Document:

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                                                                    Exhibit 10.4

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                                WARRANT AGREEMENT

                                     between

                              SUNTERRA CORPORATION

                                       and

                          MELLON INVESTOR SERVICES LLC

                                 (Warrant Agent)

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          This WARRANT AGREEMENT (this "Agreement"), dated as of July 26, 2002,
between SUNTERRA CORPORATION, a Maryland corporation (the "Company"), and Mellon
Investor Services LLC, a New Jersey limited liability company (in its capacity
as warrant agent hereunder, the "Warrant Agent").

                              W I T N E S S E T H:

          WHEREAS, pursuant to the Third Amended and Restated Joint Plan of
Reorganization dated May 9, 2002 (as the same has been and may be further
modified, supplemented or amended, the "Plan") of the Company and certain of its
affiliates under Chapter 11 of Title 11 of the United States Code, 11 U.S.C.
(S)(S)101 et seq., the Company proposes to issue 600,000 warrants (the
"Warrants") entitling the Holders to purchase initially an aggregate of up to
600,000 shares (as may be adjusted from time to time pursuant to this Agreement,
the "Shares") of the Company's Common Stock, $0.01 par value per share (the
"Common Stock"); and

          WHEREAS, the Warrant Agent, at the request of the Company, has agreed
to act as the agent of the Company in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants;

          NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein set forth, the parties hereto agree as follows:

          SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
Mellon Investor Services LLC to act as agent for the Company in accordance with
the provisions of this Agreement, and Mellon Investor Services LLC hereby
accepts such appointment, upon the terms and conditions hereinafter set forth.

          SECTION 2. Issuances. Subject to the provisions of this Agreement, in
accordance with the terms of the Plan, on (and from time to time after) the
Effective Date under, and as defined in, the Plan, Warrants to purchase the
Shares will be issued and delivered by the Company in the amounts and to the
recipients specified in, or determined pursuant to, the Plan. On, and/or, to the
extent provided under the Plan, after the Effective Date, the Company will
deliver, or cause to be delivered, to or for the Class 8 claimants under the
Plan one or more Global Warrant Certificates (as defined below) evidencing the
Warrants issued to such Class 8 claimants in accordance with the terms of the
Plan.

          SECTION 3. Form of Warrant Certificates. Subject to Section 6 of this
Agreement, the Warrants shall initially be issued in the form of one or more
global certificates (the "Global Warrant Certificates"), the forms of election
to exercise and of assignment to be printed on the reverse thereof, in
substantially the form set forth in Exhibit A hereto (including the information
set forth in footnote 1 thereto). Warrant Certificates (as defined below) may
have such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Agreement and may have such letters,
numbers or other marks of identification and such legends or endorsements
thereon as may be required to comply with any law or any rules made pursuant
thereto or with any rules of any securities exchange or trading system or as

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may, consistently herewith, be determined by the officers of the Company
executing such Warrant Certificates, as evidenced by their execution thereof.

          The Global Warrant Certificates shall be deposited on or after the
Effective Date with, or with the Warrant Agent as custodian for, The Depository
Trust Company (the "Depositary") and registered in the name of Cede & Co., as
the Depositary's nominee. Each Global Warrant Certificate shall represent such
number of the outstanding Warrants as specified therein, and each shall provide
that it shall represent the aggregate amount of outstanding Warrants from time
to time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate, in accordance with the terms of this Agreement. Upon request, a
Holder may receive from the Depositary and the Warrant Agent Warrants in
definitive form (the "Definitive Warrant Certificates" and, together with the
Global Warrant Certificates, the "Warrant Certificates"), substantially in the
form of Exhibit A (not including footnote 1 thereto) as set forth in Section 6
hereof.

          SECTION 4. Execution of Warrant Certificates. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board of
Directors, its Chief Executive Officer, its President, a Vice President or its
Treasurer (each an "Officer") and attested by its Secretary or an Assistant
Secretary, under its corporate seal. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of any such Officer and
may be imprinted or otherwise reproduced on the Warrant Certificates. The
corporate seal of the Company may be in the form of a facsimile thereof and may
be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.

          If any Officer who shall have signed any of the Warrant Certificates
shall cease to be such officer before the Warrant Certificates so signed shall
have been countersigned by the Warrant Agent or disposed of by the Company, such
Warrant Certificates nevertheless may be countersigned and delivered or disposed
of as though such Officer had not ceased to be such Officer of the Company; and
any Warrant Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Warrant Certificate, shall be a
proper officer of the Company to sign such Warrant Certificate, although at the
date of the execution of this Agreement any such person was not such officer.

          SECTION 5. Registration and Countersignature. The Warrant Agent shall,
upon receipt of the Warrant Certificates duly executed on behalf of the Company,
countersign one or more Warrant Certificates evidencing the Warrants and shall
deliver such Warrant Certificates to or upon the written order of the Company. A
Warrant Certificate shall be, and shall remain, subject to the provisions of
this Agreement until such time as all of the Warrants evidenced thereby shall
have been duly exercised or shall have expired or been canceled in accordance
with the terms hereof.

          No Warrant Certificate shall be valid for any purpose, and no Warrant
evidenced thereby shall be exercisable, until such Warrant Certificate has been
countersigned by the manual signature of the Warrant Agent. Such signature by
the Warrant Agent upon any Warrant Certificate executed by the Company shall be
conclusive evidence that such Warrant Certificate so countersigned has been duly
issued hereunder.

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          The Warrant Agent shall keep, at an office designated for such
purpose, books (the "Warrant Register") in which, subject to such reasonable
regulations as it may prescribe, it shall register the Warrant Certificates and
exchanges and transfers of outstanding Warrant Certificates in accordance with
the procedures set forth in Section 6 hereof, all in form satisfactory to the
Company and the Warrant Agent. No service charge shall be made for any exchange
or registration of transfer of the Warrant Certificates, but the Company may
require payment of a sum sufficient to cover any stamp or other tax or other
governmental charge that may be imposed in connection with any such exchange or
registration of transfer. The Warrant Agent shall have no obligation to effect
an exchange or register a transfer unless and until any payments required by the
immediately preceding sentence have been made.

          Prior to due presentment for registration of transfer or exchange of
any Warrant in accordance with the procedures set forth in this Agreement, the
Warrant Agent and the Company may deem and treat the person in whose name any
Warrant is registered (the "Holder" of such Warrant) as the absolute owner
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone), for the purpose of any exercise thereof or any distribution to the
Holder thereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.

          SECTION 6. Registration of Transfers and Exchanges.

               (a) Transfer and Exchange of Global Warrant Certificates or
Beneficial Interests Therein. The transfer and exchange of Global Warrant
Certificates or beneficial interests therein shall be effected through the
Depositary, in accordance with this Agreement and the procedures of the
Depositary therefor.

               (b) Exchange of a Beneficial Interest in a Global Warrant
Certificate for a Definitive Warrant Certificate.

                    (i) Any Holder of a beneficial interest in a Global Warrant
Certificate may, upon request, exchange such beneficial interest for a
Definitive Warrant Certificate. Upon receipt by the Warrant Agent from the
Depositary or its nominee of written instructions or such other form of
instructions as is customary for the Depositary on behalf of any person having a
beneficial interest in a Global Warrant Certificate, the Warrant Agent shall
cause, in accordance with the standing instructions and procedures existing
between the Depositary and Warrant Agent, the number of Warrants represented by
the Global Warrant Certificate to be reduced by the number of Warrants to be
represented by the Definitive Warrant Certificates to be issued in exchange for
the interest of such person in the Global Warrant Certificate and, following
such reduction, the Company shall execute and the Warrant Agent shall
countersign and deliver to the transferee, as the case may be, a Definitive
Warrant Certificate.

                    (ii) Definitive Warrant Certificates issued in exchange for
a beneficial interest in a Global Warrant Certificate pursuant to this Section
6(b) shall be registered in such names as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Warrant Agent. The Warrant Agent shall deliver such Definitive
Warrant Certificates to the persons in whose names such Warrants are so
registered.

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               (c) Transfer and Exchange of Definitive Warrant Certificates.
When Definitive Warrant Certificates are presented to the Warrant Agent with a
request:

                    (i) to register the transfer of the Definitive Warrant
Certificates; or

                    (ii) to exchange such Definitive Warrant Certificates for an
equal number of Definitive Warrant Certificates of other authorized
denominations,

the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements for such transactions are met; provided, however, that the
Definitive Warrant Certificates presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Warrant Agent, duly executed
by the Holder thereof or by his attorney, duly authorized in writing.

               (d) Restrictions on Exchange or Transfer of a Definitive Warrant
Certificate for a Beneficial Interest in a Global Warrant Certificate. A
Definitive Warrant Certificate may not be exchanged for a beneficial interest in
a Global Warrant Certificate except upon satisfaction of the requirements set
forth in this paragraph (d). Upon receipt by the Warrant Agent of a Definitive
Warrant Certificate, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with written
instructions directing the Warrant Agent to make, or to direct the Depositary to
make, an endorsement on the Global Warrant Certificate to reflect an increase in
the number of Warrants represented by the Global Warrant Certificate equal to
the number of Warrants represented by such Definitive Warrant Certificate, then
the Warrant Agent shall cancel such Definitive Warrant Certificate and cause, or
direct the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant Certificate to be increased
accordingly. If no Global Warrant Certificates are then outstanding, the Company
shall issue and the Warrant Agent shall countersign a new Global Warrant
Certificate representing the appropriate number of Warrants.

               (e) Restrictions on Transfer and Exchange of Global Warrant
Certificates. Notwithstanding any other provision of this Agreement (other than
the provisions set forth in Section 6(f)), unless and until it is exchanged in
whole for Definitive Warrant Certificates, a Global Warrant Certificate may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.

               (f) Countersigning of Definitive Warrant Certificates in Absence
of Depositary. If at any time:

                    (i) the Depositary for the Global Warrant Certificates
notifies the Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrant Certificates and a successor Depositary for
the Global Warrant Certificates is not appointed by the Company within 90 days
after delivery of such notice; or

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                    (ii) the Company, in its sole discretion, notifies the
Warrant Agent in writing that it elects to cause the issuance of Definitive
Warrant Certificates under this Agreement,

          then the Company shall execute, and the Warrant Agent, upon written
instructions signed by an officer of the Company, shall countersign and deliver
Definitive Warrant Certificates, in an aggregate number equal to the number of
Warrants represented by the Global Warrant Certificates, in exchange for such
Global Warrant Certificates.

               (g) No Warrants, or shares of Common Stock issuable upon exercise
of the Warrants, shall be sold, exchanged or otherwise transferred in violation
of the Securities Act of 1933, as amended (the "Securities Act"), or state
securities laws. The Company or the Warrant Agent may require that, as a
condition to any sale, exchange or transfer of a Warrant or such shares of
Common Stock, the Holder deliver to the Company and the Warrant Agent an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory to the
Company and to the Warrant Agent, to the effect that such sale, exchange or
transfer is made in compliance with the Securities Act and all applicable state
securities laws or pursuant to an exemption under the Securities Act and state
securities laws. The provisions of this paragraph (g) shall not apply to the
exercise of any Warrant to the extent that the Shares issued upon such exercise
(and any unexercised portion of the Warrant so exercised) shall be issued to the
same Holder that exercised such Warrant.

               (h) The Warrant Certificates, or Warrant Certificates of a
particular Holder or Holders, and the shares of Common Stock issuable upon
exercise of such Warrants, shall bear such legends, if any, as the Company shall
determine reflecting the restrictions in the immediately preceding subsection
(g).

               (i) Cancellation of Global Warrant Certificate. At such time as
all beneficial interests in Global Warrant Certificates have either been
exchanged for Definitive Warrant Certificates, redeemed, repurchased or
cancelled, all Global Warrant Certificates shall be returned to or retained and
cancelled by the Warrant Agent.

               (j) Obligations with Respect to Transfers and Exchanges of
Warrants.

                    (i) To permit registrations of transfers and exchanges, the
Company shall execute and the Warrant Agent is hereby authorized to countersign,
in accordance with the provisions of Section 3 and this Section 6, Definitive
Warrant Certificates and Global Warrant Certificates as required pursuant to the
provisions of this Section 6 and for the purpose of any distribution of Warrant
Certificates contemplated by Section 12.

                    (ii) All Definitive Warrant Certificates and Global Warrant
Certificates issued upon any registration of transfer or exchange of Definitive
Warrant Certificates or Global Warrant Certificates shall be the valid
obligations of the Company, entitled to the same benefits under this Agreement
as the Definitive Warrant Certificates or Global Warrant Certificates
surrendered upon such registration of transfer or exchange.

                    (iii) No service charge shall be made to a Holder for any
registration, transfer or exchange.

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                    (iv) So long as the Depositary, or its nominee, is the
registered owner of a Global Warrant Certificate, the Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Warrants represented by such Global Warrant Certificate for all purposes under
this Agreement. Except as provided in Section 6(b) upon the exchange of a
beneficial interest in a Global Warrant Certificate for a Definitive Warrant
Certificate, owners of beneficial interests in a Global Warrant Certificate will
not be entitled to have any Warrants registered in their names, and will not
receive or be entitled to receive physical delivery of any such Warrants as
Definitive Warrant Certificates and will not be considered the owners or holders
thereof under the Warrants or this Agreement. Neither the Company nor the
Warrant Agent, in its capacity as registrar for such Warrants, will have any
responsibility or liability for any aspect of the records relating to beneficial
interests in a Global Warrant Certificate or for maintaining, supervising or
reviewing any records relating to such beneficial interests.

                    (v) Subject to Sections 6(b), (c), (d) and this Section
6(j), the Warrant Agent shall, upon receipt of all information required to be
delivered hereunder, from time to time register the transfer of any outstanding
Warrants represented by Warrant Certificates in the Warrant Register, upon
surrender of Warrant Certificates representing such Warrants at the Warrant
Agent Office (as defined below), duly endorsed, and accompanied by a completed
form of assignment, duly signed by the Holder thereof or by the duly appointed
legal representative thereof or by a duly authorized attorney, such signature to
be guaranteed by (i) a bank or trust company, (ii) a broker or dealer that is a
member of the National Association of Securities Dealers, Inc. (the "NASD") or
(iii) a member of a national securities exchange. Upon any such registration of
transfer, a new Warrant Certificate shall be issued to the transferee.

          SECTION 7. Duration and Exercise of Warrants.

               (a) The Warrants shall expire at 5:00 p.m. New York City time on
July 26, 2007 (the "Expiration Date"). After the Expiration Date, the Warrants
will become and be void and of no value.

               (b) Subject to the provisions of this Agreement, including
Section 12, each Warrant shall entitle the holder thereof to purchase from the
Company (and the Company shall issue and sell to such holder) one fully paid and
nonassessable Share at a price equal to $20.00 per share (as the same may be
hereafter adjusted pursuant to Section 12, the "Exercise Price").

               (c) From and after the Effective Date under, and as defined in,
the Plan and until 5:00 p.m., New York City time, on the Expiration Date with
respect to such Warrant, the Holder of a Warrant may exercise such Holder's
right to purchase Shares by

                    (i) providing written notice of such election ("Warrant
Exercise Notice") to exercise the Warrant to the Warrant Agent at the address
set forth in Section 19 hereof, "Re: Sunterra Corporation Warrant Exercise", by
hand or by facsimile, no later than 5:00 p.m., New York City time, on the
Expiration Date, which Warrant Exercise Notice shall be in the form of an
election to purchase Shares of Common Stock of the Company substantially in the
form set forth either (x) in Exhibit B-1 hereto, properly completed and

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executed by the Holder; provided that such written notice may only be submitted
by persons who hold Definitive Warrant Certificates, or (y) in Exhibit B-2
hereto, properly completed and executed by the Holder; provided that such
written notice may only be submitted with respect to Warrants held through the
book-entry facilities of the Depositary, by or through persons that are direct
participants in the Depositary;

                    (ii) delivering, either (x) no later than 5:00 p.m., New
York City time, on the business day immediately prior to the Settlement Date, as
defined below, such Warrants to the Warrant Agent by book-entry transfer through
the facilities of the Depositary or (y) no later than 5:00 p.m., New York City
time, on the business day immediately prior to the Settlement Date, the Warrant
Certificates evidencing such Warrants to the Warrant Agent if Definitive Warrant
Certificates have been issued and delivered pursuant to Section 3; and

                    (iii) paying the applicable Exercise Price multiplied by the
number of Shares in respect of which such Warrants are being exercised (the
"Exercise Amount"), together with any applicable taxes and governmental charges.
The date three business days after a Warrant Exercise Notice is delivered is
referred to for all purposes under this Agreement as the "Settlement Date".

               (d) The Exercise Amount shall be payable in lawful money of the
United States of America by check or wire transfer in funds of the Exercise
Amount to the Warrant Agent specified in writing by the Warrant Agent for such
purpose, no later than 5:00 p.m., New York City time, on the business day
immediately prior to the Settlement Date. In the alternative, each Warrant
Holder may exercise its right, during the exercise period, to receive Warrant
Shares on a net basis, such that, without the exchange of any funds, the Holder
receives that number of Warrant Shares otherwise issuable (or payable) upon
exercise of its Warrants less that number of Warrant Shares having an aggregate
Market Price (as defined below) at the time of exercise equal to the aggregate
Exercise Price that would otherwise have been paid by the holder of the Warrant
Shares upon such exercise ("Net Exercise"). The term "Market Price" shall mean
(x) the average of the closing sale price of a share of Common Stock for the ten
consecutive trading days immediately preceding, but not including, the date of
exercise of this Warrant as reported on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or (y) if not listed or admitted to trading on any national securities exchange,
the average of the closing sale prices during such ten trading day period as
reported by the Nasdaq Stock Market or, if not traded on such market, the
average of the closing bid and asked prices during such ten trading day period
in the over-the-counter market as reported by the NASD Automated Quotation
System or any comparable system or (z) in all other cases, as determined in good
faith by the Board of Directors of the Company (including any authorized
committee thereof, the "Board of Directors"), whose determination shall be
conclusive absent manifest error.

               (e) Any exercise of a Warrant pursuant to the terms of this
Agreement shall be irrevocable and shall constitute a binding agreement between
the Holder and the Company, enforceable in accordance with its terms.

               (f) The Warrant Agent shall notify the Depositary of (x) the
Warrant Agent's account at the Depositary to which the Warrants must be
delivered by the business day

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immediately prior to the Settlement Date for those Warrants to be exercised
through the book-entry facilities of the Depositary and (y) the address, phone
number and facsimile number where holders of the Warrants can contact the
Warrant Agent to which Warrant Exercise Notices are to be submitted.

               (g) Promptly following delivery of Warrants to a Holder, the
Warrant Agent shall notify such Holder (through the clearing system) of (i) the
Warrant Agent's account at the Depositary to which holders must deliver Warrants
on the business day immediately prior to the Settlement Date, (ii) the Warrant
exercise procedures of the Depositary and (iii) the address, telephone number
and facsimile number where Holders can contact the Warrant Agent and to which
Holders must submit Warrant Exercise Notices if they decide to exercise their
Warrants. At such time, the Warrant Agent shall also provide the Holders with a
Warrant Exercise Notice and the pertinent instructions as to how to exercise
their Warrants.

               (h) The Warrant Agent shall:

                    (i) examine all Warrant Exercise Notices and all other
documents delivered to it by or on behalf of holders as contemplated by the
Warrant Certificates to ascertain whether, on their face, such Warrant Exercise
Notices and any such other documents have been executed and completed in
accordance with their terms and the terms of the Warrant Certificates;

                    (ii) determine whether the exercising Warrant Holder has
delivered the related Warrants to the Warrant Agent's account at the Depositary.
In each case where a Warrant Exercise Notice or other document appears on its
face to have been improperly completed or executed or some other irregularity in
connection with the exercise of the Warrants exists, the Warrant Agent shall
endeavor to inform the appropriate parties (including the person submitting such
instrument) of the need for fulfillment of all requirements, specifying those
requirements which appear to be unfulfilled. Except to the extent provided in
the immediately preceding sentence, the Warrant Agent shall be under no duty to
give notice to any person of any irregularities in Warrant Exercise Notices,
delivery of Warrants or any other document completed or executed in connection
therewith nor shall it incur any liability for failure to give such notice;

                    (iii) inform the Company of and cooperate with and assist
the Company in resolving any reconciliation problems between Warrant Exercise
Notices received and delivery of Warrants to the Warrant Agent's account;

                    (iv) advise the Company no later than one business day after
receipt of a Warrant Exercise Notice, of (i) the receipt of such Warrant
Exercise Notice and the number of Warrants exercised in accordance with the
terms and conditions of this Agreement, (ii) the instructions with respect to
delivery of the shares of Common Stock of the Company deliverable upon such
exercise, subject to timely receipt from the Depositary of the necessary
information, and (iii) such other information as the Company shall reasonably
require;

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                    (v) notify, by such time as necessary to ensure a prompt
closing, the Depositary, with a copy to the Company, each account at the
Depositary to be credited with Common Stock and the amount thereof to be
credited to each such account; and

                    (vi) subject to Common Stock being made available to the
Warrant Agent by or on behalf of the Company for delivery to accounts within the
Depositary, coordinate with the Depositary and endeavor to effect such delivery
to the relevant accounts at the Depositary in accordance with its requirements.

               (i) All questions as to the validity, form and sufficiency
(including time of receipt) of a Warrant exercise will be determined by the
Company in its sole discretion, which determination shall be final and binding.
The Warrant Agent shall incur no liability for or in respect of such
determination by the Company. The Company reserves the right to reject any and
all Warrant Exercise Notices not in proper form or for which any corresponding
agreement by the Company to exchange would, in the opinion of the Company, be
unlawful. Such determination by the Company shall be final and binding on the
Holders, absent manifest error. Moreover, the Company reserves the absolute
right to waive any of the conditions to the exercise of Warrants or defects in
Warrant Exercise Notices with regard to any particular exercise of Warrants. The
Company shall be under no duty to give notice to the holders of the Warrants of
any irregularities in any exercise of Warrants, nor shall it incur any liability
for the failure to give such notice.

               (j) As soon as practicable after the exercise of any Warrant, the
Company shall issue, or otherwise deliver, in authorized denominations to or
upon the order of the Holder of the Warrant Certificates evidencing such
Warrants, either

                    (i) if such Holder holds the Warrants being exercised
through the Depositary's book-entry transfer facilities, by same-day credit to
such Holder's account at the Depositary or to the account of a participant in
the Depositary the number of Shares to which such Holder is entitled, in each
case registered in such name and delivered to such account as directed in the
Warrant Exercise Notice by such Holder or by the direct participant in the
Depositary through which such Holder is acting, or

                    (ii) if such Holder holds the Warrants being exercised in
the form of Definitive Warrant Certificates, by delivery to the address
designated by such Holder in its Warrant Exercise Notice of a physical
certificate representing the number of Shares to which such Holder is entitled,
in fully registered form, registered in such name or names as may be directed by
such Holder. If less than all of the Warrants evidenced by a Warrant Certificate
surrendered upon the exercise of Warrants are exercised at any time prior to the
date of expiration for the Warrants, a new Warrant Certificate or Certificates
shall be issued for the remaining number of Warrants evidenced by the Warrant
Certificate so surrendered, and the Warrant Agent is hereby authorized to
countersign the required new Warrant Certificate or Certificates pursuant to the
provisions of Section 6 and this Section 7.

          SECTION 8. Cancellation of Warrants. If the Company shall purchase or
otherwise acquire Warrants, the Warrant Certificates representing such Warrants
shall thereupon be delivered to the Warrant Agent and be cancelled by it and
retired. The Warrant Agent shall

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cancel all Warrant Certificates surrendered for exchange, substitution, transfer
or exercise in whole or in part. Such cancelled Warrant Certificates shall
thereafter be disposed of in a manner satisfactory to the Company.

          SECTION 9. Mutilated or Missing Warrant Certificates. If any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
shall issue, and the Warrant Agent shall countersign and deliver, in exchange
and substitution for and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of the loss, theft or
destruction of such Warrant Certificate and the posting of an indemnity or bond,
if requested by either the Company or the Warrant Agent, also reasonably
satisfactory to them. Applicants for such substitute Warrant Certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe and as required by
Section 8-405 of the Uniform Commercial Code as in effect in the State of
Maryland.

          SECTION 10. Reservation of Shares; Restrictive Legend. (a) For the
purpose of enabling it to satisfy any obligation to issue Shares upon exercise
of Warrants, the Company will at all times through the Expiration Date reserve
and keep available, free from preemptive rights and out of its aggregate
authorized but unissued or treasury shares of Common Stock, the number of Shares
deliverable upon the exercise of all outstanding Warrants, and the transfer
agent for the Company's Common Stock (such agent, in such capacity, as may from
time to time be appointed by the Company, the "Transfer Agent") is hereby
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued or treasury shares of Common Stock as shall be required
for such purpose. The Company will keep a copy of this Agreement on file with
the Transfer Agent and with every transfer agent for any shares of the Company's
capital stock issuable upon the exercise of Warrants pursuant to this Agreement.
The Warrant Agent is hereby irrevocably authorized to requisition from time to
time from the Transfer Agent stock certificates issuable upon exercise of
outstanding Warrants, and the Company will supply the Transfer Agent with duly
executed stock certificates for such purpose.

          Before taking any action that would cause an adjustment pursuant to
Section 12 reducing any Exercise Price below the then par value (if any) of the
Shares issuable upon exercise of the Warrants, the Company will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Shares at such Exercise Price as so adjusted.

          The Company covenants that all shares of Common Stock issued upon
exercise of the Warrants will, upon issuance in accordance with the terms of
this Agreement, be fully paid and nonassessable and free from all taxes, liens,
charges and security interests created by or imposed upon the Company with
respect to the issuance thereof.

          (b) Certificates for shares of Common Stock issued upon the exercise
of any Warrant, or certificates for such shares issued to a particular Holder or
Holders, shall bear such legends as the Company shall determine to be necessary
or appropriate to reflect restrictions under applicable securities laws. The
Holder (or its transferee, as applicable) of any shares of

                                      -10-

<PAGE>

Common Stock bearing any such legend shall be entitled to receive from the
Company, without expense, new securities of like tenor not bearing such legend
when such securities shall have been (i) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering such shares of Common Stock or (ii) disposed of pursuant to the
provisions of Rule 144 or any comparable rule under the Securities Act or when,
in the opinion of counsel for the Holder thereof (which opinion and counsel
shall be reasonably satisfactory to the Company), such restrictions are no
longer required in order to insure compliance with the Securities Act and
applicable state securities laws.

          SECTION 11. Stock Exchange Listings. So long as any Warrants remain
outstanding, the Company will use commercially reasonable efforts to take all
necessary action to have the shares of Common Stock, upon their issuance upon
exercise of Warrants, (i) listed on each national securities exchange on which
the Common Stock is then listed or (ii) if the Common Stock is not then listed
on any national securities exchange, admitted for trading on the Nasdaq Stock
Market or such other over-the-counter quotation system on which the Common Stock
may then be listed.

          SECTION 12. Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants. The Exercise Price, the number of shares of
Common Stock purchasable upon the exercise of each Warrant and the number of
Warrants outstanding are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 12.

               (a) If the Company shall (i) pay a dividend on Common Stock
consisting of shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any securities or
distribute any property or assets in a reclassification of the Common Stock, the
number of Shares purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Holder of each Warrant shall be entitled
upon exercise to receive the kind and number of Shares or other securities,
property or assets of the Company which such Holder would have owned or have
been entitled to receive after the happening of any of the events described
above had such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant to
this subsection (a) shall become effective immediately after the effective date
of such event retroactive to the record date, if any, for such event. Whenever
the number of Shares of Common Stock purchasable upon the exercise of any
Warrant is adjusted as provided in this Section 12(a), the Exercise Price
payable upon exercise of such Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction of which the
numerator shall be the number of Shares purchasable upon the exercise of such
Warrant immediately prior to such adjustment and of which the denominator shall
be the number of Shares so purchasable immediately thereafter.

               (b) If the Company declares a dividend on its Common Stock
payable in shares of any class or series of its capital stock or in securities
convertible into or exchangeable for Common Stock (including, without
limitation, rights, options or warrants to subscribe for or purchase shares of
Common Stock), the number and kind of securities for which a Warrant may be
exercised shall be adjusted, as of the record date for determining which

                                      -11-

<PAGE>

Holders of Common Stock shall be entitled to receive such dividend, so that the
Holder of each Warrant exercised after such time shall be entitled to receive,
upon exercise of such Warrant, the aggregate number and kind of Shares of Common
Stock and other securities of the Company which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned or been
entitled to receive upon such exercise and as a result of such dividend; and the
Exercise Price shall be adjusted, if necessary, so that the aggregate amount
payable for the purchase of all the Shares of Common Stock and other securities
issuable thereunder immediately after such record date shall equal the aggregate
amount so payable immediately before such record date. Upon the expiration of
any securities exercisable for, convertible into or exchangeable for Common
Stock (if any thereof shall not have been exercised, converted or exchanged)
with respect to which an adjustment has been made pursuant to this Section
12(b), the number of Shares or securities for which the Warrant may be exercised
and the Exercise Price shall be readjusted to be as they would have been had the
securities exercisable for, convertible into or exchangeable for Common Stock
which expired without exercise, conversion or exchange not been issued.

               (c) If the Company distributes to the Holders of its Common
Stock, other than as part of its dissolution or liquidation or the winding up of
its affairs, any evidence of indebtedness or any of its assets or securities
(other than regularly quarterly cash dividends paid out of current earnings or
surplus or dividends or distributions provided for in Section 12(a) or 12(b)),
the Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of Holders of Common Stock entitled to
receive any such distribution shall be adjusted, effective as of the close of
business on such record date, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction (x) the numerator of
which shall be the Market Price less the fair market value of such distribution
(as determined in good faith by the Board of Directors of the Company or a duly
constituted committee thereof, if made other than in cash) payable in respect of
one share of the Common Stock, and (y) the denominator of which shall be such
Market Price. As used in this Section 12(c), the term "Market Price" shall have
the meaning set forth in Section 7(d), but determined for the ten consecutive
trading days immediately preceding (but not including) the record date referred
to above.

               (d) In the event of any consolidation of the Company with or
merger of the Company into another corporation or other entity, then unless the
Company is the surviving corporation, the Company shall cause adequate provision
to be made so that each Holder of a Warrant shall be entitled to receive, upon
exercise of such Warrant at any time after the effectiveness of such merger or
consolidation (but prior to 5:00 p.m. New York City time on the Expiration
Date), the securities, cash and other property to which the number of Shares of
Common Stock and other securities (if any) covered by such Warrant would have
been entitled at an aggregate purchase price equal to the Exercise Amount which
would have been payable if such Holder had exercised such Warrant immediately
prior to such merger or consolidation.

               (e) No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of Shares purchasable upon the
exercise of each Warrant; provided, however, that any adjustments which by
reason of this subsection (e) are not required to be made

                                      -12-

<PAGE>

shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest cent and to the nearest
one-hundredth of a share, as the case may be.

               (f) For the purpose of this Section 12, the term "shares of
Common Stock" shall mean (i) the shares of stock designated as the Common Stock
of the Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassification of such shares consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. If at any time, as a result of an adjustment made
pursuant to Section 12(a), (b) or (d), the Holders of Warrants shall become
entitled to purchase any shares of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of each Warrant and the applicable Exercise Price of such shares shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to such shares
contained in Section 12(a) through this Section 12(f), inclusive, and the
provisions contained in this Agreement with respect to such shares shall apply
on like terms to any such other shares.

               (g) Except as otherwise expressly provided in this Section 12, no
adjustment in respect of any dividends shall be made during the term of a
Warrant or upon the exercise of a Warrant.

               (h) Irrespective of any adjustments in an Exercise Price or the
number or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificate theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in the Warrant Certificates
initially issuable pursuant to this Agreement. The Company, however, may at any
time in its sole discretion make any change in the form of Warrant Certificate
that it may deem appropriate (but which do not affect the rights, duties or
obligations of the Warrant Agent) or to give effect to such adjustments and that
does not otherwise affect the substance of the Warrant Certificate, and any
Warrant Certificate thereafter issued, whether in exchange or substitution for
an outstanding Warrant Certificate or otherwise, may be in the form as so
changed.

               (i) The Company may elect, in its sole discretion, on or after
the date of any adjustment required by paragraph (a) of this Section 12, to
adjust the number of Warrants in substitution for an adjustment in the number of
Shares purchasable upon the exercise of a Warrant. Each of the Warrants
outstanding after such adjustment of the number of Warrants shall be exercisable
for the same number of Shares as immediately prior to such adjustment. Each
Warrant held of record prior to such adjustment of the number of Warrants shall
become that number of Warrants (calculated to the nearest one-hundredth)
obtained by dividing the applicable Exercise Price in effect prior to adjustment
of such Exercise Price by the applicable Exercise Price in effect after
adjustment of such Exercise Price. The Company shall notify the holders of
Warrants of its election to adjust the number of Warrants in the same manner as
provided in the first paragraph of Section 14, indicating the record date for
the adjustment, and, if known at the time, the amount of the adjustment to be
made, and shall give prompt written notice thereof to the Warrant Agent. This
record date may be the date on which the Exercise Price is adjusted or any day
thereafter. Upon each adjustment of the number of Warrants pursuant to this
Section 12(i) the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Warrants on such record date Warrant
Certificates evidencing,

                                      -13-

<PAGE>

subject to Section 13, the additional Warrants to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Warrant Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Warrant Certificates evidencing all the Warrants to be issued, executed and
registered in the manner specified in Sections 4 and 5 (and which may bear, at
the option of the Company, the applicable adjusted Exercise Price) and shall be
registered in the names of the holders of record of Warrant Certificates on the
record date specified in the notice.

          SECTION 13. Fractional Shares. Notwithstanding any adjustment pursuant
to Section 12 in the number of Shares purchasable upon the exercise of a
Warrant, the Company shall not be required to issue Warrants to purchase
fractions of Shares, or to issue fractions of Shares upon exercise of the
Warrants, or to distribute certificates which evidence fractional Shares.

          SECTION 14. Notices to Warrantholders. Upon any adjustment of the
number of shares of Common Stock purchasable upon exercise of each Warrant, the
number of Warrants outstanding or of any Exercise Price, including any
adjustment pursuant to Section 12, the Company, within 20 business days
thereafter, shall (i) cause to be filed with the Warrant Agent a certificate of
a firm of independent public accountants of recognized standing selected by the
Company (who may be the regular auditors of the Company) setting forth the event
giving rise to such adjustment, such Exercise Price and either the number of
Shares purchasable upon exercise of each Warrant or the additional number of
Warrants to be issued for each previously outstanding Warrant, as the case may
be, after such adjustment and setting forth in reasonable detail the method of
calculation and the facts upon which such adjustment was made, which certificate
shall be conclusive evidence of the correctness of the matters set forth
therein, and (ii) cause to be given to each of the Holders of the Warrant
Certificates at such Holder's address appearing on the Warrant Register, written
notice of such adjustments by first-class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 14. The
Warrant Agent shall be fully protected in relying on good faith on any such
certificate and in making any adjustment described therein and shall have no
duty with respect to, and shall not be deemed to have knowledge of, any
adjustment unless and until it shall have received such a certificate.

          If:

               (a) the Company shall order, declare, make or pay any dividend
payable in any securities upon its Common Stock or make any distribution (other
than a cash dividend) to the Holders of its Common Stock,

               (b) the Company shall offer or grant to the Holders of its Common
Stock any additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or any right to subscribe thereto, or

               (c) dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of all or substantially
all of its property, assets and business as an entirety) shall be proposed,

                                      -14-

<PAGE>

then the Company shall (i) cause written notice of such event to be filed with
the Warrant Agent and shall cause written notice of such event to be given to
each of the Holders of the Warrant Certificates at such Holder's address
appearing on the Warrant Register, by first-class mail, postage prepaid, and
(ii) make a public announcement in a daily newspaper of general circulation in
New York City of such event, such giving of notice and publication to be
completed at least 10 days prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution or subscription rights or for the determination
of stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. The failure to give the notice required
by this Section 14 or any defect therein shall not affect the legality or
validity of any dividend, distribution, right, warrant, dissolution,
subscription right, liquidation or winding up or the vote upon or any other
action taken in connection therewith.

          SECTION 15. Merger, Consolidation or Change of Name of Warrant Agent.
Any person into which the Warrant Agent may be merged or converted or with which
it may be consolidated, or any person resulting from any merger, conversion or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust or shareholder services business of the
Warrant Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any document or any further act on the part of any of the
parties hereto, provided that person would be eligible for appointment as a
successor Warrant Agent under the provisions of Section 17. If at the time such
successor to the Warrant Agent shall succeed under this Agreement, any of the
Warrant Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent; and if at that time any of the Warrant Certificates shall not
have been countersigned, any successor to the Warrant Agent may countersign such
Warrant Certificates either in the name of the predecessor Warrant Agent or in
the name of the successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
in this Agreement.

          If at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent whose name has changed may adopt the
countersignature under its prior name; and if at that time any of the Warrant
Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Agreement.

          SECTION 16. Warrant Agent. The Warrant Agent undertakes only the
duties and obligations expressly imposed by this Agreement and the Warrant
Certificate, in each case upon the following terms and conditions, by all of
which the Company and the holders of Warrants, by their acceptance thereof,
shall be bound:

               (a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the accuracy of any of the same except such as
describe the Warrant Agent or action taken or

                                      -15-

<PAGE>

to be taken by it. Except as herein otherwise provided, the Warrant Agent
assumes no responsibility with respect to the execution, delivery or
distribution of the Warrant Certificates.

               (b) The Warrant Agent shall not be responsible for any failure of
the Company to comply with any of the covenants contained in this Agreement or
in the Warrant Certificates to be complied with by the Company nor shall it at
any time be under any duty or responsibility to any Holder of a Warrant to make
or cause to be made any adjustment in any Exercise Price or in the number of
Shares issuable upon exercise of any Warrant (except as instructed by the
Company), or to determine whether any facts exist which may require any such
adjustment, or with respect to the nature or extent of or method employed in
making any such adjustment when made.

               (c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company), and the Warrant Agent
shall incur no liability or responsibility to the Company or any Holder of any
Warrant Certificate in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel absent gross negligence, bad faith or willful misconduct (each as
determined by a final order, judgment, ruling or decree of a court of competent
jurisdiction) in the selection and continued retention of such counsel and the
reliance on such counsel's advice.

               (d) The Warrant Agent shall incur no liability or responsibility
to the Company or to any Holder of any Warrant Certificate for any action taken
in reliance on any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.

               (e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent under this
Agreement, to reimburse the Warrant Agent upon demand for all expenses, taxes
and governmental charges and other charges of any kind and nature incurred by
the Warrant Agent in the preparation, administration, delivery, execution and
amendment of this Agreement and the performance of its duties under this
Agreement and to indemnify the Warrant Agent and save it harmless against any
and all losses, liabilities and expenses, including judgments, damages, fines,
penalties, claims, demands, settlements, costs and reasonable counsel fees and
expenses, for anything done or omitted by the Warrant Agent arising out of or in
connection with this Agreement except as a result of its gross negligence, bad
faith or willful misconduct (each as determined by a final order, judgment,
ruling or decree of a court of competent jurisdiction). The costs and expenses
incurred by the Warrant Agent in enforcing the right to indemnification shall be
paid by the Company unless it is determined by a final order, judgment, decree
or ruling of a court of competent jurisdiction that the Warrant Agent is not
entitled to indemnification due to its gross negligence, bad faith or willful
misconduct.

               (f) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs or expenses which may be incurred. All rights

                                      -16-

<PAGE>

of action under this Agreement or under any of the Warrants may be enforced by
the Warrant Agent without the possession of any of the Warrant Certificates or
the production thereof at any trial or other proceeding relative thereto, and
any such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery or judgment shall be for
the ratable benefit of the Holders of the Warrants, as their respective rights
or interests may appear.

               (g) The Warrant Agent, and any stockholder, affiliate, director,
officer or employee thereof, may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Warrant Agent under this Agreement, or a stockholder director, officer or
employee of the Warrant Agent, as the case may be. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.

               (h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything that it may do or refrain from
doing in connection with this Agreement except for its own gross negligence, bad
faith or willful misconduct (each as determined by a final order, judgment,
decree or ruling of a court of competent jurisdiction). In no event will the
Warrant Agent be liable for special, indirect, incidental, punitive or
consequential loss or damage of any kind whatsoever, even if the Warrant Agent
has been advised of the possibility of such loss or damage. Any liability of
Mellon hereunder will be limited to an amount in the aggregate not to exceed
$75,000.

               (i) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing of the
provisions of this Agreement.

               (j) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the valid authorization and due execution hereof by the Warrant Agent)
or in respect of the validity or execution of any Warrant Certificate (except
its valid authorization and due execution of its countersignature thereof), nor
shall the Warrant Agent by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of the Shares
to be issued pursuant to this Agreement or any Warrant Certificate or as to
whether the Shares will when issued be validly issued, fully paid and
nonassessable or as to the Exercise Price or the number of Shares issuable upon
exercise of any Warrant.

               (k) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer, the Secretary or an
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and such instructions shall be full
authorization and protection to the Warrant Agent and the Warrant Agent shall
not be liable for any action taken, suffered to be taken, or omitted to be taken
by it in good faith in

                                      -17-

<PAGE>

accordance with instructions of any such officer or in good faith reliance upon
any statement signed by any one of such officers of the Company with respect to
any fact or matter (unless other evidence in respect thereof is herein
specifically prescribed) which may be deemed to be conclusively proved and
established by such signed statement.

               (l) If the Warrant Agent shall receive any notice or demand
(other than notice of or demand for exercise of Warrants) addressed to the
Company by the holder of the Warrant Certificates pursuant to the provisions of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.

               (m) No provision of this Agreement shall require the Warrant
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if it believes that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.

               (n) The provisions of this Section 16 shall survive the
termination of this Agreement, the exercise or expiration of the Warrants and
the resignation or removal of the Warrant Agent.

          SECTION 17. Change of Warrant Agent. If the Warrant Agent resigns
(such resignation to become effective not earlier than 90 calendar days after
the giving of written notice thereof to the Company and the Holders of Warrant
Certificates) or shall be adjudged a bankrupt or insolvent, or shall file a
voluntary petition in bankruptcy or make an assignment for the benefit of its
creditors or consent to the appointment of a receiver of all or any substantial
part of its property or affairs or shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay or meet its
debts generally as they become due, or if an order of any court shall be entered
approving any petition filed by or against the Warrant Agent under the
provisions of bankruptcy laws or any similar legislation, or if a receiver,
trustee or other similar official of it or of all or any substantial part of its
property shall be appointed, or if any public officer shall take charge or
control of it or of its property or affairs, for the purpose of rehabilitation,
conservation, protection, relief, winding up or liquidation, or becomes
incapable of acting as Warrant Agent or if the Board of Directors of the Company
shall by resolution remove the Warrant Agent (such removal to become effective
not earlier than 30 days after the filing of a certified copy of such resolution
with the Warrant Agent and the giving of written notice of such removal to the
Holders of Warrant Certificates), the Company shall appoint a successor to the
Warrant Agent. If the Company shall fail to make such appointment within a
period of 30 days after such removal or after it has been so notified in writing
of such resignation or incapacity by the Warrant Agent or by the Holder of a
Warrant Certificate (in the case of incapacity), then the Holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the appointment
of a successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such a court, the duties of the
Warrant Agent shall be carried out by the Company. Any successor Warrant Agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company, in good standing, incorporated under the laws of any state or of the
United States of America. As soon as practicable after appointment of the
successor Warrant Agent, the Company shall cause written notice of the change in
the Warrant Agent to be given to each of the Holders of the Warrant Certificates
at such Holder's address appearing on the Warrant Register. After appointment,
the

                                      -18-

<PAGE>

successor Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed. The former Warrant Agent shall deliver and transfer to the
successor Warrant Agent any property at the time held by it hereunder and
execute and deliver, at the expense of the Company, any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section 17 or any defect therein, shall not affect the
legality or validity of the removal of the Warrant Agent or the appointment of a
successor Warrant Agent, as the case may be.

          SECTION 18. Warrantholder Not Deemed a Stockholder. Nothing contained
in this Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the Holders thereof the right to vote or to receive dividends or
to consent or to receive notice as stockholders in respect of the meetings of
stockholders or for the election of directors of the Company or any other
matter, or any rights whatsoever as stockholders of the Company.

          SECTION 19. Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by any
Holder of any Warrant Certificate to or on the Company shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent), or
by facsimile transmission with receipt confirmed, as follows:

                      Sunterra Corporation
                      1781 Park Center Drive
                      Orlando, Florida 32835
                      Attention:  General Counsel
                      Facsimile No: 407 -532-1180

          If the Company shall fail to maintain such office or agency or shall
fail to give such notice of any change in the location thereof, presentation may
be made and notices and demands may be served at the principal office of the
Warrant Agent.

          Any notice pursuant to this Agreement to be given by the Company or by
any Holder of any Warrant Certificate to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company), or by
facsimile transmission with receipt confirmed, as follows:

                      Mellon Investor Services LLC
                      400 S. Hope Street, 4th Floor
                      Los Angeles, CA 90071
                      Attention:  Martha Mijango
                      Facsimile No.: (213) 553-9735

                                      -19-

<PAGE>

                      With a copy to:

                      Mellon Investor Services LLC
                      85 Challenger Road
                      Ridgefield Park, New Jersey 07660
                      Attention:  General Counsel
                      Facsimile No.: (201) 296-4004

          The Warrant Agent maintains a Warrant Agent Office at:

                      Mellon Investor Services LLC
                      400 S. Hope Street, 4th Floor
                      Los Angeles, CA 90071
                      Attention:  Martha Mijango
                      Facsimile No.: (213) 553-9735

          SECTION 20. Supplements and Amendments. This Agreement constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and may not be amended, except in a writing signed by both
of them.

          The Company and the Warrant Agent may from time to time supplement or
amend this Agreement (a) without the approval of any Holders of Warrant
Certificates in order to cure any ambiguity, manifest error or other mistake in
this Agreement, or to correct or supplement any provision contained herein that
may be defective or inconsistent with any other provision herein or in the Plan,
or to make any other provisions in regard to matters or questions arising
hereunder that the Company and the Warrant Agent may deem necessary or desirable
and that shall not adversely affect, alter or change the interests of the
Holders of the Warrants or (b) with the prior written consent of Holders of the
Warrants exercisable for a majority of the Shares then issuable upon exercise of
the Warrants then outstanding; provided that each amendment or supplement that
decreases the Warrant Agent's rights or increases its duties and
responsibilities hereunder shall also require the prior written consent of the
Warrant Agent.

          SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

          SECTION 22. Termination. This Agreement shall terminate on the
Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants have been exercised. The provisions of
Section 16, this Section 22, Section 23 and Section 24 shall survive such
termination and the resignation or removal of the Warrant Agent.

          SECTION 23. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Maryland and for all purposes shall be construed in accordance with the
laws of such State (without giving effect to the conflict of laws provisions
thereof); provided, however that the provisions of Section 1 and Section 16 of
this Agreement shall, as and to the extent relating to the duties and

                                      -20-

<PAGE>

obligations of the Warrant Agent, be governed by and construed in accordance
with the laws of the State of New York (without giving effect to the conflict of
laws provisions thereof).

          SECTION 24. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or entity other than the Company, the
Warrant Agent and the Holders of the Warrant Certificates any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the Holders of
the Warrant Certificates.

          SECTION 25. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.

          SECTION 26. Headings. The headings of sections of this Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof and in no way modify or restrict any of the terms or provisions hereof.

          SECTION 27. Meaning of Terms Used in Agreement. The language used in
this Agreement shall be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction shall be applied
against any party. Any references to any federal, state, local or foreign
statute or law shall also refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. Unless the context otherwise
requires: (a) a term has the meaning assigned to it by this Agreement; (b) forms
of the word "include" mean that the inclusion is not limited to the items
listed; (c) "or" is disjunctive but not exclusive; (d) words in the singular
include the plural, and in the plural include the singular; (e) provisions apply
to successive events and transactions; (f) "hereof", "hereunder", "herein" and
"hereto" refer to the entire Agreement and not any section or subsection; (g)
"$" means the currency of the United States; (h) "business day" means any day,
except for Saturday and Sunday, on which banks are not required or authorized by
law or executive order to close in New York City; and (i) "person" means a
natural person, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or other entity, or a governmental entity or any department, agency
or political subdivision thereof.

          SECTION 28. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

          SECTION 29. Severability. If any part of this Agreement shall be held
to be invalid or unenforceable by any court, or regulatory agency or body, such
invalidity or unenforceability shall attach only to such part and shall not
affect the validity or enforceability of

                                      -21-

<PAGE>

the rest of this Agreement. Furthermore, in lieu of any such invalid or
unenforceable provision or condition, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms and
commercial effect to such invalid or unenforceable provision as may be possible
and be valid and enforceable.

                      [The next page is the signature page]

                                      -22-

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Warrant Agreement as of the day and year first above written.

                                                SUNTERRA CORPORATION

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

ATTEST:

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

                                                MELLON INVESTOR SERVICES LLC

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

                                      -23-

<PAGE>

                                    EXHIBIT A

                      [FORM OF FACE OF WARRANT CERTIFICATE]

                            VOID AFTER JULY 26, 2007

This Global Warrant Certificate is held by The Depository Trust Company (the
"Depositary") or its nominee in custody for the benefit of the beneficial owners
hereof, and is not transferable to any person under any circumstances except
that (i) this Global Warrant Certificate may be exchanged in whole but not in
part pursuant to Section 6(a) of the Warrant Agreement (as defined herein), (ii)
this Global Warrant Certificate may be delivered to the Warrant Agent for
cancellation pursuant to Section 6(i) of the Warrant Agreement and (iii) this
Global Warrant Certificate may be transferred to a successor Depositary with the
prior written consent of the Company./(1)/

Unless this Global Warrant Certificate is presented by an authorized
representative of the Depositary to the Company or the Warrant Agent for
registration of transfer, exchange or payment and any certificate issued is
registered in the name of Cede & Co. or such other entity as is requested by an
authorized representative of the Depositary (and any payment hereon is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of the Depositary), any transfer, pledge or other use hereof for
value or otherwise by or to any person is wrongful because the registered owner
hereof, Cede & Co., has an interest herein./(1)/

Transfers of this Global Warrant Certificate shall be limited to transfers in
whole, but not in part, to nominees of the Depositary or to a successor thereof
or such successor's nominee, and transfers of portions of this Global Warrant
Certificate shall be limited to transfers made in accordance with the
restrictions set forth in Section 6 of the Warrant Agreement./(1)/

No registration or transfer of the securities issuable pursuant to the Warrant
will be recorded on the books of the Company until such provisions have been
complied with.

----------
/(1)/ These paragraphs are to be included only if the Warrant is
in the form of Global Warrant Certificate.

                                      A-1

<PAGE>

                                                        CUSIP No.
                                                                  --------------

No.                                            WARRANT TO PURCHASE
    -----                                                          -------------
                                               SHARES OF COMMON STOCK

                              SUNTERRA CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

          This Warrant Certificate ("Warrant Certificate") certifies that
                or its registered assigns, is the Holder of a Warrant (the
---------------
"Warrant") of Sunterra Corporation, a Maryland corporation (the "Company"), to
purchase the number of shares (the "Shares") of Common Stock, par value $0.01
per share (the "Common Stock"), of the Company set forth above. This Warrant
expires on July 26, 2007 (such date, the "Expiration Date") and entitles the
holder to purchase from the Company the number of fully paid and nonassessable
Shares set forth above at the exercise price (the "Exercise Price") multiplied
by the number of Shares set forth above (the "Exercise Amount"), payable to the
Company by check or wire transfer of the Exercise Amount to an account of the
Warrant Agent specified in writing by the Warrant Agent for such purpose, no
later than 5:00 p.m., New York City time, on the business day immediately prior
to the Settlement Date (as defined in the Warrant Agreement). In the
alternative, each Warrant Holder may exercise its right, during the exercise
period, to receive Warrant Shares on a net basis, such that, without the
exchange of any funds, the Holder receives that number of Warrant Shares
otherwise issuable (or payable) upon exercise of its Warrants less that number
of Warrant Shares having an aggregate Market Price (as defined in the Warrant
Agreement) at the time of exercise equal to the aggregate Exercise Price that
would otherwise have been paid by the holder of the Warrant Shares upon such
exercise ("Net Exercise"). The initial Exercise Price shall be $20.00.

          Subject to the terms and conditions set forth herein and in the
Warrant Agreement, this Warrant may be exercised by the Holder thereof, by:

                    (i) providing written notice of such election ("Warrant
Exercise Notice") to exercise the Warrant to the Warrant Agent at the address
set forth in the Warrant Agreement, "Re: Sunterra Corporation Warrant Exercise",
by hand or by facsimile, no later than 5:00 p.m., New York City time, on the
Expiration Date, which Warrant Exercise Notice shall be in the form of an
election to purchase Shares of Common Stock of the Company substantially in the
form set forth either (x) in Exhibit B-1 to the Warrant Agreement, properly
completed and executed by the Holder; provided that such written notice may only
be submitted by persons who hold Definitive Warrant Certificates, or (y) in
Exhibit B-2 to the Warrant Agreement, properly completed and executed by the
Holder; provided that such written notice may only be submitted with respect to
Warrants held through the book-entry facilities of the Depositary, by or through
persons that are direct participants in the Depositary;

                    (ii) delivering, either (x) no later than 5:00 p.m., New
York City time, on the business day immediately prior to the Settlement Date,
such Warrants to the Warrant Agent by book-entry transfer through the facilities
of the Depositary or (y) no later than

                                      A-2

<PAGE>

5:00 p.m., New York City time, on the business day immediately prior to the
Settlement Date, the Warrant Certificates evidencing such Warrants to the
Warrant Agent if Definitive Warrant Certificates have been issued and delivered
pursuant to the Warrant Agreement; and

                    (iii) paying the applicable Exercise Amount, together with
any applicable taxes and governmental charges, except as provided in Section 28
of the Warrant Agreement.

          The Exercise Price and the number of shares of Common Stock
purchasable upon exercise of this Warrant are subject to adjustment upon the
occurrence of certain events as set forth in the Warrant Agreement.

          No Warrant may be exercised prior to the Effective Date or after the
Expiration Date. After the Expiration Date, the Warrants will become wholly void
and of no value.

          REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT
CERTIFICATE SET FORTH ON THE REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR
ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE.

          This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.

                                      A-3

<PAGE>

          IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its duly authorized officers and its corporate seal hereunto
affixed.

          Dated:
                  ----------------

                                                   SUNTERRA CORPORATION

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

[Corporate Seal of Sunterra Corporation]

ATTEST:

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

          Countersigned:

MELLON INVESTOR SERVICES LLC
as Warrant Agent

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

                                      A-4

<PAGE>

                    [FORM OF REVERSE OF WARRANT CERTIFICATE]

                              SUNTERRA CORPORATION

          The Warrant evidenced by this Warrant Certificate is a part of a duly
authorized issue of Warrants to purchase a maximum of              shares of
                                                      ------------
Common Stock subject to adjustment as provided for in that certain Warrant
Agreement, dated as of July 26, 2002 (the "Warrant Agreement"), duly executed
and delivered by the Company and Mellon Investor Services LLC, as Warrant Agent
(the "Warrant Agent"). The Warrant Agreement hereby is incorporated by reference
in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrants. A copy of the Warrant Agreement may be inspected at the Warrant
Agent Office and is available upon written request addressed to the Company. All
capitalized terms used herein but not defined that are defined in the Warrant
Agreement shall have the meanings assigned to them therein.

          Warrants may be exercised to purchase Shares from the Company from the
Effective Date through 5:00 p.m. New York City time on the Expiration Date, at
the Exercise Price set forth on the face hereof, subject to adjustment as
described in the Warrant Agreement. Subject to the terms and conditions set
forth herein and in the Warrant Agreement, the Holder of the Warrant evidenced
by this Warrant Certificate may exercise such Warrant by:

                    (i) providing a Warrant Exercise Notice to the Warrant Agent
     at the address set forth in the Warrant Agreement, "Re: Sunterra
     Corporation Warrant Exercise", by hand or by facsimile, no later than 5:00
     p.m., New York City time, on the Expiration Date, which Warrant Exercise
     Notice shall be in the form of an election to purchase Shares of Common
     Stock of the Company substantially in the form set forth either (x) in
     Exhibit B-1 to the Warrant Agreement, properly completed and executed by
     the Holder; provided that such written notice may only be submitted by
     persons who hold Definitive Warrant Certificates, or (y) in Exhibit B-2 to
     the Warrant Agreement, properly completed and executed by the Holder;
     provided that such written notice may only be submitted with respect to
     Warrants held through the book-entry facilities of the Depositary, by or
     through persons that are direct participants in the Depositary;

                    (ii) delivering, either (x) no later than 5:00 p.m., New
     York City time, on the business day immediately prior to the Settlement
     Date, such Warrants to the Warrant Agent by book-entry transfer through the
     facilities of the Depositary or (y) no later than 5:00 p.m., New York City
     time, on the business day immediately prior to the Settlement Date, the
     Warrant Certificates evidencing such Warrants to the Warrant Agent if
     Definitive Warrant Certificates have been issued and delivered pursuant to
     Section 3; and

                    (iii) paying the applicable Exercise Amount, together with
     any applicable taxes and governmental charges (except as provided in
     Section 28 of the Warrant Agreement).

                                     A-1-R

<PAGE>

The Exercise Amount shall be payable by check or wire transfer funds of the
Exercise Amount to an account of the Warrant Agent specified in writing by the
Warrant Agent for such purpose, no later than 5:00 p.m., New York City time, on
the business day immediately prior to the Settlement Date. In the alternative,
each Warrant Holder may exercise its right, during the exercise period, to
receive Warrant Shares on a net basis, such that, without the exchange of any
funds, the Holder receives that number of Warrant Shares otherwise issuable (or
payable) upon exercise of its Warrants less that number of Warrant Shares having
an aggregate Market Price (as defined in the Warrant Agreement) at the time of
exercise equal to the aggregate Exercise Price that would otherwise have been
paid by the holder of the Warrant Shares upon such exercise ("Net Exercise").
The initial Exercise Price shall be $20.00.

          In the event that upon any exercise of the Warrant evidenced hereby
the number of Shares actually purchased shall be less than the total number of
Shares purchasable upon exercise of the Warrant evidenced hereby, there shall be
issued to the holder hereof, or such holder's assignee, a new Warrant
Certificate evidencing a Warrant to purchase the Shares not so purchased. No
adjustment shall be made for any cash dividends on any Shares issuable upon
exercise of this Warrant. After the Expiration Date, unexercised Warrants shall
become wholly void and of no value.

          The Company shall not be required to issue fractions of Shares or any
certificates that evidence fractional Shares.

          Warrant Certificates, when surrendered at the Warrant Agent Office by
the Holder thereof in person or by a legal representative or attorney duly
authorized in writing, by mail or by book-entry delivery through the facilities
of the Depositary may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, but without payment of any service charge,
for another Warrant Certificate or Warrant Certificates of like tenor evidencing
a Warrant to purchase in the aggregate a like number of Shares.

          No Warrants may be sold, exchanged or otherwise transferred in
violation of the Securities Act or state securities laws. The Company or the
Warrant Agent may require, as a condition to any sale, exchange or transfer of a
Warrant, that the holder deliver to the Company and the Warrant Agent an opinion
of counsel, which opinion of counsel shall be reasonably satisfactory to the
Company and the Warrant Agent to the effect that such sale, exchange or transfer
is made in compliance with the Securities Act and all applicable state
securities laws or pursuant to an exemption under the Securities Act and such
state securities laws. The provisions of this paragraph shall not apply to the
exercise of any Warrant to the extent the Shares issued upon such exercise (and
any unexercised portion of the Warrant so exercised) shall be issued to the same
Holder that exercised such Warrant.

          The Company and the Warrant Agent may deem and treat the Holder hereof
as the absolute owner of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone) for the purpose of any
exercise hereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.

                                     A-2-R

<PAGE>

                                   EXHIBIT B-1

                [FORM OF ELECTION TO EXERCISE FOR WARRANT HOLDERS
                 HOLDING WARRANTS IN FORM OF DEFINITIVE WARRANT
                 CERTIFICATES WHEN WARRANT CERTIFICATES WILL BE
                   PHYSICALLY DELIVERED IN CONNECTION WITH THE
                                WARRANT EXERCISE]

                  (TO BE EXECUTED UPON EXERCISE OF THE WARRANT)

          The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase      newly issued shares of
                                                     ----
Common Stock of Sunterra Corporation (the "Company") at the Exercise Price of
$     per share. The undersigned represents, warrants and promises that it has
 ----
the full power and authority to exercise and deliver the Warrants exercised
hereby.

          The undersigned represents, warrants and promises that it has
delivered or will deliver in payment for such Shares $           [select one of
                                                      ----------
the following] [(i) by check or wire transfer of the Exercise Amount to the
Warrant Agent specified in writing by the Warrant Agent for such purpose, no
later than 5:00 p.m., New York City time, on the business day immediately prior
to the Settlement Date], [(ii) Net Exercise (as defined in the Warrant
Agreement)] or [(iii) by a combination of the methods described in clauses (i)
and (ii) above, in accordance with the terms hereof]:

The undersigned requests that a certificate representing the Shares be
registered and delivered as follows:

                                        ----------------------------------------
                                                         Name

                                        ----------------------------------------
                                                        Address

                                        ----------------------------------------
                                            Delivery Address (if different)

                                     B-1-1

<PAGE>

If such number of Shares is less than the aggregate number of Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the balance of such Shares shall be registered and delivered as follows:

                                        ----------------------------------------
                                                         Name

                                        ----------------------------------------
                                                       Address

                                        ----------------------------------------
                                            Delivery Address (if different)

------------------------------------    ----------------------------------------
Social Security or Other Taxpayer                     Signature
Identification Number of Holder

                                        Note: The above signature must
                                        correspond with the name as written upon
                                        the face of this Warrant Certificate in
                                        every particular, without alteration or
                                        enlargement or any change whatsoever. If
                                        the certificate representing the Shares
                                        or any Warrant Certificate representing
                                        Warrants not exercised is to be
                                        registered in a name other than that in
                                        which this Warrant Certificate is
                                        registered, the signature of the holder
                                        hereof must be guaranteed.

SIGNATURE GUARANTEED:

-------------------------------

                                     B-1-2

<PAGE>

                                   EXHIBIT B-2

                    [FORM OF ELECTION TO EXERCISE WARRANT FOR
                   HOLDERS HOLDING WARRANTS THROUGH BOOK-ENTRY
                   FACILITIES OF THE DEPOSITORY TRUST COMPANY
                   WHEN EXERCISE OF WARRANT WILL OCCUR THROUGH
                                SUCH FACILITIES]

     [TO BE COMPLETED BY DIRECT PARTICIPANT IN THE DEPOSITORY TRUST COMPANY]

                              Sunterra Corporation
                Warrants to Purchase       Shares of Common Stock
                                     -----

                  (TO BE EXECUTED UPON EXERCISE OF THE WARRANT)

          The undersigned hereby irrevocably elects to exercise the right,
represented by        Warrants held for its benefit through the book-entry
               ------
facilities of The Depository Trust Company (the "Depositary"), to purchase
                                                                           ----
newly issued shares of Common Stock of Sunterra Corporation (the "Company") at
the Exercise Price of $     per share.
                       ----

          The undersigned represents, warrants and promises that (1) it has
delivered or will deliver no later than 5:00 p.m., New York time, on two
business days after the date on which this Warrant Exercise Notice is delivered
the number of Warrants specified below to the Warrant Agent's account at the
Depositary by book-entry transfer; (2) it has the full power and authority to
exercise and deliver the Warrants exercised hereby; and (3) it has delivered the
exercise price of U.S. $    for each Warrant exercised hereby, [(i) by check or
                        ---
wire transfer of the Exercise Amount to the Warrant Agent specified in writing
by the Warrant Agent for such purpose, no later than 5:00 p.m., New York City
time, on the business day immediately prior to the Settlement Date], [(ii) by
Net Exercise (as defined in the Warrant Agreement) or [(iii) by a combination of
the methods described in clauses (i) and (ii) above, in accordance with the
terms hereof]

          The undersigned requests that the principal amount of Warrants
exercised hereby be in registered form in the authorized denominations,
registered in such names and delivered, all as specified in accordance with the
instructions set forth below; provided, that if the shares of Common Stock are
evidenced by global securities, the shares of Common Stock shall be registered
in the name of the Depositary or its nominee.

                                     B-2-1

<PAGE>

Dated:
       ---------------

NOTE: THIS EXERCISE NOTICE MUST BE DELIVERED TO THE WARRANT AGENT, PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE WARRANT AGENT SHALL NOTIFY
YOU (THROUGH THE CLEARING SYSTEM) OF (1) THE WARRANT AGENT'S ACCOUNT AT THE
DEPOSITARY TO WHICH YOU MUST DELIVER YOUR WARRANTS ON THE EXERCISE DATE AND (2)
THE ADDRESS, PHONE NUMBER AND FACSIMILE NUMBER WHERE YOU CAN CONTACT THE WARRANT
AGENT AND TO WHICH WARRANT EXERCISE NOTICES ARE TO BE SUBMITTED.

NAME OF DIRECT PARTICIPANT IN THE DEPOSITARY:

-----------------------------------------------------
(PLEASE PRINT)

ADDRESS:
         --------------------------------------------

-----------------------------------------------------

CONTACT NAME:
             ----------------------------------------

ADDRESS:
        ---------------------------------------------

TELEPHONE (INCLUDING INTERNATIONAL CODE):
                                         ------------

-----------------------------------------------------

FAX (INCLUDING INTERNATIONAL CODE):

-----------------------------------------------------

SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER
(IF APPLICABLE):
                -------------------------------------

ACCOUNT FROM WHICH WARRANTS ARE BEING DELIVERED:

DEPOSITARY ACCOUNT NO.
                      -------------------------------

WARRANT EXERCISE NOTICES WILL ONLY BE VALID IF DELIVERED IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH IN THIS NOTIFICATION (OR AS OTHERWISE DIRECTED), MARKED
TO THE ATTENTION OF "SUNTERRA CORPORATION WARRANT EXERCISE".

WARRANT HOLDER DELIVERING WARRANTS, IF OTHER THAN THE DIRECT DTC PARTICIPANT
DELIVERING THIS WARRANT EXERCISE NOTICE

NAME:
     ------------------------------------------------
          (PLEASE PRINT)

CONTACT NAME:
             ----------------------------------------

TELEPHONE (INCLUDING INTERNATIONAL CODE):

-----------------------------------------------------

FAX (INCLUDING INTERNATIONAL CODE):

-----------------------------------------------------

SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER
(IF APPLICABLE):

-----------------------------------------------------

ACCOUNT TO WHICH THE SHARES OF COMMON STOCK ARE TO BE CREDITED:

DEPOSITARY ACCOUNT NO.
                      -------------------------------

                                     B-2-2

<PAGE>

FILL IN FOR DELIVERY OF THE COMMON STOCK, IF OTHER THAN TO THE PERSON DELIVERING
THIS WARRANT EXERCISE NOTICE:

NAME:
     ------------------------------------------------
         (PLEASE PRINT)

ADDRESS:
        ---------------------------------------------

-----------------------------------------------------

CONTACT NAME:
             ----------------------------------------

TELEPHONE (INCLUDING INTERNATIONAL CODE):

-----------------------------------------------------

FAX (INCLUDING INTERNATIONAL CODE):

-----------------------------------------------------

SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER
(IF APPLICABLE):

-----------------------------------------------------

NUMBER OF WARRANTS BEING EXERCISED:

-----------------------------------------------------

(ONLY ONE EXERCISE PER WARRANT EXERCISE NOTICE)

SIGNATURE:
          -------------------------------------------

NAME:
     ------------------------------------------------

CAPACITY IN WHICH SIGNING:
                          ---------------------------

SIGNATURE GUARANTEED:

-----------------------------------------------------

                                     B-2-3

<PAGE>

                                    EXHIBIT C

                              [FORM OF ASSIGNMENT]

                (TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH
               HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)

 FOR VALUE RECEIVED, the undersigned Holder hereby sells, assigns and transfers
                                      unto

                     --------------------------------------
                                Name of Assignee

                     --------------------------------------
                               Address of Assignee

this Warrant Certificate, together with all right, title and interest therein,
and does irrevocably constitute and appoint                   attorney, to
                                            -----------------
transfer the within Warrant Certificate to purchase           shares of Common
                                                    ---------
Stock to which the Warrant Certificate relates on the books of the Warrant
Agent, with full power of substitution.

-------------------------------------   ----------------------------------------
               Dated                                  Signature
                                        Note: The above signature must
                                        correspond with the name as written upon
                                        the face of this Warrant Certificate in
                                        every particular, without alteration or
                                        enlargement or any change whatsoever.

-------------------------------------
Social Security or Other Taxpayer
Identification Number of Assignee

SIGNATURE GUARANTEED:

-------------------------------------

                                      C-1<PAGE>

                                                                    Exhibit 10.5

                          REGISTRATION RIGHTS AGREEMENT

          REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 29,
2002, by and among Sunterra Corporation, a Maryland corporation (the "Company"),
Merrill Lynch Mortgage Lending, Inc., a Delaware corporation ("Merrill"), and
the Persons identified on Schedule I hereto and their permitted successors,
assignees or transferees (the "Initial Holders").

                                    RECITALS

          A. Pursuant to the Third Amended and Restated Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code, As Amended, of the
Company and certain of its affiliates (the "Plan"), upon satisfaction of certain
conditions, the Company will issue Common Stock and/or Plan Warrants (both as
defined below) to the Initial Holders in the amounts set forth on Schedule I
hereto.

          B. Merrill and the Company have entered into the Exit Financing
Agreements in order to effect an exit financing as contemplated by the Plan and
in connection therewith have agreed to enter into the Merrill Warrant Agreement;

          C. In order to induce the Initial Holders to agree to the Plan, and to
induce Merrill to enter into the Exit Financing Agreements and as a condition
thereof, the Company has agreed to grant the securities registration rights to
Merrill and the Initial Holders set forth herein.

                                   AGREEMENTS

          In consideration of the premises and the mutual covenants herein
contained and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

     1. Definitions and General Interpretive Principles. In addition to the
capitalized terms defined elsewhere in this Agreement, the following capitalized
terms shall have the following meanings when used in this Agreement:

          "Adverse Disclosure" means public disclosure of material non-public
information, which disclosure in the good faith judgment of the chief executive
officer or chief financial officer of the Company (i) would be required to be
made in any registration statement filed with the Commission by the Company so
that such registration statement would not be materially misleading; (ii) would
not be required to be made at such time but for the filing of such registration
statement; and (iii) would materially and adversely interfere with any business
combination transaction in or in connection with which the Company would issue
shares of Common Stock or would result in the premature disclosure of any
pending financing, acquisition, corporate reorganization or other corporate
development involving the Company or any of its subsidiaries.

<PAGE>

          "Commission" means the United States Securities and Exchange
Commission and any agency succeeding to its functions.

          "Common Stock" means the common stock, $0.01 par value per share, of
the Company.

          "Deferment" means the number of days after the effective date of the
Shelf Registration Statement on which a Shelf Suspension has been in effect or
on which such Registration Statement has otherwise not continued to be effective
for purposes of the offer or sale of Registrable Securities thereunder.

          "Exit Financing Agreements" means the Loan Agreement, dated the date
hereof, between the Company (and certain of its subsidiaries) and Merrill Lynch
Mortgage Capital Inc., as agent, and related documentation, including the
Warrant Agreement between the Company and Merrill Lynch Mortgage Capital Inc.
(collectively, the "Exit Financing Agreements").

          "Holder" means a Merrill Holder (including its affiliates) or an
Initial Holder (including its affiliates) or a successor, assignee or transferee
of an Initial Holder or a Merrill Holder, or of any subsequent Holder as
contemplated by Section 11, in each case for so long as such Initial Holder or
Merrill Holder, or successor, assignee or transferee of such Holder, holds
Registrable Securities.

          "Included Registrable Securities" has the meaning set forth in Section
3(a).

          "Indemnified Party" has the meaning set forth in Section 7(c).

          "Indemnifying Party" has the meaning set forth in Section 7(c).

          "Loss" has the meaning set forth in Section 7(a).

          "Merrill Holder" means, with respect to the Merrill Warrant and the
Common Stock issuable thereunder, Merrill and its permitted successors,
assignees or transferees.

          "Merrill Warrant" means the warrant to purchase shares of Common Stock
issued pursuant to the Warrant Agreement, dated as of the date hereof, between
the Company and Merrill.

          "Merrill Warrant Stock" means any Common Stock or other security of
the Company or any successor entity issued or issuable upon exercise of the
Merrill Warrant.

          "NASD" means the National Association of Securities Dealers, Inc.

                                      -2-

<PAGE>

          "Plan Warrants" means the warrants to purchase shares of Common Stock
issued pursuant to the Warrant Agreement entered into pursuant to the Plan by
the Company and Mellon Investor Services LLC, as the warrant agent thereunder,
dated as of the date hereof.

          "Plan Warrant Stock" means any Common Stock or other security of the
Company or any successor entity issued or issuable upon exercise of any Plan
Warrant.

          "Participant" has the meaning set forth in Section 7(a).

          "Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other entity or a governmental
entity or any department, agency or political subdivision thereof.

          "Piggyback Registration" has the meaning set forth in Section 3(a).

          "Registrable Securities" means (i) the Common Stock issued under the
Plan to an Initial Holder, (ii) the Plan Warrant Stock issuable upon exercise of
Plan Warrants issued to an Initial Holder, (iii) the Merrill Warrant Stock and
(iv) in the case of (ii) and (iii), any securities of the Company or any
successor entity that may be issued or distributed in respect thereof by way of
stock dividend, stock split or other distribution, consolidation,
reclassification or similar transaction; provided, however, that the foregoing
securities shall cease to be "Registrable Securities" to the extent that (i) a
registration statement with respect to the sale of such securities has been
declared effective under the Securities Act and such securities have been
disposed of pursuant to such registration statement, (ii) such securities have
been disposed of (A) pursuant to and in accordance with Rule 144 (or any similar
provision then in force) under the Securities Act or (B) pursuant to another
exemption from the registration requirements of the Securities Act pursuant to
which the securities are thereafter freely tradable without restriction under
the Securities Act, (iii) such securities may be disposed of pursuant to Rule
144 (or any similar provision then in force) within the volume limitations
thereunder within a 90 day period or pursuant to Rule 144(k) (or any similar
provision then in force) under the Securities Act or (iv) such securities cease
to be outstanding. For purposes of this Agreement, any reference to a percentage
(or a majority in number) of Registrable Securities shall mean that percentage
of Registrable Securities, collectively, computed on the assumption that all
Plan Warrants and the Merrill Warrant have been exercised.

          "Requesting Initial Holders" has the meaning set forth in Section
2(c).

          "Requesting Merrill Holders" has the meaning set forth in Section
2(d).

          "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.

                                      -3-

<PAGE>

          "Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.

          "Shelf Registration Statement" means a registration statement of the
Company filed with the Commission on Form S-l or, if available, Form S-3 (or any
successors thereto) for an offering to be made on a continuous or delayed basis
pursuant to Rule 415 under the Securities Act (or any similar rule that may be
adopted by the Commission) covering all of the Registrable Securities requested
to be included by the Holders.

          "Shelf Suspension" has the meaning set forth in Section 2(i).

          "Underwriting Agreement" has the meaning set forth in Section 9.

          "Underwritten Offering" means an offering registered under the
Securities Act in which securities of the Company are sold to an underwriter or
underwriters on a firm commitment basis for reoffering to the public.

          Whenever used in this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, any noun or pronoun shall be
deemed to include the plural as well as the singular and to cover all genders.
The section captions used in this Agreement are for convenience of reference
only and shall not be construed to affect the meaning, construction or effect
hereof. Unless otherwise specified, the terms "hereof," "herein," "hereunder"
and similar terms refer to this Agreement as a whole, and references herein to
Sections refer to Sections of this Agreement.

     2. Shelf Registration.

          (a) The Company agrees, subject to the terms hereof and to applicable
law, (x) to use its reasonable best efforts to file, as soon as reasonably
practicable, but not later than 45 days, after the date of filing of its Annual
Report on Form 10-K for its fiscal year ended December 31, 2002, a Shelf
Registration Statement, (y) to use its best efforts to cause the Shelf
Registration Statement to be effective as promptly as possible after date of
filing thereof and (z) to use its best efforts to obtain authorization for
listing of the Registrable Securities (but not including the Plan Warrants or
the Merrill Warrant) on a national securities exchange or to have such
Registrable Securities accepted for quotation on the Nasdaq Stock Market.

          (b) Effectiveness, Etc. The Company agrees to use its best efforts to
keep the Shelf Registration Statement continuously effective for a period of six
years (plus the number of days, if any, of any Deferment) from the effective
date thereof or, if earlier, until all of the Registrable Securities covered by
the Shelf Registration Statement have been sold pursuant thereto. The Company
further agrees to supplement or make amendments to the Shelf Registration
Statement if required by (i) Section 5(a)(vi) hereof, (ii) the registration form
utilized by the Company for such registration or by the instructions applicable
to such registration form, or (iii) the Securities Act; provided, however, that
notwithstanding anything to the contrary herein the Company will not be

                                      -4-

<PAGE>

required to supplement or amend the Shelf Registration Statement until current
financial information is available so long as the Company is in compliance with
(x) the foregoing clauses (i) and (iii) and (y) its reporting obligations under
the Securities Exchange Act subsequent to the effective date. The Company agrees
to furnish to the Holders copies of any such supplement or amendment prior to
its use or filing with the Commission.

          (c) Underwritten Offering at the Request of the Initial Holders. Upon
the written request of one or more Initial Holders (such Initial Holder or
Initial Holders being referred to herein as the "Requesting Initial Holders"),
requesting that the Company amend the Shelf Registration Statement to the extent
necessary for the offering of the Requesting Initial Holders' Registrable
Securities pursuant to an Underwritten Offering, the Company will give prompt
written notice of the requested Underwritten Offering to all other holders of
Registrable Securities and thereupon the Company will use its best efforts to
effect such amendment to the Shelf Registration Statement for an Underwritten
Offering of (x) the Registrable Securities which the Company has been so
requested to include in the Underwritten Offering by the Requesting Initial
Holders and (y) all other Registrable Securities which the Company has been
requested to include in the Underwritten Offering by the Holders thereof by
written request given to the Company within 15 days after the giving of such
written notice by the Company. Notwithstanding the foregoing, the Company shall
have no obligation under this Section 2(c) unless the estimated aggregate
offering price of the Registrable Securities requested for inclusion in such
Underwritten Offering is $10,000,000 or more. In any such Underwritten Offering
requested by the Initial Holders, the Initial Holders representing 50% of the
Registrable Securities to be included in such offering by the Initial Holders
shall have the right to select the investment banker or bankers and manager or
managers to administer the offering and its (or their) counsel, which investment
banker or bankers and manager or managers shall be reasonably satisfactory to
the Company.

          (d) Underwritten Offering at the Request of the Merrill Holders. Upon
the written request of one or more Merrill Holders (such Merrill Holder or
Merrill Holders being referred to herein as the "Requesting Merrill Holders"),
requesting that the Company amend the Shelf Registration Statement to the extent
necessary for the offering of the Requesting Merrill Holders' Registrable
Securities pursuant to an Underwritten Offering, the Company will give prompt
written notice of the requested Underwritten Offering to all other holders of
Registrable Securities and thereupon the Company will use its best efforts to
effect such amendment to the Shelf Registration Statement for an Underwritten
Offering of (x) the Registrable Securities which the Company has been so
requested to include in the Underwritten Offering by the Requesting Merrill
Holders and (y) all other Registrable Securities which the Company has been
requested to include in the Underwritten Offering by the Holders thereof by
written request given to the Company within 15 days after the giving of such
written notice by the Company. Notwithstanding the foregoing, the Company shall
have no obligation under this Section 2(d) unless the estimated aggregate
offering price of the Registrable Securities requested for inclusion in such
Underwritten Offering is $10,000,000 or more. In any such Underwritten Offering
requested by the Merrill Holders, the Merrill Holders representing 50% of the
Registrable Securities to be included in such offering by the Merrill Holders

                                      -5-

<PAGE>

shall have the right to select the investment banker or bankers and manager or
managers to administer the offering and its (or their) counsel, which investment
banker or bankers and manager or managers shall be reasonably satisfactory to
the Company.

          (e) Limitation on Amendments. The Company shall not be required to
amend the Shelf Registration Statement pursuant to Sections 2(c) or 2(d) hereof
more than four (4) times in the aggregate, at least one of which amendments
shall be reserved for the Merrill Holders pursuant to Section 2(d); provided
that each amendment so made shall have been effective to permit the sale in an
Underwritten Offering of all of the Registrable Securities included in the Shelf
Registration Statement for that purpose.

          (f) Amendment of Registration for Other Securities. Whenever the
Company shall amend the Shelf Registration Statement pursuant to this Section 2
in connection with an Underwritten Offering, no securities other than
Registrable Securities shall be included among the securities covered by such
registration unless (i) the managing underwriter of such offering shall have
advised each Holder of Registrable Securities to be included in such
Underwritten Offering in writing that the inclusion of such other securities
would not be likely to have an adverse effect on the price of the Registrable
Securities included in such offering or on the timing of such offering or (ii)
the Holders of 75% of the Registrable Securities to be included in such offering
shall have consented in writing to the inclusion of such other securities,
provided that for purposes of determining compliance with this clause, the
consent of Holders seeking to have other securities included in such offering
shall not be counted.

          (g) Priority in Underwritten Offering at the Request of the Initial
Holders. If the managing underwriter of an Underwritten Offering requested
pursuant to Section 2(c) shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting an Underwritten Offering) that,
in its opinion, the number of securities requested to be included in such
Underwritten Offering exceeds the number which can be sold in such offering
without being likely to have an adverse effect on the price of the securities
offered or on the timing of the offering, then the Company shall include in such
Underwritten Offering (to the extent of the number which the Company is so
advised can be sold in such offering) Registrable Securities requested to be
included in such Underwritten Offering (i) first, pro rata among the Initial
Holders on the basis of the percentages of the Registrable Securities held by
such Initial Holders, and (ii) second, and only if all the securities required
in clause (i) have been included, pro rata among the Merrill Holders on the
basis of the percentages of the Registrable Securities held by such Merrill
Holders. In connection with any Underwritten Offering to which the provisions of
this subsection (g) apply, no securities other than Registrable Securities shall
be included in such Underwritten Offering.

          (h) Priority in Underwritten Offering at the Request of the Merrill
Holders. If the managing underwriter of an Underwritten Offering requested
pursuant to Section 2(d) shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting an Underwritten Offering) that,
in its opinion, the number of securities requested to be included in such
Underwritten Offering exceeds the

                                      -6-

<PAGE>

number which can be sold in such offering without being likely to have an
adverse effect on the price of the securities offered or on the timing of the
offering, then the Company shall include in such Underwritten Offering (to the
extent of the number which the Company is so advised can be sold in such
offering) Registrable Securities requested to be included in such Underwritten
Offering (i) first, pro rata among the Merrill Holders on the basis of the
percentages of the Registrable Securities held by such Merrill Holders, and (ii)
second, and only if all the securities required in clause (i) have been
included, pro rata among the Initial Holders on the basis of the percentages of
the Registrable Securities held by such Initial Holders. In connection with any
Underwritten Offering to which the provisions of this subsection (h) apply, no
securities other than Registrable Securities shall be included in such
Underwritten Offering.

          (i) Suspension of Registration. If the continued use of the Shelf
Registration Statement at any time would require the Company to make an Adverse
Disclosure or would require the inclusion in such Registration Statement of
audited financial statements that are unavailable to the Company for reasons
beyond the Company's reasonable control, the Company may, upon giving written
notice of such action to the Holders, suspend use of such Registration Statement
for the shortest period of time determined in good faith by the Company to be
necessary for such purpose (a "Shelf Suspension"); provided, however, that the
Company shall not be permitted to exercise a Shelf Suspension (i) more than one
time during any twelve (12) month period or (ii) for a period exceeding ninety
(90) days on any one occasion. In the event of a Shelf Suspension, the Holders
agree to suspend, immediately upon their receipt of the notice referred to
above, any sale or offer to sell the Registrable Securities, and the use of the
prospectus related to the Shelf Registration Statement in connection with any
such sale or offer to sell Registrable Securities, and agree not to disclose to
any other Person the fact that the Company has exercised a Shelf Suspension or
any related facts. The Company shall promptly notify the Holders upon the
termination of such Shelf Suspension.

     3. Piggyback Registration.

          (a) Participation.

               (i) If the Company, at any time within the period during which it
is required to use it best efforts to keep the Shelf Registration Statement
effective pursuant to Section 2(b), proposes to file a registration statement
for an Underwritten Offering of equity securities (except pursuant to Sections
2(c) or 2(d)), then, as soon as practicable (but in no event less than fifteen
(15) days prior to the proposed date of filing of such registration statement
with the Commission), the Company shall give written notice of such proposed
filing to all Holders of Registrable Securities and such notice shall offer the
Holders the opportunity to register such number of Registrable Securities as
each such Holder may request in writing (a "Piggyback Registration"). Subject to
Section 3(b), the Company shall include in such registration statement all such
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within fifteen (15) days after the Company's
notice has been given

                                      -7-

<PAGE>

("Included Registrable Securities"). If at any time after giving written notice
of any such intention to register any equity securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such equity securities, the Company may, at its election,
give written notice of such determination to each Holder holding Included
Registrable Securities and (x) in the case of a determination not to register,
shall be relieved of its obligation to register any Included Registrable
Securities in connection with such registration and (y) in the case of a
determination to delay registering, shall be permitted to delay registering any
Included Registrable Securities for the same period as the delay in registering
such other equity securities. The Holders agree not to disclose to any other
Person such determination of the Company not to register or to delay
registration of equity securities or any related facts.

               (ii) Each Holder making a request for inclusion of its
Registrable Securities in a Piggyback Registration must, and the Company shall
use its reasonable best efforts to make such arrangements with the underwriter
or underwriters so that each such Holder may, participate in such Underwritten
Offering on the same terms as other Persons selling securities in such
Underwritten Offering. Notwithstanding any provision in this Agreement to the
contrary, any Holder participating through a Piggyback Registration shall have
no right to change the intended method or methods of disposition otherwise
applicable.

          (b) Priority in Piggyback Registration. If the managing underwriter of
any proposed offering of securities included in a Piggyback Registration informs
the Holders holding Included Registrable Securities in writing that, in its
opinion, the total number of securities which such Holders and any other Persons
intend to include in such offering exceeds the number which can be sold in such
offering without being likely to have an adverse effect on the price of the
securities offered or the timing of the offering, then the securities to be
included in such registration shall be allocated as follows:

               (i) first, one hundred (100) percent of the securities that the
Company has proposed to sell shall be included therein; and

               (ii) second, and only if all the securities referenced in clause
(i) have been included, the number of Included Registrable Securities that, in
the opinion of such underwriter, can be sold without having such adverse effect
shall be included therein, with such number to be allocated pro rata among (x)
the Holders of Included Registrable Securities on the basis of the percentages
of the Included Registrable Securities held by such Holders, provided, however,
that if as a result of the provisions of this Section 3(b), any Holder shall not
be entitled to include at least fifty (50) percent of such Holder's Included
Registrable Securities, such Holder may withdraw such Holder's request to
include all or any number of such Registrable Securities in such registration
statement no later than twenty (20) days prior to its effectiveness; and (y) any
other equity securities eligible for inclusion in such registration.

                                      -8-

<PAGE>

     4. Black-out Periods. In the event of (i) a registration by the Company
involving the offering and sale by the Company of its equity securities or
securities convertible into or exchangeable for its equity securities or (ii) an
Underwritten Offering involving the offering and sale by Holders of Registrable
Securities, the Holders agree, if requested by the Company (or, in the case of
any Underwritten Offering, by the managing underwriter), not to effect any
public sale or distribution (including any sale pursuant to Rule 144 under the
Securities Act) of any securities of the Company (except, in each case, as part
of the applicable registration, if permitted) which securities are the same as
or similar to those being registered in connection with such registration, or
which are convertible into or exchangeable or exercisable for such securities,
during the period beginning seven (7) days before and ending 90 days (not to
occur more than one (1) time during any twelve (12) month period) after, the
effective date of the registration statement filed in connection with such
registration, to the extent such Holders are timely notified in writing by the
Company or the managing underwriter; provided, that this section shall apply
only to Holders holding fifteen percent (15%) or more of the Registrable
Securities and that, in each case, the Company's executive officers and
directors shall have entered into similar agreements for the same period.

     5. Registration Procedures.

          (a) In connection with the Company's registration obligations pursuant
to this Agreement, the Company shall, subject to the limitations set forth
herein and to applicable law, use its reasonable best efforts to effect any such
registration so as to permit the sale of the applicable Registrable Securities
in accordance with the intended method or methods of distribution thereof in
conformity with any required time period set forth herein, and in connection
therewith the Company shall:

               (i) before filing a registration statement or prospectus with the
Commission, or any amendments or supplements thereto, furnish to the underwriter
or underwriters, if any, and to the Holders holding Registrable Securities to be
included in such registration statement, copies of all documents prepared to be
filed, which documents shall be subject to the reasonable review and comment of
such Holders, such underwriters, if any, and their respective counsel;

               (ii) prepare and file with the Commission a registration
statement relating to the registration on any appropriate form under the
Securities Act, which form shall be available for the sale of the Registrable
Securities;

               (iii) notify the selling Holders and the managing underwriter or
underwriters, if any, as soon as reasonably practicable after notice thereof is
received by the Company (A) when the applicable registration statement or any
amendment thereto has been filed or becomes effective and when the applicable
prospectus or any amendment or supplement thereto has been filed, (B) of any
written comments by the Commission or any request by the Commission for
amendments or supplements to such registration statement or prospectus or for
additional information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration

                                      -9-

<PAGE>

statement or any order preventing or suspending the use of any preliminary or
final prospectus or the initiation or threat of any proceedings for such
purposes and (D) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for
offering or sale in any jurisdiction or the initiation or threat of any
proceeding for such purpose;

               (iv) promptly notify each selling Holder and the managing
underwriter or underwriters, if any, when the Company becomes aware of the
occurrence of any event as a result of which the applicable registration
statement or prospectus (as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein (in the case of the prospectus and any preliminary prospectus, in light
of the circumstances under which they were made) not misleading or, if for any
other reason it shall be necessary to amend or supplement such registration
statement or prospectus in order to comply with the Securities Act and, in
either case as promptly as reasonably practicable thereafter, prepare and file
with the Commission a post-effective amendment or supplement to such
registration statement or prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of Registrable Securities, the prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading;

               (v) use its reasonable best efforts to prevent or obtain as
promptly as practicable the withdrawal of any stop order with respect to the
applicable registration statement or other order suspending the use of any
preliminary or final prospectus;

               (vi) promptly incorporate in a prospectus supplement or
post-effective amendment to the Shelf Registration Statement such information
furnished in writing to the Company (i) as the managing underwriter or,
underwriters, if any, request to be included, (ii) as a Holder of Registrable
Securities, which Holder, in its reasonable judgment, might be deemed to be an
underwriter or controlling person of the Company, request to be included, (iii)
as an Initial Holder or Merrill Holder request to be included, but only to the
extent that such information relates solely to such Initial Holder or Merrill
Holder, as the case may be, and (iv) as the Holders of a majority of the
Registrable Securities being sold thereunder agree should be included therein,
relating to the Holders or underwriter or, subject to other applicable
provisions hereof, the plan of distribution to be utilized with respect to such
Registrable Securities, and make all required filings of such prospectus
supplement or post-effective amendment as soon as reasonably practicable after
being notified of the matters to be incorporated in such prospectus supplement
or post-effective amendment;

               (vii) furnish to each selling Holder and each managing
underwriter, if any, without charge, as many conformed copies as such Holder or
managing underwriter may reasonably request of the applicable registration
statement, including all documents incorporated by reference therein or exhibits
to such registration statement;

                                      -10-

<PAGE>

               (viii) deliver to each selling Holder and each managing
underwriter, if any, without charge, as many copies of the applicable prospectus
(including each preliminary prospectus) as such Holder or managing underwriter
may reasonably request (it being understood that the Company consents to the use
of the prospectus by each of the selling Holders and the underwriter or
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the prospectus);

               (ix) on or prior to the date on which the applicable registration
statement is declared effective, use its reasonable best efforts to register or
qualify such Registrable Securities for offer and sale under the securities or
"Blue Sky" laws of each state and other jurisdiction of the United States as any
such selling Holder or underwriter reasonably and timely requests in writing,
and do any and all other acts or things reasonably necessary or advisable to
keep such registration or qualification in effect so as to permit the
commencement and continuance of sales and dealings in such jurisdictions for as
long as may be necessary to complete the distribution of the Registrable
Securities covered by the registration statement; provided that the Company
shall not be required (A) to qualify generally to do business in any
jurisdiction where it is not then so qualified or (B) to take any action which
would subject it to taxation or general service of process in any such
jurisdiction where it is not then so subject;

               (x) cooperate with the selling Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends;

               (xi) not later than the effective date of the applicable
registration statement, provide a CUSIP number for all Registrable Securities
included in such registration statement and provide the applicable transfer
agent with printed certificates for the Registrable Securities, which
certificates shall be in a form eligible for deposit with The Depository Trust
Company;

               (xii) in the case of an Underwritten Offering, obtain for
delivery to the underwriter or underwriters, with copies to the Holders included
in such registration, an opinion or opinions from counsel for the Company dated
the date of the closing under the underwriting agreement, in customary form,
scope and substance;

               (xiii) in the case of an Underwritten Offering, obtain for
delivery to the Company and the underwriter or underwriters, with copies
(subject to the reasonable consent of the certified public accountants referred
to below, determined in accordance with market practice) to the Holders included
in such registration, a comfort letter from the Company's independent certified
public accountants in customary form and covering matters of the type
customarily covered by comfort letters and as the managing underwriter or
underwriters reasonably request, dated the date of execution of the underwriting
agreement and brought down to the closing under the underwriting agreement;

                                      -11-

<PAGE>

               (xiv) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission and make available to its
security holders, as soon as reasonably practicable, an earning statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first day of the Company's first full calendar
quarter after the effective date of such registration statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder, and will furnish to each selling Holder at least five
business days prior to the filing thereof a copy of any amendment or supplement
to such registration statement or prospectus and shall not file any such
amendment or supplement to which any selling Holder shall have reasonably
objected on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act;

               (xv) reasonably cooperate with each selling Holder of Registrable
Securities and each underwriter, if any, participating in the disposition of
such Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD;

               (xvi) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by the applicable registration
statement from and after a date not later than the effective date of such
registration statement;

               (xvii) use its reasonable best efforts to cause all Registrable
Securities covered by the applicable registration statement to be listed on each
securities exchange or market on which any of the Company's securities of such
class are then listed or quoted and quoted on each inter-dealer quotation system
on which any of the Company's securities of such class are then quoted; and

               (xviii) make available upon reasonable notice at reasonable times
and for reasonable periods for inspection by each Initial Holder and Merrill
Holder, and a representative appointed by the Holders holding a majority of the
Registrable Securities covered by the applicable registration statement, by any
managing underwriter or underwriters participating in any disposition to be
effected pursuant to such registration statement and by any attorney, accountant
or other agent retained by such Holders or any such managing underwriter, all
pertinent financial and other records, corporate documents and properties and
officers and employees of the Company as shall be reasonably necessary to enable
them to exercise their due diligence responsibilities and to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement as shall be
reasonably necessary to enable them to exercise such responsibilities (subject
to the entry by each party referred to in this clause (xviii) into a customary
confidentiality agreement in a form reasonably acceptable to the Company).

          (b) The Company may require each selling Holder as to which any
registration is being effected to furnish to the Company such information
regarding itself, the Registrable Securities held by it, the distribution of
such Holder's Registrable

                                      -12-

<PAGE>

Securities and such other information relating to such Holder and its ownership
of the applicable Registrable Securities as the Company may from time to time
reasonably request, including information required under Item 507 of Regulation
S-K. Each Holder agrees to furnish such information to the Company and to
cooperate with the Company as necessary to enable the Company to comply with the
provisions of this Agreement. The Company shall have the right to exclude any
Holder that does not comply with the preceding sentence from the applicable
registration.

          (c) Each Holder agrees by acquisition of its Registrable Securities
that, upon receipt of any notice from the Company of the occurrence of any event
of the kind described in Section 5(a)(iv), such Holder shall discontinue
disposition of its Registrable Securities pursuant to such registration
statement until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5(a)(iv) and of any additional or
supplemental filings that are incorporated by reference in the prospectus, or
until such Holder is advised in writing by the Company that the use of the
prospectus may be resumed and has received copies, and, if so directed by the
Company, such Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering such Registrable Securities which are current at the
time of the receipt of such notice.

     6. Registration Expenses. The Company shall pay all expenses incident to
its performance or compliance with its obligations under this Agreement,
including: (i) all registration and filing fees and any other fees and expenses
associated with filings required to be made with the Commission or the NASD,
(ii) all fees and expenses of compliance with federal and state securities or
"Blue Sky" laws, (iii) all of its printing, duplicating, word processing,
messenger, telephone, facsimile and delivery expenses (including expenses of
printing certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and of printing prospectuses), (iv)
all fees and disbursements of counsel for the Company and of all independent
certified public accountants of the Company, (v) all fees and expenses incurred
in connection with the listing of the Registrable Securities on any securities
exchange or market or the quotation of the Registrable Securities on any
inter-dealer quotation system, (vi) all fees and expenses of any escrow agent or
attorney in fact for selling Holders and (vii) the reasonable fees and expenses
of not more than one lead outside counsel for all Holders (selected by the
Holders of a majority of the Registrable Securities included in a registration
that do not, by virtue of the following provisos, have separate counsel) in an
amount not to exceed $35,000; provided, however, that (x) in the event of a
Underwritten Offering pursuant to Section 2(c), the Initial Holders representing
50% of the Registrable Securities to be included in such offering by the Initial
Holders shall be entitled to select a separate outside counsel (whose reasonable
fees and expenses shall not exceed $35,000) and (y) in the event of a
Underwritten Offering pursuant to Section 2(d), the Merrill Holders representing
50% of the Registrable Securities to be included in such offering by the Merrill
Holders shall be entitled to select a separate outside counsel (whose reasonable
fees and expenses shall not exceed $35,000). In addition, the Company shall pay
its internal expenses (including salaries and expenses of its officers and
employees performing legal or accounting

                                      -13-

<PAGE>

duties), the expense of any audit and the fees and expenses of any Person,
including special experts, retained by the Company in connection with such
registration. The Company shall not be required to pay (xx) any other costs or
expenses in the course of the transactions contemplated hereby, (yy) any
expenses incurred by the Holders (except as provided in clauses (i), (ii), (vi)
and (vii) of the preceding sentence), (yy) any underwriting discounts or
commissions or transfer taxes attributable to the sale of Registrable Securities
or (zz) any fees and expenses of counsel to any underwriter.

     7. Indemnification.

          (a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each Holder selling
Registrable Securities and its respective officers, directors, members, partners
and employees and each Person who controls (within the meaning of the Securities
Act and the Securities Exchange Act) such selling Holder (each a "Participant")
from and against any and all losses, claims, damages, judgments, liabilities and
reasonable expenses (including reasonable costs of investigation and legal
expenses) caused by, arising out of or based upon (i) any untrue or alleged
untrue statement of a material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities Act
(including any final, preliminary or summary prospectus contained therein or any
amendment thereof or supplement thereto or any documents incorporated by
reference therein) or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus or preliminary prospectus, in light of the
circumstances under which they were made) not misleading (each a "Loss" and
collectively "Losses"); provided, however, that the Company shall not be liable
to any Participant in any such case to the extent that any such Loss is caused
by written information furnished to the Company by such Holder expressly for use
in the preparation thereof, or if such untrue statement or alleged untrue
statement or omission or alleged omission is corrected in an amendment or
supplement to such prospectus which has been made available to the Holders and
the relevant Holder fails to deliver such prospectus as so amended or
supplemented, if such delivery is required under applicable law or the
applicable rules of any securities exchange, prior to or concurrently with the
sales of the Registrable Securities to the Person asserting such Loss.

          (b) Indemnification by the Holders. Each selling Holder agrees
(severally and not jointly) to indemnify and hold harmless, to the fullest
extent permitted by law, the Company, its directors, officers and employees and
each Person who controls the Company (within the meaning of the Securities Act
and the Securities Exchange Act) from and against any and all Losses to the
extent, but only to the extent, that any such Loss is caused by, arises out of
or is based upon any information furnished in writing by such selling Holder to
the Company specifically for inclusion in any registration statement under which
such Registrable Securities were registered under the Securities Act (including
any final, preliminary or summary prospectus contained therein or any amendment
thereof or supplement thereto or any documents incorporated by reference
therein) and was not corrected in a subsequent writing prior to or concurrently
with the

                                      -14-

<PAGE>

sale of the Registrable Securities to the Person asserting such Loss. The
liability of any Holder under this paragraph shall in no event exceed the amount
by which proceeds (less underwriting fees and discounts) received by such Holder
from sales of Registrable Securities giving rise to such obligations exceed the
amount of any Loss which such Holder has otherwise been required to pay by
reason of such untrue statement or omission.

          (c) Indemnification Proceedings. Any Person entitled to
indemnification hereunder (an "Indemnified Party") shall (i) give prompt written
notice to the Person from whom such indemnification may be sought (the
"Indemnifying Party") of any claim with respect to which it seeks
indemnification, provided, however, that the failure so to notify the
Indemnifying Party shall not relieve it of any obligation or liability which it
may have hereunder or otherwise except to the extent it is materially prejudiced
by such failure and (ii) permit such Indemnifying Party to assume the defense of
such claim with counsel reasonably satisfactory to the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to select and
employ separate counsel and to participate in the defense of such claim, and the
fees and expenses of such counsel shall be at the expense of the Indemnified
Party, unless (A) the Indemnifying Party has agreed in writing to pay such fees
or expenses, (B) the Indemnifying Party shall have failed to assume the defense
of such claim within a reasonable time after having received notice of such
claim from the Indemnified Party and to employ counsel reasonably satisfactory
to the Indemnified Party, (C) in the reasonable judgment of the Indemnified
Party, based on advice of its counsel, a conflict of interest exists between the
Indemnified Party and the Indemnifying Party with respect to such claims or (D)
the Indemnified Party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other Indemnified Parties that
are different from or in addition to those available to the Indemnifying Party
(in which case, if the Indemnified Party notifies the Indemnifying Party in
writing that the Indemnified Party elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such claim on behalf of the Indemnified Party).
If such defense is assumed by the Indemnifying Party, or if such defense is not
assumed by the Indemnifying Party but the Indemnifying Party acknowledges that
the Indemnified Party is entitled to indemnification hereunder, the Indemnifying
Party shall not be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably delayed or withheld; provided,
that an Indemnifying Party shall not be required to consent to any settlement
involving the imposition of equitable remedies or involving the imposition of
any material obligations on such Indemnifying Party other than financial
obligations for which such Indemnified Party will be indemnified hereunder. If
the Indemnifying Party assumes the defense, the Indemnifying Party shall have
the right to settle such action without the consent of the Indemnified Party;
provided, that the Indemnifying Party shall be required to obtain the consent of
the Indemnified Party (which consent shall not be unreasonably withheld) if the
settlement includes any admission of wrongdoing on the part of the Indemnified
Party or any equitable remedies or restriction on the Indemnified Party or its
officers, directors or employees and no Indemnifying Party shall consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the

                                      -15-

<PAGE>

claimant or plaintiff to each Indemnified Party of an unconditional release from
all liability in respect of such claim or litigation. An Indemnifying Party (or,
as the case may be, Indemnifying Parties) shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one separate firm
admitted to practice in such jurisdiction at any one time from all Indemnified
Parties collectively unless (x) the employment of more than one counsel has been
authorized in writing by such Indemnifying Party (or Indemnifying Parties) or
(y) a conflict exists or may exist (based on advice of counsel to an Indemnified
Party) between such Indemnified Party and other Indemnified Parties, in each of
which cases the Indemnifying Party (or Indemnifying Parties) shall be obligated
to pay the reasonable fees and expenses of such additional counsel or counsels.
The indemnification provided for under this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Party or any officer, director or controlling Person of such
Indemnified Party and shall survive the transfer of Registrable Securities.

          (d) Contribution. If for any reason the indemnification provided for
in paragraphs (a) and (b) of this Section 7 is unavailable to an Indemnified
Party or is insufficient to hold it harmless as contemplated by paragraphs (a)
and (b) of this Section 7, then the Indemnifying Party shall contribute to the
amount paid or payable by the Indemnified Party as a result of such Loss in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Indemnifying
Party or the Indemnified Party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. Notwithstanding anything in this Section 7(d) to the
contrary, no Indemnifying Party (other than the Company) shall be required
pursuant to this Section 7(d) to contribute any amount in excess of the amount
by which the proceeds (less underwriting fees and discounts) received by such
Indemnifying Party from the sale of Registrable Securities in the offering to
which the Losses of the Indemnified Parties relate exceed the amount of any
damages which such Indemnifying Party has otherwise been required to pay by
reason of such untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in the
preceding sentences. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

     8. Compliance with Rule 144. The Company shall use its best efforts to file
the reports required to be filed by it under the Securities Act and the
Securities Exchange Act so long as the Company is obligated to file such
reports, and it shall take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the

                                      -16-

<PAGE>

Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rules or regulations hereafter adopted by the Commission. Upon the
written request of any Holder, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, the Company shall not be required by this Section
8 to file any such reports that were first required to be filed prior to the
date of this Agreement.

     9. Underwriting Agreements. If requested by the underwriters for any
Underwritten Offering requested by Holders pursuant to Sections 2(c) or 2(d),
the Company and the Holders of Registrable Securities to be included therein
shall enter into an underwriting agreement with such underwriters, such
agreement to be reasonably satisfactory in form and substance to (i) the
Company, (ii) in the case of an Underwritten Offering requested by the Initial
Holders pursuant to Section 2(c), the Initial Holders holding a majority of the
Registrable Securities to be included in such Underwritten Offering by the
Initial Holders, (iii) in the case of an Underwritten Offering requested by the
Merrill Holders pursuant to Section 2(d), the Merrill Holders holding a majority
of the Registrable Securities to be included in such Underwritten Offering by
the Merrill Holders, and (iv) the underwriters, and to contain such terms and
conditions as are generally prevailing in agreements of that type (such
agreement an "Underwriting Agreement"). No Holder shall be required to enter
into an Underwriting Agreement unless, at such Holder's request, any or all of
the representations and warranties made by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such Initial Holder. No Holder shall be required to
make any representations or warranties to, or agreements with, the Company or
the underwriters other than (i) representations and warranties contained in a
writing furnished by such Holder expressly for use in such registration
statement, (ii) representations, warranties and agreements regarding such
Holder, the Registrable Securities and such Holder's intended method of
distribution thereof and (iii) any other representation, warranty or agreement
required by law. The Holders holding any Registrable Securities to be included
in any Underwritten Offering pursuant to Section 3 hereof shall enter into such
an underwriting agreement at the request of the Company.

     10. Amendments and Waivers. Except as otherwise provided in this Agreement,
this Agreement may only be amended, modified or supplemented by, and any waivers
or consents to departure from the provisions of this Agreement shall be
effective only upon, receipt of the written consent of: (a)(i) in the case of an
amendment, modification, supplement, consent or waiver that waives a request for
an Underwritten Offering pursuant to Sections 2(c) or 2(d) previously made or
reduces the number of times such requests may be made, each Initial Holder or
Merrill Holder affected by such amendment, modification, supplement, consent or
waiver and (ii) in the case of any other amendment, modification, supplement,
consent or waiver, each Initial Holder affected by such amendment, modification,
supplement, consent or waiver; provided that, in the case of an Initial Holder,
such Initial Holder owns at least 10% of the Registrable Securities; (b) the
Company; and (c) the Holders holding a majority of the Registrable Securities.
Any amendment, modification, supplement, consent or waiver must be made in
writing.

                                      -17-

<PAGE>

Any amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Holder and the Company.

     11. Successors, Assigns and Transferees.

          (a) The registration rights of any Holder under this Agreement with
respect to any Registrable Securities may be transferred and assigned; provided,
however, that the right to request an amendment for an Underwritten Offering
pursuant to Sections 2(c) or 2(d) may be transferred only by an Initial Holder
or a Merrill Holder in connection with the transfer and assignment of at least
10% of such Initial Holder's or Merrill Holder's Registrable Securities to one
entity or one group of controlled affiliates; and provided further, that no such
transfer or assignment of any registration rights under this Agreement shall be
binding upon or obligate the Company under this Agreement to any such transferee
or assignee unless and until (i) the Company shall have received notice of such
transfer or assignment as herein provided and a written agreement of the
transferee or assignee to be bound by the provisions of this Agreement and (ii)
such transferee or assignee holds Registrable Securities. Any transfer or
assignment of the rights and obligations under this Agreement made other than as
provided in the first sentence of this Section 11 shall be null and void.

          (b) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.

     12. Final Agreement. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein and supersedes all prior
agreements and understandings with respect thereto.

     13. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.

     14. Notices. All notices, demands or other communications or documents to
be given or delivered under or by reason of the provisions of this Agreement
shall be made in writing and shall be deemed to have been received (a) when
delivered personally to the recipient; (b) when sent to the recipient by
telecopy (receipt electronically confirmed by sender's telecopy machine) if
during normal business hours of the recipient, otherwise on the next business
day; one business day after the date when sent to the recipient by reputable
express courier service (charges prepaid); or (c) seven business days after the
date when mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the parties at the addresses indicated below or
in any case to such other address as any party hereto may, from time to time,
designate in writing delivered pursuant to the terms of this Section 14:

          If to the Initial Holders, to the addresses set forth on Schedule I
hereto.

                                      -18-

<PAGE>

          If to Holders other than the Initial Holders, to the addresses set
forth on the stock record books of the Company.

          If to the Company, to:

               Sunterra Corporation
               1781 Park Center Drive
               Orlando, Florida 32835
               Attention: General Counsel
               Fax: (407) 532-1000

          If to Merrill, to:

               Merrill Lynch Mortgage Lending, Inc.,
               101 Hudson Street
               Jersey City, NJ 07302
               Attention: Bryan Gallagher
               Telecopier No.: (201) 557-1369
               Telephone No.:  (201) 557-0509

               With a copy to:

               Attention:  Jeffrey Cohen
               Telecopier No.: (212) 449-6673
               Telephone No.:  (212) 449-9369

     15. Governing Law; Service of Process; Consent to Jurisdiction. (a) THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF
NEW YORK AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF SUCH STATE, IRRESPECTIVE OF ANY CONTRARY RESULT OTHERWISE
REQUIRED BY APPLICABLE CONFLICT OR CHOICE OF LAW RULES.

          (b) To the fullest extent permitted by applicable law, each party
hereto (i) agrees that any claim, action or proceeding by such party seeking any
relief whatsoever arising out of, or in connection with, this Agreement or the
transactions contemplated hereby may be brought in the United States District
Court for the Southern District of New York and in any New York State court
located in the Borough of Manhattan, (ii) agrees to submit to the exclusive
jurisdiction of such courts located in the State of New York for purposes of all
legal proceedings arising out of, or in connection with, this Agreement or the
transactions contemplated hereby and (iii) irrevocably waives any objection
which it may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.

     16. Counterparts and Facsimile Execution. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be

                                      -19-

<PAGE>

deemed an original, and such counterparts together shall constitute one
instrument. This Agreement may be executed by the exchange of signatures by
facsimile transmission.

     17. Specific Performance. Without limiting or waiving in any respect any
rights or remedies of the parties under this Agreement now or hereafter existing
at law or in equity or by statute, each of the parties hereto shall be entitled
to seek specific performance of the obligations to be performed by the other
party or parties in accordance with the provisions of this Agreement.

     18. No Inconsistent Agreements. The Company shall not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders pursuant to this
Agreement.

     19. Third Party Beneficiaries. Holders of Registrable Securities and the
Indemnified Parties are intended third party beneficiaries of this Agreement,
and this Agreement shall inure to the benefit of and may be enforced by such
Persons.

                  [Remainder of page intentionally left blank.
                            Signature pages follow.]

                                      -20-

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.

                              SUNTERRA CORPORATION

                              By: /s/ Nicholas J. Benson
                                  ---------------------------------------------
                                  Name: Nicholas J. Benson
                                  Title: President and Chief Executive Officer

                                      -21-

<PAGE>

                              MERRILL LYNCH MORTGAGE LENDING, INC.

                              By: /s/ Jeffrey Cohen
                                  ---------------------------------------------
                                  Name: Jeffrey Cohen
                                  Title: Director

                                      -22-

<PAGE>

                              INITIAL HOLDERS:

                              GRACE BROTHERS, LTD.

                              By: /s/ Bradford T. Whitmore
                                  ---------------------------------------------
                                  Name: Bradford T. Whitmore
                                  Title: General Partner

                                  /s/ Bradford T. Whitmore
                                  ---------------------------------------------
                                  Bradford T. Whitmore

                                      -23-

<PAGE>

                              WK INVESTORS LLC

                              By: /s/ Arthur Amron
                                  ---------------------------------------------
                                  Name: Arthur Amron
                                  Title: Vice President and Assistant Secretary

                                      -24-

<PAGE>

                                   SCHEDULE I

                                 Initial Holders

                      Merrill Lynch Mortgage Lending, Inc.

                              Grace Brothers, Ltd.

                              Bradford T. Whitmore

                                WK Investors LLC

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