  firm,  the Form
         10-K  filed  with  the SEC  for WRP  (unless  the SEC has  approved  an
         extension,  in which  event WRP will  deliver to the Bank a copy of the
         Form 10-K  simultaneously  with  delivery  to the  SEC),  and any other
         information the Bank may need to complete a financial  analysis of WRP,
         the Bond Issuer and the Palomino Entities;

               (b) as soon as  practicable,  but in any event not later  than 60
          days after the end of each of the first three fiscal  quarters of each
          of WRP and the  Bond  Issuer,  copies  of the  unaudited  consolidated
          balance  sheet of WRP and the Bond  Issuer,  respectively,  and  their
          respective Subsidiaries (including but not limited to Highlands) as at
          the  end of  such  quarter,  and the  related  unaudited  consolidated
          statements of income,  changes in shareholder's  equity and cash flows
          for the portion of such Account Party's fiscal year then elapsed,  all
          in  reasonable  detail  and  prepared  in  accordance  with  generally
          accepted accounting  principles (which may be provided by inclusion in
          the Form 10-Q of WRP for such period  provided  pursuant to subsection
          (c) below),  together with a certification by the principal  financial
          or  principal   accounting   officer  of  WRP  and  the  Bond  Issuer,
          respectively,   that  the  information  contained  in  such  financial
          statements fairly presents the financial  position of WRP and the Bond
          Issuer,  respectively,  and their respective  Subsidiaries on the date
          thereof (subject to year-end adjustments);

               (c) as soon as  practicable,  but in any event not later  than 60
          days after the end of the first three  fiscal  quarters of WRP in each
          year,  copies of Form 10-Q filed with the SEC for WRP  (unless the SEC
          has  approved an extension in which event WRP will deliver such copies
          of the Form 10-Q to the Bank simultaneously with delivery to the SEC);

               (d) simultaneously with the delivery of the financial  statements
          referred to in Sections  5.4(a) and 5.4(b)  above,  and within  thirty
          (30)  days of the  filing  by WRP of a Form  8-K  with  the SEC or the
          filing with the SEC of any other document amending any

<PAGE>

          other  filing  previously  made  by  WRP a  statement  (a  "Compliance
          Certificate")   certified  by  the  principal   financial  officer  or
          principal  accounting  officer  of WRP in the form of Exhibit D hereto
          setting forth in reasonable detail computations  evidencing compliance
          with  the  covenants  contained  in  Section  6,  and (if  applicable)
          reconciliations  to reflect changes in generally  accepted  accounting
          principles since the Balance Sheet Date;

               (e)  concurrently  with the delivery of the financial  statements
          described in subsections  (b) and (c) above,  a certificate  signed by
          the  president  or chief  financial  officer or  principal  accounting
          officer of WRP and the Bond Issuer (as applicable) to the effect that,
          having  read  this   Reimbursement   Agreement,   and  based  upon  an
          examination  which  they deem  sufficient  to  enable  them to make an
          informed  statement,  there  does not  exist any  Default  or Event of
          Default,  or if  such  Default  or  Event  of  Default  has  occurred,
          specifying the facts, nature and status with respect thereto;  and any
          remedial steps taken or proposed to correct each such default;

               (f) contemporaneously with the filing or mailing thereof,  copies
          of all  material of a financial  nature  filed with the SEC or sent to
          the stockholders of WRP;

               (g) simultaneously within the delivery of the financial statement
          referred to in subsection  (a) above, a statement (i) listing the Real
          Estate  owned by  Highlands  and the Bond Issuer and their  respective
          Subsidiaries  (or in  which  any such  Person  owns an  interest)  and
          stating the location  thereof,  the date acquired and the  acquisition
          cost,  (ii) listing the  Indebtedness of Highlands and the Bond Issuer
          and their respective  Subsidiaries (excluding Indebtedness of the type
          described in Sections  6.3(a)-6.3(e)),  which statement shall include,
          without  limitation,  a statement of the original  principal amount of
          such  Indebtedness  and the  current  amount  outstanding,  the holder
          thereof,  the maturity  date and any extension  options,  the interest
          rate, the collateral  provided for such  Indebtedness and whether such
          Indebtedness  is  recourse  or  non-recourse,  and (iii)  listing  the
          properties  of  Highlands  and the Bond  Issuer  and their  respective
          Subsidiaries  which are under  "development" (as used in Section 6.13)
          and providing a brief summary of the status of such development; and

               (h) from time to time such other  financial data and  information
          in the  possession  of WRP, the Bond Issuer or the  Palomino  Entities
          (including without limitation auditors'  management letters,  property
          inspection and environmental  reports and information as to zoning and
          other legal and regulatory changes affecting WRP, the Bond Issuer, the
          Palomino Entities, the Public Improvements, Phase I of the Development
          or the Development) as the Bank may reasonably request.

                  SECTION 5.5  NOTICES.

     (1) DEFAULTS.  Account  Parties will promptly notify the Bank in writing of
the occurrence of any Default or Event of Default.  If any Person shall give any
notice or take any other action in respect of a claimed default  (whether or not
constituting an Event of Default) under this Reimbursement  Agreement, any other
Related Document or under any note, evidence

<PAGE>

of indebtedness, indenture or other obligation to which or with respect to which
WRP, the Bond Issuer or any of their respective  Subsidiaries (including but not
limited to Highlands) is a party or obligor, whether as principal or surety, and
such  default  would  permit  the  holder  of such note or  obligation  or other
evidence of indebtedness to accelerate the maturity thereof,  which acceleration
would  have a  material  adverse  effect on WRP,  the Bond  Issuer or any of the
Palomino  Entities,  or the existence of which  claimed  default might become an
Event of  Default  under  Sections  7.1(g) and  7.1(h),  Account  Parties  shall
forthwith  give written  notice  thereof to the Bank,  describing  the notice or
action and the nature of the claimed default.

     (2) ENVIRONMENTAL EVENTS.  Account Parties will promptly give notice to the
Bank (i) upon WRP,  Highlands  or the Bond  Issuer  obtaining  knowledge  of any
potential or known Release, or threat of Release, of any Hazardous Substances at
or from any portion of Phase I of the  Development  or any other  portion of the
Development  or any Real  Estate of WRP,  the Bond  Issuer  or their  respective
Subsidiaries  (with respect to the Real Estate of Subsidiaries of WRP other than
Palomino Entities,  only those which have the potential to materially affect the
assets,  liabilities,  financial  conditions or operations of WRP);  (ii) of any
violation  of any  Environmental  Law that WRP,  the Bond Issuer or any of their
respective  Subsidiaries  reports in writing or is  reportable by such Person in
writing  (or for which any  written  report  supplemental  to any oral report is
made) to any  federal,  state or local  environmental  agency;  and  (iii)  upon
becoming  aware thereof,  of any inquiry,  proceeding,  investigation,  or other
action, including a notice from any agency of potential environmental liability,
of any federal,  state or local  environmental  agency or board,  that in either
case involves any portion of Phase I of the  Development or any other portion of
the  Development  or Real  Estate of WRP,  the Bond  Issuer or their  respective
Subsidiaries  (including without  limitation  Highlands) or has the potential to
materially affect the assets, liabilities, financial conditions or operations of
WRP,  the  Bond  Issuer  or their  respective  Subsidiaries  (including  without
limitation Highlands).

     (3) NOTICE OF LITIGATION AND JUDGMENTS. Account Parties will give notice to
the Bank in  writing  within  15 days of  becoming  aware of any  litigation  or
proceedings  threatened  in writing or any pending  litigation  and  proceedings
affecting  Phase I of the  Development,  the balance of the  Development  or the
Public  Improvements,  WRP,  Highlands or any of its  Subsidiaries,  or the Bond
Issuer  or any of its  Subsidiaries  or to which  WRP,  Highlands  or any of its
Subsidiaries, or the Bond Issuer or any of its Subsidiaries is or is to become a
party involving an uninsured claim against any such Person that could reasonably
be expected to have a  materially  adverse  effect on WRP,  any of the  Palomino
Entities,  the Bond Issuer, or Highland or any of its Subsidiaries,  and stating
the nature and status of such  litigation or  proceedings.  Account Parties will
give notice to the Bank, in writing, in form and detail satisfactory to the Bank
within ten days of any  judgment  not  covered by  insurance,  whether  final or
otherwise,  against the Bond  Issuer,  its  Subsidiaries  or any of the Palomino
Entities  in an amount in excess of  $250,000,  or  against  WRP in an amount in
excess of $1,000,000.

     (4) [Reserved]

     (5) LOCATION, NAME AND BUSINESS. Account Parties shall promptly provide the
Bank with Notice of (a) any change of the location of their respective Executive
Offices or

<PAGE>

the  Executive  Office  of the  Palomino  Entities,  (b)  any  change  in  their
respective names or the name of any of the Palomino Entities or any intention of
either  of them or any of the  Palomino  Entities  to alter  the  nature  of its
business.

     (6) PALOMINO INDEBTEDNESS. Account Parties will promptly give notice to the
Bank of the incurrence of any  Indebtedness,  secured in whole or in part by any
real  property  securing  any  portion of the  assessments  to be paid under the
Assessment Agreement, including a description of such Indebtedness and the terms
and provisions thereof.

     SECTION 5.6 EXISTENCE; MAINTENANCE OF PROPERTIES.

     (1) WRP will do or cause to be done all things  necessary  to preserve  and
keep in full force and  effect  its  existence  as a  Maryland  corporation  and
Highlands' existence as a Colorado corporation. The Bond Issuer will do or cause
to be done all things  necessary  to preserve  and keep in full force and effect
its existence as a Colorado nonprofit corporation.  WRP and the Bond Issuer will
cause each of their respective Subsidiaries to do or cause to be done all things
necessary to preserve and keep in full force and effect its legal existence. WRP
and the Bond Issuer will do or cause to be done all things necessary to preserve
and  keep in full  force  all of its  rights  and  franchises  and  those of its
Subsidiaries.  WRP and the  Bond  Issuer  will,  and  will  cause  each of their
respective  Subsidiaries  to, continue to engage primarily in the businesses now
conducted by it and in related businesses.

     (2)  Account  Parties (i) will cause all of their  properties  and those of
their respective  Subsidiaries  (including but not limited to Highlands) used or
useful in the conduct of its business or the business of such Subsidiaries to be
maintained and kept in good  condition,  repair and working order (ordinary wear
and tear  excepted)  and supplied with all  necessary  equipment,  and (ii) will
cause to be made all necessary repairs, renewals,  replacements,  betterment and
improvements  thereof  in all cases in which the  failure  so to do would have a
material  adverse  effect on the condition of its properties or on the financial
condition,  assets or operations of WRP and its Subsidiaries (taken as a whole),
or the Bond Issuer and its Subsidiaries, respectively.

     SECTION 5.7  INSURANCE.  WRP and the Bond Issuer  will,  at their  expense,
procure and maintain or cause to be procured and maintained  insurance  covering
them,  their respective  Subsidiaries  and their  respective  properties in such
amounts and against such risks and casualties as are customary for properties of
similar  character  and  location,  due  regard  being  given  to  the  type  of
improvements thereon, their construction, location, use and occupancy.

     SECTION 5.8 TAXES. WRP, the Bond Issuer and each Subsidiary of each of them
will duly pay and discharge, or cause to be paid and discharged, before the same
shall become  overdue,  all taxes,  assessments and other  governmental  charges
imposed upon it and upon Phase I of the Development or other Real Estate,  sales
and activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of their respective property; provided that any
such tax, assessment,  charge, levy or claim need not be paid if the validity or
amount thereof

<PAGE>

shall  currently be contested in good faith by  appropriate  proceedings  and if
WRP,  the Bond  Issuer  or such  Subsidiary  shall  have set  aside on its books
adequate reserves with respect thereto;  and provided,  further,  that forthwith
upon the  commencement  of  proceedings  to  foreclose  any  lien  that may have
attached as security therefor, WRP, the Bond Issuer and each of their respective
Subsidiaries  either  (i) will  provide  a bond  issued  by a surety  reasonably
acceptable to the Bank and sufficient to stay all such proceedings or (ii) if no
such  bond is  provided,  will pay each such tax,  assessment,  charge,  levy or
claim.

     SECTION 5.9  INSPECTION  OF PROPERTIES  AND BOOKS.  WRP and the Bond Issuer
shall, and shall cause any of the Palomino  Entities to, permit the Bank, or any
representative designated by the Bank, at Account Parties' expense, to visit and
inspect the Public Improvements,  Phase I of the Development, the balance of the
Development  or any of the  other  properties  of the Bond  Issuer or any of the
Palomino  Entities,  to  examine  the books of account of each of them and their
Subsidiaries (and to make copies thereof and extracts  therefrom) and to discuss
the affairs,  finances and accounts of each of them and their Subsidiaries with,
and to be advised as to the same by, its officers,  all at such reasonable times
and intervals as the Bank may reasonably request.  The Bank shall use good faith
efforts  to  coordinate  such  visits  and  inspections  so as to  minimize  the
interference  with and disruption to WRP's, the Bond Issuer's and/or  Highland's
normal business operations.

     SECTION 5.10 COMPLIANCE WITH LAWS,  CONTRACTS,  LICENSES,  AND PERMITS. WRP
and  the  Bond  Issuer  will  each  comply  with,  and  will  cause  each of its
Subsidiaries  to  comply  in all  respects  with  (i) all  applicable  laws  and
regulations  now or  hereafter in effect  wherever  its  business is  conducted,
including all Environmental  Laws, (ii) the provisions of its corporate charter,
partnership  agreement or  declaration  of trust,  as the case may be, and other
charter  documents and bylaws,  (iii) all agreements and instruments to which it
is a party  or by  which  it or any of its  properties  may be  bound,  (iv) all
applicable  decrees,  orders,  and  judgments,  and (v) all licenses and permits
required by applicable  laws and  regulations for the conduct of its business or
the ownership, use or operation of its properties,  failure to comply with which
could have a material  adverse  effect on WRP,  Bond Issuer or their  respective
Subsidiaries.  If at any time  before the  Expiration  Date has  occurred or any
amount is due or owing to the Bank under  this  Reimbursement  Agreement  or any
Related Document, any authorization,  consent,  approval, permit or license from
any officer,  agency or instrumentality of any government shall become necessary
or required in order that any Account  Party may fulfill any of its  obligations
hereunder,  any  Account  Party will  immediately  take or cause to be taken all
steps  necessary  to obtain such  authorization,  consent,  approval,  permit or
license and furnish the Bank with evidence thereof.

     SECTION 5.11 FURTHER  ASSURANCES.  Each Account Party shall,  and WRP shall
cause any of the Palomino  Entities to, upon the request of the Bank,  from time
to time, execute and deliver and, if necessary,  file,  register and record such
further  financing  statements,  amendments,  confirmation  statements and other
documents  and  instruments  and take such further  action as may be  reasonably
necessary to effectuate the provisions of this  Reimbursement  Agreement and the
Related  Documents.  The  Bank  shall  be  entitled  to  receive,  when it deems
necessary,  such  information  which  shall  include  without  limitation,   all
financial or other information regarding the Subsidiaries of WRP as the Bank may
determine in its sole discretion

<PAGE>

to be related to the  maintenance of the Letter of Credit.  Except to the extent
it is exempt therefrom, Account Parties will pay or cause to be paid all filing,
registration  and  recording  fees  incident to such  filing,  registration  and
recording,  and  all  expenses  incident  to  the  preparation,   execution  and
acknowledgment  of such  instruments  or further  assurance,  and all federal or
state fees and other  similar fees,  duties,  imposts,  assessments  and charges
arising  out of or in  connection  with,  the  execution  and  delivery  of this
Reimbursement  Agreement,  the Related Documents and such instruments of further
assurance.

     SECTION  5.12 SILVER MESA  REDEMPTION.  WRP intends to cause Silver Mesa at
Palomino  Park LLC to repay its  Indebtedness  specified in Section  6.3(i),  by
refinancing  such  loan  with  new  Indebtedness  in an  amount  not  to  exceed
$32,000,000. Upon such refinancing taking effect, if the Account Parties wish to
extinguish  and remove the  Assessment and Lien secured by the property owned by
Silver Mesa at  Palomino  Park,  or if  otherwise  required  pursuant to Section
6.10(4),  the Account  Party hereby  undertakes  to cause the  redemption of the
Bonds  in the  amount  of  $2,070,000,  and  the  Bank  shall  consent  to  such
redemption.

     SECTION 5.13 MORE  RESTRICTIVE  AGREEMENTS.  Without  limiting the terms of
Section  6.3,  should  WRP enter  into or modify  any  agreements  or  documents
pertaining  to any  existing  or future  Indebtedness,  debt  offering or equity
offering which agreements or documents includes  covenants (whether  affirmative
or negative), warranties, representations, defaults or events of default (or any
provision  which may have the same  practical  effect  as any of the  foregoing)
which are  individually or in the aggregate more  restrictive  against WRP, than
those set forth herein,  WRP shall promptly  notify the Bank, and if the Bank so
requests, WRP shall agree to amend this Reimbursement  Agreement to include some
or all of such more restrictive provisions as determined by the Bank in its sole
discretion.

                                    ARTICLE 6

                               NEGATIVE COVENANTS

     Account Parties covenant and agree that, so long as the Expiration Date has
not occurred or any amount is due or owing to the Bank under this  Reimbursement
Agreement  or any Related  Document,  each of them shall comply with each of the
negative covenants  contained in this Article 6 unless the Bank shall have given
its prior written consent:

     SECTION 6.1  AMENDMENTS.  Each  Account  Party shall not, and WRP shall not
permit any  Subsidiary of WRP to amend,  modify or  supplement,  or agree to any
amendment or modification of, or supplement to, any of the Related  Documents or
the WRP Reimbursement Agreement to which it is a party. Each Account Party shall
not,  and WRP  shall  not  permit  any  Subsidiary  of WRP to  amend,  modify or
supplement, or agree to any amendment or modification of, or supplement to, that
certain  Operating  Agreement of Red Canyon,  dated as of April 17,  1996,  that
certain Operating Agreement of Highlands, dated as of April 27, 1995 (as amended
by that First Amendment to Operating Agreement of Highlands,  dated December 29,
1995) and that certain Deposit and Contract Administration Agreement, made as of
May 2, 1995, by

<PAGE>

and between the Feld Company and Highlands,  if such amendment,  modification or
supplement  would  have an  adverse  effect on the Bank or any  Account  Party's
ability to satisfy its  obligations  under this  Reimbursement  Agreement or any
Related Document or on Guarantor's  ability to satisfy its obligations under the
Guaranty.

     SECTION 6.2 OPTIONAL  REDEMPTION.  Except as provided in Section 5.12,  the
Account  Parties  shall not cause or permit an optional  redemption of the Bonds
pursuant to the Bond  Indenture  unless  such  optional  redemption  (a) will be
funded  without a drawing on the Letter of Credit or (b) the Bank has  consented
thereto in writing  (which consent may be granted or withheld by the Bank in its
sole discretion).

     SECTION 6.3  RESTRICTIONS ON  INDEBTEDNESS.  Bond Issuer and Highlands will
not, and will not permit any of their respective Subsidiaries to, create, incur,
assume,  guarantee  or be or remain  liable,  contingently  or  otherwise,  with
respect to any Indebtedness other than:

          (a)  Indebtedness  to the Bank and the  holders  of the Bonds  arising
     under any of the Reimbursement Agreement and the Related Documents, and the
     documents related thereto, Indebtedness of Red Canyon in a principal amount
     not to exceed  $29,500,000,  on terms  similar to those  applicable  to the
     construction   financing  for  Phase  I  of  the  Development  provided  by
     Nationsbank,  the proceeds of which will be used to  construct  Phase II of
     the Development;

          (b)  current  liabilities  of  Account  Parties  or  their  respective
     Subsidiaries  incurred in the ordinary  course of business but not incurred
     through (i) the borrowing of money,  or (ii) the obtaining of credit except
     for  credit  on an open  account  basis  customarily  extended  and in fact
     extended in connection with normal purchases of goods and services;

          (c)  Indebtedness  in  respect  of  taxes,  assessments,  governmental
     charges  or levies and claims for  labor,  materials  and  supplies  to the
     extent that payment  therefor  shall not at the time be required to be made
     in accordance with the provisions of Section 5.8;

          (d)  Indebtedness  in respect of judgments or awards that have been in
     force for less than the  applicable  period for taking an appeal so long as
     execution  is not levied  thereunder  or in  respect of which the  affected
     Account Parties shall at the time in good faith be prosecuting an appeal or
     proceedings  for review and in respect of which a stay of  execution  shall
     have been obtained pending such appeal or review;

          (e) endorsements for collection, deposit or negotiation and warranties
     of products or services,  in each case  incurred in the ordinary  course of
     business;

          (f) Indebtedness of the Bond Issuer to WRP under the WRP Reimbursement
     Agreement;

<PAGE>

          (g) the mortgage  loan to Park at  Highlands  LLC by Federal Home Loan
     Mortgage  Corporation in an amount not to exceed $34,500,000  pursuant to a
     Mortgage Loan Agreement dated December 24, 1997;

          (h) the  mortgage  loan to Red  Canyon by Federal  Home Loan  Mortgage
     Corporation in an amount not to exceed  $27,000,000  pursuant to a Mortgage
     Loan Agreement dated November 20, 1998;

          (i) the loan to Silver Mesa at  Palomino  Park LLC by Bank of America,
     National  Association in an amount not to exceed $27,733,391  pursuant to a
     Construction Loan Agreement dated December 18, 1998;

          (j) the loan to Green River at  Palomino  Park LLC by Bank of America,
     National Association in an amount not exceeding US$39,400,000 pursuant to a
     Construction Loan Agreement dated February 8, 2000; and

          (k) Indebtedness to refinance the loan specified in (i) above.

     SECTION 6.4  RESTRICTIONS ON LIENS ETC. Bond Issuer and Highlands will not,
and will not permit any of their respective Subsidiaries to, (i) create or incur
or suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge,  charge,  restriction or other security interest of any kind upon any of
its property or assets of any character whether now owned or hereafter acquired,
or upon the income or profits  therefrom;  (ii)  transfer any of its property or
assets or the income or profits therefrom for the purpose of subjecting the same
to the  payment  of  Indebtedness  or  performance  of any other  obligation  in
priority to payment of its general creditors; (iii) acquire, or agree or have an
option to acquire,  any property or assets upon  conditional sale or other title
retention or purchase  money security  agreement,  device or  arrangement;  (iv)
suffer to exist for a period of more than 30 days after the same shall have been
incurred any  Indebtedness or claim or demand against it that if unpaid might by
law or upon  bankruptcy  or  insolvency,  or  otherwise,  be given any  priority
whatsoever over its general  creditors;  (v) sell,  assign,  pledge or otherwise
transfer any accounts,  contract rights,  general intangibles,  chattel paper or
instruments,  with or without recourse; or (vi) incur or maintain any obligation
to any holder of  Indebtedness  of any Account  Party or such  Subsidiary  which
prohibits  the creation or  maintenance  of any lien  securing  the  obligations
thereof  (collectively  "Liens");  provided  that,  the Account  Parties and any
Subsidiary thereof may create or incur or suffer to be created or incurred or to
exist:

          (a)  liens in favor of WRP or its  Subsidiaries  on all or part of the
     assets of Subsidiaries  securing Indebtedness owing by such Subsidiaries to
     their parent;

          (b)  liens on  properties  to  secure  taxes,  assessments  and  other
     governmental  charges or claims for labor,  material or supplies in respect
     of obligations not overdue;

          (c)  liens  on  properties   in  respect  of   judgments,   awards  or
     indebtedness,  the  Indebtedness  with  respect  to which is  permitted  by
     Section 6.3(d), Section 6.3(f) or Section 4.5;

<PAGE>

          (d) encumbrances on properties consisting of easements, rights of way,
     zoning  restrictions,  restrictions on the use of real property and defects
     and irregularities in the title thereto, landlord's or lessor's liens under
     leases to which any Account Party or a Subsidiary  thereof is a party,  and
     other minor liens or encumbrances none of which interferes  materially with
     the use of the property affected in the ordinary conduct of the business of
     the  Account  Parties  and  their   Subsidiaries,   which  defects  do  not
     individually  or in the aggregate  have a materially  adverse effect on the
     business of any Account Party individually or of each Account Party and its
     Subsidiaries on a consolidated basis;

          (e)  liens  on  Real  Estate  and  Short-term   Investments   securing
     Indebtedness permitted by Section 6.3;

          (f) liens in favor of the Bank and liens in favor of the lender to the
     Palomino Entities securing  Indebtedness of the Palomino Entities permitted
     under Section;

          (g) liens arising under the Assessment and Lien; and

          (h) "Right of First Offer" made to Equity  Residential  Property Trust
     with respect to apartment  villages  owned by Park at Highlands LLC and Red
     Canyon.

     SECTION  6.5  RESTRICTIONS  ON  INVESTMENTS.  Neither  the Bond  Issuer  or
Highlands will not, and will not permit any of their respective Subsidiaries to,
make  or  permit  to  exist  or to  remain  outstanding  any  Investment  except
Investments in:

          (a) marketable  direct or guaranteed  obligations of the United States
     of America  that  mature  within one (1) year from the date of  purchase by
     such Account Party or such Subsidiaries;

          (b) marketable  direct  obligations  of any of the following:  Federal
     Home Loan Mortgage Corporation, Student Loan Marketing Association, Federal
     Home Loan Banks, Federal National Mortgage Association, Government National
     Mortgage  Association,  Bank for Cooperatives,  Federal Intermediate Credit
     Banks,  Federal Financing Banks,  Export-Import  Bank of the United States,
     Federal Land Banks,  or any other agency or  instrumentality  of the United
     States of America;

          (c) demand deposits,  certificates of deposit, bankers acceptances and
     time  deposits of United  States  banks  having  total  assets in excess of
     $100,000,000;  provided,  however, that the aggregate amount at any time so
     invested   with  any  single  bank  having   total   assets  of  less  than
     $1,000,000,000 will not exceed $200,000;

          (d)  securities  commonly  known as  "commercial  paper"  issued  by a
     corporation  organized and existing  under the laws of the United States of
     America or any State which at the time of purchase  are rated by Moody's or
     by Standard & Poor's at not less than "P 1" if then rated by  Moody's,  and
     not less than "A 1", if then rated by Standard & Poor's;

<PAGE>

          (e) mortgage-backed  securities  guaranteed by the Government National
     Mortgage  Association,  the Federal  National  Mortgage  Association or the
     Federal Home Loan  Mortgage  Corporation  and other  mortgage-backed  bonds
     which at the time of purchase  are rated by Moody's or by Standard & Poor's
     at not less than "Aa" if then  rated by  Moody's  and not less than "AA" if
     then rated by Standard & Poor's;

          (f) repurchase  agreements  having a term not greater than 90 days and
     fully secured by securities  described in the foregoing  Sections  6.5.(a),
     6.5(b) or 6.5(e) with banks  described in the foregoing  Section  6.5(c) or
     with financial  institutions or other  corporations  having total assets in
     excess of $500,000,000;

          (g) shares of so-called  "money market funds"  registered with the SEC
     under the Investment  Company Act of 1940 which maintain a level  per-share
     value,  invest  principally  in  investments  described  in  the  foregoing
     Sections  6.5(a)  through  6.5(f)  and  have  total  assets  in  excess  of
     $50,000,000; and

          (h) Investments in WRP, Bond Issuer or the Palomino Entities.

     SECTION 6.6 MERGER, CONSOLIDATION.  Neither Bond Issuer nor Highlands will,
or will permit any of their  respective  Subsidiaries  to, become a party to any
merger or consolidation  without the prior written consent of the Bank. WRP will
not, and will not permit any of its respective  Subsidiaries  to, become a party
to any merger or consolidation  except (i) the merger or consolidation of one or
more Subsidiaries of WRP with and into WRP, with WRP being the surviving entity,
and  (ii)  the  merger  or  consolidation  of two or more  Subsidiaries  of WRP;
provided  however,  that any such merger or  consolidation  shall not  adversely
affect the effectiveness of the Guaranty.

     SECTION 6.7 SALE AND LEASEBACK.  Neither Bond Issuer nor Highlands will, or
will permit any of their respective Subsidiaries to, enter into any arrangement,
directly or  indirectly,  whereby Bond Issuer and  Highlands  or any  Subsidiary
thereof shall sell or transfer any Real Estate owned by it in order that then or
thereafter  Bond Issuer and Highlands or any  Subsidiary of either of them shall
lease back such Real Estate.

     SECTION 6.8 COMPLIANCE WITH ENVIRONMENTAL LAWS.

     (1) Account Parties will not, and will not permit any of their Subsidiaries
(including  without limitation  Highlands) to, do any of the following:  (a) use
any  portion  of Phase I of the  Development  or any of the Real  Estate  or any
portion thereof as a facility for the handling,  processing, storage or disposal
of Hazardous  Substances,  except for small  quantities of Hazardous  Substances
used in the ordinary  course of business and in compliance  with all  applicable
Environmental  Laws, (b) cause or permit to be located on any portion of Phase I
of the  Development  or any of the Real  Estate  any  underground  tank or other
underground   storage  receptacle  for  Hazardous   Substances  except  in  full
compliance with Environmental Laws, (c) generate any Hazardous Substances on any
portion of Phase I of the

<PAGE>

Development  or  any  of  the  Real  Estate  except  in  full   compliance  with
Environmental  Laws,  (d) conduct any  activity at any portion of Phase I of the
Development or any Real Estate or use any portion of Phase I of the  Development
or any  Real  Estate  in any  manner  so as to  cause  a  Release  of  Hazardous
Substances on, upon or into Phase I of the Development or the Real Estate or any
surrounding  properties or any threatened Release of Hazardous  Substances which
might give rise to liability under CERCLA or any other Environmental Law, or (e)
directly or  indirectly  transport or arrange for the transport of any Hazardous
Substances (except in compliance with all Environmental Laws).

     (2) Account Parties shall:

          (a) in the event of any change in  Environmental  Laws  governing  the
     assessment,  release or removal of Hazardous Substances, which change would
     lead a prudent lender to require  additional testing to avail itself of any
     statutory  insurance  or limited  liability,  take all  action  (including,
     without limitation, the conducting of engineering tests at the sole expense
     of Account  Parties) to confirm  that no Hazardous  Substances  are or ever
     were  Released  or disposed  of on Phase I of the  Development  or the Real
     Estate; and

          (b) if any Release or disposal of Hazardous  Substances shall occur or
     shall  have  occurred  on Phase I of the  Development  or the  Real  Estate
     (including  without limitation any such Release or disposal occurring prior
     to the  acquisition  of such  Development  or Real  Estate  by any  Account
     Party),  cause  the  prompt  containment  and  removal  of  such  Hazardous
     Substances and remediation of Phase I of the Development or the Real Estate
     in full  compliance  with all applicable  laws and  regulations  and to the
     satisfaction of the Bank; provided, that Account Parties shall be deemed to
     be in compliance with Environmental Laws for the purpose of this subsection
     (b) so long as it or a responsible  third party with  sufficient  financial
     resources is taking  reasonable  action to remediate or manage any event of
     noncompliance to the satisfaction of the Bank and no action shall have been
     commenced  by  any  enforcement   agency.  The  Bank  may  engage  its  own
     Environmental Engineer to review the environmental  assessments and Account
     Parties' compliance with the covenants contained herein.

At any time after an Event of Default shall have occurred hereunder, or, whether
or not an Event of Default shall have occurred,  at any time that the Bank shall
have  reasonable  grounds to believe  that a Release  or  threatened  Release of
Hazardous  Substances may have occurred,  relating to Phase I of the Development
or any Real Estate, or that any of Phase I of the Development or the Real Estate
is not in compliance with the  Environmental  Laws, the Bank may at its election
(and will at the request of the Bank) obtain such  environmental  assessments of
Phase I of the  Development  or such Real Estate  prepared  by an  Environmental
Engineer as may be  necessary  or  advisable  for the purpose of  evaluating  or
confirming (i) whether any Hazardous Substances are present in the soil or water
at or  adjacent  to Phase I of the  Development  or such  Real  Estate  and (ii)
whether the use and operation of Phase I of the  Development or such Real Estate
comply  with all  Environmental  Laws.  Environmental  assessments  may  include
detailed  visual  inspections of Phase I of the  Development or such Real Estate
including, without limitation, any and all storage areas, storage tanks, drains,
dry wells and leaching  areas,  and the taking of soil samples,  as well as such
other  investigations or analyses as are necessary or appropriate for a complete
determination  of the  compliance  of such Real Estate and the use and operation
thereof

<PAGE>

with all applicable Environmental Laws. All such environmental assessments shall
be at the sole cost and expense of Account Parties.

     SECTION 6.9 DISTRIBUTIONS.  WRP will not make any Distributions which would
cause it to violate the provisions of Section 6.17.

          SECTION 6.10 ASSET SALES.

     (1) WRP shall not sell,  transfer,  or otherwise dispose of any interest in
Highlands  unless after  giving  effect to such  disposition,  WRP shall hold at
least  fifty-one  percent  (51%)  of the  Voting  Interests  of  Highlands,  and
Highlands shall not sell, transfer,  or otherwise dispose of any interest in any
of the  Palomino  Entities  or any other  limited  liability  company  formed to
develop  any  phase  of the  Development  that  is or  will  be  subject  to the
Assessment and Lien, unless, after giving effect to such disposition,  Highlands
shall  hold at least  fifty-one  percent  (51%) of the Voting  Interests  of the
Palomino Entities or such other limited liability companies (as applicable),  in
any case, unless consented to in writing by the Bank.

     (2) WRP  shall  not  sell,  transfer  or  otherwise  dispose  of any of its
interest whether direct or indirect in Highlands,  WPHC and/or Red Canyon or any
of its  interest in any  portion of the  Development  without  the Bank's  prior
written consent.

     (3) Highlands shall not sell,  transfer or otherwise  dispose of Phase I of
the  Development  or any  portion  thereof or any of its  interest  in any other
portion of the Development without the Bank's prior written consent.

     (4)  Notwithstanding  the  foregoing,  the  Bank  agrees  that it will  not
unreasonably  withhold  its  consent  to the sale of one or more  phases  of the
Development  as  condominiums,  subject to an allocable  redemption of the Bonds
prior to conversion,  and a corresponding  reduction of the stated amount of the
letter of credit issued by the Bank; provided,  however, that the amount of such
redemption shall be authorized by the Bank in advance of such sale.

     SECTION 6.11 [RESERVED].

     SECTION 6.12 [RESERVED] .

     SECTION 6.13 RESTRICTION ON PREPAYMENT OF  INDEBTEDNESS.  Bond Issuer shall
not prepay the principal amount, in whole or in part, of any Indebtedness  other
than the  obligations  to the Bank  under the  Reimbursement  Agreement  and the
Related Documents;  provided,  however, that after the occurrence of an Event of
Default, Bond Issuer may prepay the Indebtedness  described in Section 6.3(b) in
the ordinary course of business.

     SECTION 6.14 [RESERVED].

     SECTION 6.15  RESTRICTIONS  UPON MODES AND INTEREST PERIODS FOR BONDS. Each
Account Party covenants that,  until after the Expiration  Date: (a) the Account
Parties  will not

<PAGE>

permit any Rate  Period to be in effect  which has a duration of longer than two
hundred  and ten (210)  days or which ends after the  Expiration  Date;  (b) the
Account  Parties will not permit a  particular  Rate Period to be in effect with
respect to a particular Rate Mode if the initial  principal  amount of the Bonds
covered by such Rate Period and Rate Mode is less than  $3,000,000;  and (c) the
Account  Parties will not permit the Bonds to bear interest at a rate other than
the Weekly Rate (as  defined in the Bond  Indenture)  without the prior  written
consent of the Bank.

     SECTION 6.16 ACCOUNTING  METHODS AND FISCAL YEAR.  Account Parties will not
and will not permit any of their Subsidiaries to adopt, permit or consent to any
change in  accounting  practices  other than as required by  generally  accepted
accounting principles.

     SECTION 6.17 FINANCIAL COVENANTS OF WRP.

     (1) MINIMUM  SHAREHOLDER'S  EQUITY.  WRP will not, at the end of any fiscal
quarter,  permit  its  Shareholder's  Equity to be less than  $200,000,000  (the
"Shareholders' Equity Threshold");  provided,  however, the Shareholders' Equity
Threshold  shall be reduced by the aggregate  cost of the shares of common stock
of WRP repurchased by WRP after the date hereof, provided that in no event shall
the Shareholders' Equity Threshold be reduced to less than $180,000,000.

     (2)  CONSOLIDATED  EBITDA . WRP will not, at the end of any fiscal quarter,
permit  WRP's  Consolidated  EBITDA  for  the  Test  Period  minus  the  Capital
Improvement  Reserve  for the Test  Period to be less  than  1.35  times the WRP
Consolidated Debt Service for the Test Period.

     (3) ASSETS TO LIABILITIES RATIO. WRP, at the end of any fiscal quarter will
not permit the ratio of its Consolidated  Total  Liabilities to its Consolidated
Total Assets to exceed 0.55 to 1.

     SECTION  6.18  OFFICIAL  STATEMENT  AND  OTHER  DOCUMENTS.  Other  than the
sections  of the  Official  Statement  entitled  "THE LETTER OF CREDIT" and "THE
REIMBURSEMENT  AGREEMENT"  and the  references to and summaries of such Sections
throughout the Official  Statement,  Account Parties shall not include or permit
to be included,  any material or reference relating to the Bank or the Letter of
Credit in any offering  circular or any other document or any tombstone,  unless
such  material  or  reference  is  approved  in writing by the Bank prior to its
inclusion therein;  provided, that Account Parties may disclose the existence of
the Letter of Credit to the extent  required in connection  with their reporting
or disclosure requirements;  or distribute, or permit to be distributed or used,
any offering circular unless a copy of such offering circular has been furnished
to the Bank.

     SECTION 6.19 REMARKETING.  Account Parties shall not permit the Remarketing
Agent for the Bonds to remarket any Bonds, (i) if an Event of Default shall have
occurred and be continuing and the Bank shall have  instructed  Account  Parties
not to permit the  remarketing  of such Bonds,  or (ii) at a price less than the
principal  amount  thereof  plus  accrued  interest,  if  any,  thereon  to  the
respective dates of remarketing.

<PAGE>

     SECTION  6.20  SUBSTITUTE  CREDIT  FACILITY.   Account  Parties  shall  not
authorize,  permit or consent to any substitution of another credit or liquidity
facility  for the Letter of Credit  unless (a) there  shall be paid to the Bank,
prior to or simultaneously  with such substitution,  any and all amounts due and
owing and to become due and owing to the Bank (including  without limitation all
unpaid Drawings, Liquidity Drawing Amounts, LC Loans and the pro rata portion of
all accrued and unpaid fees) under this  Reimbursement  Agreement  and the other
Related Documents, and (ii) a substitution occurs for the Letter of Credit.

     SECTION 6.21 REMARKETING AGENT AND BOND TRUSTEE.  Account Parties shall not
appoint or permit or suffer to be appointed any successor  Remarketing  Agent or
successor  Bond Trustee  without the prior  written  approval of the Bank (which
approval  shall  not be  unreasonably  withheld);  or enter  into any  successor
Remarketing  Agreement  without  the prior  written  approval of the Bank (which
approval  shall not be  withheld  if and so long as such  successor  Remarketing
Agreement contains provisions that are substantially the same as those contained
in, and  affords  protection  to the rights  and  interests  of the Bank that is
substantially  the  same  as  that  afforded  by,  the  predecessor  Remarketing
Agreement,  as the case may be). Any approvals  required from the Bank hereunder
shall be given or denied within 10 days of the request therefor, accompanied, in
the case of a  successor  Remarketing  Agreement,  by a draft  of such  proposed
Remarketing  Agreement in final form,  and the failure of the Bank to respond to
such  request by the close of business on the tenth day shall be deemed,  on the
eleventh  day,  to  constitute  consent  by the  Bank  hereunder.  Prior  to its
appointment,  any  substitute  Bond Trustee must sign an agreement  assuming the
obligations of its predecessor under the Pledge Agreement.

                                    ARTICLE 7

                                EVENTS OF DEFAULT

     SECTION  7.1 EVENTS OF  DEFAULT.  The  occurrence  of any of the  following
events  (including  the  expiration of any specified  time) shall  constitute an
"EVENT OF DEFAULT," unless waived by the Bank in writing:

          (a) failure of any Account  Party to pay when due any amount due under
     this  Reimbursement  Agreement or under any of the Related  Documents other
     than  amounts  drawn  under the Letter of Credit  pursuant  to a  Liquidity
     Drawing or an LC Loan;

          (b)  failure  of the  Account  Parties  to pay when  due and  payable,
     whether at the stated date of maturity or any accelerated  date of maturity
     or at any other date fixed for  payment,  any amount drawn under the Letter
     of  Credit  pursuant  to a  Liquidity  Drawing  or an LC  Loan,  except  as
     permitted by Section 2.2;

          (c) failure of any Account Party to observe or perform its  respective
     obligations  under the  covenants,  conditions or  provisions  set forth in
     Sections  5.4,  6.1,  6.2,  6.10(2),   6.10(3),   6.15,  or  6.19  of  this
     Reimbursement Agreement; or failure of WRP to observe or perform any of the
     covenants  set forth in Section 6.17 and to remedy such  failure  within 15
     Business Days of such failure;

<PAGE>

          (d)  failure of any  Account  Party to  observe or perform  any of the
     covenants,  conditions or provisions of this Reimbursement Agreement (other
     than as specified in Sections 7.1(a),  (b) and (c),  above),  and to remedy
     such failure within 15 Business Days of such failure;

          (e) any  representation  or warranty  made by any Account Party or its
     Subsidiaries  (including  without  limitation  Highlands)  herein or in any
     Related  Documents,  certificate,  financial or other  statement  furnished
     pursuant to this  Reimbursement  Agreement or other Related Documents shall
     prove to have been untrue or incomplete in any material respect when made;

          (f) the  occurrence  and  continuation  of a  default  or an  event of
     default under the Bond Indenture or any of the other Related Documents;

          (g) (i) default by any Account  Party in the payment of the  principal
     of or interest on any obligation or Indebtedness owed to the Bank; (ii) the
     default by the Bond Issuer in the payment of the  principal  of or interest
     on any other  obligation  for  borrowed  money,  credit  received  or other
     Indebtedness,  as and when the same shall become due, or failure to observe
     or perform any  material  term,  covenant  or  agreement  contained  in any
     agreement by which it is bound,  evidencing  or securing any such  borrowed
     money or credit received or other  Indebtedness  for such period of time as
     would permit  (assuming the giving of appropriate  notice is requested) the
     holder or  holders  thereof  or of any  obligations  issued  thereunder  to
     accelerate the maturity  thereof,  or (iii) the default by WRP with respect
     to any Indebtedness with an aggregate  outstanding principal amount greater
     than  $10,000,000,  in the payment of the  principal  of or interest on any
     other obligation for borrowed money, credit received or other Indebtedness,
     as and when the same shall become due, or failure to observe or perform any
     material term, covenant or agreement contained in any agreement by which it
     is bound, evidencing or securing any such borrowed money or credit received
     or other Indebtedness for such period of time as would permit (assuming the
     giving of appropriate notice is requested) the holder or holders thereof or
     of any obligations issued thereunder to accelerate the maturity thereof;

          (h) entry or filing of any judgment,  writ or warrant of attachment or
     of any similar process against any Account Party or any of their respective
     Subsidiaries  or against  any  property  of any  Account  Party or any such
     Subsidiary,  in an amount in excess of (i) the sum of $250,000 with respect
     to Bond Issuer or its Subsidiaries,  or (ii) $1,000,000 with respect to WRP
     or any of its Subsidiaries, or any judgment creditor shall levy upon assets
     or  properties  of  either  Account  Party  or  any  of  their   respective
     Subsidiaries;

          (i) filing of a  petition  or  application  for the  appointment  of a
     trustee or other custodian, liquidator or receiver in bankruptcy, custodian
     or receiver for any Account Party or any of their  respective  Subsidiaries
     (limited to Highlands and its  Subsidiaries  with respect to WRP) or all or
     part of their  respective  assets and  property or any thereof or a case or
     other  proceeding  shall be commenced  against any Account  Party or any of

<PAGE>

     their  respective  Subsidiaries  (limited to Highlands and its Subsidiaries
     with  respect to WRP) under any  bankruptcy,  reorganization,  arrangement,
     insolvency, readjustment of debt, dissolution of liquidation or similar law
     of any jurisdiction,  now or hereafter in effect,  and any Account Party or
     any  of  their  respective   Subsidiaries  (limited  to  Highland  and  its
     Subsidiaries  with respect to WRP) shall  indicate  its  approval  thereof,
     consent thereto or acquiescence therein or such petition, application, case
     or proceeding  shall not have been  dismissed  within 60 days following the
     filing or commencement thereof;

          (j) institution of bankruptcy, reorganization, arrangement, insolvency
     or  liquidation  proceedings,  or other  proceedings  for relief  under any
     bankruptcy law or similar law for the relief of debtors,  by or against any
     Account Party or any of their respective Subsidiaries (limited to Highlands
     and  its   Subsidiaries   with  respect  to  WRP)  (other  than  bankruptcy
     proceedings instituted by any Account Party against third parties), and, if
     instituted   against  any  Account   Party  or  any  of  their   respective
     Subsidiaries  (limited to Highlands  and its  Subsidiaries  with respect to
     WRP), allowance or consent by such Person to such proceedings or failure to
     obtain dismissal, stay or other nullification within thirty (30) days after
     such institution;

          (k)  entrance  of a decree  or  order  appointing  any  such  trustee,
     custodian,  liquidator or receiver or adjudicating any Account Party or any
     of their respective  Subsidiaries (limited to Highland and its Subsidiaries
     with respect to WRP) bankrupt or insolvent,  or approving a petition in any
     such case or other  proceeding,  or a decree or order for relief is entered
     in respect of any  Account  Party or any of their  respective  Subsidiaries
     (limited to Highlands  and its  Subsidiaries  with respect to WRP), in each
     case of the foregoing in an involuntary case under federal  bankruptcy laws
     as now or hereafter constituted;

          (l) (A) remaining in force,  undischarged,  unsatisfied  and unstated,
     for more than 30 days,  whether or not  consecutive,  any  uninsured  final
     judgment  against the Bond  Issuer,  Highlands  or any of their  respective
     Subsidiaries  that,  with  other  outstanding  uninsured  final  judgments,
     undischarged,  against the Bond Issuer,  Highlands  and their  Subsidiaries
     exceeds in the aggregate $250,000; or (B) remaining in force, undischarged,
     unsatisfied  and  unstayed,   for  more  than  60  days,   whether  or  not
     consecutive,  any  uninsured  final  judgment  against WRP or any  Material
     Subsidiary of WRP that, with other  outstanding  uninsured final judgments,
     undischarged,  against WRP and its Material  Subsidiaries  exceeds,  in the
     aggregate, $1,000,000.

          (m)  cancellation,  termination,  revocation  or  rescission  of  this
     Reimbursement  Agreement  or of the  Related  Documents  otherwise  than in
     accordance  with the  terms  thereof  or with  the  express  prior  written
     agreement,  consent or approval of the Bank,  or any action at law, suit in
     equity or other legal  proceeding to cancel,  revoke or rescind any of this
     Reimbursement  Agreement or the Related  Documents shall be commenced by or
     on behalf of any Account  Party or any of its holders of Voting  Interests,
     any of the Palomino Entities,  the Bond Trustee or the Remarketing Agent or
     any Bond  holder  or any  court or any  other  governmental  or  regulatory
     authority or agency of competent

<PAGE>

     jurisdiction shall make a determination  that, or issue a judgment,  order,
     decree or ruling to the effect that, any one or more of this  Reimbursement
     Agreement  or  any  of  the  Related  Documents  is  illegal,   invalid  or
     unenforceable  in accordance with the terms thereof in any material respect
     as determined by the Bank;

          (n) any  dissolution,  termination,  partial or complete  liquidation,
     merger  or  consolidation  of any  Account  Party  or  any of the  Palomino
     Entities or any sale,  transfer or other  disposition  of the assets of any
     Bond Issuer or Highlands  or any of their  respective  Subsidiaries  or any
     sale, transfer, or other disposition of a substantial portion of the assets
     of WRP,  other  than as  permitted  under the  terms of this  Reimbursement
     Agreement or the Related Documents;

          (o) any suit or proceeding shall be filed against any Account Party or
     any of its Subsidiaries or any of their respective assets which in the good
     faith  business  judgment  of the Bank after  giving  consideration  to the
     likelihood of success of such suit or proceeding  and the  availability  of
     insurance  to cover any  judgment  with  respect  thereto  and based on the
     information  available  to them,  if  adversely  determined,  would  have a
     materially  adverse  affect on the ability of such Account  Party or any of
     the  Palomino  Entities  to perform  each and every one of its  obligations
     under  and by  virtue  of this  Reimbursement  Agreement  and  the  Related
     Documents;

          (p) Any  Account  Party  shall be  indicted  for a  federal  crime,  a
     punishment  for which could include the  forfeiture of any assets of any of
     them;

          (q) Jeffrey H. Lynford shall cease to be the Chairman of the Board of,
     and  Edward  Lowenthal  shall  cease to be the  President  of,  WRP,  and a
     competent  and  experienced  successor  for each such  Person  shall not be
     approved by the Bank within six (6) months of such event;

          (r)  this  Reimbursement  Agreement  or any of the  Related  Documents
     ceases to be valid and binding on any Account  Party or any of the Palomino
     Entities (as  applicable);  or this  Reimbursement  Agreement or any of the
     Related   Documents  is  declared   null  and  void,  or  the  validity  or
     enforceability  thereof is  contested  by any  Account  Party or any of the
     Palomino  Entities  (as  applicable);  or any  Account  Party or any of the
     Palomino  Entities (as applicable);  denies it has any or further liability
     under this Reimbursement Agreement or any of the Related Documents;

          (s) the  substitution  or  replacement of the Letter of Credit with an
     Alternate  Letter of Credit (as  defined in the Bond  Indenture)  while any
     amounts are owed to the Bank hereunder or under the Letter of Credit;

          (t) default under the Guaranty by the Guarantor; and

          (u) default by the  Guarantor  in the payment of the  principal  of or
     interest on any  obligations  or  Indebtedness  under the Revolving  Credit
     Agreement (as defined in the Guaranty);  or the occurrence and continuation
     of a default under, or the failure to observe

<PAGE>

     or perform any  material  term,  covenant  or  agreement  contained  in the
     Revolving Credit Agreement;

then,  and in any such event,  the Bank may, by notice in writing to the Account
Parties,  declare all amounts owing with respect to this Reimbursement Agreement
and the Related  Documents  to be, and they shall  thereupon  forthwith  become,
immediately due and payable without presentment, demand, protest or other notice
of any kind,  all of which are hereby  expressly  waived by each Account  Party;
provided that in the event of any Event of Default  specified in Section 7.1(j),
or 7.1(k) or 7.1(l),  all such amounts shall become  immediately due and payable
automatically and without any requirement of notice from the Bank.

     SECTION 7.2 RIGHTS AND REMEDIES. Upon the occurrence and continuation of an
Event of Default,  the Bank,  in its sole  discretion,  (a) may by notice to the
Account  Parties and the Bond Trustee,  declare the  obligations  of the Account
Parties  hereunder  and under the  Promissory  Notes to be  immediately  due and
payable,  and the  same  shall  thereupon  become  immediately  due and  payable
(provided that, the  obligations of the Account  Parties  hereunder shall be and
become  automatically  and  immediately due and payable without such notice upon
the  occurrence of an Event of Default  described in Section  7.1(j),  7.1(k) or
7.1(l) above),  without  demand,  presentment,  protest or further notice of any
kind, all of which are hereby  expressly  waived by each Account Party,  (b) may
deliver to the Bond  Trustee  written  notice  that an Event of Default has been
declared under this  Reimbursement  Agreement and that the Letter of Credit will
terminate  ten (10) days after  receipt of such notice  together  with a written
request  that the  Bonds be  accelerated,  (c) may  cure any  default,  event of
default or event of nonperformance  under this Reimbursement  Agreement or under
any of the Related Documents (in which event the Account Parties shall reimburse
the Bank  therefor  pursuant to Section  2.12  hereof),  (d) may direct the Bond
Trustee to cause a mandatory  tender of the Bonds pursuant to Section 4.02(c) of
the Bond  Indenture,  (e) may direct the  Account  Parties  not to permit or the
Remarketing  Agent to cease remarketing the Bonds, or (f) may exercise any other
rights or remedies  available under this  Reimbursement  Agreement,  any Related
Document, any other agreement or at law or in equity. The rights and remedies of
the  Bank  specified  herein  are for the sole and  exclusive  benefit,  use and
protection  of the Bank,  and the Bank is  entitled,  but shall  have no duty or
obligation to any Account Party, the Bond Trustee, the Bondholders or otherwise,
(i) to exercise or to refrain from  exercising  any right or remedy  reserved to
the Bank  hereunder,  or (ii) to cause the Bond  Trustee  or any other  party to
exercise or to refrain from exercising any right or remedy available to it under
any of the Related Documents.

                                    ARTICLE 8

                     NATURE OF OBLIGATIONS; INDEMNIFICATION

     SECTION 8.1  OBLIGATIONS  ABSOLUTE.  The  obligations of each Account Party
under  this  Reimbursement  Agreement  shall  be  absolute,   unconditional  and
irrevocable,  and shall not be  subject  to any right of setoff or  counterclaim
against the Bank or any Participant,  and shall be paid or performed strictly in
accordance with the terms of this Reimbursement  Agreement and

<PAGE>

the other  Related  Documents  under  all  circumstances  whatsoever,  including
without  limitation  the  following  circumstances:  (a) any lack of validity or
enforceability of this Reimbursement  Agreement or any Related Document; (b) any
amendment  or waiver of, or any  consent to  departure  from,  all or any of the
Related Documents,  other than, with respect to any particular  obligation,  the
specific  waiver by the Bank of such  particular  obligation  under such Related
Document; (c) the existence of any claim, set-off,  defense or other right which
any Account Party may have at any time against the Bond Trustee, any beneficiary
or any  transferee  of the  Letter of Credit (or any  Persons  for whom the Bond
Trustee, any such beneficiary or any such transferee may be acting), the Bank or
any other Person, whether in connection with this Reimbursement  Agreement,  any
Related  Document,  the  transactions  contemplated  herein  or  therein  or any
unrelated  transaction;  (d) any breach of contract or dispute  among or between
any Account Party,  the Palomino  Entities,  the Bond Trustee,  the  Remarketing
Agent,  the  Guarantor,  the  Bank or any  other  Person;  (e) any  certificate,
statement or any other document  presented under the Letter of Credit proving to
be forged,  fraudulent,  invalid or insufficient in any respect or any statement
therein being untrue or inaccurate  in any respect  (unless the Account  Parties
prove that any Bank action taken in reliance on such  certificate,  statement or
other document  constituted  gross  negligence or willful  misconduct);  (f) any
non-application  or  misapplication  by the Bond  Trustee of the proceeds of any
Drawing  under the  Letter of  Credit or any other act or  omission  of the Bond
Trustee, the Remarketing Agent or any other Person in connection with the Letter
of  Credit;  (g)  payment  by the  Bank  under  the  Letter  of  Credit  against
presentation of a certificate which does not comply with the terms of the Letter
of Credit;  provided  that such  payment by the Bank shall not have  constituted
gross  negligence or willful  misconduct of the Bank;  (h) any extension of time
for or delay,  renewal or  compromise  of or other  indulgence  or  modification
granted or agreed to by the Bank with or without  notice to or  approval  by the
Account  Parties  with  respect to the Banking  Arrangements  other  than,  with
respect to any particular  obligation or cost, the specific  modification to the
Account  Parties by the Bank of such  particular  obligation or cost; or (i) any
other circumstance or happening whatsoever, whether or not similar to any of the
foregoing,   provided  that  such  circumstance  or  happening  shall  not  have
constituted gross negligence or willful misconduct of the Bank.

     SECTION  8.2  CONTINUING  OBLIGATION.  This  Reimbursement  Agreement  is a
continuing obligation,  shall survive the expiration of the Letter of Credit and
shall (a) be binding  upon the Bank,  the Account  Parties and their  respective
successors  and assigns,  and (b) inure to the benefit of and be  enforceable by
the Bank and its successors,  transferees and assigns; provided that neither WRP
nor the Bond Issuer may assign all or any part of this  Reimbursement  Agreement
without the prior written consent of the Bank.

     SECTION 8.3 LIABILITY OF THE BANK.  Account Parties assume all risks of the
acts or omissions of the Bond Trustee and any transferee of the Letter of Credit
with respect to its use of the Letter of Credit. Neither the Bank nor any of its
officers or directors shall be liable or responsible  for: (a) the use which may
be made of the Letter of Credit or for any acts or omissions of the Bond Trustee
and any  beneficiary  or transferee in connection  therewith;  (b) any reference
which may be made to this Reimbursement Agreement or the Letter of Credit in any
agreements,  instruments or other  documents;  (c) the validity,  sufficiency or
genuineness  of  documents,  or of any  endorsement(s)  thereon,  even  if  such
documents should in fact prove to be

<PAGE>

in any or all respects invalid, insufficient,  fraudulent or forged; (d) payment
by the Bank against presentation of documents which do not comply with the terms
of the  Letter  of  Credit,  including  failure  of any  documents  to bear  any
reference  or  adequate  reference  to the  Letter of  Credit;  or (e) any other
circumstances  whatsoever  in making or failing to make payment under the Letter
of Credit. Without limiting the foregoing, the Bank may accept any document that
appears  on  its  face  to be  in  order,  without  responsibility  for  further
investigation.  The  determination  of whether a drawing has been made under the
Letter of Credit  prior to the  Expiration  Date or whether a drawing made under
the Letter of Credit is in proper and sufficient  form shall be made by the Bank
in its sole discretion, which determination shall be conclusive and binding upon
Account  Parties to the  extent  permitted  by law except to the extent  Account
Parties proves that such  determination  constituted gross negligence or willful
misconduct of the Bank.  Account Parties hereby waive any right to object to any
payment  made under the Letter of Credit with regard to a drawing that is in the
form  provided  in the  Letter of  Credit,  but which  varies  with  respect  to
punctuation,    capitalization,   spelling   or   similar   matters   of   form.
Notwithstanding  the foregoing,  the Bank shall be liable to Account Parties for
acts or events described in subsections (a) through (e) above to the extent, but
only to the  extent,  of any  direct,  as  opposed  to  indirect  or  special or
consequential, damages, suffered by Account Parties which Account Parties proves
were caused by: (i) the gross  negligence or willful  misconduct of the Bank, in
determining  whether a drawing made under the Letter of Credit complies with the
terms and conditions  therefor stated in the Letter of Credit, or (ii) the gross
negligence  or  willful  failure  of the Bank to pay under the  Letter of Credit
after a  drawing  by the Bond  Trustee  strictly  complying  with the  terms and
conditions of the Letter of Credit;  provided,  however, that the maximum amount
of damages recoverable by Account Parties as provided above is expressly limited
to the Stated Amount of the Letter of Credit.

     SECTION  8.4  INDEMNIFICATION.  In  addition  to  any  and  all  rights  of
reimbursement,  indemnification, subrogation or any other rights pursuant hereto
or under law or equity, WRP and the Bond Issuer,  jointly and severally,  hereby
agree to indemnify and hold  harmless the Bank and its  officers,  directors and
agents  (each an  "INDEMNIFIED  PARTY")  from and  against  any and all  claims,
damages, losses, liabilities, reasonable costs or expenses whatsoever (including
attorneys' fees) which the Indemnified  Party may incur (or which may be claimed
against the Indemnified  Party by any person or entity  whatsoever) by reason of
or  in  connection  with  the  execution,   delivery  and  performance  of  this
Reimbursement  Agreement  or any of the Related  Documents  or any other  matter
arising therefrom,  including, without limitation, any of the following: (a) any
untrue  statement or alleged untrue  statement of any material fact contained or
incorporated  by  reference in the Official  Statement  (other than  information
relating  to the Bank and  provided  by the Bank for  inclusion  therein) or the
omission or alleged  omission to state in the  Official  Statement of a material
fact necessary to make such statements,  in the light of the circumstances under
which they are or were made, not  misleading;  (b) the execution and delivery or
transfer of, or payment or failure to pay under,  the Letter of Credit;  (c) the
issuance  and sale of the Bonds;  or (d) the use of the  proceeds  of the Bonds;
provided that no Account  Party shall be required to indemnify  the  Indemnified
Party for any claims,  damages,  losses,  liabilities,  costs or expenses to the
extent,  but only to the  extent,  caused by (A) the willful  misconduct  of the
Indemnified  Party or (B) gross  negligence  of the  Indemnified  Party.  If any
proceeding shall be brought or threatened against an Indemnified Party by reason
of or in connection with the events

<PAGE>

described  above  (except  as  otherwise  provided  in (A) or  (B)  above),  the
Indemnified  Party shall promptly  notify the Account Parties in writing and the
Account  Parties shall assume the defense  thereof,  including the employment of
counsel  and  the  payment  of all  costs  of  litigation.  Notwithstanding  the
preceding sentence, the Indemnified Party shall have the right to employ its own
counsel and to  determine  its own defense of such action in any such case,  but
the fees and expenses of such counsel shall be at the expense of the Indemnified
Party unless (i) the  employment of such counsel  shall have been  authorized in
writing by an Account Party or (ii) neither  Account Party,  after due notice of
the  action,  shall have  employed  counsel to have charge of such  defense,  in
either of which  events the  reasonable  fees and  expenses  of counsel  for the
Indemnified  Party shall be borne by the Account Party.  The Account Party shall
not be  liable  for any  settlement  of any such  action  effected  without  its
consent. Nothing under this Section 8.4 is intended to limit payment obligations
of WRP or the Bond Issuer.

     SECTION 8.5 TELECOPIED  DOCUMENTS.  At the request of Account Parties,  the
Letter of Credit  provides that demands for payment  thereunder may be presented
to the Bank by, among other methods,  telecopy.  The Account Parties acknowledge
and assume all risks relating to the use of such telecopied  demands for payment
and agree that their  obligations  under this  Reimbursement  Agreement  and the
Related  Documents  shall remain  absolute,  unconditional  and  irrevocable  as
provided in Section 8.1 above if the Bank  honors  such  telecopied  demands for
payment.

                                    ARTICLE 9

                          ISSUANCE, TRANSFER, REDUCTION
                        OR EXTENSION OF LETTER OF CREDIT

     SECTION  9.1  ISSUANCE.  Subject  to  the  terms  and  conditions  of  this
Reimbursement  Agreement,  the Bank  agrees to issue the Letter of Credit to the
Bond  Trustee  in  substantially  the form of  Exhibit A  hereto,  having a term
beginning  on the Closing  Date and ending on the  Expiration  Date and having a
Stated  Amount as set forth  therein,  as such Stated  Amount may be reduced and
reinstated in accordance with the terms of the Letter of Credit.

     SECTION 9.2 TRANSFER, REDUCTION AND REINSTATEMENT. The Letter of Credit may
be  transferred,  reduced and  reinstated in accordance  with the provisions set
forth therein.

                                   ARTICLE 10

                                  MISCELLANEOUS

     SECTION 10.1 RIGHT OF SETOFF.  Upon the  occurrence of an Event of Default,
the Bank may, at any time and from time to time,  without  notice to any Account
Party or any other person (any such notice being expressly waived),  set off and
appropriate  and  apply,   against  and  on  account  of,  any  obligations  and
liabilities  of any Account  Party to the Bank arising  under or connected  with
this  Reimbursement  Agreement  and the  Related  Documents,  without  regard to

<PAGE>

whether or not the Bank shall have made any demand  therefor,  and although such
obligations and liabilities may be contingent or unmatured, any and all deposits
(general or special,  including  but not limited to  indebtedness  evidenced  by
certificates of deposit,  whether matured or unmatured,  but not including trust
accounts) and any other indebtedness at any time held or owing by the Bank to or
for the credit or the account of any Account Party.

     SECTION  10.2  AMENDMENTS  AND  WAIVERS.  No  amendment  or  waiver  of any
provision of this  Reimbursement  Agreement  nor consent to any departure by any
Account Party from any such provision shall in any event be effective unless the
same shall be in  writing  and  signed by the Bank.  Any such  waiver or consent
shall be effective  only in the specific  instance and for the specific  purpose
for which given.  In the event any  agreement  contained  in this  Reimbursement
Agreement  should be breached by any Account Party and thereafter  waived by the
Bank,  such waiver shall be limited to the  particular  breach so waived for the
specific  period set out in such waiver and such waiver  shall not  constitute a
waiver  of such  breach  for any other  period  and shall not waive any other or
similar breach hereunder.

     SECTION  10.3 NO  WAIVER;  REMEDIES.  No failure on the part of the Bank to
exercise,  and no  delay in  exercising,  any  right  under  this  Reimbursement
Agreement  shall  operate  as a waiver of such  right;  nor shall any  single or
partial exercise of any right under this  Reimbursement  Agreement  preclude any
other  further  exercise of such right or the exercise of any other  right.  The
remedies  herein  provided  are  cumulative  and not  exclusive  of any remedies
provided by law.

     SECTION 10.4 NOTICES.  Unless specifically  indicated otherwise herein, all
notices and other communications provided for hereunder shall be in writing and,
if to any Account Party, addressed to it at:

                  Wellsford Real Properties, Inc.
                  535 Madison Avenue
                  New York, New York 10020
                  Attention:  James J. Burns
                  Telephone No.:   (212) 383-3400
                  Telecopy No.:     (212) 421-7244

                  Palomino Park Public Improvements Corporation
                  1623 Blake Street, #270
                  Denver, Colorado 80202
                  Attention:  David M. Strong
                  Telephone No.:  (303) 534-4396
                  Telecopy No.:  (303) 534-4398

<PAGE>

                  With a copy to:

                  Brownstein Hyatt & Farber, P.C.
                  410 17th Street, 22nd Floor
                  Denver, Colorado 80202-4437
                  Attention:  Thomas J. Mancuso, Esq.
                  Telephone No.:  (303) 534-6335
                  Telecopy No.:  (303) 623-1956

                  and:

                  Robinson, Silverman, Pearce, Aronsohn & Berman
                  1290 Avenue of the Americas
                  New York, New York 10104
                  Attention:  Alan S. Pearce, Esq.
                  Telephone No.:  (212) 541-2000
                  Telecopy No.:  (212) 541-4630

or if to the Bank, addressed to it at:

                  Commerzbank AG
                  New York Branch
                  Two World Trade Center
                  New York, New York 10281
                  Attention:  Douglas Traynor
                  Telephone No.:  (212) 266-7200
                  Telecopy No.:  (212) 266-7565

or if to the Bond Trustee, addressed to it at:

                  United States Trust Company of New York
                  114 West 47th Street, 25th Floor
                  New York, New York 10036-1532
                  Attn:  Chris Grell
                  Telephone No.:  (212) 852-1034
                  Telecopy No.:  (212) 852-1625

or if to the Remarketing Agent addressed to it at:

                  Norwest Investment Services
                  Public Finance Division
                  608 Second Avenue South
                  Minneapolis, MN  55479
                  Attention:  Laurie Mount
                  Telephone No.:  (612)667-9435
                  Telecopy No.:  (612)667-9906

<PAGE>

or as to each party at such other  address as shall be  designated by such party
in a written notice to the other parties.

     Any notice or other  communication shall be sufficiently given and shall be
deemed  given  when  delivered  to the  addressee  in  writing  or when given by
telephone immediately confirmed in writing by tested telex,  telecopier or other
telecommunication device.

     SECTION 10.5 SEVERABILITY.  Any provision of this  Reimbursement  Agreement
which is prohibited,  unenforceable or not authorized in any jurisdiction shall,
as to such  jurisdiction,  be  ineffective  to the  extent of such  prohibition,
unenforceability   or  nonauthorization   without   invalidating  the  remaining
provisions hereof or affecting the validity,  enforceability or legality of such
provision in any other jurisdiction.

     SECTION 10.6 GOVERNING LAW. THIS REIMBURSEMENT  AGREEMENT SHALL BE GOVERNED
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK AND APPLICABLE
FEDERAL LAW WITHOUT REGARD TO CHOICE OF LAW RULES.

     SECTION  10.7  CONSENT TO  JURISDICTION  AND VENUE,  ETC.  Each of the Bond
Issuer and WRP  irrevocably  (a)  agrees  that any suit,  action or other  legal
proceeding arising out of or relating to this Reimbursement  Agreement or any of
the other Related  Documents may be brought in a court of record in the State of
New York or in the  Courts of the  United  States  located  in such  state,  (b)
consents  to the  jurisdiction  of each such court in any such  suit,  action or
proceeding and (c) waives any objection which it may have to the laying of venue
of any such suit, action or proceedings in any of such courts and any claim that
any such suit,  action or proceeding has been brought in an inconvenient  forum.
Each of the Bond Issuer and WRP agrees  that a final  judgment in any such suit,
action  or  proceeding  shall  be  conclusive  and  may  be  enforced  in  other
jurisdictions  by suit on the judgment or in any other  manner  provided by law.
All mailings under this Section 10.7 shall be by certified mail,  return receipt
requested.

     Nothing in this  Section  10.7 shall  affect the right of the Bank to serve
legal  process in any other  manner  permitted by law or affect the right of the
Bank to bring any suit,  action or  proceeding  either the Bond Issuer or WRP or
their respective  property or any property encumbered by the Assignment and Lien
in the courts of any other jurisdiction.

     SECTION 10.8 HEADINGS. Section headings in this Reimbursement Agreement are
included  herein for convenience of reference only and shall not have any effect
for  purposes  of   interpretation   or   construction  of  the  terms  of  this
Reimbursement Agreement.

     SECTION 10.9 PARTICIPATION. Each Account Party each acknowledges and agrees
that the Bank may participate  portions of its  obligations  under the Letter of
Credit and the obligations of the Account  Parties under the Pledged Bonds,  the
Promissory Notes, this  Reimbursement  Agreement and any other Related Documents
(collectively,  the "PARTICIPATED OBLIGATIONS") to other financial institutions.
The Account Parties waive any right to receive notice of such participation. The
Account Parties agree to reasonably cooperate to the extent required by the Bank
in effecting such  participation,  provided that neither  Account Party shall be

<PAGE>

required to incur any additional expense as a consequence of such participation.
Each  Account  Party  further   acknowledges  and  agrees  that  upon  any  such
participation  the Participants  will become owners of a pro rata portion of the
Participated  Obligations and each waives any right of setoff it may at any time
have  against  the  Bank or any  Participant  with  regard  to the  Participated
Obligations.

     SECTION  10.10  ISSUING  BRANCH OF THE BANK.  The Letter of Credit  will be
issued on the Closing  Date by the New York Branch of the Bank but the Bank may,
at its sole option,  transfer  such Letter of Credit  obligation on its books to
any other United  States  branch or agency of the Bank  authorized to issue such
Letter of Credit.  The Bond  Trustee  shall  accept such  replacement  letter of
credit  and return  the prior  Letter of Credit to the Bank upon  receipt by the
Bond Trustee of (a) notice of such  replacement,  (b) the replacement  letter of
credit  issued by such  other  branch or agency of the Bank,  which  replacement
letter of credit is identical  in all material  respects to the Letter of Credit
but for any  revisions  to the  addresses  to which  demand for payment  must be
delivered,  (c)  opinions  from  counsel  to  the  Bank  with  respect  to  such
replacement  letter of credit restating and confirming the opinions delivered by
such counsel at the Closing Date and (d) if the Bonds are then rated by a Rating
Agency,  evidence  that such  replacement  letter of credit would not, in and of
itself, result in the lowering of the rating on the Bonds by such Rating Agency.
No amendments to this  Reimbursement  Agreement or any of the Related  Documents
shall be required to effect such transfer.

     SECTION 10.11 COUNTERPARTS.  This Reimbursement  Agreement may be signed in
any number of counterpart  copies,  but all such copies shall constitute one and
the same instrument.

     SECTION  10.12  COMPLETE  AND  CONTROLLING  AGREEMENT.  This  Reimbursement
Agreement and the other Related  Documents  completely  set forth the agreements
between the Bank,  and the Account  Parties with  respect to matters  herein and
fully supersede all prior agreements,  both written and oral,  between the Bank,
and the Account Parties relating to the issuance of the Letter of Credit and all
matters set forth herein and in the Related Documents.

     SECTION  10.13  WAIVER OF JURY  TRIAL.  WRP AND THE BOND ISSUER EACH HEREBY
WAIVES,  TO THE FULLEST EXTENT  PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY FOR
ANY TRIAL RESULTING EITHER DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION
WITH THIS REIMBURSEMENT AGREEMENT OR ANY OF THE OTHER RELATED DOCUMENTS. WRP AND
THE BOND ISSUER EACH FURTHER  AGREES THAT, IN THE EVENT OF  LITIGATION,  IT WILL
NOT PERSONALLY OR THROUGH ITS AGENTS OR ATTORNEYS SEEK TO REPUDIATE THE VALIDITY
OF THIS  SECTION  10.13,  AND IT  ACKNOWLEDGES  THAT IT FREELY  AND  VOLUNTARILY
ENTERED  INTO THIS  AGREEMENT TO WAIVE TRIAL BY JURY IN ORDER TO INDUCE THE BANK
TO ISSUE THE LETTER OF CREDIT.

     SECTION 10.14  ASSIGNABILITY  TO FEDERAL  RESERVE.  The Bank may assign and
pledge all or any portion of the obligations  owing to it hereunder or under any
of the Related

<PAGE>

Documents  to  any  Federal  Reserve  Bank  or the  United  States  Treasury  as
collateral  security  pursuant to  Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank, provided that any payment in respect of such assigned  obligations made by
any Account Party to the Bank in accordance with the terms of this Reimbursement
Agreement  or  such  Related   Documents  shall  satisfy  such  Account  Party's
obligations  hereunder or thereunder  in respect of such assigned  obligation to
the extent of such payment.  No such assignment  shall release the Bank from its
obligations hereunder or under any Related Document.

     SECTION 10.15 SUBROGATION AND  SUBORDINATION.  Notwithstanding  anything to
the contrary set forth in this Reimbursement Agreement, the Related Documents or
the WRP Reimbursement Agreement:

     (1)  SUBROGATION.  Except as set forth in  Subsection  10.15(2)  below with
respect to the WRP  Reimbursement  Agreement,  until all obligations to the Bank
under this  Reimbursement  Agreement and the Related  Documents  shall have been
paid in full and the Letter of Credit shall have expired or been canceled,  each
Account Party shall withhold exercise of (a) any claim, right or remedy,  direct
or indirect,  that such Account Party now has or may hereafter  have against the
other Account Party or any of its assets in connection  with this  Reimbursement
Agreement or the Related  Documents or the  performance  by any Account Party of
its obligations  thereunder,  in each case,  whether such claim, right or remedy
arises in equity, under contract, by statute,  under common law or otherwise and
including  without  limitation (i) any right of  subrogation,  reimbursement  or
indemnification that any Account Party now has or may hereafter have against the
other Account Party, (ii) any right to enforce, or to participate in, any claim,
right or remedy  that the Bank now or may  hereafter  have  against  any Account
Party, and (iii) any benefit of, and any right to participate in, any collateral
or security now or hereafter  held by the Bond Trustee or the Bank,  and (b) any
right of  contribution  any  Account  Party may have  against  any other  Person
regarding  any of the  obligations  under this  Reimbursement  Agreement and the
Related  Documents.  Each Account Party agrees that, to the extent the agreement
to  withhold  the  exercise  of  its  rights  of   subrogation,   reimbursement,
indemnification  and  contribution  as set  forth  herein is found by a court of
competent  jurisdiction  to be void or voidable  for any  reason,  any rights of
contribution  such Account Party may have against the other Account Party or any
such other Person shall be junior to and  subordinate  to any rights the Bank or
the Bond Trustee may have in any such  collateral or security,  and to any right
the Bank may have against such other  Account  Party or such other  Person.  The
Bank may use,  sell or dispose of any item of  collateral or security as it sees
fit without  regard to any  subrogation  rights any Account Party may have,  and
upon any such  disposition or sale any rights of  subrogation  any Account Party
may have shall  terminate.  If any amounts shall be paid to any Account Party on
account of such subrogation, reimbursement or indemnification rights at any time
when all  obligations  to the Bank then due and owing  under this  Reimbursement
Agreement  and the  Related  Documents  shall not have  been paid in full,  such
amount  shall be held in trust for the Bank and shall  forthwith be paid over to
the Bank to be credited and applied  against the  obligations  to the Bank under
this  Reimbursement  Agreement  and the  Related  Documents  whether  matured or
unmatured, in accordance with the terms hereof and thereof.

<PAGE>

     (2)  SUBORDINATION.  Any  Indebtedness of an Account Party now or hereafter
held by any other Account Party,  including  without  limitation all obligations
under  the WRP  Reimbursement  Agreement,  is  hereby  subordinated  in right of
payment to the prior  payment in full of all  obligations  of such Person to the
Bank now or hereafter existing under this Reimbursement  Agreement and the other
Related  Documents  (all  such  obligations  by any  Account  Party to the other
Account Party being the "Subordinated  Obligations").  Each Account Party agrees
not to ask,  demand,  sue for,  take or receive  from the other  Account  Party,
directly or indirectly,  in cash or other property or by set-off or in any other
manner (including without  limitation from or by way of collateral),  payment of
all or any of the  Subordinated  Obligations  of such other Account Party unless
and until all obligations then due and owing under this Reimbursement  Agreement
and the other Related  Documents shall have been paid and satisfied in full. Any
payment on any  Subordinated  Obligation  collected  or  received by any Account
Party after an Event of Default has occurred and is continuing  shall be held in
trust for the Bank and shall  forthwith  be paid over to the Bank to be credited
and  applied  against  the  obligations  to the Bank  under  this  Reimbursement
Agreement  and the  Related  Documents,  but  without  affecting,  impairing  or
limiting  in any manner  the  liability  of any  Account  Party  under any other
provision of this Reimbursement Agreement and the other Related Documents.

    [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK: SIGNATURE PAGE FOLLOWS]

<PAGE>

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

     PALOMINO PARK PUBLIC IMPROVEMENTS CORPORATION

By: /s/ David M. Strong
-----------------------
Name: David M. Strong
Title: President

     WELLSFORD REAL PROPERTIES, INC., a Maryland corporation

By: /s/ David M. Strong
-----------------------
Name: David M. Strong
Title: Vice President

     COMMERZBANK AG, New York Branch

By: /s/ Ralph C. Marra
----------------------
Name: Ralph C. Marra
Title: Vice President

By: David Buettner
------------------
Name: David Buettner
Title: Assistant Treasurer

<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                                                  June ___, 2000

              Irrevocable Letter of Credit No. [__________________]

United States Trust Company of New York
114 West 47th Street, 15th Floor
New York, New York  10036-1532
Attention:  Christopher Grell

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                           Series 1995 -- $14,755,000

Ladies and Gentlemen:

At the  request  and  for the  account  of  Palomino  Park  Public  Improvements
Corporation  (the "Bond Issuer") and Wellsford  Real  Properties,  Inc.  ("WRP")
(collectively  WRP and the Bond Issuer are  referred  to herein as the  "ACCOUNT
PARTIES")  pursuant to the Letter of Credit  Reimbursement  Agreement between us
and the Account  Parties dated as of June [_], 2000 (as amended or  supplemented
from time to time  pursuant to its terms,  the  "REIMBURSEMENT  AGREEMENT"),  we
hereby establish this  Irrevocable  Letter of Credit (the "LETTER OF CREDIT") in
your favor as Bond  Trustee  under the Trust  Indenture  between Bond Issuer and
you, as trustee,  dated as of September 1, 1995 (as amended or supplemented from
time to time pursuant to its terms,  the "BOND  INDENTURE"),  for the benefit of
the holders of the Bond Issuer's  above-referenced  series of bonds issued under
the Bond  Indenture  (the  "BONDS") in accordance  with the following  terms and
conditions.

     1.  EXPIRATION.  This Letter of Credit  automatically  shall expire at 5:00
p.m., New York time, on the earliest of:

     (a) May 30, 2005; provided that, if on or before the then-stated expiration
date of this  Letter of Credit,  we provide you as Bond  Trustee  with a written
notice in the form of  Exhibit  H hereto  that  this  Letter of Credit  shall be
extended,  then the term of this Letter of Credit  shall be extended to the date
provided in such notice (it being understood that we shall have the right in our
sole  discretion  to  determine  whether  to extend  the term of this  Letter of
Credit);

<PAGE>

     (b) our receipt of your  certificate  in the form of Exhibits E or F hereto
appropriately completed, together with this Letter of Credit;

     (c) 10 days after you have received notice from us stating that an Event of
Default has  occurred  under the  Reimbursement  Agreement  and  requesting  the
acceleration of the Bonds;

     (d)  immediately  following  our  payment  of a Drawing in order to pay the
Purchase Prices of Bonds tendered  pursuant to clause (b) or (c) of Section 4.02
of the Bond Indenture; and

     (e) the date of payment of an Interest  Drawing  (as  defined  below) and a
Principal  Drawing (as  defined  below)  which when added to all other  Interest
Drawings  and  Principal   Drawings   honored   hereunder  and  not  subject  to
reinstatement  in the aggregate  equals the initial  amount of the Stated Amount
(as defined below), as the same previously may have been reduced pursuant to the
Bank's receipt of a certificate in the form of Exhibit D.

     In the  event  such  expiration  date  shall  not  be a  Business  Day  (as
hereinafter defined),  then this Letter of Credit shall expire at the opening of
business on the next succeeding Business Day.

     2. STATED AMOUNT.  The maximum aggregate amount available under this Letter
of Credit  shall be  $15,773,702,  which amount as from time to time reduced and
reinstated as provided in paragraphs 3 and 4 is  hereinafter  referred to as the
"STATED  AMOUNT." Of the Stated  Amount,  up to $14,755,000 is available for the
payment of the unpaid  principal  of, or the  portion of the  purchase  price of
Bonds tendered or deemed tendered for purchase under Section 4.01 or 4.02 of the
Bond  Indenture  corresponding  to  principal  of,  the  Bonds  (the  "PRINCIPAL
PORTION"),  and up to  $1,018,702  is  available  for the  payment of the unpaid
interest  accrued on, or the portion of the purchase price of Bonds tendered for
purchase  under said Sections of the Bond  Indenture  corresponding  to interest
accrued on, the Bonds (the "INTEREST PORTION") (which amount represents 210 days
of  interest  on the  Principal  Portion at 12% per annum based on a year of 365
days).  The amount paid to purchase Bonds tendered for purchase  pursuant to the
Bond Indenture is herein referred to as the "PURCHASE PRICE" for such Bonds.

     3.  REDUCTIONS  IN THE STATED  AMOUNT.  The Stated  Amount,  the  Principal
Portion and the Interest Portion, as applicable,  shall be reduced automatically
from time to time as follows:

     (a) Upon our honoring of a demand for payment hereunder, the Stated Amount,
the Principal Portion and the Interest Portion, as applicable,  shall be reduced
by an amount equal to the amount of such demand for payment. More specifically:

          (i) In connection  with each Interest  Drawing,  the Interest  Portion
     shall be reduced  by the  amount  requested  for  payment on the  submitted
     Drawing Certificate;

<PAGE>

          (ii) In connection with each Principal Drawing,  the Principal Portion
     shall be reduced  by the  amount  requested  for  payment on the  submitted
     Drawing Certificate;

          (iii) In connection with each Purchase Drawing,  the Principal Portion
     shall  be  reduced  by the  amount  referenced  in  paragraph  3(a)  of the
     submitted Drawing  Certificate and the Interest Portion shall be reduced by
     the  amount   referenced  in  paragraph  3(b)  of  the  submitted   Drawing
     Certificate.

     (b) Upon our  receipt of your  certificate  in the form of Exhibit D hereto
appropriately  completed,  the Stated  Amount,  the  Principal  Portion  and the
Interest  Portion,  as  applicable,  shall be reduced by an amount  equal to the
amount  specified in such  certificate,  provided  that no reduction  under this
clause (b) shall duplicate any reduction under (a) above. Upon such a reduction,
we may require you to return this Letter of Credit and to accept in substitution
hereof a  substitute  Letter  of  Credit  for a Stated  Amount  reflecting  such
reduction,  but  otherwise  identical  in form and  substance  to this Letter of
Credit.

     4. AUTOMATIC REINSTATEMENT.

     (a) Reductions  under paragraph 3(a) with respect to any demand for payment
of  interest  on the  Bonds  (except  for that  portion  of the  Purchase  Price
corresponding  to unpaid  interest,  if any, on such Bonds) shall be  reinstated
automatically  unless you receive  notice in writing  from us (which may include
delivery by prepaid telecopier,  telex, telegram or other  telecommunication) on
or before the close of  business  on the tenth day after such demand for payment
was  honored by us  stating  that an Event of  Default  under the  Reimbursement
Agreement has occurred and requesting the  acceleration  or mandatory  tender of
the Bonds.

     (b) Reductions  under paragraph 3(a) with respect to any demand for payment
of the Purchase Price of Bonds tendered or deemed to have been tendered pursuant
to Section 4.01 of the Bond Indenture or the occurrence of a Conversion Date and
a  mandatory  tender  under  and in  accordance  with  Section  4.02 of the Bond
Indenture shall be reinstated  automatically upon the receipt by the Bank of (i)
a certificate from you in the form of Exhibit I attached hereto,  (ii) monies in
the amount  drawn under such Drawing for the  reimbursement  to the Bank of such
amounts in accordance with Section 2.4 of the Reimbursement  Agreement and (iii)
such  additional  monies  as  are  required  pursuant  to  Section  2.4  of  the
Reimbursement  Agreement in order to effect a release  from the Bank's  security
interest of the Bonds ("PLEDGED  BONDS") purchased with said drawing and pledged
to the Bank under that certain Bond Pledge and  Security  Agreement  dated as of
June __, 2000 by and among us, the Account  Parties and you, as  custodian  (the
"PLEDGE AGREEMENT").

     (c) Reductions under paragraph 3(b) shall not be subject to  reinstatement.
Reductions  under  paragraph  3(a) with respect to (i) any demand for payment of
the  principal  of the Bonds or (ii) the  Purchase  Price of Bonds  tendered  or
deemed to have been tendered pursuant to any section of the Bond Indenture other
than Section 4.01 of the Bond Indenture or the  occurrence of a Conversion  Date
and a mandatory  tender  under and in  accordance  with Section 4.02 of the Bond
Indenture shall not be subject to reinstatement.

     5.  DOCUMENTS  TO BE  PRESENTED.  Funds  under  this  Letter of Credit  are
available  to  you,  against   presentment  to  us  of  the  following  drawings
(collectively, a "DRAWING") in accordance with Section 6 below:

     (a) in the case of a demand for payment of the unpaid  interest  accrued on
the  Bonds,  a  certificate  signed  by you in the  form  of  Exhibit  A  hereto
appropriately completed (an "INTEREST DRAWING");

     (b) in the case of a demand  for  payment of the  unpaid  principal  of the
Bonds, a Certificate signed by you in the form of Exhibit B hereto appropriately
completed (a "PRINCIPAL DRAWING"); and

     (c) in the case of a demand for payment of the Purchase  Price of the Bonds
pursuant to Article IV of the Bond Indenture, a certificate signed by you in the
form of Exhibit C hereto appropriately completed (a "PURCHASE Drawing").

     6. METHOD AND NOTICE OF PRESENTMENT.

          (a)  The  certificates  referenced  in  paragraph  5  (a  "DEMAND  FOR
     PAYMENT")  may be delivered  to us in person or by  telecopy.  A demand for
     payment  shall be  presented  during our  business  hours on a Business Day
     prior to the expiration  hereof at our office at  Commerzbank  AG, New York
     Branch,   (Telecopy  Number:   (212)  266-7427)  Attn.:  Letter  of  Credit
     Department or at such other address or telecopy number as we may notify you
     in writing from time to time. As used herein,  "BUSINESS DAY" means any day
     other than (i) a Saturday or Sunday or (ii) a day on which commercial banks
     in Denver,  Colorado, New York, New York or the city or cities in which are
     located the principal corporate trust offices of the Bond Trustee under the
     Bond  Indenture  and our office at which  demands  for  payment  under this
     Letter of Credit are required to be made are  authorized or required by law
     or  executive  order to close,  or (iii) a day on which the New York  Stock
     Exchange is closed.

          (b)  Prior to the  delivery  of any  demand  for  payment,  you  shall
     endeavor in good faith to give us  telephonic  notice of your  intention to
     deliver such demand for payment,  stating the method of presentment and the
     type and amount of such demand for payment;  provided, that your failure to
     give such telephonic notice will not affect our obligation to honor demands
     for payment in strict  conformity  with the terms  hereof.  The  telephonic
     notice  required  hereunder  shall  be given to  Commerzbank  AG,  New York
     Branch,

<PAGE>

     Attention:  Letter of Credit  Department at (212)  266-7280,  or such other
     department  or persons as we shall notify you in writing from time to time.
     Such telephonic notice may be waived at our sole discretion.

     7. TIME AND METHOD FOR PAYMENT.

          (a) If  demand  for  payment  is  made  on a  Business  Day in  strict
     conformity with the terms and conditions  hereof,  payment shall be made to
     you (i) in the case of a  Principal  Drawing or an Interest  Drawing,  if a
     demand for payment is received by us prior to 2:00 p.m. New York time,  not
     later than 10:00 a.m. New York time, on the next succeeding Business Day or
     such later date as you may specify in such demand for payment;  and (ii) in
     the case of a Purchase  Drawing for, if a demand for payment is received by
     us prior to 2:00 p.m.  New York time,  not later  than 10:00 a.m.  New York
     time,  on the next  succeeding  Business  Day or such later date as you may
     specify in such demand for payment.  If such demand for payment is received
     by us after the applicable  times, such demand shall be deemed to have been
     received on the next  Business Day. All times  referenced  herein are as of
     New York, New York time.

          (b) Unless  otherwise  agreed,  payment  under  this  Letter of Credit
     pursuant to an Interest Drawing,  a Principal Drawing or a Purchase Drawing
     shall be made by Fedwire in immediately  available  funds to the account of
     the Bond Trustee. For the purposes of determining compliance with the times
     for payment  specified in (a) above,  payment  shall be deemed to have been
     made by us when we have delivered appropriate wire transfer instructions to
     an appropriate Federal Reserve Bank.

          (c) All payments made by the Bank under this Letter of Credit shall be
     made with the Bank's own funds.

     8. TRANSFERABILITY.  This Letter of Credit is transferable in its entirety,
but not in part, to any  transferee  who has succeeded you as Bond Trustee under
the  Bond  Indenture  and  may  be  successively  transferred.  Transfer  of the
available  balance  under  this  Letter of Credit  to such  transferee  shall be
effected by the  presentation  to us of this Letter of Credit  accompanied  by a
certificate substantially in the form of Exhibit G hereto.

     9.  GOVERNING LAW AND CUSTOMS.  TO THE EXTENT  CONSISTENT  WITH THE EXPRESS
PROVISIONS  HEREOF,  THIS  LETTER OF CREDIT  SHALL BE  GOVERNED  BY THE  UNIFORM
CUSTOMS AND PRACTICE FOR  DOCUMENTARY  CREDITS  (1993  REVISION),  INTERNATIONAL
CHAMBER  OF  COMMERCE  PUBLICATION  NO.  500 (THE  "UCP"),  AND,  TO THE  EXTENT
CONSISTENT WITH THE UCP AND THE EXPRESS PROVISIONS HEREOF, THE LAWS OF THE STATE
OF NEW YORK.

     10. IRREVOCABILITY. This Letter of Credit shall be irrevocable.

<PAGE>

     11. NO NEGOTIATION.  A demand for payment under this Letter of Credit shall
be  presented  directly  to us and  shall not be  negotiated  to or by any third
party.

     12.  EXCLUDED  BONDS. No demand for payment under this Letter of Credit may
be made with respect to any  Corporation  Bond or any Pledged Bond (as each such
term is defined in the bond Indenture) (each an "EXCLUDED BOND").

     13. ADDRESS FOR COMMUNICATIONS.  Communications with respect to this Letter
of Credit,  other than demands for payment  pursuant to paragraph 6, shall be in
writing and shall be addressed  to us at  Commerzbank  AG, New York Branch,  Two
World Financial Center, New York, NY 10281,  Attn.:  Letter of Credit Department
(Telecopy Number  (212)266-7427)  or such other address or telecopy number as we
may notify you in writing from time to time,  specifically  referring thereon to
our Irrevocable Letter No. 150SBY00300064.

     14. COMPLETE AGREEMENT. This Letter of Credit, including Exhibits A through
I hereto,  sets forth in full the terms of our  undertaking.  Reference  in this
Letter  of  Credit  to other  documents  or  instruments  is for  identification
purposes only and such reference  shall not modify or affect the terms hereof or
cause such documents or instruments to be deemed incorporated herein.

     We hereby  agree with you to honor your  demand for  payment  presented  in
strict compliance with the terms and conditions of this Letter of Credit.

                                Very truly yours,

                                 COMMERZBANK AG,
                                 New York Branch

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------
<PAGE>

                                    EXHIBIT A

                        CERTIFICATE FOR INTEREST DRAWING

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

                Irrevocable Letter of Credit No. _______________

     The undersigned,  a duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with reference to Irrevocable Letter of Credit No. _____________ (the "LETTER OF
CREDIT";  any  capitalized  term used  herein  and not  defined  shall  have its
respective  meaning as set forth in the Letter of Credit)  issued by the Bank in
favor of the Bond Trustee, that:

     (1) The Bond Trustee is the Bond Trustee  under the Bond  Indenture  and is
making this demand for payment of  interest  accrued  through  _________________
(the "PAYMENT DATE") on the Bonds in accordance  with the Bond  Indenture.  Said
interest consists of $____________ of interest accrued on Bonds bearing interest
at a [Weekly  Rate/Term Rate] (as such terms are defined in the Bond Indenture),
which amount of interest is payable on such Bonds on the Payment Date.

     (2) Demand is hereby made under the Letter of Credit for $__________, which
amount  does not  exceed (i) the amount in  paragraph  (1) or (ii) the  Interest
Portion of the Stated Amount.

     (3) The amount demanded  hereunder does not include any amount payable with
respect to any Excluded Bond.

     (4) The  proceeds of this demand for payment  equal to the amount set forth
in paragraph (1) of this Certificate  shall be deposited in the Letter of Credit
Debt  Service  Account (as defined in the Bond  Indenture)  and shall be applied
solely to the payment of unpaid interest on Bonds bearing  interest at a [Weekly
Rate/Term  Rate] (as such terms are defined in the Bond Indenture) in accordance
with the Bond Indenture.

          (5) (a) Payment of this demand for payment is  requested  on or before
     10:00 a.m.  New York time,  on the later of (i) the Payment Date (or if the
     Payment Date is not a Business Day, the next  succeeding  Business Day) and
     (ii) the  Business  Day next  succeeding  the  Business  Day on which  this
     Certificate  is  received  or deemed to have been  received  by the Bank in
     accordance with paragraph 7(a) of the Letter of Credit.

          (b)  Payment of this demand for  payment  shall be made in  accordance
     with the payment  instructions  provided in paragraph 7(b) of the Letter of
     Credit.

<PAGE>

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the _____ day of _______________, ________.

                                          [____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

<PAGE>

                                    EXHIBIT B

                        CERTIFICATE FOR PRINCIPAL DRAWING

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

               Irrevocable Letter of Credit No. __________________

     The undersigned,  a duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with  reference  to  Irrevocable  Letter of Credit  No.  _________________  (the
"LETTER OF CREDIT";  any capitalized term used herein and not defined shall have
its respective  meaning as set forth in the Letter of Credit) issued by the Bank
in favor of the Bond Trustee, that:

     (1) The Bond Trustee is the Bond Trustee  under the Bond  Indenture  and is
making this demand for payment of principal of the Bonds in accordance  with the
Bond Indenture,  which principal is payable on ___________ (the "PAYMENT DATE"),
by reason of*:

     [GRAPHIC OMITTED]1 (a) scheduled maturity;

     [GRAPHIC OMITTED]2 (b) redemption in whole or in part; or

     [GRAPHIC  OMITTED]3  (c) the  occurrence  of an Event of Default  under the
Reimbursement Agreement and the declaration of acceleration thereunder.

     (2) The amount of  principal  of the Bonds  that is payable on the  Payment
Date equals $_________.

     (3) Demand is hereby  made  under the  Letter of Credit for  $____________,
which  amount  does not  exceed  (i) the  amount  in  paragraph  (2) or (ii) the
Principal Portion of the Stated Amount.

     (4) The amount demanded  hereunder does not include any amount payable with
respect to an Excluded Bond.

     (5) The  proceeds  hereof  shall be  deposited in the Letter of Credit Debt
Service  Account (as defined in the Bond  Indenture) and shall be applied solely
to the payment of the principal of Bonds in accordance with the Bond Indenture.

* Check (a), (b) or (c) as applicable.

<PAGE>

     (6) (a) Payment of this demand for payment is  requested on or before 10:00
a.m. New York time, on the later of (i) the Payment Date (or if the Payment Date
is not a Business Day, the next  succeeding  Business Day) and (ii) the Business
Day next  succeeding  the Business Day on which this  Certificate is received or
deemed to have been received by the Bank in accordance  with  paragraph  7(a) of
the Letter of Credit.

     (b) Payment of this demand for payment shall be made in accordance with the
payment instructions provided in paragraph 7(b) of the Letter of Credit.

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the _____ day of _______________, ________.

                                          [____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------
<PAGE>

                                    EXHIBIT C

                        CERTIFICATE FOR PURCHASE DRAWING

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

               Irrevocable Letter of Credit No. _________________

     The undersigned,  a duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with  reference  to  Irrevocable  Letter of Credit  No.  _________________  (the
"LETTER OF CREDIT";  any capitalized term used herein and not defined shall have
its respective  meaning as set forth in the Letter of Credit) issued by the Bank
in favor of the Bond Trustee, that:

     (1) The Bond Trustee is the Bond Trustee  under the Bond  Indenture  and is
making this demand for payment in connection  with the tender (or deemed tender)
of  Bonds  pursuant  to  Article  IV of  the  Bond  Indenture  for  purchase  on
______________________  (the "PURCHASE DATE"). The Bonds to be purchased consist
of  $___________  principal  amount  of  Bonds  bearing  interest  at a  [Weekly
Rate/Term Rate] (as such terms are defined in the Bond Indenture).

     (2) The sum of the Purchase  Prices for the Bonds  referenced  in paragraph
(1) of this Certificate equals $________.

     (3) Demand is hereby made under the Letter of Credit for $_________,  which
amount represents:

     (a)  $___________  attributable  to the  Principal  Portion of the Purchase
Prices to be paid on the Bonds referenced in paragraph (1) of this  Certificate.
Said  amount  does not  exceed,  and shall be applied to reduce,  the  Principal
Portion of the Stated Amount; and

     (b)  $___________  attributable  to the  Interest  Portion of the  Purchase
Prices to be paid on the Bonds referenced in paragraph (1) of this  Certificate.
Said  amount  does not  exceed,  and shall be applied to  reduce,  the  Interest
Portion of the Stated Amount.

     (4) The amount demanded  hereunder does not include any amount payable with
respect to an Excluded Bond.

     (5) The proceeds hereof shall be deposited in the Letter of Credit Purchase
Account  (as  defined  in the Bond  Indenture)  and  held in trust  for the sole
benefit of the Bank until such  proceeds  are (a) used to purchase  Bonds at the
Purchase Price against delivery of such Bonds or Bonds issued in lieu thereof to
the Bank or its designated agent or (b) returned to the Bank.

     (6) (a) Payment of this demand for payment is  requested on or before 10:00
a.m.  New York time on the later of (i) the  Purchase  Date (or if the  Purchase
Date is not a  Business  Day,  the next  succeeding  Business  Day) and (ii) the
Business  Day on which  this  Certificate  is  received  or  deemed to have been
received by the Bank in accordance with paragraph 7(a) of the Letter of Credit.

     (b) Payment of this demand for payment shall be made in accordance with the
payment instructions provided in paragraph 7(b) of the Letter of Credit.

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the _____ day of ________, ________.

                                          [____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

<PAGE>

                                    EXHIBIT D

                CERTIFICATE REGARDING REDUCTION OF STATED AMOUNT

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

               Irrevocable Letter of Credit No. _________________

     The undersigned,  a duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with  reference  to  Irrevocable  Letter of Credit  No.  _________________  (the
"LETTER OF CREDIT";  any capitalized term used herein and not defined shall have
its respective  meaning as set forth in the Letter of Credit) issued by the Bank
in favor of the Bond Trustee, that:

     (1)  Bonds in the  aggregate  principal  amount of  $________  were paid or
deemed to have been paid on _________.

     (2) 210  days'  interest  at 12% per  annum  (based  on a year of 365  days
consisting  of  twelve  30-day  months)  on the  principal  amount  of the Bonds
referenced in paragraph (1) of this Certificate is $_________.

     (3) Pursuant to paragraph 3(b) of the Letter of Credit, upon receipt by the
Bank of this  Certificate the Stated Amount shall be reduced by $________,  such
reduction  to be allocated so that the  Principal  Portion of the Stated  Amount
shall be reduced by the amount stated in paragraph (1) of this  Certificate  and
the Interest  Portion  shall be reduced by the amount stated in paragraph (2) of
this Certificate.

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the ____ day of _____________, _________.

                                          [____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------
<PAGE>

                                    EXHIBIT E

                       TERMINATION CERTIFICATE--DEFEASANCE

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

               Irrevocable Letter of Credit No. _________________

     The undersigned,  a duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with  reference  to  Irrevocable  Letter of Credit  No.  _________________  (the
"LETTER OF CREDIT";  any capitalized term used herein and not defined shall have
its respective  meaning as set forth in the Letter of Credit) issued by the Bank
in favor of the Bond  Trustee,  that all  outstanding  Bonds  have  been paid or
deemed  to have  been  paid in full in  accordance  with  Article  X of the Bond
Indenture.

     The  Letter of Credit  is  attached  hereto  and being  surrendered  to you
herewith.

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the ____ day of ________________, ________.

                                          [____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------
<PAGE>

                                    EXHIBIT F

              TERMINATION CERTIFICATE--SUBSTITUTE LETTER OF CREDIT

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

               Irrevocable Letter of Credit No. _________________

     The undersigned,  a duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with  reference  to  Irrevocable  Letter of Credit  No.  _________________  (the
"LETTER OF CREDIT";  any capitalized term used herein and not defined shall have
its respective  meaning as set forth in the Letter of Credit) issued by the Bank
in favor of the Bond Trustee, that the conditions precedent to the acceptance of
an alternate letter of credit under Section 5.15 of the Bond Indenture have been
satisfied.

     The  Letter of Credit  is  attached  hereto  and being  surrendered  to you
herewith.

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the ____ day of _____________,________.

                                          [____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

<PAGE>

                                    EXHIBIT G

                               NOTICE OF TRANSFER

Commerzbank AG
New York Branch
Two World Financial Center
New York, NY 10281
Attention:  Letter of Credit Department

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

                     Letter of Credit No. _________________

Ladies and Gentlemen:

     For  value  received,   the  undersigned   beneficiary  hereby  irrevocably
transfers to:

                  (Name of Transferee)
                  (Address)

all rights of the  undersigned  beneficiary  to draw  under the above  Letter of
Credit in its entirety.  Any capitalized  term used herein and not defined shall
have its  respective  meaning  as set  forth in the  above-referenced  Letter of
Credit issued by you in connection with the above-referenced Bonds.

     By this transfer, all rights of the undersigned  beneficiary in such Letter
of Credit are  transferred to the  transferee and the transferee  shall have the
sole  rights as  beneficiary  thereof,  including  sole  rights  relating to any
amendments,  whether increases or extensions or other amendments and whether now
existing or hereafter  made. All  amendments  are to be advised  directly to the
transferee  without  necessity  of any  consent of or notice to the  undersigned
beneficiary.

     By its signature below the undersigned transferee  acknowledges that it has
duly succeeded as Bond Trustee under the Bond Indenture.

     The  Letter of Credit is  returned  herewith  and we ask you to notify  the
transferee in such form as you deem  advisable of this transfer and of the terms
and conditions of the Letter of Credit.

<PAGE>

     IN WITNESS WHEREOF, the undersigned has executed this Notice of Transfer as
of ___________________, ______.

SIGNATURE AUTHENTICATED:

(Bank)

(Authorized Signature)

Date: _______________, ______

Yours very truly,

(Bond Trustee)

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

ACKNOWLEDGED:

(Transferee)

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

<PAGE>

                                    EXHIBIT H

                                NOTICE OF RENEWAL

[---------------]
[---------------]
[---------------]
Attention:  [______________]

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

                     Letter of Credit No. _________________

Ladies and Gentlemen:

     The  undersigned,  a duly  authorized  officer of Commerzbank  AG, New York
Branch (the "BANK"), hereby advises you, with reference to Irrevocable Letter of
Credit No.  _________________ (the "LETTER OF CREDIT"; any capitalized term used
herein and not  defined  shall have its  respective  meaning as set forth in the
Letter of Credit) issued by the Bank in your favor, that:

     (1) At the  request  and for the  account of the Bond  Issuer  and WRP,  we
hereby extend the date  referenced in paragraph 1(a) of the Letter of Credit (as
such date may have been extended previously from time to time) to ________.

     (2) Except as  specifically  provided in  paragraph  (1) above,  all of the
terms and conditions of the Letter of Credit remain  unchanged and in full force
and effect.

     (3) This Notice of Renewal is an integral part of the Letter of Credit.

     IN WITNESS WHEREOF,  the  undersigned,  on behalf of the Bank, has executed
and delivered this Notice of Renewal as of the ____ day of ____________, _____.

COMMERZBANK AG, New York Branch

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

<PAGE>

                                    EXHIBIT I

          BOND TRUSTEE'S CERTIFICATE TO EFFECT RELEASE OF PLEDGED BONDS

                     Palomino Park Public Improvements Corp.
                          Assessment Lien Revenue Bonds
                                   Series 1995

               Irrevocable Letter of Credit No. _________________

     The undersigned, as duly authorized officer of [_______________] (the "BOND
TRUSTEE"),  hereby  certifies to  Commerzbank  AG, New York Branch (the "BANK"),
with  reference  to  Irrevocable  Letter of Credit  No.  _________________  (the
"LETTER OF CREDIT";  any capitalized term used herein and not defined shall have
its respective  meaning as set forth in the Letter of Credit) issued by the Bank
in favor of the Bond Trustee, that:

     (1) The Bond  Issuer  has  instructed  the Bond  Trustee  to  deliver  this
Certificate to the Bank in order to inform the Bank that on ______________  (the
"PAYMENT  DATE"),  the Bond  Issuer  shall  pay or shall  cause to be paid  such
amounts as are required pursuant to Section 2.4 of the  Reimbursement  Agreement
in order to effect a release  of  $___________  in  Principal  Amount of Pledged
Bonds. The Pledged __________ Bonds _________ to _________ be _________ released
_________ are __________ described _________ as _________ follows:

     (2) The amount to be paid to the Bank on said date shall equal  $_________,
consisting of the following:

     (a) Payment of previously  unpaid  Liquidity  Drawing Amounts [if Liquidity
Drawing _____  $___________  Amounts  drawn on multiple  Drawing Dates are to be
paid, specify the separate amount for each such Drawing Date];

     (b)  Payment of  accrued  interest  in  accordance  with the  Reimbursement
Agreement  $___________  on the amount  referenced  in clause (a) above,  to the
extent not previously paid;

     (c)  Payment  of the  principal  portion  of  previously  unpaid  LC Loans;
$___________

     (d) Payment of accrued  interest on amount  referenced in clause (c) above,
to the $___________ extent not previously paid; and

     (e) Payment of any other sums due and payable  pursuant to Article 2 of the
_____  $___________  Reimbursement  Agreement in connection  with the release of
Pledged Bonds hereby requested.

<PAGE>

     IN WITNESS  WHEREOF,  the Bond  Trustee has  executed  and  delivered  this
Certificate as of the _______ day of __________________, _____.

[____________, _____], as Bond Trustee

By:
   ------------------------------------------
Name:
     -----------------------------------
Title:
      ---------------------------------------

<PAGE>UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE
                -------------------------------------------------

     FOR AND IN  CONSIDERATION OF the sum of Ten and No/100 Dollars ($10.00) and
other good and  valuable  consideration  paid or  delivered  to the  undersigned
WELLSFORD  REAL  PROPERTIES,  INC., a Maryland  corporation  ("Guarantor"),  the
receipt and sufficiency whereof is hereby acknowledged by Guarantor, and for the
purpose of seeking to induce FLEET  NATIONAL  BANK  ("Lender",  which term shall
also include  each other  Lender which may now or hereafter  become party to the
"Credit  Agreement"  (as  hereinafter  defined)  and shall also include any such
individual  Lender acting as agent for all of the Lenders),  to extend credit or
otherwise provide financial accommodations to WELLSFORD FINANCE, LLC, a Delaware
limited  liability  company  (hereinafter  referred  to  as  "Borrower"),  which
extension of credit and  provision of  financial  accommodations  will be to the
direct  interest,  advantage  and benefit of  Guarantor,  Guarantor  does hereby
absolutely and irrevocably guarantee to Lender:

     (a) the full and  prompt  payment  when due,  whether  by  acceleration  or
otherwise,  either before or after maturity thereof,  of that certain Note dated
of even date  herewith  made by  Borrower  to the order of Fleet  National  Bank
("Fleet")  in the  principal  face amount of Twenty  Million and No/100  Dollars
($20,000,000.00)  (hereinafter  referred to as the "Fleet Note"),  together with
interest  as  provided  in the  Fleet  Note,  together  with  any  replacements,
supplements,   renewals,   modifications,   consolidations,   restatements   and
extensions thereof; and

     (b) the full and  prompt  payment  when due,  whether  by  acceleration  or
otherwise, either before or after maturity thereof, of each other note as may be
issued under that certain Amended and Restated  Revolving Credit Agreement dated
of even date herewith among Borrower,  Fleet,  for itself and as agent,  and the
other lenders now or hereafter a party thereto  (hereinafter  referred to as the
"Credit  Agreement"),  together  with  interest  as  provided in each such note,
together   with  any   replacements,   supplements,   renewals,   modifications,
consolidations,  restatements and extensions thereof (the Fleet Note and each of
the  notes  described  in  this  subparagraph  (b) is  hereinafter  referred  to
collectively as the "Note"); and

     (c) the full and prompt payment and performance of all other obligations of
Borrower to Lender under the terms of the Credit  Agreement,  together  with any
replacements, supplements, renewals, modifications, consolidations, restatements
and extensions thereof; and

     (d) the  full and  prompt  payment  and  performance  of any and all  other
obligations  of Borrower to Lender under the Security  Documents,  together with
any  replacements,   supplements,   renewals,   modifications,   consolidations,
restatements and extensions thereof; and

     (e) the  full and  prompt  payment  and  performance  of any and all  other
obligations  of  Borrower to Lender  under any other  agreements,  documents  or
instruments now or hereafter  evidencing,  securing or otherwise relating to the
indebtedness  evidenced  by the Note or the  Credit  Agreement  (the  Note,  the
Security  Documents,  the Credit Agreement and said other agreements,  documents
and  instruments,   are  hereinafter  collectively  referred  to  as  the  "Loan
Documents" and individually referred to as a "Loan Document").

<PAGE>

All terms used herein and not otherwise  defined  herein shall have the meanings
set forth in the Credit Agreement.

     1. Agreement to Pay and Perform; Costs of Collection. Guarantor does hereby
agree  that if the Note is not paid by  Borrower  in  accordance  with its terms
(including all applicable  grace periods),  or if any and all sums which are now
or may hereafter become due from Borrower to Lender under the Loan Documents are
not paid by Borrower in  accordance  with their  terms,  or if any and all other
Obligations  are not  performed  by  Borrower  in  accordance  with their  terms
(including all applicable  grace periods),  Guarantor will immediately make such
payments and perform such Obligations. Guarantor further agrees to pay Lender on
demand all reasonable  costs and expenses  (including court costs and reasonable
attorneys' fees and disbursements)  paid or incurred by Lender in endeavoring to
collect  the  Obligations,  to enforce  any of the  Obligations,  or any portion
thereof, or to enforce this Guaranty,  and until paid to Lender, such sums shall
bear  interest  at the  default  rate set forth in the Credit  Agreement  unless
collection  from  Guarantor  of  interest  at such  rate  would be  contrary  to
applicable law, in which event such sums shall bear interest at the highest rate
which may be collected from Guarantor under applicable law.

     2. Reinstatement of Refunded  Payments.  If, for any reason, any payment to
Lender  of any of the  Obligations  is  required  to be  refunded  by  Lender to
Borrower,  or paid or turned  over by Lender  to any  other  person,  including,
without  limitation,  by reason of the operation of bankruptcy,  reorganization,
receivership or insolvency laws or similar laws of general application  relating
to creditors' rights and remedies now or hereafter enacted,  Guarantor agrees to
pay to the  Lender on demand an amount  equal to the  amount so  required  to be
refunded,  paid  or  turned  over  (hereinafter  referred  to as  the  "Turnover
Payment"),  the  obligations  of  Guarantor  shall not be treated as having been
discharged  by the  original  payment  to  Lender  giving  rise to the  Turnover
Payment, and this Guaranty shall be treated as having remained in full force and
effect  for any such  Turnover  Payment  so made by  Lender,  as well as for any
amounts not theretofore paid to Lender on account of such obligations,  but only
to the extent that Guarantor otherwise would have been liable for the payment of
the same hereunder.

<PAGE>

     3. Rights of Lender to Deal with  Collateral,  Borrower and Other  Persons.
Guarantor  hereby consents and agrees that Lender may at any time, and from time
to time,  without thereby releasing  Guarantor from any liability  hereunder and
without  notice to or further  consent  from  Guarantor,  either with or without
consideration:  release or surrender  any lien or other  security of any kind or
nature whatsoever held by it or by any person, firm or corporation on its behalf
or for  its  account,  securing  any  of the  Obligations;  substitute  for  any
collateral so held by it, other collateral of like kind, or of any kind;  modify
the  terms of the Note or the Loan  Documents;  extend or renew the Note for any
period; grant releases,  compromises and indulgences with respect to the Note or
the Loan  Documents  and to any  persons or  entities  now or  hereafter  liable
thereunder  or  hereunder;  release  any other  Guarantor,  surety,  endorser or
accommodation  party of the Note,  the  Security  Documents  or any  other  Loan
Documents;  or take or fail to take any action of any type  whatsoever.  No such
action which Lender  shall take or fail to take in  connection  with the Note or
the Loan  Documents,  or any of them,  or any  security  for the  payment of the
indebtedness  of  Borrower  to  Lender  or  for  the  performance  of any of the
Obligations or other obligations or undertakings of Borrower,  nor any course of
dealing with Borrower or any other person, shall release Guarantor's obligations
hereunder,  affect this  Guaranty in any way or afford  Guarantor  any  recourse
against  Lender.  The provisions of this Guaranty shall extend and be applicable
to   all   replacements,    supplements,   renewals,   amendments,   extensions,
consolidations,  restatements  and  modifications  of  the  Note  and  the  Loan
Documents,  and any and all references herein to the Note and the Loan Documents
shall be  deemed  to  include  any  such  replacements,  supplements,  renewals,
extensions, amendments,  consolidations,  restatements or modifications thereof.
Without  limiting the generality of the foregoing,  Guarantor  acknowledges  the
terms of Section  18.3 of the Credit  Agreement  and agrees  that this  Guaranty
shall extend and be  applicable  to each new or  replacement  note  delivered by
Borrower pursuant thereto.

     4. No Contest with Lender; Subordination. So long as any Obligation remains
unpaid or  undischarged,  Guarantor  will not,  by  paying  any sum  recoverable
hereunder  (whether  or not  demanded by Lender) or by any means or on any other
ground,  claim any set-off or  counterclaim  against  Borrower in respect of any
liability of Guarantor to Borrower or, in proceedings  under federal  bankruptcy
law or insolvency proceedings of any nature, prove in competition with Lender in
respect of any  payment  hereunder  or be  entitled  to have the  benefit of any
counterclaim  or proof of  claim or  dividend  or  payment  by or on  behalf  of
Borrower or the benefit of any other security for any Obligation  which,  now or
hereafter,  Lender may hold or in which it may have any share.  Guarantor hereby
expressly waives any right of contribution  from or indemnity  against Borrower,
whether  at law or in  equity,  arising  from  any  payments  made by  Guarantor
pursuant  to the  terms  of  this  Guaranty,  and  Guarantor  acknowledges  that
Guarantor has no right whatsoever to proceed against Borrower for  reimbursement
of any such  payments.  In connection  with the foregoing,  Guarantor  expressly
waives  any and all  rights of  subrogation  to  Lender  against  Borrower,  and
Guarantor  hereby  waives any rights to enforce any remedy which Lender may have
against  Borrower and any rights to participate in any collateral for Borrower's
obligations under the Loan Documents.  Guarantor hereby subordinates any and all
indebtedness  of  Borrower  now or  hereafter  owed to  Guarantor  to all of the
Obligations and any other  indebtedness  of Borrower to Lender,  and agrees with
Lender that (a)  Guarantor  shall not demand or accept any payment from Borrower
on account of such indebtedness, (b) Guarantor shall not

<PAGE>

claim any offset or other reduction of Guarantor's obligations hereunder because
of any such indebtedness,  and (c) Guarantor shall not take any action to obtain
any interest in any of the  security  described  in and  encumbered  by the Loan
Documents because of any such indebtedness;  provided,  however, that, if Lender
so requests,  such  indebtedness  shall be  collected,  enforced and received by
Guarantor  as  trustee  for  Lender and be paid over to Lender on account of the
indebtedness  of Borrower to Lender,  but without  reducing or  affecting in any
manner the  liability of Guarantor  under the other  provisions of this Guaranty
except to the extent the principal amount of such outstanding indebtedness shall
have been reduced by such payment.

     5.  Waiver  of  Defenses.  Guarantor  hereby  agrees  that its  obligations
hereunder shall not be affected or impaired by, and hereby waives and agrees not
to assert or take advantage of any defense based on:

     (1) the  incapacity or lack of authority of Borrower or any other person or
entity,  the death or disability of Borrower or Guarantor or any other person or
entity,  or the failure of Lender to file or enforce a claim  against the estate
(either in administration, bankruptcy or in any other proceeding) of Borrower or
Guarantor or any other person or entity;

     (2) the  dissolution  or  termination of existence of Borrower or any other
Person;

     (3) the voluntary or involuntary liquidation,  sale or other disposition of
all or substantially all of the assets of Borrower or any other Person;

     (4) the  voluntary or  involuntary  receivership,  insolvency,  bankruptcy,
assignment   for  the   benefit  of   creditors,   reorganization,   assignment,
composition, or readjustment of, or any similar proceeding affecting Borrower or
Guarantor, or any of Borrower's or Guarantor's properties or assets;

     (5) the damage, destruction,  condemnation, foreclosure or surrender of all
or any part of the Collateral;

     (6) the  failure of Lender to give  notice of the  existence,  creation  or
incurring of any new or additional  indebtedness  or obligation or of any action
or nonaction on the part of any other person  whomsoever in connection  with any
obligation hereby guaranteed;

     (7) any failure or delay of Lender to commence an action  against  Borrower
or any other Person,  to assert or enforce any remedies  against  Borrower under
the Note or the Loan Documents, or to realize upon any security;

     (8) any failure of any duty on the part of Lender to disclose to  Guarantor
any facts it may now or hereafter know regarding  Borrower,  any other Person or
the Collateral,  whether such facts materially increase the risk to Guarantor or
not;

     (9)  failure to accept or give  notice of  acceptance  of this  Guaranty by
Lender;

<PAGE>

     (10) failure to make or give notice of  presentment  and demand for payment
of any of the indebtedness or performance of any of the Obligations;

     (11)  failure to make or give  protest and notice of dishonor or of default
to Guarantor or to any other party with respect to any of the Obligations;

     (12)  any and  all  other  notices  whatsoever  to  which  Guarantor  might
otherwise be entitled;

     (13)  any  lack  of  diligence  by  Lender  in  collection,  protection  or
realization  upon any  collateral  securing  the payment or  performance  of the
Obligations;

     (14)  the  invalidity  or  unenforceability  of the Note or any of the Loan
Documents;

     (15) the  compromise,  settlement,  release or termination of any or all of
the Obligations;

     (16) any transfer by Borrower or any other Person of all or any part of the
Collateral;

     (17) the  failure of Lender to perfect  any  security or to extend or renew
the perfection of any security; or

     (18) to the fullest extent permitted by law, any other legal,  equitable or
surety defenses  whatsoever to which  Guarantor might otherwise be entitled,  it
being the intention that the  obligations  of Guarantor  hereunder are absolute,
unconditional and irrevocable.

     6. Guaranty of Payment and  Performance  and Not of  Collection.  This is a
Guaranty of payment and  performance  and not of  collection.  The  liability of
Guarantor  under this  Guaranty  shall be primary,  direct and immediate and not
conditional or contingent upon the pursuit of any remedies  against  Borrower or
any other  person,  nor against  securities  or liens  available to Lender,  its
successors,  successors in title, endorsees or assigns.  Guarantor hereby waives
any right to require  that an action be brought  against  Borrower  or any other
person or to require that resort be had to any security or to any balance of any
deposit  account  or credit on the books of Lender in favor of  Borrower  or any
other person.

     7. Rights and Remedies of Lender. In the event of an Event of Default under
the Note or the Loan Documents,  or any of them,  Lender shall have the right to
enforce its rights,  powers and  remedies  thereunder  or hereunder or under any
other agreement, document or instrument now or hereafter evidencing, securing or
otherwise relating to the Obligations,  in any order, and all rights, powers and
remedies  available to Lender in such event shall be nonexclusive and cumulative
of all other rights,  powers and remedies provided thereunder or hereunder or by
law or in equity. Accordingly, Guarantor hereby authorizes and empowers

<PAGE>

Lender upon the  occurrence  of any Event of Default  under the Note or the Loan
Documents, at its sole discretion,  and without notice to Guarantor, to exercise
any right or remedy  which  Lender  may have,  including,  but not  limited  to,
judicial foreclosure,  exercise of rights of power of sale, acceptance of a deed
or an assignment in lieu of  foreclosure,  appointment  of a receiver to collect
rents  and  profits,   exercise  of  remedies  against  personal  property,   or
enforcement  of any  assignment  of leases,  as to any  security,  whether real,
personal  or  intangible.  At any  public or  private  sale of any  security  or
collateral  for any of the  Obligations,  whether by  foreclosure  or otherwise,
Lender  may, in its  discretion,  purchase  all or any part of such  security or
collateral so sold or offered for sale for its own account and may apply against
the amount bid  therefor  all or any part of the  balance due it pursuant to the
terms of the Note or  Security  Documents  or any other  Loan  Document  without
prejudice to Lender's remedies hereunder against Guarantor for deficiencies.  If
the Obligations are partially paid by reason of the election of Lender to pursue
any of the remedies  available to Lender,  or if such  Obligations are otherwise
partially  paid,  this  Guaranty  shall  nevertheless  remain in full  force and
effect,  and  Guarantor  shall  remain  liable  for the  entire  balance  of the
Obligations even though any rights which Guarantor may have against Borrower may
be destroyed or diminished by the exercise of any such remedy.

     8. Application of Payments.  Guarantor hereby  authorizes  Lender,  without
notice to Guarantor, to apply all payments and credits received from Borrower or
from Guarantor or realized from any security in such manner and in such priority
as set forth in the Credit Agreement.

     9. Business Failure, Bankruptcy or Insolvency. In the event of the business
failure of Guarantor or if there shall be pending any  bankruptcy  or insolvency
case or proceeding with respect to Guarantor under federal bankruptcy law or any
other applicable law or in connection with the insolvency of Guarantor,  or if a
liquidator,  receiver,  or trustee  shall have been  appointed  for Guarantor or
Guarantor's properties or assets, Lender may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of  Lender  allowed  in  any  proceedings  relative  to  Guarantor,  or  any  of
Guarantor's  properties or assets, and,  irrespective of whether the Obligations
shall then be due and payable,  by  declaration  or  otherwise,  Lender shall be
entitled and empowered to file and prove a claim for the whole amount of any sum
or sums owing with  respect to the  Obligations,  and to collect and receive any
moneys or other property  payable or  deliverable  on any such claim.  Guarantor
covenants and agrees that upon the  commencement  of a voluntary or  involuntary
bankruptcy  proceeding  by or  against  Borrower,  Guarantor  shall  not  seek a
supplemental  stay or  otherwise  pursuant  to 11  U.S.C.  ss.105  or any  other
provision of the Bankruptcy Reform Act of 1978, as amended,  or any other debtor
relief law  (whether  statutory,  common  law,  case law, or  otherwise)  of any
jurisdiction  whatsoever,  now or  hereafter  in effect,  which may be or become
applicable,  to stay,  interdict,  condition,  reduce or inhibit  the ability of
Lender to  enforce  any  rights of Lender  against  Guarantor  by virtue of this
Guaranty or otherwise.

     10. Financial Statements and Other Information. Guarantor hereby represents
and  warrants to Lender  that all  financial  statements  of  Guarantor  and its
Subsidiaries  heretofore  delivered  by it to Lender are true and correct in all
material  respects,  have been prepared in accordance  with  generally  accepted
accounting principles consistently applied, and fairly present

<PAGE>

the  financial  condition  of  Guarantor  and its  Subsidiaries  as of the  date
thereof; that no material adverse change has occurred in the assets or financial
condition of Guarantor and its Subsidiaries as reflected  therein since the date
thereof;  and that Guarantor and its  Subsidiaries  have no liabilities or known
contingent  liabilities  involving  material  amounts which are not reflected in
such  financial  statements  or  referred  to in the notes  thereto  other  than
Guarantor's  obligations  under this Guaranty.  Guarantor  agrees that until all
Obligations  have been  completely paid and performed and the obligations of the
Lenders  under the Credit  Agreement  have  terminated,  it will deliver to each
Lender:

     (1) as soon as  practicable,  but in any event not later than 90 days after
the end of each fiscal year of Guarantor, the audited consolidated balance sheet
of  Guarantor  and its  Subsidiaries  at the end of such year,  and the  related
audited consolidated  statements of income,  changes in shareholders' equity and
cash  flows  and  Consolidated  EBITDA  for such  year,  each  setting  forth in
comparative  form  the  figures  for the  previous  fiscal  year  and  all  such
statements to be in reasonable  detail,  prepared in accordance  with  generally
accepted accounting principles,  and accompanied by an auditor's report prepared
without  qualification  by Ernst & Young LLP or by another "Big Five" accounting
firm, the Form 10-K of Guarantor filed with the SEC (unless the SEC has approved
an extension, in which event Guarantor will deliver to Lender such copies of the
Form 10-K simultaneously with the delivery to the SEC);

     (2) as soon as  practicable,  but in any event not later than 45 days after
the end of each of the first three fiscal  quarters of Guarantor,  copies of the
unaudited consolidated balance sheet of Guarantor and its Subsidiaries as at the
end of such  quarter,  and the  related  unaudited  consolidated  statements  of
income,  changes  in  shareholders'  equity  and cash  flows for the  portion of
Guarantor's  fiscal year then elapsed,  all in reasonable detail and prepared in
accordance with generally accepted accounting  principles (which may be provided
by inclusion in the Form 10-Q of Guarantor for such period provided  pursuant to
subsection (c) below),  together with a certification  by the chief financial or
accounting officer of Guarantor that the information contained in such financial
statements  fairly  presents  the  financial   position  of  Guarantor  and  its
Subsidiaries on the date thereof (subject to year-end adjustments);

     (3) as soon as  practicable,  but in any event not later than 45 days after
the end of each of the first three  fiscal  quarters of  Guarantor in each year,
copies of Form 10-Q of Guarantor filed with the SEC (unless the SEC has approved
an extension in which event  Guarantor will deliver such copies of the Form 10-Q
to the Lender simultaneously with delivery to the SEC);

     (4) as soon as  practicable,  but in any event not later than 45 days after
the end of each of the first three  fiscal  quarters of  Guarantor,  copies of a
consolidated  statement of EBITDA for such fiscal  quarter for Guarantor and its
Subsidiaries  and  prepared in a manner  reasonable  satisfactory  to the Agent,
together with a certification by Guarantor's chief financial or chief accounting
officer that the  information  contained in such statement  fairly  presents the
EBITDA of Guarantor and its Subsidiaries for such period;

<PAGE>

     (5) simultaneously  with the delivery of the financial  statements referred
to in subsections  (a) and (b) above,  a statement (a "Compliance  Certificate")
certified by the chief financial or accounting  officer of Guarantor in the form
of Exhibit A hereto setting forth in reasonable detail  computations  evidencing
compliance  with the  covenants  contained in  Paragraph 11 and (if  applicable)
reconciliations to reflect changes in generally accepted  accounting  principles
since the Guarantor Balance Sheet Date;

     (6) concurrently with the delivery of the financial statements described in
subsections  (b) and (c) above,  a certificate  signed by the  President,  Chief
Financial  Officer or Chief Accounting  Officer of Guarantor to the effect that,
having  read  this  Guaranty,  and based  upon an  examination  which  they deem
sufficient  to enable them to make an informed  statement,  there does not exist
any  Default or Event of  Default,  or if such  Default or Event of Default  has
occurred, specifying the facts with respect thereto;

     (7) contemporaneously with the filing, mailing or releasing thereof, copies
of all press releases and all material of a financial  nature filed with the SEC
or sent to all of the stockholders of Guarantor;

     (8) promptly after they are filed with the Internal Revenue Service, copies
of all annual federal income tax returns and amendments thereto of Guarantor;

     (9) promptly upon becoming aware thereof,  written notice from Guarantor of
any event or  condition  which  might  have an adverse  effect on the  business,
operations, assets, condition (financial or otherwise) or prospects of Guarantor
or the ability of Guarantor to perform  under this Guaranty  (including  but not
limited to,  litigation  commenced or threatened in writing  against  Guarantor,
judgments  rendered  against  Guarantor,  liens filed  against  any  property of
Guarantor,  defaults  claimed under  indebtedness  for borrowed  money for which
Guarantor is primarily or  secondarily  liable,  or  bankruptcy,  insolvency  or
trustee or receivership proceedings commenced against Guarantor), such notice to
specify the nature and the period of existence of such event or  condition,  the
anticipated  effect thereof,  and what action Guarantor is taking or proposes to
take with respect thereto; and

     (10) with  reasonable  promptness,  such other  information  respecting the
business,  operations,  assets, liabilities and financial condition of Guarantor
and its Subsidiaries as Lender may from time to time reasonably request.

Guarantor  will permit any  representative  designated by Agent,  at Guarantor's
expense,  to visit  and  inspect  any of the  properties  of  Guarantor  and its
Subsidiaries,  to examine the records and books of account of Guarantor  and its
Subsidiaries (and to make copies thereof and extracts  therefrom) and to discuss
the affairs, finances and accounts of Guarantor and its Subsidiaries,  with, and
to be advised as to the same by, its officers,  all at such reasonable times and
intervals as the Lender may reasonably request.

     The financial  statements  and other reports and  information  delivered by
Guarantor to Lender  hereunder will be treated as  confidential  by each Lender,
and each assignee and

<PAGE>

participant hereunder and each potential assignee or participant hereunder,  and
such  parties for  themselves  agree not to  disclose  such  information  to any
Person,  provided that such information may be disclosed to any of the following
in connection with their  participation in the transactions  contemplated by the
Loan Documents: directors, officers, employees, representatives,  legal counsel,
accountants  and  prospective  investors  of  any  of  such  Persons,  it  being
understood  that such Persons  shall be informed of the  confidential  nature of
such  information  and shall  agree to treat  such  information  confidentially.
Notwithstanding the foregoing,  such Persons shall be permitted to disclose such
information  (a) to  the  extent  required  by  law,  (b)  to  the  extent  such
confidential  information  becomes publicly  available other than as a result of
the  breach  of  this  Guaranty,  (c) to the  extent  such  information  becomes
available  to any of such  Persons on a  non-confidential  basis,  or (d) to the
extent  necessary to enforce the Loan Documents  (provided that Lender shall use
reasonable efforts to cause such financial  statements,  reports and information
to remain confidential).

     11.  Covenants of  Guarantor.  Guarantor  hereby  covenants and agrees with
Lender that until all  Obligations  have been  completely paid and performed and
the obligations of Lender under the Credit Agreement have terminated:

     (1) Guarantor  will, and will cause its  Subsidiaries  to, cause to be done
all things  necessary  to  preserve  and keep in full force and effect its legal
existence,  rights and franchises,  to effect and maintain all required  foreign
qualifications,  licensing, domestication or authorization, and to comply in all
material  respects with all applicable laws and regulations  with respect to the
foregoing.  Guarantor  shall  not,  without  the prior  written  consent  of the
Majority Lenders, make any material changes to the accounting principles used by
such Person in preparing the financial statements heretofore delivered to Lender
or change its fiscal year;

     (2) Guarantor  will,  and will cause its  Subsidiaries  to, keep  complete,
proper and accurate records and books of account in which full, true and correct
entries will be made in accordance with generally accepted accounting principles
consistent with the preparation of the financial statements heretofore delivered
to  Lender  and will  maintain  adequate  accounts  and  reserves  for all taxes
(including  income taxes),  all depreciation and amortization of its properties,
all other  contingencies,  and all other proper reserves in the same manner, and
to the same extent,  that it has, to the extent applicable,  kept and maintained
it records and books and maintained accounts and reserves for the foregoing;

     (3)  Guarantor  will  continue to engage  primarily in the  businesses  now
conducted by it;

     (4)  Guarantor  will,  and will  cause its  Subsidiaries  to,  duly pay and
discharge,  before the same shall become in arrears, all taxes,  assessments and
other  governmental  charges  imposed  upon  it and  its  properties,  sales  or
activities,  or upon the  income or  profits  therefrom,  as well as claims  for
labor,  material,  or supplies  which if unpaid might become a lien or charge on
any of its  property;  provided that any such tax,  assessment,  charge or claim
need not be paid if the validity or amount thereof shall  currently be contested
in good faith by appropriate  proceedings  and if Guarantor shall have set aside
on its books adequate  reserves with respect thereto;  and provided further that
Guarantor shall pay all such taxes, assessments, charges and

<PAGE>

claims forthwith upon the commencement of proceedings to foreclose any lien that
may have attached as security therefor; (1)

     (5) Guarantor will, and will cause its  Subsidiaries  to, maintain and keep
the properties used or deemed by it to be useful in its business in good repair,
working  order and  condition,  and make or cause to be made all  necessary  and
proper repairs thereto and replacements thereof;

     (6)  Guarantor  will,  and will cause its  Subsidiaries  to,  maintain with
financially  sound  and  reputable  insurers,  insurance  with  respect  to  its
properties and business  against such casualties and  contingencies  and in such
types and amounts as shall be in accordance  with sound  business  practices for
companies in similar business similarly situated;

     (7) it will not make or  permit to be made,  by  voluntary  or  involuntary
means, any transfer,  dilution or encumbrance of its direct or indirect interest
in Borrower;

     (8) it will  abide by each and  every  one of the  covenants  contained  in
Articles 7 and 8 of the Credit  Agreement  that are applicable to a "Guarantor",
as such term is defined in the Credit Agreement;

     (9)  Guarantor  will not, and will not permit any of its  Subsidiaries  to,
become a party to any merger,  consolidation or other business  combination,  or
agree to effect any asset  acquisition,  stock  acquisition or other acquisition
(other  than the  acquisition  of assets  in the  ordinary  course  of  business
consistent  with past  practices)  without  the  prior  written  consent  of the
Majority  Lenders  except  (i)  the  merger  or  consolidation  of one  or  more
Subsidiaries  of  Guarantor  with and into  Guarantor  and  (ii) the  merger  or
consolidation of two or more Subsidiaries of Guarantor;

     (10)  Guarantor will not, and will not permit any of its  Subsidiaries  to,
become a party to or agree to or affect any  disposition  of assets,  other than
the  disposition of assets in the ordinary  course of business,  consistent with
past practices;

     (11) INTENTIONALLY OMITTED;

     (12) Guarantor will not, at the end of any fiscal quarter, permit the ratio
of Consolidated  Total Liabilities of Guarantor to Consolidated  Total Assets of
Guarantor to exceed 0.55 to 1;

     (13)  Guarantor  will not,  at the end of any  fiscal  quarter,  permit its
Consolidated  EBITDA for any period of four consecutive fiscal quarters (treated
as  a  single  accounting  period)  (the  "Test  Period"),   minus  the  Capital
Improvement  Reserve  for the Test  Period to be less  than 1.35  times the Debt
Service for the Test Period.  In the event that Guarantor  shall not have any of
the foregoing  components for four (4) consecutive  fiscal  quarters,  then such
components shall be annualized in a manner reasonably satisfactory to the Agent;

<PAGE>

     (14)  Guarantor  will not,  at the end of any  fiscal  quarter,  permit the
Shareholders' Equity to be less than $200,000,000.00 (the "Shareholders'  Equity
Threshold");  provided,  however the  Shareholders'  Equity  Threshold  shall be
reduced  by the  aggregate  cost of the  shares  of  common  stock of  Guarantor
repurchased by Guarantor  after the date hereof,  provided in no event shall the
Shareholders' Equity Threshold be reduced to less than $180,000,000.00; and

     (15) Guarantor  will not permit the present value of all employee  benefits
vested in all Employee Benefit Plans, Multiemployer Plans and Guaranteed Pension
Plans  maintained  by Guarantor  and any ERISA  Affiliate  thereof to exceed the
present  value of the assets  allocable  to such  vested  benefits  by an amount
greater than  $250,000.00  in the  aggregate.  Neither  Guarantor  nor any ERISA
Affiliate  thereof  will at any time  permit any such Plan  maintained  by it to
engage in any  "prohibited  transaction" as such term is defined in Section 4975
of the Code or Section 406 of ERISA, incur any "accumulated  funding deficiency"
as such term is defined  in Section  302 of ERISA,  whether  or not  waived,  or
terminate any such Plan in any manner which could result in the  imposition of a
lien on the property of Guarantor or Borrower pursuant to Section 4068 of ERISA.

     12.  Representations and Warranties of Guarantor.  Guarantor represents and
warrants as follows:

     (1)  Guarantor  and each ERISA  Affiliate are in compliance in all material
respects  with ERISA.  There has been no  Reportable  Event with  respect to any
Employee Benefit Plan,  Multiemployer Plan or Guaranteed Pension Plan. There has
been no institution of proceedings or any other action by PBGC, the Guarantor or
any ERISA Affiliate to terminate or withdraw or partially withdraw from any such
Plan under any  circumstances  which could lead to material  liabilities to PBGC
or, with respect to a Multiemployer  Plan, the  "Reorganization" or "Insolvency"
(as each such term is  defined  in ERISA) of any such  Plan.  To the best of the
Guarantor's  knowledge,  no  "prohibited  transaction"  (within  the  meaning of
Section 406 of ERISA or Section 4975 of the Code) has  occurred  with respect to
any such Plan, and neither the consummation of the transactions  provided for in
this Agreement and  compliance by the Guarantor  with the provisions  hereof and
the other Loan Documents will involve any prohibited transaction;

     (2) neither the Guarantor nor any ERISA Affiliate  thereof is currently and
the Guarantor has no reason to believe that the Guarantor or any ERISA Affiliate
thereof will become  subject to any  liability  (other than routine  expenses or
contributions  relating to the Plans set forth on  Schedule 1, if timely  paid),
tax or penalty  whatsoever to any person  whomsoever,  which  liability,  tax or
penalty is directly or  indirectly  related to any Plans set forth on Schedule 1
including, but not limited to, any penalty or liability arising under Title I or
Title IV of ERISA,  any tax or penalty  resulting from a loss of deduction under
Sections 404 and 419 of the Code,  or any tax or penalty under Chapter 43 of the
Code,  except such  liabilities,  taxes or penalties  (when taken as a whole) as
will not have a material  adverse  effect on the Guarantor or upon its financial
condition, assets, business, operations, liabilities or prospects; and

<PAGE>

     (3) Guarantor and each ERISA  Affiliate has made full and timely payment of
all amounts  (i)  required  to be  contributed  under the terms of each Plan set
forth on Schedule 1 and  applicable law and (ii) required to be paid as expenses
of each Plan set forth on Schedule 1. No Plan set forth on Schedule 1 would have
an "amount of unfunded benefit  liabilities" (as defined in Section  4001(a)(18)
of  ERISA)  if  such  Plan  were  terminated  as  of  the  date  on  which  this
representation and warranty is made.

     13. Security and Rights of Set-off.  Guarantor hereby grants to Lender,  as
security  for the  full  and  prompt  payment  and  performance  of  Guarantor's
obligations hereunder, a continuing lien on and security interest in any and all
securities or other  property  belonging to Guarantor  now or hereafter  held by
Lender  and in any  and all  deposits  (general  or  specific,  time or  demand,
provisional or final, regardless of currency,  maturity, or the branch of Lender
where the  deposits  are held) now or  hereafter  held by Lender  and other sums
credited  by or due from  Lender  to  Guarantor  or  subject  to  withdrawal  by
Guarantor;  and  regardless of the adequacy of any  collateral or other means of
obtaining repayment of such obligations,  during the continuance of any Event of
Default under the Note or the Loan Documents, Lender may at any time and without
notice to  Guarantor  set-off  and apply the whole or any portion or portions of
any or all such  deposits  and other sums  against  amounts  payable  under this
Guaranty,  whether or not any other person or persons could also withdraw  money
therefrom.  Any security now or hereafter  held by or for Guarantor and provided
by Borrower,  or by anyone on Borrower's  behalf,  in respect of  liabilities of
Guarantor  hereunder  shall be held in trust  for  Lender  as  security  for the
liabilities of Guarantor hereunder.

     14.  Changes in Writing;  No  Revocation.  This Guaranty may not be changed
orally,  and no  obligation  of  Guarantor  can be  released or waived by Lender
except by a writing signed by a duly authorized officer of Lender. This Guaranty
shall be  irrevocable  by  Guarantor  until  all of the  Obligations  have  been
completely  paid and  performed  and the Lenders have no further  obligation  to
advance Loans to Borrower.

     15. Notices. All notices,  demands or requests provided for or permitted to
be given pursuant to this Guaranty (hereinafter in this paragraph referred to as
"Notice")  must be in writing and shall be deemed to have been properly given or
served by  personal  delivery  or by  sending  same by  overnight  courier or by
depositing  the same in the United  States  Mail,  postpaid  and  registered  or
certified,  return  receipt  requested,  at the addresses set forth below.  Each
Notice shall be effective upon being delivered  personally or upon being sent by
overnight  courier  or  upon  being  deposited  in the  United  States  Mail  as
aforesaid.  The time period in which a response to any such Notice must be given
or any action taken with respect  thereto,  however,  shall commence to run from
the date of receipt if personally  delivered or sent by overnight courier or, if
so deposited in the United  States Mail,  the earlier of three (3) business days
following  such  deposit  and the date of  receipt  as  disclosed  on the return
receipt.  Rejection  or other  refusal  to accept or the  inability  to  deliver
because  of changed  address of which no Notice was given  shall be deemed to be
receipt of the Notice  sent.  By giving at least  fifteen (15) days prior Notice
thereof,  Guarantor  or Lender shall have the right from time to time and at any
time during the term of this Guaranty to change their  respective  addresses and
each shall have the right to specify as its address any other address within the
United States of America. For the purposes of this Guaranty:

<PAGE>

         The Address of Lender is:

                  Fleet National Bank
                  100 Federal Street
                  Boston, Massachusetts 02110
                  Attention:  Real Estate Division

         with a copy to:

                  Fleet National Bank
                  115 Perimeter Center Place, N.E.
                  Suite 500
                  Atlanta, Georgia 30346
                  Attention:  Jay Johns

         and a copy to each other  Lender  which may now or  hereafter  become a
         party to the Credit  Agreement at such address as may be  designated by
         such Lender.

         The Address of Guarantor is:

                  Wellsford Real Properties, Inc.
                  535 Madison Avenue, 26th Floor
                  New York, New York 10022
                  Attention:  James J. Burns

                  with a copy to:

                  Robinson Silverman Pearce Aronsohn & Berman, LLP
                  1290 Avenue of the Americas
                  New York, New York  10104
                  Attention:  Alan S. Pearce, Esq.

     16. Governing Law. Guarantor acknowledges and agrees that this Guaranty and
the obligations of Guarantor  hereunder shall be governed by and interpreted and
determined  in  accordance  with  the  internal  laws of the  State  of New York
(excluding the laws applicable to conflicts or choice of law).

     17. CONSENT TO  JURISDICTION;  WAIVERS.  GUARANTOR  HEREBY  IRREVOCABLY AND
UNCONDITIONALLY  (A) SUBMITS TO PERSONAL  JURISDICTION  IN THE STATE OF NEW YORK
OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY,
AND (B) WAIVES ANY AND ALL  PERSONAL  RIGHTS  UNDER THE LAWS OF ANY STATE (I) TO
THE RIGHT, IF ANY, TO TRIAL BY JURY, AND (II) TO OBJECT TO  JURISDICTION  WITHIN
THE STATE OF NEW YORK OR VENUE IN ANY  PARTICULAR  FORUM WITHIN THE STATE OF NEW
YORK. NOTHING CONTAINED HEREIN, HOWEVER,

<PAGE>

SHALL PREVENT LENDER FROM BRINGING ANY SUIT,  ACTION OR PROCEEDING OR EXERCISING
ANY RIGHTS AGAINST ANY SECURITY AND AGAINST  GUARANTOR  PERSONALLY,  AND AGAINST
ANY PROPERTY OF GUARANTOR,  WITHIN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION
OR PROCEEDING OR TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT  CONSTITUTE A
WAIVER OF THE AGREEMENT  CONTAINED HEREIN THAT THE LAWS OF THE STATE OF NEW YORK
SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF GUARANTOR AND LENDER  HEREUNDER OR OF
THE  SUBMISSION  HEREIN MADE BY  GUARANTOR TO PERSONAL  JURISDICTION  WITHIN THE
STATE OF NEW YORK.

     18.  Successors  and Assigns.  The  provisions  of this  Guaranty  shall be
binding upon  Guarantor and its heirs,  successors,  successors in title,  legal
representatives,  executors,  estate and assigns, and shall inure to the benefit
of Lender,  its  successors,  successors  in title,  legal  representatives  and
assigns. Guarantor shall not assign or transfer any of its rights or obligations
under this Guaranty without the prior written consent of Lender.

     19. Assignment by Lender. This Guaranty is assignable by Lender in whole or
in part in conjunction with any assignment of the Note or portions thereof,  and
any such assignment hereof or any transfer or assignment of the Note or portions
thereof  by Lender  shall  operate to vest in any such  assignee  the rights and
powers,  in whole or in part, as appropriate,  herein conferred upon and granted
to Lender.

     20.  Severability.  If any  term or  provision  of this  Guaranty  shall be
determined to be illegal or unenforceable, all other terms and provisions hereof
shall nevertheless  remain effective and shall be enforced to the fullest extent
permitted by law.

     21.  Disclosure.  Guarantor  agrees that in addition to disclosures made in
accordance with standard banking practices,  any Lender may disclose information
obtained by such Lender  pursuant to this Guaranty to assignees or  participants
and  potential  assignees  or  participants  hereunder,  subject to the terms of
Paragraph 10 above.

     22. No Unwritten  Agreements.  THIS GUARANTY REPRESENTS THE FINAL AGREEMENT
BETWEEN  THE  PARTIES  AND  MAY  NOT  BE  CONTRADICTED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     23. Time of the  Essence.  Time is of the essence  with respect to each and
every covenant, agreement and obligation of Guarantor under this Guaranty. 1.

     24. Statement of Discharge. Upon the payment and performance in full of the
Obligations and upon the termination of Lender's obligations to advance Loans to
Borrower,  the  Lender  shall,  upon the  written  request of  Guarantor  or the
Borrower,  deliver a statement to the Guarantor that the Guarantor's obligations
under this Guaranty have been discharged and satisfied and that this Guaranty is
terminated (subject to reinstatement as provided herein).

<PAGE>

     25. Additional Definitions. The following terms shall have the meanings set
forth in this Paragraph 25 below:

     Capital  Improvement  Reserve.  For any period  for the  purpose of testing
compliance  with the  Consolidated  EBITDA  ratio set forth in  Paragraph  11(m)
hereof,  an amount equal to fifteen  cents  ($0.15)  multiplied  by the weighted
average of rentable  square  footage of Real Estate owned by  Guarantor  and its
Subsidiaries during such period.

     Consolidated or combined.  With reference to any term defined herein,  that
term as applied to the accounts of Guarantor and its Subsidiaries,  consolidated
or combined in accordance with generally accepted accounting principles.

     Consolidated  EBITDA.  With respect to any Test Period,  an amount equal to
the EBITDA of Guarantor and its  Subsidiaries  for such period  consolidated  in
accordance with generally accepted accounting principles.

     Consolidated  Total Assets.  All assets of Guarantor  and its  Subsidiaries
determined  on a  consolidated  basis  in  accordance  with  generally  accepted
accounting principles.  All Real Estate shall be valued on an undepreciated cost
basis.

     Consolidated  Total  Liabilities.  All  liabilities  of  Guarantor  and its
Subsidiaries  determined on a  consolidated  basis in accordance  with generally
accepted  accounting  principles  and  all  Indebtedness  of  Guarantor  and its
Subsidiaries,  whether or not so classified,  excluding those certain contingent
liabilities  of  Guarantor  and its  Subsidiaries  pursuant to (i) that  certain
Indemnity and Guaranty Agreement  ($300,000,000 Loan) dated as of July 16, 1998,
from  Wellsford  Commercial  Properties  Trust  ("WCPT")  and WHWEL Real  Estate
Limited Partnership ("WHWEL") in favor of Fleet National Bank (f/k/a BankBoston,
N.A.),  individually and as Agent, and certain other lenders,  (ii) that certain
Conditional  Guaranty of Payment  ($300,000,000 Loan) dated as of July 16, 1998,
from Guarantor,  WCPT, WHWEL, Whitehall Street Real Estate Limited Partnership V
("Whitehall V"), Whitehall Street Real Estate Limited Partnership VI ("Whitehall
VI"),  Whitehall Street Real Estate Limited  Partnership VII ("Whitehall  VII"),
and Whitehall Street Real Estate Limited  Partnership VIII ("Whitehall VIII") in
favor of Fleet  National  Bank (f/k/a  BankBoston,  N.A.),  individually  and as
Agent,  and certain  other  lenders,  (iii) that certain  Indemnity and Guaranty
Agreement  ($75,000,000  Loan) dated as of July 16, 1998, from WCPT and WHWEL in
favor of Fleet  National  Bank (f/k/a  BankBoston,  N.A.),  individually  and as
Agent,  and certain  other  lenders,  (iv) that  certain  Mezzanine  Conditional
Guaranty  of  Payment  ($75,000,000  Loan)  dated  as of  July  16,  1998,  from
Guarantor,  WCPT, WHWEL, Whitehall V, Whitehall VI, Whitehall VII, and Whitehall
VIII in favor of Fleet National Bank (f/k/a BankBoston,  N.A.), individually and
as Agent,  and certain other lenders,  and (v) that certain  Nomura  Conditional
Guaranty of Payment  ($75,000,000 Loan - Nomura Properties) dated as of July 16,
1998, from Guarantor, WCPT, WHWEL, Whitehall V, Whitehall VI, Whitehall VII, and
Whitehall  VIII in  favor of  Fleet  National  Bank  (f/k/a  BankBoston,  N.A.),
individually and as Agent,  and certain other lenders,  as the same have been or
may  hereafter  be  modified  or amended  from time to time  (collectively,  the
"Contingent Obligations");  provided,  however, it being acknowledged and agreed
that  any  Contingent  Obligation  that  becomes  liquidated  or  is  no  longer
contingent shall no longer be considered a

<PAGE>

Contingent  Obligation  and shall no longer be excluded from the  calculation of
Consolidated Total Liabilities.

     Debt Service.  For any period of four consecutive fiscal quarters,  the sum
of actual interest expense and mandatory or scheduled principal payments due and
payable during such period with respect to the Indebtedness of Guarantor and its
Subsidiaries  consolidated  in accordance  with  generally  accepted  accounting
principles,  consistently  applied,  excluding  any  balloon  payments  due upon
maturity of any Indebtedness,  amortized loan fees,  capitalized  interest,  any
interest  charge  incurred  by  any  entity  in  which  Guarantor  or any of its
Subsidiaries has an interest of less than 50%, or over which Guarantor or any of
its Subsidiaries does not exercise voting control,  and the capitalized interest
expense and principal payments due with respect to the construction loans on the
Palomino Park Project,  and further  excluding any interest payable by Guarantor
to WRP  Convertible  Trust I, a Delaware  business  trust with  respect to those
certain 8.25% convertible  junior  subordinate  debentures issued pursuant to an
Indenture  dated as of May 5,  2000,  between  Guarantor  and  Wilmington  Trust
Company.

     EBITDA.  With  respect to any Person (or any asset of any  Person)  for any
period,  an amount  equal to the sum of (a) the Net  Income of such  Person  (or
attributable  to such asset) for such period  plus (b) Taxes,  depreciation  and
amortization,  interest expense,  and any extraordinary or non-recurring  losses
deducted  in  calculating  such  Net  Income  minus  (c)  any  extraordinary  or
nonrecurring gains included in calculating such Net Income,  provided,  however,
that for purposes of this  calculation,  proceeds from the sale of  condominiums
will not be considered as extraordinary or non-recurring gains.

     Employee  Benefit  Plan.  Any  employee  benefit plan within the meaning of
ss.3(3)  of  ERISA  maintained  or  contributed  to by  Guarantor  or any  ERISA
Affiliate, other than a Multiemployer Plan.

     ERISA. The Employee  Retirement Income Security Act of 1974, as amended and
in effect from time to time.

     ERISA  Affiliate.  Any Person  which is treated as a single  employer  with
Guarantor under ss.414 of the Code.

     ERISA  Reportable  Event.  A reportable  event with respect to a Guaranteed
Pension  Plan  within  the  meaning  of  ss.4043  of ERISA  and the  regulations
promulgated  thereunder  as to which  the  requirement  of  notice  has not been
waived.

     Equity  Offering.  The  issuance and sale by Guarantor of any of its equity
securities.

     Guaranteed  Pension  Plan.  Any  employee  pension  benefit plan within the
meaning of ss.3(2) of ERISA  maintained  or  contributed  to by Guarantor or any
ERISA  Affiliate the benefits of which are  guaranteed on termination in full or
in part by the PBGC  pursuant to Title IV of ERISA,  other than a  Multiemployer
Plan.

<PAGE>

     Guarantor Balance Sheet Date. March 31, 2000.

     Multiemployer Plan. Any multiemployer plan within the meaning ofss.3(37) of
ERISA maintained or contributed to by Guarantor or any ERISA Affiliate.

     Net Income (or  Deficit).  With  respect to any Person (or any asset of any
Person) for any fiscal  period,  the net income (or  deficit) of such Person (or
attributable to such asset),  after  deduction of all expenses,  taxes and other
proper  charges,  determined in accordance  with generally  accepted  accounting
principles.

     PBGC. The Pension Benefit Guaranty  Corporation  created byss.4002 of ERISA
and any successor entity or entities having similar responsibilities.

     Real  Estate.  All real  property at any time owned or leased (as lessee or
sublessee) by Guarantor or any of its Subsidiaries.

     Shareholders'  Equity.  At any date, the total  consolidated  shareholders'
equity of Guarantor and its Subsidiaries determined in accordance with generally
accepted accounting principles.

     Taxes. All taxes, however denominated,  including any interest,  penalties,
or other  additions  to tax that may become  due or payable in respect  thereof,
imposed by any federal, territorial,  state, local, or foreign government or any
agency or  political  subdivision  of any such  government,  which  taxes  shall
include, without limiting the generality of the foregoing, all income or profits
taxes  (including,  but not limited to,  federal  income  taxes and state income
taxes), payroll and employee withholding taxes,  unemployment insurance,  social
security taxes, sales and use taxes, ad valorem taxes,  excise taxes,  franchise
taxes, gross receipts taxes, business license taxes,  occupation taxes, real and
personal  property  taxes,  stamp taxes,  environmental  taxes,  transfer taxes,
workers'  compensation,  Pension Benefit Guaranty Corporation premiums and other
governmental  charges,  and other obligations of the same or of a similar nature
to any of the  foregoing,  which the  Guarantor  is  assessed,  required to pay,
withhold, or collect for any period.

     25. Ratification.  Guarantor does hereby restate,  reaffirm and ratify each
and every warranty and  representation  regarding  Guarantor or its Subsidiaries
set forth in the  Credit  Agreement  as if the same  were  more  fully set forth
herein.

                      [SIGNATURES BEGIN ON FOLLOWING PAGE]

<PAGE>

     IN WITNESS  WHEREOF,  Guarantor has executed this Guaranty under seal as of
the 28th day of June, 2000.

               WELLSFORD REAL PROPERTIES, INC., a Maryland corporation

                By: /s/ James J. Burns
                ----------------------
                   Name: James J. Burns
                   Title: Senior Vice President

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]

<PAGE>

     Lender  joins in the  execution  of this  Guaranty for the sole and limited
purpose  of  evidencing  its  agreement  to waiver of the right to trial by jury
contained in Section 17(b)(i) hereof and Section 25 of the Credit Agreement.

               FLEET NATIONAL BANK,
               As Agent for Lender

               By: /s/ Jay G. Johns
               --------------------
                  Name: Jay G. Johns
                  Title: Vice President

<PAGE>

                                    EXHIBIT A
                                    ---------
                                     FORM OF
                             COMPLIANCE CERTIFICATE

Fleet National Bank,
for itself and as Agent
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Attention:  Mr. Jay Johns

Ladies and Gentlemen:

     Reference is made to the Unconditional  Guaranty of Payment and Performance
dated as of June 28, 2000 (the  "Guaranty") by Wellsford Real  Properties,  Inc.
("Guarantor")  for the benefit of Fleet  National  Bank,  the other Lenders from
time to time party to the "Credit Agreement" (as defined therein) and any Lender
acting as Agent for all of the  Lenders.  Terms  defined in the Guaranty and not
otherwise defined herein are used herein as defined in the Guaranty.

     Pursuant to the  Guaranty,  Guarantor is furnishing to you herewith (or has
most recently  furnished to you) the  financial  statements of Guarantor and its
Subsidiaries  for the fiscal period ended  _______________  (the "Balance  Sheet
Date").  Such  financial  statements  have  been  prepared  in  accordance  with
generally  accepted  accounting  principles  and  present  fairly the  financial
position of Guarantor and the  Subsidiaries  covered thereby at the date thereof
and the results of their operations for the periods covered thereby,  subject in
the case of interim statements only to normal year-end audit adjustments.

     This certificate is submitted in compliance with  requirements of Paragraph
10 of the Guaranty.  The undersigned officer of Guarantor is its chief financial
or chief accounting officer.

     The  undersigned  officer has caused the  provisions  of the Guaranty to be
reviewed and has no knowledge of any Default or Event of Default.  (Note: If the
signer  does have  knowledge  of any  Default or Event of  Default,  the form of
certificate  should be revised to specify the  Default or Event of Default,  the
nature  thereof  and the actions  taken,  being taken or proposed to be taken by
Guarantor with respect thereto.)

     Guarantor is providing the following information to demonstrate  compliance
as of the date hereof with the following covenants:

<PAGE>

I.     P. 10(l). Liabilities to Assets Ratio.
       --------  ---------------------------

         A.       Consolidated Total Liabilities
                  per balance sheet                                $____________

         B.       Consolidated Total Assets per
                  balance sheet                                    $____________

         Ratio of A to B may not exceed 0.55 to 1.

II.    P. 10(m). Consolidated EBITDA Coverage.
       --------  ----------------------------

         A.       Consolidated EBITDA  =

                  Consolidated Net Income for
                  most recent quarter                              $____________
                  Plus depreciation and amortization               $____________

                  Plus interest expense                            $____________

                  Plus Taxes                                       $____________

                  Plus extraordinary or non-recurring
                  losses                                           $____________

                  Minus extraordinary or non-
                  recurring gains (other than condominium sales)   ($__________)

                  Subtotal for most recent quarter                  $___________

                  Consolidated EBITDA for three prior quarters:

                  Quarter ended __________                          $___________

                  Quarter ended __________                          $___________

                  Quarter ended __________                          $___________

                  Total                                             $___________

<PAGE>

                  Minus Capital Improvement Reserve for four
                  prior quarters                                   ($__________)

                  Total                                             $ __________

         B.       Debt Service for four prior
                  quarters                                          $___________

         A must equal or exceed 135% of B.

III.     P. 10(n). Minimum Shareholders' Equity

         A.       Shareholders' Equity                               $ _________

         B.       $200,000,000.00

                  Minus,  the  aggregate  cost  of  common  stock  of  Guarantor
                  repurchased  by  Guarantor  after June ____,  2000  (provided,
                  however, in no event may the Shareholders' Equity Threshold be
                  reduced as a result of such stock
                  repurchases to less than $180,000,000.00)          $ _________

                  Total                                              $ _________

                  A must equal or exceed B

<PAGE>

                                   SCHEDULE 1
                                   ----------

                                      NONE
<PAGE>

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