Exhibit 10.1

 

 

 

SENIOR SECURED TERM LOAN AGREEMENT

Dated as of October 20, 2009

among

WILLIAM LYON HOMES, INC. as Borrower,

and

COLFIN WLH FUNDING, LLC, as Administrative Agent,

and

COLFIN WLH FUNDING, LLC, as Initial Lender and Lead Arranger,

and

The Lenders Party Hereto

 

 

 

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TABLE OF CONTENTS

 

         Page ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS    1
            1.01     DEFINED TERMS    1 1.02     OTHER INTERPRETIVE PROVISIONS
   31 1.03     ACCOUNTING TERMS    32 1.04     ROUNDING    32 1.05     TIMES OF
DAY    33 ARTICLE II. CREDIT EXTENSION    33 2.01     LOANS.    33 2.02    
[RESERVED]    34 2.03     PREPAYMENTS    34 2.04     REPAYMENT OF LOANS    36
2.05     INTEREST    36 2.06     FEES    37 2.07     COMPUTATION OF INTEREST AND
FEES    37 2.08     EVIDENCE OF DEBT    37 2.09     PAYMENTS GENERALLY;
ADMINISTRATIVE AGENT’S CLAWBACK    38 2.10     SHARING OF PAYMENTS BY LENDERS   
38 2.11     SECURITY    39 ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY
   39 3.01     TAXES.    39 3.02     [RESERVED]    41 3.03     [RESERVED]    41
3.04     COMPENSATION FOR LOSSES    41 3.05     MITIGATION OBLIGATIONS;
REPLACEMENT OF LENDERS    42 3.06     SURVIVAL    42 ARTICLE IV. CONDITIONS
PRECEDENT TO CREDIT EXTENSION    42 4.01     CONDITIONS TO INITIAL DRAW CLOSING
DATE TERM LOAN FUNDING    42 4.02     CONDITIONS TO DELAYED DRAW CLOSING DATE
TERM LOAN FUNDING    47 4.03     CONDITIONS TO EACH POST CLOSING CREDIT
EXTENSION    49 4.04     CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO
THE BORROWING BASE AS UNIMPROVED LAND    50 4.05     CONDITIONS PRECEDENT TO
ADMISSION OF REAL PROPERTY TO THE BORROWING BASE AS LAND UNDER DEVELOPMENT    51
4.06     CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE BORROWING
BASE AS FINISHED LOTS    52 4.07     CONDITIONS PRECEDENT TO ADMISSION OF REAL
PROPERTY TO THE BORROWING BASE AS HOMES UNDER CONSTRUCTION    53

 

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            4.08      CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE
BORROWING BASE AS MODEL HOMES    54 4.09      GENERAL CONDITIONS TO REAL
PROPERTY ELIGIBLE COLLATERAL BEING INCLUDED IN THE BORROWING BASE    55 ARTICLE
V. REPRESENTATIONS AND WARRANTIES    57 5.01      EXISTENCE, QUALIFICATION AND
POWER; COMPLIANCE WITH LAWS    57 5.02      AUTHORIZATION; NO CONTRAVENTION   
57 5.03      GOVERNMENTAL AUTHORIZATION; OTHER CONSENTS    57 5.04      BINDING
EFFECT    57 5.05      FINANCIAL STATEMENTS; NO MATERIAL ADVERSE EFFECT;
SOLVENCY    58 5.06      LITIGATION    58 5.07      NO DEFAULT    58 5.08     
OWNERSHIP OF PROPERTY; LIENS    58 5.09      SECURED INDEBTEDNESS    60 5.10  
   INSURANCE    60 5.11      TAXES    60 5.12      ERISA COMPLIANCE    60 5.13  
   SUBSIDIARIES; JOINT VENTURES    61 5.14      MARGIN REGULATIONS; INVESTMENT
COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT    61 5.15      DISCLOSURE    61
5.16      COMPLIANCE    61 5.17      COMPLIANCE WITH ENVIRONMENTAL LAWS    62
5.18      LOANS AS SENIOR INDEBTEDNESS    63 5.19      LAWS PERTAINING TO LAND
SALES    63 5.20      FISCAL YEAR    63 5.21      COMMON ENTERPRISE AND
CONSIDERATION    63 5.22      SUBSIDIARIES OWNING REAL PROPERTY    63 5.23     
GUARANTORS OF THE INDENTURES    64 5.24      ENTITLEMENTS    64 5.25     
MATERIAL AGREEMENTS; NO MATERIAL DEFAULTS    64 5.26      NO CONDEMNATION    64
5.27      CFD AND SUBDIVISION BOND    65 5.28      UTILITIES    65 5.29      LOT
AND UNIT SALES    65 5.30      GOLF COURSES    65 5.31      MORATORIUMS    65
5.32      CONSTRUCTION DEFECTS; WARRANTIES    65 5.33      AMENITIES    66
5.34      ORAL AGREEMENTS; MATTERS NOT OF RECORD    66 5.35      BORROWING BASE
   66 5.36      LEASED REAL PROPERTY    66 5.37      CREATION, PERFECTION AND
PRIORITY OF LIENS    66 5.38      EQUITY SECURITIES    66

 

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            5.39      NO AGREEMENTS TO MERGE    67 5.40      LABOR MATTERS    67
5.41      BURDENSOME CONTRACTUAL OBLIGATIONS ETC    67 5.42      BROKERAGE
COMMISSIONS    67 5.43      AGREEMENTS WITH AFFILIATES AND OTHER AGREEMENTS   
67 5.44      FOREIGN ASSETS CONTROL, ETC.    67 5.45      INTERNAL CONTROLS   
67 5.46      INTERCOMPANY RECEIVABLES    68 5.47      EFFECTIVE DATE;
MATERIALITY THRESHOLD OF CERTAIN REPRESENTATIONS AND WARRANTIES    68 5.48     
REPRESENTATIONS AND WARRANTIES UPON DELIVERY OF FINANCIAL STATEMENTS, DOCUMENTS,
AND OTHER INFORMATION    69 ARTICLE VI. AFFIRMATIVE COVENANTS    69 6.01     
FINANCIAL STATEMENTS AND OTHER REPORTS    69 6.02      CERTIFICATES; OTHER
INFORMATION    70 6.03      NOTICES    73 6.04      PAYMENT OF OBLIGATIONS    73
6.05      PRESERVATION OF EXISTENCE, ETC.    73 6.06      MAINTENANCE OF
PROPERTIES    74 6.07      MAINTENANCE OF INSURANCE    74 6.08      COMPLIANCE
   75 6.09      BOOKS AND RECORDS    75 6.10      INSPECTION RIGHTS    75 6.11  
   USE OF PROCEEDS    75 6.12      NEW SUBSIDIARIES    76 6.13      INTANGIBLE,
RECORDING AND STAMP TAX    76 6.14      FURTHER ASSURANCES    76 6.15     
SENIOR UNSECURED NOTES    76 6.16      SPECIAL COVENANTS RELATING TO COLLATERAL
   77 6.17      PAPA OBLIGATIONS    83 6.18      TRANSFER OF CF PROPERTY AND MF
PROPERTY TO BORROWER    84 ARTICLE VII. NEGATIVE COVENANTS    85 7.01     
PERMITTED INDEBTEDNESS    85 7.02      PERMITTED LIENS    86 7.03     
INVESTMENTS    87 7.04      FUNDAMENTAL CHANGES    87 7.05      ACQUISITIONS   
88 7.06      TRANSACTIONS WITH AFFILIATES    88 7.07      SENIOR UNSECURED NOTES
   89 7.08      PERMITTED DISTRIBUTIONS    89 7.09      CHANGE IN NATURE OF
BUSINESS    89 7.10      USE OF PROCEEDS    90 7.11      NO OTHER NEGATIVE
PLEDGE    90

 

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            7.12      LOANS TO AFFILIATES    90 7.13      [RESERVED]    91
7.14      [RESERVED]    91 7.15      TANGIBLE NET WORTH    91 7.16      SECURED
INDEBTEDNESS    91 7.17      EXPENDITURES OUTSIDE OF CORE BUSINESSES    91
7.18      EMPLOYEE COMPENSATION    92 7.19      [RESERVED]    92 7.20     
CHANGES IN KEY MANAGEMENT    92 7.21      EXCLUDED ASSETS    92 7.22     
IMPROVEMENTS    92 7.23      PAPA OBLIGATION    92 7.24      NEGATIVE PLEDGE   
93 7.25      CF PROPERTY AND MF PROPERTY    93 7.26      REFINANCED WACHOVIA
REVOLVING CREDIT AGREEMENT    93 7.27      REFINANCED CBT, CNB AND JPM REVOLVING
CREDIT AGREEMENTS    93 ARTICLE VIII. RELEASES    93 8.01      GENERAL
REQUIREMENTS FOR RELEASES    93 8.02      STANDARD RELEASES    95 8.03     
DEDICATIONS    96 8.04      PERMITTED CONSTRUCTION INDEBTEDNESS    96 ARTICLE
IX. EVENTS OF DEFAULT AND REMEDIES    97 9.01      DEFAULT    97 9.02     
REMEDIES UPON EVENT OF DEFAULT    100 9.03      APPLICATION OF FUNDS    101
9.04      PROTECTIVE ADVANCES/CURE RIGHTS    101 ARTICLE X. ADMINISTRATIVE AGENT
   102 10.01    APPOINTMENT AND AUTHORITY    102 10.02    RIGHTS AS A LENDER   
102 10.03    EXCULPATORY PROVISIONS    102 10.04    RELIANCE BY ADMINISTRATIVE
AGENT    103 10.05    DELEGATION OF DUTIES    103 10.06    RESIGNATION OF
ADMINISTRATIVE AGENT    104 10.07    NON-RELIANCE ON ADMINISTRATIVE AGENT AND
OTHER LENDERS    104 10.08    NO OTHER DUTIES ETC    104 10.09    ADMINISTRATIVE
AGENT MAY FILE PROOFS OF CLAIM    105 10.10    COLLATERAL AND GUARANTY MATTERS
   105 ARTICLE XI. MISCELLANEOUS    106 11.01    AMENDMENTS, ETC    106 11.02   
NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION    107 11.03    NO WAIVER;
CUMULATIVE REMEDIES    108

 

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            11.04    EXPENSES; INDEMNITY; DAMAGE WAIVER    108 11.05    PAYMENTS
SET ASIDE    110 11.06    SUCCESSORS AND ASSIGNS    110 11.07    TREATMENT OF
CERTAIN INFORMATION; CONFIDENTIALITY    113 11.08    RIGHT OF SETOFF    114
11.09    INTEREST RATE LIMITATION    114 11.10    COUNTERPARTS; INTEGRATION;
EFFECTIVENESS    115 11.11    SURVIVAL OF REPRESENTATIONS AND WARRANTIES    115
11.12    SEVERABILITY    115 11.13    REPLACEMENT OF LENDERS    115 11.14   
GOVERNING LAW; JURISDICTION; ETC.    116 11.15    WAIVER OF JURY TRIAL    116
11.16    ARBITRATION    117 11.17    RELATIONSHIP OF PARTIES    119 11.18    USA
PATRIOT ACT NOTICE    119 11.19    DISCRETION STANDARD    119 11.20    TIME OF
THE ESSENCE    120

 

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SENIOR TERM LOAN AGREEMENT

THIS SENIOR SECURED TERM LOAN AGREEMENT (“Agreement”) is entered into as of
October 20, 2009, among WILLIAM LYON HOMES, INC., a California corporation
(“Borrower”), each lender from time to time party hereto (collectively, the
“Lenders” and individually, a “Lender”), COLFIN WLH FUNDING, LLC, a Delaware
limited liability company, as Initial Lender, and COLFIN WLH FUNDING, LLC, a
Delaware limited liability company, as Administrative Agent.

Borrower has requested that the Lenders provide a multiple draw term loan
facility, which multiple draw term loan facility will be used by Borrower to,
among other things, refinance certain of Borrower’s existing revolving credit
facilities.

The Lenders are willing to do so on the terms and conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the
parties hereto covenant and agree as follows:

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

1.01 DEFINED TERMS.

As used in this Agreement, the following terms shall have the meanings set forth
below:

“AAA” has the meaning specified in Section 11.16(b).

“Administrative Agent” means ColFin WLH Funding, LLC in its capacity as
administrative agent under any of the Loan Documents, or any successor
administrative agent.

“Administrative Agent Fee Letter” means the letter agreement dated as of the
date hereof, between Borrower and Administrative Agent.

“Administrative Agent’s Office” means Administrative Agent’s address and, as
appropriate, account as set forth on Schedule 11.02, or such other address or
account as Administrative Agent may from time to time notify to Borrower and the
Lenders.

“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by Administrative Agent.

“Affiliate” means, with respect to any Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.

“Aggregate Loans” means the Loans of all the Lenders.

“Aggregate Real Property” means any and all of the Borrower Real Property, the
CF Property and the MF Property.

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“Agreement” means this Senior Term Loan Agreement.

“Amenities” means, collectively, the gatehouses, maintenance sheds, golf
courses, marinas, clubhouses, and swimming, tennis and other recreational
facilities or types of amenities, and Improvements ancillary thereto, located at
or used in connection with any Project or Asset by owners of Units or Lots.

“Annual Budget” has the meaning specified in Section 4.01(d).

“Annual Period” has the meaning specified in Section 2.03(c)(i).

“Anti-Terrorism Law” shall mean each of: (a) the Executive Order, (b) the
Patriot Act, (c) the Money Laundering Control Act of 1986, 18 U.S.C. Sect. 1956,
and (d) any other Law now or hereafter enacted to monitor, deter or otherwise
prevent terrorism or the funding or support of terrorism.

“Apartment” means a residential apartment building consisting of single family
residential units for rent.

“Applicable Discount Rate” means with respect to the Eligible Real Property
Collateral, a discount rate determined by reference to the Real Property
Classification of the Borrower Real Property included therein, as follows:

 

Real Property

Classification:

 

  

Applicable Discount

Rate:

 

Unimproved Land

 

  

25%

 

Land Under Development

 

  

20%

 

Finished Lots

 

  

15%

 

Homes Under Construction

 

  

12%

 

Model Homes

 

  

10%

 

In addition, with respect to any Real Property acquired after the Closing Date
that is subject to any PAPA Obligations, and with respect to which the Borrower
has not obtained and delivered a duly executed, acknowledged, recorded
subordination of the PAPA Obligations in form substantially in accordance with
the respective forms which were agreed to between Borrower and Administrative
Agent on or prior to the Closing Date, the Applicable Discount Rate set forth in
the chart above which is applicable to such Real Property shall be the
percentage value reflected in the chart above for the applicable Real Property
Classification plus 200 basis points (e.g., in such a case, the Applicable
Discount Rate for Model Homes would be increased from 10% to 12%, and so on).

 

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“Applicable Percentage” means with respect to any Lender as of any date, the
percentage (carried out to the ninth decimal place) of the Aggregate Loans owed
such Lender at such time. The initial Applicable Percentage of each Lender is
set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment
and Assumption pursuant to which such Lender becomes a party hereto, as
applicable.

“Applicable Rate” means fourteen percent (14.0%) per annum.

“Appraisal” means, with respect to (x) Eligible Real Property Collateral, each
appraisal that meets the following requirements: (i) such appraisal is prepared
by an appraiser selected by Majority Lenders; (ii) such appraisal satisfies all
applicable requirements set forth in Section 6.16(j); (iii) the values set forth
in such appraisal have been reviewed and are satisfactory to Majority Lenders;
and (iv) such appraisal is otherwise in form and content satisfactory to
Majority Lenders, (y) any PCI Released Property securing Permitted Construction
Indebtedness, each Revolver Appraisal and (z) with respect to the CF Property
and the MF Property, each appraisal that meets the following requirements:
(i) such appraisal is prepared by an appraiser selected by Majority Lenders;
(ii) such appraisal satisfies all applicable requirements set forth in
Section 6.16(j), (except that for purposes of this clause (z) only, any
references in Section 6.16(j) with respect to any Borrower Real Property shall
be deemed to be to the CF Property and the MF Property); (iii) the values set
forth in such appraisal have been reviewed and are satisfactory to Majority
Lenders.

“Appraised Value” means, with respect to Eligible Real Property Collateral and
PCI Released Property, the appraised value of such Borrower Real Property set
forth in the most recent Appraisal received by Majority Lenders in accordance
with the Loan Documents, less, to the extent not taken into account in the
Appraisal, the reductive effect of any CFD Obligations, PAPA Obligations and the
reasonable and customary anticipated costs of sale related to such Borrower Real
Property.

“Asset” means Borrower Real Property (whether now owned or hereafter acquired)
constituting a full separate product line of Units (consistent with those
sixty-eight (68) separate product lines on Schedule GAP and Schedule GBP which
in the aggregate make up the Group A Property and the Group B Property,
including adequate access, ingress and egress and with access to and rights to
any common areas and Amenities related to the applicable Project), but not just
a Phase or portion of such a product line. (References to “asset” (using lower
case “a”) are not to be confused with this definition of “Asset”.)

“Asset Sale” means any sale, sale-leaseback, transfer, lease, conveyance or
other disposition by any member of the Consolidated Group of assets (including
the Equity Securities of any Subsidiary or any Joint Venture) not in the
ordinary course of such member of the Consolidated Group’s Core Businesses.

“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an Eligible Assignee (with the consent of any party whose consent is
required by Section 11.06(b)), and accepted by Administrative Agent, in
substantially the form of Exhibit “C” attached hereto and made a part hereof or
any other form approved by Administrative Agent.

 

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“Audited Financial Statements” means the audited consolidated balance sheet of
Parent and its direct and indirect Subsidiaries for the fiscal year ended
December 31, 2008, and the related consolidated statements of income or
operations, shareholders’ equity and cash flows for such fiscal year of the
Consolidated Group, including the notes thereto.

“Borrower” has the meaning specified in the introductory paragraph hereto.

“Borrower Real Property” means any interest in Real Property owned or acquired
by Borrower from time to time.

“Borrower’s Knowledge” means the best knowledge of Borrower after diligent
investigation and inquiry, including inquiry of the Consolidated Group and as it
relates to any Real Property, the project managers for such Real Property.

“Borrowing Base” means, (x) as of the date of this Agreement, $264,371,000 and
(y) on any date of determination thereafter, sixty percent (60%) of the sum of
the following, each as of the date of determination:

(a) Unrestricted Cash; plus

(b) Escrow Receivables; plus

(c) the Eligible Real Property Collateral Valuation.

                    , subject to the following:

In determining the Borrowing Base: (1) no asset shall be counted more than once
in the calculation of the Borrowing Base; (2) no asset or component shall be
included in the Borrowing Base unless on the relevant date of determination
(x) Administrative Agent on behalf of the Lenders holds an enforceable first
priority perfected Lien subject, with respect to Borrower Real Property only, to
Permitted Exceptions, (y) except as set forth in the preceding clause (x), there
are no Liens encumbering such asset and (z) other than the assets described in
clause (a) above, such asset constitutes Real Property and is qualified as
Eligible Real Property Collateral under the terms of this Agreement;
(3) notwithstanding anything to the contrary in this Agreement (including in
Article IV), no Borrower Real Property or other asset that is subject to any
lien in favor of the lenders of any Permitted Construction Indebtedness shall be
included in the computation of Borrowing Base; (4) notwithstanding anything to
the contrary in this Agreement (including in Article IV), neither Unentitled
Land nor any Real Property other than Borrower Real Property shall be included
in the computation of Borrowing Base.

“Borrowing Base Report” means a report with respect to the Borrowing Base in the
form attached hereto as Exhibit “E”, which form may be changed by Majority
Lenders from time to time, and which shall include a certificate from a
Responsible Officer of Borrower setting forth a detailed calculation of the
Borrowing Base, broken down by Project, Asset or Phase and by Real Property
Classification within such Project, Asset or Phase, and attaching all
documentation used in calculating the Borrowing Base. The computation of the
components of the Borrowing Base included in such report shall include the
Certified Net Cash Flow Report and a computation of the Net Present Value of
Projected Net Revenues and the Net Present Value of Projected Total Project
Costs in such detail as is from time to time requested by the Administrative
Agent.

 

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“Broker’s Commission” means any and all brokerage commissions, finder’s fees or
similar fees or payments owed in connection with the extensions of credit
contemplated by this Agreement as a result of any agreement (express or implied,
written or oral) entered into by Borrower or any member of the Consolidated
Group.

“Building Permit” means all Entitlements (including the building permit)
required under applicable Law necessary to commence Vertical Construction of the
contemplated type and number of single- or multi- family “for sale” residential
Units and related Amenities on the applicable Borrower Real Property.

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the Laws of, or are in fact
closed in, the States of California or New York.

“Cash Equivalents” shall mean:

(a) Direct obligations of, or obligations the principal and interest on which
are unconditionally guaranteed by, the United States of America or obligations
of any agency of the United States of America to the extent such obligations are
backed by the full faith and credit of the United States of America, in each
case maturing within one year from the date of acquisition thereof;

(b) Certificates of deposit maturing within one year from the date of
acquisition thereof issued by a commercial bank or trust company organized under
the laws of the United States of America or a state thereof or that is a Lender,
provided that (i) such deposits are denominated in Dollars, (ii) such bank or
trust company has capital, surplus and undivided profits of not less than
$100,000,000 and (iii) such bank or trust company has certificates of deposit or
other debt obligations rated at least A-1 (or its equivalent) by Standard and
Poor’s Ratings Services or P-1 (or its equivalent) by Moody’s Investors Service,
Inc.;

(c) Open market commercial paper (other than commercial paper of Borrower or any
other member of the Consolidated Group) maturing within 270 days from the date
of acquisition thereof issued by a corporation organized under the laws of the
United States of America or a state thereof, provided such commercial paper is
rated at least A-1 (or its equivalent) by Standard and Poor’s Ratings Services
or P-1 (or its equivalent) by Moody’s Investors Service, Inc.;

(d) Any repurchase agreement entered into with a commercial bank or trust
company organized under the laws of the United States of America or a state
thereof, provided that (i) such bank or trust company has capital, surplus and
undivided profits of not less than $100,000,000, (ii) such bank or trust company
has certificates of deposit or other debt obligations rated at least A-1 (or its
equivalent) by Standard and Poor’s Ratings Services or P-1 (or its equivalent)
by Moody’s Investors Service, Inc., (iii) the repurchase obligations of such
bank or trust company under such repurchase agreement are fully secured by a
perfected security interest in a security or instrument of the type described in
clause (a), (b) or (c) above and (iv) such security or instrument so securing
the repurchase obligations has a fair market value at the time such repurchase
agreement is entered into of not less than 100% of such repurchase obligations;
and

 

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(e) Shares of money market mutual or similar funds which invest exclusively in
assets satisfying the requirements of clauses (a) through (d) of this
definition.

“Certified Net Cash Flow Report” means a combined schedule setting forth as of
the date of determination the projected amounts and timing of Projected Net
Revenues and Projected Total Project Costs for the Eligible Real Property
Collateral from the date of determination through the date the last parcel of
Unimproved Land (to the extent that it is not a Lot or Unit), Lot or Unit
included in Eligible Real Property Collateral is projected to be sold, which
report shall be prepared by the Borrower and certified by a Responsible Officer
that such report has been prepared in good faith based on assumptions that such
Responsible Officer believed as of the date of such report to be reasonable and
to Borrower’s Knowledge no information has come to the attention of Borrower
from the date of such report to the date of delivery to the Administrative Agent
which would render such report to be untrue or misleading.

“CFD” means any means any improvement district, “Mello Roos” district, school
mitigation plan or district, community facilities district, special assessment
district or similar district or any other municipal utility, levee, water
improvement or similar district with respect to any Real Property.

“CFD Obligations” means the obligations, with respect to any CFD, binding upon
either the Real Property subject to the CFD or the owner of the Real Property
subject to the CFD.

“CF/MF Appraised Value” means, with respect to the CF Property and the MF
Property, the appraised value set forth in the most recent Appraisal received by
Majority Lenders in accordance with the Loan Documents, less, to the extent not
taken into account in the Appraisal, the reductive effect of any CFD
Obligations, PAPA Obligations and the reasonable and customary anticipated costs
of sale related to such CF Property and MF Property.

“CF Property” means the Real Property located in Queen Creek, Arizona, commonly
known as the Church Farms property, as more specifically described on Schedule
CF.

“CF Owner” means Circle G at the Church Farm North Joint Venture, LLC, an
Arizona limited liability company.

“Change in Law” means the occurrence, after the date of this Agreement, of any
of the following: (a) the adoption or taking effect of any law, rule, regulation
or treaty, (b) any change in any law, rule, regulation or treaty or in the
administration, interpretation or application thereof by any Governmental
Authority or (c) the making or issuance of any request, guideline or directive
(whether or not having the force of law) by any Governmental Authority.

“Change of Control” means an event or series of events by which:

(a) Parent shall cease to be the “beneficial owner” (as defined in Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934, except that a person or
group shall be deemed to have “beneficial ownership” of all securities that such
person or group has

 

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the right to acquire (such right, an “option right”), whether such right is
exercisable immediately or only after the passage of time) (“Beneficial Owner”)
of one hundred percent (100.0%) of the Equity Securities of Borrower and the
Guarantors entitled to vote for member of the board of directors or equivalent
governing body of Borrower and the Guarantors; or

(b) the shareholders of Parent on the Closing Date and/or Permitted Holders
thereafter shall cease to be the Beneficial Owner of one hundred percent
(100.0%) of the Equity Securities of Parent entitled to vote for members of the
board of directors or equivalent governing body of Parent; or

(c) during any period of twelve (12) consecutive months, a majority of the
members of the board of directors or other equivalent governing body of any Loan
Party cease to be composed of individuals (i) who were members of that board or
equivalent governing body on the first day of such period, (ii) whose election
or nomination to that board or equivalent governing body was approved by
individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body or (iii) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (i) and
(ii) above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body (excluding, in the case of
both clause (ii) and clause (iii), any individual whose initial nomination for,
or assumption of office as, a member of that board or equivalent governing body
occurs as a result of an actual or threatened solicitation of proxies or
consents for the election or removal of one or more directors by any person or
group other than a solicitation for the election of one or more directors by or
on behalf of the board of directors); or

(d) any Person or two or more Persons acting in concert (other than the owners
of the Equity Securities of Parent on the Closing Date or Permitted Holders
thereafter) shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation thereof, will result in
its or their acquisition of the power to exercise, directly or indirectly, a
controlling influence over the management or policies of the Parent, or
Borrower, or control over the Equity Securities of Parent or Borrower entitled
to vote for members of the board of directors or equivalent governing body of
Parent or Borrower on a fully-diluted basis (and taking into account all such
securities that such Person or Group has the right to acquire pursuant to any
option right) representing ten percent (10%) or more of the combined voting
power of such securities; or

(e) for any reason a “change in control” or similar event shall occur as
provided in any Indenture or Permitted Construction Indebtedness;

provided, however, that the acquisition by or on behalf of an employee benefit
plan or employee stock purchase plan of the Parent or Borrower shall not be
included in determining whether a Change of Control shall have occurred.

“Claims” has the meaning set forth in Section 11.04(b).

 

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“Closing Date” means the first date all the conditions precedent in Section 4.01
are satisfied or waived in accordance with Section 11.01.

“Code” means the Internal Revenue Code of 1986.

“Collateral” means all now owned or hereafter acquired or created Property of
the Loan Parties in which Administrative Agent or any Lender has a Lien to
secure the Obligations or the Unconditional Guarantees.

“Collateral Certificate” shall mean a Collateral Certificate in form and
substance satisfactory to Majority Lenders.

“Commitment” means, with respect to each Lender, such Lender’s Initial Term Loan
Commitment, Delayed Draw Term Loan Commitment and/or Second Term Loan
Commitment, as applicable.

“Compliance Certificate” means a certificate substantially in the form of
Exhibit “B” attached hereto and made a part hereof, which certificate shall
demonstrate Borrower’s compliance with the Financial Covenants and which shall
be certified by the chief financial officer of Borrower.

“Conditions to Delayed Draw Term Loan Funding” means the conditions set forth in
Sections 4.02 and 4.03.

“Conditions to Second Term Loan Funding” means the conditions set forth in
Section 4.03.

“Consolidated Group” means, collectively, Parent, Borrower and their respective
Subsidiaries.

“Construction Agreements” means construction agreements and agreements with
architects, engineers, contractors or subcontractors.

“Contractual Obligation” means, as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
“Controlling” and “Controlled” have meanings correlative thereto.

“Control Agreement” shall mean a control agreement among the Borrower or any
Guarantor, a depository bank or securities intermediary, as the case may be, and
Administrative Agent, in form and substance acceptable to Administrative Agent.

“Core Businesses” means (a) the business of developing “for sale” residential
Aggregate Real Property into Lots and Units, and constructing “for sale”
residential Units, and selling Lots and Units; (b) business directly related
thereto as undertaken on the Closing

 

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Date; and (c) other lines of business directly related to homebuilding that are
approved by the Majority Lenders. Core Businesses expressly excludes the
ownership of Aggregate Real Property for investment, including ownership of
rental Real Property, except for Aggregate Real Property, if any, used by the
Consolidated Group as their business offices.

“Credit Advance” has the meaning set forth in Section 7.12(a).

“Credit Extension” means a borrowing.

“Customer Deposit Liabilities” means collectively, Escrow Receivables, and down
payments or earnest money deposited by purchasers pursuant to Purchase
Contracts.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief Laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

“Dedication” means a customary transfer by Borrower, or the granting of
easements, rights of way, and licenses by Borrower, to municipalities, utility
providers, municipal districts, and property owners’ associations (of a type,
value and nature, and in form and content, as is customary under the
circumstances) in connection with the development of a Project, which shall be
subject to the reasonable approval of Majority Lenders, and shall only be for
the purpose of providing streets, common areas, parks, water, waste water and
sewage treatment facilities, hillside and other areas, and similar land and
improvements.

“Deed of Trust” shall mean, for each Project, a Deed of Trust (or Mortgage),
Security Agreement and Fixture Filing (With Assignment of Rents and Leases) in
form approved by Majority Lenders from time to time with respect to each
applicable jurisdiction executed by Borrower, as trustor, to Title Company, as
trustee, and naming Administrative Agent as beneficiary for the benefit of
itself and the Lenders, creating a first priority Lien on the Borrower Real
Property and the Collateral situated thereon, and all rights and easements
appurtenant thereto. Each Deed of Trust shall secure Indebtedness equal to the
Total Commitment. For purposes of this Agreement, all such Deeds of Trust
securing the Loan shall be referred to individually and collectively in the
singular as the “Deed of Trust.”

“Default” means any event or condition set forth in Section 9.01 or that, with
the giving of any notice, the passage of time, or both, would be an Event of
Default.

“Default Rate” means an interest rate equal to (i) the Applicable Rate plus
(ii) five percent (5.0%) per annum.

“Defaulting Lender” means any Lender that (a) has failed to fund any portion its
Commitment, if any, with respect to a Credit Extension when required hereunder,
(b) has otherwise failed to pay over to Administrative Agent or any other Lender
any other amount required to be paid by it hereunder within one (1) Business Day
of the date when due, unless the subject of a good faith dispute, or (c) has
been deemed insolvent or become the subject of a bankruptcy or insolvency
proceeding.

 

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“Delayed Draw Term Loan” means, for each Lender, the term loan facility advanced
by such Lender on the Delayed Draw Closing Date pursuant to Section 2.01(b).

“Delayed Draw Closing Date” means the date on which the Conditions to Delayed
Draw Term Loan Funding have been met and the Lenders have each advanced their
Delayed Draw Term Loan Commitment. In no event shall the Delayed Draw Closing
Date be later than the Delayed Draw Commitment Termination Date.

“Delayed Draw Term Loan Commitment” means the commitment of a Lender to make or
otherwise fund a Delayed Draw Term Loan. The amount of each Lender’s Delayed
Draw Term Loan Commitment is as set forth on Schedule 2.01 or in the applicable
Assignment and Assumption pursuant to which such Lender becomes a party hereto,
as applicable.

“Delayed Draw Commitment Termination Date” means 10:00 a.m. (Los Angeles time)
on the date that is sixty (60) days after the Closing Date.

“Designated Person” shall mean any Person who (a) is named on the list of
Specially Designated Nationals or Blocked Persons maintained by the U.S.
Department of the Treasury’s Office of Foreign Assets Control and/or any other
similar lists maintained by the U.S. Department of the Treasury’s Office of
Foreign Assets Control pursuant to authorizing statute, executive order or
regulation, (b) (i) is a Person whose property or interest in property is
blocked or subject to blocking pursuant to Section 1 of the Executive Order or
any related legislation or any other similar executive order(s) or (ii) engages
in any dealings or transactions prohibited by Section 2 of the Executive Order
or is otherwise associated with any such Person in any manner violative of
Section 2 of the Executive Order or (c) (i) is an agency of the government of a
country, (ii) an organization controlled by a country, or (iii) a Person
resident in a country that is subject to a sanctions program identified on the
list maintained by the U.S. Department of the Treasury’s Office of Foreign
Assets Control, or as otherwise published from time to time, as such program may
be applicable to such agency, organization or Person.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other
disposition (including any sale and leaseback transaction) of any property by
any Person, including any sale, assignment, transfer or other disposal, with or
without recourse, of any notes or accounts receivable or any rights and claims
associated therewith, and including any condemnation of any property of such
Person.

“Distribution” means any of the following: (a) the payment by any Person of any
distributions or other payments to its shareholders, partners, Affiliates,
members or other equity interest holders; (b) the declaration or payment of any
dividend on or in respect of shares of any class of capital stock of, or
partnership, membership or other equity interest in, any Person; (c) the
purchase or other retirement of any shares of any class of capital stock of, or
partnership, membership or equity interest in, any Person, directly or
indirectly through a Subsidiary or otherwise; (d) the return of capital by any
Person to its shareholders, partners, Affiliates, members or other equity
interest holders; and (e) any other payment on or in respect of any shares of
any class of capital stock of, or partnership, membership or other equity
interest in, any Person, including payments to members or partners of Joint
Ventures.

 

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“Dollar” and “$” mean lawful money of the United States.

“Eligible Assignee” means (a) a Lender; (b) a Related Fund; or (c) an Affiliate
of a Lender or a Related Fund; and (c) any other Person (other than a natural
person) approved by (i) Majority Lenders, and (ii) unless an Event of Default
has occurred and is continuing, Borrower (which approval of Borrower shall not
be unreasonably withheld or delayed); provided that notwithstanding the
foregoing, “Eligible Assignee” shall not include Borrower or any of Borrower’s
Affiliates or Subsidiaries. If any such approval from Borrower is not withheld
in writing with a statement of the reasons therefor delivered to Administrative
Agent within ten (10) days after notice is given to Borrower of the intended
assignment, such approval shall be deemed given.

“Eligible Participant” means any other Person (other than a natural person);
provided that notwithstanding the foregoing, “Eligible Participant” shall not
include Parent, Borrower or any of their respective Affiliates or Subsidiaries.

“Eligible Project” has the meaning set forth in Section 4.09.

“Eligible Real Property Collateral” means on the Closing Date, to the extent
that all of the conditions in Section 4.01 are satisfied, the Group A Property;
on the date that all of the conditions in Section 4.02 are satisfied, the Group
B Property; and thereafter (including with respect to the Group A Property and
the Group B Property and any other Borrower Real Property), Borrower Real
Property that meets all of the conditions of Section 4.09 and all of the
conditions in at least one of Sections 4.04, 4.05, 4.06, 4.07 or 4.08 of this
Agreement for inclusion in the Borrowing Base as Eligible Real Property
Collateral. The conditions in Section 4.01 with respect to the Group A Property
must only be met on the Closing Date and the conditions in Section 4.02 with
respect to the Group B Property must only be met on the earlier of (1) the
Delayed Draw Closing Date, (2) the Second Term Loan Funding Date or (3) the date
that is sixty (60) days after the Closing Date, and thereafter, for purposes of
determining whether Group A Property or Group B Property is Eligible Real
Property Collateral and which Real Property Classification may apply, the
conditions in Sections 4.01 and 4.02 are superseded by the conditions in
Section 4.04 through 4.09, inclusive. Notwithstanding anything to the contrary
in this Agreement: (i) neither the CF Property nor the MF Property may be
Eligible Real Property Collateral unless, with respect to the CF Property or the
MF Property, the fee interest has been conveyed to Borrower free of the Lien of
the Existing Secured Indebtedness and free of all other Liens except Permitted
Exceptions, and all of the conditions in this Agreement for inclusion of
Borrower Real Property as Eligible Real Property Collateral have been met with
respect to the Real Property constituting the CF Property or the MF Property, as
applicable; and (ii) at Majority Lender’s discretion, Borrower Real Property
that meets all of the conditions to be Eligible Real Property Collateral, other
than the condition requiring Borrower Real Property to be (or to be intended to
be) developed into single- or multi- family “for sale” residential uses, that is
intended to be used for commercial purposes, and that is part of, adjacent to,
ancillary to, or used in connection with, single- or multi- family “for sale”
residential Eligible Real Property Collateral, may be Eligible Real Property
Collateral, provided that such Borrower Real Property shall in no event account
for more than five percent (5%) of the Eligible Real Property Collateral
Valuation at any time, and the value of such Real Property Collateral shall be
determined by Majority Lenders.

 

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“Eligible Real Property Collateral Valuation” means the amount derived as
follows,, without duplication, for any Unimproved Land (to the extent that it is
not a Lot or Unit), and each Lot or Unit included in the Eligible Real Property
Collateral: (i) the Net Present Value of the Projected Net Revenues of such
Unimproved Land (to the extent that it is not a Lot or Unit), Lot or Unit minus
(ii) the Net Present Value of Total Project Costs of such Unimproved Land (to
the extent that it is not a Lot or Unit), Lot or Unit included in Eligible Real
Property Collateral. Notwithstanding the foregoing, in no event will the
Eligible Real Property Collateral Valuation for any Unimproved Land (to the
extent that it is not a Lot or Unit), Lot or Unit included in Eligible Real
Property Collateral exceed the most recent Appraised Value, if any, received by
the Majority Lenders with respect to such Unimproved Land (to the extent that it
is not a Lot or Unit), Lot or Unit.

“Entitlements” means, for each Project or Asset, as the case may be, each and
all approvals, authorizations, consents, certificates, entitlements, franchises,
licenses, permits, registrations, qualifications, zoning classifications,
variances and other actions and rights granted by or applications or filings
with any Persons necessary or appropriate for the improvement and development of
the Aggregate Real Property for single- or multi- family “for sale” residences
or for the conduct of the Core Businesses.

“Environmental Indemnity” means that certain Environmental Indemnity executed by
Borrower, which indemnity shall be in form and content acceptable to Majority
Lenders.

“Environmental Laws” means any and all applicable Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the generation, handling, use, transport, storage, disposal or
release of any materials which may adversely affect the environment or public
health, including those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.

“Environmental Liability” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Loan Parties or any of their respective
Subsidiaries directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the presence, generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials,
(c) exposure to any Hazardous Materials, (d) the release or threatened release
of any Hazardous Materials into the environment or (e) any contract, agreement
or other consensual arrangement pursuant to which liability is assumed or
imposed with respect to any of the foregoing.

“Environmental Matters” means claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or, to Borrower’s Knowledge
threatened in writing, or judgments or orders relating to any Hazardous
Materials asserted or threatened in writing against any member of the
Consolidated Group or any past or present tenant, operator or owner of all or
any part of the Real Property owned, leased or used by any member of the
Consolidated Group.

 

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“Equity Securities” means, with respect to any Person, (a) all common stock,
preferred stock, participations, shares, partnership interests, limited
liability company interests or other equity interests in and of such Person
(regardless of how designated and whether or not voting or non-voting) and
(b) all warrants, options and other rights to acquire any of the foregoing.

“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with Borrower within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan;
(e) an event or condition which constitutes grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than for PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

“Escrow Receivables” means, as of any date of determination, the amounts due to
Borrower and held at an escrow or title company following the sale and
conveyance of title of a Lot or Unit to a buyer to the extent that such amounts
are free and clear of all Liens, rights and claims of third parties and are not
subject to any restriction pursuant to any Contractual Obligations.

“Event of Default” shall mean the occurrence of any Default and Administrative
Agent, acting at the direction of Majority Lenders, and following applicable
grace periods, if any, has declared the occurrence of such event or events an
Event of Default by providing Borrower written notice thereof; provided,
however, that with respect to any Default listed in Section 9.01(f), such an
event shall be an automatic Event of Default with no requirement that the
Administrative Agent, acting at the direction of Majority Lenders, provide
Borrower written notice thereof.

“Excluded Assets” means, from time to time, those assets specifically set forth
on the report delivered by the Borrower to the Administrative Agent pursuant to
Section 6.02(b)(v) (or, provided no Event of Default or Default has occurred and
is continuing, at any other time a detailed report conforming to the report
required by 6.02(b)(v) is delivered by Borrower to the Administrative Agent) and
which assets have a value, in the aggregate at any one time, not in excess of
$20,000,000 and which assets consist solely of (i) deposit accounts specially
and exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for

 

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the benefit of any Loan Party’s salaried employees, (ii) Investments in any
Subsidiary or any Joint Venture, (iii) cash, Cash Equivalents or deposit
accounts (or the credit balances thereof) utilized by a Loan Party to
collateralize obligations of a Loan Party as account debtor under any letter of
credit application (including the letters of credit under the Refinanced
Revolving Credit Facility with Wachovia Bank) or (iv) other deposit accounts
used in the Core Businesses, provided that the aggregate value of any cash, Cash
Equivalents or deposit accounts in respect of items (i) and (iv) of this
definition shall not exceed the lesser of (A) $10,000,000 and (B) at any time
after the date that is six months from the Closing Date, the value from time to
time of the daily average balance over the immediately preceding six (6) month
period of cash, Cash Equivalents or deposit accounts attributable to items
(i) and (iv) of this definition.

“Excluded Subsidiaries” means (a) the Subsidiaries set forth on Schedule 5.13 as
of the Closing Date, and (b) any other Subsidiary designated as such from time
to time by Borrower and (except in the case of Subsidiaries that are Joint
Ventures formed as Excluded Assets with notice to the Administrative Agent)
consented to by Majority Lenders.

“Excluded Taxes” means, with respect to Administrative Agent, any Lender or any
other recipient of any payment to be made by or on account of any obligation of
Borrower hereunder or under any other Loan Document, (a) taxes imposed on or
measured by its overall net income (however denominated), and franchise taxes
imposed on it (in lieu of net income taxes), by the jurisdiction (or any
political subdivision thereof) under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable Lending Office is located, (b) any branch
profits taxes imposed by the United States or any similar tax imposed by any
other jurisdiction in which Borrower is located and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by Borrower under
Section 11.13), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party hereto (or
designates a new Lending office) or is attributable to such Foreign Lender’s
failure or inability (other than as a result of a Change in Law) to comply with
Section 3.0l(e), except to the extent that such Foreign Lender (or its assignor,
if any) was entitled, at the time of designation of a new Lending Office (or
assignment), to receive additional amounts from Borrower with respect to such
withholding tax pursuant to Section 3.01 (a).

“Executive Order” shall mean Executive Order No. 13224 on Terrorist Financings:
- Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten To Commit, or Support Terrorism issued on 23rd September, 2001, as
amended by Order No. 132684, as so amended.

“Existing Environmental Matters” means those Environmental Matters affecting
portions of the Aggregate Real Property identified on Schedule 5.17(a).

“Existing Secured Indebtedness” means the outstanding Indebtedness on the date
of this Agreement secured by the existing first priority deeds of trust on the
CF Property and MF Property, as such Indebtedness may be extended, renewed,
refinanced or replaced; provided that (i) the principal amount of any such
refinancing does not exceed the principal amount of the Indebtedness being
refinanced (other than the interest rate and fees under such refinanced
Indebtedness which may be at a rate consistent with the rates

 

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and fees then prevailing in the market for similar Indebtedness for borrowers
engaged in the Core Businesses and with similar credit risks as Borrower) and
(ii) the material terms and provisions of any such refinancing (including
redemption, prepayment, security, default and subordination provisions) are no
less favorable to CF Owner or MF Owner, as applicable, and the Lenders than the
Indebtedness being refinanced (other than the interest rate and fees under such
refinanced Indebtedness which may be at a rate consistent with the rates and
fees then prevailing in the market for similar Indebtedness for borrowers
engaged in the Core Businesses and with similar credit risks as Borrower).

“Existing Secured Indebtedness Collateral Value” means the sum, without
duplication, for the CF Property and the MF Property, of the following amounts:
(i) the Net Present Value of the Projected Net Revenues of the CF Property and
MF Property (as applicable) minus (ii) the Net Present Value of Total Project
Costs of such CF Property and MF Property (as applicable). Notwithstanding the
foregoing, in no event will (i) the Existing Secured Indebtedness Collateral
Value for the CF Property or the MF Property exceed the most recent CF/MF
Appraised Value, if any, received by the Majority Lenders with respect to the CF
Property or the MF Property, as applicable, and (ii) the Existing Secured
Indebtedness Collateral Value of either the CF Property or the MF Property
exceed the outstanding principal balance of the Existing Secured Indebtedness
which is secured by such CF Property or MF Property, as applicable . For
purposes of this definition of Existing Secured Indebtedness Collateral Value
only, in the definitions of “Projected Net Revenues” and “Total Project Costs”,
the term “Eligible Real Property Collateral” shall be deemed replaced with “the
CF Property and the MF Property”.

“Exit Fee” shall have the meaning assigned to such term in the Fee Letter.

“Federal Funds Rate” means, for any day, the rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published an such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate (rounded
upward, if necessary, to a whole multiple of 1/100 of 1.0%) charged to Bank of
America, N.A. on such day on such transactions as determined by Administrative
Agent.

“Fee Letter” means the letter agreement dated as of as of the date hereof,
between Borrower and Initial Lender.

“Final Map” means the final tract or plat map for each Project, Asset or Phase,
as the case may be, which map shall be in form and content acceptable to
Majority Lenders.

“Financial Covenants” means the covenants set forth in Sections 7.15 and 7.16.

 

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“Finished Lots” means those portions of the Borrower Real Property for which
Borrower has satisfied the conditions set forth in Section 4.06 and with respect
to which Borrower has not yet satisfied all of the conditions set forth in
Section 4.07.

“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which Borrower is resident for tax purposes. For
purposes of this definition, the United States, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.

“GAAP” means generally accepted accounting principles in the United States set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as of
the date of determination, consistently applied or, if the financial statements
required to be delivered pursuant to Section 6.01 are prepared in accordance
with IFRS, IFRS.

“Governmental Authority” means the government of the United States or any other
nation, or of any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government (including any
supra-national bodies such as the European Union or the European Central Bank).

“Group A Projects” shall mean the Eligible Projects that include Group A
Property, which Group A Projects are listed on Schedule GAP, which Schedule
includes the Real Property Classifications for the Real Property included in
each Group A Project.

“Group B Projects” shall mean the Eligible Projects that include Group B
Property, which Group B Projects are listed on Schedule GBP, which Schedule
includes the Real Property Classifications for the Real Property included in
each Group B Project.

“Group A Property” means the Borrower Real Property that meets all of the
conditions for Real Property to be included in the Borrowing Base as of the
Closing Date.

“Group B Property” means other than the Group A Property, all Borrower Real
Property on the earlier of (i) the Delayed Draw Closing Date, (ii) the Second
Term Loan Funding Date or (iii) the date that is sixty (60) days after the
Closing Date.

“Guarantee” means, as to any Person, any (a) obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation payable or performable by
another Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or indirect,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation, (ii) to purchase or lease property,
securities or services for the purpose of assuring the obligee in respect of
such Indebtedness or other obligation of the payment or performance of such
Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of
income or cash flow of the primary obligor so as to enable the primary obligor
to

 

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pay such Indebtedness or other obligation, or (iv) entered into for the purpose
of assuring in any other manner the obligee in respect of such Indebtedness or
other obligation of the payment or performance thereof or to protect such
obligee against loss in respect thereof (in whole or in part), or (b) any Lien
on any assets of such Person securing any Indebtedness or other obligation of
any other Person, whether or not such Indebtedness or other obligation is
assumed by such Person (or any right, contingent or otherwise, of any holder of
such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be
deemed to be an amount equal to the stated or determinable amount of the related
primary obligation, or portion thereof, in respect of which such Guarantee is
made or, if not stated or determinable, the reasonably anticipated liability in
respect thereof as determined by the guaranteeing Person in good faith. The term
“Guarantee” as a verb has a corresponding meaning.

“Guarantors” means, on the Closing Date, Parent and, thereafter, each of the
Subsidiaries of Parent or Borrower that become a party to the Unconditional
Guaranty by execution of a joinder and consented to by Majority Lenders.

“Hazardous Materials” means all explosive or radioactive substances or wastes
and all hazardous or toxic substances, wastes or other pollutants, including
petroleum or petroleum distillates, asbestos or asbestos-containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all other
substances or wastes of any nature regulated pursuant to any Environmental Law.

“Homes Under Construction” means Units for which Borrower has satisfied all of
the requirements and conditions set forth in Section 4.07, but less than all of
the conditions and requirements set forth in Section 4.08.

“Horizontal Improvements” means (i) those certain improvements on the Borrower
Real Property (or beyond the boundaries thereof to the extent required by the
Entitlements) for the development of the Borrower Real Property as Units or
Amenities (including curbs, grading, storm and sanitary sewers, paving,
sidewalks, landscaping, hardscaping, sprinklers, electric lines, gas lines,
telephone lines, cable television lines, fiber optic lines, pipelines and other
utilities) necessary to make the Borrower Real Property suitable for Vertical
Construction of Units or Amenities, and (ii) any common area improvements to be
constructed on the Borrower Real Property (or beyond the boundaries thereof to
the extent required by the Entitlements) or to obtain the Entitlements for the
development of the Borrower Real Property as Units or Amenities, all built by
the Borrower in compliance with and permitted under all applicable Laws and
Entitlements.

“IFRS” means the International Financial Reporting Standards as in effect on the
date hereof and from time to time hereafter, consistently applied.

“Improvements” means the improvements made or to be made on any Real Property
from time to time, which shall include all construction and development of the
Horizontal Improvements, Vertical Construction, Amenities, homes, and all other
infrastructure or housing improvements and related amenities made in preparation
for the development, marketing and sale of Real Property.

 

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“Indebtedness” means, without duplication, with respect to any Person
(a) indebtedness or liability for borrowed money, including subordinated
indebtedness; (b) obligations evidenced by bonds, debentures, notes, or other
similar instruments; (c) obligations for the deferred purchase price of property
or services, provided, however, that Indebtedness shall not include obligations
with respect to options to purchase Real Property that have not been exercised;
(d) obligations as lessee under capital leases to the extent that the same
would, in accordance with GAAP, appear as liabilities in such Person’s
consolidated balance sheet; (e) current liabilities in respect of unfunded
vested benefits under any Pension Plans and incurred withdrawal liability under
any Pension Plan; (f) reimbursement obligations under letters of credit
(including contingent obligations with respect to letters of credit not yet
drawn upon); (g) obligations under acceptance facilities; (h) all guaranties,
endorsements (other than for collection or deposit in the ordinary course of
business), and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any other Person, or otherwise to assure a
creditor against loss; (i) obligations secured by any Liens on any property of
such Person, whether or not the obligations have been assumed; (j) net
liabilities under interest rate swap, exchange or cap agreements (valued as the
termination value thereof, computed in accordance with a method approved by the
International Swaps and Derivatives Association and agreed to by such Person in
the applicable agreement); and (k) all Guarantees of such Person with respect to
the foregoing. Indebtedness shall not include (i) trade accounts payable and
accruals incurred in the ordinary course of the Core Businesses so long as such
trade accounts payable or accruals are not outstanding for more than ninety
(90) days from receipt of an invoice (unless such trade accounts payable or
accruals (A) are being contested in good faith by appropriate proceedings or
(B) are for retentions consistent with industry practice and such Person’s past
practices, in which case such ninety day limit shall not apply) are on terms and
conditions reasonable and customary in the industry and are not owed to an
Affiliate of such Person and (ii) payment and performance and surety bonds,
completion guarantees, and other performance obligations and guaranties with
respect thereto incurred in the ordinary course of the Core Businesses so long
as such payment and performance and surety bonds, completion guarantees and
other performance obligations and guaranties are on terms and conditions
reasonable and customary in the industry .

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitee” has the meaning specified in Section 11.04(b).

“Indentures” means, collectively, (i) that certain Indenture, dated as of
March 17, 2003, among Borrower, as issuer, the guarantors party thereto, and
U.S. Bank National Association, as trustee, (ii) that certain Indenture, dated
as of February 6, 2004, among Borrower, as issuer, the guarantors party thereto,
and U.S. Bank National Association, as trustee, and (iii) that certain
Indenture, dated as of November 22, 2004, among Borrower, as issuer, the
guarantors party thereto, and U.S. Bank National Association, as trustee, in
each case, as such Indenture may be extended, renewed, refinanced or replaced in
accordance with Section 7.01(e) hereof.

“Initial Lender” means ColFin WLH Funding, LLC.

“Initial Term Loan” means, for each Lender, the term loan facility advanced by
such Lender on the Closing Date pursuant to Section 2.01(a).

 

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“Initial Term Loan Commitment” means the commitment of a Lender to make or
otherwise fund an Initial Term Loan. The amount of each Lender’s Initial Term
Loan Commitment is as set forth on Schedule 2.01 or in the applicable Assignment
and Assumption pursuant to which such Lender becomes a party hereto, as
applicable.

“Intangible Asset” means, with respect to the Loan Parties and as of any date,
all unamortized debt discount and expense, unamortized deferred charges,
deferred financing costs, goodwill, patents, trademarks, service marks, trade
names, copyrights, write-ups of assets over their carrying value (other than
write-ups which occurred prior to the Closing Date and other than, in connection
with the acquisition of an asset, the write-up of the value of such asset to its
fair market value in accordance with GAAP on the date of acquisition) and all
other items which would be treated as intangibles on the consolidated balance
sheet of the Loan Parties prepared in accordance with GAAP.

“Intercompany Subordination Agreement” means that certain subordination
agreement among Administrative Agent, on behalf of the Lenders, and each member
of the Consolidated Group, pursuant to which, each member of the Consolidated
Group agrees to subordinate any claims it may have against another member of the
Consolidated Group to the Obligations of the Borrower hereunder.

“Intercreditor Agreement” means any agreement between the Administrative Agent
and/or the Lenders, and the lender, agent or trustee under any Permitted
Construction Indebtedness.

“Interest Payment Date” means the first Business Day of each calendar month
during the term of this Agreement, commencing on December 1, 2009, and the
Maturity Date.

“Investment” means, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other
acquisition of Equity Securities of another Person, (b) a loan, advance (other
than advances with respect to accounts receivable made in the ordinary course of
business on customary credit terms) or capital contribution to, Guarantee or
assumption of debt of, or purchase or other acquisition of any other debt or
equity participation or interest in, another Person, including any partnership
or joint venture interest in such other Person (including capital contributions
to any Joint Ventures) and any arrangement pursuant to which the investor
Guarantees Indebtedness of such other Person, or (c) the purchase or other
acquisition (in one transaction or a series of transactions) of assets of
another Person that constitute a business unit.

“IRS” means the United States Internal Revenue Service.

“Joint Venture” means any Person (other than a Subsidiary) in which Parent,
Borrower or any other member of the Consolidated Group holds any Equity
Securities (other than Equity Securities issued by a public company and
purchased on a recognized stock exchange).

“Key Management” means William H. Lyon, President and Chief Operating Officer of
Parent; Matthew R. Zaist, Vice President Business Development and Operations of
Parent; Richard S. Robinson, Senior Vice President Finance of Parent; and Colin
T. Severn, Vice President, Chief Financial Officer, Corporate Controller and
Secretary of Parent.

 

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“Laguna” means Laguna Big Horn, LLC, a Delaware limited liability company.

“Land Under Development” means those portions of the Borrower Real Property on
which Units will be developed for which Borrower has satisfied the conditions
set forth in Section 4.05 and with respect to which Borrower has not yet
satisfied all of the conditions set forth in Section 4.06.

“Laws” means, collectively, all international, foreign, Federal, state and local
statutes, treaties, rules, guidelines, regulations, ordinances, codes and
administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directives, decrees, policies, directed
duties, requests, licenses, authorizations and permits of, and agreements with,
any Governmental Authority, in each case whether or not having the force of law,
rule, regulation, ordinance, order, code interpretation, judgment, decree,
directive, guideline, policy or similar form of decision of any Governmental
Authority.

“Lead Arranger” means ColFin WLH Funding, LLC.

“Lender” has the meaning specified in the introductory paragraph hereto and
shall include the Initial Lender so long as such Initial Lender remains a Lender
hereunder.

“Lending Office” means, as to any Lender, the office or offices of such Lender
described as such in such Lender’s Administrative Questionnaire, or such other
office or offices as a Lender may from time to time notify Borrower and
Administrative Agent.

“Lien” means any recorded or unrecorded, express or implied, written or oral
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
Preemptive Purchase or Lease Right, Lien (statutory or other), charge, or
preference, priority or other security interest or preferential arrangement in
the nature of a security interest of any kind or nature whatsoever (including
any conditional sale or other title retention agreement, any covenant,
condition, restriction, lease, easement, right of way or other encumbrance on
title to Real Property, and any financing lease having substantially the same
economic effect as any of the foregoing).

“Loan” means an extension of credit by a Lender to Borrower under Article II or
Section 9.04.

“Loan Documents” means this Agreement, each Note, the Fee Letter, the
Administrative Agent Fee Letter, the Unconditional Guaranty, Environmental
Indemnity, the Security Documents, the Pledge Agreement, the Collateral
Certificate, any Intercreditor Agreement, the Intercompany Subordination
Agreement and all other documents, instruments, letters and agreements delivered
to Administrative Agent or any Lender pursuant to Article IV and all other
documents, instruments, letters and agreements delivered by any Loan Party to
Administrative Agent or any Lender in connection with this Agreement or any
other Loan Document on or after the date of this Agreement, including any
amendments, consents or waivers, as the same may be amended, restated,
supplemented or modified from time to time.

“Loan Parties” means, collectively, Borrower and each Guarantor.

 

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“Lots” means lots zoned for single- or multi- family residences for sale into
which the subject Borrower Real Property is to be or has been subdivided in
compliance with all Laws, as set forth on a Final Map recorded in the Official
Records.

“Majority Lenders” means (a) prior to the Closing Date, Lenders whose
Commitments then exceed fifty percent (50%) of the Total Commitment, and
(b) from and after the Closing Date, the Lenders whose (A) Total Outstandings
and (B) remaining Commitments then exceed fifty percent (50%) of the sum of the
aggregate Total Outstandings and remaining Total Commitments; provided that the
portion of the Total Outstandings held, or deemed held by, any Defaulting Lender
shall be excluded for purposes of making a determination of Majority Lenders.

“Make Whole Amount” means, with respect to the payment of any principal amount
of the Loans before the Maturity Date, a premium equal to an amount, if
positive, of the present value of all payments (without giving effect to the
date on which is required to be mandatorily prepaid) of interest which would
become due with respect to such prepaid amount from the date of prepayment
thereof through and including the Maturity Date, discounted at the Applicable
Rate.

“Material Adverse Effect” means (i) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, liabilities (actual
or contingent), condition (financial or otherwise) or prospects of (a) Parent,
(b) Borrower or (c) the Consolidated Group taken as a whole; (ii) a material
impairment of the ability of any Loan Party to perform its obligations under any
Loan Document to which it is a party; or (iii) a material adverse effect upon
the legality, validity, binding effect or enforceability against any Loan Party
of any Loan Document to which it is a party.

“Material Agreements” has the meaning specified in Section 5.25(a).

“Maturity Date” means October 20, 2014.

“Maximum Permitted Secured Indebtedness” means (x) if Total Secured Debt is
greater than 55% of Total Secured Debt Collateral Value but less than 60% of the
Total Secured Debt Collateral Value on the date of determination, $300 million,
or (y) if the Total Secured Debt is 55% or less of the Total Secured Debt
Collateral Value on the date of determination, $340 million; provided, however,
under no circumstances shall Maximum Permitted Secured Indebtedness exceed 60%
of the Total Secured Debt Collateral Value.

“Maximum Rate” has the meaning set forth in Section 11.09.

“Mechanics’ Liens” means Liens of carriers, warehousemen, mechanics and
materialmen and other like Liens, except to that (i) such Liens arise in the
ordinary course of business, (ii) such Liens are being contested in good faith
by appropriate legal proceedings, with all potential liabilities either
(a) bonded in a manner satisfactory to Majority Lenders or (b) not in excess of
$1,000,000 in the aggregate for Borrower at any time, (iii) Borrower has
demonstrated to Majority Lenders’ satisfaction that the proceedings will
conclusively operate to prevent the sale of any part of the Collateral, and
(iv) Borrower takes all other actions as required by Majority Lenders, to
prevent the sale of any Collateral to satisfy any such Lien and to prevent
impairment of the Collateral.

 

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“MF Property” means the Real Property located in Pahrump, Nevada, commonly known
as the Mountain Falls property, as more specifically described on Schedule MF.

“MF Owner” means Mountain Falls, LLC, a Nevada limited liability company and
Mountain Falls Golf Course, LLC, a Nevada limited liability company.

“Model Home” means a Unit that meets all of the conditions in Section 4.08.

“Multiemployer Plan” means any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes or
is obligated to make contributions, or during the preceding five plan years, has
made or been obligated to make contributions.

“Net Income” means, for any period, the consolidated net income (or consolidated
net loss) of Parent, Borrower and their respective Subsidiaries (other than
Excluded Subsidiaries), determined in accordance with GAAP.

“Net Present Value” means, with respect to any amount, the net present value as
of the date of determination of such amount using a discount rate equal to the
Applicable Discount Rate.

“Net Proceeds” shall mean:

(a) With respect to any sale of Property by any Person, the aggregate gross
consideration received in any form by such Person from such sale less the sum of
(i) the actual amount of the customary and reasonable fees and commissions
directly related to such sale that are paid by the seller to Persons other than
the seller or any Affiliate or Related Parties of the seller, the reasonable
legal expenses and other costs and expenses directly related to such sale that
are paid by the seller and (ii) the amount of any Indebtedness (other than the
Obligations) which is secured by such Property and is required to be repaid or
prepaid by the Seller as a result of such sale;

(b) With respect to any issuance or incurrence of any Indebtedness by any
Person, the aggregate loan proceeds and other consideration received by such
Person from such issuance or incurrence less the sum of the actual amount of the
reasonable fees and commissions payable to Persons other than such Person or any
Affiliate of such Person, the reasonable legal expenses and the other customary
and reasonable costs and expenses directly related to such issuance or
incurrence that are to be paid by such Person; and

(c) With respect to any issuance of Equity Securities by any Person, the
aggregate capital contribution and other consideration received by such Person
from such issuance less the sum of the actual amount of the reasonable fees and
commissions payable to Persons other than such Person or any Affiliate of such
Person, the reasonable legal expenses and the other customary and reasonable
costs and expenses directly related to such issuance that are to be paid by such
Person.

 

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“Net Worth” means, as of any date, the excess of Total Assets over Total
Liabilities.

“Note” means a promissory note made by Borrower in favor of a Lender evidencing
Loans made by such Lender, substantially in the form of Exhibit “A” attached
hereto and made a part hereof.

“Notice of Borrowing” has the meaning specified in Section 2.01(d).

“Obligations” means all advances to, and debts, liabilities, obligations,
covenants and duties of, any Loan Party arising under any Loan Document or
otherwise with respect to any Loan, whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising and including interest and fees that accrue after
the commencement by or against any Loan Party or any Affiliate thereof of any
proceeding under any Debtor Relief Laws naming such Person as the debtor in such
proceeding, regardless of whether such interest and fees are allowed claims in
such proceeding.

“Official Records” means the official real estate records of the county in which
any Real Property is located for which a Deed of Trust is being recorded.

“Organization Documents” means: (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.

“Other Taxes” means all present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies arising from any
payment made hereunder or under any other Loan Document or from the execution,
delivery or enforcement of, or otherwise with respect to, this Agreement or any
other Loan Document.

“PAPA Obligations” means any obligations affecting Real Property under any
recorded or unrecorded payment, participation, development and/or performance
agreements, buyback rights, bulk sale restriction agreements, repurchase
options, rights of first refusal, deeds of trust securing any of the same, and
/or other similar agreements, obligations or encumbrances.

“Parent” means William Lyon Homes, a Delaware corporation.

“Participant” has the meaning specified in Section 11.06(d).

“Patriot Act” shall mean the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56 (commonly known as the USA Patriot Act).

 

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“PBGC” means the Pension Benefit Guaranty Corporation.

“PCI Release” has the meaning set forth in Section 8.01(b).

“PCI Released Property” has the meaning set forth in Section 8.01(b).

“Pension Plan” means any “employee pension benefit plan” (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by Borrower or any
ERISA Affiliate or to which Borrower or any ERISA Affiliate contributes or has
an obligation to contribute, or in the case of a multiple employer or other plan
described in Section 4064(a) of ERISA, has made contributions at any time during
the immediately preceding five plan years.

“Permitted Construction Indebtedness” means Indebtedness incurred by Borrower
from a Revolver Lender in accordance with Section 8.04 and provided that such
Indebtedness (i) shall be on terms and conditions reasonably satisfactory to the
Majority Lenders, (ii) shall be secured solely by the applicable PCI Released
Property which constitutes Finished Lots, Homes Under Construction and/or Model
Homes (with ownership of the PCI Released Property required to be retained by
Borrower throughout construction and marketing and until ultimate sale),
(iii) is not for (A) any acquisition costs of any Real Property, including the
PCI Released Property or other land that would become part of the Phase, Asset
or Project that includes the PCI Released Property (except that reasonable land
draws are permitted for use in Vertical Construction of the PCI Released
Property), (B) Horizontal Improvements or (C) payment of any of the fees or
other amounts required to be paid in connection with obtaining any Entitlements
necessary for any of the PCI Released Property to become Finished Lots,
(iv) complies with the limitations in this Agreement on Maximum Secured
Indebtedness, and (v) does not (a) contain provisions (including financial
covenants, coverage ratios and restrictions on debt, transfers and encumbrances
which are not complied with as a result of the existence of (or Borrower’s
compliance with) any Loan or Loan Document or (b) prohibit any Net Proceeds of
such Indebtedness (and the Net Proceeds of any sales of the PCI Released
Property after any required payments on such Indebtedness) from being held in an
account which is pledged to Lenders and is subject to a Control Agreement in
favor of Lenders.

“Permitted Construction Indebtedness Collateral Value” means, as of any date,
the sum of the Appraised Values of the PCI Released Property owned by Borrower
on the date of determination as reflected in the Revolver Appraisals.

“Permitted Exceptions” means (i) all items shown in Schedule B Part 1 of the
Title Policy; (ii) Liens granted to Administrative Agent to secure the
Obligations; and (iii) all other exceptions approved in writing by Majority
Lenders.

“Permitted Holders” means General William Lyon, his wife, his lineal descendants
and his other close family members, any corporation, limited liability company
or partnership in which any of the foregoing has voting control and is the
direct and beneficial owner of a majority of the Equity Interests and any trust
or estate planning device for the benefit of him, his wife, his lineal
descendants or his other close family members.

“Permitted Indebtedness” has the meaning specified in Section 7.01.

 

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“Permitted Liens” has the meaning specified in Section 7.02.

“Permitted Reinvestments” means the purchase of assets (other than securities,
unless such securities represent Equity Securities in an entity engaged solely
in a Core Business, such entity becomes a Loan Party and Parent or Borrower
acquires Control of such entity) to be used by the Loan Parties in the Core
Businesses.

“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.

“Personal Property” means any personal property or asset, whether tangible or
intangible.

“Phase” means the Aggregate Real Property consisting of portions of Assets that
consist of a group of Lots or Units commonly marketed with a marketing scheme,
or portions of Assets including more than one such group.

“Plan” means any Pension Plan, any “employee pension plan” (as such term is
defined in Section 3(2) of ERISA) that is subject to Section 412 of the Code
(other than a Multiemployer Plan) and that is established by Borrower or any
ERISA Affiliate, or any “employee welfare plan” (as such term is defined in
Section 3(1) of ERISA) established by Borrower that provides for post-employment
health benefits other than as required by Sections 601 et seq. of ERISA
(commonly known as COBRA) or as required by any similar Laws.

“Plans, Drawings and Specifications” means the plans, drawings and
specifications for the construction of the Horizontal Improvements, Vertical
Construction and/or Units, as applicable, that have been approved by Majority
Lenders pursuant to this Agreement.

“Pledge Agreement” means that certain Pledge Agreement, dated as of the date
hereof, among Parent, Borrower and Administrative Agent.

“Preemptive Purchase or Lease Right” means any option, put, right of first or
last refusal, right of first or last offer, right of first or last negotiation,
or any other preemptive rights to purchase, sell or lease any Real Property.

“Project” means (a) an Asset which is not part of a group in clause “(b)” of
this sentence or (b) a group of two (2) or more Assets in the same geographic
area (which in the case of either (a) or (b) share(s) common areas and
Amenities).

“Project Eligibility Request” means each and every request by Borrower for the
Borrower Real Property in a Project to be Eligible Real Property Collateral for
inclusion in the Borrowing Base, which request shall be in the form attached
hereto as Exhibit “F”

“Projected Net Revenues” means, with respect to any Eligible Real Property
Collateral, the Net Proceeds estimated by the Borrower in good faith to be
received by the Borrower after the date of determination from the sale of the
Eligible Real Property Collateral or interests therein. In determining Projected
Net Revenues, (i) Net Proceeds from the sale of Eligible Real Property
Collateral subject to a Purchase Contract shall not exceed the contracted sales
price (net of customary costs and expenses), (ii) Net Proceeds from the sale of
Eligible Real Property Collateral that are being offered for sale by the
Borrower shall not exceed the current

 

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offer price (net of customary costs and expenses), (iii) Net Proceeds shall be
adjusted to take into account as a deduction from estimated Net Proceeds any
projected CFD Obligations, PAPA Obligations, and reasonable and customary
anticipated costs of sale related to sales of any Real Property, (iv) Model
Homes included as part of the Eligible Real Property shall be assumed to be held
until substantially all other Units of the same type as the Model Home in the
Asset are projected to be sold, (v) the amount and timing of receipt of
Projected Net Revenues shall be prepared by Borrower in good faith based on
assumptions that it believes to be reasonable on the date of determination, and
(vi) the amount and timing of receipt of Projected Net Revenues shall be
consistent with the most recent Certified Net Cash Flow Report delivered by
Borrower to the Administrative Agent under the Loan Documents with such
adjustments necessary to reflect subsequent changes in actual sales prices and
absorption rates achieved at the various Assets with Eligible Real Property
Collateral. Projected Net Revenues as of the date of any Borrowing Base Report
shall be reflected on the Certified Net Cash Flow Report for the Eligible Real
Property Collateral.

“Projected Total Project Cost” means, with respect to any Eligible Real Property
Collateral, the Total Project Cost estimated by the Borrower in good faith to be
paid after the date of determination with respect to the Eligible Real Property
Collateral. In determining Projected Total Project Costs, (i) the amount and
timing of the payment of Total Project Costs shall be prepared by Borrower in
good faith based on assumptions that it believes to be reasonable at the date of
determination, (ii) the amount and timing of the payment of Total Project Costs
shall be consistent with the most recent Certified Net Cash Flow Report
delivered by Borrower to the Administrative Agent under the Loan Documents with
such adjustments necessary to reflect changes in the actual cost of materials
and workmanship and absorption rates achieved at the various Projects or Assets
as the case may be with Eligible Real Property Collateral. Projected Total
Project Costs as of the date of any Borrowing Base Report shall be reflected on
the Certified Net Cash Flow Report for the Eligible Real Property Collateral.

“Property” means Real Property and Personal Property.

“Property Entity” means CF Owner and MF Owner.

“Purchase Contract” means any purchase and sale agreement or other agreement
entered into by Borrower, as seller, and a purchaser for the purchase and sale
of any Borrower Real Property.

“Real Property” means any interest in land including any Improvements situated
thereon.

“Real Property Classifications” means Unentitled Land, Unimproved Land, Land
Under Development, Finished Lots, Homes Under Construction, and Model Homes.

“Refinanced CBT, CNB and JPM Revolving Credit Agreements” means the Refinanced
Revolving Credit Agreements between Borrower and each of California Bank &
Trust, California National Bank and JPMorgan Chase.

“Refinanced Revolving Credit Agreements” means those six (6) revolving credit
agreements of Borrower (one (1) with each of California Bank & Trust, California
National Bank, Comerica Bank, Guaranty Bank, JPMorgan Chase (as
successor-in-interest to Bank One) and Wachovia Bank) that will be refinanced
with the proceeds hereof on the Closing Date.

 

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“Refinanced Wachovia Revolving Credit Agreement” means the Refinanced Revolving
Credit Agreement between Borrower and Wachovia Bank.

“Related Fund” means with respect to any Lender which is a fund (or in which a
fund has a beneficial ownership interest of at least twenty percent (20%)) that
is allowed or permitted under its Organizational Documents to make or invest in
loans, any other fund that is allowed or permitted by its Organizational
Documents to make or invest in loans and that is managed by the same investment
advisor as such Lender or by an Affiliate of such Lender or such investment
advisor.

“Related Parties” means, with respect to any Person, such Person’s Affiliates
and the partners, directors, officers, employees, agents and advisors of such
Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of
ERISA, other than events for which the thirty (30) day notice period has been
waived.

“Responsible Officer” means the chief executive officer, president, chief
financial officer, treasurer or the general counsel of a Loan Party or any
Person designated by a Responsible Officer to act on behalf of a Responsible
Officer; provided that such designated Person may not designate any other Person
to be a Responsible officer. Any document delivered hereunder that is signed by
a Responsible Officer of a Loan Party shall be conclusively presumed to have
been authorized by all necessary corporate, partnership and/or other action on
the part of such Loan Party and such Responsible Officer shall be conclusively
presumed to have acted on behalf of such Loan Party.

“Restricted Cash” means all cash and Cash Equivalents of the Loan Parties
allocated for expenditure or Distribution held as reserves for the Permitted
Indebtedness described in Section 7.01(b) or the Permitted Liens described in
Sections 7.02(a), (b) and (c), held as reserves against any other claim,
judgment and good faith contests or held as Customer Deposit Liabilities or
otherwise characterized as a deposit.

“Revolver Appraisal” means an appraisal of PCI Released Property as described in
the definition of “Revolver Lender.”

“Revolver Lender” means one or more banks with FDIC-insured deposits, that are
making a loan to Borrower constituting Permitted Construction Indebtedness
pursuant to loan documents substantially similar to Borrower’s Refinanced CBT,
CNB and JPM Revolving Credit Agreements as of the date of this Agreement (other
than the changes thereto requested by the Lenders as provided for in this
Agreement) pursuant to which: (i) appraisals of the PCI Released Property
securing the loan are required at least annually which meet the requirements of
Section 6.16(j)(i) and which take into account the reductive effect of any CFD
Obligations, PAPA Obligations and the reasonable and customary anticipated costs
of sale related to the PCI Released Property, and any impairment of such PCI
Released Property and (ii) PAPA Obligations are covered by a subordination
agreement in the Revolver Lender’s favor reasonably acceptable to Majority
Lenders. (For avoidance of doubt, the relevant appraisals shall be (and under
appraisal procedures)

 

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in form and substance satisfactory to the Revolver Lender in its sole and
absolute discretion (instead of the Majority Lenders) and the classifications of
Borrower Real Property and methods of valuation in Section 6.16(j) shall be used
without regard to the fact that the PCI Released Property does not technically
constitute Eligible Real Property Collateral under the requirements of Article
IV for such Real Property Classifications).

“Rules” has the meaning specified in Section 11.16(b).

“SEC” means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.

“Second Term Loan” means, for each Lender, the term loan facility, if any,
advanced by such Lender on the Second Term Loan Funding Date pursuant to
Section 2.01(c).

“Second Term Loan Commitment” means the commitment of a Lender to make or
otherwise fund a Second Term Loan. The amount of each Lender’s Second Term Loan
Commitment is as set forth on Schedule 2.01 or in the applicable Assignment and
Assumption pursuant to which such Lender becomes a party hereto, as applicable.

“Second Term Loan Commitment Termination Date” means 1:00 p.m. (Los Angeles
time) on the date that is one hundred eighty (180) days after the Closing Date.

“Second Term Loan Funding Date” means the date on which the Conditions to Second
Term Loan Funding have been met and the Lenders have each advanced their Second
Term Loan Commitment. In no event shall the Second Term Loan Funding Date be
later than the Second Term Loan Commitment Termination Date.

“Secured Debt” means, as of any date, the Indebtedness outstanding under the
Loan Documents, the Permitted Construction Indebtedness and the Existing Secured
Indebtedness.

“Secured Intercompany Loan” means a Credit Advance made by Borrower in
accordance with the terms and conditions of Section 7.12 or Section 7.13.

“Security Agreement” means that certain Security Agreement, dated as of the date
hereof, among Borrower, Parent, the other Guarantors party thereto, if any, and
Administrative Agent, on behalf of the Lenders, together with any documents,
supplements or agreements contemplated thereby, and any amendment or supplement
thereto.

“Security Documents” shall mean and include the Security Agreement, each Deed of
Trust, each Control Agreement and all other instruments, agreements,
certificates, opinions and documents (including Uniform Commercial Code
financing statements, fixture filings and landlord waivers) delivered to
Administrative Agent or any Lender in connection with any Collateral or to
secure the Obligations or the obligations of Guarantor under the Loan Documents.

“Senior Unsecured Notes” means, collectively, the notes issued pursuant to the
Indentures, as such Indentures may be extended, renewed, refinanced or replaced.

 

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“Standard Retail Sale” has the meaning set forth in Section 8.01(b).

“Subsidiary” of a Person means a corporation, partnership, joint venture,
limited liability company or other business entity of which a majority of the
shares of securities or other interests having ordinary voting power for the
election of directors or other governing body (other than securities or
interests having such power only by reason of the happening of a contingency)
are at the time beneficially owned, or the management of which is otherwise
controlled, directly, or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise specified, all references herein to a
“Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of
Borrower.

“Tangible Net Worth” means, as of any date, the Net Worth less the net book
value (after deducting reserves applicable thereto) of all of the Intangible
Assets.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other charges imposed by any Governmental
Authority, including any interest, additions to tax or penalties applicable
thereto.

“Tentative Map” means the tentative tract map for each Project, Asset or Phase,
as the case may be.

“Title Company” means Fidelity National Title Insurance Company or Chicago Title
Insurance Company.

“Title Policy” means Extended Coverage American Land Title Association loan
policies of title insurance (2006 form with the creditors’ rights exception and
arbitration provisions deleted and with the endorsements listed on Schedule TP
and such other endorsements as may be reasonably required by Majority Lenders)
for each Deed of Trust, and which shall provide coverage (including mechanics’
lien coverage) satisfactory to Majority Lenders and insure the Deed of Trust as
a first Lien on the Project, subject only to Permitted Exceptions.

“Total Assets” means, as of any date, all assets of the Loan Parties, determined
in accordance with GAAP less (without duplication) (1) any assets attributable
Equity Securities of the Excluded Subsidiaries held by the Loan Parties and
(2) all write-ups subsequent to the Closing Date in the book value of any asset
owned by the Loan Parties.

“Total Closing Date Commitment” shall mean, at any time, One Hundred Thirty One
Million Dollars ($131,000,000) or such lesser amount to which the same is so
reduced, in accordance with the terms hereof, and in effect at such time.

“Total Commitment” shall mean, at any time, Two Hundred Six Million Dollars
($206,000,000) or such lesser amount to which the same is so reduced, in
accordance with the terms hereof, and in effect at such time.

“Total Delayed Draw Closing Date Commitment” shall mean Zero Dollars ($0).

“Total Initial Draw Closing Date Commitment” shall mean One Hundred Thirty One
Million Dollars ($131,000,000).

 

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“Total Liabilities” means, as of any date, all consolidated liabilities of the
Loan Parties, as determined in accordance with GAAP.

“Total Outstandings” means, as of any date, the aggregate outstanding amount of
all Loans, including accrued but unpaid interest and fees and any Exit Fee or
Make Whole Amount, to the extent that any Exit Fee or Make Whole Amount due and
owing on such date, under the Loan Documents.

“Total Project Costs” with respect to each parcel of Unimproved Land (to the
extent that it is not a Lot or Unit), Lot or Unit included as part of Eligible
Real Property Collateral as of any date means the sum of the following costs and
expenses to be paid following the date of determination: (x) all acquisition and
other land costs incurred to acquire or upgrade the land constituting part of
such parcel of Unimproved Land (to the extent that it is not a Lot or Unit), Lot
or Unit and (y) all costs to be incurred for the construction, marketing and
sale of any Improvements on such parcel of Unimproved Land (to the extent that
it is not a Lot or Unit), Lot or Unit, including those costs and expenses
incurred for direct construction, house fees, landscape, consultants, indirect
construction, warranty costs, property taxes, miscellaneous financing costs,
common area costs, model upgrades, miscellaneous capitalized costs, model
operations and advertising, direct selling expense, general and administrative
expenses, design center income and other, but excluding interest expense. Total
Project Costs shall be estimated and categorized in a manner consistent with the
Asset cash flow schedules provided to the Majority Lenders in connection with
the negotiation and execution of the Loan Documentation.

“Total Second Term Loan Commitment” shall mean, at any time, Seventy Five
Million Dollars ($75,000,000) or such lesser amount to which the same is so
reduced, in accordance with the terms hereof, and in effect at such time.

“Total Secured Debt” means, as of any date, the sum of all Indebtedness of each
Loan Party and the Property Entities constituting Secured Debt.

“Total Secured Debt Collateral Value” means, as of any date, the sum of (x) the
Eligible Real Property Collateral Valuation, (y) the Permitted Construction
Indebtedness Collateral Value plus (z) the Existing Secured Indebtedness
Collateral Value.

“Unconditional Guaranty” means the Unconditional Guaranty made by the Guarantors
in favor of Administrative Agent and the Lenders, substantially in the form of
Exhibit “D” attached hereto and made a part hereof.

“Unentitled Land” means Real Property (i) with respect to which all conditions
set forth in Section 4.04 for inclusion in the Borrowing Base have not been
satisfied, (ii) which are not designated for development into residences for
sale to the public but are reserved as open space or as streets and common areas
to be dedicated to homeowners’ associations and other Governmental Authorities,
or (iii) that are Amenities (including golf courses).

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Pension Plan’s assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.

 

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“Uniform Commercial Code” shall mean the Uniform Commercial Code as the same
may, from time to time, be in effect in the State of California; provided,
however, in the event that, by reason of mandatory provisions of applicable Law,
any or all of the attachment, perfection or priority of the Administrative
Agent’s security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
California, the term “Uniform Commercial Code” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

“Unimproved Land” means those portions of the Borrower Real Property on which
Units will be developed for which Borrower has satisfied the conditions set
forth in Section 4.04 and with respect to which Borrower has not yet satisfied
all of the conditions set forth in Section 4.05.

“United States” and “U.S.” mean the United States of America.

“Upfront Fee” shall have the meaning assigned to such term in the Fee Letter.

“Units” means single- or multi- family “for sale” residences whether Vertical
Construction thereof has commenced or been completed, wholly owned held by
Borrower for sale in the ordinary course of business, and in which the rights of
ownership and occupancy are to be sold by Borrower other than on a time-sharing
or periodic basis, and each Unit shall include the Lot that the Unit has been or
will be built upon.

“Unrestricted Cash” means all cash and Cash Equivalents of the Loan Parties
which is not Restricted Cash.

“Vertical Construction” means the vertical construction, after all Entitlements
for such construction including the Building Permit has been obtained, of Units
or Amenities on the Borrower Real Property by Borrower in compliance with and
permitted under all applicable Laws and Entitlements.

“Whitney Ranch” means Whitney Ranch Village 5, LLC, a Delaware limited liability
company.

“WL Southwest” means William Lyon Southwest, Inc., an Arizona corporation.

1.02 OTHER INTERPRETIVE PROVISIONS. With reference to this Agreement and each
other Loan Document, unless otherwise specified herein or in such other Loan
Document:

(a) The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
“include,” “includes” and “including” shall be deemed to be followed by the
phrase “without limitation.” The word “will” shall be construed to have the same
meaning and effect as the word “shall.” Unless the context requires otherwise,
(i) any definition of or reference to any agreement, instrument or other
document (including any organization document) shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such

 

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amendments, supplements or modifications set forth herein or in any other Loan
Document), (ii) any reference herein to any Person shall be construed to include
such Person’s successors and assigns, (iii) the words “herein,” “hereof and
“hereunder,” and words of similar import when used in any Loan Document, shall
be construed to refer to such Loan Document in its entirety and not to any
particular provision thereof, (iv) all references in a Loan Document to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, the Loan Document in
which such references appear, (v) any reference to any law shall include all
statutory and regulatory provisions consolidating, amending replacing or
interpreting such law and any reference to any law or regulation shall, unless
otherwise specified, refer to such law or regulation as amended, modified or
supplemented from time to time and (vi) the words “asset” and “property” shall
be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

(b) In the computation of periods of time from a specified date to a later
specified date, the word “from” means “from and including;” the words “to” and
“until” each mean “to but excluding;” and the word “through” means “to and
including.”

(c) Section headings herein and in the other Loan Documents are included for
convenience of reference only and shall not affect the interpretation of this
Agreement or any other Loan Document.

1.03 ACCOUNTING TERMS.

(a) Generally. All accounting terms not specifically or completely defined
herein shall be construed in conformity with, and all financial data (including
financial ratios and other financial calculations) required to be submitted
pursuant to this Agreement shall be prepared in conformity with, GAAP applied on
a consistent basis, as in effect from time to time, applied in a manner
consistent with that used in preparing the Audited Financial Statements, except
as otherwise specifically prescribed herein.

(b) Changes in GAAP. If at any time any change in GAAP would affect the
computation of any financial ratio or requirement set forth in any Loan
Document, and either Borrower or Majority Lenders shall so request,
Administrative Agent, the Lenders and Borrower shall negotiate in good faith to
amend such ratio or requirement to preserve the original intent thereof in light
of such change in GAAP (subject to the approval of Majority Lenders); provided
that, until so amended, (i) such ratio or requirement shall continue to be
computed in accordance with GAAP prior to such change therein and (ii) Borrower
shall provide to Administrative Agent and the Lenders financial statements and
other documents required under this Agreement or as reasonably requested
hereunder setting forth a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP.

1.04 ROUNDING. Any financial ratios required to be maintained by Borrower
pursuant to this Agreement shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than the
number of places by which such ratio is expressed herein and rounding the result
up or down to the nearest number (with a rounding- up if there is no nearest
number).

 

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1.05 TIMES OF DAY. Unless otherwise specified, all references herein to times of
day shall be references to Pacific time (daylight or standard, as applicable).

ARTICLE II.

CREDIT EXTENSION

2.01 LOANS.

(a) Closing Date Term Loan. Subject to the terms and conditions set forth
herein, including the terms and conditions of Section 4.01, each Lender
severally agrees to make, on the Closing Date, an Initial Term Loan to Borrower
in an amount equal to such Lender’s Initial Term Loan Commitment. The Initial
Term Loans are not revolving commitments and Borrower shall have no right to
re-borrow any amounts repaid hereunder. Each Lender’s Initial Term Loan
Commitment shall terminate immediately and without further action on the earlier
of (i) the Closing Date after giving effect to the funding of such Lender’s
Initial Term Loan Commitment on such date and (ii) October 23, 2009 if the
conditions precedent to the Initial Term Loans have not been fulfilled on or
before such date. The aggregate amount all Initial Term Loans shall not exceed
the Total Initial Draw Closing Date Commitment.

(b) Delayed Draw Term Loan. Subject to the terms and conditions set forth
herein, including the terms and conditions of Section 4.02, each Lender
severally agrees to make, on or before the Delayed Draw Commitment Termination
Date, a Delayed Draw Term Loan to Borrower in an amount equal to such Lender’s
Delayed Draw Term Loan Commitment. The Delayed Draw Term Loans are not revolving
commitments and Borrower shall have no right to re-borrow any amounts repaid
hereunder. Each Lender’s Delayed Draw Term Loan Commitment shall terminate
immediately and without further action on the earlier to occur of (i) the making
of the Delayed Draw Term Loan by such Lender, and (ii) the Delayed Draw
Commitment Termination Date. The aggregate amount all Delayed Draw Term Loans
shall not exceed the Total Delayed Draw Closing Date Commitment and the
aggregate amount of the Initial Term Loans and the Delayed Draw Term Loans shall
not exceed the Total Closing Date Commitment.

(c) Second Term Loan. Subject to the terms and conditions set forth herein,
including the terms and conditions of Section 4.03, each Lender severally agrees
to make, on or before the Second Term Loan Commitment Termination Date, a Second
Term Loan to Borrower in an amount equal to such Lender’s Second Term Loan
Commitment. The Second Term Loans are not revolving commitments and Borrower
shall have no right to re-borrow any amounts repaid hereunder. Each Lender’s
Second Term Loan Commitment shall terminate immediately and without further
action on the earlier to occur of (i) the making of the Second Term Loan by such
Lender, and (ii) the Second Term Loan Commitment Termination Date. Total
aggregate amount of all Second Term Loans shall not exceed the Total Second Term
Loan Commitment and the aggregate amount of the Initial Term Loans, Delayed Draw
Term Loans and Second Term Loans shall not exceed to the Total Commitment.

 

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(d) Borrowing Mechanics. For each Credit Extension requested by Borrower
hereunder, Borrower shall provide written notice to Administrative Agent
(“Notice of Borrowing”) no less than fifteen (15) Business Days before the
requested funding date of such Credit Extension.

(e) Purpose. The Borrower may use the proceeds of the Initial Term Loans to
(i) repay in full its existing Indebtedness under the Refinanced Revolving
Credit Agreements, (ii) pay certain fees and expenses incurred in connection
with the transactions contemplated hereby and (iii) provide for working capital
and other general corporate purposes all in accordance with the “Sources and
Uses” description attached as Schedule 2.01. The proceeds of the Delayed Draw
Term Loan and Second Term Loan shall otherwise be used to finance capital
expenditures of Borrower and to provide for working capital needs for the Core
Businesses of Borrower in a manner consistent with the provisions of this
Agreement and for other general corporate purposes, including the acquisitions
and Investments permitted under Sections 7.03, 7.04 and 7.05, in each case
consistent with the most recent Annual Budget delivered to Administrative Agent.

2.02 [RESERVED].

2.03 PREPAYMENTS.

(a) Prepayments Generally. Notwithstanding anything to the contrary, express or
implied, in this Agreement or otherwise, upon the prepayment of any Loan
(whether such prepayment is an optional prepayment or a mandatory prepayment,
including a prepayment upon acceleration), the Borrower shall pay to
Administrative Agent for the benefit of the Lender that made such Loan all
accrued but unpaid interest and fees to the date of such prepayment on the
amount prepaid, the Make Whole Amount and Exit Fee with respect thereto, and any
and all other amounts which may be payable hereunder and under the other Loan
Documents.

(b) Voluntary Prepayments. The Borrower may, upon notice to Administrative
Agent, at any time or from time to time voluntarily prepay Loans in whole or in
part; provided that (i) such notice must be received by Administrative Agent not
later than 12:00 noon fifteen (15) days prior to any date of prepayment; and
(ii) any prepayment of Loans shall be in a minimum principal amount of
$5,000,000 or a whole multiple of $5,000,000 in excess thereof, if less, the
entire principal amount thereof then outstanding. Each such notice shall specify
the date and amount of such prepayment. Administrative Agent will promptly
notify each Lender of its receipt of each such notice, and of the amount of such
Lender’s Applicable Percentage of such prepayment. If such notice is given by
Borrower, Borrower shall make such prepayment and the payment amount specified
in such notice, together with the Make Whole Amount and Exit Fee as described in
Section 2.03(e), shall be due and payable on the date specified therein. Each
such prepayment shall be applied to the Loans of the Lenders in accordance with
their respective Applicable Percentages.

(c) Mandatory Prepayments. Borrower shall prepay the Loans as follows:

(i) if any member of the Consolidated Group engages in an Asset Sale, Borrower
and/or Parent shall, or shall cause such member of the Consolidated Group to, no
later than three hundred thirty (330) days following the consummation thereof,
and so

 

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long as (i) no Default or Event of Default shall have occurred and be continuing
and (ii) Borrower demonstrates, to the satisfaction of Majority Lenders, it is
in compliance with the Financial Covenants (both before and after giving effect
to such Asset Sale) reinvest the Net Proceeds from such Asset Sale in Permitted
Reinvestments; provided that during such three hundred thirty (330) day period,
Borrower deposits such Net Proceeds into a deposit account that is subject to a
first in Lien favor of Administrative Agent and which is the subject of a
Control Agreement. Immediately upon any reinvestment of Net Proceeds from an
Asset Sale in a Permitted Reinvestment, Borrower shall deliver proof, reasonably
satisfactory to Administrative Agent, acting at the direction of Majority
Lenders, that such Net Proceeds have been so reinvested. If at any time after
the Closing Date, the Net Proceeds from Asset Sales that have not been
reinvested in a Permitted Reinvestment within three hundred thirty (330) days
from the relevant Asset Sale exceeds $10,000,000, such excess shall be paid over
to Administrative Agent for the benefit of the Lenders as a mandatory prepayment
of the Loans in accordance with this Section 2.03(c) immediately upon such Net
Proceeds exceeding $10,000,000.

(ii) If on any date the Total Outstandings exceed the Borrowing Base, Borrower
shall make a mandatory prepayment on the Loans in the amount of such excess
within five (5) Business Days.

(iii) If on any date, the Total Secured Debt exceeds the Maximum Permitted
Secured Indebtedness, Borrower shall make a mandatory prepayment on the Loans in
the amount of such excess within five (5) calendar days; provided, however,
Borrower shall not be required to make such mandatory prepayment to the extent,
during such five (5) Business Day period, Borrower provides evidence reasonably
acceptable to the Majority Lenders, that it has reduced the total Indebtedness
outstanding under the Existing Secured Indebtedness or the Permitted
Construction Indebtedness such that Total Secured Debt is equal to or is less
than the Maximum Permitted Secured Indebtedness by the end of such five
(5) Business Day period.

Any prepayment of the Loans in accordance with this Section 2.03(c) shall
concurrently reduce each Lender’s obligation to fund any further Loans hereunder
on a dollar for dollar basis.

(d) Lenders’ Prepayment Option. Notwithstanding anything to the contrary in this
Agreement, at the written direction of Majority Lenders given to Borrower at
least ninety (90) days before payment of all or any portion of the outstanding
principal balance under the Indentures or no later than five (5) Business Days
after a written notice by Borrower to Administrative Agent and each Lender of
intent to prepay, Borrower shall make a mandatory prepayment of the Loans in an
amount which bears the same proportionate relationship to the Total Outstandings
as the prepayment or payment on the Indentures bears to the total outstanding
principal balances on the Indentures or such lesser amount as Majority Lenders
may elect in writing (e.g. if the repayment of principal under the Indentures is
twenty percent (20%) of the total outstanding principal amount under all of the
Indentures, then the mandatory prepayment requested by Majority Lenders may be
an amount up to twenty percent (20%) of the Total Outstandings). All prepayments
pursuant to this Section 2.03(d) shall be made by Borrower no less than thirty
(30) days before the date of such prepayment or payment on the Indentures. In
furtherance of the foregoing, Borrower shall give Administrative Agent and each
Lender at least one hundred twenty (120) advance written notice of any payment
of principal under the Indentures or at least eight (8)

 

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Business Days advance written notice of any prepayment of principal under the
Indentures. In the event that Borrower has not received, in connection with a
repayment, notice from Majority Lenders by such ninetieth day (or in the event
of a prepayment within the five (5) Business Day response period provided
above), Borrower shall provide a notice to the Administrative Agent and each
Lender that it has failed to receive such notice and the Lenders shall have an
additional ten (10) days from receipt (in the event of a repayment) or two
(2) Business Days from receipt (in the event of a prepayment) of such notice to
require a prepayment of the Loans in accordance with the terms of this Section.
Any prepayment pursuant to this Section 2.03(d) shall not be subject to the Make
Whole Amount, but shall be subject to the Exit Fee and all other amounts due and
payable hereunder.

(e) Except as provided in Section 2.03(d), if required by Majority Lenders
(which prepayments under Section 2.03(d) are not subject to the Make Whole
Amount), in the event of any other prepayment of the Loans, whether in whole or
in part and whether voluntary or involuntary due to a default or otherwise, or
upon acceleration, Borrower shall pay to Administrative Agent for the pro rata
account of the Lenders, the Make Whole Amount and to the account of the Initial
Lender the Exit Fee. The Make Whole Amount and Exit Fee shall be applicable to
all prepayments including any amounts paid if an Event of Default exists. The
Make Whole Amount and the Exit Fee shall be in addition to all other amounts due
and payable hereunder.

2.04 REPAYMENT OF LOANS. Borrower shall repay to the Lenders on the Maturity
Date the aggregate principal amount of Loans outstanding on such date, together
with all accrued and unpaid interest and all other amounts due and payable
hereunder and under the other Loan Documents, including the Exit Fee.

2.05 INTEREST.

(a) Subject to the provisions of subsection (b) below, each Loan shall bear
interest on the outstanding principal amount thereof from the applicable
borrowing date at a rate per annum equal to the Applicable Rate.

(b) (i) If any amount of principal or interest of any Loan is not paid when due
(without regard to any applicable grace periods), whether at stated maturity, by
acceleration or otherwise, such amount shall thereafter bear interest at a rate
per annum at all times equal to the Default Rate and Borrower shall pay a late
fee equal to five percent (5.0%) of such late payment of principal or interest,
in each case, to the fullest extent permitted by applicable Laws.

(ii) If any amount (other than principal or interest of any Loan) payable by
Borrower under any Loan Document is not paid when due, whether at stated
maturity, by acceleration or otherwise, then upon the request of Majority
Lenders, such amount shall thereafter bear interest at a rate per annum at all
times equal to the Default Rate and, if requested by Majority Lenders, Borrower
shall pay a late fee equal to five percent (5.0%) of such late payment, in each
case, to the fullest extent permitted by applicable Laws.

 

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(iii) Upon the request of Majority Lenders, while any Event of Default exists,
Borrower shall pay interest on the principal amount of all outstanding
Obligations hereunder at a rate per annum at all times equal to the Default Rate
to the fullest extent permitted by applicable Laws.

(iv) Accrued and unpaid interest on past due amounts (including interest on past
due interest) shall be due and payable upon demand.

(c) Interest on each Loan shall be due and payable in arrears on each Interest
Payment Date applicable thereto and at such other times as may be specified
herein. Interest hereunder shall be due and payable in accordance with the terms
hereof before and after judgment, and before and after the commencement of any
proceeding under any Debtor Relief Law.

2.06 FEES.

(a) Borrower shall pay (i) to Initial Lender the fees in the amount and at the
times designated in the Fee Letter, and (ii) to Administrative Agent the fees in
the amount and at the times designated in the Administrative Agent Fee Letter.
Once paid, such fees shall not be refundable for any reason whatsoever.

(b) Borrower shall pay to the Lenders such fees as shall have been separately
agreed upon in writing in the amounts and at the times so specified. Once paid,
such fees shall not be refundable for any reason whatsoever.

2.07 COMPUTATION OF INTEREST AND FEES. For all Loans, all computations of fees
and interest shall be made on the basis of a 365-day year, or a 366-day year (as
applicable), and actual days elapsed. Interest shall accrue on each Loan for the
day on which the Loan is made, and shall not accrue on a Loan, or any portion
thereof, for the day on which the Loan or such portion is paid. Each
determination by Administrative Agent of an interest rate or fee hereunder shall
be conclusive and binding for all purposes, absent manifest error.

2.08 EVIDENCE OF DEBT. The Credit Extension made by each Lender shall be
evidenced by one or more accounts or records maintained by such Lender and by
Administrative Agent in the ordinary course of business. The accounts or records
maintained by Administrative Agent and each Lender shall be conclusive absent
manifest error of the amount of the Credit Extensions made by the Lenders to
Borrower and the interest and payments thereon. Any failure to so record or any
error in doing so shall not, however, limit or otherwise affect the obligation
of Borrower hereunder to pay any amount owing with respect to the Obligations.
In the event of any conflict between the accounts and records maintained by any
Lender and the accounts and records of Administrative Agent in respect of such
matters, the accounts and records of Administrative Agent shall control in the
absence of manifest error. Upon the request of any Lender made through
Administrative Agent, Borrower shall execute and deliver to such Lender (through
Administrative Agent) a Note, which shall evidence such Lender’s Loans in
addition to such accounts or records. Each Lender may attach schedules to its
Note and endorse thereon the date, amount and maturity of its Loans and payments
with respect thereto.

 

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2.09 PAYMENTS GENERALLY; ADMINISTRATIVE AGENT’S CLAWBACK.

(a) General. All payments to be made by Borrower shall be made without condition
or deduction for any counterclaim, defense, recoupment or setoff. Except as
otherwise expressly provided herein, all payments by Borrower hereunder shall be
made to Administrative Agent, for the account of the respective Lenders to which
such payment is owed, at Administrative Agent’s Office in Dollars and in
immediately available funds not later than 1:00 p.m. on the date specified
herein. Administrative Agent will promptly distribute to each Lender its
Applicable Percentage (or other applicable share as provided herein) of such
payment in like funds as received by wire transfer to such Lender’s Lending
Office. All payments received by Administrative Agent after 1:00 p.m. shall be
deemed received on the next succeeding Business Day and any applicable interest
or fee shall continue to accrue. If any payment to be made by Borrower shall
come due on a day other than a Business Day, payment shall be made on the next
following Business Day, and such extension of time shall be reflected in
computing interest or fees, as the case may be.

(b) Payments by Borrower; Presumptions by Administrative Agent. Unless
Administrative Agent shall have received notice from Borrower prior to the date
on which any payment is due to Administrative Agent for the account of the
Lenders that Borrower will not make such payment, Administrative Agent may
assume that Borrower has made such payment on such date in accordance herewith
and may, in reliance upon such assumption, distribute to the Lenders the amount
due. In such event, if Borrower has not in fact made such payment, then each of
the Lenders severally agrees to repay to Administrative Agent forthwith on
demand the amount so distributed to such Lender, in immediately available funds
with interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to Administrative Agent,
at the Federal Funds Rate.

A notice of Administrative Agent to any Lender or Borrower with respect to any
amount owing under this subsection (b) shall be conclusive, absent manifest
error.

2.10 SHARING OF PAYMENTS BY LENDERS. If any Lender shall, by exercising any
right of setoff or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of the Loans made by it, resulting in such
Lender’s receiving payment of a proportion of the aggregate amount of such Loans
or participations and accrued interest thereon greater than its pro rata share
thereof as provided herein, then the Lender receiving such greater proportion
shall (a) notify Administrative Agent of such fact, and (b) purchase (for cash
at face value) participations in the Loans of the other Lenders, or make such
other adjustments as shall be equitable, so that the benefit of all such
payments shall be shared by the Lenders ratably in accordance with the aggregate
amount of principal of and accrued interest on their respective Loans and other
amounts owing them, provided that:

(i) if any such participations or subparticipations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations or
subparticipations shall be rescinded and the purchase price restored to the
extent of such recovery, without interest; and

(ii) the provisions of this Section 2.10 shall not be construed to apply to
(x) any payment made by Borrower pursuant to and in accordance with the express
terms of this Agreement or (y) any payment obtained by a Lender as consideration
for the

 

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assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to Borrower or any Subsidiary thereof (as to which the
provisions of this Section shall apply).

Each Loan Party consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against such
Loan Party rights of setoff and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of such Loan Party in the
amount of such participation.

2.11 SECURITY.

(a) Security Documents. The Loans, together with all other Obligations, shall be
secured by the Liens granted by the Borrower and the Guarantors under the
Security Documents. All obligations of a Guarantor under the Loan Documents
shall be secured by the Liens granted by such Guarantor under the Security
Documents.

(b) Further Assurances. The Borrower shall deliver, and shall cause each
Guarantor to deliver, to Administrative Agent such additional mortgages, deeds
of trust, security agreements, lessor consents and estoppels (containing
appropriate mortgagee and lender protection language), Control Agreements and
other instruments, agreements, certificates, opinions and documents (including
Uniform Commercial Code financing statements, fixture filings and landlord
waivers) as Administrative Agent or Majority Lenders may reasonably request to:

(i) grant, perfect, maintain, protect and evidence security interests in favor
of Administrative Agent, for the benefit of Administrative Agent and the
Lenders, in any or all present and future Real Property and Personal Property of
the Borrower and the Guarantors (other than (x) Excluded Assets and
(y) “Excluded Property,” as defined in the Security Agreement) prior to the
Liens or other interests of any Person, except for Permitted Liens; and

(ii) Otherwise establish, maintain, protect and evidence the rights provided to
the Administrative Agent, for the benefit of Administrative Agent and the
Lenders, pursuant to the Security Documents.

The Borrower shall fully cooperate with the Administrative Agent and the Lenders
and perform all additional acts reasonably requested by the Administrative Agent
or any Lender to effect the purposes of this Section 2.11.

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01 TAXES.

(a) Payments Free of Taxes. Any and all payments by or on account of any
obligation of Borrower hereunder or under any other Loan Document shall be made
free and clear of and without reduction or withholding for any Indemnified Taxes
or Other Taxes, provided that if Borrower shall be required by applicable law to
deduct any Indemnified Taxes (including any Other Taxes)

 

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from such payments, then (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 3.01(a)) Administrative Agent or
Lender, as the case may be, receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrower shall make such
deductions and (iii) Borrower shall timely pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.

(b) Payment of Other Taxes by Borrower. Without limiting the provisions of
subsection (a) above, Borrower shall timely pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.

(c) Indemnification by Borrower. Borrower shall indemnify Administrative Agent
and each Lender, within five (5) days after demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) paid by Administrative Agent or such Lender, as the case may be, and
any penalties, interest and reasonable expenses arising therefrom or with
respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to
Borrower or by a Lender (with a copy to Administrative Agent), or by
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.

(d) Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by Borrower to a Governmental Authority,
Borrower shall deliver to Administrative Agent the original or a certified copy
of a receipt issued by such Governmental Authority evidencing such payment, a
copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to Administrative Agent.

(e) Status of Lenders. Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which
Borrower is resident for tax purposes, or any treaty to which such jurisdiction
is a party, with respect to payments hereunder or under any other Loan Document
shall deliver to Borrower (with a copy to Administrative Agent), at the time or
times prescribed by applicable law or reasonably requested by Borrower or
Administrative Agent, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, any Lender, if
requested by Borrower or Administrative Agent, shall deliver such other
documentation prescribed by applicable law or reasonably requested by Borrower
or Administrative Agent as will enable Borrower or Administrative Agent to
determine whether or not such Lender is subject to backup withholding or
information reporting requirements.

Without limiting the generality of the foregoing, in the event that Borrower is
resident for tax purposes in the United States, any Foreign Lender shall deliver
to Borrower and Administrative Agent (in such number of copies as shall be
requested by the recipient) on or prior to the date on which such Foreign Lender
becomes a Lender under this Agreement (and from time to time thereafter upon the
request of Borrower or Administrative Agent, but only if such Foreign Lender is
legally entitled to do so), whichever of the following is applicable:

(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming
eligibility for benefits of an income tax treaty to which the United States is a
party,

 

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(ii) duly completed copies of Internal Revenue Service Form W-8ECI,

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a certificate to the
effect that such Foreign Lender is not (A) a “bank” within the meaning of
section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of Borrower
within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled
foreign corporation” described in section 881 (c) (3)(C) of the Code and
(y) duly completed copies of Internal Revenue Service Form W-8BEN, or

(iv) any other form prescribed by applicable law as a basis for claiming
exemption from or a reduction in United States Federal withholding tax duly
completed together with such supplementary documentation as may be prescribed by
applicable law to permit Borrower to determine the withholding or deduction
required to be made.

(f) Treatment of Certain Refunds. If Administrative Agent, or any Lender
determines, in its sole discretion, that it has received a refund of any Taxes
or Other Taxes as to which it has been indemnified by Borrower or with respect
to which Borrower has paid additional amounts pursuant to this Section, it shall
pay to Borrower an amount equal to such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by Borrower under this
Section with respect to the Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of Administrative Agent, and such Lender, as
the case may be, and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund), provided that
Borrower, upon the request of Administrative Agent, or such Lender, agrees to
repay the amount paid over to Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to Administrative Agent
or such Lender in the event Administrative Agent or such Lender is required to
repay such refund to such Governmental Authority. This subsection shall not be
construed to require Administrative Agent or any Lender to make available its
tax returns (or any other information relating to its taxes that it deems
confidential) to Borrower or any other Person.

3.02 [RESERVED].

3.03 [RESERVED].

3.04 COMPENSATION FOR LOSSES. Upon demand of any Lender (with a copy to
Administrative Agent) from time to time, Borrower shall promptly compensate such
Lender for and hold such Lender harmless from any loss, cost or expense incurred
by it as a result of any failure by Borrower (other than the failure of such
Lender to make a Loan) to borrow on the date or in the amount notified by
Borrower, including any loss of anticipated profits and any loss or expense
arising from the liquidation or reemployment of funds obtained by it to maintain
such Loan. Borrower shall also pay any customary administrative fees charged by
such Lender in connection with the foregoing.

 

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3.05 MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.

(a) Designation of a Different Lending Office. If Borrower is required to pay
any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 3.01, then such Lender (x) shall use
reasonable efforts to designate a different Lending Office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 3.01, as the case may be, in the future, and (ii) in
each case, would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender, and (y) shall deliver to
Administrative Agent and Borrower a calculation of any such compensation or
additional amount, in reasonable detail. Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.

(b) Replacement of Lenders. If Borrower is required to pay any additional amount
to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 3.01, Borrower may replace such Lender in accordance with
Section 11.13.

3.06 SURVIVAL. All of Borrower’s obligations under this Article III shall
survive termination of this Agreement and repayment of all Obligations
hereunder.

ARTICLE IV.

CONDITIONS PRECEDENT TO CREDIT EXTENSION

4.01 CONDITIONS TO INITIAL DRAW CLOSING DATE TERM LOAN FUNDING. The obligation
of each Lender to make its Initial Term Loan hereunder is subject to
satisfaction of the following conditions precedent:

(a) Administrative Agent’s receipt of the following, each of which shall be
originals or facsimiles (followed promptly by originals) unless otherwise
specified, each properly executed by a Responsible Officer of the signing Loan
Party each dated the Closing Date (or, in the case of certificates of
governmental officials, a recent date before the Closing Date) and each in form
and substance satisfactory to each of the Lenders:

(i) executed counterparts of this Agreement, the Fee Letter, the Administrative
Agent Fee Letter, the Unconditional Guaranty, the Security Agreement, the Pledge
Agreement, the Intercompany Subordination Agreement, Control Agreements in
respect of each of the deposit accounts and securities accounts pledged pursuant
to the Security Agreement, and each other Loan Document sufficient in number for
distribution to Administrative Agent, each Lender and the Loan Parties thereto;

(ii) for each Group A Project, fee title shall be vested in Borrower, and
Borrower shall have provided to Administrative Agent (i) the Deed of Trust as a
first priority Lien, subject only to Permitted Exceptions, duly executed by
Borrower, acknowledged, delivered and recorded in the Official Records; and
(ii) the Title Policy.

 

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(iii) a Note executed by Borrower in favor of each Lender;

(iv) [reserved];

(v) a Compliance Certificate duly executed by a Responsible Officer of Borrower
demonstrating Borrower’s compliance with the Financial Covenants on a pro forma
basis after giving effect to the Credit Extension being made on such date;

(vi) such certificates of resolutions or other action, incumbency certificates
and/or other certificates of Responsible Officers of each Loan Party as
Administrative Agent may require evidencing the identity, authority and capacity
of each Responsible Officer thereof authorized to act as a Responsible Officer
in connection with this Agreement and the other Loan Documents to which such
Loan Party is a party;

(vii) such documents and certifications as Administrative Agent may reasonably
require to evidence that each Loan Party is duly organized or formed, and that
each Loan Party is validly existing, in good standing and qualified to engage in
business in each jurisdiction where its ownership, lease or operation of
properties or the conduct of its business require such qualification, except to
the extent that failure to do so would not reasonably be expected to have a
Material Adverse Effect;

(viii) a favorable opinion of Borrower’s counsel, addressed to Administrative
Agent and each Lender, as to such matters concerning the Loan Parties and the
Loan Documents as the Lenders may reasonably request;

(ix) a certificate of a Responsible Officer of each Loan Party either
(A) attaching copies of all consents, licenses and approvals required in
connection with the execution, delivery and performance by such Loan Party and
the validity against such Loan Party of the Loan Documents to which it is a
party, and such consents, licenses and approvals shall be in full force and
effect, or (B) stating that no such consents, licenses or approvals are so
required;

(x) a certificate signed by a Responsible Officer of each Loan Party certifying
(A) that there has been no event or circumstance since June 30, 2009 that has
had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect; (B) the representations and warranties set
forth in Article V and in the other Loan Documents are true and correct in all
material respects (except for such representations and warranties made as of a
specified date, which shall be true and correct as of such specified date); and
(C) no Default or Event of Default has occurred and is continuing as of such
date or would occur after giving effect to the Credit Extension made on such
date;

(xi) evidence that all insurance required to be maintained pursuant to the Loan
Documents has been obtained and is in effect and that Administrative Agent has
been named loss payee, or Administrative Agent and the Lenders have been named
as additional insureds, as applicable, thereunder and Administrative Agent may
direct the insurers to cause all payments of insurance proceeds to be payable to
it from and after the date of a Default without further consent of Borrower or
any Loan Party; and

 

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(xii) such other assurances, certificates, documents, instruments, agreements,
consents or opinions as Administrative Agent, or Majority Lenders reasonably may
require, including such other documents, instruments and evidence to establish
and perfect the Liens granted to Administrative Agent or any Lender under the
Loan Documents.

(b) Evidence satisfactory to Majority Lenders that Borrower has repaid, or
concurrently herewith will repay, all Indebtedness under the Refinanced
Revolving Credit Agreements and any Liens (and the deeds of trust, security
agreements or mortgages creating such Liens) granted to secure such Indebtedness
on all of the Group A Property and the Group B Property have been reconveyed,
discharged and terminated, including payoff letters in form and substance
satisfactory to Majority Lenders, from the lenders, agents or trustees, as
applicable, under the Refinanced Revolving Credit Agreements and addressed to
Borrower; provided that even though the Liens securing the Refinanced Revolving
Credit Agreements are required to be reconveyed, discharged and terminated:
(i) the commitments to fund set forth in the Refinanced CBT, CNB and JPM
Revolving Credit Agreements are not required to be terminated and the Refinanced
Wachovia Revolving Credit Agreement is not required to be terminated (but any
amounts outstanding under any and all of such Refinanced Revolving Credit
Agreements other than that certain letter of credit existing on the Closing Date
under the Refinanced Wachovia Revolving Credit Agreement in an amount not to
exceed $5,330,000 shall concurrently herewith have been paid in full, except
only those amounts to be repaid from the sales proceeds under those escrows on
up to ten (10) Lots or Units mentioned in (ii) below), and (ii) in order to
facilitate the mechanics of the reconveyance of the Refinanced Revolving Credit
Facilities, and recognizing that a small number sales of Lots or Units to retail
end users are in the escrow closing process on the Closing Date, Lender will
allow Borrower under the Refinanced CBT, CNB and JPM Revolving Credit Agreements
to allow a maximum of ten (10) such Lots or Units to close escrow in the period
of time on and from the Closing Date until and including the fifth
(5th) Business Day after the Closing Date without reconveying the Lien of the
applicable Refinanced CBT, CNB and JPM Revolving Credit Agreement until the
earlier of the closing date of each such escrow or the fifth (5th) Business Day
after the Closing Date; and (2) the Refinanced Wachovia Revolving Credit
Agreement is in all respects reconveyed, discharged and terminated, except that
there is an existing letter of credit in an amount not more than $5,330,000
secured 100% by cash subject to a Control Agreement.

(c) Administrative Agent shall have received Uniform Commercial Code, Lien
searches and other evidence satisfactory to Lenders that the only Liens on the
Collateral (other than Group B Property) are Permitted Liens.

(d) Administrative Agent and each Lender shall have received a five (5) year
business plan and budget (commencing on the Closing Date), with a narrative
executive summary (“Annual Budget”) for the Consolidated Group, which Annual
Budget shall include annual base compensation for senior management of the
Consolidated Group.

(e) The Majority Lenders shall be satisfied, as of the Closing Date, based upon
financial models developed by the Lenders and Borrower, that no default or event
of default under the Indentures has occurred or would occur upon giving effect
to the transactions contemplated by the Loan Documents.

 

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(f) The representations and warranties of the Borrower and each other Loan Party
contained in Article 5 or any other Loan Document or which are contained in any
document furnished in connection herewith shall be true and correct.

(g) The Lenders shall have completed financial, accounting, insurance and legal
due diligence satisfactory to the Lenders in their sole discretion regarding the
Loan Parties.

(h) Borrower shall have delivered to Administrative Agent, and Majority Lenders
shall have approved, a schedule of all maps and plats in existence with respect
to the each of the Group A Projects in the possession of, or prepared for, any
of the Consolidated Group. Each such map or plat must (i) be made available by
Borrower for review and copying by Lender, (ii) contain a legal description of
the subject Group A Project, (iii) describe and show all boundaries of and lot
lines within said Group A Project and all streets and other dedications and
(iv) contain such other information and certifications as Administrative Agent
or Lender may request.

(i) Borrower shall have provided Administrative Agent with, and Majority Lenders
shall have approved, a schedule of any Tentative Maps relating to any Group A
Property.

(j) Borrower shall have provided to Administrative Agent, and Majority Lenders
shall have approved, a schedule of all soils/hydrology test reports relating to
the Group A Projects in the possession of, or prepared for, any of the
Consolidated Group, and such test reports shall be made available by Borrower
for review by Administrative Agent or Lender. The contents of the
soils/hydrology test reports must be satisfactory to Majority Lenders.

(k) Borrower shall have delivered to Administrative Agent, and Majority Lenders
shall have approved, a schedule of all environmental assessments of the Group A
Projects in the possession of, or prepared for, any of the Consolidated Group,
and such assessments shall have been made available by Borrower for review by
Administrative Agent or Lender. If Majority Lenders determine that any further
review should be obtained, Borrower shall also provide such follow up testing,
reports, and other actions as may be required by Administrative Agent. If such
reports (or reports listed in paragraph (j) immediately above) are addressed to
Borrower, Borrower shall cause a reliance letter, in form and substance
satisfactory to Majority Lenders, to be provided to Administrative Agent.

(l) Borrower shall have delivered to Administrative Agent, the Environmental
Indemnity, fully completed and duly executed by Borrower.

(m) Borrower shall have provided Administrative Agent and Majority Lenders shall
have approved, a preliminary title report for each Group A Project, prepared by
the Title Company, together with a legible copy of each “SCHEDULE B” item.

(n) Borrower shall have provided to Administrative Agent evidence satisfactory
to Majority Lenders as to whether (a) each Group A Project, or any portion
thereof, is located in an area designated by the Department of Housing and Urban
Development as having special flood or mudslide hazards, and (b) the community
in which such Group A Project is located is participating in the National Flood
Insurance Program.

 

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(o) For each Group A Project, Administrative Agent shall have received evidence
of the completion of all recordings and filings to establish or maintain the
perfection and priority of the Liens on the Collateral granted in the Loan
Documents and required by Administrative Agent to be in effect prior to the
effectiveness of this Agreement.

(p) Borrower shall have used commercially reasonable efforts to obtain and
deliver to Administrative Agent a duly executed and acknowledged subordination
agreement, recorded in the Official Records, from each party in interest to an
agreement that includes a PAPA Obligation or Preemptive Purchase or Lease Right
with respect to any Group A Property, which subordination agreement shall
(i) subordinate each of such PAPA Obligations and Preemptive Purchase or Lease
Right to the Lien of this Loan on the applicable Group A Property, and (ii) be
in form and substance reasonably acceptable to Majority Lenders (provided that
they should be consistent in all material respects with the forms provided by
Initial Lender’s counsel prior to the Closing Date).

(q) Any fees required to be paid on or before the Closing Date shall have been
paid in full by Borrower.

(r) Unless waived by Administrative Agent, Borrower shall have paid all fees,
charges and disbursements of counsel to Administrative Agent and each Lender and
all out of pocket due diligence costs of Initial Lender, in each case to the
extent invoiced prior to or on the Closing Date, plus such additional amounts of
such fees, charges and disbursements as shall constitute its reasonable estimate
of such fees, charges and disbursements incurred or to be incurred by it through
the closing and post closing proceedings (provided that such estimate shall not
thereafter preclude a final settling of accounts between Borrower, the Lenders
and Administrative Agent). Without limiting the generality of the provisions of
Section 10.04, for purposes of determining compliance with the conditions
specified in this Section 4.01, each Lender that has signed this Agreement shall
be deemed to have consented to, approved or accepted or to be satisfied with,
each document or other matter required thereunder to be consented to or approved
by or acceptable or satisfactory to a Lender unless Administrative Agent shall
have received notice from such Lender prior to the proposed Closing Date
specifying its objection thereto.

(s) Each of the Group A Projects shall be listed on Schedule 4.01(s), which
Schedule shall include the Real Property Classifications for the Borrower Real
Property included in each Group A Project pursuant to the conditions set forth
in Sections 4.04 through 4.08, inclusive.

(t) All of the conditions to inclusion to of Real Property as Eligible Real
Property Collateral in Section 4.09(b) shall have been met with respect to all
of the Group A Property.

(u) Each of Borrower (after giving effect to the transactions contemplated
hereby), and the Consolidated Group on a

 

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consolidated basis, is solvent, has assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has access to adequate funds for the conduct of
its business and the ability to pay its debts from time to time incurred in
connection therewith as such debts mature.

4.02 CONDITIONS TO DELAYED DRAW CLOSING DATE TERM LOAN FUNDING. The obligation
of each Lender to make its Delayed Draw Term Loan hereunder is subject to
satisfaction of the following conditions precedent:

(a) For each Group B Project, fee title shall be vested in Borrower, and
Borrower shall have provided to Administrative Agent (i) the Deed of Trust as a
first priority Lien, subject only to Permitted Exceptions, duly executed by
Borrower, acknowledged, delivered and recorded and (ii) the Title Policy.

(b) Administrative Agent shall have received Uniform Commercial Code, Lien
searches, and other evidence satisfactory to Lenders that the only Liens on the
Collateral are Permitted Liens (except that the Liens on Real Property shall be
subject only to Permitted Exceptions).

(c) Permitted Construction Indebtedness incurred by Borrower when added to the
Total Outstandings and Indebtedness under the Existing Secured Indebtedness,
shall not exceed the Maximum Permitted Secured Indebtedness.

(d) a favorable opinion of Borrower’s counsel, addressed to Administrative Agent
and each Lender, as to such matters concerning the Loan Parties and the Loan
Documents as the Lenders may reasonably request;

(e) A certificate signed by a Responsible Officer of each Loan Party certifying
(A) that there has been no event or circumstance since the Closing Date that has
had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect; (B) the representations and warranties set
forth in Article V and in the other Loan Documents are true and correct in all
material respects (except for such representations and warranties made as of a
specified date, which shall be true and correct as of such specified date); and
(C) no Default or Event of Default has occurred and is continuing as of such
date or would occur after giving effect to the Credit Extension made on such
date;

(f) Evidence that all insurance required to be maintained pursuant to the Loan
Documents continues to be in effect and that Administrative Agent continues to
be named loss payee, Administrative Agent and the Lenders continue to be named
as additional insureds thereunder and Administrative Agent may direct the
insurers to cause all payments of insurance proceeds to be payable to it from
and after the date of a Default without further consent of the Borrower or any
Loan Party; and

(g) Such other assurances, certificates, documents, instruments, agreements,
consents or opinions as Administrative Agent, or Majority Lenders reasonably may
require, including such other documents, instruments and evidence to establish
and perfect the Liens granted to Administrative Agent or any Lender under the
Loan Documents.

 

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(h) Borrower shall have delivered to Administrative Agent, and Majority Lenders
shall have approved, a schedule of all maps and plats in existence with respect
to the each of the Group B Projects in the possession of, or prepared for, any
of the Consolidated Group. Each such map or plat must (i) be made available by
Borrower for review and copying by Lender, (ii) contain a legal description of
the subject Group B Project, (iii) describe and show all boundaries of and lot
lines within said Group B Project and all streets and other dedications and
(iv) contain such other information and certifications as Administrative Agent
or Lender may request.

(i) Borrower shall have provided Administrative Agent with, and Majority Lenders
shall have approved, a schedule of any Tentative Maps relating to any Group B
Property.

(j) Borrower shall have provided to Administrative Agent, and Majority Lenders
shall have approved, a schedule of all soils/hydrology test reports relating to
the Group B Projects in the possession of, or prepared for, any of the
Consolidated Group, and such test reports shall be made available by Borrower
for review by Administrative Agent or Lender. The contents of the
soils/hydrology test reports must be satisfactory to Majority Lenders.

(k) Borrower shall have delivered to Administrative Agent, and Majority Lenders
shall have approved, a schedule of all environmental assessments of the Group B
Projects in the possession of, or prepared for, any of the Consolidated Group,
and such assessments shall have been made available by Borrower for review by
Administrative Agent or Lender. If Majority Lenders determine that any further
review should be obtained, Borrower shall also provide such follow up testing,
reports, and other actions as may be required by Administrative Agent. If such
reports (or reports listed in paragraph (j) immediately above) are addressed to
Borrower, Borrower shall cause a reliance letter, in form and substance
satisfactory to Majority Lenders, to be provided to Administrative Agent.

(l) Borrower shall have delivered to Administrative Agent, the Environmental
Indemnity, fully completed and duly executed by Borrower and Parent.

(m) Borrower shall have provided Administrative Agent and Majority Lenders shall
have approved, a preliminary title report for each Group B Project, prepared by
the Title Company, together with a legible copy of each “Schedule B” item.

(n) Borrower shall have provided to Administrative Agent evidence satisfactory
to Majority Lenders as to whether (a) each Group B Project, or any portion
thereof, is located in an area designated by the Department of Housing and Urban
Development as having special flood or mudslide hazards, and (b) the community
in which such Group B Project is located is participating in the National Flood
Insurance Program.

(o) Borrower shall have used commercially reasonable efforts to obtain and
deliver to Administrative Agent a duly executed and acknowledged subordination
agreement, recorded in the Official Records, from each party in interest to an
agreement that includes a PAPA Obligation or Preemptive Purchase or Lease Right
with respect to any Group A Property and Group B Property, which subordination
agreement shall (i) subordinate each of such PAPA Obligations and Preemptive
Purchase or Lease Right to the Lien of this Loan on the applicable Group A
Property and Group B Property, and (ii) be in form and substance reasonably
acceptable to Majority Lenders (provided that they should be consistent in all
material respects with the forms provided by Initial Lender’s counsel prior to
the Closing Date).

 

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(p) For each Group B Project, Administrative Agent shall have received evidence
of the completion of all recordings and filings to establish or maintain the
perfection and priority of the Liens on the Collateral granted in the Loan
Documents and required by Administrative Agent to be in effect prior to the
effectiveness of this Agreement.

(q) Each of the Group B Projects shall be listed on Schedule 4.02(q), which
Schedule shall include the correct Real Property Classifications for the
Borrower Real Property included in each Group B Project pursuant to the
conditions set forth in Sections 4.04 through 4.08, inclusive.

(r) All of the conditions to inclusion to of Real Property as Eligible Real
Property Collateral in Section 4.09(b) shall have been met with respect to all
of the Group B Property.

(s) Each of Borrower (after giving effect to the transactions contemplated
hereby), and the Consolidated Group on a consolidated basis, is solvent, has
assets having a fair value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured, and has
access to adequate funds for the conduct of its business and the ability to pay
its debts from time to time incurred in connection therewith as such debts
mature.

(t) A Borrowing Base Report duly executed by a Responsible Officer of Borrower
demonstrating Borrower’s compliance with the Borrowing Base on a pro forma basis
after giving effect to the Credit Extension being made on such date.

4.03 CONDITIONS TO EACH POST CLOSING CREDIT EXTENSION. The occurrence of each
Credit Extension (other than the initial Credit Extension) is subject to the
further conditions that:

(a) Borrower shall have satisfied all of the conditions related to the Group A
Property and Group A Projects set forth in Section 4.01.

(b) Borrower shall have satisfied all of the conditions related to the Group B
Property and Group B Projects set forth in Section 4.02.

(c) Borrower shall have delivered to Administrative Agent and each Lender a
Notice of Borrowing for such Credit Extension in accordance with this Agreement;

(d) Borrower shall have delivered to Administrative Agent and each Lender a
Borrowing Base Report duly executed by a Responsible Officer of Borrower,
demonstrating Borrower’s compliance with the Borrowing Base;

(e) Borrower shall have delivered to Administrative Agent and each Lender a
Compliance Certificate duly executed by a Responsible Officer of Borrower
demonstrating Borrower’s compliance with the Financial Covenants;

 

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(f) Permitted Construction Indebtedness incurred by Borrower, when added to the
Total Outstandings and Indebtedness under the Existing Secured Indebtedness,
shall not exceed the Maximum Permitted Secured Indebtedness.

(g) Each of Borrower (after giving effect to the transactions contemplated
hereby), and the Consolidated Group on a consolidated basis, is solvent, has
assets having a fair value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured, and has
access to adequate funds for the conduct of its business and the ability to pay
its debts from time to time incurred in connection therewith as such debts
mature.

(h) Borrower shall have delivered to Administrative Agent and each Lender a
certificate of a Responsible Officer that on the date such Credit Extension is
to occur and after giving effect thereto, the following are true and correct:

(i) The representations and warranties of Borrower and the other Loan Parties
set forth in Article V and in the other Loan Documents are true and correct in
all material respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which shall be true and
correct as of such date);

(ii) No Default or Event of Default has occurred and is continuing or will
result from such Credit Extension;

(iii) All of the Loan Documents remain in full force and effect; and

(iv) That there has been no event or circumstance since the Closing Date that
has had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.

The submission by Borrower to Administrative Agent of each Notice of Borrowing
shall be deemed to be a representation and warranty by Borrower that each of the
statements set forth above in this Section 4.03(d) is true and correct as of the
date of such notice.

4.04 CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE BORROWING BASE AS
UNIMPROVED LAND. Borrower may, from time to time, request Administrative Agent
to include a portion of the Borrower Real Property as Unimproved Land for
purposes of the Borrowing Base. In connection with each such request, and as a
condition to any Borrower Real Property qualifying as Unimproved Land at any
time including on the Closing Date the date that is sixty (60) days after the
Closing Date, the date of any Credit Extension or the date of any determination
of the Borrowing Base, the following conditions precedent shall have been
satisfied at the sole cost and expense of Borrower. Upon the satisfaction of
such conditions precedent, as determined by Majority Lenders, such portions of
the Borrower Real Property shall be included in the Borrowing Base as Unimproved
Land:

(a) REQUEST. Borrower shall have submitted to Administrative Agent a request in
the form of Exhibit “G” to include in the Borrowing Base as Unimproved Land
portions of the Borrower Real Property as set forth in such request. Such
request and all

 

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other documents and instruments described in this Section 4.04 shall be
submitted with the Borrowing Base Report in which Borrower intends to include
such portion of the Borrower Real Property in the Borrowing Base as Unimproved
Land. Each such request shall be deemed a renewal of all representations and
warranties of Borrower set forth in the Loan Documents.

(b) DEFAULTS. No Default shall have occurred and be continuing on and as of the
date that each portion of the Borrower Real Property is included as Unimproved
Land.

(c) ZONING APPROVALS. Borrower shall have provided to Administrative Agent and
Majority Lenders shall have approved evidence of appropriate vested zoning for
the anticipated development of the Unimproved Land “for sale” single- or “for
sale” multi- family residential property, which zoning shall be consistent with
(i) the anticipated use of such Unimproved Land and (ii) the Core Businesses.

(d) ELIGIBLE REAL PROPERTY COLLATERAL. All Unimproved Land shall have met all of
the requirements in this Agreement to be Eligible Real Property Collateral.

(e) OTHER. Borrower shall have provided such other documents and information
reasonably requested by Administrative Agent.

4.05 CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE BORROWING BASE AS
LAND UNDER DEVELOPMENT. Borrower may, from time to time, request Administrative
Agent to include a portion of the Borrower Real Property as Land Under
Development for purposes of the Borrowing Base. In connection with each such
request, and as a condition to any Borrower Real Property qualifying as Land
Under Development at any time including on the Closing Date, the date that is
sixty (60) days after the Closing Date, the date of any Credit Extension or the
date of any determination of the Borrowing Base, the following conditions
precedent shall have been satisfied at the sole cost and expense of Borrower.
Upon the satisfaction of such conditions precedent, as determined by Majority
Lenders, such portions of the Borrower Real Property shall be included in the
Borrowing Base as Land Under Development:

(a) REQUEST. Borrower shall have submitted to Administrative Agent a request in
the form of Exhibit “H” to include in the Borrowing Base as Land Under
Development portions of the Borrower Real Property as set forth in such request.
Such request and all other documents and instruments described in Sections 4.04
and 4.05 shall be submitted with the Borrowing Base Report in which Borrower
intends to include such portion of the Borrower Real Property in the Borrowing
Base as Land Under Development. Each such request shall be deemed a renewal of
all representations and warranties of Borrower set forth in the Loan Documents.

(b) DEFAULTS. No Default shall have occurred and be continuing on and as of the
date that each portion of the Borrower Real Property is included as Land Under
Development.

 

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(c) HORIZONTAL IMPROVEMENTS. Borrower shall have provided to Administrative
Agent and Majority Lenders shall have approved evidence of Horizontal
Improvements are ongoing on the applicable Borrower Real Property.

(d) ELIGIBLE REAL PROPERTY COLLATERAL. All Land Under Development meets all of
the requirements in this Agreement to be Eligible Real Property Collateral.

(e) OTHER. Borrower shall have provided such other documents and information
reasonably requested by Administrative Agent.

4.06 CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE BORROWING BASE AS
FINISHED LOTS. Borrower may, from time to time, request Administrative Agent to
include a portion of the Borrower Real Property as Finished Lots for purposes of
the Borrowing Base. In connection with each such request, and as a condition to
any Borrower Real Property qualifying as Finished Lots at any time including on
the Closing Date, the date that is sixty (60) days after the Closing Date, the
date of any Credit Extension or the date of any determination of the Borrowing
Base, the following conditions precedent shall have been satisfied at the sole
cost and expense of Borrower. Upon the satisfaction of such conditions
precedent, as determined by Majority Lenders, such portions of the Borrower Real
Property shall be included in the Borrowing Base as Finished Lots:

(a) REQUEST. Borrower shall have submitted to Administrative Agent a request in
the form of Exhibit “I” to include in the Borrowing Base as Finished Lots
portions of the Borrower Real Property as set forth in such request. Such
request and all other documents and instruments described in Sections 4.04, 4.05
and 4.06 shall be submitted with the Borrowing Base Report in which Borrower
intends to include such portion of the Borrower Real Property in the Borrowing
Base as Finished Lots. Each such request shall be deemed a renewal of all
representations and warranties of Borrower set forth in the Loan Documents.

(b) DEFAULTS. No Default shall have occurred and be continuing on and as of the
date that each portion of the Borrower Real Property is included as Finished
Lots.

(c) FINAL MAP. Borrower shall have delivered to Administrative Agent and
Majority Lenders shall have approved a Final Map (a Tentative Map is not
sufficient for inclusion of Borrower Real Property as Finished Lots) of the
Finished Lots pursuant to the applicable subdivision map requirements, which
Final Map shall have been recorded in the Official Records. Each Final Map must
contain a legal description of the Finished Lots, must describe and show all
boundaries of and lot lines within such Finished Lots and all streets and other
dedications, and must contain such other information and certifications as
Administrative Agent may request.

(d) SUBSTANTIAL COMPLETION OF HORIZONTAL IMPROVEMENTS. Borrower shall have
delivered to Administrative Agent and Majority Lenders shall have approved
evidence that all Horizontal Improvements on the Borrower Real Property to be
included as Finished Lots are substantially compete.

(e) PERMIT READY; UTILITIES. Borrower shall have provided to Administrative
Agent and Majority Lenders shall

 

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have approved evidence that all fees due to any Governmental Authority have been
paid (including all fees up and to the point of pulling the final building
permit necessary to commence Vertical Construction), and all conditions and
requirements necessary to be met have been met unconditionally, for issuance of
all Building Permits for the Finished Lots;, and no conditions will exist to
affect Borrower’s right to connect into and have adequate use of such utilities
except for the payment of a normal connection charges or tap charges and except
for the payment of subsequent charges for such services to the utility supplier.

(f) ELIGIBLE REAL PROPERTY COLLATERAL. All Finished Lots meet all of the
requirements in this Agreement to be Eligible Real Property Collateral.

(g) OTHER. Borrower shall have provided such other documents and information
reasonably requested by Administrative Agent.

4.07 CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE BORROWING BASE AS
HOMES UNDER CONSTRUCTION. Borrower may, from time to time, request
Administrative Agent to include a portion of the Borrower Real Property as Homes
Under Construction, as applicable, for purposes of the Borrowing Base. In
connection with each such request, and as a condition to any Borrower Real
Property qualifying as Homes Under Construction at any time including on the
Closing Date the date that is sixty (60) days after the Closing Date, the date
of any Credit Extension or the date of any determination of the Borrowing Base,
the following conditions precedent shall have been satisfied at the sole cost
and expense of Borrower. Upon the satisfaction of such conditions precedent, as
determined by Majority Lenders, such portion of the Borrower Real Property shall
be included in the Borrowing Base as Homes Under Construction, as applicable:

(a) REQUEST. Borrower shall have submitted to Administrative Agent a request in
the form of Exhibit “J” to include in the Borrowing Base as Homes Under
Construction portions of the Borrower Real Property as set forth in such
request. Such request and all other documents and instruments described in
Sections 4.04, 4.05, 4.06 and 4.07 shall be submitted with the Borrowing Base
Report in which Borrower intends to include such portion of the Borrower Real
Property in the Borrowing Base as Homes Under Construction. Each such request
shall be deemed a renewal of all representations and warranties of Borrower set
forth in the Loan Documents.

(b) DEFAULTS. No Default shall have occurred and be continuing on and as of the
date that each portion of the Borrower Real Property as Homes Under Construction
for purposes of the Borrowing Base.

(c) DOCUMENTS AND INFORMATION. Borrower shall have provided to Administrative
Agent, and Majority Lenders shall have approved, all documents and information
required pursuant to Sections 4.04, 4.05 and 4.06, with respect to the
applicable portion of the Borrower Real Property as Homes Under Construction for
purposes of the Borrowing Base.

(d) VERTICAL CONSTRUCTION. Borrower shall have provided to Administrative Agent,
and Majority Lenders shall have approved, evidence that the Building Permit has
been issued and that Vertical Construction has commenced on the Finished

 

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Lots. Homes Under Construction will include Units that meet all of the
requirements and conditions to be Homes Under Construction and will continue to
include any such Units up until and including the point that such Units have
become finished Units (i.e., through Vertical Construction, regardless of what
stage of Vertical Construction is ongoing, and including upon completion of
Vertical Construction) and (other than with respect to Units that meet all of
the conditions and requirements under Section 4.08 below to become Model Homes)
escrow has closed on the sales of such Units in accordance with Section 8.02.

(e) ELIGIBLE REAL PROPERTY COLLATERAL. All Homes Under Construction meet all of
the requirements in this Agreement to be Eligible Real Property Collateral.

(f) OTHER. Borrower shall have provided such other documents and information
reasonably requested by Administrative Agent.

4.08 CONDITIONS PRECEDENT TO ADMISSION OF REAL PROPERTY TO THE BORROWING BASE AS
MODEL HOMES. Borrower may, from time to time, request Administrative Agent to
include a portion of the Borrower Real Property as Model Homes for purposes of
the Borrowing Base. In connection with each such request, and as a condition to
any Borrower Real Property qualifying as Model Homes at any time including on
the Closing Date, the date that is sixty (60) days after the Closing Date, the
date of any Credit Extension or the date of any determination of the Borrowing
Base, the following conditions precedent shall have been satisfied at the sole
cost and expense of Borrower. Upon the satisfaction of such conditions
precedent, as determined by Majority Lenders, such portions of the Borrower Real
Property shall be included in the Borrowing Base as Model Homes:

(a) REQUEST. Borrower shall have submitted to Administrative Agent a request in
the form of Exhibit “K” to include in the Borrowing Base as Model Homes portions
that a portion of the Borrower Real Property as set forth in such request. Such
request and all other documents and instruments described in this Sections 4.04,
4.05, 4.06, 4.07 and 4.08 shall be submitted with the Borrowing Base Report in
which Borrower intends to include such portion of the Borrower Real Property in
the Borrowing Base as Model Homes. Each such request shall be deemed a renewal
of all representations and warranties of Borrower set forth in the Loan
Documents.

(b) DEFAULTS. No Default shall have occurred and be continuing on and as of the
date that each portion of the Borrower Real Property as Model Homes for purposes
of the Borrowing Base.

(c) DOCUMENTS AND INFORMATION. Borrower shall have provided to Administrative
Agent, and Majority Lenders shall have approved, all documents and information
required pursuant to Sections 4.04, 4.05, 4.06 and 4.07, with respect to the
applicable portion of the Borrower Real Property as Model Homes for purposes of
the Borrowing Base.

(d) UNIT CONSTRUCTION COMPLETION. Borrower shall not be entitled to include any
portion of the Borrower Real Property as Model Homes for purposes of the
Borrowing Base unless and until Vertical Construction has been completed to the

 

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satisfaction of Majority Lenders and the Model Homes have been completed with
such fit and finish and furnishing as Borrower reasonably believes is necessary
in connection with marketing and sales of Units of the type of the Model Home in
the Project in which the Model Home is located. Units that are unsold shall not
be deemed to be Model Homes (but rather a Home Under Construction) unless such
Unit is furnished or merchandized and used as part of marketing and sales of
Units of the type of the Model Home, and located in a Model Unit complex
(provided that Model Unit complexes shall not include more Units than is
industry standard and is consistent with Borrower’s past practice in designating
Model Homes).

(e) ELIGIBLE REAL PROPERTY COLLATERAL. All Model Homes meet all of the
requirements in this Agreement to be Eligible Real Property Collateral.

(f) OTHER. Borrower shall have provided such other documents and information
reasonably requested by Administrative Agent.

4.09 GENERAL CONDITIONS TO REAL PROPERTY ELIGIBLE COLLATERAL BEING INCLUDED IN
THE BORROWING BASE. In addition to any other conditions to any Borrower Real
Property being included in the Borrowing Base from time to time, the Borrower
Real Property must be Eligible Real Property Collateral, and in order to be
Eligible Real Property Collateral, Real Property must be included in a Project
that shall have met the following conditions precedent as determined by Majority
Lenders (an “Eligible Project”):

(a) PROJECT DELIVERABLES. Administrative Agent has received and approved:

(i) A fully completed Project Eligibility Request (other than for a Group A
Project or a Group B Project, for which the other applicable conditions in this
Agreement to inclusion in the Borrowing Base shall have been met), executed by
Borrower, with all attachments and enclosures;

(ii) A fully executed and acknowledged Deed of Trust for the Real Property
included in the Project, which Deed of Trust shall be recorded in the Official
Records, and upon recordation of the Deed of Trust, Administrative Agent shall
have received a Title Policy issued by the Title Company, and except for the
Permitted Exceptions, there are no Liens encumbering such Real Property;

(iii) Fully executed collateral assignments of any material Construction
Agreements for the Project; and

(iv) For informational purposes and with no right of Lender to approve, to the
extent such information is available for the Horizontal Improvements or Vertical
Construction to be constructed as part of the Project as of the date entry of
the Project’s Borrower Real Property into the Borrowing Base, if requested by
Administrative Agent or any Majority Lender: (1) copies of the Plans, Drawings
and Specifications, architect’s and engineers agreements, construction
contracts, and all other agreements, and Entitlements concerning the Project
being submitted for approval; (2) all cost breakdowns for the Improvements to be
constructed as part of the Project; and (3) Project sources and uses of funds,
Project economics and feasibility, market data and other similar information
concerning the Project as reasonably requested by Administrative Agent.

 

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(b) ADDITIONAL REQUIREMENTS. Without limitation of any other conditions to any
Borrower Real Property being Eligible Real Property Collateral, the following
are conditions to any Borrower Real Property being Eligible Real Property
Collateral:

(i) The Borrower Real Property is not zoned or being developed for commercial
use or any other use that is inconsistent with the single- or multi- family “for
sale” use intended in connection with the Core Businesses (e.g., land zoned for
hotel or golf course uses);

(ii) The Real Property (other than Amenities which may have been transferred to
the Project’s homeowners’ association) shall be Borrower Real Property owned in
fee, subject only to the Permitted Exceptions;

(iii) Administrative Agent shall have no obligation to approve a Project as an
Eligible Project if there is a Default;

(iv) The Borrower Real Property is not (or the holder of Permitted Construction
Indebtedness does not have the right to cause such Borrower Real Property to
become) collateral for any Permitted Construction Indebtedness or Existing
Secured Indebtedness;

(v) The Borrower Real Property is not Unentitled Land;

(vi) The Borrower Real Property is not zoned for, and will not be developed as,
Apartments, except that the Asset identified on Schedule APT (and no other
Aggregate Real Property) is zoned for Apartments and may be Eligible Real
Property Collateral that is Unimproved Land, Land Under Development or Finished
Lots on the Closing Date, if such Asset meets all of the conditions to be
Eligible Real Property Collateral other than those conditions requiring that the
Unimproved Land, Land Under Development or Finished Lots as the case may be for
single- or multi- family “for sale” residential use;

(vii) There is a Deed of Trust, recorded in the Official Records, creating an
enforceable first priority Lien in favor of Administrative Agent on behalf of
the Lenders on the Borrower Real Property, and except for the Permitted
Exceptions, there are no Liens encumbering such Borrower Real Property; and

(viii) Borrower shall have used commercially reasonable efforts to obtain and
deliver to Administrative Agent: (a) a duly executed and acknowledged
subordination agreement, recorded in the Official Records, from each party in
interest to an agreement that includes a PAPA Obligation or Preemptive Purchase
or Lease Right with respect to the Borrower Real Property, which subordination
agreement shall (1) subordinate each of such PAPA Obligations and Preemptive
Purchase or Lease Right to the Lien of this Loan on the applicable Borrower Real
Property, and (2) be in form and substance reasonably acceptable to Majority
Lenders (provided that they should be consistent in all material respects with
the forms provided by Initial Lender’s

 

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counsel prior to the Closing Date); and (b) delivered to Administrative Agent a
legal opinion in a form reasonably acceptable to Majority Lenders that such
subordination agreement is enforceable and is in a form sufficient to be a
subordination agreement.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

In order to induce Administrative Agent and the Lenders to enter into this
Agreement, Borrower represents and warrants to Administrative Agent and the
Lenders for itself and each of the other members of the Consolidated Group that:

5.01 EXISTENCE, QUALIFICATION AND POWER; COMPLIANCE WITH LAWS. Each Loan Party
and Property Entity (a) is duly organized or formed, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or
organization, (b) has all requisite power and authority and all requisite
governmental licenses, authorizations, consents and approvals to (i) own its
assets and carry on its business, and (ii) execute, deliver and perform its
obligations under the Loan Documents to which it is a party, (c) is duly
qualified and is licensed and in good standing under the Laws of each
jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification or license, and (d) is in
compliance with all Laws.

5.02 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by
each Loan Party of each Loan Document to which such Person is a party, have been
duly authorized by all necessary corporate or other organizational action, and
do not and will not (a) contravene the terms of any of such Person’s
Organization Documents, (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, or require any payment to
be made under (i) any Contractual Obligation to which such Person is a party or
affecting such Person or the properties of such Person or any of its
Subsidiaries or any Joint Venture in which it is a member or (ii) any order,
injunction, writ or decree of any Governmental Authority or any arbitral award
to which such Person or its property is subject, or (c) violate any Law.

5.03 GOVERNMENTAL AUTHORIZATION; OTHER CONSENTS. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, any Loan Party of this Agreement or any other Loan Document.

5.04 BINDING EFFECT. This Agreement has been, and each other Loan Document, when
delivered hereunder, will have been, duly executed and delivered by each Loan
Party that is party thereto. This Agreement constitutes, and each other Loan
Document when so delivered will constitute, a legal, valid and binding
obligation of such Loan Party, enforceable against each Loan Party that is party
thereto in accordance with its terms.

 

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5.05 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE EFFECT.

(a) The Audited Financial Statements (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby; and (ii) present
fairly, in all material respects, the consolidated financial condition of the
Consolidated Group, as determined in accordance with GAAP, as of the date
thereof and their consolidated results of operations and their cash flows for
the period covered thereby in accordance with GAAP consistently applied
throughout the period covered thereby.

(b) The unaudited consolidated balance sheet of the Consolidated Group dated
June 30, 2009, and the related consolidated statements of income or operations,
shareholders’ equity and cash flows for the fiscal quarter ended on that date
(i) were prepared in accordance with GAAP consistently applied throughout the
period covered thereby, and (ii) present fairly, in all material respects, the
consolidated financial condition of the Consolidated Group, as determined in
accordance with GAAP, as of the date thereof and their consolidated results of
operations and their cash flows for the period covered thereby, subject, in the
case of clauses (i) and (ii), to the absence of footnotes and to normal year-end
audit adjustments.

(c) Since June 30, 2009, there has been no event or circumstance, either
individually or in the aggregate, that has had or would reasonably be expected
to have a Material Adverse Effect.

5.06 LITIGATION. Except for the litigation described on Schedule 5.06, or any
litigation addressed by Section 5.32, there are no actions, inquiries, suits,
proceedings, claims or disputes pending or, to Borrower’s Knowledge, threatened,
at law, in equity, in arbitration or before any Governmental Authority, by or
against any Loan Party and/or Property Entity or against any of their properties
or revenues that (a) purport to affect or pertain to this Agreement or any other
Loan Document, or any of the transactions contemplated hereby, (b) purport to
affect or pertain to any Project, Asset or portion thereof or (c) if adversely
determined, would reasonably be expected to result in a Material Adverse Effect.

5.07 NO DEFAULT. No member of the Consolidated Group is in default under or with
respect to any material Contractual Obligation (including the Indentures). No
Default or Event of Default has occurred and is continuing or would result from
the consummation of the transactions contemplated by this Agreement or any other
Loan Document.

5.08 OWNERSHIP OF PROPERTY; LIENS.

(a) Borrower has good and marketable fee title to all of the Borrower Real
Property and good title to the other components of the Property owned by
Borrower free and clear of all Liens, subject only to Permitted Exceptions. CF
Owner has good and marketable fee title to all of the CF Property free and clear
of all Liens, subject only to the Existing Permitted Indebtedness and Permitted
Exceptions. MF Owner has good and marketable fee title to all of the MF Property
free and clear of all Liens, subject only to the Existing Permitted Indebtedness
and Permitted Exceptions. Borrower owns or leases all Real Property (other than
the CF Property and the MF Property) and Personal Property necessary for the
use, entitlement, management, development, operation, marketing and sale of the
Aggregate Real Property. There are no outstanding Mechanics’ Liens. There are no
delinquent ground

 

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rents, assessments for Improvements or other similar outstanding charges or
impositions affecting the Aggregate Real Property. No Improvements lie outside
the boundaries and building restriction lines of the Aggregate Real Property or
encroach onto any easements (unless affirmatively insured by a Title Policy),
and no Improvements on adjoining properties encroach upon the Aggregate Real
Property. The Title Policy premium has been fully paid. Except for customary gap
undertakings, neither Borrower, any Loan Parties nor any other Person has
provided any title indemnities (or analogous documentation) or deposits of cash
or other security to the title insurer to obtain any Title Policy. The Permitted
Exceptions do not and will not materially interfere with the security intended
to be provided by any Deed of Trust, or with the use, entitlement, management,
development, operation, marketing and sale of the Borrower Real Property, or the
marketability or value of the Borrower Real Property. Borrower and each Loan
Party will preserve its right, title and interest in and to the Collateral for
so long as the Obligations remain outstanding and will warrant and defend same
and the validity and priority of the Deeds of Trust and the Liens in favor of
Administrative Agent arising pursuant to the Loan Documents from and against any
and all Claims whatsoever other than the Permitted Exceptions.

(b) As of the Closing Date, the Consolidated Group owns no Real Property other
than the (i) Group A Property and the Group B Property, and all Group A Property
is Borrower Real Property and all Group B Property is Borrower Real Property,
(ii) CF Property and (iii) MF Property. On the earlier of (i) the Delayed Draw
Closing Date, (ii) the date that is sixty (60) days after the Closing Date or
(iii) the Second Term Loan Funding Date, the Consolidated Group owns no Real
Property other than Borrower Real Property, the CF Property and the MF Property
(except to the extent that the CF Property or MF Property has been transferred
to Borrower). Other than the Real Property described in the legal description
set forth on Schedule A of the Title Policy for any Asset, at the time of
issuance of that Title Policy, there is no Borrower Real Property that is a part
of such Asset, or any related Amenities and/or common areas owned by the
Consolidated Group and/or any of their Affiliates, and such legal description is
a true, correct and complete legal description of the Asset (provided that if a
representation in this Section 5.08(b) is breached, Borrower will be given the
opportunity to cure such breach by complying with Section 6.19 with respect to
the applicable Real Property).

(c) Neither Borrower, CF Owner, MF Owner nor any other member of the
Consolidated Group has engaged in acts or omissions which have caused a default
under any PAPA Obligation or triggered any buyback, repurchase options or rights
of refusal thereunder. Neither Borrower, CF Owner, MF Owner nor any other member
of the Consolidated Group has borrowed any amount from the holder of any PAPA
Obligation, nor has any advance of funds been made by the holder of any PAPA
Obligation on behalf of Borrower, CF Owner MF Owner, or any other member of the
Consolidated Group.

(d) All covenants, conditions, restrictions, easements and other similar matters
that exist with respect to the Group A Projects or the Group B Projects are
listed as exceptions on the Title Polices for the Group A Projects and the Group
B Projects, respectively.

(e) The aggregate outstanding principal balance of the Existing Secured
Indebtedness secured by the CF Property is $18,889,150. The aggregate
outstanding principal balance of the Existing Secured Indebtedness secured by
the MF Property is $38,146,984.

 

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5.09 SECURED INDEBTEDNESS. No Loan Party or Property Entity has any secured
Indebtedness, other than indebtedness permitted by the provisions contained in
Section 7.01.

5.10 INSURANCE. The Loan Parties maintain insurance in compliance with
Section 6.07.

5.11 TAXES.

(a) The Loan Parties have filed all Federal, state and other material tax
returns and reports required to be filed, and have paid all Federal, state and
other material taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets otherwise due and
payable, except those which are being contested in good faith by appropriate
proceedings diligently conducted and for which adequate reserves have been
provided in accordance with GAAP. No Loan Party is party to any tax sharing
agreement.

(b) There is no proposed tax assessment against any Loan Party that would, if
made, have a Material Adverse Effect.

5.12 ERISA COMPLIANCE.

(a) Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is
intended to qualify under Section 401 (a) of the Code has received a favorable
determination letter from the IRS or an application for such a letter is
currently being processed by the IRS with respect thereto and, to Borrower’s
Knowledge, nothing has occurred which would prevent, or cause the loss of, such
qualification. Borrower and each ERISA Affiliate have made all required
contributions to each Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.

(b) There are no pending or, to the Borrower’s Knowledge, threatened claims,
actions or lawsuits, or action by any Governmental Authority, with respect to
any Plan that would reasonably be expected to have a Material Adverse Effect.
There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan that has resulted or would
reasonably be expected to result in a Material Adverse Effect.

(c) No ERISA Event has occurred or is reasonably expected to occur; (ii) no
Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (iv) neither Borrower nor
any ERISA Affiliate has incurred, or reasonably expects to incur, any liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA
with respect to a Multiemployer Plan; and (v) neither Borrower nor any ERISA
Affiliate has engaged in a transaction that could be subject to Sections 4069 or
4212(c) of ERISA.

5.13 SUBSIDIARIES; JOINT VENTURES. None of Parent or Borrower has any
Subsidiaries other than those (i) specifically

 

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disclosed in Part (a) of Schedule 5.13 and (ii) those Subsidiaries that will be
disclosed in Part (a) of Schedule 5.13 as required by, and in compliance with,
Section 6.01(e). No Loan Party owns or holds of record and/or beneficially
(whether directly or indirectly) any shares of any class in the capital of any
corporations nor any legal and/or beneficial interests in any Joint Venture,
except for (i) the Joint Ventures listed on Part (b) of Schedule 5.13, and
(ii) the Joint Ventures that will be disclosed in Part (b) of Schedule 5.13 as
required by, and in compliance with, Section 6.01(e). Borrower is the wholly
owned Subsidiary of Parent and the Property Entities are the wholly owned
Subsidiaries of Borrower.

5.14 MARGIN REGULATIONS; INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT

(a) None of the proceeds of the Loan will be used in violation of Regulations U
or X of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221
and 207) (the “Margin Regulations”), for the purpose of purchasing or carrying
any “margin stock” as defined in the Margin Regulations or reducing or retiring
any Indebtedness which was originally incurred to purchase or carry margin stock
or for any other purpose which might make this transaction a “purpose credit”
within the meaning of the Margin Regulations. Neither any of the Loan Parties
nor any Person acting on behalf of any of the Loan Parties have taken or will
take any action which might cause any Loan Document to violate the Margin
Regulations or any other regulations of the Board of Governors of the Federal
Reserve System or to violate Section 7 of the Securities Exchange Act of 1934,
or any rule or regulation promulgated thereunder, in each case as now in effect
or as the same may hereafter be in effect.

(b) The Loan Parties are not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Investment Company Act
of 1940, the Interstate Commerce Act (as any of the preceding have been
amended), or any other law which regulates the incurring by any Loan Party of
indebtedness, including laws relating to common or contract carriers or the sale
of electricity, gas, steam, water or other public utility services.

5.15 DISCLOSURE. No report, SEC filing, financial statement, certificate or
other information furnished by or at the direction of any Loan Party to
Administrative Agent or any Lender in connection with the transactions
contemplated hereby and the negotiation of this Agreement or delivered hereunder
or under any other Loan Document (in each case, as modified or supplemented by
other information so furnished) contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading in any
material respect; provided that with respect to projected financial information,
Borrower represents only that such information was prepared in good faith based
upon assumptions believed to be reasonable at the time.

5.16 COMPLIANCE.

(a) The location, construction, occupancy, development, management, operation,
sale, marketing and use of the Aggregate Real Property comply in all respects
with the terms of the Permitted Exceptions relating to the Aggregate Real
Property.

 

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(b) Borrower, Parent and Property Entities and all of the Aggregate Real
Property is in compliance with all applicable Laws and all Entitlements.

5.17 COMPLIANCE WITH ENVIRONMENTAL LAWS.

(a) Neither any of the Consolidated Group, nor any operator of the Aggregate
Real Property or any operations thereon has violated or is in violation, or
alleged violation, of any Environmental Laws. Neither any of the Consolidated
Group, nor any operator of the Aggregate Real Property or any operations thereon
has failed to obtain or comply with any permit required pursuant to
Environmental Laws for the occupation of any Aggregate Real Property or to
conduct the operations thereon. The separate certification from Borrower dated
of even date herewith describes all of the Existing Environmental Matters, each
of which are listed on Schedule 5.17(a). Borrower shall take all actions
necessary to comply with all compliance orders affecting the Borrower Real
Property and cause the Existing Environmental Matters to comply with all
Environmental Laws. Borrower shall take all actions necessary to cause the CF
Owner and the MF Owner to (1) comply with all compliance orders affecting the CF
Property and the MF Property, respectively and (2) cause the Existing
Environmental Matters to comply with all Environmental Laws.

(b) Except for the Existing Environmental Matters, none of the Consolidated
Group has received notice from any third party including any federal, state or
local Governmental Authority: (i) regarding any actual or alleged violation of
Environmental Laws or any Environmental Liabilities, including any
investigatory, remedial, or corrective liabilities, relating to any of them or
the Aggregate Real Property; (ii) that it has been identified by the United
States Environmental Protection Agency as a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, with respect to a site listed on the National Priorities List,
40 C.F.R. Part 300 Appendix B (1986); (iii) that any Hazardous Materials which
any of the Consolidated Group has generated, transported or disposed of has been
found at any site at which a federal, state or local Governmental Authority or
other third party has conducted or has ordered that any of the Consolidated
Group conduct a remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iv) that any of the Consolidated Group is
a named party to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise) arising out of
any third party’s incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release or presence of Hazardous Materials.

(c) Except for the Existing Environmental Matters: (i) none of the Consolidated
Group or any operator of any Aggregate Real Property has handled, processed,
treated, stored, disposed of, arranged for or permitted the disposal of any
Hazardous Material and no portion of the Aggregate Real Property has been used
for the handling, processing, treatment, storage or disposal of Hazardous
Materials except in accordance with applicable Environmental Laws; (ii) no
underground tank or other underground storage receptacle for Hazardous
Materials, asbestos containing material in any form or condition, materials or
equipment containing polychlorinated biphenyls, or landfills, surface
impoundments, or disposal areas are located on any portion of the Aggregate Real
Property; (iii) in the course of any activities conducted by any of the
Consolidated Group or operators of its properties, no Hazardous Materials have
been generated or are being used on the Aggregate Real Property except in
accordance with applicable Environmental

 

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Laws; (iv) to Borrower’s Knowledge, there have been no releases (i.e. any past
or present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
of Hazardous Materials on, upon, into or from any Aggregate Real Property of any
of the Consolidated Group (and no such Aggregate Real Property is contaminated
with any such substance); (v) to Borrower’s Knowledge, there have been no
releases on, upon, from or into any Real Property in the vicinity of any of the
Aggregate Real Property which, through soil or groundwater contamination, may
have come to be located on the Aggregate Real Property; and (vi) to Borrower’s
Knowledge, any Hazardous Materials that have been generated, accumulated or
stored on any of the Aggregate Real Property have been transported offsite only
by carriers having an identification number issued by the Environmental
Protection Agency, treated or disposed of only by treatment or disposal
facilities maintaining valid permits as required under applicable Environmental
Laws, which transporters and facilities have been and are, to Borrower’s
Knowledge, operating in compliance with such permits and applicable
Environmental Laws.

5.18 LOANS AS SENIOR INDEBTEDNESS. The Loan Parties and Property Entities have
no Indebtedness that is senior or pari passu in right of payment to the
Obligations of the Loan Parties to the Lenders (other than (a) Indebtedness
under the Indentures, (b) Indebtedness under the Permitted Construction
Indebtedness, (c) Indebtedness under the Existing Secured Indebtedness and
(d) Permitted Indebtedness, but only to the extent that such Permitted
Indebtedness is allowed to be senior or pari passu in right of payment to the
Obligations under Section 7.01).

5.19 LAWS PERTAINING TO LAND SALES. None of the Loan Parties or Property
Entities have received any notice that it is in violation of the Interstate Land
Sales Full Disclosure Act, or any other laws pertaining to land sales (including
any laws pertaining to the sale of interests in timeshare units) in any state in
which any Loan Parties or Property Entities sells, transfers, manages, operates,
develops or otherwise disposes of Aggregate Real Property.

5.20 FISCAL YEAR. The Consolidated Group has a fiscal year ending December 31 of
each calendar year.

5.21 COMMON ENTERPRISE AND CONSIDERATION. The Loan Parties are collectively
engaged in a common enterprise for the furtherance of the Core Businesses.
Accordingly, the Loan Parties have received good and adequate consideration for
the entering into the Loan Documents to which they are parties to. Furthermore,
any advance to Borrower that is subsequently disbursed by Borrower to any other
Loan Party for use by such Loan Party shall benefit all of the other Loan
Parties, even if the advance is based upon a Borrowing Base which includes
assets of Loan Parties that do not receive the disbursement from Borrower. Each
Loan Party will each receive good and adequate benefit from this common
arrangement given the common enterprise of all of the foregoing as set forth
above.

5.22 SUBSIDIARIES OWNING REAL PROPERTY. Except for Laguna Big Horn, LLC, a
Delaware limited liability company and Whitney Ranch Village 5, LLC, a Delaware
limited liability company (which collectively own less than fifty (50) Units,
which are all anticipated to be sold promptly after the Closing Date) CF Owner
and MF Owner are the only Subsidiaries of Parent or Borrower that own Real
Property. Parent does not own any Real Property.

 

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5.23 GUARANTORS OF THE INDENTURES. The entities on Schedule 5.23, as such
Schedule shall be updated immediately upon any additional entities becoming
guarantors of the obligations under the Indentures, are all of the guarantors of
the obligations under the Indentures.

5.24 ENTITLEMENTS. Other than as listed on Schedule 5.24(a), the Aggregate Real
Property is Entitled for single- or multi- family “for sale” residential use
which allows for the development of at least one Unit on each Lot and all
contemplated Amenities, which Entitlements are unconditional, vested, in full
force and effect, and beyond all applicable appeal periods. Neither the
Entitlements nor any other rights relating to the use, entitlement, management,
development, operation, marketing or sale the Aggregate Real Property are in any
way dependent upon or related to any real estate other than the Aggregate Real
Property, validly created, existing appurtenant perpetual easements insured in
the Title Policy or use of public rights of way. In the event that all or any
part of the Improvements are destroyed or damaged, said Improvements can be
legally reconstructed to their condition prior to such damage or destruction,
and thereafter exist for the same use without violating any zoning Laws or Laws
applicable thereto and without the necessity of obtaining any variances or
special permits. All Entitlements necessary to operate the Aggregate Real
Property as it is currently operated are in full force and effect including all
water permits and approvals. No Loan Party or Property Entity has received any
written notice of any violation of any Entitlements. Schedule 5.24(b) accurately
reflects for each Project or Asset as applicable, whether a Final Map, a
Tentative Map, or neither, has been recorded or approved, as applicable.

5.25 MATERIAL AGREEMENTS; NO MATERIAL DEFAULTS.

(a) Attached hereto as Schedule 5.25 is a true and correct listing of all
material contracts, equipment leases, permits, development agreements not of
record, covenants not of record, restrictions not of record, option agreements
not of record, purchase and sale agreements, land banking agreements,
instruments and other agreements under which any Loan Party or Property Entities
(or all Loan Parties and Property Entities in the aggregate) has a potential
outstanding liability in excess of $1,000,000 under any one of the foregoing or
under any category of the foregoing (collectively “Material Agreements”).

(b) No event has occurred which, immediately or upon the expiration of
applicable cure or grace periods, would constitute a default under any Material
Agreement.

5.26 NO CONDEMNATION. No condemnation proceeding is pending, or to Borrower’s
Knowledge, threatened against any Aggregate Real Property which would impair the
use, entitlement, management, development, operation, marketing and sale of such
Aggregate Real Property. If the foregoing representation and warranty shall
cease to be true (subject to Section 5.47(b)) with respect to a Project or Asset
or a portion thereof, such Project or Asset (or such portion thereof, as the
case may be) shall cease to be part of the Borrowing Base until such time as
such representation and warranty is once again true.

 

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5.27 CFD AND SUBDIVISION BOND. Except as set forth on Schedule 5.27(a), neither
Borrower nor any Property Entity has any CFD Obligations in existence. The
information regarding the CFD Obligations delivered as part of the due diligence
materials prior to the Closing Date is true and correct in all material respects
and accurately reflects all outstanding, annual assessment amount under such
bonds, the improvements covered by such bonds and the status of work, the
anticipated release date of such bonds, interest reserves and any current or
potential defaults under such bonds, there are no CFD Obligations in existence
with respect to any Project or Asset or portion thereof. None of the Aggregate
Real Property, Borrower or Property Entities are subject to any subdivision
improvement bonds, except as set forth on Schedule 5.27(b). The information
provided to Initial Lender includes the total principal amount of the
subdivision improvement bonds outstanding, the improvements covered by such
bonds and the status of the work, the anticipated release date of such bonds,
third party guarantees of such bonds and any current or potential defaults under
such bonds, there are no subdivision improvement bonds in existence with respect
to any Asset.

5.28 UTILITIES. Other than as listed on Schedule 5.28, Borrower or the
applicable Property Entity has obtained binding commitments from each applicable
utility provider for the provision of adequate telephone service, electric
power, storm sewer, sanitary sewer and water for the use, entitlement,
management, development, operation, marketing and sale of each Lot and Unit in
each Asset.

5.29 LOT AND UNIT SALES. Other than as set forth on Schedule 5.29, as of
October 11, 2009 there were no pending sales of Aggregate Real Property by
Borrower or any Property Entity, and such schedule accurately reflects for each
pending sale the gross sale price, concessions, closing costs, broker’s
commission, and any seller financing.

5.30 GOLF COURSES. Other than as listed on Schedule 5.30, no Project, Asset or
any portion thereof includes or is anticipated to include a golf course.

5.31 MORATORIUMS. Other than as listed on Schedule 5.31, there are no current,
or to Borrower’s Knowledge, proposed, moratoriums on the construction or
occupancy of any Improvements.

5.32 CONSTRUCTION DEFECTS; WARRANTIES.

(a) Other than as listed on Schedule 5.32(a), there are no pending or threatened
construction defect claims in excess of an aggregate of $500,000 (in excess of
available insurance) per Asset by Unit owners or occupiers who have purchased or
occupied Units from or constructed by any of the Consolidated Group, and no
repetitive warranty claims relating to a common product or matter in excess of
an aggregate of $1,000,000 (in excess of available insurance) with respect to
all Real Property owned by any member of the Consolidated Group.

(b) Other than as listed on Schedule 5.32(b), there are no pending or threatened
construction defect claims, and no repetitive warranty claims relating to a
common product or matter in excess of $500,000 (in excess of available
insurance) per Asset with respect to any Project by any homeowners’ association
or similar entity.

 

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5.33 AMENITIES. All Amenities at or related to or used by owners of Units or
Lots in each Project or Asset have been conveyed to such Project’s homeowners’
association or are subject to the Lien of a Deed of Trust (except for Amenities
on the CF Property or the MF Property, which are owned by CF Owner and MF Owner,
respectively, or the applicable homeowner’s association).

5.34 ORAL AGREEMENTS; MATTERS NOT OF RECORD. Other than as set forth on Schedule
5.34, no Loan Party or Property Entity is a party to any oral agreement or
matters that are not of record that are or would otherwise be Liens on any of
the Aggregate Real Property.

5.35 BORROWING BASE. The Real Property Classification of each and all Borrower
Real Property included in the Borrowing Base is true and correct.

5.36 LEASED REAL PROPERTY. Schedule 5.36 lists all Real Property that is leased
by the Loan Parties or Property Entities as either lessor or lessee (and lists
the material terms thereof), to the extent that the potential liability or value
to Borrower, Parent or any Property Entity under or of any such lease is equal
to $100,000 or more.

5.37 CREATION, PERFECTION AND PRIORITY OF LIENS. As of the Closing Date, (i) the
execution and delivery of the Security Documents by each Loan Party, together
with the filing of any Uniform Commercial Code financing statements delivered to
Administrative Agent for filing and recording, and the recording of each Deed of
Trust, are effective to create in favor of Administrative Agent for the benefit
of itself and the Lenders, as security for the Obligations, a valid and
perfected first priority Lien on all of the Collateral (other than Group B
Property) then in existence (subject only to (A) Permitted Exceptions in the
case of Collateral consisting of Real Property and (B) Permitted Liens in the
case of Collateral consisting of Personal Property), and (ii) all filings and
other actions necessary or desirable to perfect and maintain the perfection and
first priority status of such Liens have been duly made or taken and remain in
full force and effect.

5.38 EQUITY SECURITIES. All outstanding Equity Securities of each member of the
Consolidated Group are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth on Schedule 5.38, there are no outstanding
subscriptions, options, conversion rights, warrants or other agreements or
commitments of any nature whatsoever (firm or conditional) obligating such
member of the Consolidated Group to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional Equity Securities of such member of
the Consolidated Group, or obligating such member of the Consolidated Group to
grant, extend or enter into any such agreement or commitment. All Equity
Securities of each member of the Consolidated Group have been offered and sold
in compliance with all federal and state securities laws and all other
applicable Law, except where any failure to comply, either individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect. None of the Equity Securities of any member of the Consolidated Group
are subject to any Lien except those in favor of Administrative Agent.

5.39 NO AGREEMENTS TO MERGE. No Loan Party has any legal obligation, absolute or
contingent, to any Person to effect any merger, consolidation or other
reorganization or to enter into any agreement with respect thereto.

 

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5.40 LABOR MATTERS. There are no disputes presently subject to grievance
procedure, arbitration or litigation under any of the collective bargaining
agreements, employment contracts or employee welfare or incentive plans to which
any Loan Party is a party, no Loan Party is a party to or bound by any
collective bargaining agreement or other contract with a labor union or labor
organization and there are no strikes, lockouts, work stoppages or slowdowns,
or, to Borrower’s Knowledge, jurisdictional disputes or organizing activities
occurring or threatened, which, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

5.41 BURDENSOME CONTRACTUAL OBLIGATIONS ETC.. No Loan Party, Property Entity nor
any of their respective Properties are subject to any Contractual Obligation or
requirement of Law which, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

5.42 BROKERAGE COMMISSIONS. No Broker’s Commission is to be paid by the Lenders
with respect to the extensions of credit contemplated hereby as a result of any
agreement entered into by a Loan Party.

5.43 AGREEMENTS WITH AFFILIATES AND OTHER AGREEMENTS. Except as disclosed on
Schedule 5.43, no Loan Party has entered into any material agreement or contract
with any of its Affiliates or any Joint Venture which is required to be
disclosed to the SEC and has not been disclosed to the SEC. No Loan Party is a
party to or is bound by any Contractual Obligation or is subject to any
restriction under its charter or formation documents, which could reasonably be
expected to have a Material Adverse Effect.

5.44 FOREIGN ASSETS CONTROL, ETC.

(a) No Loan Party (A) is, or is controlled by, a Designated Person; (B) has
received funds or other property from a Designated Person; or (C) is in breach
of or is the subject of any action or investigation under any Anti-Terrorism
Law. No Loan Party engages or will engage in any dealings or transactions, or is
or will be otherwise associated, with any Designated Person. The Borrower,
Parent and each Subsidiary are in compliance, in all material respects, with the
Patriot Act. Each Loan Party has taken reasonable measures to ensure compliance
with the Anti-Terrorism Laws including the requirement that (1) no Person who
owns any direct or indirect interest in any Loan Party is a Designated Person
and (2) funds invested directly or indirectly in any Loan Party by are derived
from legal sources.

(b) No portion of the proceeds of any Loan or other credit made hereunder has
been or will be used, directly or indirectly for, and no fee, commission, rebate
or other value has been or will be paid to, or for the benefit of, any
governmental official, political party, official of a political party or any
other Person acting in an official capacity in violation of any applicable law,
including the U.S. Foreign Corrupt Practices Act of 1977, as amended.

5.45 INTERNAL CONTROLS. From and after a Public Offering:

(a) The Borrower has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14

 

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under the Securities Exchange Act of 1934, as amended, and the rules of the SEC
(the “Exchange Act”), which (A) are designed to ensure that material information
relating to the Borrower, including its consolidated Subsidiaries, is made known
to the Borrower’s principal executive officer and its principal financial
officer or persons performing similar functions by others within those entities,
particularly during the periods in which the periodic reports required under the
Exchange Act are being prepared; (B) have been evaluated for effectiveness as of
a date within 90 days prior to the filing of the Borrower’s most recent annual
or quarterly report filed with the Securities Exchange Commission; and (C) are
effective in all material respects to perform the functions for which they were
established;

(b) Based on the evaluation of its disclosure controls and procedures, the
Borrower is not aware of (A) any significant deficiency in the design or
operation of internal controls which could adversely affect the Borrower’s
ability to record, process, summarize and report financial data or any material
weaknesses in internal controls or (B) any fraud, whether or not material, that
involves management or other employees who have a significant role in the
Borrower’s internal controls; and

(c) Since the date of the most recent evaluation of such disclosure controls and
procedures, there have been no significant changes in internal controls or in
other factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses, other than those disclosed in filings made by the Borrower under the
reporting requirements of the Exchange Act.

5.46 INTERCOMPANY RECEIVABLES. No Subsidiaries of Parent and no Subsidiaries of
Borrower owe any amounts to WL Southwest.

5.47 EFFECTIVE DATE; MATERIALITY THRESHOLD OF CERTAIN REPRESENTATIONS AND
WARRANTIES.

(a) The representations and warranties made by Borrower to Administrative Agent
and the Lenders in Sections 5.08(a), 5.09, 5.18, and 5.38 as they relate to the
Group A Property are first made on the Closing Date and as they relate to the
Group B Property are first made on the earlier of (i) the Delayed Draw Closing
Date, (ii) the date that is sixty (60) days after the Closing Date or (iii) the
Second Term Loan Funding Date. Once made, each of the representations and
warranties referenced in this Section 5.47 shall be true, correct and complete
at all times.

(b) The breach of the representations and warranties made by Borrower to
Administrative Agent and the Lenders in Sections 5.01(d), 5.06 (in excess of
available insurance), 5.08(a), 5.16, 5.17, 5.19, 5.24, 5.25(b), 5.26, 5.31, 5.33
and 5.34, shall not result in a Default unless any such breaches taken as an
aggregate would reduce the value of, or cause liability, damage or loss to, or
Claims against, the any individual Asset by or in an amount equal to $1,000,000
or more (the calculation of such reduction in value, liability, damage or Claim
with respect to a specific breach shall be made without regard to any limitation
or qualification as to materiality set forth in such representation
or warranty). This Section 5.47(b) only applies to the representations and
warranties listed in the first sentence of this Section 5.47(b), and only with
respect to the aggregate of all such Claims against an Asset up to

 

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$1,000,000 (and any amount in excess of the $1,000,000 per Asset shall
constitute a Default) and not to any reduction in the value of, or liability,
damage or loss to, or Claims against, Borrower or any of the Consolidated Group;
provided, however, whether or not a Default exists after applying such
$1,000,000 limitations above, nonetheless a Default shall exist if any breach or
breaches of the representations and warranties set forth in the first sentence
of this Section 5.47(b) occur(s) that individually or in the aggregate would
reduce the value of, or cause liability, damage or loss to, or Claims against,
any or all of the Aggregate Real Property or any portion thereof in an amount
equal to $20,000,000 or more (the calculation of such aggregate reduction in
value, liability, damage or Claim with respect to any or all of the Aggregate
Real Property shall be made without regard to any limitation or qualification as
to materiality set forth in such representation or warranty and without the
deduction of $1,000,000 for any Asset in making such computation). Nothing in
this Section 5.47 shall relieve Borrower of any covenants or obligations under
the Loan Documents related to the subject matter of such representations and
warranties whether or not a “Default” exists under this Section 5.47.

5.48 REPRESENTATIONS AND WARRANTIES UPON DELIVERY OF FINANCIAL STATEMENTS,
DOCUMENTS, AND OTHER INFORMATION. Each delivery by any Loan Party to
Administrative Agent or any Lender of any schedules (including the schedules
attached to this Agreement), financial statements, Borrowing Base Report,
Project Eligibility Request other documents or information on or after the date
of this Agreement (including documents and information delivered in connection
with the Delayed Draw Term Loan or the Second Term Loan) shall be a
representation and warranty that such schedules, financial statements, other
documents and information are true, correct and complete (in accordance with
GAAP) in all material respects, that there are no material omissions therefrom
that would result in such financial statements, other documents or information
being materially incomplete, incorrect or misleading in any material respect as
of the date thereof, and that such financial statements accurately present the
financial condition and results of operations of the Loan Parties as at the
dates thereof in all material respects and for the periods covered thereby.

ARTICLE VI.

AFFIRMATIVE COVENANTS

So long as any Loan or other Obligation hereunder shall remain unpaid or
unsatisfied, Borrower shall, and shall (except in the case of the covenants set
forth in Sections 6.01, 6.02, and 6.03) cause each member of the Consolidated
Group to:

6.01 FINANCIAL STATEMENTS AND OTHER REPORTS. Deliver to Administrative Agent, in
form and detail satisfactory to Majority Lenders:

(a) as soon as available, but in any event within one hundred twenty (120) days
after the end of each fiscal year of Parent, a consolidated and consolidating
balance sheet of the Consolidated Group, as determined in accordance with GAAP,
as at the end of such fiscal year, and the related consolidated and
consolidating statements of income or operations, shareholders’ equity and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and prepared in
accordance with GAAP, audited and accompanied by a report and opinion of an
independent certified public

 

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accountant of nationally recognized standing reasonably acceptable to
Administrative Agent (which may be Windes and McClaughry), which report and
opinion shall be prepared in accordance with GAAP and shall not be subject to
any “going concern” or like qualification or exception or any qualification or
exception as to the scope of such audit;

(b) as soon as available, but in any event within sixty (60) days after the end
of each of the first three (3) fiscal quarters of each fiscal year of Parent, a
consolidated and consolidating balance sheet of the Consolidated Group, as
determined in accordance with GAAP, as at the end of such fiscal quarter, and
the related consolidated and consolidating statements of income or operations,
shareholders’ equity and cash flows for such fiscal quarter and for the portion
of Parent’s fiscal year then ended, setting forth in each case in comparative
form the figures for the corresponding fiscal quarter of the previous fiscal
year and the corresponding portion of the previous fiscal year, all in
reasonable detail, certified by a Responsible Officer of Borrower as fairly
presenting the financial condition, results of operations, shareholders’ equity
and cash flows of the Consolidated Group in accordance with GAAP, subject only
to normal year-end audit adjustments and the absence of footnotes;

(c) as soon as available, and in any event no later than one hundred twenty
(120) days after the end of each fiscal year of Parent, a projected balance
sheet, income statement, cash flow statement and compliance with the Financial
Covenants for the next fiscal year; and

(d) as soon as available, and in any event not later than one hundred twenty
(120) days after the end of each fiscal year of Parent, an updated Annual Budget
for the (i) Borrower and (ii) Consolidated Group and, as soon as available, any
material revisions to or any final revisions of any such projected consolidated
Annual Budgets;

(e) as soon as available, but in any event within forty-five (45) days after the
end of each fiscal quarter of each fiscal year of Borrower, updates to Schedule
5.13 (upon the deliveries of such updates, Schedule 5.13 shall be automatically
updated, without any further consent from Administrative Agent or the Lenders)
to the extent that such Schedule is not accurate or complete as of the last day
of such fiscal quarter.

6.02 CERTIFICATES; OTHER INFORMATION. Deliver to Administrative Agent, in form
and detail satisfactory to Majority Lenders and with sufficient copies for each
Lender:

(a) concurrently with the delivery of the financial statements referred to in
Section 6.01(a), a certificate of its independent certified public accountants
certifying such financial statements and stating that in making the examination
necessary therefor no knowledge was obtained of any Default under the Financial
Covenants set forth herein or, if any such Default shall exist, stating the
nature and status of such event;

(b) concurrently with the delivery of the financial statements referred to in
Sections 6.01(a) and (b), (i) a duly completed Compliance Certificate signed by
a Responsible Officer of Borrower, (ii) a report of all loans made by any Loan
Party to any officers, directors, board members, employees, shareholders or
Affiliates of any Loan Party during such previous fiscal quarter, (iii) a report
of all Investments made any Loan Party in suppliers and customers of each of the
Loan Parties during the previous fiscal quarter, (iv) a

 

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report of all of all transactions between the Loan Parties and their Affiliates
during such previous fiscal quarter, (v) a report of all bonus compensation paid
or awarded to any Key Manager by any member of the Consolidated Group during the
previous fiscal quarter and (vi) a detailed list, by category, of all Excluded
Assets;

(c) promptly after any request by Administrative Agent or any Lender, copies of
any detailed audit reports, management letters or recommendations submitted to
the board of directors (or the audit committee of the board of directors) of
Borrower or Parent by independent accountants in connection with the accounts or
books of Borrower, Parent or any other member of the Consolidated Group, or any
audit of any of them;

(d) within five (5) days after the same are available, and to the extent the
same are made public in accordance with the Exchange Act, copies of each of the
following documents of Borrower or any other member of the Consolidated Group
not otherwise required to be delivered to Administrative Agent pursuant to this
Agreement:

(i) proxy statements and annual reports to shareholders;

(ii) annual reports on Form 10-K;

(iii) quarterly reports on Form 10-Q; and

(iv) each current report on Form 8-K (other than current reports on Form 8-K
relating only to “Other Events” under Item 5 of Form 8-K or other items defined
as “Other Events” as may be assigned in the future) and transaction statements
On Schedule TO, 13D or 13E-3 that such Person may file under the Exchange Act;

(e) promptly, and in any event within five (5) Business Days after receipt
thereof by any member of the Consolidated Group, copies of each notice or other
correspondence received from the SEC (or comparable agency in any applicable
non-U.S. jurisdiction) concerning any formal investigation or other formal
inquiries not in the ordinary course by such agency regarding financial or other
operational results of any Loan Party or any Subsidiary thereof;

(f) as soon as available, but in any event no later than (i) twenty (20) days
after the end of each calendar quarter, a preliminary Borrowing Base Report,
which preliminary Borrowing Base Report shall include a detailed calculation of
the Borrowing Base, together with copies of accounts statements during the
preceding three (3) months from each depository maintaining a deposit account
that is subject to a Control Agreement, and (ii) forty five (45) days after the
end of each calendar quarter, a final Borrowing Base Report, which final
Borrowing Base Report shall include a detailed calculation of the Borrowing
Base, together with any new account statements covering deposit accounts
described above;

(g) as soon as available, but in any event no later than three (3) Business Days
after the end of each week, (i) a report of all Asset Sales, and all sales and
closings of Aggregate Real Property (on an asset-by-asset basis, including Units
and Lots) from the previous week (including gross sales prices, deductions
therefrom to reach Net Proceeds and estimated net sale prices with respect to

 

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each such transaction), (ii) a summary of the current cash balances in the
deposit accounts of the Loan Parties that are subject to Control Agreements and
(iii) such additional information as may be reasonably requested by
Administrative Agent or otherwise agreed to by the parties hereto;

(h) as soon as available, but in any event no later than ten (10) Business Days
after the end of each calendar month, a report of (i) all construction activity,
together with a report of all sales and closings of Units and Lots from the
previous month, with such additional information as may be agreed to by the
parties hereto, (ii) all acquisitions of any fee or other interest in Real
Property during such previous calendar month, (iii) all Distributions made
during such calendar month, (iv) all expenditures or series of related
expenditures outside of the Core Businesses in excess of $100,000 during such
previous calendar month, (v) all repurchases and payments of the Senior
Unsecured Notes during such previous calendar month, together with the aggregate
outstanding principal amount of the Senior Unsecured Notes as of the last day of
such calendar month and (vi) all drawdowns or borrowings under any Permitted
Construction Indebtedness during such previous calendar month;

(i) promptly, such additional information regarding the business, financial or
corporate affairs of any Loan Party, or compliance with the terms of the Loan
Documents, as Administrative Agent or any Lender may from time to time
reasonably request. Documents required to be delivered pursuant to Section 6.01
or Section 6.02(d) (to the extent any such documents are included in materials
otherwise filed with the SEC) may be delivered electronically and if so
delivered, shall be deemed to have been delivered on the date on which such
documents are posted on Borrower’s behalf on a secure Internet or intranet
website, if any, to which each Lender and Administrative Agent have access
(whether a commercial, third-party website or whether sponsored by
Administrative Agent); provided that:

(i) Borrower shall deliver paper copies of such documents to Administrative
Agent or any Lender that requests Borrower to deliver such paper copies until a
written request to cease delivering paper copies is given by Administrative
Agent or such Lender and

(ii) Borrower shall notify Administrative Agent and each Lender (by facsimile or
electronic mail) of the posting of any such documents and provide to
Administrative Agent by electronic mail electronic versions (i.e., soft copies)
of such documents. Notwithstanding anything contained herein, in every instance
Borrower shall be required to provide paper copies of the Compliance
Certificates required by Section 6.02(b) to Administrative Agent. Except for
such Compliance Certificates, Administrative Agent shall have no obligation to
request the delivery or to maintain copies of the documents referred to above,
and in any event shall have no responsibility to monitor compliance by Borrower
with any such request for delivery, and each Lender shall be solely responsible
for requesting delivery to it or maintaining its copies of such documents;

(j) promptly upon and in any event within five (5) days after receipt thereof,
copies of all notices delivered to Borrower or any other member of the
Consolidated Group under the Indentures, the Permitted Construction Indebtedness
and the Existing Secured Indebtedness; and

 

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(k) at least five (5) business days’ advance notice of any refinancing of
(i) the Indebtedness under the Indentures or (ii) any Permitted Construction
Indebtedness

6.03 NOTICES. Promptly notify Administrative Agent of:

(a) the occurrence of any Default or Event of Default;

(b) any matter that has resulted or would reasonably be expected to result in a
Material Adverse Effect, including (i) breach or non-performance of, or any
default under, a Contractual Obligation of any member of the Consolidated Group
(including failure to pay any amount due in respect of an Indenture or any other
Permitted Indebtedness on the date scheduled for payment therefor, without
giving effect to any grace period); (ii) any dispute, litigation, investigation,
proceeding or suspension between any member of the Consolidated Group and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any material litigation or proceeding affecting Parent, Borrower
or any of their respective Subsidiaries, including pursuant to any applicable
Environmental Laws;

(c) the occurrence of any ERISA Event;

(d) any material change in accounting policies or financial reporting practices
by any Loan Party;

(e) the occurrence of a default or event of default under any of the Indentures,
Permitted Construction Indebtedness, Existing Secured Indebtedness or any other
Indebtedness of Borrower, Parent or any Property Entity;

(f) any change in Key Management; and

(g) any Distribution in Excess of $250,000.

Each notice pursuant to this Section 6.03 shall be accompanied by a statement of
a Responsible Officer of Borrower setting forth details of the occurrence
referred to therein and stating what action Borrower has taken and proposes to
take with respect thereto. Each notice pursuant to Section 6.03(a) shall
describe with particularity any and all provisions of this Agreement and any
other Loan Document that have been breached.

6.04 PAYMENT OF OBLIGATIONS. Pay and discharge as the same shall become due and
payable, all its obligations and liabilities, including (a) all tax liabilities,
assessments and governmental charges or levies upon it or its properties or
assets, unless the same are being contested in good faith by appropriate
proceedings diligently conducted and adequate reserves in accordance with GAAP
are being maintained by Parent or Borrower; (b) all lawful claims which, if
unpaid, would by law become a Lien upon its property; and (c) all Indebtedness,
as and when due and payable, but subject to any subordination provisions
contained in any instrument or agreement evidencing such Indebtedness.

6.05 PRESERVATION OF EXISTENCE, ETC. (a) Preserve, renew and maintain in full
force and effect its legal existence and good standing under the Laws of the
jurisdiction of its organization except in a transaction permitted by
Section 7.04(a); (b) take all reasonable action to maintain all rights,
privileges, permits, licenses and franchises necessary or desirable in the
normal conduct of its

 

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business, except to the extent that failure to do so would not reasonably be
expected to have a Material Adverse Effect; and (c) preserve or renew all of its
registered patents, trademarks, trade names and service marks, the
non-preservation of which would reasonably be expected to have a Material
Adverse Effect.

6.06 MAINTENANCE OF PROPERTIES. Preserve and maintain the Aggregate Real
Property in good order, repair and condition, and shall promptly restore damage
from casualty or condemnation to the condition existing immediately prior to
such damage, and shall not permit or commit waste on the Aggregate Real Property
or permit impairment or deterioration of the Aggregate Real Property.

6.07 MAINTENANCE OF INSURANCE.

(a) Property. Maintain with financially sound and reputable insurers having an
A.M. Best rating of A- or better and not Affiliates of Borrower or Parent
insurance with respect to its Properties and business against such casualties
and contingencies, including fire, lightening and other perils, as shall be in
accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and the Consolidated Group’s past
practices and consistent with the Consolidated Group’s practices on the Closing
Date, and in amounts, containing such terms, in such forms and for such periods
as may be reasonable and prudent in accordance with sound business practices.
The Consolidated Group shall at all times comply with and conform to all
provisions of each such insurance policy and to all requirements of the insurers
thereunder applicable to the Consolidated Group, the Properties or to the use,
occupation, possession, operation, maintenance or repair of all or any portion
of the Aggregate Real Property.

(b) Liability. Maintain with financially sound and reputable insurers having an
A.M. Best rating of A- or better and not Affiliates of Borrower or Parent
protecting the Consolidated Group, Administrative Agent and each Lender against
loss from liability imposed by law or assumed in any agreement, document, or
instrument and arising from bodily injury, death or property damage, as shall be
in accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and the Consolidated Group’s past
practices and consistent with the Consolidated Group’s practices on the Closing
Date, and in amounts, containing such terms, in such forms and for such periods
as may be reasonable and prudent in accordance with sound business practices.

(c) Additional Insurance.

(i) Such other policies of insurance as Administrative Agent, acting at the
direction of Majority Lenders, may reasonably request in writing to the extent
available on commercially reasonable terms.

(d) General. All policies for required insurance will be in form and substance
satisfactory to Administrative Agent, acting at the direction of Majority
Lenders in their absolute and sole discretion. All property policies evidencing
required insurance will name Administrative Agent, on behalf of the Lenders, as
first mortgagee and loss payee. All liability policies evidencing required

 

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insurance will name Administrative Agent and each Lender as additional insured.
The policies will not be cancelable as to the interests of Administrative Agent
or the Lenders due to the acts of Borrower or any other member of the
Consolidated Group. The policies will provide for at least thirty (30) days
prior written notice of the cancellation or modification thereof to be given to
Administrative Agent. A certified copy of each insurance policy or, if
acceptable to Administrative Agent and Majority Lenders, certificates of
insurance evidencing that such insurance is in full force and effect, will be
delivered to Administrative Agent, together with proof of the payment of the
premiums thereof. Prior to the expiration of each such policy, Borrower shall
furnish Administrative Agent and the Lenders evidence that such policy has been
renewed or replaced in the form of the original or a certified copy of the
renewal or replacement policy or, if acceptable to Administrative Agent, acting
at the direction of Majority Lenders, a certificate reciting that there is in
full force and effect, with a term covering at least the next succeeding
calendar year, insurance of the types and in the amounts required in this
Section 6.07.

(e) Borrower will not (and will not permit any Loan Party or Property Entity to)
settle any claim under any casualty insurance policies, if such claim involves
any loss in excess of $1,000,000, without the prior written approval of
Administrative Agent, acting at the direction of Majority Lenders, and the
Borrower shall use commercially reasonable efforts to cause each such policy
that is renewed or entered into after the Closing Date to contain a provision to
such effect.

6.08 COMPLIANCE. Comply, and cause the Aggregate Real Property (including the
location, construction, occupancy, development, management, operation, sale,
marketing and use thereof) to comply in all material respects, with all
Entitlements, all Permitted Exceptions and all Laws, including all Environmental
Laws, applicable to it or to the Core Businesses or the Aggregate Real Property.

6.09 BOOKS AND RECORDS. Maintain proper books of record and account, in which
full, true and correct entries in conformity with GAAP consistently applied
shall be made of all financial transactions and matters involving the assets and
business of Borrower or each other member of the Consolidated Group, as the case
may be.

6.10 INSPECTION RIGHTS. Upon the reasonable request of Administrative Agent or
any Lender, allow Administrative Agent and/or any Lender and their
representatives to inspect any of their Aggregate Real Property, to review
reports, files, and other records maintained in the ordinary course of the Core
Businesses, from time to time, during reasonable business hours; provided that
unless a Default or Event of Default has occurred and is continuing and except
in the case of Administrative Agent and its representatives, Borrower shall not
be responsible for the costs and expenses of such inspections more than once per
fiscal year, other than in connection with inspections regarding the accuracy,
truthfulness or completeness of any Borrowing Base Report.

6.11 USE OF PROCEEDS. Use the proceeds of the Loans solely to refinance the
Borrower’s revolving credit facilities debt and to provide working capital needs
for the Core Businesses in a manner consistent with the provisions of this
Agreement and other general corporate purposes, including the acquisitions and
Investments permitted under Sections 7.03, 7.04, and 7.05 hereof.

 

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6.12 NEW SUBSIDIARIES. Promptly, and in any event within twenty (20) days after
the formation or acquisition of any new direct or indirect Subsidiary of Parent
or Borrower after the date hereof (a) notify Administrative Agent and each
Lender of such event, (ii) cause each such Subsidiary which is not an Excluded
Subsidiary to become a party to the Unconditional Guarantee, the Security
Agreement and each other applicable Security Document in accordance with the
terms thereof and amend the Security Documents (and related filings) as
appropriate in light of such event to pledge to Administrative Agent for the
benefit of itself and the Lenders all assets of such Subsidiary, and, in each
case, execute and deliver all documents or instruments required thereunder or
appropriate to perfect the security interests created thereby, (iii) cause each
document (including each Uniform Commercial Code financing statement) required
by applicable Laws or reasonably requested by Administrative Agent to be filed,
registered or recorded in order to create in favor of Administrative Agent for
the benefit of itself and the Lenders a valid, legal and perfected first
priority Lien on the Collateral subject to the Security Documents to be so
filed, registered or recorded and evidence thereof delivered to Administrative
Agent and (iv) deliver an opinion of counsel in form and substance reasonably
satisfactory to Majority Lenders with respect to each such Person and the
matters set forth in this Section 6.12(a).

6.13 INTANGIBLE, RECORDING AND STAMP TAX. Promptly pay all intangible taxes or
documentary stamp taxes assessed against the Loan Parties, Property Entities,
Administrative Agent or any of Lenders as a result of this Agreement,
recordation of any Deed of Trust or any document related hereto, if any.

6.14 FURTHER ASSURANCES. At any time and from time to time, execute, acknowledge
and deliver such further documents, agreements and instruments and take such
further action as may reasonably be requested by Administrative Agent, in each
case further and more perfectly to effect the purposes of this Agreement and the
other Loan Documents, including, from time to time to better assure, preserve,
protect and perfect the interest of Administrative Agent in the Collateral and
the rights and remedies of Administrative Agent under the Loan Documents.
Without limiting the foregoing, to the extent that Administrative Agent, acting
at direction of Majority Lenders, determines from time to time that additional
deeds of trust, amendments to deeds of trust, financing statements,
subordinations and other documents are required in order to perfect all Liens
and encumbrances in favor of Administrative Agent, and cause all Collateral
encumbered by any of the Deeds of Trust to be subject only to Permitted
Exceptions, Borrower shall execute and deliver such documents, instruments and
other agreements as Administrative Agent or Majority Lenders may reasonably
request.

6.15 SENIOR UNSECURED NOTES. Immediately upon the purchase of Senior Unsecured
Notes by any Loan Party, and unless such Senior Unsecured Notes are retired or
cancelled, such Loan Party shall takes such actions as requested by
Administrative Agent, acting at the direction of Majority Lenders, in order the
grant and convey to Administrative Agent for the benefit of itself and the
Lenders, as security for the Obligations, a valid and perfected first priority
Lien on such Senior Unsecured Notes.

 

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6.16 SPECIAL COVENANTS RELATING TO COLLATERAL.

(a) Defense of Title. Borrower shall (or shall cause the applicable Loan Party
or Property Entity, as applicable, to) defend the Collateral, the title and
interest therein of Borrower (or the applicable Loan Party or Property Entity)
represented and warranted in the Security Documents and the legality, validity,
binding nature and enforceability of each Lien and encumbrance contained in the
Security Documents and the first priority of the Security Documents against all
matters, including: (a) any attachment, levy, or other seizure by legal process
or otherwise of any or all Collateral; (b) except for Permitted Exceptions, any
Lien or encumbrance or claim thereof on any or all Collateral; (c) any attempt
to foreclose, conduct a trustee’s sale, or otherwise realize upon any or all
Collateral under any Lien or encumbrance, regardless of whether a Permitted Lien
and regardless of whether junior or senior to the Security Documents; and
(d) any claim questioning the legality, validity, binding nature, enforceability
or priority of the Security Documents. Borrower shall notify Administrative
Agent and each Lender promptly in writing of any of the foregoing and will
provide such information with respect thereto as Administrative Agent may from
time to time request. During the period of time that Borrower is not able to
comply with the covenants set forth herein for a Project or portion thereof for
a period of thirty (30) days following written notice from Administrative Agent
(provided that if Borrower cannot reasonably cure such non-compliance within
such thirty (30) day period, such thirty (30) day period shall be extended for a
reasonable period not in excess of thirty (30) days from the date of
Administrative Agent’s notice to cure such non-compliance provided that Borrower
shall have commenced such cure within such thirty (30) day period and shall
diligently thereafter proceed to effect such cure), then such Project (or
portion thereof, as the case may be) shall cease to have any value in the
computation of the Borrowing Base until Borrower shall so comply.

(b) [Reserved].

(c) Plats, Annexations and Approvals. For each Project or any portion thereof to
be included in the Borrowing Base:

(i) Each plat, Tentative Map or Final Map with respect to any portion of any
Project shall comply with all Laws and shall be satisfactory in form and
substance to Majority Lenders. Prior to evaluation by Majority Lenders of the
plat or map for approval, Borrower shall deliver to Administrative Agent such
certifications, maps, surveys and other documents and information as Majority
Lenders requires. Prior to the recordation of any plat or map relating to any
Borrower Real Property, Borrower shall deliver to Administrative Agent such
title insurance endorsements insuring the continued priority of the Deed of
Trust after recording of the plat or map as Majority Lenders may require.
Borrower agrees to take such steps as Majority Lenders may require in (i) either
re-recording the Deed of Trust or amending the Deed of Trust to reflect the new
plat legal description, and (ii) obtaining an endorsement to the Title Policy to
amend the legal description therein.

(ii) Based on the applicable stage of development, Borrower shall obtain and,
upon request, provide Administrative Agent with, evidence of: (i) appropriate
Entitlements for the use, entitlement, management, development, operation,
marketing and sale of each Project or portion thereof and compliance therewith
in all material respects; (ii) all necessary approvals and permits of
Governmental Authorities and other third parties necessary to permit the use,
entitlement, management, development, operation,

 

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marketing and sale of each Project or portion thereof, including all applicable
public reports, architectural committee approvals, public offering statements,
exemptions and other approvals required pursuant to any applicable Laws or
Permitted Exceptions; (iii) all Entitlements necessary to commence, carry out
and complete Horizontal Improvements or Vertical Construction; and (iv) evidence
of payment of all fees and other required amounts for such approvals and
permits.

(iii) At Administrative Agent’s or any Lender’s request, Borrower shall provide
Administrative Agent or such Lender with true and correct copies of all
documents and instruments relating to proposed easements, boundary line
adjustments, covenants, conditions and restrictions and other similar matters
affecting title to each Project or portion thereof in connection with the use,
entitlement, management, development, operation, marketing and sale thereof,
together with all surveys, plats, contracts and other information requested by
Administrative Agent or such Lender in connection therewith. Such easements,
boundary line adjustments, covenants, conditions and restrictions and other
matters shall not be entered into by Borrower unless consented to in writing by
Majority Lenders, which consent shall not be unreasonably withheld by Majority
Lenders, so long as they are entered into in the ordinary course of developing
each Project. If such consent is granted by Majority Lenders, Administrative
Agent on behalf of itself and the Lenders will also enter into such
subordinations and releases as may be appropriate in connection with such
easements, boundary line adjustments and covenants, conditions and restrictions,
provided that such subordinations are in form satisfactory to Majority Lenders,
and, in connection with any such releases, Borrower has satisfied the conditions
precedent set forth in Section 8.03.

In the event that Borrower is not able to comply with the covenants set forth
herein for a Project or portion thereof for a period of ten (10) days following
written notice from Administrative Agent (provided that if Borrower cannot
reasonably cure such non-compliance within such ten (10) day period, such ten
(10) day period shall be extended for a reasonable period not in excess of
thirty (30) days from the date of Administrative Agent’s notice to cure such
non-compliance provided that Borrower shall have commenced such cure within such
ten (10) day period and shall diligently thereafter proceed to effect such
cure), then such Project (or portion thereof, as the case may be) shall cease to
have any value in calculation of the Borrowing Base until Borrower shall so
comply.

(d) Utilities. Borrower shall provide or cause to be provided all telephone
service, electric power, storm sewer, sanitary sewer and water facilities for
each Project, and such utilities will be adequate to serve such Project in all
material respects. No condition will exist to affect Borrower’s right to connect
into and have adequate use of such utilities, except for the payment of normal
connection charges or tap charges and except for the payment of subsequent
charges for such services to the utility supplier. In the event that Borrower is
not able to comply with the covenants set forth herein for a Project or portion
thereof for a period of ten (10) days following written notice from
Administrative Agent (provided that if Borrower cannot reasonably cure such
non-compliance within such ten (10) day period, such ten (10) day period shall
be extended for a reasonable period not in excess of thirty (30) days from the
date of Administrative Agent’s notice to cure such non-compliance provided that
Borrower shall have commenced

 

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such cure within such ten (10) day period and shall diligently thereafter
proceed to effect such cure), then such Project (or portion thereof, as the case
may be) shall cease to have any value in calculation of the Borrowing Base until
Borrower shall so comply.

(e) Plans, Drawings and Specifications. Borrower shall be the sole owner of all
Plans, Drawings and Specifications for the Improvements for each Project or, to
the extent that Borrower is not the sole owner of such Plans, Drawings and
Specifications, Borrower shall have the unconditional right to use such Plans,
Drawings and Specifications in connection with the construction of the
Improvements for such Project. None of Administrative Agent nor any Lenders will
be restricted in any way in use of such Plans, Drawings and Specifications from
and after a Default in connection with the Horizontal Improvements or Vertical
Construction of the Improvements and the exercise of Administrative Agent’s and
Lenders’ other rights and remedies, and Borrower shall obtain all consents and
authorizations necessary for the use of such Plans, Drawings and Specifications
by Administrative Agent on behalf of itself and the Lenders. In the event that
Borrower is not able to comply with the covenants set forth herein for a Project
or portion thereof for a period of ten (10) days following written notice from
Administrative Agent (provided that if Borrower cannot reasonably cure such
non-compliance within such ten (10) day period, such ten (10) day period shall
be extended for a reasonable period not in excess of thirty (30) days from the
date of Administrative Agent’s notice to cure such non-compliance provided that
Borrower shall have commenced such cure within such ten (10) day period and
shall diligently thereafter proceed to effect such cure), then such Project (or
portion thereof, as the case may be) shall cease to have any value in
calculation of the Borrowing Base until Borrower shall so comply.

(f) Compliance with Permitted Exceptions. Borrower shall keep and maintain in
full force and effect all restrictive covenants, development agreements,
easements and other similar agreements with Governmental Authorities and other
Persons that are necessary or desirable for the use, entitlement, management,
development, operation, marketing and sale of each Project. Borrower shall not
default in any material respect under any such covenants, development
agreements, easements and other agreements and will diligently enforce its
rights thereunder. In the event that Borrower is not able to comply with the
covenants set forth herein for a Project or portion thereof for a period of ten
(10) days following written notice from Administrative Agent (provided that if
Borrower cannot reasonably cure such non-compliance within such ten (10) day
period, such ten (10) day period shall be extended for a reasonable period not
in excess of thirty (30) days from the date of Administrative Agent’s notice to
cure such non-compliance provided that Borrower shall have commenced such cure
within such ten (10) day period and shall diligently thereafter proceed to
effect such cure), then such Project (or portion thereof, as the case may be)
shall cease to have any value in calculation of the Borrowing Base until
Borrower shall so comply.

(g) Project Development. For each Project:

(i) Borrower shall at all times, in all material respects, develop, maintain and
operate the Projects and use its best efforts to market and sell Units in each
Project. Borrower shall pay all costs and expenses arising in connection with
the management, use, entitlement, development, operation, marketing and sale of
each Project. The Improvements for each Project shall be constructed and
developed in conformity in all material respects with the Plans, Drawings and
Specifications therefor, and shall be contained

 

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wholly within the lot lines of the land included within the Project and will not
encroach in any material respect on any other real estate, easements, building
lines or setback requirements. Within ten (10) days after Borrower receives
notice or knowledge thereof, Borrower shall proceed with diligence to correct
any material departure from applicable Plans, Drawings and Specifications and
any departure from applicable laws, rules and regulations of any Governmental
Authority with jurisdiction over such Project.

(ii) With respect to those portions of each Project which are to be “open space”
or otherwise constitute streets and other common areas to be Dedications to
homeowners’ associations or other Governmental Authorities with jurisdiction
over such Project and are not otherwise included within the portions of the
Borrower Real Property to be developed by Borrower, Borrower shall take such
actions as may be necessary to cause such Dedications to be made promptly and in
accordance with applicable covenants, conditions and restrictions and Law.
Majority Lenders’ may notify Borrower that such Dedications are required, in
which case Borrower shall cause such Dedications to occur within thirty
(30) days after such notification.

In the event that Borrower is not able to comply with the covenants set forth
herein for a Project or portion thereof for a period of ten (10) days following
written notice from Administrative Agent (provided that if Borrower cannot
reasonably cure such non-compliance within such ten (10) day period, such ten
(10) day period shall be extended for a reasonable period not in excess of
thirty (30) days from the date of Administrative Agent’s notice to cure such
non-compliance provided that Borrower shall have commenced such cure within such
ten (10) day period and shall diligently thereafter proceed to effect such
cure), then such Project (or portion thereof, as the case may be) shall cease to
be included in the Borrowing Base until Borrower shall so comply.

(h) Title Policy Endorsements. If required by Majority Lenders, from time to
time in connection with the approvals that may be granted by Majority Lenders
pursuant to the Loan Documents, Borrower shall provide such continuation
endorsements, date down endorsements, survey endorsements and other endorsements
to each Title Policy for each Project or Asset, as the case may be, in form and
substance satisfactory to Majority Lenders as they determine are necessary to
insure the priority of each Deed of Trust as a valid first Lien on the
applicable Collateral, subject only to Permitted Exceptions. Borrower agrees to
furnish to the Title Company, at Borrower’s sole cost and expense, such surveys
and other documents and information as Majority Lenders or the Title Company may
require for the Title Company to issue such endorsements. In the event that
Borrower is not able to comply with the covenants set forth herein for a Project
or Asset, as the case may be, for a period of ten (10) days following written
notice from Administrative Agent (provided that if Borrower cannot reasonably
cure such non-compliance within such ten (10) day period, such ten (10) day
period shall be extended for a reasonable period not in excess of thirty
(30) days from the date of Administrative Agent’s notice to cure such
non-compliance provided that Borrower shall have commenced such cure within such
ten (10) day period and shall diligently thereafter proceed to effect such
cure), then such Project or Asset, as the case may be, shall cease to have any
value in calculation of the Borrowing Base until Borrower shall so comply.

 

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(i) Improvement Districts. For any Project, without obtaining the prior written
consent of Majority Lenders, Borrower shall not consent to, or vote in favor of,
the inclusion of all or any part of the Collateral in any improvement district,
any “Mello Roos” district (for Projects in California), special assessment
district or similar district. Borrower shall give immediate notice to
Administrative Agent and each Lender of any notification or advice that Borrower
may receive from any municipality or other third party of any intent or proposal
to include all or any part of the Collateral in an improvement, assessment or
other district. Upon prior written notice to Borrower, Administrative Agent,
acting at the direction of Majority Lenders, shall have the right to file a
written objection to the inclusion of all or any part of the Collateral in an
improvement, assessment or other district, either in its own name or in the name
of Borrower or any Lender, and to appear at, and participate in, any hearing
with respect to the formation of any such district. In the event that Borrower
is not able to comply with the covenants set forth herein for a Project or
portion thereof for a period of ten (10) days following written notice from
Administrative Agent (provided that if Borrower cannot reasonably cure such
non-compliance within such ten (10) day period, such ten (10) day period shall
be extended for a reasonable period not in excess of thirty (30) days from the
date of Administrative Agent’s notice to cure such non-compliance provided that
Borrower shall have commenced such cure within such ten (10) day period and
shall diligently thereafter proceed to effect such cure), then such Project
shall cease to have any value in calculation of the Borrowing Base until
Borrower shall so comply.

(j) Appraisals.

(i) Appraisal Requirements. The form and substance of each Appraisal must be
reasonably satisfactory to Majority Lenders, provided that in reviewing
Appraisals, Majority Lenders shall apply the policies and procedures generally
used by Majority Lenders in their real estate lending activities. Each Appraisal
of Borrower Real Property that is Unimproved Land, Land Under Development or
Finished Lots shall be based upon the “bulk finished appraised value” of such
Borrower Real Property. Each Appraisal of Borrower Real Property that are Homes
Under Construction or Model Homes will be at least a “FNMA plan type appraisal”.
Each Appraisal must include, without limitation, the following information:
(i) a narrative economic and demographic feasibility analysis of the market,
including a supply and demand comparison; (ii) a narrative comparison of each
subject Asset to competing projects in the same metropolitan area; (iii) a base
plan type value for each type of Unit in each Asset; and (iv) a market and
absorption study for each Asset. All Appraisals must comply with the appraisal
policies and procedures of Majority Lenders and with all applicable laws, rules,
and regulations, including the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, as amended. All Appraisals shall be addressed to each
Lender and their respective successors and assigns for their reliance.

(ii) Appraiser Engagement. Each Appraisal must be prepared by either (1) an
M.A.I.-certified appraiser selected by Majority Lenders and reasonably approved
by Borrower, or (2) by the an M.A.I.- certified appraiser employed in the real
property appraisal department of Majority Lenders’ selection of either Ernst &
Young, PriceWaterhouse Coopers, KPMG or Deloitte, and which appraiser shall be
engaged by Majority Lenders. Upon request by Majority Lenders, Borrower will
provide to Majority Lenders all information (including Lot and Unit premiums and
upgrades, if applicable) necessary to allow an

 

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Appraisal to be ordered by Majority Lenders. Majority Lenders will engage an
appraiser to perform an Appraisal only when it receives all information deemed
necessary by the Majority Lenders and the appraiser for preparation of such
Appraisal. Majority Lenders will not have any liability to Borrower or any other
Person with respect to delays in the Appraisal process. Borrower and its
Affiliates will not employ any appraiser that prepares an Appraisal for any of
the Borrower Real Property unless specifically requested to do so by Majority
Lenders. Majority Lenders may employ a staff appraiser or a fee appraiser and
Borrower will reimburse Majority Lenders at Majority Lenders’ reasonable cost
therefor.

(iii) Appraisal Evaluation. Upon receipt of an Appraisal, Majority Lenders will
review the Appraisal in accordance with the appraisal policies and procedures of
Majority Lenders and establish an Appraised Value. Majority Lenders will notify
Borrower of such Appraised Value.

(iv) Appraisals. Notwithstanding anything in this Section 6.16(j) to the
contrary, Majority Lenders may order Appraisals or updated Appraisals as set
forth below.

(A) Majority Lenders may order Appraisals or updated Appraisals at any time and
from time to time if required by any Law;

(B) Majority Lenders may order Appraisals for up to one-third of all Eligible
Real Property Collateral as it elects each calendar year;

(C) Within 45 days following the receipt of any Borrowing Base Report, Majority
Lenders may order an Appraisal on any Borrower Real Property that was first
added to Eligible Real Property Collateral during the quarter ending on the date
of such Borrowing Base Report if the Majority Lenders do not approve the Net
Present Value of Projected Revenues and Net Present Value of Projected Total
Project Costs included in the Certified Net Cash Flow Report included as part of
such Borrowing Base Report;

(D) Within 90 days following the receipt of Financial Statement that reflects an
impairment or write down of the carrying or book value of any Eligible Real
Property Collateral, the Majority Lenders may order an Appraisal on the Eligible
Real Property Collateral with respect to which such impairment or write down was
recorded in the books and records of the Borrower for financial statement
purposes;

(E) In the event that Borrower reasonably believes that there has been a
material increase in the value of any Borrower Real Property since the previous
Appraisal of such Borrower Real Property, then not less than six (6) months
after the date of such previous Appraisal, Borrow may request that Majority
Lenders order a new Appraisal of such Borrower Real Property from the appraiser
that prepared the previous Appraisal;

 

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(F) Not more than once every six (6) months on any Asset where the existing
Appraised Value is lower than the amount determined in the first sentence of the
definition of “Eligible Real Property Collateral Valuation”, Borrower may
request that Lender order a new Appraisal; and

(G) Majority Lenders may order updated or new Appraisals at any time and from
time to time.

(v) Expenses. Borrower shall pay the cost and expense of all Appraisals obtained
by Majority Lenders in connection with the Loan; provided, however, that, except
with respect to Appraisals ordered after the occurrence of a Default, or
pursuant to Sections 6.16 (j)(ii), or 6.16(j)(iv)(A), (B), (C), (D), (E) or
(F) with respect to any particular Asset, Lots or Units. Unless Borrower is
required to pay the cost and expense of an Appraisal under the previous
sentence, Lender shall pay for an Appraisal ordered under 6.16(j)(iv)(G). Other
than as set forth in the immediately preceding sentence, Borrower will reimburse
Majority Lenders for all costs and expenses incurred in the appraisal process
and in establishing and monitoring Appraised Values. All reimbursements by
Borrower to Majority Lenders required by this Section 6.16(j)(v) will be paid to
Majority Lenders within fifteen (15) days after notice from Majority Lenders to
Borrower.

(vi) No ordering of any Appraisal under any of Sections 6.16(j)(iv)(A) through
(G), inclusive, shall limit Lender’s right to order Appraisals under any of such
sections (for example, an Appraisal ordered under Section 6.16(j)(iv)(F) will
not count against Lenders’ rights under Section 6.16(j)(iv)(B)).

(k) Group B Property. Borrower shall have satisfied all of the conditions
related to the Group B Property set forth in Sections 4.02 and conveyed to
Administrative Agent for the benefit of itself and the Lenders an enforceable
first priority Lien on such Group B Property and Group B Projects on or before
the earlier to occur of the date (i) that is sixty (60) days after the Closing
Date, (ii) the Second Term Loan Funding Date or (iii) the Delayed Draw Closing
Date.

6.17 PAPA OBLIGATIONS. Without limitation of the other provisions of this
Agreement, it is acknowledged and agreed by Borrower (a) that a portion of the
proceeds of the Loan will be used for acquisitions and development of Real
Property which is Eligible Real Property Collateral as to which the PAPA
Obligations exist, including toward fulfilling certain development obligations
to the parties owed such PAPA Obligations and performance and payment of PAPA
Obligations when due, (b) that Borrower shall not engage in acts or omissions
which would cause a default under any PAPA Obligations (or trigger any buyback,
repurchase options or rights of first refusal, and in no event shall any sale
pursuant to those matters constitute a sale in the ordinary course of the Core
Businesses), (c) that Borrower shall promptly provide evidence of compliance
with all PAPA Obligations upon Administrative Agent’s request and without
request to promptly provide notice of any default or asserted default with
respect to any PAPA Obligations, (d) that upon Administrative Agent’s request,
Borrower will promptly provide evidence of compliance with any options held by
the Consolidated Group to acquire Real Property and without request promptly
provide notice of any exercise, pending expiration or default or asserted
default under any such options, and (e) except to the extent that Borrower is
required by the

 

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Entitlements to improve areas adjacent to the Boundaries of the Borrower Real
Property, in no event shall Borrower use (or allow any other Person to use) any
proceeds of the Loan to improve any Real Property which is not actually owned by
Borrower (whether or not an option is held thereon). Further, notwithstanding
anything to the contrary in this Agreement, in no event shall any Real Property
or any such option to acquire Real Property be transferred by Borrower to any
Affiliate or Related Party or any member of the Consolidated Group including
that no such transfer shall be permitted in connection with any transaction
contemplated with respect to Article VIII.

6.18 TRANSFER OF CF PROPERTY AND MF PROPERTY TO BORROWER. Concurrently with the
repayment of the Existing Secured Indebtedness secured by the MF Property and/or
CF Property, or any portion thereof, Borrower shall (a) cause the MF Property
Owner or the CF Property Owner, or the applicable portion thereof, as
applicable, to transfer fee title of the MF Property or CF Property, as
applicable, to Borrower and (b) deliver the Title Policy to Administrative Agent
and cause such Real Property (together with all appurtenant Personal Property)
to become Collateral hereunder and under the Security Documents. Concurrently
with the repayment and satisfaction of the Existing Secured Indebtedness (other
than in connection with repayment and reconveyance of portions of the Existing
Secured Indebtedness to allow closings of retail sales of lots or units in the
ordinary course of business at arm’s length to Persons other than Related
Parties), with respect to the: (a) CF Property, or any portion thereof,
(i) cause the Lien of the deed(s) of trust securing the Existing Secured
Indebtedness to be fully reconveyed, (ii) convey fee title of the CF Property,
or applicable portion thereof, to Borrower, (iii) execute, acknowledge and
record in the Official Records, a Deed of Trust, subject only to Permitted
Exceptions, as a Lien against the CF Property, or the applicable portion
thereof, and (iv) cause the Title Policy to be issued; and (b) MF Property, or
any portion thereof, (i) cause the Lien of the deed(s) of trust securing the
Existing Secured Indebtedness to be fully reconveyed, (ii) convey fee title of
the MF Property, or applicable portion thereof, to Borrower, (iii) execute,
acknowledge and record in the Official Records, a Deed of Trust, subject only to
Permitted Exceptions, as a Lien against the MF Property, or the applicable
portion thereof, and (iv) cause the Title Policy to be issued.

6.19 PROPERTY TRANSFERS. If at any time Borrower owns any Real Property (that is
not released pursuant to Article VIII) that is not subject to the Lien of a Deed
of Trust, Borrower shall upon request of Majority Lenders, as soon as reasonably
practicable: (i) execute, acknowledge and record in the Official Records, a Deed
of Trust (or an amendment to an existing Deed of Trust to include such added
Real Property as Collateral), subject only to Permitted Exceptions, as a Lien on
such Real Property; and (ii) cause a Title Policy (or an endorsement to an
existing Title Policy, as required by Majority Lenders, insuring the priority of
the Deed of Trust on such added Real Property) to be issued.

 

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ARTICLE VII.

NEGATIVE COVENANTS

So long as any Loan or other Obligation hereunder shall remain unpaid or
unsatisfied, Borrower shall not, nor shall it permit any member of the
Consolidated Group to, directly or indirectly:

7.01 PERMITTED INDEBTEDNESS. Incur or permit to exist or remain outstanding any
Indebtedness; provided, however, that the Loan Parties may incur or permit to
exist or remain outstanding the following Indebtedness (“Permitted
Indebtedness”):

(a) Indebtedness of any Loan Party arising under this Agreement or the other
Loan Documents;

(b) Indebtedness in respect of taxes, assessments, governmental charges, and
claims for labor, materials or supplies, to the extent that payment thereof is
not yet due or is being contested in good faith by appropriate proceedings, and
an adequate reserve has been established therefor and is maintained in
accordance with GAAP;

(c) [reserved];

(d) Indebtedness incurred to finance the purchase of equipment used in the
ordinary course of the Core Businesses in an aggregate amount not to exceed
$5,000,000, and provided that at any time outstanding and extensions, renewals,
refinancings and replacements thereof; provided that (i) the principal amount of
any such refinancing does not exceed the principal amount of the Indebtedness
being refinanced and (ii) the material terms and provisions of any such
refinancing (including redemption, prepayment, security, default and
subordination provisions) are no less favorable to the applicable Loan Party and
the Lenders than the Indebtedness being refinanced (other than the interest rate
and fees under such refinanced Indebtedness which may be at a rate consistent
with the rates and fees then prevailing in the market for similar Indebtedness
for borrowers engaged in the Core Businesses and with similar credit risks as
Borrower);

(e) Indebtedness of any Loan Party arising under the Indentures in an aggregate
principal amount not to exceed $395,133,000 and extensions, renewals,
refinancings and replacements thereof; provided that (i) the principal amount of
any such refinancing does not exceed the principal amount of the Indebtedness
being refinanced, (ii) the maturity date of such Indebtedness is extended beyond
the first anniversary of the Maturity Date and (iii) the material terms and
provisions of any such refinancing (including redemption, prepayment, security,
default and subordination provisions) are no less favorable to the applicable
Loan Party and the Lenders than the Indebtedness being refinanced (other than
the interest rate and fees under such refinanced Indebtedness which may be at a
rate consistent with the rates and fees then prevailing in the market for
similar Indebtedness for borrowers engaged in the Core Businesses and with
similar credit risks as Borrower);

(f) Secured Debt in an aggregate amount not to exceed at any time the Maximum
Permitted Secured Indebtedness;

 

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(g) Indebtedness of MF Owner or CF Owner incurred in accordance with
Section 7.12 hereof.

7.02 PERMITTED LIENS. Create or permit to exist any Lien on any Property of
Borrower or any member of the Consolidated Group, including Parent, whether now
or hereafter acquired, except for the following (the “Permitted Liens”):

(a) Liens and other encumbrances arising from attachments or similar
proceedings, pending litigation, judgments or taxes or assessments or government
charges in any such event whose validity or amount is being contested in good
faith by appropriate proceedings and for which adequate cash reserves have been
established and are maintained in accordance with GAAP, or taxes and assessments
which are not due and delinquent;

(b) Mechanics’ Liens;

(c) pledges or deposits made in connection with workmen’s compensation, employee
benefit plans, unemployment or other insurance, old age pensions, or other
Social Security benefits;

(d) Liens securing Indebtedness permitted under Sections 7.01(d) and (f);
provided that in the case of in the case of Liens securing Indebtedness
permitted under Section 7.01(d), such Liens exist at the time such equipment was
acquired and in any event such Liens extend only to the property acquired;

(e) precautionary Uniform Commercial Code financing statements related to
equipment leases or other operating leases in the ordinary course of business;

(f) easements, rights-of-way and other such restrictions of record customary in
any of the Core Businesses and which do not diminish the value of the subject
Collateral;

(g) Liens in favor of Administrative Agent and the Lenders under or pursuant to
this Agreement and the other Loan Documents;

(h) Liens on Excluded Assets;

(i) Permitted Exceptions;

(j) rights of setoff or bankers’ Liens upon deposits of cash in favor of banks
or other depository institutions whether arising by contract or operation of
law, incurred in the ordinary course of business so long as such deposits are
not intended to be collateral for any obligations;

(k) Liens in favor of the trustees under Section 7.07 of the Indentures;

(l) Liens incurred in connection with the extension, renewal or refinancing of
the Indebtedness permitted under Section 7.01(d) (provided no such Liens
encumber any Aggregate Real Property) and (f) to the extent such extensions,
renewals or refinancings individually and in the aggregate are in accordance
with the terms of Section 7.01(d) and (f); provided that any

 

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extension, renewal or replacement Lien (i) is in each case limited to the assets
covered by the existing Lien and (ii) secures Indebtedness individually and in
the aggregate which is no greater in amount than the Indebtedness secured by the
existing Lien; and

(m) Liens securing Secured Intercompany Loans.

7.03 INVESTMENTS. Make any Investments (other than by the Borrower in Borrower
Real Property as necessary for the Core Businesses and subject to Section 7.05),
except:

(a) Cash Equivalents subject to a first priority perfected Lien in favor of
Administrative Agent for the benefit of itself and the Lenders;

(b) deposit accounts which are subject to Control Agreements;

(c) Investments in Excluded Assets;

(d) Loans to officers, directors, board members, employees, shareholders or
affiliates of Borrower made in the ordinary course of such Loan Party’s business
on such terms as are customary and reasonable for similarly situated companies,
and in an aggregate principal amount outstanding at any time not in excess of
$100,000;

(e) Investments in suppliers and customers of Borrower made in the ordinary
course of such Loan Party’s business on such terms as are customary and
reasonable for similarly situated companies, and in an aggregate amount
outstanding during any rolling twelve (12) month period not in excess of
$100,000;

(f) Investments existing on the date hereof and set forth on Schedule 7.03(f)
hereto;

(g) Investments by Borrower in WL Southwest; provided that such Investments
(i) consist solely of Units, (ii) at the time any such Unit is transferred, WL
Southwest has entered into a binding purchase and sale agreement with a bona
fide arm’s length (other than a sale to an employee in accordance with the
provisions of Section 8.01(b)(ii)) all cash purchaser retail end-user for such
Unit, (iii) immediately after the transfer of title to such Unit to WL Southwest
such Unit shall be transferred, through the same escrow as part of the same
transaction, to such purchaser and (iv) the Net Proceeds from such sale are paid
directly to Borrower; and

(h) Investments in accordance with Sections 7.12 or 7.13.

7.04 FUNDAMENTAL CHANGES. Do any of the following:

(a) merge or consolidate with or into any Person, except that Subsidiaries of
Borrower may merge into a Loan Party; provided that such Loan Party must be the
survivor;

(b) dispose of any Property other than (i) Asset Sales in compliance with
Section 2.03(c)(i) (provided that no Asset Sale of all or substantially all of
the property of a Loan Party or Equity Securities of any Loan Party may be made)
or (ii) Asset Sales permitted under and in compliance with Article VIII;

 

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(c) commence Vertical Construction on the Project listed on Schedule APT; and

(d) sell, dispose of or otherwise transfer any Equity Securities of a Subsidiary
of Borrower that is the borrower under any Secured Intercompany Loan at any time
that such Secured Intercompany Loan is outstanding.

7.05 ACQUISITIONS. Acquire any fee or other interest in Real Property (whether
by exercise of an option or otherwise) unless (i) the member of the Consolidated
Group acquiring such Real Property is Borrower, (ii) a fully executed and
acknowledged Deed of Trust for the Real Property shall concurrently with
Borrower’s acquisition of the Real Property, be recorded in the Official
Records, and upon recordation of the Deed of Trust, Administrative Agent shall
have received a Title Policy issued by the Title Company, (iii) an Appraisal if
required under Section 6.16(j)(iv)(C) (obtained at Borrower’s sole cost and
expense) of such Real Property showing the Appraised Value of the Real Property
at least equal to the gross purchase price of the Real Property being acquired
has been delivered to Administrative Agent, (iv) such Real Property is used in
the Core Businesses and (v) the aggregate gross purchase price paid by or on
behalf of Borrower for Unentitled Land shall not exceed $5,000,000 in the
aggregate during any twelve (12) month period. In furtherance of the foregoing,
Borrower shall, or shall cause the applicable Loan Party, to execute and deliver
such financing statements, subordinations and other documents requested by
Administrative Agent, acting at the direction of Majority Lenders, necessary or
advisable to grant and convey a first priority perfected Lien in the Real
Property.

7.06 TRANSACTIONS WITH AFFILIATES. Enter into any agreement to pay any fees,
wages, salary, bonus, commission, contributions to benefit plans or any other
compensation for goods or services or otherwise enter into any other agreement
or arrangement, including for the transfer of assets, with its Affiliates or to
or for the benefit of any Person who is a director or officer of the
Consolidated Group or any of its Affiliates or who has, or any of whose
Affiliates has, a beneficial interest in the capital stock or partnership
interests of any of the Consolidated Group or any of its Affiliates, except in
the ordinary course of and pursuant to the reasonable requirements of such
member’s business and upon terms and conditions materially no more favorable
than those such member would be willing to enter into with an unaffiliated third
party. At the request of Administrative Agent, Borrower shall provide
computations and evidence of compliance with this Section 7.06. Borrower shall
not sell, convey, grant, quitclaim, lease or otherwise transfer any Borrower
Real Property to CF Owner, MF Owner, any Joint Venture, or any Related Parties,
Subsidiaries or Affiliates of Borrower. Borrower shall not permit: (i) CF Owner
to sell, convey, grant, quitclaim, lease or otherwise transfer any CF Property
to any of MF Owner, any Joint Venture, or any Related Parties, Subsidiaries or
Affiliates of CF Owner or Borrower, other than Borrower; or (ii) MF Owner to
sell, convey, grant, quitclaim, lease or otherwise transfer any MF Property to
any of CF Owner, any Joint Venture, or any Related Parties, Subsidiaries or
Affiliates of MF Owner or Borrower, other than Borrower. No amendment,
modification, renewal or extension (other than renewals or extensions on arm’s
length market terms) shall be entered into in connection with any existing
documents or agreements between the Borrower, Parent or any of their Affiliates,
on the one hand, and any of their Affiliates on the other hand, including the
lease agreement referenced in Section 7.08(c).

 

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7.07 SENIOR UNSECURED NOTES.

(a) Except as contemplated by Section 7.01(e) in connection with refinancings or
replacements, issue additional Senior Unsecured Notes.

(b) Without the prior written consent of Majority Lenders:

(i) prepay, purchase, redeem or otherwise acquire any Senior Unsecured Notes,
provided, however, that nothing contained in this Section 7.07 shall prevent any
Loan Party from making required payments of principal and interest on any Senior
Unsecured Notes if no Default or Event of Default exists and the payments would
not cause a Default or Event of Default to occur; or

(ii) permit the modification, waiver or amendment of any of the terms of the
Indentures, except for modifications, waivers or amendments permitted in
accordance with Section 7.01(e).

7.08 PERMITTED DISTRIBUTIONS. Make any Distributions; provided that:

(a) Subsidiaries may make Distributions to Borrower;

(b) The Borrower and Parent may make a Distribution to the extent that (i) such
Distribution would be permitted under the terms of each of the Indentures as in
effect on the date hereof (whether or not on the date of the relevant
Distribution such Indentures are then in effect), (ii) (x) the Indebtedness
incurred under each of the Senior Unsecured Notes is not outstanding on the date
of the proposed Distribution (unless the regularly scheduled maturity date of
such Indebtedness shall be after the date which is one year from the Maturity
Date) and (y) the Borrower provides evidence reasonably satisfactory to Majority
Lenders of its ability to repay the Loans and its other obligations under the
Loan Documents after giving effect to the Distribution;

(c) Payments of rent under the that certain Lease Agreement dated and in effect
on April 1, 2003, between WHL 1976 T, LLC by: William Harwell Lyon 1976 Trust
(its managing member) and William Lyon Homes, Inc., relating to the headquarters
of Borrower, as in effect from April 1, 2003;

(d) Distributions by Joint Ventures; and

(e) Investments permitted by Sections 7.03(g) and 7.13 to the extent such
Investments would also constitute a Distribution.

7.09 CHANGE IN NATURE OF BUSINESS. Engage in any material line of business
different from any of the Core Businesses.

7.10 USE OF PROCEEDS. Use the proceeds of the Loan, in violation of the Margin
Regulations, or for the purpose of purchasing or carrying any “margin stock” as
defined in the Margin Regulations or reducing or retiring any Indebtedness which
was

 

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originally incurred to purchase or carry “margin stock” or for any other purpose
which might make this transaction a “purpose credit” within the meaning of the
Margin Regulations.

7.11 NO OTHER NEGATIVE PLEDGE. Covenant or otherwise agree with any Person
(other than (a) the Lenders and Administrative Agent pursuant to this Agreement
and (b) with respect to the assets securing Permitted Construction Indebtedness,
the lenders of such Permitted Construction Indebtedness), whether in connection
with obtaining or modifying credit accommodations from such Person, or incurring
other Indebtedness, or otherwise, to keep its unencumbered assets free of any or
all Liens.

7.12 INVESTMENTS IN MF OWNER AND CF OWNER. Make any Investments in MF Owner or
CF Owner unless:

(a) such Investment is in the form of a loan or extension of credit (a “Credit
Advance”);

(b) the borrower under such Credit Advance is either MF Owner or CF Owner;

(c) such Credit Advance is evidenced by one or more secured promissory notes,
which have been delivered to Administrative Agent;

(d) such Credit Advance is made solely to repay, in its entirety, and terminate
the Existing Secured Indebtedness of MF Owner or CF Owner, as applicable;

(e) such Credit Advance is made directly to the lender, agent or trustee under
such Existing Secured Indebtedness pursuant to a payoff letter or demand letter
pursuant to which such lender, agent or trustee has agreed to release its Liens
on the MF Property or CF Property, as applicable, upon receipt of the amounts
set forth in such letter;

(f) the documentation evidencing such Credit Advance, including the secured
promissory notes, shall be in form and substance satisfactory to Majority
Lenders and provide that the proceeds from any asset sale (including the sale of
Lots and Units) by MF Owner or CF Owner shall be paid directly to Borrower;

(g) Borrower, for the benefit of Administrative Agent and as security for MF
Owner’s or CF Owner’s obligations under such Credit Advance, is granted a first
priority perfected Lien on all assets (including all Real Property and Personal
Property) of MF Owner or CF Owner, as applicable; and

(h) Administrative Agent, for itself and the Lenders, is granted a first
priority perfected lien in Borrower’s right, title and interest in and to the
Credit Advance, the promissory note or notes issued in connection therewith and
an assignment of all collateral pledged by MF Owner or CF Owner, as applicable,
in connection with such Credit Advance.

7.13 INVESTMENTS IN LAGUNA AND WHITNEY RANCH. Make any Investments in Laguna or
Whitney Ranch unless:

(a) such Investment is in the form of a Credit Advance;

 

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(b) the borrower under such Credit Advance is either Laguna or Whitney Ranch;

(c) such Credit Advance is evidenced by one or more secured promissory notes,
which have been delivered to Administrative Agent;

(d) Laguna and Whitney Ranch may only use the proceeds from such Credit Advance
for Vertical Construction and the marketing and sale of Units;

(e) the documentation evidencing such Credit Advance, including the secured
promissory notes, shall be in form and substance satisfactory to Majority
Lenders and provide that the proceeds from any asset sale (including the sale of
Lots and Units) by Laguna or Whitney Ranch shall be paid directly to Borrower;

(f) Borrower, for the benefit of Administrative Agent and as security for
Laguna’s or Whitney Ranch’s obligations under such Credit Advance, is granted a
first priority perfected Lien on all assets (including all Real Property and
Personal Property) of Laguna or Whitney Ranch, as applicable;

(g) Administrative Agent, for itself and the Lenders, is granted a first
priority perfected lien in Borrower’s right, title and interest in and to the
Credit Advance, the promissory note or notes issued in connection therewith and
an assignment of all collateral pledged by Laguna or Whitney Ranch, as
applicable, in connection with such Credit Advance; and

(h) all Credit Advances under this Section 7.13 shall not exceed an aggregate
amount of $10,500,000.

7.14 [RESERVED].

7.15 TANGIBLE NET WORTH. Permit Tangible Net Worth to be less than $75,000,000
at the end of any fiscal quarter.

7.16 SECURED INDEBTEDNESS.

(a) Permit at any time Total Outstandings to exceed the Borrowing Base.

(b) Permit at any time Total Secured Debt to exceed Maximum Permitted Secured
Indebtedness.

(c) Permit at any time the aggregate principal amount at any time outstanding of
all Existing Secured Indebtedness to exceed $57,036,134.

7.17 EXPENDITURES OUTSIDE OF CORE BUSINESSES. Permit expenditures (other than
expenditures incurred in the acquisition, development, construction or sale of
Aggregate Real Property as part of the Core Businesses or otherwise in
furtherance of the Core Business) to exceed $5,000,000 in the aggregate during
any Annual Period without the prior written consent of Majority

 

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Lenders; provided that, any expenditure or series of related expenditures in an
amount less than or equal to $100,000 shall not be included in calculating such
$5,000,000 limit.

7.18 EMPLOYEE COMPENSATION. Permit bonus compensation to be paid to employees of
Borrower to exceed the greater of (a) eighteen percent (18%) of pre-tax,
pre-bonus Net Income of Consolidated Group, from which bonus compensation paid
to each of General William Lyon and William H. Lyon shall not exceed, in each
case, three percent (3%) of the pre-tax, pre-bonus Net Income of Consolidated
Group, or (b) twenty five percent (25%) of the aggregate consolidated annual
pre-bonus payroll of Borrower.

7.19 [RESERVED].

7.20 CHANGES IN KEY MANAGEMENT. Permit, at any time prior to the Maturity Date,
(a) Matthew R. Zaist (or any other individual approved by Majority Lenders as a
substitute for him in accordance with the terms of this Section 7.21) to cease
whether voluntarily or involuntarily to devote substantially all of his business
time to the management or operations of Parent or Borrower nor (b) any two of
the existing members of Key Management (or any other individuals approved by
Majority Lenders as a substitute for such individuals in accordance with the
terms of this Section 7.21) to cease whether voluntarily or involuntarily to
devote substantially all of their business time to the management or operations
of Parent or Borrower unless, in each case, a substitute or substitutes
acceptable to Majority Lenders is found for such individual or individuals
within one hundred eighty (180) days of the date such individual announces his
resignation or departure or is removed from his position (each, a “Departure”);
provided, however, that if a substitute or substitutes acceptable to Majority
Lenders has not been appointed within such period but Borrower is diligently
attempting to recruit such substitute or substitutes, this covenant shall not be
deemed in breach until the two hundred seventieth (270th) day from the date of
the relevant Departure.

7.21 EXCLUDED ASSETS. Permit the aggregate fair market value of all Excluded
Assets to exceed $20,000,000 at any time.

7.22 IMPROVEMENTS. Without limitation of any other provisions of this Agreement
regarding the Core Businesses or use of the Aggregate Real Property, other than
in the ordinary course of the Core Businesses, no portion of the Aggregate Real
Property shall be removed, demolished or altered in any manner, if it diminishes
the value of any Project by at least $1,000,000, without the prior written
consent of Majority Lenders. Further, if any Borrower Real Property or any
portion thereof that is condemned, destroyed, removed, demolished or altered in
any manner which diminishes the value of any Project, then the Majority Lenders
may exclude such Borrower Real Property from the Borrowing Base.

7.23 PAPA OBLIGATION. Neither Borrower nor any other member of the Consolidated
Group will borrow any amount from the holder of any PAPA Obligation, nor permit
any advance of funds by the holder of any PAPA Obligation on behalf of Borrower
or any member of the Consolidated Group without prompt repayment of such advance
in full.

7.24 NEGATIVE PLEDGE. Neither Borrower or any other Loan Party shall permit or
suffer to exist any Lien on or pledge of the Equity Securities of any member of
the Consolidated Group.

 

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7.25 CF PROPERTY AND MF PROPERTY. Except for individual retail sales of lots or
units to end users in the ordinary course of business at arm’s length to Persons
other than Related Parties, subject to the terms of the Existing Secured
Indebtedness, Borrower shall not permit the CF Owner to, and the CF Owner shall
not, transfer, convey, grant, pledge, encumber sell, lease or assign the CF
Property, or any portion thereof or interest therein, to any Person except
Borrower. Except for individual retail sales of lots or units to end users in
the ordinary course of business at arm’s length to Persons other than Related
Parties, subject to the terms of the Existing Secured Indebtedness, Borrower
shall not permit the MF Owner to, and the MF Owner shall not, transfer, convey,
grant, pledge, encumber sell, lease or assign the MF Property, or any portion
thereof or interest therein, to any Person except Borrower.

7.26 REFINANCED WACHOVIA REVOLVING CREDIT AGREEMENT. Borrower shall not make any
borrowings against the Refinanced Wachovia Revolving Credit Agreement, and take
no action with respect thereto except to terminate the $5,330,000 letter of
credit existing as of the Closing Date in accordance with the terms of the
Refinanced Wachovia Revolving Credit Agreement existing on the Closing Date and
cause the Refinanced Wachovia Revolving Credit Agreement to be discharged and
terminated.

7.27 REFINANCED CBT, CNB AND JPM REVOLVING CREDIT AGREEMENTS. Borrower shall
neither exercise nor make any borrowings in connection with the commitments
under, nor enter into any amendment, modification, renewal or extension of, any
of the Refinanced CBT, CNB and JPM Revolving Credit Agreements unless the
applicable Refinanced CBT, CNB and JPM Revolving Credit Agreement meets all of
the conditions in this Agreement to be Permitted Construction Indebtedness.

7.28 AMENDMENT TO DOCUMENTS. Amend, modify, supplement, waive or replace any
document, instrument or agreement (or any terms or conditions thereof) entered
into in connection with or evidencing the Existing Secured Indebtedness (except
to the extent otherwise permitted by the terms hereof) or any Secured
Intercompany Loans unless, in each case, such amendment, modification,
supplement, waiver or replacement is consented to in writing by Administrative
Agent acting at the direction of Majority Lenders.

ARTICLE VIII.

RELEASES

8.01 GENERAL REQUIREMENTS FOR RELEASES. Administrative Agent shall release the
relevant property described below from the Lien of a Deed of Trust (through an
escrow arrangement acceptable to Majority Lenders, concurrent with the closing
of the relevant transaction) upon satisfaction of the following conditions
precedent, provided that Borrower requests such release in writing by way of
written notice of the request to Administrative Agent not less than ten
(10) days prior to the date of the applicable transfer, which request shall be
accompanied by a common and legal description of the relevant property to be
released reasonably

 

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satisfactory to Majority Lenders and provided that the release shall not violate
any requirements of any document of record or any applicable Law including those
regarding subdivisions, tract maps, parcel maps and the division of land into
lots or parcels; and the Collateral remaining after giving effect to the release
shall be in compliance with all applicable laws, rules, regulations and
ordinances, the un-released Collateral remaining after giving effect to the
release shall not be impaired with respect to Borrower’s ability to diligently
proceed with any Improvements, and that Borrower has concurrently submitted to
Administrative Agent all documents and instruments necessary to release the
relevant Borrower Real Property from the Liens of the applicable Loan Documents,
and in the case of any released property as to which construction has not been
fully completed, the Person acquiring the property shall have agreed, to the
reasonable satisfaction of Administrative Agent, to complete the construction
and development thereof (and any related Amenities) in accordance with the plans
and specifications reasonably approved in writing by Majority Lenders:

(a) At the time of such release no Default or Event of Default shall have
occurred and be continuing. It shall be an additional condition that no Default
or Event of Default shall occur as a result of the transaction that is the
subject of the release.

(b) Such release shall be either in connection with (i) a bona fide arm’s length
all-cash sale in the ordinary course of Borrower’s Core Businesses (or in the
case of a Dedication, a transfer or donation, in the ordinary course of
Borrower’s Core Businesses, of a portion of a Project) to an unrelated Person
who is either (x) a member of the general home-buying public purchasing a Unit
or (y) a merchant builder purchasing single or multiple Finished Lots or Homes
Under Construction in Nevada or Arizona in a transaction of a type which
Borrower has customarily done historically and is consistent with its business
plan for such Project, and in the case of either (x) or (y), who is not an
Affiliate or Related Party of the Consolidated Group (a “Standard Retail Sale”),
(ii) in not more than ten (10) instances in any calendar year, a sale to an
employee of any member of the Consolidated Group for use by such employee as
their primary residence, with a discount of not more than three percent (3%) of
the purchase price that would be charged for the applicable Lot or Unit in a
Standard Retail Sale (a release in connection with (i) or (ii) is a “Standard
Release”) or (iii) Borrower obtaining Permitted Construction Indebtedness
secured solely by such Borrower Real Property (in the case of this clause
“(iii),” a “PCI Release”, and the Borrower Real Property so transferred in
connection therewith is the “PCI Released Property”).

(c) Unless the portion of the Borrower Real Property to be released is an entire
parcel with respect to which Administrative Agent has previously approved the
Final Map or is a Lot or Lots(or a Unit or Units) within a subdivision with
respect to which Administrative Agent has previously approved a Final Map,
Borrower or Title Company shall have delivered to Administrative Agent (i) a
legal description of the portion of the Borrower Real Property to be released,
(ii) a map or plat of the portion of the Borrower Real Property to be released,
and (iii) copies of any easements for ingress, egress or otherwise to be granted
or retained in connection with such release.

(d) With respect to any Standard Release (but not PCI Releases), unless the
portion of the Borrower Real Property to be released is an entire parcel with
respect to which Administrative Agent has previously approved Final Map or is a
lot or lots within a subdivision with respect to which Administrative Agent has
previously approved a Final Map, prior to such release, (i) the remaining

 

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unreleased portion of the Borrower Real Property will, after giving effect to
such release, have adequate access ingress and egress and will have access to
and rights to any Amenities related to the applicable Project, in the reasonable
opinion of Majority Lenders, and (ii) the value of the unreleased portion of the
Project will, after giving effect to such release, not otherwise be materially
impaired in the reasonable opinion of Majority Lenders, including LTAA 9 (a.k.a.
CLTA 111). Majority Lenders shall have the right to approve any Standard
Release, which approval will not be unreasonably withheld, provided however,
that unless Majority Lenders have notified Borrower that Majority Lender’s
approval will be required prior to any Standard Release, Borrower shall proceed
with Standard Releases without receiving Majority Lender’s prior consent.

(e) Borrower shall provide Administrative Agent with such endorsements to the
Title Policy as Administrative Agent may reasonably request in connection with
each release.

(f) Borrower shall pay all of Administrative Agent’s reasonable costs and
expenses, including reasonable attorneys’ fees, arising in connection with each
release.

(g) Each release shall be made by Administrative Agent by delivery of the
release documents to a title company or other escrow agent satisfactory to
Majority Lenders upon such conditions as shall assure Administrative Agent that
all conditions precedent to such release have been satisfied and that the
applicable transaction will be completed.

(h) In no event shall any transfer or conveyance be made of any Amenities (or
land slated therefor) except a customary transfer to the homeowners association
for the applicable Project, subject to Administrative Agent’s reasonable
approval.

8.02 STANDARD RELEASES. In connection with and as conditions to any Standard
Releases of any Borrower Real Property:

(a) Borrower shall satisfy each of the conditions set forth in 8.01.

(b) If requested by Administrative Agent, Borrower shall deliver to
Administrative Agent a true and correct copy of the applicable Purchase
Contracts.

(c) The sale shall be made in the ordinary course of the development and
marketing of the applicable Project, and shall be accompanied by such
development covenants, conditions and restrictions, deeds of trust, and other
documents, consistent with Borrower’s past practices, as shall be necessary to
assure that development of the Project occurs in accordance with Borrower’s
development plans and existing Entitlements.

(d) The transaction occurs through an escrow account over which Lender has a
Control Agreement and Borrower then causes the net proceeds of such transfer to
be placed in an account over which Lender has a Control Agreement.

8.03 DEDICATIONS. In connection with and as conditions to release of any
Borrower Real Property as a Dedication:

(a) Borrower shall satisfy each of the conditions set forth in Section 8.01.

 

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(b) At least ten (10) days prior to a release, Borrower shall have delivered to
Administrative Agent all the terms, conditions and details of such release,
including the purpose of such release, evidence of the conformity of such
release to the overall development plan for the Project and all Entitlements
required in connection therewith, all of which shall be in form and content
reasonably satisfactory to Majority Lenders.

8.04 PERMITTED CONSTRUCTION INDEBTEDNESS. In connection with and as conditions
to any PCI Release, the PCI Released Property must, concurrent with the release,
become immediately subject to a deed of trust as security in favor of the
Revolver Lender for Permitted Construction Indebtedness and:

(a) Borrower shall satisfy the conditions set forth in Section 8.01.

(b) Any PCI Released Property must consist only of (i) Finished Lots or Homes
Under Construction (for which, all necessary Entitlements have been obtained and
a Final Map has been recorded, so that Vertical Construction may commence or
continue upon funding of the Permitted Construction Indebtedness), or (ii) Model
Units in the same Phase or Project, and such Permitted Construction Indebtedness
shall only encumber the relevant Finished Lots, Homes Under Construction or
Model Units.

(c) Borrower must concurrently with such release close and receive Permitted
Construction Indebtedness as contemplated herein and the proceeds thereof, in
accordance with the terms thereof shall be deposited directly into an account as
to which Lenders have a Control Agreement in effect.

(d) Borrower shall demonstrate its compliance with the Borrowing Base and all
other Financial Covenant and Maximum Secured Indebtedness tests measured both
before and after the release to the satisfaction of Administrative Agent.

(e) At least 30 days before the PCI Release, Borrower has submitted a business
plan for the development, construction, marketing and sale (including details of
the proposed timing and amounts for construction, costs, expenditures, sales and
revenues) for the PCI Released Property for review (but not approval) by the
Lenders and any conditions and requirements of such Permitted Construction
Indebtedness have been met (as of the time of the requested PCI Release), and
the loan documents evidencing such Permitted Construction Indebtedness
(including minimum sales price) also shall have been so provided for review (but
not approval) by the Lenders (within a reasonable time before the requested
release).

(f) If at any time all or any part of the PCI Released Property is released from
the Lien of the Permitted Construction Indebtedness (other than in connection
with a sale permitted under this Agreement and permitted under the Permitted
Construction Indebtedness), Borrower shall in no event sell, transfer or further
encumber the PCI Released Property, except with other Permitted Construction
Indebtedness in compliance with this Section 8.04, the Borrower shall
(i) execute, acknowledge and record a Deed of Trust against all such remaining
PCI Released Property for the benefit of Administrative Agent and the Lenders to
secure the Loan Parties’ Indebtedness, (ii) deliver a Title Policy insuring a
first priority Lien in favor of the Lenders in such PCI Released Property

 

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and (iii) deliver such other documents, agreements, reports and instruments as
may be reasonably required by Majority Lenders (which shall include a
subordination agreement acceptable to them with respect to any PAPA
Obligations).

(g) Borrower shall have entered into binding documentation, for the Permitted
Construction Indebtedness with the Revolver Lender, which Permitted Construction
Indebtedness is secured solely by the PCI Released Property.

(h) Borrower shall have used commercially reasonable efforts to cause the
Revolver Lender of the applicable Permitted Construction Indebtedness to enter
into an Intercreditor Agreement providing the Lenders with notice of any default
(and opportunity to cure any default) by Borrower before any acceleration and/or
to permit Lenders to purchase such loan from the Revolver Lender at par in such
events in form and content reasonably acceptable to Majority Lenders.

ARTICLE IX.

EVENTS OF DEFAULT AND REMEDIES

9.01 DEFAULT. Any of the following shall constitute a Default:

(a) Non-Payment. Any Loan Party shall fail to pay (i) any principal of any Loan
when the same becomes due or, (ii) any interest, fees or other amounts payable
under the terms of this Agreement or any of the other Loan Documents within
three (3) Business Days after the same becomes due; or

(b) Specific Covenants. (i) Borrower fails to perform or observe any term,
covenant or agreement contained in any of Section 6.05(a) and 6.17(b), Sections
7.07, 7.08, 7.12, 7.15, 7.16, 7.20, 7.21, 7.23, 7.25, 7.26 or 7.27 or Article 8,
or (ii) any Guarantor fails to perform or observe any term, covenant or
agreement contained in Section 1 of the Unconditional Guaranty; provided that in
the case of Section 7.15, Borrower shall have ten (10) days from the earlier of
the date a Responsible Officer of Borrower has knowledge of such failure or
written notice thereof to Borrower from Administrative Agent or any Lender to
cure such failure; or

(c) Other Defaults. Any Loan Party fails to perform or observe any other
covenant or agreement (not specified in subsection (a) or (b) above) contained
in any Loan Document on its part to be performed or observed and such failure
continues for thirty (30) days after the earlier of the date a Responsible
Officer of Borrower has knowledge of such failure or written notice thereof to
Borrower from Administrative Agent or any Lender; or

(d) Representations and Warranties. Any representation, warranty, certification
or statement of fact made or deemed made by or on behalf of Borrower or any
other Loan Party herein, in any other Loan Document, or in any document
delivered in connection herewith or therewith shall be incorrect or misleading
in any material respect when made or deemed made; or

(e) Cross-Default. Any member of the Consolidated Group (i) fails to make any
payment when due (after giving effect to the expiration of any applicable grace
periods) (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise) in respect of any Indebtedness or Guarantee (other than
Indebtedness hereunder) having an aggregate principal amount

 

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(including undrawn committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit arrangement) of more than
the $10,000,000, or (ii) fails to observe or perform any other agreement or
condition relating to any such Indebtedness or Guarantee or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event occurs, the effect of which default or other event is to cause, or to
permit the holder or holders of such Indebtedness or the beneficiary or
beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to be demanded or to become due or to be
repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an
offer to repurchase, prepay, defease or redeem such Indebtedness to be made,
prior to its stated maturity, or such Guarantee to become payable or cash
collateral in respect thereof to be demanded; provided that any non-recourse
loans to Joint Ventures, to the extent permitted hereunder, shall be excluded
from this Section 9.0 l(e); or

(f) Insolvency Proceedings, Etc. Any member of the Consolidated Group institutes
or consents to the institution of any proceeding under any Debtor Relief Law, or
makes an assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material part of its
property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or consent
of such Person and the appointment continues undischarged or unstayed for sixty
(60) calendar days; or any proceeding under any Debtor Relief Law relating to
any such Person or to all or any material part of its property is instituted
without the consent of such Person and continues undismissed or unstayed for
sixty (60) calendar days, or an order for relief is entered in any such
proceeding; or any member of the Consolidated Group shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the foregoing; or

(g) Inability to Pay Debts; Attachment. (i) Any member of the Consolidated Group
becomes unable or admits in writing its inability or fails generally to pay its
debts as they become due, or (ii) any writ or warrant of attachment or execution
or similar process is issued or levied against all or any material part of the
property of the Borrower or the Consolidated Group, taken as a whole, and is not
released, vacated or fully bonded within thirty (30) days after its issue or
levy; or

(h) Judgments. There is entered against any member of the Consolidated Group
(i) a final judgment or order for the payment of money in an aggregate amount
exceeding the $10,000,000 (to the extent not covered by independent third-party
insurance as to which the insurer does not dispute coverage), or (ii) any one or
more non-monetary final judgments that have, or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect and, in either
case, (A) enforcement proceedings are commenced by any creditor upon such
judgment or order, or (B) there is a period of thirty (30) consecutive days
during which a stay of enforcement of such judgment, by reason of a pending
appeal or otherwise, is not in effect; or

(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or
Multiemployer Plan which has resulted or could reasonably be expected to result
in liability of Borrower or another member of the Consolidated Group under Title
IV of ERISA to

 

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the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in
excess of $3,000,000, or (ii) Borrower or any ERISA Affiliate fails to pay when
due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of ERISA
under a Multiemployer Plan in an aggregate amount in excess of $3,000,000; or

(j) Invalidity of Loan Documents. Any material provision of any Loan Document,
at any time after its execution and delivery and for any reason other than as
expressly permitted hereunder or thereunder or satisfaction in full of all the
Obligations, ceases to be in full force and effect; or any Loan Party or any
other Person contests in any manner the validity or enforceability of any
provision of any Loan Document; or any Loan Party denies that it has any or
further liability or obligation under any Loan Document, or purports to revoke,
terminate or rescind any provision of any Loan Document;

(k) Security Documents. Any Lien intended to be created by any Security Document
shall at any time be invalidated, subordinated or otherwise cease to be in full
force and effect, for whatever reason (except for Liens on Collateral not
constituting Real Property to the extent that such non-Real Property Collateral
has a fair market value of less than $100,000), or any security interest
purported to be created by any Security Document shall cease to be, or shall be
asserted by any Loan Party in writing not to be, a valid, first priority (except
as expressly otherwise provided in this Agreement or such Security Document)
perfected Lien in the Collateral covered thereby (except for immaterial items of
Collateral); or

(l) Default under Certain Indebtedness. A default or event of default shall have
occurred and be continuing under any Permitted Secured Indebtedness; or

(m) Indictment. Borrower or any member of Key Management shall be indicted for a
federal crime, a punishment for which could include the forfeiture of any of its
assets which could reasonably be expected to result in a Material Adverse
Effect; or

(n) Guarantors. Any Guarantor shall repudiate or purport to revoke the
Unconditional Guaranty; or

(o) Designated Person. Any Loan Party shall become a Designated Person; or

(p) Delayed Draw Term Loans. Borrower shall fail to borrow the Delayed Draw Term
Loans before the Delayed Draw Commitment Termination Date, for any reason
whatsoever; or

(q) Prohibited Transfers. The occurrence of any transfer, assignment or
encumbrance in violation of the terms of any Deed of Trust or any provision of
this Agreement (including Sections 6.17, 7.06, 7.26 or 7.27); or

(r) Title Insurance. (i) If any Title Policy issued (A) reflects Liens or that
are not Permitted Exceptions and such Liens or Encumbrances are not removed
within thirty (30) days after demand by Administrative Agent or (B) fails to
contain endorsements requested by Administrative Agent and such endorsements are
not included within thirty (30) days after demand by Administrative Agent, or
(ii) a Title Company becomes insolvent, bankrupt or otherwise unable to pay
claims and the affected Title Policy is not

 

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replaced with another Title Policy approved by Administrative Agent within
thirty (30) days after Administrative Agent’s demand therefor, and in the
foregoing events, the Borrower Real Property covered by the Title Policy shall
cease to be part of the Borrowing Base; or

(s) Material Adverse Effect. Any Material Adverse Effect shall occur; or

(t) Change of Control. There occurs any Change of Control; or

(u) Control Agreements. Borrower fails, for any reason whatsoever, to deliver
Control Agreements duly executed by the applicable depository institution and
Loan Party in respect of each of the deposit accounts and securities accounts
pledged pursuant to the Security Agreement within ten (10) Business Days after
the Closing Date; or

(v) Mandatory Transfers. Failure of Borrower to cause any transfer of Real
Property required under the terms of this Agreement to occur on the required
date, including as set forth in Section 6.18 or 6.19 (including recordation of
the required Deed of Trust or amendment and issuance of the required Title
Policy or endorsement, as applicable); or

(w) Uniform Commercial Code Terminations. Borrower fails to procure the
termination of all Uniform Commercial Code Financing Statements filed in
connection with the Refinanced Revolving Credit Agreements within ten (10) days
after the Closing Date.

9.02 REMEDIES UPON EVENT OF DEFAULT. If any Default occurs and is continuing
unremedied, Administrative Agent shall, at the request of, or may, with the
consent of, Majority Lenders, take any or all of the following actions;

(a) declare an Event of Default, except for an Event of Default described in
Section 9.01(f), which shall be an automatic Event of Default without any
further action;

(b) (i) terminate the Total Commitments and any other obligations of the Lenders
to make Loans, and/or (ii) declare the unpaid principal amount of all
outstanding Loans, all interest accrued and unpaid thereon, and all other
amounts owing or payable hereunder or under any other Loan Document to be
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by Borrower; and

(c) exercise on behalf of itself and the Lenders all rights and remedies
available to it and the Lenders under the Loan Documents or any other applicable
Law, including the Uniform Commercial Code, either by suit in equity or by
action at law, or both;

provided, however, that immediately upon the occurrence or existence of an Event
of Default described in Section 9.01(f), (i) the Total Commitments and any other
obligations of the Lenders to make Loans shall automatically terminate, and
(ii) the unpaid principal amount of all outstanding Loans and all interest and
all other Obligations, including the Make Whole Amount and Exit Fee, payable by
the Borrower and the other Loan Parties hereunder and under the other Loan
Documents shall automatically become due and payable, without presentment,
demand, protest, or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the other Loan Documents to
the contrary notwithstanding. Borrower acknowledges and agrees that

 

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the Collateral located within the State of California constitutes mixed
collateral under Section 9604 of the California Commercial Code, and that
Administrative Agent may foreclose upon same in such order and priority as
Administrative Agent determines.

9.03 APPLICATION OF FUNDS. After the occurrence and during the continuance of an
Event of Default, any amounts received on account of the Obligations shall be
applied by Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees,
indemnities, expenses and other amounts (including fees, charges and
disbursements of counsel to Administrative Agent and amounts payable under
Article III) payable to Administrative Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting fees,
indemnities and other amounts (other than principal and interest, but including
the Make Whole Amount and the Exit Fee) payable to the Lenders (including fees,
charges and disbursements of counsel to the respective Lenders and fees and time
charges for attorneys who may be employees of any Lender and amounts payable
under Article III), ratably among them in proportion to the amounts described in
this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and
unpaid interest on the Loans and other obligations, ratably among the Lenders in
proportion to the respective amounts described in this clause Third payable to
them;

Fourth, to payment of that portion of the Obligations constituting unpaid
principal of the Loans, ratably among the Lenders in proportion to the
respective amounts described in this clause Fourth held by them; and

Last, the balance, if any, after all of the Obligations have been indefeasibly
paid in full, to Borrower or as otherwise required by Law.

9.04 PROTECTIVE ADVANCES/CURE RIGHTS.

If at any time a breach, default or event of default, occurs or a member of the
Consolidated Group otherwise fails to perform or comply with any of the terms,
covenants, and conditions to be performed and/or complied with, under any
Permitted Construction Indebtedness, Existing Secured Indebtedness, PAPA
Obligations (or subordination agreements with respect thereto) or other
Indebtedness (other than the Indentures), then the Lenders, without waiving or
releasing any of the Obligations, may (but shall not be required to):

(a) make advances to Borrower and/or directly make any payments as Lenders may
deem necessary to cure or remedy such event or failure, including, without
limitation, to cure or prevent a default or event of default or an exercise of
any rights or remedies or options against Borrower, Lenders or any Real Property
(and if such advances are so made to Borrower, then Borrower shall apply such
funds advanced, so as to do so); and/or

(b) perform any other acts on their part to be performed for such purposes.

 

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The making by Lenders of any such advances, payments or performances will not,
however, be deemed to cure any Default or Event of Default under the Loan
Documents arising from the predicated events of default. All sums so advanced or
paid and all reasonable costs and expenses incurred by Lenders in connection
with the performance of any such act shall be subject to the same terms as any,
and shall be deemed to be, a Credit Extension under the Loan Documents
(including that such advances shall bear interest at the Applicable Rate and be
due on the Maturity Date, shall bear the Upfront Fee, and payment of the Exit
Fee and the Make Whole Amount when due under this Agreement and will be added to
the principal of the Loan and the Note and if repaid prior to the Maturity Date
will be secured by the Security Documents). All such payments and advances so
actually made shall conclusively be deemed to be protective advances which are
required and mandatory to preserve and protect Lenders’ security for the
performance of the Obligations under the Loan Documents, and shall be secured by
the Security Documents to the same extent and with the same priority as the
other principal, interest and other amounts payable under the Loan Documents.

ARTICLE X.

ADMINISTRATIVE AGENT

10.01 APPOINTMENT AND AUTHORITY. Each of the Lenders hereby irrevocably appoints
ColFin WLH Funding, LLC to act on its behalf as Administrative Agent hereunder
and under the other Loan Documents and authorizes Administrative Agent to take
such actions on its behalf and to exercise such powers as are delegated to
Administrative Agent by the terms hereof or thereof, together with such actions
and powers as are reasonably incidental thereto. The provisions of this Article
are solely for the benefit of Administrative Agent and the Lenders, and neither
Borrower nor any other Loan Party shall have rights as a third party beneficiary
of any of such provisions.

10.02 RIGHTS AS A LENDER. The Person serving as Administrative Agent hereunder,
to the extent a Lender, shall have the same rights and powers in its capacity as
a Lender as any other Lender and may exercise the same as though it were not
Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise
expressly indicated or unless the context otherwise requires, include the Person
serving as Administrative Agent hereunder in its individual capacity. Such
Person and its Affiliates may accept deposits from, lend money to, act as the
financial advisor or in any other advisory capacity for and generally engage in
any kind of business with Borrower or any Subsidiary or other Affiliate thereof
as if such Person were not Administrative Agent hereunder and without any duty
to account therefor to the Lenders.

10.03 EXCULPATORY PROVISIONS. Administrative Agent shall not have any duties or
obligations except those expressly set forth herein and in the other Loan
Documents. Without limiting the generality of the foregoing, Administrative
Agent:

(a) shall not be subject to any fiduciary or other implied duties, regardless of
whether a Default has occurred and is continuing;

(b) shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that Administrative Agent is
required to exercise as directed in writing by Majority Lenders (or such other
number or percentage of the Lenders as shall be expressly provided for

 

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herein or in the other Loan Documents), provided that Administrative Agent shall
not be required to take any action that, in its opinion or the opinion of its
counsel, may expose Administrative Agent to liability or that is contrary to any
Loan Document or applicable law; and

(c) shall not, except as expressly set forth herein and in the other Loan
Documents, have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to Borrower or any of its Affiliates that is
communicated to or obtained by the Person serving as Administrative Agent or any
of its Affiliates in any capacity. Administrative Agent shall not be liable for
any action taken or not taken by it (i) with the consent or at the request of
Majority Lenders (or such other number or percentage of the Lenders as shall be
necessary, or as Administrative Agent shall believe in good faith shall be
necessary, under the circumstances as provided in Sections 11.01 and 9.02) or
(ii) in the absence of its own gross negligence or willful misconduct.
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until notice describing such Default is given to Administrative Agent by
Borrower, or a Lender. Administrative Agent shall not be responsible for or have
any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith,
(iii) the performance or observance of any of the covenants, agreements or other
terms or conditions set forth herein or therein or the occurrence of any
Default, (iv) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or
document or (v) the satisfaction of any condition set forth in Article IV or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to Administrative Agent.

10.04 RELIANCE BY ADMINISTRATIVE AGENT. Administrative Agent shall be entitled
to rely upon, and shall not incur any liability for relying upon, any notice,
request, certificate, consent, statement, instrument, document or other writing
(including any electronic message, Internet or intranet website posting or other
distribution) believed by it to be genuine and to have been signed, sent or
otherwise authenticated by the proper Person. Administrative Agent also may rely
upon any statement made to it orally or by telephone and believed by it to have
been made by the proper Person, and shall not incur any liability for relying
thereon. In determining compliance with any condition hereunder to the making of
a Loan, that by its terms must be fulfilled to the satisfaction of a Lender,
Administrative Agent may presume that such condition is satisfactory to such
Lender unless Administrative Agent shall have received notice to the contrary
from such Lender prior to the making of such Loan. Administrative Agent may
consult with legal counsel (who may be counsel for Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

10.05 DELEGATION OF DUTIES. Administrative Agent may perform any and all of its
duties and exercise its rights and powers hereunder or under any other Loan
Document by or through any one or more sub-agents appointed by Administrative
Agent. Administrative Agent and any such sub-agent may perform any and all of
its duties and exercise its rights and powers by or through their respective
Related Parties. The exculpatory provisions of this Article shall apply to any
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of Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

10.06 RESIGNATION OF ADMINISTRATIVE AGENT. Administrative Agent may at any time
give notice of its resignation to the Lenders and Borrower to be effective not
earlier than thirty (30) days from the date of such notice. Upon receipt of any
such notice of resignation, Majority Lenders shall have the right, in
consultation with Borrower, to appoint a successor, which shall be a bank with
an office in the United States, or an Affiliate of any such bank with an office
in the United States. If no such successor shall have been so appointed by
Majority Lenders and shall have accepted such appointment within thirty
(30) days after the retiring Administrative Agent gives notice of its
resignation, then the retiring Administrative Agent may on behalf of the
Lenders, appoint a successor Administrative Agent meeting the qualifications set
forth above; provided that if Administrative Agent shall notify Borrower and the
Lenders that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in accordance with such notice
and (1) the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder and under the other Loan Documents and (2) all
payments, communications and determinations provided to be made by, to or
through Administrative Agent shall instead be made by or to each Lender, until
such time as Majority Lenders appoint a successor Administrative Agent as
provided for above in this Section. Upon the acceptance of a successor’s
appointment as Administrative Agent hereunder, such successor shall succeed to
and become vested with all of the rights, powers, privileges and duties of the
retiring (or retired) Administrative Agent, and the retiring Administrative
Agent shall be discharged from all of its duties and obligations hereunder or
under the other Loan Documents (if not already discharged therefrom as provided
above in this Section). After the retiring Administrative Agent’s resignation
hereunder and under the other Loan Documents, the provisions of this Article and
Section 11.04 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while the
retiring Administrative Agent was acting as Administrative Agent.

10.07 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender
acknowledges that it has, independently and without reliance upon Administrative
Agent or any other Lender or any of their Related Parties and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon
Administrative Agent or any other Lender or any of their Related Parties and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or any related
agreement or any document furnished hereunder or thereunder.

10.08 NO OTHER DUTIES ETC. Anything herein to the contrary notwithstanding, the
Initial Lender and Lead Arranger listed on the cover page hereof shall not have
any powers, duties or responsibilities under this Agreement or any of the other
Loan Documents, except in their capacity, as applicable, as Administrative Agent
or a Lender.

 

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10.09 ADMINISTRATIVE AGENT MAY FILE PROOFS OF CLAIM. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
any Loan Party, Administrative Agent (irrespective of whether the principal of
any Loan shall then be due and payable as herein expressed or by declaration or
otherwise and irrespective of whether Administrative Agent shall have made any
demand on Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Loans, and all other obligations that are
owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and Administrative Agent
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Lenders and Administrative Agent and their respective agents
and counsel and all other amounts due the Lenders and Administrative Agent under
Sections 2.06 and 11.04) allowed in such judicial proceeding; and

(b) to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Lender to make such
payments to Administrative Agent and, in the event that Administrative Agent
shall consent to the making of such payments directly to the Lenders to pay to
Administrative Agent any amount due for the reasonable compensation, expenses,
disbursements and advances of Administrative Agent and its agents and counsel,
and any other amounts due Administrative Agent under Sections 2.06 and 11.04.
Nothing contained herein shall be deemed to authorize Administrative Agent to
authorize or consent to or accept or adopt on behalf of any Lender any plan of
reorganization, arrangement, adjustment or composition affecting the obligations
or the rights of any Lender or to authorize Administrative Agent to vote in
respect of the claim of any Lender in any such proceeding.

10.10 COLLATERAL AND GUARANTY MATTERS. The Lenders irrevocably authorize
Administrative Agent, at its option and in its discretion:

(a) to release or cause the release of any Lien on any property granted to or
held by or on behalf of Administrative Agent under any Loan Document (a) upon
payment in full of all Obligations, (b) that is sold or to be sold as part of or
in connection with any Disposition contemplated under Article 8 hereto or as
otherwise contemplated hereunder or under the Loan Documents, in each case at
the direction of Majority Lenders, or (iii) subject to Section 10.01, if
approved, authorized or ratified in writing by Majority Lenders, except to the
extent that the consent of all Lenders is required pursuant to Section 11.01(f)
hereto; and

(b) to release any Guarantor from its obligations under the Unconditional
Guaranty, if (i) such Guarantor does not own any Collateral (or is
simultaneously transferring its ownership interest in all remaining Collateral
either (x) in connection with a Disposition permitted under Article 8 hereto, or
(y) to Borrower or another Guarantor), and (ii) such Guarantor is dissolving and
terminating its existence.

 

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ARTICLE XI.

MISCELLANEOUS

11.01 AMENDMENTS, ETC. Unless expressly stated otherwise herein, no amendment or
waiver of any provision of this Agreement or any other Loan Document, and no
consent to any departure by Borrower or any other Loan Party therefrom, shall be
effective unless in writing signed by Majority Lenders and Borrower or the
applicable Loan Party, as the case may be, and acknowledged by Administrative
Agent, and each such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such amendment, waiver or consent shall:

(a) extend or increase the Loans of any Lender without the written consent of
such Lender, or increase the Total Commitment, Total Closing Date Commitment,
Total Initial Draw Closing Date Commitment, Total Delayed Draw Closing Date
Commitment, Total Second Term Loan Commitment without the written consent of
each Lender;

(b) postpone any date fixed by this Agreement or any other Loan Document for any
payment of principal, interest, fees or other amounts due to the Lenders (or any
of them) hereunder or under any other Loan Document without the written consent
of each Lender directly affected thereby;

(c) reduce the principal of, or the rate of interest specified herein on, any
Loan or (subject to clause (ii) of the second proviso to this Section 11.01) any
fees or other amounts payable hereunder or under any other Loan Document;
provided, however, that only the consent of Majority Lenders shall be necessary
to amend the definition of “Default Rate” or to waive any obligation of Borrower
to pay interest at the Default Rate;

(d) change Section 2.10 or Section 9.03 in a manner that would alter the pro
rata sharing of payments required thereby without the written consent of each
Lender;

(e) change any provision of this Section or the definition of “Majority Lenders”
or any other provision hereof specifying the number or percentage of Lenders
required to amend, waive or otherwise modify any rights hereunder or make any
determination or grant any consent hereunder, without the written consent of
each Lender affected thereby; or

(f) (i) release any Guarantor except as expressly contemplated under
Section 10.10(b), or (ii) except as permitted in Section 10.10(a) or the
applicable Security Document, transfer, subordinate or release Liens on, or
after foreclosure or other acquisition of title by Administrative Agent or
transfer or sell, any Collateral securing the Obligations at less than fair
market value and without payment of Net Proceeds thereon in accordance with the
requirements of Section 2.03(c) hereto, in each case, without the written
consent of each Lender affected thereby;

provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by Administrative Agent in addition to the Lenders required
above, affect the rights or duties of Administrative Agent under this Agreement
or any other Loan Document; (ii) the Fee Letters may be amended, or rights or
privileges thereunder waived, in a writing executed only by the parties thereto
and (iii) the Administrative Agent Fee Letters may be amended, or rights or
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the parties thereto. Notwithstanding anything to the contrary herein, no
Defaulting Lender shall have any right to approve or disapprove any amendment,
waiver or consent hereunder, except that the Loans of such Lender may not be
increased or extended without the consent of such Lender.

No failure or delay by Administrative Agent or any Lender in exercising any
right under this Agreement or any other Loan Document shall operate as a waiver
thereof or of any other right hereunder or thereunder nor shall any single or
partial exercise of any such right preclude any other further exercise thereof
or of any other right hereunder or thereunder. The Lenders may condition the
giving or making of any amendment, waiver or consent of any term, covenant,
agreement or condition of this Agreement or any other Loan Document on payment
of a fee by the Borrower.

11.02 NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION.

(a) Notices Generally. Except in the case of notices and other communications
expressly permitted to be given by telephone (and except as provided in
subsection (b) below), all notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by facsimile as follows, and all
notices and other communications expressly permitted hereunder to be given by
telephone shall be made to the applicable telephone number, as follows:

(i) if to Borrower or Administrative Agent, to the address, facsimile number,
electronic mail address or telephone number specified for such Person on
Schedule 11.02; and

(ii) if to any other Lender, to the address, facsimile number, electronic mail
address or telephone number specified on the signature pages hereto.

Notices sent by hand or overnight courier service, or mailed by certified or
registered mail, shall be deemed to have been given when received; notices sent
by facsimile shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient). Notices delivered through electronic communications to the extent
provided in subsection (b) below, shall be effective as provided in such
subsection (b).

(b) Electronic Communications. Notices and other communications to the Lenders
hereunder may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by
Administrative Agent, provided that the foregoing shall not apply to notices to
any Lender pursuant to Article II if such Lender, as applicable, has notified
Administrative Agent that it is incapable of receiving notices under such
Article by electronic communication. Administrative Agent or Borrower may, in
its discretion, agree to accept notices and other communications to it hereunder
by electronic communications pursuant to procedures approved by it, provided
that approval of such procedures may be limited to particular notices or
communications. Unless Administrative Agent otherwise prescribes, (i) notices
and other communications sent to an e-mail address shall be deemed received upon
the sender’s receipt of an acknowledgement from the intended recipient (such as
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the “return receipt requested” function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication is
not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on
the next business day for the recipient, and (ii) notices or communications
posted to an Internet or intranet website shall be deemed received upon the
deemed receipt by the intended recipient at its e-mail address as described in
the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.

(c) Change of Address, Etc. Each of Borrower and Administrative Agent may change
its address, facsimile or telephone number for notices and other communications
hereunder by notice to the other parties hereto. Each other Lender may change
its address, facsimile or telephone number for notices and other communications
hereunder by notice to Borrower and Administrative Agent.

(d) Reliance by Administrative Agent and Lenders. Administrative Agent and the
Lenders shall be entitled to rely and act upon any notices purportedly given by
or on behalf of Borrower even if (i) such notices were not made in a manner
specified herein, were incomplete or were not preceded or followed by any other
form of notice specified herein, or (ii) the terms thereof, as understood by the
recipient, varied from any confirmation thereof. Borrower shall indemnify
Administrative Agent and each Lender and the Related Parties of each of them
from all losses, costs, expenses and liabilities resulting from the reliance by
such Person on each notice purportedly given by or on behalf of Borrower. All
telephonic notices to and other telephonic communications with Administrative
Agent may be recorded by Administrative Agent, and each of the parties hereto
hereby consents to such recording.

11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure by any Lender or Administrative
Agent to exercise, and no delay by any such Person in exercising, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.

11.04 EXPENSES; INDEMNITY; DAMAGE WAIVER.

(a) Costs and Expenses. Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by Administrative Agent, the Initial Lender and the Lead
Arranger (including the reasonable fees, charges and disbursements of counsel
for Administrative Agent, the Initial Lender and the Lead Arranger), in
connection with the syndication of the credit facilities provided for herein,
the preparation, negotiation, due diligence, execution, delivery and
administration of this Agreement and the other Loan Documents, (ii) all
out-of-pocket expenses incurred by Administrative Agent, the Initial Lender and
the Lead Arranger (including the reasonable fees, charges and disbursements of
counsel for Administrative Agent and the Initial Lender), in connection with any
amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions contemplated hereby or thereby shall be

 

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consummated), and (iii) all out-of-pocket expenses incurred by Administrative
Agent or any Lender (including the fees, charges and disbursements of counsel
for Administrative Agent or any Lender), and shall pay all fees and time charges
for attorneys who may be employees of Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights (A) in connection
with this Agreement and the other Loan Documents, including its rights under
this Section 11.04, or (B) in connection with the Loans hereunder, including all
such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.

(b) Indemnification by Borrower. Borrower shall indemnify and defend
Administrative Agent (and any sub-agent thereof), each Lender, and each Related
Party of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, Broker’s Commissions (including all expenses and
attorney’s fees incurred by Administrative Agent or any Lender is connection
with the defense of any action or proceeding brought to collect any such
Broker’s Commissions), liabilities and related expenses (including the fees,
charges and disbursements of any counsel for any Indemnitee), and shall
indemnify and hold harmless each Indemnitee from all fees and time charges and
disbursements for attorneys who may be employees of any Indemnitee, incurred by
any Indemnitee or asserted against any Indemnitee by any third party or by
Borrower or any other Loan Party (collectively, “Claims”) arising out of, in
connection with, or as a result of (i) the execution or delivery of this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their respective
obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby, (ii) any Loan or the use or proposed use of the
proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any Aggregate Real Property, or any Environmental Liability
related in any way to Borrower or any of its Subsidiaries, or (iv) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory, whether
brought by a third party or by Borrower or any other Loan Party, and regardless
of whether any Indemnitee is a party thereto, in all cases, whether or not
caused by or arising, in whole or in part, out of the comparative, contributory
or sole negligence of the Indemnitee; provided that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (x) are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee or (y) result from a claim
brought by Borrower or any other Loan Party against an Indemnitee for breach in
bad faith of such Indemnitee’s obligations hereunder or under any other Loan
Document, if Borrower or such Loan Party has obtained a final and nonappealable
judgment in its favor on such claim as determined by a court of competent
jurisdiction.

(c) Reimbursement by Lenders. To the extent that Borrower for any reason fails
to indefeasibly pay any amount required under subsection (a) or (b) of this
Section to be paid by it to Administrative Agent (or any sub-agent thereof), or
any Related Party of any of the foregoing, each Lender severally agrees to pay
to Administrative Agent (or any such sub-agent), or such Related Party, as the
case may be, such Lender’s Applicable Percentage (determined as of the time that
the applicable unreimbursed expense or indemnity payment is sought) of such
unpaid amount, provided that the unreimbursed expense or indemnified loss,
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liability or related expense, as the case may be, was incurred by or asserted
against Administrative Agent (or any such sub-agent) in its capacity as such, or
against any Related Party of any of the foregoing acting for Administrative
Agent (or any such sub-agent) in connection with such capacity. The obligations
of the Lenders hereunder to make payments pursuant to this Section 11.04(c) are
several and not joint. The failure of any Lender to make any payment under this
Section 11.04(c) on any date required hereunder shall not relieve any other
Lender of its corresponding obligation to do so on such date, and no Lender
shall be responsible for the failure of any other Lender to make its payment
under this Section 11.04(c).

(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by
applicable law, Borrower shall not assert, and hereby waives, any claim against
any Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any other Loan Document or
any agreement or instrument contemplated hereby, the transactions contemplated
hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee
referred to in subsection (b) above shall be liable for any damages arising from
the use by unintended recipients of any information or other materials
distributed by it through telecommunications, electronic or other information
transmission systems in connection with this Agreement or the other Loan
Documents or the transactions contemplated hereby or thereby.

(e) Payments. All amounts due under this Section 11.04 shall be payable not
later than five Business Days after demand therefor.

(f) Survival. The agreements in this Section 11.04 shall survive the resignation
of Administrative Agent, the replacement of any Lender, the termination of the
Aggregate Loans and the repayment, satisfaction or discharge of all the other
obligations.

11.05 PAYMENTS SET ASIDE. To the extent that any payment by or on behalf of
Borrower is made to Administrative Agent or any Lender, or Administrative Agent
or any Lender exercises its right of setoff, and such payment or the proceeds of
such setoff or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by Administrative Agent, or such Lender in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any proceeding under any Debtor Relief Law or otherwise, then
(a) to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such setoff had not occurred, and
(b) each Lender severally agrees to pay to Administrative Agent upon demand its
applicable share (without duplication) of any amount so recovered from or repaid
by Administrative Agent. The obligations of the Lenders under clause (b) of the
preceding sentence shall survive the payment in full of the obligations and the
termination of this Agreement.

11.06 SUCCESSORS AND ASSIGNS.

(a) Successors and Assigns Generally. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns permitted hereby, except that neither Borrower nor any
other Loan Party may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of Administrative Agent

 

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and each Lender and no Lender may assign or otherwise transfer any of its rights
or obligations hereunder except (i) to an Eligible Assignee in accordance with
the provisions of subsection (b) of this Section 11.06, (ii) by way of
participation in accordance with the provisions of subsection (d) of this
Section, or (iii) by way of pledge or assignment of a security interest subject
to the restrictions of subsection (f) of this Section (and any other attempted
assignment or transfer by any party hereto shall be null and void). Nothing in
this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby, Participants to the extent provided in subsection (d) of this
Section and, to the extent expressly contemplated hereby, the Related Parties of
each of Administrative Agent and the Lenders) any legal or equitable right,
remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. Any Lender may at any time assign to one or more
Eligible Assignees all or a portion of its rights and obligations under this
Agreement (including all or a portion of the Loans at the time owing to it);
provided that:

(i) except in the case of an assignment of the entire remaining amount of the
assigning Lender’s Loans at the time owing to it and except in the case of an
assignment to a Lender or an Affiliate of a Lender or a Related Fund, the
aggregate amount of the principal outstanding balance of the Loans of the
assigning Lender subject to each such assignment, determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to
Administrative Agent or, if “Trade Date” is specified in the Assignment and
Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each
of Administrative Agent and, so long as no Event of Default has occurred and is
continuing, Borrower otherwise consents (each such consent not to be
unreasonably withheld or delayed);

(ii) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement
with respect to the Loans and commitments assigned;

(iii) the parties to each assignment shall execute and deliver to Administrative
Agent an Assignment and Assumption, together with a processing and recordation
fee of $3,500, provided that only one such fee shall be payable in the event of
contemporaneous assignments to or by two or more Related Funds and the Eligible
Assignee, if shall not be a-Lender, shall deliver to Administrative Agent an
Administrative Questionnaire.

Subject to acceptance and recording thereof by Administrative Agent pursuant to
subsection (c) of this Section, from and after the effective date specified in
each Assignment and Assumption, the Eligible Assignee thereunder shall be a
party to this Agreement and, to the extent of the interest assigned by such
Assignment and Assumption, have the rights and obligations, including, if
applicable Commitments, of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption covering all of the assigning
Lender’s rights and obligations under this Agreement, such Lender shall cease to
be a party hereto) but shall continue to be entitled to the benefits of Sections
3.01 and 11.04 with respect to facts and circumstances occurring prior to the
effective date of such assignment. Upon request, Borrower (at its expense) shall
execute and

 

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deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
subsection shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
subsection (d) of this Section.

(c) Register. Administrative Agent, acting solely for this purpose as an agent
of Borrower, shall maintain at Administrative Agent’s Office a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders and principal amounts of the Loans owing
to, each Lender pursuant to the terms hereof from time to time (the “Register”).
The entries in the Register shall be conclusive, and Borrower, Administrative
Agent and the Lenders may treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by Borrower at any reasonable time and from time to
time upon reasonable prior notice. In addition, at any time that a request for a
consent for a material or substantive change to the Loan Documents is pending,
any Lender wishing to consult with other Lenders in connection therewith may
request and receive from Administrative Agent a copy of the Register.

(d) Participations. Any Lender may at any time, without the consent of, or
notice to, Borrower or Administrative Agent, sell participations to any Eligible
Participant (each, a “Participant”) in all or a portion of such Lender’s rights
and/or obligations under this Agreement (including all or a portion of the Loans
owing to it); provided that (i) such Lender’s obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) Borrower,
Administrative Agent and the Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender’s rights and obligations under
this Agreement. Any agreement or instrument pursuant to which a Lender sells
such a participation shall provide that such Lender shall retain the sole right
to enforce this Agreement and to approve any amendment, modification or waiver
of any provision of this Agreement; provided that such agreement or instrument
may provide that such Lender will not, without the consent of the Participant,
agree to any amendment, waiver or other modification described in the first
proviso to clauses (a) through (f) of Section 11.01 that affects such
Participant. Subject to subsection (e) of this Section, Borrower agrees that
each Participant shall be entitled to the benefits of Section 3.01 to the same
extent as if it were a Lender and had acquired its interest by assignment
pursuant to subsection (b) of this Section. To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 11.08 as though it
were a Lender, provided such Participant agrees to be subject to Section 2.10
and Section 11.13 as though it were a Lender.

(e) Limitations upon Participant Rights. A Participant shall not be entitled to
receive any greater payment under Section 3.01 than the applicable Lender would
have been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with Borrower’s prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 3.01
unless Borrower is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of Borrower, to comply with
Section 3.01(e) as though it were a Lender.

 

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(f) Certain Pledges. Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement (including
under its Note, if any) to secure obligations of such Lender, including any
pledge or assignment to secure obligations to a Federal Reserve Bank; provided
that no such pledge or assignment shall release such Lender from any of its
obligations hereunder or substitute any such pledge or assignee for such Lender
as a party hereto.

(g) Electronic Execution of Assignments. The words “execution,” “signed,”
“signature,” and words of like import in any Assignment and Assumption shall be
deemed to include electronic signatures or the keeping of records in electronic
form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper-based
recordkeeping system, as the case may be, to the extent and as provided for in
any applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act or any other similar state laws based on the Uniform
Electronic Transactions Act.

(h) Bifurcation. In furtherance of each Lender’s ability to assign or grant
participations in their Loans, each Lender shall be entitled to bifurcate its
Loans into component, mezzanine or other notes; provided, that no such
bifurcation shall, individually or in the aggregate, increase Borrower’s
Obligations hereunder.

(i) Syndication. Borrower shall provide sufficient financial information as
reasonably requested by the Initial Lender for the preparation of an information
memorandum describing Borrower for use in connection with syndication of this
credit facility, if any. Such packet will be distributed on a confidential basis
to potential transferees of the Loans. In addition, the management of Borrower
and Parent will be available upon reasonable notice to participate in meetings
with perspective transferees and to answer questions and actively be involved in
the syndication process.

11.07 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. Each of Administrative
Agent and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its
Affiliates and to its and its Affiliates’ respective partners, directors,
officers, employees, agents, advisors, attorneys and representatives (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority purporting to have jurisdiction over it (including any self-regulatory
authority, such as the National Association of Insurance Commissioners), (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party hereto, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to
(i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or
(ii) any actual or prospective counterparty (or its advisors) to any swap or
derivative transaction relating to Borrower and its obligations, (g) with the
consent of Borrower or (h) to the extent such Information (x) becomes publicly
available other than as a result of a breach of this Section or (y) becomes
available to Administrative Agent, any Lender or any of their respective
Affiliates on a nonconfidential basis from a

 

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source other than Borrower. For purposes of this Section, “Information” means
all information received from Borrower or any Subsidiary relating to Borrower or
any Subsidiary or any of their respective businesses, other than any such
information that is available to Administrative Agent, any Lender on a
nonconfidential basis prior to disclosure by Borrower or any Subsidiary,
provided that, in the case of information received from Borrower or any
Subsidiary after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information but no less than a
reasonable standard of care.

11.08 RIGHT OF SETOFF. If an Event of Default shall have occurred and be
continuing, each Lender and each of their respective Affiliates is hereby
authorized at any time and from time to time, after obtaining the prior written
consent of Administrative Agent (but without the prior notice to or consent of
Borrower, any such notice and consent being expressly waived by Borrower to the
extent permitted by applicable Law), to the fullest extent permitted by
applicable Law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final, in whatever currency) at any time held and
other obligations (in whatever currency) at any time owing by such Lender or any
such Affiliate to or for the credit or the account of Borrower or any other Loan
Party against any and all of the obligations of Borrower or such Loan Party now
or hereafter existing under this Agreement or any other Loan Document to such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement or any other Loan Document and although such obligations of
Borrower or such Loan Party may be contingent or unmatured or are owed to a
branch or office of such Lender different from the branch or office holding such
deposit or obligated on such indebtedness. The rights of each Lender and their
respective Affiliates under this Section 11.08 are in addition to other rights
and remedies (including other rights of setoff) that such Lender or their
respective Affiliates may have. Each Lender agrees to notify Borrower and
Administrative Agent promptly after any such setoff and application, provided
that the failure to give such notice shall not affect the validity of such
setoff and application.

11.09 INTEREST RATE LIMITATION. Notwithstanding anything to the contrary
contained in any Loan Document, the interest paid or agreed to be paid under the
Loan Documents shall not exceed the maximum rate of non-usurious interest
permitted by applicable Law (the “Maximum Rate”). If Administrative Agent or any
Lender shall receive interest in an amount that exceeds the Maximum Rate, the
excess interest shall be applied to the principal of the Loans or, if it exceeds
such unpaid principal, refunded to Borrower. In determining whether the interest
contracted for, charged, or received by Administrative Agent or a Lender exceeds
the Maximum Rate, such Person may, to the extent permitted by applicable Law,
(a) characterize any payment that is not principal as an expense, fee, or
premium rather than interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal
parts the total amount of interest throughout the contemplated term of the
Obligations hereunder.

11.10 COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed
in counterparts (and by different parties hereto in different counterparts),
each of which shall constitute an original, but all of which when taken together
shall

 

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constitute a single contract. This Agreement and the other Loan Documents
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in Sections
4.01, 4.02 and 4.03, this Agreement shall become effective when it shall have
been executed by Administrative Agent and when Administrative Agent shall have
received counterparts hereof that, when taken together, bear the signatures of
each of the other parties hereto. Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.

11.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any other Loan Document or other document
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery hereof and thereof. Such
representations and warranties have been or will be relied upon by
Administrative Agent and each Lender, regardless of any investigation made by
Administrative Agent or any Lender or on their behalf and notwithstanding that
Administrative Agent or any Lender may have had notice or knowledge of any
Default at the time of any Credit Extension, and shall continue in full force
and effect as long as any Loan or any other obligation hereunder shall remain
unpaid or unsatisfied.

11.12 SEVERABILITY. If any provision of this Agreement or the other Loan
Documents is held to be illegal, invalid or unenforceable, (a) the legality,
validity and enforceability of the remaining provisions of this Agreement and
the other Loan Documents shall not be affected or impaired thereby and (b) the
parties shall endeavor in good faith negotiations to replace the illegal,
invalid or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the illegal, invalid or
unenforceable provisions. The invalidity of a provision in a particular
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

11.13 REPLACEMENT OF LENDERS. If Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 3.01, or if any Lender is a Defaulting Lender, then Borrower
may, at its sole expense and effort, upon notice to such Lender and
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in, and
consents required by, Section 11.06), all of its interests, rights and
obligations under this Agreement and the related Loan Documents to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment), provided that:

(a) Borrower shall have paid to Administrative Agent the assignment fee
specified in Section 11.06(b);

(b) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder and under the other Loan Documents
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or Borrower (in the case of all other amounts);

 

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(c) in the case of any such assignment resulting from a claim for payments
required to be made pursuant to Section 3.01, such assignment will result in a
reduction in such compensation or payments thereafter; and

(d) such assignment does not conflict with applicable Laws. A Lender shall not
be required to make any such assignment or delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling
Borrower to require such assignment and delegation cease to apply.

11.14 GOVERNING LAW; JURISDICTION; ETC.

(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAWS
PROVISIONS THEREOF).

(b) SUBMISSION TO JURISDICTION. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR CALIFORNIA STATE
COURT SITTING IN LOS ANGELES COUNTY, CALIFORNIA IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER ANY LOAN DOCUMENTS, OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY
WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF ADMINISTRATIVE AGENT
OR ANY LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION.

(c) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02. NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW.

11.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY VOLUNTARILY, KNOWINGLY,
UNCONDITIONALLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER

 

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PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 11.15.

11.16 ARBITRATION.

(a) Arbitration. Notwithstanding the provisions of Sections 11.14 and 11.15, the
parties hereto agree, upon demand by any party, to submit to binding arbitration
all claims, disputes and controversies between or among them (and their
respective employees, officers, directors, attorneys, and other agents), whether
in tort, contract or otherwise arising out of or relating to in any way (i) the
Loans and related Loan Documents which are the subject of this Agreement and its
negotiation, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement,
default or termination, or (ii) requests for additional credit.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location
in California selected by the American Arbitration Association (“AAA”); (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the “Rules”). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. §91 or any
similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against Aggregate Real Property or any other Collateral; (ii) exercise self-help
remedies relating to Collateral or proceeds of Collateral such as setoff or
repossession; or (iii) obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment or the appointment of a receiver, before
during or after the pendency of any arbitration proceeding. This exclusion does
not constitute a waiver of the right or obligation of any party to submit any
dispute to arbitration or reference hereunder, including those arising from the
exercise of the actions detailed in sections (i), (ii) and (iii) of this
subsection.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which
the amount in controversy is $5,000,000 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000. Any dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations. The arbitrator will

 

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be a neutral attorney licensed in the State of California or a neutral retired
judge of the state or federal judiciary of California, in either case with a
minimum of ten years experience in the substantive Law applicable to the subject
matter of the dispute to be arbitrated. The arbitrator will determine whether or
not an issue is arbitratable and will give effect to the statutes of limitation
in determining any claim. In any arbitration proceeding the arbitrator will
decide (by documents only or with a hearing at the arbitrator’s discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication. The arbitrator shall resolve all
disputes in accordance with the substantive Law of California and may grant any
remedy or relief that a court of such state could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other applicable
Law. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than twenty (20) days before the hearing date and within one hundred eighty
(180) days of the filing of the dispute with the AAA. Any requests for an
extension of the discovery periods, or any discovery disputes, will be subject
to final determination by the arbitrator upon a showing that the request for
discovery is essential for the party’s presentation and that no alternative
means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising
pursuant to the terms of this Agreement shall be determined by a separate
arbitration proceeding and such dispute shall not be consolidated with other
disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.

(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
and the parties shall take all action required to conclude any arbitration
proceeding within one hundred eighty (180) days of the filing of the dispute
with the AAA. No arbitrator or other party to an arbitration proceeding may
disclose the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business or by
applicable Law or regulation. If more than one agreement for arbitration by or
between the parties potentially applies to a dispute, the arbitration provision
most directly related to the Loan Documents or the subject matter of the dispute
shall control. The arbitration provisions set forth in this Section 11.16 shall
survive termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.

 

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11.17 RELATIONSHIP OF PARTIES. The relationship between the Borrower, on the one
hand, and the Lenders and Administrative Agent, on the other, is, and at all
times shall remain, solely that of Borrower and lenders. Neither the Lenders nor
Administrative Agent shall under any circumstances be construed to be partners
or joint venturers of the Borrower or any of its Affiliates; nor shall the
Lenders nor Administrative Agent under any circumstances be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with the
Borrower or any of its Affiliates, or to owe any fiduciary duty to the Borrower
or any of its Affiliates. The Lenders and Administrative Agent do not undertake
or assume any responsibility or duty to the Borrower or any of its Affiliates to
select, review, inspect, supervise, pass judgment upon or otherwise inform the
Borrower or any of its Affiliates of any matter in connection with its or its
property, any security held by Administrative Agent or any Lender or the
operations of the Borrower or any of its Affiliates. The Borrower and each of
its Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply
of information undertaken or assumed by any Lender or Administrative Agent in
connection with such matters is solely for the protection of the Lenders and
Administrative Agent and neither the Borrower nor any of its Affiliates is
entitled to rely thereon.

11.18 USA PATRIOT ACT NOTICE. Each Lender that is subject to the Patriot Act and
Administrative Agent (for itself and not on behalf of any Lender) hereby
notifies Borrower that pursuant to the requirements of the Patriot Act it is
required to obtain, verify and record information that identifies Borrower,
which information includes the name and address of Borrower and other
information that will allow such Lender or Administrative Agent, as applicable,
to identify Borrower in accordance with the Patriot Act.

11.19 DISCRETION STANDARD. Whenever in this Agreement or any of the Loan
Documents, any act, consent, decision, election, satisfaction, opinion or
approval by any Lender, Majority Lenders or Administrative Agent (including with
respect to any act, consent, decision, election, satisfaction, opinion or
approval), such act, consent, decision, election, satisfaction, opinion or
approval may be given, withheld, made or not made, taken or not taken, as
applicable, in Administrative Agent’s, Majority Lenders’ or Lender’s sole and
absolute discretion except as otherwise expressly provided herein, that such
act, consent, decision, election, satisfaction, opinion or approval shall be
reasonably exercised.

11.20 TIME OF THE ESSENCE. Time is of the essence of the Loan Documents.

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed
and delivered under seal as of the date first set forth above.

 

BORROWER: WILLIAM LYON HOMES, INC.

 

Name:   Title:   Address for Notices: [                            ]
[                            ] [                            ]

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

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ADMINISTRATIVE AGENT: [                            ]

 

Name:   Title:   Address for Notices: [                            ]
[                            ] [                            ] INITIAL LENDER AND
LEAD ARRANGER: [                            ]

 

Name:   Title:   Address for Notices: [                            ]
[                            ] [                            ]

 

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